Or How to Avoid Blame

I have no inside knowledge about Kweku Adoboli, the UBS trader arrested last week after he reportedly lost over two billion dollars.  But common sense suggests that the way it is being played in the press is misleading.  This cannot be just about the occasional individual “rogues” who run wild.

Given the pressure that banks are under to be profitable, it’s likely that successful traders who evade the scrutiny of risk managers are usually appreciated.  The press report only the “rogues” who get caught, and they get caught when they lose a lot of money.  That seems to be what makes it “fraud.”  The others make break the rules, but, hey, they make their numbers.  Supervisors tend to like that.

So this suggests, as well, that they are not operating on their own.  For every “rogue trader” who is caught, there must be many others who are not.  Indeed, there must be a fair amount of encouragement to be “creative” and “bold” in banks that are struggling to recover from the current business slump and become more profitable.

This also suggests that others in the bank knew what they were doing.  You don’t trade aggressively with large sums of money for over three years, as Mr. Adoboli did, without anyone noticing.  He wasn’t playing around with his own money.

It’s simple common sense to realize that the banks were complicit, not innocent.  They had to be more than mere victims of irresponsible traders.  Knowing this, of course, the police are rounding up others for questioning, and there will be extensive investigations.  It’s not possible to say what they will find – or even what they may want to find.


Reuters noted the other day that banks are looking into “clawing back” bonuses for those who were complicit.  (See, “Claws Out.”)  And The Wall Street Journal commented:  “The pending investigations, as well as a handful of lower-profile instances of improper trading uncovered in London in recent years, highlight how the practice is more common than generally realized.  ‘These aren’t isolated cases,’ said a recently departed senior FSA official who worked on some of the investigations.”  (See, “UK Sets It Sights on ‘Rogue’ Traders.”)

Even more recently, The New York Times quoted a banker at UBS on the organizational climate that encouraged and supported such activities:  “The problem isn’t the culture.  The problem is that there wasn’t any culture. There are silos. Everyone is separate. People cut their own deals, and it’s every man for himself.  A lot of people made a lot of money that way, and it fueled jealousies and efforts to get ever better deals. People thought of themselves first, and then maybe the bank, if they thought about it at all.” (See, “At UBS, It’s the Culture That’s Rogue.”)

Meanwhile, the bank is busy reassuring investors and trying to contain the damage.  They need culprits so they can appear victimized themselves and free of blame.  They started with Mr. Adoboli, hoping to localize the problem.  Now as it is clear the problem is far greater, the CEO has been forced to resign.

But, again, it is not a problem of individuals, and it will never be solved by scapegoating particular people, no matter at what level.  UBS needs to develop a culture of mutual responsibility, a rarity in the world of finance and a difficult thing to do under any circumstances.