Alleged rogue trader Kweku Adoboli exposed Swiss bank UBS to billions of dollars of hidden market risk for weeks on end, peaking at nearly $12 billion on August 8 last year, a London court heard on Tuesday.
Adoboli disguised his true trading position with fictitious hedging trades that made it look as though the apparent risk to the bank that day was only $2.3 million, according to evidence heard at Southwark Crown Court.
"This level of risk-taking is completely out of proportion with anything that would have been countenanced," said Ruwan Weerasekera, chief operating officer of securities at UBS's investment banking arm.
Adoboli, 32, was arrested on September 15, 2011, and is on trial accused of fraud and false accounting that cost the Swiss bank $2.3 billion. He has pleaded not guilty.
Appearing as a prosecution witness, Weerasekera answered questions about an in-house investigation into the Adoboli affair, which he headed.
He said its three main findings were that Adoboli had conducted real trades exposing UBS to levels of risk that went well beyond his authorized limits, that he had booked tens of thousands of fake transactions that masked his true positions, and that he had booked many deals late or inaccurately.
The jury were shown tables of figures and graphs produced by Weerasekera that he said showed Adoboli's true trading positions alongside the inaccurate figures he had booked in the bank's systems at the time.
The figures showed that the sums involved in his real trading increased dramatically over the summer of 2011 just as worries about the euro zone debt crisis were building up and markets became increasingly jumpy.
In the last week of June, Adoboli built up a short position - meaning he was betting on markets falling - but he got stung when securities rose after Greece, the country at the heart of the crisis, adopted measures to address its deficit.
Adoboli's actual risk exposure rose from $31 million on June 23 to $1.49 billion on June 30, when his reported risk was $41.9 million.
On July 1, he flipped to a long position - meaning he was now hoping for a rally in market prices - which he maintained until August 10.
But in July and August 2011, markets wobbled as concerns about the euro zone were ratcheted up again along with fears about a credit rating downgrade of the United States.
Opening the case last month, prosecutor Sasha Wass cited the $12 billion figure as putting UBS's future at risk. That contention was not repeated in court on Tuesday.
The court had previously heard that on September 14, 2011, when Adoboli's true positions first came to light within the bank, the risk exposure was around $8.75 billion.
The trial continues.
(Reporting by Estelle Shirbon; Editing by John Stonestreet)