Receiving Wide Coverage ...
The UBS Delta Blues: Kweku Adoboli, arrested in London Thursday on suspicion of fraud after allegedly blowing $2 billion of his employer UBS' money on unauthorized trades, worked at the Swiss bank's Delta One trading desk — the same line of business as Jerome Kerviel, who was convicted last year for losing Societe Generale a bundle back in 2008. What the heck is this Delta One, you ask? The FT has a very helpful explainer which we could not possibly hope to improve upon. The Times' "Dealbook" says Delta One desks are big moneymakers, and "Heard on the Street" in the Journal finds it "baffling" that this line of business should be the source of two high-profile debacles, since, according to the column, it's a low-risk activity. "For UBS to have lost so much suggests it had an unusually large position in an underlying asset or currency. That, in turn, could suggest a massive failure of oversight at the bank." An analytical story in the Journal says the Adoboli affair raises questions about risk management in the broader financial sector. "Unauthorized trading is hard to fully protect against given that traders typically hide their losses using fraudulent methods," the story says, and "management oversight hasn't always kept pace with the complexity of trades." You may now be wondering, where were the regulators in all this? The more apt question may be "who": Another Journal article reports that UBS' London investment bank operations were supervised by both U.K. and Swiss regulators, and it isn't clear which one had jurisdiction over the trades gone bad. "Dealbook" used the UBS mess as an excuse to dust off a list of famous rogue traders, originally published around the time Kerviel was convicted. Other journalists are taking issue with the use of the term "rogue trader." "They're not 'rogue' for the simple reason that making insanely irresponsible decisions with other peoples' money is exactly the job description of a lot of people on Wall Street," writes Rolling Stone's Matt Taibbi. "Hell, they don't call these guys 'rogue traders' when they make a billion dollars gambling." The Journal's David Weidner makes the same point succinctly in a Borscht-belt headline: "What Do You Call A 'Rogue' Trader Who Makes $2 Billion? A Managing Director." Another analytical story in the Journal points out that this was only the latest in a series of crises for UBS in recent years. (Another "Heard on the Street" piece also focuses on the bank's long-running reputational issues, and in case anyone misses those two stories, this "Deal Journal" entry describes UBS' trust problems as well. The Times also chronicled UBS' rocky recent history in the form of a timeline.) Finally, one more "Dealbook" entry gives us Adoboli's backstory, which is full of sentences like this: "In his spare time, Mr. Adoboli liked photography, cycling and wine." Sometimes, the human interest angle just isn't that interesting.
Committee to Save the World — The Sequel: In what the Journal called a "rare coordinated move," central banks around the world united to head off a 2008-scale crisis by guaranteeing unlimited access to U.S. dollars for the rest of the year to Europe's ailing financial institutions. Global markets rose on the news that the Fed, the European Central Bank, and the central banks of Switzerland, Britain and Japan would extend the three-month loans to banks in the 17 countries that use the euro currency. "The display of firepower was intended to prevent an escalation of financial market tensions and signal that authorities are prepared to take action to boost market confidence," the FT said. As a side note, isn't it somewhat reassuring to know that other countries consider a shortage of greenbacks to be a dire problem? Wall Street Journal, New York Times, Washington Post, Financial Times
Mack Stepping Down: John Mack will step down as Morgan Stanley chairman at the end of the year, with CEO James Gorman taking over. Wall Street Journal, New York Times, Washington Post
Wall Street Journal
An article details the negotiations between Jefferson County, Ala., and its creditors (including JPMorgan Chase) ahead of a vote Friday that could end in the biggest municipal bankruptcy in U.S. history.
A judge ruled in favor of Barclays in a dispute over bonuses with Lehman Brothers Holdings.
New York Times
Columnist Floyd Norris challenges the recent banker warnings about regulatory arbitrage, suggesting it may well make sense for countries with bigger financial sectors to push for higher bank capital requirements. (He doesn't use the term "regulatory arbitrage," but he does mention its hackneyed antonym, "level playing field," and shows his skepticism by putting the words in air quotes.)
Washington Post
Harvey L. Pitt, former head of the SEC during the George W. Bush administration, told the House Financial Services Committee that plans proposed by Republicans to restructure the agency would be "too restrictive" and "would likely cause certain critical SEC functions to lose independence." He also criticized a bill sponsored by Rep. Scott Garrett that would demand more analysis from the SEC before issuing regulations or enforcement orders as "imprudent," "far too cumbersome" and "onerous."
