Was Kweku really a rogue trader?
I have been pondering on this question since I read the news that he had, allegedly, caused UBS, the accident prone investment bank, a loss of $2billion. On reflection I do not think he can be labelled a rogue trader after all he informed his superiors of the loss, unlike Nick Leeson & Jerome Kerviel. Rogue traders hardly own up to their losses.
Labelling Kweku a rogue trader is convenient for UBS as it deflects attention away from the pertinent questions that must be asked. UBS has had a very chequered history of late. Consider the following:
– $50 billion write offs in the credit crunch.
– £8million fine by the FSA for weak internal controls which allowed a number of employees to make unauthorised trades on customers accounts.
– Paid over $100million to settle allegation of deliberately assisting USA resident clients of it’s private banking arm to evade USA tax.
It is convenient for them to label him a rogue trader as it avoids, at least publicly, an examination, by UBS, of the following critical issues:
1. Was UBS’s culture, on the face of it and on it’s recent regulatory history one that encouraged high risk taking?
2. Did UBS encourage a culture of sailing close to the wind that made it difficult to admit mistakes at an early stage; and
3. UBS’ s attitude towards compliance and the state of it’s internal controls.
At a higher level, the term rogue trader avoids a critical examination of the case for investment banking. Does investment banking serve any useful purpose aside from costing tax payers money and awarding fat bonuses to investment bankers.
Do we really need universal banks (combining investment banking & retail banking under one roof). Certainly, Sir Vicker’s ring fencing option looks verybattractive.
Are banks adequately preparing their proprietary traders (especially mentally) for the strain, stresss and risk of the role. Is it right to entrust a 31 year old with such responsibilitiy? It is interesting to note that Nick Leeson & Jerome Kerviel were both in their early 30s. Is this telling us something? It is also interesting to note that there has been no female rogue trader.
Are financial markets getting too sophisticated especially in the area of trading which is getting faster & too interconnected. Remember the flash crash of May 2011.
Finally, is it possible to design a regulatory system that will prevent such incidents?? Is it the responsibility of regulators?
One thing for sure is that this will not be the last rogue trader.