5 Financial Services Stories You May Have Missed — And a Rogues Gallery

Handcuffs on money: Fraud

Below are news stories from the week that were easy to miss, but may have some lasting impact.

1. Scandal Of The Week ~ UBS’s USD2 Billion Black Eye

The name Kweku Adoboli may soon be as familiar as the name Nick Leeson. (Leeson was the young trader whose USD1.6 billion loss helped bring down Barings Bank in 1995.) While UBS has not released much detail, Adoboli traded on the UBS London desk known as Delta 1. The desk’s function was to help customers execute large complicated trades. Adoboli oversaw ETFs (Exchange Traded Funds), funds that are generally designed to track an index. Traders frequently use options and derivatives to hedge these funds, sometimes seeking an arbitrage in the process. Traders are speculating that Adoboli had large proprietary currency positions and was caught by the rapid movement last week of the Swiss Franc. The large loss at a difficult time for UBS is expected to have the bank assessing its future plans for its investment bank and the role of proprietary trading. Abodoli has been arrested and charged with fraud by abuse of position. He has reportedly hired lawyers at Kingsley Napley in London, the firm that represented Nick Lesson.

UBS Trader Gets No Miracle as Loss Leads to Arrest

2. How Do You Say Mommy-Tracked In German?

Kelly Voelker worked for Deutsche Bank for 13 years. Most recently as a Vice President in a hedge fund group. However, Ms. Voelker has filed suit claiming that she was never promoted despite being qualified to become a director. In her complaint, she alleges that her boss urged her to take a reduced role when she returned from her maternity leave. Goldman recently settled a similar suit by a vice president returning from maternity leave.

Deutsche Bank vice president sues, alleges bias over pregnancy

3. Who Should Watch The Investment Advisors?

The Chairman of the House Financial Services Committee has introduced a bill that would seize Investment Advisor oversight authority from the SEC and ask the self-regulatory organization FINRA (Financial Institution Regulatory Authority) to assume the burden. More than 10,000 investment advisors currently regulated by the SEC would be moved to the control of FINRA. The not-for-profit FINRA was formed by the merger of the former NASD and the NYSE regulatory arm. The rationale is simple. The SEC is underfunded. At its present capacity the Commission is only able to do annual reviews of approximately 10% of the funds under its control.

Self-Regulatory Group May Gain Power in House Plan

4. Mortgage Mess ≠ Tighter D&O Markets

Leading experts contend that despite major mortgage related lawsuits like the Federal Housing Finance Agency’s multi-billion dollar suit against 17 financial institutions, the D&O market is unlikely to worsen drastically. Why? The argument is that these claims will be said to relate back to prior claims, under prior years, and those policies have generally been exhausted. If they are later-year policies the capacity was already limited. Kevin LaCroix from OakBridge Insurance Services simply believes “The marketplace for financial institutions, particularly large money center institutions, has been under pressure for a long time, to the point where it’s so strained; I don’t think this could make it worse.”

Mortgage securities lawsuits unlikely to roil D&O market

5. Mack The Knife Cuts Out – John Mack of Morgan Stanley to Retire

At 66 John Mack is considered one of Wall Street’s best known figures. Taking the helm at Morgan Stanley in 2005, he saw the firm through the credit crisis and negotiated a USD9 billion investment from Mitsubishi UFJ to help save the firm in 2008. He will be replaced by James Gorman, who does not have a cool moniker as yet.

Mack to Step Down as Chairman of Morgan Stanley

And a Rogue’s Gallery

In honor of UBS’s latest rogue trader, here is a link to a listing of famous rogue traders of the past. Ahh the memories…

Traders Gone Rogue: A Greatest-Hits Album

Good Weekend

About Richard Magrann-Wells

Richard is a Executive Vice President with Willis Towers Watson’s Financial Institutions Group based in Los Angel…
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