One of the first and most crucial instructions novice pilots are given in how to communicate with the aircraft control tower is to keep communication brief, clear and relevant. “Think about what you are going to say before saying it. Mentally go over exactly what you will say before touching the radio and keep it in mind.” At Delta one desk in UBS, the currency trader Kweku Adoboli’s Facebook profile had a brief, clear and relevant plea to his friends: “Need a miracle.” Having become trapped, due to the instantaneous depreciation of the Swiss franc after the SNB’s ‘peg’ decision, he was now in a big hole and knew he had no escape ladder or tunnel. A sobering thought for any traders who profited from the sharp fall in the CHF franc last week; there can often be someone else on the other side of the trade, literary banking on the franc’s continual appreciation being a one way bet.
On Delta one desk Adoboli handled proprietary dealing clients trades, trading in a variety of securities assisting clients to speculate and hedge baskets of securities. If clients wished to short Swiss equities, (expecting the franc to rise), the desk would design a trade and use a combination of; equity swaps, futures and ETFs to hopefully achieve it. Derivatives should (in theory) mirror the securities they track, in effect insure against market moves and as such shouldn’t carry any extra risk for the bank.
This episode serves to remind us just what a tightrope the line between success and failure is at the highest trading levels. With all the quants, algorithms, theories, the finest technology and minds at your disposal our industry still comes down to the phrase credited to the brilliant and infamous trader Jesse Livermore; “you never know ’till you bet!”
There’ll be many amongst us who feel empathy with the trader, some of us may have wiped out our own trading accounts, (hopefully small accounts whilst learning our craft), and whilst the phrase “it’s all relative” hardly compares to wiping out €2billion we’ll recognise the feelings of pain, humiliation and hopelessness. Kweku Adoboli’s father is reported to be heartbroken after the news broke, his words bring home the human element of the loss, and before we all rush to condemn perhaps there is a simple explanation that UBS would rather not be broadcast, his huge losing trade was their losing trade, and the blame and accusation of systemic failure is ultimately theirs and not singularly his.
In an interview with Reuters, John Adoboli, a retired United Nations employee from Ghana, said he knew the financial sector was a high risk area, but he had no doubts about his son’s competence and integrity.
“From what the reports are saying, it could be that he made a mistake or wrongful judgement, we are all here reading all the materials and all the things being said about him. The family is heartbroken because fraud is not our way of life. I brought them up to be God-fearing and to appreciate decency. Growing up and through to school days they were very brilliant and respectful.”
Despite all the positive proclamations of intent yesterday the gathering of European finance ministers in Poland and Tim Geithner (who has been invited and isn’t gatecrashing) is still faced with an enormous task, however, were last week the options looked very limited a plan of sorts is now beginning to take shape. With the three month dollar borrowing contingency for major banks now in place as of yesterday, the discussions on Eurobonds moving on apace, Ms Merkel and President Sarkozy insisting that Greece will neither default or leave the Euro, Christine Lagarde pressing for a huge one off recapitalisation of the banks (and central banks) and individual central banks and their associated domestic government ministries beginning the softening up process with regards to more QE, there is surely enough ‘in the toolbox’ for resolutions and solutions to be reached. No doubt we’ll have to weather the political opportunism by certain right wing cabals, hoping for an opportunity to bring down what they view as a massive exercise in financial socialism, however, once the meeting has finished a clear path must be finally created. If not the uncertainty would lead to further doubt as to the collective will and expertise to overcome the current situation.
Asian markets rallied overnight and early morning in relation to the optimism created by the unilateral dollar bank support. The Nikkei closed up 2.25%, the Hang Seng closed up 1.43%, the CSI closed down a marginal 0.18%. European markets are positive, the STOXX is up 0.72%, the DAX up 1.19%, the CAC up 0.35% and the ftse up 0.8%. the SPX daily future is currently flat. Brent crude is up $91 a barrel, Gold down $12 an ounce.
Data releases to be mindful of on (or after) NY opening include the Michigan consumer sentiment index. This is a report assessing consumer sentiment on the economy and personal finance, compiled via a survey of consumers from 500 households. The preliminary figure encompasses roughly 60% of the data used in the final figure, and is not officially meant to be released to a wide audience. Preliminary figures are regularly leaked to the press and therefore accessible to the financial industry.
The Euro is down 0.5% versus the dollar. A cursory glance at a D1 chart for any Swiss franc pair reveals that, as a currency play, the Swissy is out of the game for now, other than for only very committed scalpers, scalpers who in the unlikely event of being found at the Delta one desk in UBS would surely find it impossible to recover a €2 bl loss.