LONDON — Swiss banking giant UBS said Thursday that a rogue trader has caused it an estimated loss of $2 billion, stunning a beleaguered banking industry that has proved vulnerable to unauthorized trades.
Police in London said they arrested a 31-year-old UBS trader, Kweku Adoboli, in the alleged fraud. UBS declined to confirm his name. Switzerland's largest bank warned that it could report a loss for the entire third quarter as a result of the rogue trading.
The case immediately evoked memories of Jerome Kerviel, the trader at French bank Societe Generale who secretly gambled away $6.7 billion. The scale of that fraud rocked the global financial industry and prompted banks to tighten oversight rules to ensure such large sums couldn't be traded unnoticed.
The Swiss banking regulator Finma said it was in contact with UBS about the incident, which was discovered late Wednesday.
"From the scale of this case, you can be sure that it's the biggest we've ever seen for a Swiss bank," Finma spokesman Tobias Lux said.
UBS provided little specific information, saying the incident was still under investigation and no client money was involved. The unauthorized transactions could cost UBS almost as much as the $2.28 billion the bank hopes to save by cutting 3,500 jobs over the next two years.
It comes as UBS is struggling to restore its reputation after heavy subprime losses during the financial crisis that resulted in a government bailout, and an embarrassing U.S. tax-evasion case that blew a hole in Switzerland's storied tradition of banking secrecy.
According to his profile on the networking site LinkedIn, Adoboli worked on an equities desk at UBS called Delta One — the same supposedly low-risk operation that Kerviel was involved in when he lost $6.7 billion.
In his Delta One role, Adoboli traded in Exchange Traded Funds, which track an underlying asset such as a stock exchange, a sector, or a commodity like gold. They are cheaper than traditional mutual funds and have given retail investors the chance to get involved in products to which they might not have previously had easy access.
The LinkedIn page showed that Adoboli spent the past five years working at UBS' European Equity Trading division after three years as a trade support analyst for the bank.
In a terse statement shortly before markets opened Thursday, the bank informed investors that "UBS has discovered a loss due to unauthorized trading by a trader in its investment bank.
"UBS' current estimate of the loss on the trades is in the range of $2 billion," it added. "It is possible that this could lead UBS to report a loss for the third quarter of 2011."
In a letter sent to its employees, the bank said it regretted that the incident came at a difficult time.