UBS ‘ROGUE TRADER’ STORY GETS MIXED RECEPTION

Slog vindicated by Franco-German line on Greece.

Four days ago, The Slog ran a piece saying that German Finance Minister Wolfgang Schauble had convinced Angela Merkel to let Greece default in (not out) of the  euro. Schauble’s view remains that if the EU sets this precedent and the sky doesn’t fall in, the rest of the collapse will cost a lot less money. It also allowed President Sarkozy of France to breathe a huge sigh of relief, in that this would in his view still leave Brussels (and not the Elysees) as the guarantor of last resort re the major French banks. (I have a contact in Brussels who disagrees, but then he would).

Last night it was clear from the twice-delayed and heavily stage managed tripartite mobile phone accord No. 4558912 that this is indeed the line, and Papandreou of Greece has had his arm shoved up his back  was also highly relieved to toe it. (The statement was dictated to the Athens Parliament by the way, which gives you some idea of just how important it is that the whole edifice of the EU is blown away at the earliest opportunity).

At 9.27 am BST today, the FT reported that this had ‘steadied investors’ nerves’. They obviously have nerves of steel, and heads of wood. In the next fortnight (and probably sooner) we will see two or more of the following: an ECB credit crunch, a eurobank failure or acquisition, Italy’s position becoming untenable, Greece backsliding again due to the tax strike, and a major bust-up at the Polish summit. Anyone staying with eurodebt in that future landscape needs their head examined.

But their nerves were almost immediately jangled again by accident-prone Swiss bank UBS. Earlier this morning a story broke about  UBS being clobbered bigtime by a rogue trader. It seems that the rogue wiped out their planned 3 billion Sfr profit – and turned it into a $1.5billion loss. Around 10.30 am BST a 31 year-old trader was arrested in London on suspicion of various offences.

We’re an hour ahead here, so I’ve just made two calls to garner opinion. These are direct quotes from senior European bankers:

“UBS is a crap bank. It has always been a crap bank, it’s badly run and has never lived up to its self-image. I’ve been getting whispers for weeks that their profit is way off. Now suddenly, there’s a rogue trader. It sounds fishy.”

“Well, it’s the fire to get the insurance on the failing discotheque, right? I smiled when I read it, to be frank with you. UBS is unsafe, and Kengeter [brought in from Goldman] has made no real difference that I can see. They lost fifty billion during the 2008 disaster. I’ve always said they’re an accident waiting to happen, but this doesn’t feel like an accident”.

So then, not terribly supportive. But the story continues to twist and turn, even in these early stages. The UBS Credit Default Swap (CDS) has staged what one can only call a miraculous and immediate recovery: having spiked in the wrong direction during early trading (after the bank revealed the ‘unauthorised trading’) it has returned to near-normal. And this was before the announcement of the London arrest.

Interesting little sum: $2.3 billion of job cut costs + $2 billion rogue trade loss = original profit forecast?

Maybe something and nothing: stay tuned.

PS It seems even The Slog needs his head examined after giving Gmail a ‘second chance’ following last month’s disablement fiasco. Now they’ve done it again….and this time, they aren’t responding to emails. Apologies all round.