LONDON UBS trader Kweku Adoboli rode a dealmaking rollercoaster in the summer of 2011 that drove up his losses by nearly $2 billion in a single month, a London court heard on Friday.
"He was losing money and he kept doubling down thinking that eventually he'd make it back," Adoboli's former line manager John DiBacco told Southwark Crown Court.
British-educated Adoboli, the 32-year-old son of a retired U.N. diplomat from Ghana, is on trial for fraud and false accounting that cost the Swiss bank $2.3 billion. He has pleaded not guilty.
DiBacco rejected suggestions that UBS turned a blind eye to traders exceeding limits as long as deals were making money.
"Banks are interested in profits but we don't throw out the rules to make those profits," said DiBacco, who was dismissed by UBS as a result of the Adoboli affair.
Asked what was the impact of Adoboli's actions, he said it had damaged UBS's reputation and the interests of both shareholders and employees.
"If you blow a hole in the side of the firm, no one's getting paid," he said.
The trading culture at UBS has been a particular focus for Adoboli's defense team, who are seeking to convince the jury that others within the bank knew of and condoned his practices, and that traders were incentivized to take great risks.
Defence counsel Paul Garlick quoted from a November 2011 statement made by DiBacco, who was based in UBS's New York office, that the culture of the London trading floor was "risk-seeking and not risk-averse".
Garlick also read out parts of an electronic chat between Adoboli and fellow trader John Hughes in which the pair commented on a decision by senior managers that no positions should be taken that day because of market uncertainty.
The two traders referred to the senior managers as "spineless weasels" and "yes-men".
DiBacco agreed that the trading culture seemed more aggressive in London than in New York. But he rejected the idea that managers had incentivized Adoboli to flout the rules and were happy with transgressions as long as he made profits.
DiBacco said that when Adoboli's huge losses came to light within the bank on September 14, 2011, the trader told him of a history of unauthorized deals concealed by fictitious bookings into the accounts, dating back to October 2008.
Adoboli said he had made profits of between $15 million and $20 million that way between 2008 and 2010, DiBacco testified, but in 2011 the scale and pace of his illicit trading accelerated.
Against a backdrop of market turmoil caused by the Greek debt crisis, Adoboli increased his risk exposure to $500 million, then to $1 billion, incurring losses of $100 million at one point in July.
Later on that month, the market moved in his favor and he reduced his losses to $2 million, DiBacco said.
These positions were well in excess of the $100 million daily trading limit set by DiBacco in April 2011, when he took over management of the Exchange Traded Funds (ETFs) desk where Adoboli worked.
DiBacco said the trades also contravened his explicit instructions to Adoboli.
"I never knew he had $500 million exposure. In fact, I had conversations with him when I told him I wanted no position and he would say 'there's no position', when in truth what he had was billions of dollars in positions," said DiBacco.
By the end of August, DiBacco said, Adoboli's concealed risk exposure was $8.75 billion and his losses amounted to $2 billion, a thousand-fold increase on a month earlier.
DiBacco denied a suggestion by Adoboli's defence team that trading limits set for UBS traders were not clearly communicated or enforced. He said he personally told Adoboli and others on the ETFs desk what the limits were, verbally and in emails.
Garlick went through an exchange of emails dated June 23, 2011, in which Adoboli said the Exchange Traded Funds (ETFs) desk where he and Hughes worked had had a risk exposure of $200 million that day though they had now reduced it to $40 million, with a profit of $6 million to show for their day's work.
"Thanks for the update. Well done," DiBacco was quoted as saying in his first response to Adoboli's email.
Garlick said this showed DiBacco was fine with traders exceeding risk limits as long as they made money, but DiBacco disputed that, citing the follow-up email he sent seconds later.
"When over $100 million and certainly $200 million I need to know before not after ... If the PnL (profit and loss account) had gone the other way I don't want a lot of crap coming down on you alone," he wrote in the second email.
The trial continues on Tuesday.
(Editing by David Cowell; editing by Ron Askew)