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UPDATE 1-UBS trader discussed "slush account" with Adoboli

(Recasts throughout with new evidence)

By Estelle Shirbon

LONDON, Oct 8 (Reuters) - A UBS trader raised theissue of a "slush account" in an electronic chat with accusedfraudster Kweku Adoboli in March 2011, a London court heard onMonday.

Appearing as a witness at Adoboli's criminal trial, traderDarren Bailey said he was "genuinely shocked" by the comment hehimself had made and did not know what he was referring to atthe time.

Adoboli, 32, was arrested on Sept. 15, 2011, and blamed forlosses of $2.3 billion. He has pleaded not guilty to two chargesof fraud and two of false accounting.

The prosecution says Adoboli routinely exceeded his tradinglimits, booked fake trades into the accounts to mask his truepositions, and held back some of the profits from hisunauthorised deals in an illicit "umbrella" account.

The defence says Adoboli believed he was acting for the goodof the bank and was open about his methods with many of hiscolleagues. His lawyers have read out numerous chats which theysay show that he discussed the umbrella openly.

In one group chat from March 2011, read out in court,Adoboli and Bailey discussed that week's trading and Adobolisaid that it had been "emotional".

"Have you used the slush acct (account)?" Bailey asked inresponse.

Bailey, who still works for UBS and had denied during thefirst part of his evidence on Friday that he knew anything aboutthe umbrella, said he did not have an explanation for thecomment.

"I am genuinely shocked by this. I don't know what thecontext to that could have been. I am genuinely surprised," hesaid.

Adoboli's defence lawyer Paul Garlick said Bailey had been"caught out" and suggested that the comment showed he had beenaware of the umbrella.

In his evidence on Friday, Bailey had admitted that once, inJune 2011, he had accepted an offer from Adoboli to "warehouse"a trade overnight.

This meant that on that occasion, a trade executed by Baileywas booked into Adoboli's book rather than his own.

Garlick said this was because Bailey was exceeding hislimits and Adoboli was helping him out. Bailey denied this,saying he was nowhere near his trading limits.

Repeatedly pressed on why it had been necessary to warehousethe trade, Bailey said he could not remember.

Garlick put it to Bailey that the episode showed that therewas a culture of rule-breaking among UBS traders. Bailey deniedthis, saying that the following day, his manager had reprimandedhim and banned him from trading futures for three months.

The trial continues.(Editing by Alison Williams)

((estelle.shirbon@thomsonreuters.com))

Keywords: UBS TRIAL/