UBS Says Rogue Trading Cost It $2 Billion

UBS said it estimated it had lost $2 billion from unauthorized trading, by one trader. In connection with the case, London Police arrested a 31-year-old man, in the middle of the night.

On its corporate web site, the Swiss financial firm whose U.S. operations feature a large trading floor in Stamford said:

"UBS has discovered a loss due to unauthorized trading by a trader in its Investment Bank. The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of USD 2 billion. It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected."

The Guardian reported that City of London Police arrested the 31-year-old man at 3:30am in Central London on "suspicion of fraud by abuse of position." He remains in police custody, the newspaper reported.

The third quarter loss follows plans UBS announced in July to cut 3,500 jobs as part of a plan to save $2.3 billion. In Stamford, UBS got a $20 million loan that it does not necessarily have to give back, to save 2,000 jobs there.

The loss marks a major set back in the efforts by Chief Executive Oswald Grübel to win back client confidence in a bank that had to be rescued by the Swiss National Bank in 2008, the Wall Street Journal reported. Rebuilding the investment bank has been a top priority for Mr. Grübel since he took the helm at the bank in February 2009, although he has struggled to generate large returns without taking on too much trading risk.

--This story first appeared on Securities Technology Monitor