UBS has reported an exceptional loss of 2.3 billion dollars incurred by Kweku Adoboli, a trader it employed in its London office. This is not the first time, and it will certainly not be the last time either, that a big Bank incurrs heavy losses like this.
UBS engaged the trader to make profits, but the loss he incurred, was it not because the UBS control system was not water-tight and this meant that the trader was not stopped earlier in his tracks ? Any businessman knows that he must ensure complete control over cash takings and have a stock control system to avoid theft or losses.
If the trader was fraudulent and enriching himself and/or his friends, he must be prosecuted and punished, this is quite clear. If however he made honest mistakes and then doubled his "bets" on the stock exchanges in an effort to recover his losses, and the internal control system of UBS did not promptly reveal what was happening, who is to blame ? UBS or the trader ?
What makes me smile is that traders are handsomely paid to make profits. True, they are not paid to make losses but banks never talk about the huge profits traders can and do make !!!
Banks and other companies always talk about the pre-tax losses whereas the after-tax effect is much lower !!! If one deducts the tax effect on the loss and the after tax effect of the non payment of bonuses to directors and others, the true net loss is not 2.3 billion dollars but much less !!! Let us not forget that normally a pre-tax loss in any accounting year can be carried forward and set off against future profits !!!
Crying crocodile tears on pre-tax losses could unnecessarily frighten smaller investors on stock exchanges and have undesired effects on the price of the bank's share price. Better and more honest reporting must be encouraged.
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