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Laven comments on UBS rogue trader losses: Another day, another risk crisis

Posted on 19 Sep 2011

The investment bank UBS has issued a revised estimate of the losses incurred by rogue trader, Kweku Adoboli, which now stand at $2.3bn.

Jerome Lussan, CEO of Laven Partners comments:

This new failure in risk management continues to add to the woes that are hurting the global finance industry. When are we going to see a change in risk management?

No one yet knows what happened with Mr. Adoboli but the reality is that it had something to do with risk management, otherwise it would not have happened. I cannot see why senior management does not tackle these issues more head on. Regulation clearly states that risk management is the responsibility of senior management.

Risk management is not so hard that a bank like UBS should not be able cope. Clearly though, it does not cope and this encourages the view on the street that banks will continue to fail and possibly crash capitalism. The issue is huge and serious, as it affects all financiers and their clients which include European countries. The real problem is that risk management is seen as a cost and is not respected in the typically impatient bonus hungry culture. Three things need to happen fast for things to change:

1. Change of culture: bankers must recognise risk management as a centre of value creation, not as back office red tape;
2. Change of remuneration structure: risk managers must be paid in terms of value creation, at the cost of the traders’ bonuses, and from the same pool of profits so that both groups have a common vested interest and the best risk managers are recruited; and
3. Change of controls: risk management is too often put in place and then carried out half-heartedly, whereas it should be monitored and subjected to the strictest independent internal audits and verifications.”

The above is not that costly, nor rocket science, but it will demand a paradigm shift from all industry participants. Any banker should be able to see the value of changing things fast, as their industry is otherwise at risk. Indeed how long before it is dismantled by politicians overreacting to anger and disbelief from voters?

Should you wish to discuss this in further detail, please do not hesitate to get in touch with us at info@lavenpartners.com or by phone on +44 207 838 0010.