UBS Had $2B Loss From Unauthorized Trading

UBS AG (UBSN), Switzerland’s biggest bank, may be unprofitable in the third quarter after a $2 billion loss from unauthorized trading at its investment bank. London police arrested a 31-year-old man on suspicion of fraud.
UBS management aims to “get to the bottom of the matter as quickly as possible, and will spare no effort to establish exactly what has happened,” the bank’s group executive board, led by Chief Executive Officer Oswald Gruebel, said in a memo to employees today. “While the news is distressing, it will not change the fundamental strength of our firm.”
The bank tumbled as much as 9.6 percent in Swiss trading following the announcement, which deals a blow to Gruebel’s attempts to revive the investment bank after the division recorded 57.1 billion Swiss francs ($65 billion) in cumulative pretax losses in three years through 2009. The trading loss may revive calls for Gruebel to shrink or shut the unit.
“How many times do we have to see huge UBS losses?” said Simon Maughan, head of sales and distribution at MF Global Ltd. in London. “It looks unreformed, unwieldy and ultimately unsustainable. This could be a critical tipping point for UBS’s strategy.”
UBS fell 79 centimes, or 7.2 percent, to 10.14 francs by 11:43 a.m. in Zurich, bringing the drop this year to 34 percent.
UBS said in a statement the matter is still under investigation, and that the “current estimate of the loss on the trades is in the range of $2 billion.” No client positions were affected, UBS said, declining to comment further.

Arrest in London

China Willing to Buy Bonds From Sovereign-Debt-Crisis Nations, NDRC Says

China is willing to buy euro bonds from countries involved in the sovereign debt crisis “within its capacity,” Zhang Xiaoqiang, vice chairman of the nation’s top economic planning agency, said today.
China is prepared to offer assistance, Zhang said at the World Economic Forum in Dalian in a reiteration of comments Premier Wen Jiabao made yesterday at the event. Zhang, who didn’t elaborate on China’s possible purchase of euro bonds, also made similar remarks yesterday in an interview with media, according to a transcript posted to the website of the National Development and Reform Commission.
Wen, facing calls to widen support for indebted European countries, said developed nations must first “put their own houses in order,” cut deficits and open markets rather than rely on China to bail out the world economy. China can best contribute to the global recovery by ensuring steady growth at home, he said.
“People are hoping that China will lift the world economy, but I think this is just wishful thinking,” Zhang, a deputy head of the planning agency, said at the forum today during a panel discussion. “Europe, U.S. and Japan should adopt the right policies according to their own situations and shoulder their responsibilities,” Zhang said.
China accounts for less than 10 percent of the world economy whereas the U.S., Europe and Japan combined account for more than 60 percent, Zhang said.

Overestimated Role

Guo Shuqing, chairman of China Construction Bank Corp. and former head of the nation’s foreign exchange regulator, echoed Zhang’s view at the forum today. China’s role in the world economy should not be overestimated and the country should buy bonds of European governments within its capacity, Guo said.
Purchase of such debt will help the country diversify its foreign-exchange reserves, Guo said.
China is actively allocating its foreign-currency holdings via commercial banks to support domestic companies going abroad, Zhang said yesterday, according to the transcript. China will also use the reserves to secure important commodities or obtain resources assets overseas, he said. Caijing magazine attended the briefing yesterday and published an article earlier.