Peter Norris, Nick Leeson's boss when the rogue trader brought down Barings, has called for industry-wide reform of risk systems in the wake of the UBS trading scandal.
Kweku Adoboli, a 31-year-old London-based banker, allegedly ran up losses of £1.3 billion ($2.48 billion) after making huge numbers of ill-judged, unauthorised trades. He has been charged with fraud and false accounting, which carries a maximum 10-year sentence.
The extraordinary cover-up is all too familiar to Norris, head of Barings' investment division in 1995 when Leeson's derivatives trading resulted in £827 million of losses and killed the bank. Norris has since re-established himself as chairman of Richard Branson's Virgin empire.
Norris said value-at-risk systems, a widely used measure of the risk of loss, were fundamentally flawed as they allowed rogue traders to act undetected. "There should be a long, hard rethink of these value-at-risk systems across all the banks."
While he conceded that UBS is big enough to withstand the losses, he said Adoboli should still be condemned for his actions if proved guilty. On a radio programme last month, Norris told Leeson he had "wanted to punch [his] lights out" when his losses were discovered. "They [the bank and his colleagues] should have a visceral reaction against him," he said. "The fallout within the organisation will be huge."
The Swiss press has already reported job cuts in the investment banking unit that suffered the loss, while "massive" savings are expected to be announced by chief executive Oswald Grbel. The Financial Services Authority and the Swiss Financial Market Supervisory Authority have launched an investigation.
Ron Geffner, a partner at the New York law firm Sadis & Goldberg, said: "Counterparties to the trades will be investigated. It is likely to mean traders at other banks will also be questioned. "Every outflow and inflow will be reviewed [by investigators], going back years."
Brad Simon, a founder of the US criminal defence practice Simon & Partners,said: "It is impossible for one person to carry out a scheme like this on their own.
"There have to be others."
Adoboli traded in exchange traded funds, an oft-criticised financial instrument that holds a variety of assets including commodities and bonds. They can be hugely speculative and have been accused of being too lightly regulated.
- INDEPENDENT