Mistakes You Cannot Afford to Make

I was listening to a podcast this morning. It was an interview with Kweku Adoboli, an ex-trader from the Swiss bank UBS. He was arrested in 2011, convicted of fraud in 2012, and released from prison earlier this year. He was telling his story during the interview.

Before he was arrested, he worked at the ETF trading desk at UBS. He said the trade mechanism he used was not deemed to be dishonest at that time. It was a series of wrong decisions coupled with the unhedged trades that led to the huge loss. He said he himself and the team were young and they didn’t know how to offset the increasing losses. He was 30 years old back then, the oldest in that team, so he decided to generate a fund that they could use to offset those costs to the book. He was not only misrepresenting the P&L; but also misrepresenting the risk to which the bank was exposed by doing that.

He said his colleagues knew what he was doing, but because his team had made a lot of profit for the bank, somehow they turned a blind eye on it. Until one day when the team realized that the loss was too big to be covered, he decided to turn himself in and take the full responsibility. He said he’d decided to leave the industry before that anyway.

What he thought back then, was that he did what he did to achieve institutional goals. He was not driven by taking the money out of the system or making big bonuses for himself or the team. Besides, his colleagues knew what he was doing, and nobody stopped him from doing it. He didn’t think he’d be arrested and thought his team members could still work in the industry after he took all the blame. Turned out he was sentenced and his team members’ careers in the industry were ended.

He broke down and wept several times during the interview. Somehow I believe he didn’t mean to do it. It was a mistake base on some wrong decisions, except that this mistake cost UBS US$2.3 billion and himself 3+ years jail time.

Some mistakes are too expensive to make.

Hello Chikuse,

I think he is upset because he got caught. His salary had gone from 65,000 GBP to 360,000 GBP in two years because of his (illegal) dealings and the profist he 'made' for the bank. In such a position of responsibility he should not have taken such risks. I worked for a while with a company that invested in stocks and shares and one respected dealer told me that the stock market is like a horse race - don't gamble what you can't afford to lose. This was before the time of massive profits every week, when these started to come, commonsense went out the window. Instead of stopping or thinking people just kept gambling, it had to crash sooner or later and this man singlehandedly nearly wiped out one of the largest financial institutions in the world!

Just a few small mistakes but really good work and summary of the situation.

Bob