Police in London say they have arrested a 31-year-old man over allegations that a rogue trader caused an estimated loss of over $2 billion to Swiss bank UBS.
UBS declined to name the suspect on Thursday, but police in London said they had arrested 31-year-old Kweku Adoboli.
The Swiss banking giant warned on Thursday that the incident could result in a loss for its entire third quarter, news that sent the bank's shares into a downward slide on Thursday.
"The bank says it does have enough money at hand to cover the loss, so clients are not at risk," said BNN's Michael Kane.
The so-called rogue trader was working in the bank's investment banking division, which accounts for 40 per cent of the company's profits.
The unauthorized trades are estimated to cost UBS an estimated 2 billion Swiss francs, or the equivalent of US$2.28 billion.
UBS has been struggling recently to restore its reputation and put the global financial crisis behind it. During the recession the bank received a government bailout and became embroiled in a U.S. tax evasion probe that caused significant embarrassment to the nation with a reputation for banking secrecy.
The news comes at a difficult time for Switzerland's largest bank. Last month UBS said it planned to slash 3,500 jobs over two years to save money in an attempt to emerge from the significant subprime losses incurred during the financial crisis.
By Thursday morning, shares were down by as much as 10 per cent in Zurich as news emerged of the unauthorized trades and subsequent losses.
As the morning went on shares recovered to 5.8 per cent below the previous day's trading.
UBS has so far revealed few details about what exactly occurred, saying "UBS has discovered a loss due to unauthorized trading by a trader in its investment bank."
"UBS's 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."
Peter Thorne, a London-based equities analyst at Helvea, said the loss was financially manageable for the company. But he said it was a blow to the reputation of UBS and its management, and reinforced the case of slimming down the investment banking unit.
The UBS news comes three years to the day after the collapse of financial services firm Lehman Brothers – a development which rocked U.S. financial markets and triggered a recession that affected much of the world.
With files from The Associated Press
