Adoboli Says Bonus Was Lower Due to Profits Hidden in Umbrella

By Lindsay Fortado – Oct 29, 2012 8:03 AM ET .

Kweku Adoboli, the former UBS AG (UBSN) trader on trial for causing a $2.3 billion loss through unauthorized trades, said his 2011 bonus was lower than it could have been because he withheld profits in a secret internal account.

The account, dubbed his umbrella, was a pot of profit he set aside to cover the future costs of running the exchange-traded funds desk where he worked, Adoboli said during his second day of testimony at a London court where he is on trial accused of fraud and false accounting.

“By putting profit into the umbrella I’m effectively saying I’ve contributed less to this organization than I really have,” Adoboli said. “We knew there would be costs that the book would incur and we had to offset these costs.”

Former UBS trader Kweku Adoboli said, “We knew there would be costs that the book would incur and we had to offset these costs.” Photographer: Simon Dawson/Bloomberg

Adoboli, 32, is accused of hiding the risk of his trades by booking fake hedges, causing the Swiss bank a $2.3 billion trading loss. Prosecutors on Oct. 26 added two additional counts to the case related to the umbrella account. He has pleaded not guilty to all charges.

Adoboli said today that the other traders on the desk — John Hughes, Simon Taylor and Christophe Bertrand — knew about the umbrella and used it through him and on their own when he wasn’t available.

“We were all using the mechanism in various ways,” Adoboli said.

Online Chat

Adoboli’s lawyer, Paul Garlick, read an online chat from late March 2011 that didn’t involve Adoboli where Hughes and Taylor discussed the amount of profit in the umbrella account. Taylor said he thought there was $18 million, while Hughes said the actual figure was $19.6 million. The reported profit on the desk at the time was $14 million, Adoboli said.

He said his bonus that year was lower than what Hughes was paid and he was disappointed with the figure.

“As they communicated to me, they had tried extra hard to make sure I was rewarded,” Adoboli said. “I felt that meant they were happy with my contribution, and therefore I felt happy with my bonus.”

Prosecutors have said Adoboli exceeded his trading limits and booked fictitious hedges to conceal the risk he was taking with the aim of increasing “his bonus, his status within the bank, his job prospects and his ego.” His pay rose from 40,500 pounds in 2005 to 360,000 pounds, including bonus, according to the prosecution.

To contact the reporter on this story: Lindsay Fortado in London at lfortado@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net