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The UBShank Redemption Update: No EURCHF Was Harmed In The Scapegoating Of UBS' $2.3 Billion Loss On A 31 Year Old Trader
For those wondering just how UBS is planning on scapegoating its horrible quarterly loss on one, single, solitary trader, here is the update, and contrary to rumors and speculation, no EURCHF trades were harmed in the creation of this farce. To wit: "The loss resulted from unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months. The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio. However, the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS's risk limits." Basically this is nothing but Kerviel 102, only this time with the added benefit of it being a non-recurring item to pretend that UBS will actually have had a profit instead of a loss in the quarter. We wonder just what the deposit account "offset" in an offshore Cayman account for Kabuki Owed Lo (obviously an anagram of the beneficiary) will be when he gets out of prison in 18-24 months?
And in other news, the gentleman that will be in charge of the internal UBS investigation into the "fraud" will be none other than David Sidwell, the former CFO of JP Morgan. Because if there is anything to know about "forward settling, cash ETF position" fraud, JPM it is.
More from the FT :
British and Swiss regulators have appointed the international audit firm Deloitte to head an investigation into events at UBS that led to $2bn of losses caused by alleged rogue trader, Kweku Adoboli.
According to the UK’s Financial Services Authority and the Swiss Financial Market Supervisory Authority (FINMA), the probe, which will be paid for by UBS, will look at “the details of the unauthorised trading activity; the control failures which permitted the activity to remain undetected; and . . . an assessment of the overall strength of UBS’s controls to prevent unauthorised or fraudulent trading activity in its investment bank”.
UBS has simultaneously appointed its senior independent director, David Sidwell, the former chief financial officer of JP Morgan, to lead its own internal investigation.
And from UBS:
Zurich/Basel, September 18, 2011, 04:00 PM
UBS provides more detailed information on unauthorized trading
On September 15, 2011 UBS announced that it had discovered unauthorized trading in its Investment Bank. This trading was conducted by a trader in its Global Synthetic Equity business in London. The trader in question has been charged by UK authorities with fraud by abuse of position.
Before making a further announcement, we needed to be certain that we understood the positions that were booked and that we knew the amount of our resulting loss.
We have now covered the risk resulting from the unauthorized trading, and the equities business is again operating normally within its previously defined risk limits. The loss arising from this matter is USD 2.3 billion. As previously stated, no client positions were affected.
The loss resulted from unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months. The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio. However, the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS's risk limits.
Following inquiries directed to him by UBS control functions that were reviewing his positions, the trader revealed his unauthorized activity on September 14, 2011.
UBS's Board of Directors has set up a special committee to conduct an independent investigation of the unauthorized trading activities and their relation to the control environment. The committee will be chaired by David Sidwell, the Senior Independent Director, and will report to the Board of Directors. The other members of the committee are Ann Godbehere and Joseph Yam.
UBS AG
Media contact
Switzerland: +41-44-234-85 00
UK: +44-207-567 47 14
Americas: +1-212-882 58 57
APAC: +852-297-1 82 00
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EUR/CHF trades, not short silver, huh? likely could have been both
"forward-settling, cash ETF positions"
Still doesn't add up.
Like any forward agreement, a contract note would be sent to the counterparty on trade date for reconciliation by the settlement department on both sides. All counterpartiies have to be approved with documentation completed and received compliance sign off before any trading starts.
There has to be more to this; someone else has to be involved in warehousing these trades away from UBS as you should not be able to hide this stuff for three years.
It does not add up does it? Even if the alleged rogue was entering fictitious trades into his book it was somebodys job to send the counterparty a confirmation and agree settlement terms. Absence of contact from the counterparty wishing to confirm his side of the trade would have set the sirens off.
If the winning side of the trade was the exchange traded index futures then no problemo, bonuses all round and the allegedly fictitious `forward settling, cash ETF Positions` would have been magiced away. So it must have been the Futures or options on futures which lost, and lost big. A lot of variation margin must have been put up to maintain those loosers. What bank maintains a loosing trade with variation margin while omitting to verify the solidity of the hedge against which that margin is being shovelled out of the door?
I mean, even if they had overlooked the absence of an incoming confirmation from the fictitiious countertparty, somebody somewhere should have been thinking - Jesus, xyz inc is going to be owing us a large sum, we are in effect granting them credit - do we have a credit line for them this big etc etc. Contact with the counterparty WOULD have been established way before 2Bln had gone down the plughole.
Either they are telling a lie (as the article implies!) or they are utterly stupid and incompetant.
I`ll go with lying.
Not surprising that this rogue trader announcement comes directly on the heels of the SNB intervention.
Given UBS execution on a deal we did with them a few years back, I don't think you can rule out incompetent.
They just need a plausible denial that anyone with no technical experience could dispute. Not dissimilar to the paper gold/real gold held in the GLD ETF. They simply need to demonstrate that it is possible they are not lieing, they don't need to prove they are telling the truth.
What about all the banks unauthorized and illegal trades they do every day for their own benefit. Sounds like these just didn't work out to their advantage. So will arrest happen when the banks lose money for their clients? Of course not, those are just "Sorry, we made the wrong call for you, we will try and do better next time."
I wonder if they would have charged him with fraud if he had made 2 billion in "unauthorized trades"?
Points 8-12 of the JP Morgan class action suit allege that JP Morgan Telegraphed silver price smashes using FAKE TRADES on the Saxo Bank trade platform.
Interested in your take on this Tyler- would massive fake trades appearing for seconds on the Saxo Bank platform for several seconds, then being subsequently withdrawn technically be fraudulent?
http://silverdoctors.blogspot.com/
Only if the regulators deemed them to be. Which they didn't. Once again: physical investors should be happy someone is keeping prices low.
That aside, instead of suing JPM perhaps the CFTC is a worthier target. Granted it is difficult to prove collusion with simple Price/Volume charts.
Right. And personally, I agree with you on the gift that has been silver price suppression. I would love nothing more than for silver manipulation to last another 10 years to allow continued accumulation at suppressed prices.
In 2001, a burger flipper at McDonald's was paid roughly the same salary measured in ounces of silver/hr that a professional making $130,000/year makes in 2011- roughly 1.3 ounces/hour.
Most silver investors don't have patience however, they just learned about silver in the past few months, and now expect to see $500/oz silver yesterday.
Greed is no different in your average silver newbie than it is in your average AAPL investor.
I know a lot of people, especially newcomers to the silver world get burned. I did, and I'm sure most others do too, playing the paper markets thinking it will only go boner high. We should learn our lessons and move on. These prices are a blessing. Same for gold.
Great statistics on the wages. I'll have to quote that sometime.
A friend of mine just started accumulating silver. In an email he wrote me that he wants the price to soar. I replied that it would be better for the price to drop, if he is in it for the long haul. Look at how many of us have been waiting for the AU dip that never seems to come.
If the price goes up, buy. If the price goes down, buy. Look at the idiocy being reported this weekend in the U.S. and Europe. These devils have no interest in ending their thievery and madness. Now we have conjecture that Bernanke is going to go big this week. Gas is nearly $4.00 per gallon and grocery prices seem to be going higher and higher. Wunderbar, Spermhanky, just keep on printing. That will fix everything.
Keep on buying the shiny stuff. The worst thing that happens is that you leave your heirs a lot of pretty objects.
amen, west.
thank god i got what i think im going to need,
but if it goes down alittle.......
You know if you think about it gold and silver are considered real hard money or a store of wealth. If DHS or some prosecutor starts to think you are undermining the currency of the US by hoarding gold and silver you could be considered an enemy of the state. Think about it if you trade a Silver Eagle for a sack of hammers and a slurpee are you not actually using an alternate currency that the US does not approve. Or is it ok to pay with a Silver Eagle because it is minted by the US and its stated value is on the coin? Just a thought experiment.
Government doesn't really care about gold until it's actually used to settle trade, which it still isn't for the moment.
Well, as a matter of fact, US Mint coins, whether gold or silver eagles, ARE, legal tender, and can be used to settle debt, public and private, just the same as the Sacagawea dollar, Kennedy/Eisenhower half dollar, quater, dime, nickel, and penny.
But, talk about the ultimate in price suppression, you can pay almost $2 grand for a gold eagle, and over $40 for a silver eagle, but when those coins are used to settle debt no one is required to honor them except at face value, which is $50, $20, and $1.
So, the US Gov is suppressing the value of gold and silver to $50 (Gold Indian Head), $20 (Gold Eagle) and $1 (Silver Eagle).
On the quote stuffing job in Silver quotes, money has to be transacted for it to trigger legal consequences, and somebody has to make a recorded profit.
So the conclusion is that this price fixing is not exactly resulting in a profit.
It has to be a plumber's nightmare of derivatives, tax-loss selling and arbitrage.
Ah, the lovely world of Mark-to-Unicorn. I like where you're going with this.
They need to hire a plumber instead of a PHD.
http://www.dummies.com/how-to/content/when-to-hire-a-plumber.html
There are lots of ways to do this actually (from the gov't perspective). They could modify the tax rate in gains on precious metals. They could make them illegal and/or confiscate. If illegal, they could go through all the credit card records of recent years and send goods to each and every customer to collect. However, confiscation would be (1) very unpopular and more importantly (2) very expensive. I am sure there are others, but these are the two I came up with off the top of my head.
I personally expect them to jack the tax rate to a very high percentage. If we go back to hard money, they that tax rates applies up to the new fixed price.
But, who knows.
Regards,
Cooter
Utah is cutting the Feds off at the pass with legal tender legislation and a bunch of other states are in process.
That's where the fight will be joined.
Worth a few minutes to listen:
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/8/22_Ken_Ivory.html
Seems to me one way to (marginally) improve your risk is to hold your gold in coins from other countries.
I would think that outright confiscation of the legal tender of a sovereign would be a much bigger issue (legally, politically, and diplomatically) than to confiscate US coins.
Of course the big dog will take a dump where he wants, but I think your risk is marginally better. That's my theory at least.
Actually, you can settle debt, that's most beneficial to either you and debt holder, or you and the debtor. FRN's are just happen to be the most convenient, not because they hold value, but due to the fact that the vast majority of people are brainwashed into using this form of monetary vehicle. If you owe debt, you could possibly negotiate to pay it off through manual labor, river dancing, telling jokes, back massages, barter, etc... If you lend your wife/girlfriend money, you could negotiate with your honey to pay off the debt in extra sexual favors.
There is no law, as far as I know, that's say's you must use FRN's or US Mint coins to pay off debt. There are laws against printing or minting your own scrip, or counterfieting FRN's and US Mint coins. But, they only count if you get caught.
But, at the same time, no car dealership is going to allow someone's wife/girlfriend/daughter/significant other to give $30,000 worth of blowjobs so they can walk off the lot with a brand new vehicle.
The use of FRN's is habitual, and currently, in the vast majority of transactions, the only accepted form of payment in the country.
And, yes you can use gold and silver US Mint coins to buy food from a grocery store, but they don't have to accept them at more than face value. But, what mo-mo would be stupid enough to pay $2000 for a gold coin only to get at most $50 worth of groceries?
Didn't that already happen to Von NotHaus? Not directly to your point, but same argument.
http://thenewamerican.com/usnews/crime/6767-fbi-goes-to-nut-house-in-von-nothaus-conviction
Basically anything that undermines Fiatponzi can be declared a federal offense at some point, if they do so decide.
And since they have crazy equipment (metal detectors are so 1960's), I'm not sure yuo can really hide it from them if they come for it. Add to that, the fact that Silver is far more strategic as a WAR metal than gold, it can be called/hauled in and/or declared "essential".
Regardless, Silver will flow through the eye of the upcomoing needle.
ORI
Gold: A contrarian Perspective
Setting up fictional profits to get paid real bonuses. Greed is good. Take the money and dont care about what is going to happen after that.
" allegedly executed by the trader."
What kind of control system is this?! They write a Notepad memo of their trades once a week and send it to the boss?
Actually they just use an advanced system of talking paperclips telling them they are doing something wrong aka "Clippy" the Microsoft mascot.
Hah!
http://en.wikipedia.org/wiki/Office_Assistant
Regards,
Cooter
It's odd but didn't this same thing happen about 15 years ago to ING? I think the trader's age was about the same as was the amount lost. The trader, I forget his name, went to prison. Isn't it amazing that controls were not in place this time? HAHAHA
Great risk management job there, UBS. Bravo.
Feeling all warm and fuzzy now. WTF. Hang the bastards and get this over with.
Has anyone ever heard of a forward settling cash ETF position? Did they just make that up?
European options settle in cash or so I hear.
That would have made the hedge funds bankrupted by VW very happy ...
"you dont understand, We re Swiss,
we re not ready to die yet,
we dont even have on our new shoes...."
I am just amazed how overconfident UBS, Goldman..... were by using 1:400 leverage on SNB. By pumping CHF they were pumping borrowing cost to PIGS since most of them have exposure on CHF . How fuck in the world UBS can explain they have bet against SNB there own national bank, against its people by killing its own export if they reveal truth they will be burned on square in Zurich. IF SHE LOOKS LIKE WITCH IT'S A WITCH,Burn The Witch , Monty Python.
Does UBS weight the same as a duck?
You know - in seeing these "fat fingers" happen a few times now - one has to wonder if Companies like JP Morgan, GS have taken corporate espionage to the next level - to wit: getting to someone on the inside of a competitor and either by payoff or threats get them to trade them a few billion.
I simply wouldn't be suprised to learn this was all by design - not only that, but the whole thing could also be a cover for UBS to "transfer money" - they wanted transfered outside of normal channels ---
Call me paranoid but I am not buying any top line news stories that the state controlled media tells me -
This story set off the same alarm bells for me that the DSK setup did. Fake, fake, fake. I don't know how or who or what but it reeks of fake.
I don't see a problem, just back date some Apple call options.
Le grande game of THEFT will continue and take on forms we mortals could possible imagine and you know why... CORRUPTION in gov and regulators and of course the TBTF financial institutions!
Whenever this will end, it will end in VIOLENCE, the only possible outcome since conventional ways are constantly being obstructed!!!
Well let's hope is does not end in violence for the sake of peace. Let's hope Bill Black can get the pres attention and placeholder or cupholder can get off his duff and do his job.
There is no way this is not tied to the Swiss National Bank knee jerk of the swiss franc. This would indeed never be admitted to by them but lets get real. The move on the Swiss Franc was brutal for anyone on the other side of this trade the last three weeks. UBS today. Others will be coming forward in due time.
Can anyone tell me how to see all comments? When I am logged off I can see all comments. When I login about half the comments are gone.
Thanks in advance.
Try the 'threshhold' button at the top of the comments section.
At the top of the commets list is a preface that says
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Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thanks guys.
OT: Ron Paul wins California Straw poll
http://latimesblogs.latimes.com/washington/2011/09/ron-paul-rick-wins-perry-mitt-romney-california-straw-poll-bachmann-.html
From the story:
'Asked why she liked Perry, one twentysomething said, "He's awesome!"'
She wasn't being paid enough to bother making up a better answer.
Obama’s “Buffett Tax” – Seizing 100% of Millionaire Income Would Pay Only Half of Deficit
http://confoundedinterest.wordpress.com/
Class warfare is the only thing Obama knows how to do.
It's the only thing he knows how to SAY. Remember there have been no actual millionaires harmed to date by his theatrics.
A minor point but if the "positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio", how did they manage to lose $2.3 billion? The portfolio obviously WASN'T properly hedged.
DavidC
The positive thing about this is that it is a perfect crash indicator. When trader(s) start doubling down on positions on prop desks with massives sizes, the peak is there ! From Jan 08 to Mar 09 , that was quite a ride down... Is the sequel here ? (now do we know if the futures positions were long or short ? Prob long i would assume ? )
Its bs that he revealed his positions on the 14th, the trading pattern european morning on the 13th was very similar to when SocGens Kerviel position hit the market. 9am on the cash open someone sold 2500 DAX and then it was pissing down 220 points the first hour, after that the market has sky rocketed, doubt that would happen if they got out of their positions after the 14th..
In fact I called some friends and said something is blowing up today..
Every day is tinfoil hat day!
We never sleep.
So I guess UBS isn't marking to market every night. Until they have enough earnings in a quarter to reduce taxable income.
Well played sir
What does not add up is the incentive for the trader. When arbitraging different derivatives on one instrument, the trader's assessment would look at the arbitrage P&L. In no way, an unhedged directional strategy's P&L could be tweaked by a trader to resemble even an extremely effective arbitrage strategy. So, what would have been his intention and incentive.
I am just wondering, if there will be a state-side dilligence of the daily trading activity and P&L of UBS over the respective time frame. The trader's laywer for obvious reasons won't insist on it.
From the daily P&L, one should be capable of rooting the losses at a specific desk. That desk's activity statement should clarify the actual source of the loss.
I absolutely agree with Pretorian, a loss of that magnitude caused by a speculative prop desk position against the CHF and implicitely against the Swiss people, would have killed UBS.
As noted by some analysts already, this may be the result of opportunistic risk-taking by the company to at the same time recover from the underperformance during the 08 crisis, fight back into the top-tier of competition and comply with Basel II capital requirements. If that's the case, the still increasing competitive pressures, industry restructuring threats and unassumed losses from recent market frictions will drive bankers to even more hazardous casino-like gambling eventually resulting in more frequent and much more excessive 'rogue trades'.
UBS has lots of losses to cover that they have to explain. Plus they have burgeoning problems related to the monetary crisis that they haven't exactly gotten their heads around just yet, because they all believe in ze spittle-flecked price stabilité. So if you can blame the trader just doing their job and taking risks, the problem goes away.
Central Banks can only engage in currency interventions for so long before these interventions fail to deliver. We are almost certainly in the early stages of a major currency crisis.
Sounds like he was short the ES500 and long the DAXX. He could've easily lost $2bn fading that spread.