Swiss bank hit by alleged rogue trader

Heidi Moore Sep 15, 2011

Swiss bank hit by alleged rogue trader

Heidi Moore Sep 15, 2011

Kai Ryssdal: One hates to read too much into any particular date — and lord knows the media has this thing for anniversary stories. But sometimes things just line up in a way that makes you go, ‘whoa, that was weird.’

Today, as it happens, is the third anniversary of the death of Lehman Brothers. So it seems only fitting that the news brings us stories that remind us of two things: One, we’ve learned remarkably little about controlling risk in the global banking system the past three years. And two, well, we’ll get to that in a minute.

We detour first to UBS, the big Swiss bank, which said today a rogue trader has blown through $2 billion on a bunch of bad bets.

Our New York bureau chief Heidi Moore has the story.

Heidi Moore: Even in today’s sophisticated financial system, where enormous sums of money are won and lost every day, $2 billion is still real money. Just ask UBS, which is going to take a big loss because of one trader’s risky — and unauthorized — bets.

Lance Smith is a former Salomon trader who created Imagine Software to help banks track their trades. When he heard the UBS news today:

Lance Smith: I was thinking weapons of mass destruction: derivatives.

You remember derivatives: the complicated and risky financial instruments that played a big part in the banking crisis. It’s been three years since Lehman Brothers collapsed. So have banks gotten better at managing those risks?

I asked Robert Bramnik, who works on derivatives for the law firm Duane Morris.

Robert Bramnik: No. No.

But why?

One reason is profit, says Matthew Samelson. He’s a former trader for Lehman Brothers. Now he runs Woodbine Associates, a firm that researches the markets.

Matthew Samelson: It’s much more appealing for senior management to apply a firm’s capital in the interest of making money than it is to guard against disasters like this.

That’s why last year, regulators started pressuring American banks to limit how much they speculate.

Samelson: The idea is to go back to the basic idea of what a bank is supposed to be: a lending institution.

Samelson says banks have taken some steps to manage their risks better. But they still may not be able to stop someone who’s bent on committing fraud.

In New York, I’m Heidi Moore for Marketplace.

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