9/16/2011 - UBS Says It Had $2 Billion Loss From Unauthorized Trading

Source: Bloomberg
UBS AG’s $2 billion loss from what it said was unauthorized trading prompted Swiss lawmakers to call for tougher capital requirements and for other businesses to be protected from riskier investment banking operations.

Switzerland’s biggest bank said today it may be unprofitable in the third quarter after the loss from “unauthorized trading” at its investment bank. UBS tumbled as much as 9.6 percent in Swiss trading following the announcement.

“It shows that investment banking is a high-risk field and it’s important that we clearly separate systemically important functions from the rest of the banking business,” said Caspar Baader of the Swiss People’s Party.

Swiss rule-makers are running ahead of counterparts in the U.S. and Europe to make sure UBS and rival Credit Suisse Group AG cut risks and hoard capital to avert the type of banking collapse that hobbled Iceland’s economy. The Swiss Parliament is expected to vote on proposals to limit risk-taking by the two banks and impose higher capital surcharge requirements at the end of this month, according to spokesman Mark Stucki.

“For a bank that has made mistakes in the past, it’s absolutely unacceptable,” said Fulvio Pelli, the party president of the Liberals, who later added that Switzerland’s too-big-to-fail bill and tougher capital requirements were the way forward. “I’m absolutely astonished that internal controls didn’t work at UBS.”

Capital Requirements

The Swiss government has recommended changes to banking laws which would force UBS and Credit Suisse to hold total capital equal to at least 19 percent of their assets. That requirement is almost double that of rival banks in the U.S. and Europe.

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