UBS trader Kweku Adoboli rode a deal making rollercoaster in the summer of 2011 that drove up his losses by nearly $2 billion in a single month, a London court heard on Friday.
"He was losing money and he kept doubling down thinking that eventually he'd make it back," former line manager John DiBacco told Southwark Crown Court.
Adoboli, the 32-year-old son of a U.N. diplomat from Ghana, has denied charges of fraud and false accounting that cost the Swiss bank $2.3 billion.
DiBacco rejected suggestions that UBS turned a blind eye to traders exceeding limits as long as deals were making money.
"Banks are interested in profits but we don't throw out the rules to make those profits," said DiBacco, Adoboli's immediate line manager from April, 2011. DiBacco was later dismissed by UBS.
DiBacco said that when Adoboli's huge losses came to light within UBS on September 14, 2011, the trader told him of a history of unauthorized deals concealed by fictitious bookings into the accounts, dating back to October 2008.
Adoboli said he had made profits of between $15 million and $20 million that way between 2008 and 2010, DiBacco testified, but in 2011 the scale and pace of his illicit trading accelerated.
"From June, he told me his performance was all over the place," DiBacco said.
Against a backdrop of market turmoil caused by the Greek debt crisis, Adoboli increased his risk exposure to $500 million, then to $1 billion, incurring losses of $100 million at one point in July.
Later on that month, the market moved in his favor and he reduced his losses to $2 million., DiBacco said.
"SHUT EVERYTHING DOWN"
These positions were well in excess of the $100 million daily trading limit set by DiBacco in April 2011, when he took over management of the Exchange Traded Funds (ETFs) desk where Adoboli worked.
DiBacco said the trades also contravened his explicit instructions to Adoboli.
"I never knew he had $500 million exposure. In fact, I had conversations with him when I told him I wanted no position and he would say 'there's no position', when in truth what he had was billions of dollars in positions," said DiBacco.
He told the jury about one exchange in early August.
"I was on vacation in Colorado and I called the (ETFs) desk. I remember it very clearly because it was in front of my girlfriend and she wasn't particularly pleased that I was on the phone while on vacation talking about markets and risk.
"I said (to Adoboli) 'I want no risk. Shut everything down. I want nothing. I want no spreads'," he said.
Instead, DiBacco said, Adoboli traded more and more with disastrous consequences because the market repeatedly moved against him.
By the end of August Adoboli's concealed risk exposure was $8.75 billion and his losses amounted to $2 billion, a thousand-fold increase on a month earlier.
"NO ONE'S GETTING PAID"
DiBacco denied a suggestion by Adoboli's defense team that trading limits set for UBS traders were not clearly communicated.
He said he personally told Adoboli and others on the ETFs desk what the limits were, verbally and in emails.
DiBacco said it was possible that the limits would sometimes be breached for practical reasons, but in those cases he expected traders to notify him, which Adoboli never did.
Asked what was the impact of Adoboli's actions, he said it had damaged UBS's reputation and the interests of both shareholders and employees.
"If you blow a hole in the side of the firm, no one's getting paid."
(Editing by David Cowell)