LONDON - The American manager of Kweku M. Adoboli, a former UBS trader, told a court here on Friday that he was surprised by the size of some of the positions on the bank's London trading floor.
“I think there was a lot of risk-taking happening in London that was of a proprietary nature,'' the manager, John DiBacco, said he had told investigators from the accounting firm of KPMG who were examining the huge losses at UBS's exchange traded-funds desk in November 2011. “There was a culture that was risk-seeking, and not risk-averse.''
His testimony came during the seventh day of the trial of Mr. Adoboli, 32, who faces four counts of fraud and false accounting in connection with a $2.3 billion loss at UBS. He has pleaded not guilty to the charges.
In Southwark Crown Court in London, the boyish-looking Mr. DiBacco was cross-examined for more than three hours by Mr. Adoboli's lawyer, Paul Garlick, whose questions appeared to be aimed at showing the Swiss bank was fully aware of his client's activities and that his trading was in line with the risk-taking culture in London.
Mr. DiBacco was the former global head of synthetic equity trading at UBS and Mr. Adoboli's boss before he was terminated in January 2012 for failure to supervise. Mr. DiBacco said he disagreed with UBS's assessment of his performance.
Earlier on Friday, a prosecutor, Sasha Wass, focused on the risk limits Mr. DiBacco placed on the London trading desk when he took it over in April 2011.
Mr. DiBacco, dressed in a blue pin-striped suit, pale blue shirt and red silk tie, testified that in late July 2011 he telephoned Mr. Adoboli while on vacation in Colorado and ordered him to cut the risk in his trading book.
Mr. DiBacco said he remembered the conversation with the trader “very clearly'' because he was speaking on the telephone in front of his girlfriend who was “not particularly pleased'' that he was talking about markets and r isk while on vacation.
“Shut everything down,'' Mr. DiBacco said he told Mr. Adoboli. “I want no risk.''
A few weeks later, in August, Mr. DiBacco said he was alerted by one of UBS's managers in the United State that a futures trade had not been booked. When he learned that the trade had been executed by the exchange-traded fund desk in London, Mr. DiBacco telephoned the desk. Failing to reach anyone, he called Mr. Adoboli on his cellphone.
“What the hell is going on?†he said he asked Mr. Adoboli.
The trader replied that he forgot, Mr. DiBacco said. At the time, London was being roiled by street riots, but Mr. DiBacco said he told Mr. Adoboli to return to the office that evening and book the trades.
At the end of the month, Mr. DiBacco said he visited the London office after he was troubled by his inability to get a clear handle on the E.T.F. desk's profits and losses. But it was only on Sept. 14, when Mr. Adoboli sent him an e-ma il that the prosecution has said outlined fictitious trading activities, that he realized what was happening, he said. Mr. DiBacco said he read the e-mail twice, because he couldn't believe it, before showing it on his BlackBerry to his own boss.
At a face-to-face meeting with Mr. Adoboli later that day, Mr. DiBacco said he learned that the trader's losses had spiraled up to $2 billion from $2 million in the span of a month. Mr. Adoboli, he said, had about $100 million in losses in July, which he had pared down to $2 million as the market rallied during the month. But the losses ballooned again in August. When Mr. DiBacco asked Mr. Adoboli at the meeting why he engaged in the fictitious trades, he said that Mr. Adoboli told him that wanted to make money for UBS.
During the cross-examination, Mr. Adoboli's lawyer asked about a reply Mr. DiBacco sent to a June 23 e-mail from Mr. Adoboli. In the e-mail, Mr. Adoboli said he was running a $200 million position, whi ch breached the desk's risk limits, but made a $6 million profit. Mr. DiBacco, who was in a meeting when he got the e-mail, replied: “Thanks for the update. Well done.''
That did not sound “very censorious,†the lawyer, Mr. Garlick said. “The culture of the bank at the time is if traders were making big profits you cast a blind eye over the risks.''
Mr. DiBacco said that he forwarded Mr. Adoboli's e-mail to his boss, Ricardo Honegger, which was a “pretty aggressive action'' and that he sent a subsequent e-mail a few minutes later to Mr. Adoboli saying: “When over $100 million and certainly over $200 million I need to know before, not after.''
The strain of the day-long testimony showed as Mr. DiBacco snapped at Mr. Garlick at one point. It didn't help that, as is the custom in London, Mr. DiBacco had to stand while giving testimony all day.
