An 'expert' loses $2 billion? Only on Wall Street

Such a whopping loss on one guy's gamble couldn't have come at a worse time for UBS, and it will likely force the bank into the red for the quarter.

By InvestorPlace Sep 15, 2011 9:04AM
By Jeff Reeves, InvestorPlace.com

We learned overnight that a "rogue" trader at Swiss bank UBS (UBS) bled out a stunning $2 billion at the company's investment division in the third quarter. These are not clients working with UBS brokers, mind you, but one yeahoo playing with house money to enrich this banking giant and its corporate overlords.


Makes you really wonder who these "experts" are.


UBS shares were slumping by 9% to $11.50 in early trading Thursday on news of the impairment charge the bank should book for the quarter as a result. It's bad enough that there are massive layoffs happening at the bank, bad housing loans that continue to take a toll, the specter of a sovereign debt crisis weighing on credit markets and all the other mayhem in the financial sector. Suffering a $2 billion loss at UBS thanks to one guy's gamble couldn't have come at a worse time, and it likely will force the company into the red for the quarter.


Post continues below.

What really burns me up about this whole thing is the fact that traders like this are put in ivory towers during the boom times and treated like they are somehow smarter than the rest of us. But come on. Iif either you or I were picking stocks and just tracked the market from 2004 to 2007, our "genius" would have returned a hefty 40%. I certainly wouldn't have refused the bonus check, but the reality is traders during these years were just in the right place at the right time.

This UBS debacle is a painful example of just how utterly run-of-the-mill many of these Wall Street "experts" really are. How much cash would you have to be playing with to lose $2 billion in a quarter? I'd like to think that I wouldn't take such extreme risks to suffer a loss of every penny. And even if I were playing fast and loose, I highly doubt I could crap out so utterly fantastically. I'm sure you feel the same way -- and probably have a shoebox of brokerage statements to prove the good calls you've made in your life.


The market flopped about 16% from its July peak to its August low, so I'm assuming that's where the trouble came in. But even if you bought a triple-leveraged ETF like the Direxion 3X Bull Financial ETF (FAS) because you somehow believed banks were magically on the mend, you would have lost "only" 37%. (Lest you criticize my math, remember that 3X funds are never a true triple up or down because of fees and other factors.)

Think about that. If UBS gave you or me $3.2 billion, then allowed us to plow every cent into a leveraged investment that was predicting a surge in the financial sector, I would have tallied the same performance as this "rogue" trader.


Wow.

It's times like this that make you wonder why the heck we care a whit about what Wall Street says about the overall market trend, earnings estimates or the political environment in Washington, D.C. "Experts" don't make moves like this.


Lest you think this is an isolated incident, I distinctly remember a Merrill Lynch trader getting in deep doo-doo for a roughly $450 million currency loss amid the financial crisis and then trying to cook the books and cover his loss after the fact. There are other tales, but these two are some of the most dramatic examples in recent memory.

On the plus side, perhaps there's an opportunity for you and me in this mess. I'm photocopying statements from my brokerage account later today and sending them over to UBS as proof of my investing acumen.


I hear there will be a job opening on the trading floor very soon.


What's your biggest investing triumph of the past few years? Share it here in the comment section below and I'll pass it on to UBS!


Jeff

Jeff Reevesis the editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.





Related Articles

48Comments
Sep 15, 2011 11:38AM
avatar
Just another ponzi/pyramid scheme that tanked. Wall street makes no useful products, it's just a big scam like insurance.
Sep 15, 2011 11:35AM
avatar

simple........it's not his money = he does not give a chit !!!

 

He should go to jail !!! 

Sep 15, 2011 10:38AM
avatar

Guess the "Expert" put the Chips on the Wrong Number at the Roulette Wheel.

 

Rogue Trader My ****. They Picked His Name out of a Hat. Probably doing EXACTLY what his

BOSSES told him to do. This whole "Rogue" thing is just a smoke screen to COVER Up the

Fact that the BOSSES don't have a Clue. Seriously. Who would Invest in a Bank that had such

poor control over what it's Employees are doing ?

Sep 15, 2011 10:16AM
avatar
The same 'experts' that run AIG, Bank of America, Lehman Bros., and this country.
avatar
They will probably promote him to CEO...Fire him and give him a severence package of $4,000,000,0000. That's the norm for the financial world. Oh!!! I forgot. He will probably get 1 day jail time of house arrest. Great system. 
avatar
LOL and these are the people that run the world and the worlds finances ! When will the people learn ? And I bet this moron will get a nice bonus and severance package too . WOW ! 2 Billion gone and I bet they will ask the people to foot that bill as well . No wonder the free market sucks .
Sep 15, 2011 12:13PM
avatar

This **** is just a patsy.  The big boys told him, "hey, we are going to need a goat here.  You are a complete waste of space anyway, so we have decided you would be the perfect front man for a 2 billion dollar shift in tax deductable "losses".  OK? OK.  Now go out there, make yourself accessible to the tabloids and MSN and tell them how much of a screw up you are.  Your check will be in the mail".

 

USB head honchos would have buried this guy without anyone ever taking notice if they did not actaully want this idiot taking the fall for their inadequacy and poor financial decision making.

Sep 15, 2011 10:40AM
avatar

Pick me! Pick me! - I want a crack at the 2 billion....I think I could double it.......and if you believe that - then you probably believe only one man is responsible......

avatar
The markets are nothing more than a trip to Vegas ! Why don't they close them all ? They have experts ? I mean really an expert in what Gambling ?  That is what all this really is no ? Taking a huge risk and gambling that it will pay off in the end . It would be better to go to Vegas and play the slots you odds are far better on a real return on your investment !
Sep 15, 2011 10:18AM
avatar

Just to answer the title, because in economics there are no experts.  The picture says it all, roll the dice.

Sep 15, 2011 10:15AM
avatar
LET B OF A FAIL ,THEY ARE EVEN WORSE
Sep 15, 2011 11:15AM
avatar

 

KramRegnowsin:  I wish I had a job where I could be a complete screw-up and still get a nice salary and hefty bonus.
Kram, hey, your dream job is now available.  Yahoo is looking for a new CEO.  Not only will you get nice salary and hefty bonuses, their severance package is unbelievable.
Sep 15, 2011 11:06AM
avatar
I wish I had a job where I could be a complete screw-up and still get a nice salary and hefty bonus.
Sep 15, 2011 10:25AM
avatar
if this guy made 2 billion he would be a genius instead of a criminal. the real crooks at the top always blame someone else. they give themselves a big bonus either way, they could not care less about this..
Sep 15, 2011 1:06PM
avatar
I used to work on wall street and most of it truly is a scam.  The prevailing mentaility is "how can I get away with cheating money form people?"   It is important that the markets exist, for the liquidity they offer our economy is critical.  But at the same time all the day trading and finacial leveraging and trading derivatives is a giant industry that makes it's money by scimming off the top of the flow.  They add no value to society and in fact detract from it.  There needs to be heavy taxes on short term capital gains to discourage this scimming of the rest of  the economy's worth.
Sep 15, 2011 11:09AM
avatar
It's easy to loose 2 bil, you're playing at a table with someone else's loaded dice. Stock market is no different from a  c r a p  table, just the computer progams selling and buying can hurt you, not to mention very few of these company's are worth their stock price to begin with, as they juggle their own books to make themselves look good... It's all a Ponzi scheme folks...
avatar
HOW DOES AN EXPERT LOSE 2 BILLION $?

 

Those who have been touted as experts are the same experts that put the world in the financial hardships that engulf us all...................by flaunting and showcasing those expert level skills!

Sep 15, 2011 12:05PM
avatar
Axeman.tell that to the guy who watched his SEP drop 12 grand in the last 4 months. Somebody is getting paid and it certainly is not the little man. The stock market has morphed in to a full fleged scam. 
Sep 15, 2011 12:00PM
avatar

the reason for the loss is management and those in the middle office or risk management office

every trade that is made must correspond to a limit as to counterparty, limit by currency, limit by

maturity date which are suppose to be monitored in real time. the back office is to keep track of the trading ticket numbers and control that a trader has no more than one 50 ticket book at one time.

this is done by paper or paperless but controlled by the back office. the back office is suppose to control confirms received by counterparties to protect from phantom trades. if people were doing their jobs a loss of this amount could never happen.

having been in charge of a middle office in the 1990's and with computer updates of today this should have been impossible.

Sep 15, 2011 12:28PM
avatar

Wall street has become a joke. The people of wall street don't care about this country or it's people.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124
124 rated 1
282
282 rated 2
455
455 rated 3
624
624 rated 4
642
642 rated 5
665
665 rated 6
610
610 rated 7
460
460 rated 8
287
287 rated 9
167
167 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
TWXTIME WARNER Inc10
BBBYBED BATH & BEYOND INC10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.