UBS trader masked risk exposure of $12 bln, court told

By Estelle Shirbon

LONDON, Oct 9 (Reuters) - Alleged rogue trader Kweku Adoboliexposed Swiss bank UBS to billions of dollars ofhidden market risk for weeks on end, peaking at nearly $12billion on Aug. 8 last year, a London court heard on Tuesday.

Adoboli disguised his true trading position with fictitioushedging trades that made it look as though the apparent risk tothe bank that day was only $2.3 million, according to evidenceheard at Southwark Crown Court.

"This level of risk-taking is completely out of proportionwith anything that would have been countenanced," said RuwanWeerasekera, chief operating officer of securities at UBS'sinvestment banking arm.

Adoboli, 32, was arrested on Sept. 15, 2011, and is on trialaccused of fraud and false accounting that cost the Swiss bank$2.3 billion. He has pleaded not guilty.

Appearing as a prosecution witness, Weerasekera answeredquestions about an in-house investigation into the Adoboliaffair, which he headed.

He said its three main findings were that Adoboli hadconducted real trades exposing UBS to levels of risk that wentwell beyond his authorised limits, that he had booked tens ofthousands of fake transactions that masked his true positions,and that he had booked many deals late or inaccurately.

The jury were shown tables of figures and graphs produced byWeerasekera that he said showed Adoboli's true trading positionsalongside the inaccurate figures he had booked in the bank'ssystems at the time.

The figures showed that the sums involved in his realtrading increased dramatically over the summer of 2011 just asworries about the euro zone debt crisis were building up andmarkets became increasingly jumpy.

In the last week of June, Adoboli built up a short position- meaning he was betting on markets falling - but he got stungwhen securities rose after Greece, the country at the heart ofthe crisis, adopted measures to address its deficit.

Adoboli's actual risk exposure rose from $31 million on June23 to $1.49 billion on June 30, when his reported risk was $41.9million.

On July 1, he flipped to a long position - meaning he wasnow hoping for a rally in market prices - which he maintaineduntil Aug. 10.

But in July and August 2011, markets wobbled as concernsabout the euro zone were ratcheted up again along with fearsabout a credit rating downgrade of the United States.

Opening the case last month, prosecutor Sasha Wass cited the$12 billion figure as putting UBS's future at risk. Thatcontention was not repeated in court on Tuesday.

The court had previously heard that on Sept. 14, 2011, whenAdoboli's true positions first came to light within the bank,the risk exposure was around $8.75 billion.

By the time the trades had been closed down, the lossesstood at about $2.3 billion.

The trial continues.

(Reporting by Estelle Shirbon; Editing by John Stonestreet)

Keywords: UBS TRIAL/