Jurors at Sothwark Crown Court heard how UBS rogue trader Kweku Adoboli put £7.4 billion of the banks funds at risk in trying to boost his status at the bank.
In a trial that started today that involves the biggest trading loss ever seen in the UK, the court heard how Mr Adoboli failed to "hedge" some of his trades as he attempted to boost profits for himself and the bank.
The prosecution told the jury that Mr Adoboli exceeded trading limits and invented fictitious deals to try and cover his losses.
Sasha Wass QC, prosecuting, said Mr Adoboli had been: "sucked into the gambler's mindset" and "started throwing good money after bad".
Ms Wass said that the total losses were enough to pay the salaries of 70,000 nurses for a year, build two new Wembley Stadiums or build six new hospitals.
"Mr Adoboli had ceased to act as a professional investment banker and had begun to approach his work as a naked gambler. He had become what is sometimes referred to as a rogue trader," she said.
The realisation of the scale of his losses came when Mr Adoboli sent an email to one of UBS's auditors almost exactly a year ago, at 2:30pm on September 14th. Mr Adoboli had left his desk an hour earlier saying that he had to visit a doctor.
Once it became public how much Mr Adoboli had lost, the share price of UBS fell by more than ten per cent, wiping £2.8 billion from its value.
In the email, Mr Adoboli explains how he tried to recoup previous losses, but his actions just caused the losses to escalate and he was unable to unwind them.
The email that he sent to Will Steward, an auditor at UBS reads as follows:-
It is with great stress that I write this mail. First of all the ETF [exchange-traded funds] trades that you see on the ledger are not trades that I have done with a counterparty as I previously described.
I used the bookings as a way to suppress the PnL [profit and loss] losses that I have accrued through off-book trades that I made. Those trades were previously profit making, became loss making as the market sold off aggressively though the aggressive sell-off days of July and early August.
Initially, I had been short futures through June and those lost money when the first Greek confidence vote went through in mid-June. In order to try and make the money back I flipped the trade long through the rally.
Although I had a couple of opportunities to unwind the long trade for a negligible loss, I did not move quickly enough for the market weakness on the back of the first back macro data and then an escalation Eurozone crisis cost me the losses you will see when the ETF bookings are cancelled. The aim had been to try and make the money back before the September expiry date came through but I clearly failed.
I have now left the office for the sake of discretion. I will need to come back in to discuss the positions and explain face to face, but for reasons that are obvious, I did not think it wise to stay on the desk this afternoon. I will expect that questions will be asked as to why nobody else was aware of these trades. The reality is that I have always maintained that these were EFP [exchange for physical] trades to the member of my team, BUC, trade support and John Di Bacco [Adoboli's manager].
Mr Steward had spent the weeks before trying to reconcile Mr Adoboli's trades through double-entry bookkeeping but was unable to balance the transactions.
Mr Adoboli, 32, from Clark Street, Whitechapel, East London is accused of fraud and false accounting that cost the Swiss bank £1.5 billion when he was working for the bank’s Delta One trading business which operates in equities.
Ms Wass said: "He is on trial because he lost his bank $2.3bn. He fraudulently gambled it away. He also in doing so wiped around 10% or about $4.5bn off the bank's share price.
"He did all of this by exceeding his trading limits, by inventing fictitious deals to conceal this, and then he lied to his bosses. Mr Adoboli's motive for this behaviour was to increase his bonus, his status within the bank, his job prospects and of course his ego.
"Like most gamblers, he believed he had the magic touch. Like most gamblers, when he lost, he caused chaos and disaster to himself and all of those around him."
She told the court that Mr Adoboli had failed to follow the procedures set out by the bank that set limits on high-risk investments.
She said: "He was lying to the bank, both to his senior managers, his risk control department and the accounts department. In effect he was risking the very existence of the bank by gambling its resources, ultimately for his own benefit."
Mr Adoboli worked in the bank’s exchange traded funds (ETFs) business which tracks different types of stocks and commodities. He was arrested 12 months ago when huge losses were discovered.
He could face up to ten years in prison for each charge of fraud and a further seven years for each charge of false accounting.
The trial will put the spotlight on UBS and the wider banking sector’s compliance procedures. It is likely that regulators will be put under pressure to introduce tighter capital requirements and with other scandals in the banking sector such as the manipulation of Libor, the spotlight will be put on the bank’s compliance procedures.
The trial continues.