Rise and Fall of Adoboli the 'Family' Man
Almost five years ago, a friend of Kweku Adoboli sent him an email about Jérôme Kerviel, the rogue trader who had just lost 4.9 billion euros at French bank Société Générale.
Sarah Moore told him she saw "interesting parallels" with Adoboli's life, adding: "Please don't let me read about you in the papers in the same fashion. It would destroy my faith in human nature for ever." Her comments proved uncannily prescient.
Nine months later at UBS, Adoboli who was born in Ghana and educated in England, would embark on a similar path to that taken by Kerviel as he began to make unhedged trades and exposed the bank to huge risks, racking up losses of $2.3 billion – the largest unauthorised trading loss in British history.
Motivated by his desire to be a star trader, Adoboli managed to get away with his deception at the Swiss bank for more than three years.
Prosecutors have portrayed him as a "master fraudster" and reckless gambler – using payday loans and accumulating spread-betting losses of 123,000 British pounds ($195,515) in his personal life – who also "fraudulently gambled" with the bank's money, telling "carefully crafted, deliberate, detailed and sophisticated lies".
His activities ended only when he sent a "bombshell" email "confessing" to UBS last September.
The discovery could not have come at a worse time for UBS, which was then faltering in its attempts to rebuild its investment bank. Its near collapse in the financial crisis, when it wrote off $50billion in sour mortgage loans, was followed by a prolonged investigation into whether it helped wealthy US clients evade taxes, while it also became embroiled in the Libor manipulation scandal.
Effervescent and energetic, Adoboli was once a rising star at UBS, which he later was to call his "family".
His privileged upbringing was spent following his UN diplomat father around postings in Syria and Israel before being educated at a Quaker boarding school in Yorkshire, where he was head boy, and at Nottingham university.
Highly intelligent, articulate and with a natural charm and easy manner, Adoboli, 32, had seemed confident each day of the trial, surrounded by loyal friends and his father, John.
Character references read to the court from a former girlfriend and his ex-headmaster spoke of his honesty, generosity and dependability. Charles Sherrard QC, his defence counsel, told the jury that he was the "embodiment of a loyal, dedicated employee" and showed "devotion to the bank".
Adoboli worked in the back office before becoming a trader in 2006 with the exchange traded funds desk, where he was identified as a future leader by UBS's Ascent programme. His pay jumped from 95,000 pounds in 2007 to 360,000 pounds in 2010.
Glowing appraisals were read out during the trial, with Rob Pienaar of UBS prime broking describing him as an "accomplished salesman" who "could explain ETFs to my nan and she'd get it."
ETFs, which enable investors to gain exposure to a diverse range of asset classes, have been growing fast, although concerns have been raised about their increasingly exotic and opaque structures.
Kweku Adoboli, the former UBS trader, has been convicted of fraud at Southwark Crown Court. His unauthorised trading at the Swiss bank led to losses of $2.3 billion. This interactive timeline looks at key moments of how the fraud unravelled.
The pressures were huge. Adoboli, then aged 27, testified that in 2007 he and his co-worker John Hughes, 24, were left struggling to manage a $50 billion portfolio. He said: "Our book was massive – a tiny mistake could lead to huge losses. We were two kids trying to figure how this could work. We were losing so much money it was mental."
The pressures were huge. Adoboli, then aged 27, testified that in 2007 he and his co-worker John Hughes, 24, were left struggling to manage a $50 billion portfolio. He added: "Our book was massive – a tiny mistake could lead to huge losses. We were two kids trying to figure how this could work. We were losing so much money it was mental."
Like that of Kerviel, his deception started small. When he made a $400,000 loss on a trade in October 2008, he opted to hide the loss rather than tell his manager.
This, he testified, was when he formulated the mechanism, later dubbed the "umbrella", whereby profits were held off the books and earmarked to offset rising costs on the ETF desk by being drip-fed back into the desk's accounts.
By 2009 and 2010, Adoboli's scheme was going well and the umbrella's $40 million profit gave him confidence to do bigger trades.
Prosecutors say Adoboli's activities exposed the bank to loss by concealing the true risk of his real trades, with fictitious hedging trades and then fake cash-only trades booked to conceal the off-book profits.
His activities did not ring alarm bells in the bank at the time. A pivotal part of Adoboli's defence at the trial were his claims about the culture at UBS, where, he said, his co-workers on the ETF desk, two line managers and others in the back office knew of his activities and turned a blind eye to his breaching of risk limits as long as he was making profits.
However, prosecutors said that was a "fantastical" defence.
Adoboli also testified that an aggressive culture had taken hold at UBS, driven by an influx of former Deutsche Bank executives who exhorted traders to take greater risk and viewed the ETF desk as an "oasis of profit". ""I absolutely lost control. I was no longer in control of the trades we were doing," he later told the court, adding that he kept "buying into the dip"."
He said that on April 11 2011 Yassine Bouhara, who had been recruited from Deutsche Bank to be UBS's co-head of global equities, visited the ETF desk and told them they would not know that they had pushed the trading boundaries hard enough until they got a slap on the back of the wrist.
It was against this backdrop that, from June 2011, Adoboli says he racked up the $2.3billion of losses in three distinct phases of trading against severe market turbulence caused by the eurozone debt crisis.
Between June 23 and June 30 Adoboli created a short position betting the markets would fall, and masked his unhedged real trades with a fictitious long position.
While UBS believed its reported risk on June 24 was $53 million, it was actually $147 million.
Some of his trades were profitable and, indeed, on June 23 Adoboli was praised by his new line manager, John DiBacco, based in New York, for making $6 million of profit in one day – a record for the bank. Soon after he sent a second email upbraiding Adoboli for not asking him for permission to exceed risk limits.
Adoboli testified that by late June he was under huge pressure from senior managers and traders to abandon his bearish view of the markets and take a long trading position. As a result of the pressure, "I broke, I just broke ... I should have held on". he said.
On July 1 he flipped his trades to take a long position. If he had held on for one more day, his trades would have been highly profitable.
However, in the market sell-off his losses accelerated in late July and peaked at $11.8 billion on August 8, at a time when the bank believed its risk exposure was $2.3 million.
"I absolutely lost control. I was no longer in control of the trades we were doing," he later told the court. adding that he kept "buying into the dip". Adoboli's last phone call with bosses UBS podcast.
Minutes after the call in 2011 Adoboli walked out of the bank's headquarters and wrote an email confessing he had lost the bank huge sums of money.
Adoboli told how on July 23 he split up with his doctor girlfriend for two weeks because of his stress after he "just went a bit catatonic".
Adoboli said it was not until August 11, when he came into the bank at 4:57 a.m. local time, that he realised the scale of the losses. "I did not know just how large the position was. I didn't know, I'd become desensitised to just how big the trades were," he said.
His third trading phase involved taking another short position between August 11 and September 13 using ETFs with extended settlement dates, but the losses were made and his risk exposure remained static at about $7 billion.
By August the back office was chasing Adoboli for discrepancies with his trades. William Steward, a back-office accountant at UBS, had been alerted by a "break" of $3.57 billion where the books did not balance.
Adoboli admitted that he lied to Mr Steward.
With queries piling up from the back office, on September 14 Adoboli left work to head home, where he sent the "bombshell email" confessing and asserting that no one else was involved. The email set off shockwaves through the bank and he was quickly recalled to face 13 hours of interviews with UBS and its lawyers. He was arrested in the early hours of September 15.
As Adoboli begins a seven-year prison sentence and UBS tries to restore its battered reputation, the case provides a sobering reminder of how rogue employees can exploit a system in which bankers are still rewarded for taking risks by being awarded huge bonuses.
And it has further darkened the reputation of London's financial services industry, which this year has been beset by a series of banking scandals involving Libor, mis-sold insurance and allegations of laundering Mexican drug money.