The phone transcripts and email evidence released by police after the conviction of former UBS trader Kweku Adoboli on two counts of fraud provide an illuminating insight into how large investment banks may be able to spot future trouble in the trading room. Adoboli was jailed for seven years on November 20 after racking up a trading loss of $2.3 billion at the Swiss bank.
That this could have happened seems slightly less surprising when the details of a telephone conversation Adoboli had with William Steward and Sean Ryan in the back office are taken into account. During the call, which took place on September 14 last year, Steward very politely explains to Adoboli that he finds the fact that UBS seems to have asset exposure to both sides of a trade a bit strange. "If they were two sides of the same trade, then I can’t understand why we would have an asset on both sides," he muses. Given that Steward was a chartered accountant in product control it is reassuring that he suspected this should not be the case.
Adoboli’s grasp of basic accountancy seems to have been rather shakier. "Could you explain to me what you understand an asset to be?" he asked Steward. This must have set off deafening alarm bells in Steward’s head but he painstakingly explained to Adoboli that this was the net value of the unsettled trades – the trader all the while interjecting "yep, yep" and finally declaring "OK, understood". Having to explain to a trader who is running a $50 billion book that "if you have bought from BlackRock and sold to SocGen then one should be an asset and one a liability" is not a healthy sign – particularly when you are investigating a $3.57 billion discrepancy in that book.
Memo to all risk management teams: when a trader that has been working at the bank for eight years asks you to explain what an asset is, call the police. Understood?