Rogue Trading or The Rogue Banks

Yesterday was going through an article on Bloomberg that  How UBS Could Survive a Guilty Plea in the Libor Scandal, imagesreading forward the article says the settlement may include $1 billion in fines, and the New York Times adds that a guilty plea on criminal charges may also be part of the deal. That second piece is big news: It would make UBS the first big bank to plead guilty in more than a decade.

I did post almost a year back, but when I see today the scandals are now more in public compare to last year and the post holds true to the words. They are much more bigger now the Hedging trade of JP Morgan, The LIBOR saga….

The Euro zone already under deep crisis and UBS was planning to cut down several jobs,the incident broke out.

The rogue is a perfect villain. Kweku Adoboli, the former UBS trader who got seven years in jail for rogue trades, and Mike Lynch, the rogue leader who allegedly tricked Hewlett-Packard into buying Autonomy with dodgy accounting. Both are being blamed for causing massive damage—a $2.3 billion loss for UBS (UBS) and an $8.8 billion write-down for HP (HPQ). Both are colorful characters who’d made their homes in London. Adoboli is a Ghanian-born son of privilege who was nurtured as a high-potential player at the bank; Lynch is the Irish-born mathematical genius and entrepreneur who’d built one of the U.K.’s greatest tech companies.

Whatever blame they may deserve for their actions—and Lynch has said several times this week that he deserves none—neither is a solo actor in these losses. The companies that are portraying themselves as victims deserve some blame, too.

Some how I thought the other way round the trader being the scapegoat “Taibbi the trader on UBS London office nails it again. Only the rogue “traders” get prosecuted, the rogue “CEO’s” who have the capability to bring down the entire world financial system escape almost unscathed.”

If the firm is in the business of leverage capital o speculate, then they must know that all people are competent to perform, some of your traders will take loosed and in some cases the losses could be enormous before the trader move to other professions.

It’s the job of the management to separate qualified from the unqualified and to have a close watch.

The mgt should impose trading limitations, leverage constraints, risk parameters.  Traders have to stay within their money lines, maximum draw downs, loss limits, etc.

It’s very difficult to impose the constraint vigilance checks but it needs to be reflected in the corporate culture from the top down, and it becomes quite complex when the organization grows, there must be a simple assumption EVERY employee is a potential rogue trader. (I was a rogue trader, but that’s a story for another day).

In the case of the UBS London trader, he hid the losing trades for 3 years (so much for real-time supervisory tracking).

This indicates utter failure of management. Senior management must be held equally as responsible as the trader. They may not have committed the same legal fraud (in hiding the trades), but they certainly should be sacked for their gross dereliction of duty.

The only thing that differentiates a “rogue” trader like Barings villain Nick Leeson from a Lloyd BlankfeinDick FuldJohn Thain, or someone like AIG’s Joe Cassano, is that those other guys are more senior and their lunatic, catastrophic decisions were authorized (and yes, I know that Cassano wasn’t an investment banker, technically – but he was in financial services).

To summarize the above from the sayings of Moss

“The Culture is rogue because the system is rogue. The system is rogue because they get bailed out.

How many times must it happen? ”


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