They Call it Trading, I call it gambling.

UBS Trader in $2 Billion Loss on Unauthorized Trade

Switzerland's UBS said on Thursday it had discovered unauthorized trading by a trader in its investment bank had caused a loss of some $2 billion.

"The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion," the bank said in a brief statement just before the stock market opened."It is possible that this could lead UBS to report a loss for the third quarter of 2011.No client positions were affected."

UBS shares immediately tumbled 8 percent at the open and were trading down 5.8 percent at 10.30 francs at 0714 GMT, compared with a flat European banking sector index [.SX7P  127.23    1.40  (+1.11%)   ] .

"It is amazing that this is still possible," said ZKB trading analyst Claude Zehnder. "They obviously have a problem with risk management. Even when the amount isn't so high it is once more a loss of confidence that casts UBS in a poor light."

"With this they are losing a lot of credit that they had regained with effort," he added.

UBS had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank.

UBS AG announced last month it is to axe 3,500 jobs to shave 2 billion Swiss francs ($2.3 billion) off annual costs as it joins rival investment banks in reversing the post-crisis hiring binge and preparing for a tough few years.

Investment banks worldwide have been hit by slow trading due to the debt problems in the euro zone and United States, as well as regulations aimed at forcing banks to hold more capital to protect them from future shocks after the 2008 global financial crisis.

UBS expects to book a restructuring charge due to the job cuts of some 550 million francs, and around 450 million francs of this will be booked in the second half of the year, with the majority recognized in the third quarter.

Let There be cleanup.

Euro Crisis: Derivatives Cloud the Possible Fallout From a Greek Default - CNBC

In years past, when financial crises in Argentina and Russia left those countries unable to make good on their government debts, they simply defaulted. But this time around, swaps and other sorts of contracts have become so common and so intertwined in the financial markets that there are fears among regulators and financial players about how a Greek default would play out among derivatives holders.
The looming uncertainties are whether these contracts — which insure against possibilities like a Greek default — are concentrated in the hands of a few companies, and if these companies will be able to pay out billions of dollars to cover losses during a default.