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What: Shares of Swiss financial firm UBS (NYS: UBS) tumbled 11% today following a report that a rogue trader may have lost the company $2 billion in its investment trading division.
So what: According to various sources, Kweku Adoboli is being held by authorities following yesterday's discovery that he had run up $2 billion in trading losses while working for UBS. While $2 billion may not seem like a large sum for a bank the size of UBS, the storm generated from this bad press could be enough to tear apart an already tattered European banking sector. As of now it appears these trades were not authorized by UBS, but it does little to assuage investors' fears regarding UBS' ability to judge risks.
Now what: Even more damaging than the story itself is that UBS may report a third-quarter loss as a result of the anticipated writedown. While UBS may represent a compelling turnaround play years down the road, most European banks are facing a grim challenge in dealing with a bubbling debt crisis. I'd just take today's news as yet another reason to avoid European banks. The one exception to that rule would be U.K. banks such as Barclays (NYS: BCS) and Lloyds Banking Group (NYS: LYG) , which have very little Greek sovereign debt exposure.
At the time this article was published
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