(September 16, 2011) — Ratings agency Moody’s, Standard & Poor’s (S&P), and Fitch Ratings have placed UBS on review for downgrade after its $2 billion unauthorized trading loss.
According to Moody’s, the review reveled the “ongoing weaknesses in the group’s risk management and controls that have become evident again.” S&P said in a statement that it will make a decision on the ratings “once further details emerge on the scale of the loss and the risk management lapses that enabled it to occur.”
UBS shares dropped 11% yesterday after news surfaced that the firm’s trader, Kweku Adoboli, had been arrested following suspicion of fraud and abuse of his position. The controversy over the London-based trader added to already difficult times for the Swiss bank, as Europe’s sovereign debt crisis continues to pummel financial institutions across the continent.
Moody’s continued to assert that UBS’ losses call into question the group’s ability to successfully complete the rebuilding of its investment banking operations. “We have continued to express concerns with regards to the ability of management to develop a robust risk culture and effective control framework while at the same time trying to re-establish its position in certain market segments,” the ratings firm said.
In addition to Moody’s and S&P, Fitch Ratings has also asserted that it is placing UBS’s “viability rating” on review for a possible downgrade. “Fitch acknowledges that no control framework can fully protect a bank from a ‘rogue’ trader,” the rating company said. “However, the magnitude of the loss is large in the context of UBS’s reduced investment bank activities and compared to other ‘rogue trader’ incidents at other institutions. This incident strengthens the arguments for UBS to down-scale its investment bank.”
To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742