UBS AG said a rogue trader racked up as much as $2 billion in losses using the firm's own money, a dramatic admission that raised new questions about the ability of one of the world's largest banks to manage risk and global regulators' ability to monitor it. 
 
 The losses stemmed from unauthorized derivatives-trading bets, according to a person familiar with the matter. The bank said no client positions were affected. 
 
 The... ||||| A 31 year old man has been arrested by City of London Police on suspicion of fraud in connection with the alleged rogue trading incident that has cost Swiss bank UBS around $2bn (£1.3bn). 
 
 The Zurich-based bank uncovered the incident as recently as the last 24 hours and suffered a near 10% fall in share price in early trading after it revealed the loss could push the bank into the red for the current financial quarter. 
 
 The City of London Police arrested a 31 year old man at 3.30am in Central London on "suspicion of fraud by abuse of position". He remains in police custody and the force has begun an investigation .The Financial Services Authority, the City regulator, is understood to have been informed of the incident. 
 
 In a brief statement, UBS said that was still trying to get to the bottom of the matter, which was announced on the third anniversary of the collapse of Lehman Brothers. 
 
 "UBS has discovered a loss due to unauthorised trading by a trader in its investment bank. The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2bn. It is possible that this could lead UBS to report a loss for the third quarter of 2011." It added that "no client positions were affected". 
 
 UBS refused to say where the trader is based, or give any further detail about how the loss was incurred. 
 
 UBS's headquarters are in Zurich, but the bank operates in many financial centres, including the UK where it employs around 6,000 people, largely in the City. 
 
 Banking experts said the loss was a major blow to UBS's reputation, and that of the wider financial sector. 
 
 Simon Ballard, senior credit strategist at RBC Capital Markets, said the trading loss would add to public concern over the banking sector. 
 
 "At a time of greater regulation, it will raise questions about regulatory capital and whether ringfences are in place to stop this happening," Ballard told Bloomberg TV. 
 
 ZKB trading analyst Claude Zehnder told Reuters that UBS bankers "obviously have a problem with risk management". 
 
 "Even when the amount isn't so high it is once more a loss of confidence that casts UBS in a poor light," he said. 
 
 Last month, UBS announced plans to cut 3,500 jobs as part of a £1.5bn cost reduction plan. 
 
 It suffered huge losses during the financial crisis, but returned to profit in February 2010. 
 
 The cost of insuring UBS's debt against default rose by around 7% on Thursday morning, according to Gavan Nolan of Markit, before dropping back as traders digested the implications of the loss. ||||| FILE - The Oct. 7, 2010 file photo shows workers repairing a lamp at the UBS bank in Zurich, Switzerland. Swiss bank UBS AG said Thursday, Sept. 15, 2011 it has discovered that unauthorized trading by... (Associated Press) 
 
 Swiss banking giant UBS said Thursday that a rogue trader has caused it an estimated loss of $2 billion, stunning a beleaguered banking industry that has proven vulnerable to unauthorized trades. Police in London said they arrested a 31-year-old man in connection with the loss. 
 
 Switzerland's Neue Zuercher Zeitung, a newspaper widely read in Swiss banking circles, reported the trader worked at UBS's equities division in London. A spokesman for the bank, Yves Kaufmann, declined to confirm the report. 
 
 The Swiss banking regulator Finma said it was in contact with the bank about the incident. 
 
 "From the scale of this case you can be sure that it's the biggest we've ever seen for a Swiss bank," Finma spokesman Tobias Lux told The Associated Press. 
 
 Switzerland's largest bank warned that it could report a loss for the entire third quarter as a result of the rogue trade, sending its shares plummeting. 
 
 The alleged rogue trading evoked memories of the 2008 debacle that befell Societe Generale, France's second-largest bank, which stunned investors when it revealed that one of its staff had lost the bank euro4.9 billion ($6.7 billion) through a complex scheme of unauthorized trades. 
 
 The trader, Jerome Kerviel, was convicted in October 2010 on charges of forgery, breach of trust and unauthorized computer use for covering up bets worth nearly euro50 billion between late 2007 and early 2008. 
 
 UBS provided little specific information on the incident, saying it was still under investigation and no client money was involved. The unauthorized trades could cost UBS almost as much as the 2 billion Swiss francs ($2.28 billion) the bank said last month it hoped to save by cutting 3,500 jobs over two years. 
 
 It comes as UBS is struggling to restore its reputation after heavy subprime losses during the financial crisis that resulted in a government bailout, and an embarrassing U.S. tax evasion case that blew a hole in Switzerland's storied tradition of banking secrecy. 
 
 By coincidence, the Swiss parliament was slated to debate the future of the country's banking industry Thursday. Lawmakers are being asked to consider proposals to ensure that Switzerland's two biggest banks _ UBS and Credit Suisse Group _ are brought under tighter control as they are considered "too big to fail." 
 
 Shares in UBS AG plummeted almost 8 percent to 10.07 francs ($11.54) on the Zurich exchange by early afternoon. 
 
 In a terse statement shortly before markets opened Thursday, the bank informed investors that "UBS has discovered a loss due to unauthorized trading by a trader in its investment bank." 
 
 "UBS's current estimate of the loss on the trades is in the range of $2 billion," it added. "It is possible that this could lead UBS to report a loss for the third quarter of 2011." 
 
 In a letter sent to its employees, the bank said it regretted that the incident came at a difficult time. 
 
 "Although the news is regrettable, the fundamental strengths of the company won't be affected by this," the note said. "We ask that you continue concentrating on your customers. In these uncertain times they are counting on your support." 
 
 It promised to keep employees briefed on developments in the case. 
 
 Peter Thorne, a London-based equities analyst at Helvea, said the loss was financially manageable for UBS, Switzerland's biggest bank. But he said it was a blow to the reputation of UBS and its management, and reinforced the case of slimming down the investment banking unit. 
 
 UBS chief executive Oswal Gruebel recently warned that the bank wouldn't achieve its aim for a pretax profit of 15 billion francs a year by 2014. UBS earned some 2.8 billion francs during the first half of the year, with the investment bank contributing 1.2 billion before tax. 
 
 In the Societe Generale case, Kerviel was banned for life from working in the financial industry and ordered to pay back the vast amount he had caused his employer to lose. 
 
 Nick Leeson, a British trader working in Singapore for Barings Bank, made unauthorized futures trades that lost more than $1 billion and led to the venerable bank's collapse in 1995. The infamous case prompted banks worldwide to tighten their internal checks. 
 
 Leeson was released from a Singapore jail in 1998 for good behavior after serving 3 1/2 years of a 6 1/2-year sentence. He claimed he did not make a cent from his disastrous trades but Barings' liquidators sought the return of 100 million pounds on any of his earnings relating to Barings. 
 
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 John Heilprin in Geneva and Bob Barr in London contributed to this report.
– A rogue trader at UBS has lost around $2 billion, the Swiss banking giant says. The unauthorized trades by a trader in its investment banking unit "could lead UBS to report a loss for the third quarter of 2011," but "no client positions were affected," the bank said in a statement that offered few other details. Shares in UBS dived almost 10% in early trading after the announcement, which arrived on the third anniversary of Lehman Brothers' declaration of bankruptcy, the Guardian notes. The Wall Street Journal identifies the 31-year-old, who was arrested by British police at 3:30am UK time today, as Kweku Adoboli. He reportedly worked in London, at UBS' trading desk for exchange-traded funds. The AP notes that the unauthorized trades could erase nearly all of the 2 billion Swiss francs ($2.28 billion) UBS last month announced that it hoped to save by doing away with 3,500 jobs over two years.