February 28, 2024

Common Sense: At UBS, It’s the Culture That’s Rogue

UBS moved swiftly to distance itself. Mr. Adoboli had engaged in “unauthorized” and “fictitious” trades that “violated UBS’s risk limits,” the bank claimed in a statement.

Mr. Adoboli remains in jail, his trading activities under investigation. UBS no doubt hopes they prove to be aberrational, an isolated instance of wrongdoing within the ranks of its approximately 65,000 employees worldwide. But the unauthorized trading is only the latest in a series of egregious ethical and legal lapses at UBS that have badly damaged the bank’s once-sterling reputation. In this broader context, how aberrational were Mr. Adoboli’s suspected lapses? Is the UBS culture at least partly to blame? And what if anything is UBS’s board going to do?

Mr. Adoboli, 31, a soft-spoken native of Ghana, worked his way up from a back-office accounting function to UBS’s vaunted Delta One derivatives trading desk. His circumstances bring to mind Société Générale’s Jérôme Kerviel in France. Mr. Kerviel is serving a three-year prison sentence for his unauthorized trading, which cost the bank about $7 billion in losses.

Mr. Adoboli’s lawyer told the court this week that he “is sorry beyond words for what has happened here. He went to UBS and told them what he had done and stands appalled at the scale of the consequences of his disastrous miscalculations.”

Like Mr. Kerviel, whose trading bears a strong resemblance to that of Mr. Adoboli, there’s no evidence that Mr. Adoboli stood to profit directly from his trading. Mr. Kerviel has steadfastly maintained he acted only for the benefit of the bank, pressured to distinguish himself by a rigid hierarchical culture in which he was the only trader from a working-class family who didn’t attend one of France’s prestigious grandes écoles. His superiors, he said, knew of and condoned his trading — as long as it was profitable.

Mr. Adoboli hasn’t offered any such justifications, but his immigrant status may have set him apart at UBS. (The bank is investigating whether others at the bank bear any responsibility.) His unauthorized trading also seems consistent with a culture at UBS that stressed individual advancement over team efforts, according to former investment bankers. “The problem isn’t the culture,” one of them told me. “The problem is that there wasn’t any culture. There are silos. Everyone is separate. People cut their own deals, and it’s every man for himself. A lot of people made a lot of money that way, and it fueled jealousies and efforts to get ever better deals. People thought of themselves first, and then maybe the bank, if they thought about it at all.”

Though UBS traces its roots to the mid-19th century, the modern bank is an amalgam of the former Union Bank of Switzerland; the Swiss Bank Corporation, (itself a combination of the Swiss bank and investment bank Warburg Dillon Read); the American investment bank PaineWebber; and a large team from the former Donaldson, Lufkin Jenrette, all acquired since 1998. Critics as well as some members of the bank’s current management say the firm never merged these disparate assets into one consistent culture, and that the headlong pursuit of growth at any cost trumped ethical and legal behavior, especially in the investment bank. (UBS didn’t respond to requests for comment.)

The financial crisis and its aftermath have proved daunting for most of the world’s banks, but in many ways UBS’s behavior stands out. In August 2008, UBS settled charges brought by Andrew Cuomo, then the New York attorney general, that it misled customers when it sold them what it described as nearly risk-free auction-rate securities even as its executives knew the market was collapsing. After the market froze and investors were unable to sell the securities, regulators sued, and UBS agreed to repay $19.4 billion and pay a $150 million fine.

Article source: http://feeds.nytimes.com/click.phdo?i=793c2638d04b9b38f9d61bbc64a869a8

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