Unprofitable In Quarter

The trader, whom UBS didn't identify by name, "revealed his unauthorized activity" following "inquiries directed at him by UBS control functions that were reviewing his positions," the bank said. UBS has covered the risk from the trading and its equities business is operating normally again within risk limits, the bank said.

UBS notified the police and regulators of the unauthorized trades early in the morning of Sept. 15. Adoboli was arrested at 3:30 a.m. and remains in police custody. He is being held until Sept. 22, when he can request bail at a court hearing.

The bank said on Sept. 15 it may be unprofitable in the third quarter after the unauthorized trading at its securities unit. The loss, less than two months after Gruebel said the bank had "one of the best" risk-management units in the industry, exposed flaws in its controls.

Britain's Financial Services Authority and its Swiss counterpart said they would investigate the trading losses. Deloitte LLP will carry out the probe on behalf of the FSA and the Swiss regulator, the Sunday Telegraph reported yesterday, without saying where it got the information.

'Controls Failure'

"This is a controls failure," said Francois Chaulet, who helps manage 250 million euros ($345 million) at Montsegur Finance in Paris. "How are you going to explain to your shareholders and employees that you've lost this amount from the acts of a single young employee in a trading room."

UBS rose 0.9 percent to 10.35 francs by 1:55 p.m. in Swiss trading. The shares dropped 11 percent to 9.75 francs on the day the bank announced the loss, the biggest decline since March 2009, before rebounding by 5.2 percent on Sept. 16.

Gruebel told staff in a memo yesterday that he was "shocked and disappointed" by the unauthorized trading, describing the events as a setback to UBS's reputation and its effort to build up capital. He said the loss won't affect UBS's capital base, and the risk of someone violating the bank's controls "always exists."

'Buck Stops'

"I and the rest of the firm's management are fully focused on thoroughly investigating this issue, and will do all it takes to determine how this happened and what we need to do to ensure that it does not recur," Gruebel said in the memo. "Ultimately, the buck stops with me."

David Sidwell, the senior independent director on UBS's board and a former chief financial officer of Morgan Stanley, will lead a three-person committee investigating the trading loss and the bank's controls, UBS said.