The Investor Is Fleeing, and Other Market Myths












Our 220-year-old stock market is a powerful assemblage of companies, strategies, directors, flacks, hucksters, and heroes joined by a spirit of capitalism that can marry Taco Bell (YUM) with Doritos.


But why stop at that if you’re the financial services industry? What’s especially great about the market is how nicely it lends itself to marketing razzle-dazzle: “value-add,” as they call it on the Street. How else would a mutual fund industry whose active managers generally lag their market benchmarks still be worth nearly $ 12 trillion?












In his provocative post this week, “Everything You Know About Investing is Wrong,” blogging broker Barry Ritholtz shows us how metrics such as dividend yields, economic growth, the Fed Model, profit margins, and past stock returns—what he calls “the assumed truths of Wall Street”—“fail to withstand close scrutiny as having forecasting value.”


While sipping my annual pre-prandial Thanksgiving Courvoisier, I stumbled on a great piece of similarly demystifying research from Birinyi Associates entitled “Six Myths of the Market.” The firm, which was founded by ex-Salomon Brothers trader Laslzo Birinyi, called the market’s generational bottom in March 2009. Authors Jeffrey Yale Rubin and Kevin Pleines penned the note to take on some generally accepted half-truths of investing.


“With the S&P 500 down 5 percent from its mid-September high,” they write, “the chorus of investors and strategists suggesting that this is the start of something bigger has grown louder. With the decline, some new and some not new ideas are being bounced around in support of the negative case. We thought we would take this opportunity to review the accuracy of some of the arguments for the negative thesis.”


That intro is accompanied by a series of charts that show that the 10 U.S. bull markets since 1962 have experienced no fewer than 95 “corrections” of 5 percent or greater.


The current bull run alone has had 17, so you can understand why investors have bolted the market en masse. Or have they? Let’s start with the most eye-opening Birinyi finding:


Myth: The individual is selling.


Haven’t you heard? Investors, wherever they may be, want no part of this three-and-a-half-year bull market. They got burned in the dot-bomb and in 2008; three times would just be too suckerish. And so money continues to storm out of equity mutual funds—to the tune of $ 97 billion in just the first 10 months of the year, and multiples of that over the past four years.


“However,” notes the Birinyi report, “what most research is missing is the offsetting net inflows into equity ETFs over the same period.” Since March 2009, the authors write, there has been a cumulative net outflow from equity mutual funds of $ 242 billion, but an inflow of $ 270 billion to equity ETFs: “In other words, [investors] have increased their exposure to equities.”


For the first 10 months of 2012, the report says, the offset results in a $ 6 billion net outflow—“a far cry from the figures that are most often cited.” This comes as Vanguard index funds have had a net 2012 inflow of $ 88 billion, and while ETF providers slug it out on fees. So much for “Death of Equities Redux.” Rubin and Pleines accordingly “wonder if investors are not necessarily saying that they disliked stocks as much as they are suggesting they disliked actively managed mutual funds.”


Myth: Tax increases are negative for stocks.


The fiscal cliff is supposed to be Armageddon for the market. There have been no shortage of notes from Wall Street and Washington reminding us of how suddenly increased taxes on dividends and capital gains, paired with investing surcharges and the GDP body-blow of automatic budget cuts, will kill equities.


And yet markets are up nicely year-to-date, and actually not far off their record high. How can traders be so maladroit in their anticipation?


Rubin and Pleines note that while there’s never been such a large one-two punch of spending cuts and tax increases, there have been other instances where capital-gains taxes have increased, and significantly more so than they are set to rise this go-around. “We would caution that this time may be different given the combination of tax increases and spending cuts,” they write, “but in the previous two increases since 1942 in the capital-gains tax rate, the record for stocks is mixed, having rallied once and declined once.” In 1976, markets swooned after the top rate increased from 25 percent to 35 percent; a decade later, they went up after the top bracket increased from 20 percent to 33 percent.


Myth: The market is expensive.


Says the report: “Bears have argued almost since day one that the market is not attractive, and if we look at the ten-year trailing normalized earnings approach (usually associated with Robert Shiller), we should be concerned. First, we are always suspicious of contrived or artificial measures. Why ten years, why not a normal economic growth recession cycle (approximately 61 months) or ‘usual’ bull-bear cycle? Or why ten and not five?”


When Rubin and Pleines use “the conventional approach of market multiples (trailing 12 month earnings),” they calculate the S&P 500 trades at 14.8 times earnings, compared with an 85-year average of 16 times.


“Mr. Shiller’s record,” they add, “is less than compelling. In the March 30, 2009, issue of Forbes he said that his P/E calculation would have to drop another two points before he would buy. Given that the magazine has at least a two-week lead time, it was probably made around the second week of March 15, exactly when the market was hitting its low. Since then the market is up 110 percent.”


Myth: Corporate profits will disappoint.


“This mantra has been a hallmark of the bears for the past three years,” Rubin and Pleines note, “yet each quarter earnings have exceeded forecasts.” They point out how this past quarter’s overly curbed enthusiasm was no different, as analysts were looking for a 2 percent earnings contraction, “but when all was said and done earnings grew at a 4.7 percent pace.”


Rubin and Pleines do concede that earnings estimates for the fourth quarter and next year have been declining, “but given analysts’ track record of forecasting earnings, we are skeptical that this time will be any different.”


Myth: Technology is a canary in the coal mine.


“The 11 percent decline in technology stocks since mid-September has led some to suggest that a steeper decline is imminent for the S&P,” write Rubin and Pleines. After all, Apple (AAPL), the market’s biggest weighting—and (probably) consensus indicator species—recently lost as much as a quarter of its peak value. The reality: The relationship between technology corrections and the broader market is “hardly a strong one.” The report notes that since 1982, technology stocks have had 39 declines of at least 10 percent, while the S&P 500 experienced a 10 percent correction just eight of those 39 times.


For those keeping score at home, the tech-laden Nasdaq would have to rally 70 percent to revisit the bubblicious high it set in early 2000.


Myth: Corporations have been building cash reserves.


A grain of salt for an otherwise bullish research note: The notion that corporations “have excessively high cash positions which will be spent once the fiscal cliff is resolved is not supported by the data.”


There goes one fine meme for us financial journos: record corporate cash, itching for a place to go.


The report’s authors explain that excluding financial companies, balance-sheet cash of the S&P 500 stands at $ 787 billion, which is just below the record $ 819 billion set at the end of last year. But they then present a chart that shows corporations have actually lugged record cash during nearly every quarter since 1990. “Why now,” they ask, “will this be spent after 20+ years of record readings?”


When they adjust cash holdings by company market value, Rubin and Pleines find that cash is in fact not at a record, and has not been for more than three years.


Not that this scuppers Birinyi Associates’ view that the S&P 500 is headed to highs unseen since the mythical era when Lehman and Bear roamed the earth.


Businessweek.com — Top News


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Mexican beauty queen killed in shootout












CULIACAN, Mexico (AP) — A 20-year-old state beauty queen died in a gun battle between soldiers and the alleged gang of drug traffickers she was traveling with in a scene befitting the hit movie “Miss Bala,” or “Miss Bullet,” about Mexico’s not uncommon ties between narcos and beautiful pageant contestants.


The body of Maria Susana Flores Gamez was found Saturday lying near an assault rifle on a rural road in a mountainous area of the drug-plagued state of Sinaloa, the chief state prosecutor said Monday. It was unclear if she had used the weapon.












“She was with the gang of criminals, but we cannot say whether she participated in the shootout,” state prosecutor Marco Antonio Higuera said. “That’s what we’re going to have to investigate.”


The slender, 5-foot-7-inch brunette was voted the 2012 Woman of Sinaloa in a beauty pageant in February. In June, the model competed with other seven contestants for the more prestigious state beauty contest, Our Beauty Sinaloa, but didn’t win. The Our Beauty state winners compete for the Miss Mexico title, whose holder represents the country in the international Miss Universe.


Higuera said Flores Gamez was traveling in one of the vehicles that engaged soldiers in an hours-long chase and running gun battle on Saturday near her native city of Guamuchil in the state of Sinaloa, home to Mexico’s most powerful drug cartel. Higuera said two other members of the drug gang were killed and four were detained.


The shootout began when the gunmen opened fire on a Mexican army patrol. Soldiers gave chase and cornered the gang at a safe house in the town of Mocorito. The other men escaped, and the gunbattle continued along a nearby roadway, where the gang’s vehicles were eventually stopped. Six vehicles, drugs and weapons were seized following the confrontation.


It was at least the third instance in which a beauty queen or pageant contestants have been linked to Mexico’s violent drug gangs, a theme so common it was the subject of a critically acclaimed 2011 movie.


In “Miss Bala,” Mexico’s official submission to the Best Foreign Language Film category of this year’s Academy Awards, a young woman competing for Miss Baja California becomes an unwilling participant in a drug-running ring, finally getting arrested for deeds she was forced into performing.


In real life, former Miss Sinaloa Laura Zuniga was stripped of her 2008 crown in the Hispanoamerican Queen pageant after she was detained on suspicion of drug and weapons violations. She was later released without charges.


Zuniga was detained in western Mexico in late 2010 along with seven men, some of them suspected drug traffickers. Authorities found a large stash of weapons, ammunition and $ 53,300 with them inside a vehicle.


In 2011, a Colombian former model and pageant contestant was detained along with Jose Jorge Balderas, an accused drug trafficker and suspect in the 2010 bar shooting of Salvador Cabanas, a former star for Paraguay‘s national football team and Mexico’s Club America. She was also later released.


Higuera said Flores Gamez’s body has been turned over to relatives for burial.


“This is a sad situation,” Higuera told a local radio station. She had been enrolled in media courses at a local university, and had been modeling and in pageants since at least 2009.


Javier Valdez, the author of a 2009 book about narco ties to beauty pageants entitled “Miss Narco,” said “this is a recurrent story.”


“There is a relationship, sometimes pleasant and sometimes tragic, between organized crime and the beauty queens, the pageants, the beauty industry itself,” Valdez said.


“It is a question of privilege, power, money, but also a question of need,” said Valdez. “For a lot of these young women, it is easy to get involved with organized crime, in a country that doesn’t offer many opportunities for young people.”


Sometimes drug traffickers seek out beauty queens, but sometimes the models themselves look for narco boyfriends, Valdez said.


“I once wrote about a girl I knew of who was desperate to get a narco boyfriend,” he said. “She practically took out a classified ad saying ‘Looking for a Narco’.”


The stories seldom end well. In the best of cases, a beautiful woman with a tear-stained face is marched before the press in handcuffs. In the worst of cases, they simply disappear.


“They are disposable objects, the lowest link in the chain of criminal organizations, the young men recruited as gunmen and the pretty young women who are tossed away in two or three years, or are turned into police or killed,” Valdez said.


___


Associated Press Writer E. Eduardo Castillo contributed to this report


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India: 2 policemen suspended, magistrate transferred for arrest of 2 women over Facebook post












NEW DELHI – An Indian official says two senior policemen have been suspended for arresting two women over a Facebook post criticizing the shutdown of Mumbai for the funeral of a powerful politician.


Maharashtra state Home Minister R.R. Patil said Tuesday the policemen were suspended indefinitely and the magistrate who registered the case against the women has been transferred to another district.












Police also arrested nine men who vandalized a medical clinic run by the uncle of one of the women, Patil said.


One of the women had posted a Facebook comment complaining that Mumbai had come to a standstill after the death of rightwing leader Bal Thackeray. Her friend “liked” the post.


Their arrest last week was seen as a misuse of Internet laws and an attempt to curb freedom of expression.


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Outbreak-Tied Peanut Butter Plant Shut












Nov 26, 2012 7:37pm



The Food and Drug Administration today shut down the country’s largest organic peanut butter processor following a salmonella outbreak that sickened scores of people nationwide.












For the first time the FDA has utilized new power granted by the 2011 food safety law and shut down Sunland Inc.’s New Mexico processing plant.


In a statement on their website, the FDA said that the link between the company and the salmonella outbreak that sickened 41 people in 20 states along with “Sunland’s history of violations led FDA to make the decision to suspend the company’s registration.”


Between June 2000 and September 2012 eleven product lots of nut butter tested positive for presence of Salmonella. And, according to the FDA, between March 2010 and September 2012, Sunland Inc. distributed at least a portion of eight product lots after they had tested positive.


The FDA also found the presence of Salmonella in 28 environmental samples during a September and October 2012 inspection.  FDA inspectors reported that employees of Sunland Inc. failed to wash hands, improperly handled equipment used to process food as well as providing  ”no records” to document cleaning of equipment. Additionally, the building housing the production and packaging had no hand-washing sinks even though employees had “bare-handed contact” with the product.


“The super-sized bags used by the firm to store peanuts were not cleaned despite being used for both raw and roasted peanuts.  There was a leaking sink in a washroom which resulted in water accumulating on the floor, and the plant is not built to allow floors, walls and ceilings to be adequately cleaned.


Finally, investigators found that raw materials were exposed to potential contamination.  Raw, in-shell peanuts were found outside the plant in uncovered trailers. Birds were observed landing in the trailers and the peanuts were exposed to rain, which provides a growth environment for Salmonella and other bacteria.  Inside the warehouse, facility doors were open to the outside, which could allow pests to enter.”


In a November 15 statement the president and CEO of Sunland, Jimmie Shearer, emphasized that at “no time” did the company distribute products they knew to be contaminated. The company has submitted a response to the FDA outlining their response to the recall and contaminated product testing.


“We believe that drawing any inferences much less conclusions about the Company’s practices based solely on the observations as set forth in the Form 483 without considering the Company’s response would be wholly premature and unduly prejudicial to Sunland.”


Food Safety Modernization Act, which the FDA acted under to shut down the plant, grants the agency the authority to suspend manufacturing when there is “reasonable probability of causing serious adverse health consequences or death to humans or animals, and other conditions are met.”


Sunland Inc., can request an informal hearing to lift the suspension.  However the 24-year-old company will only have its registration returned after the FDA decides the company has safe manufacturing practices.



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New Zealand becomes Middle Earth as Hobbit mania takes hold












WELLINGTON (Reuters) – New Zealand‘s capital city was rushing to complete its transformation into a haven for hairy feet and pointed ears on Tuesday as stars jetted in for the long-awaited world premiere of the first movie of the Hobbit trilogy.


Wellington, where director Peter Jackson and much of the post production is based, has renamed itself “the Middle of Middle Earth“, as fans held costume parties and city workers prepared to lay 500 m (550 yards) of red carpet.












A specially Hobbit-decorated Air New Zealand jet brought in cast, crew and studio officials for the premiere.


Jackson, a one-time printer at a local newspaper and a hometown hero, said he was still editing the final version of the “Hobbit, an Unexpected Journey” ahead of Wednesday’s premiere screening.


The Hobbit movies are based on J.R.R. Tolkien’s book and tell the story that leads up to his epic fantasy “The Lord of the Rings“, which Jackson made into three Oscar-winning films about 10 years ago.


It is set 60 years before “The Lord of The Rings” and was originally planned as only two movies before it was decided that there was enough material to justify a third.


New Zealand fans were getting ready to claim the best spots to see the film’s stars, including British actor Martin Freeman, who plays the Hobbit Bilbo Baggins, Hugo Weaving, Cate Blanchett, and Elijah Wood.


“It’s been a 10-year wait for these movies, New Zealand is Tolkien’s spiritual home, so there’s no way we’re going to miss out,” said office worker Alan Craig, a self-confessed Lord of the Rings “nut”.


The production has been at the centre of several controversies, including a dispute with unions in 2010 over labor contracts that resulted in the government stepping in to change employment laws, and giving Warner Brothers increased incentives to keep the production in New Zealand.


The Hobbit did come very close to not being filmed here,” Jackson told Radio New Zealand.


He said Warners had sent scouts to Britain to look at possible locations and also matched parts of the script to shots of the Scottish Highlands and English forests.


“That was to convince us we could easily go over there and shoot the film … and I would have had to gone over there to do it but I was desperately fighting to have it stay here,” Jackson said.


Last week, an animal rights group said more than 20 animals, including horses, pigs and chickens, had been killed during the making of the film. Jackson has said some animals used in the film died on the farm where they were being housed, but that none had been hurt during filming.


The films are also notable for being the first filmed at 48 frames per second (fps), compared with the 24 fps that has been the industry standard since the 1920s.


The second film “The Hobbit: The Desolation of Smaug” will be released in December next year, with the third “The Hobbit: There and Back Again” due in mid-July 2014.


(Editing by Paul Tait)


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Work programme ‘to miss targets’













Government figures assessing the success of its welfare-to-work programme are expected to show a crucial target has been missed.












Firms and charities are paid to help find jobs for the long-term unemployed in the hope of helping 2.4m people.


But the first set of official figures, due out at shortly, are expected to show they are getting less than 5% of jobseekers into “sustainable” work.


Ministers argue the programme will help cut welfare payments and change lives.


But critics say only those in already economically successful areas will benefit.


The figures will show how many people are still in employment six months after joining the Work Programme, which was launched by the coalition in June last year.


BBC political editor Nick Robinson says the figures are expected to show that only around 3% of jobseekers meet this criteria.


Continue reading the main story

The work programme was part of what ministers called a revolution in welfare ”



End Quote



And failing to hit the 5% target will mean “as many unemployed are getting sustainable jobs as if the work programme had never existed”, he said.


He added that the government will not accept the scheme is a failure and will claim the work programme is taking longer than expected to succeed and the next set of figures will be better.


Under the scheme – replacing the New Deal, Employment Zones and Pathways to Work – approved providers in England, Scotland and Wales, mostly private companies, try to find work for claimants on a payment-by-results basis.


‘Still early days’


People aged over 25 become eligible when they have been out of work for a year and under-25s after nine months. Some younger people in certain circumstances, like young offenders, are eligible after a shorter period of time.


Ahead of the release of the government’s figures, the Employment Related Services Association, the trade body for the welfare-to-work industry, said 20,000 jobseekers were being helped each month. More than 200,000 have found employment since the scheme’s launch, it added.


But these figures do not show how many have remained in a job for six months after being helped off long-term unemployment, unlike the official ONS figures.


Employment minister Mark Hoban said: “The Work Programme has already helped more than 200,000 of the hardest-to-help unemployed people into jobs. This is great news.


He added: “It’s still early days, but it’s a welcome sign that one year in providers are getting more and more people into sustained jobs.”


The Centre for Economic and Social Inclusion think-tank predicted that the official data would show performance targets missed as a result of the poor state of the UK’s economy.


Under the programme, providers can earn between £3,700 and £13,700 per person helped into work, depending how hard it is to give support to an individual, with an initial payment of between £400 and £600.


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UN climate talks open in Qatar












DOHA, Qatar (AP) — U.N. talks on a new climate pact resumed Monday in oil and gas-rich Qatar, where negotiators from nearly 200 countries will discuss fighting global warming and helping poor nations adapt to it.


The two-decade-old talks have not fulfilled their main purpose: reducing the greenhouse gas emissions that scientists say are warming the planet.












Attempts to create a new climate treaty failed in Copenhagen three years ago but countries agreed last year to try again, giving themselves a deadline of 2015 to adopt a new treaty.


A host of issues need to be resolved by then, including how to spread the burden of emissions cuts between rich and poor countries. That’s unlikely to be decided in the Qatari capital of Doha, where negotiators will focus on extending the Kyoto Protocol, an emissions deal for industrialized countries, and trying to raise billions of dollars to help developing countries adapt to a shifting climate.


“We all realize why we are here, why we keep coming back year and after year,” said South Africa Foreign Minister Maite Nkoana-Mashabane, who led last year’s talks in Durban, South Africa. “We owe it to our people, the global citizenry. We owe it to our children to give them a safer future than what they are currently facing.”


The U.N. process is often criticized, even ridiculed, both by climate activists who say the talks are too slow, and by those who challenge the scientific near-consensus that the global temperature rise is at least partly caused by human activity, primarily the burning of fossil fuels like coal and oil.


The concentration of greenhouse gases such as carbon dioxide has jumped 20 percent since 2000, according to a U.N. report released last week.


A recent projection by the World Bank showed temperatures are on track to increase by up to 4 degrees C (7.2 F) this century, compared with pre-industrial times, overshooting the 2-degree target that has been the goal of the U.N. talks.


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GSK to raise India unit stake in $940 million deal












MUMBAI (Reuters) – GlaxoSmithKline Plc plans to buy up to an additional 31.8 percent stake in its Indian consumer products arm for about $ 940 million, as Britain’s biggest drugmaker deepens its emerging markets and non-prescription consumer health footprint.


The move is the latest in a series of deals by GSK to increase its presence in fast-growing economies and reduce its reliance on traditional pharmaceuticals in Western countries where sales are slower.












GSK aims to raise its stake in GlaxoSmithKline Consumer Healthcare Ltd to 75 percent from 43.2 percent, paying 3,900 rupees ($ 70.16) per share through an open offer, it said in a statement.


The price represents a premium of 28 percent to the stock’s Friday close.


The news sent shares of GSK Consumer Healthcare to a record high. The shares were locked at 3,659.20 rupees, up 20 percent, their maximum daily trading limit, while the Mumbai market was up 0.2 percent, by 2 a.m ET.


“This transaction represents a further step in GSK’s strategy to invest in the world’s fastest growing markets,” said David Redfern, chief strategy officer at GSK in London.


The company, however, has “no current plans” to launch an open offer for its Indian drugs unit GlaxoSmithKline Pharmaceuticals Ltd, he added.


GSK said the transaction – to be funded through existing cash resources – would be earnings neutral for the first year and boost earnings thereafter. It will not impact expectations for the group’s long-term share buyback program.


HORLICKS PLAN


Tough market conditions in Europe have hampered GSK’s hopes for a return to sales growth this year, although the company’s growing business in emerging markets and its large consumer healthcare operation are both doing well.


In India, for example, sales of the consumer unit’s flagship Horlicks brand stood at 270 million pounds ($ 432 million) in the year that ended December 2011, contributing to nearly three-quarters of its total revenues.


“A lot of the current business of Horlicks is in the south and the east of India. So there is still a great opportunity to increase the penetration to the north and the west,” Redfern told Reuters in an interview, adding that the company intended to introduce new variants of the brand in the country.


GSK does not plan to delist the unit.


Securities regulations in India require a minimum public shareholding of 25 percent for a company to maintain a public listing.


The offer period is expected to begin in January 2013.


($ 1 = 55.5850 Indian rupees)


($ 1 = 0.6246 British pounds)


(Additional reporting and writing by Aradhana Aravindan and Ben Hirschler; Editing by Muralikumar Anantharaman)


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Dog bite sidelines ‘Dirty Dozen’ trumpeter Towns












NEW ORLEANS (AP) — Dirty Dozen Brass Band trumpeter Efrem Towns is recovering at home in New Orleans from a vicious attack by a Rottweiler at an Atlanta motel.


He missed performances in Colorado and New Orleans after the attack on Nov. 18, and doesn’t know if he’ll make the band’s next scheduled gig on Dec. 28, The Times-Picayune (http://bit.ly/XOJoNr) reported.












He and baritone sax player Roger Lewis said the dog surged from an open motel room door after Towns knocked on the door of Lewis’ room.


“I didn’t know if it was a dog, wolverine, bear, mongoose or what. I just knew something had me,” Towns said.


He said the dog‘s owner came out of the next room, and they were able to subdue it.


At Atlanta’s Grady Hospital, he received 30 stitches in his groin. Towns, who has health insurance through his wife, Tracie, said he will be seeing a urologist this week.


The Dirty Dozen Brass Band formed in 1977, and is credited with creating the contemporary, funk-infused brass band sound. It’s been featured on albums with David Bowie, Elvis Costello and the Black Crowes.


Towns said he probably could practice while convalescing. “But I’m very uncomfortable right now,” he said Friday evening. “I’m basically immobilized — it’s hard getting around. I’m kind of miserable.”


The experience hasn’t soured Towns on dogs. He and his wife own three miniature schnauzers, a standard schnauzer and a mixed breed. On Friday, his daughter’s dachshund was visiting.


“I’m a dog person,” he said. “And even though I got bit, I hope they don’t put that dog to sleep.”


___


Information from: The Times-Picayune, http://www.nola.com


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UBS fined £29.7m for Adoboli case













The Financial Services Authority (FSA) has fined UBS £29.7m ($ 47.6m) for failings that led to trader Kweku Adoboli losing £1.4bn.












The fine, the third largest imposed by the FSA, was for “system and control failings” that allowed him to trade in London well beyond authorised limits.


The trader was last week convicted of two counts of fraud and sentenced to seven years in prison.


UBS said it was “pleased that the chapter has been concluded”.


The FSA, which conducted the investigation into failings at the bank with its Swiss counterpart, Finma, said there were serious weaknesses at the Swiss bank.


It said in a statement: “UBS failed to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems, and failed to conduct its business from the London Branch with due skill, care and diligence.”


The FSA’s director of enforcement and financial crime, Tracey McDermott, said faulty controls had allowed the losses to mount to what was the largest trading loss in the country.


“UBS’s systems and controls were seriously defective,” she said.


“As a result, Adoboli, a relatively junior trader, was allowed to take vast and risky market positions, and UBS failed to manage the risks around that properly.”


‘Gambler’


Adoboli, the 32-year-old Ghana-born son of a diplomat, joined UBS in 2003, becoming a trader in 2006.


He worked in UBS’s global synthetic equities division (GSE), buying and selling exchange traded funds (ETFs), which track stocks, bonds and commodities.


He was arrested in September last year.


Southwark Crown Court was told that he was “a gamble or two away from destroying Switzerland’s largest bank”.


The judge said there was “a strong streak of the gambler” in him.


But, during evidence, Adoboli said everything he had done was aimed at benefiting the bank, where he viewed his colleagues as “family”.


He said he had “lost control in the maelstrom of the financial crisis”, but had been doing well until he changed from a conservative “bearish” position to an aggressive “bullish” stance under pressure from senior managers.


He told the jury that staff were encouraged to take risks until they got “a slap on the back of the wrist”.


The fine was set at 15% of the revenue of the division where Adoboli worked and takes account of the revenue generated by the business area where the weak controls occurred.


‘Serious deficiencies’


UBS said it had made a number of substantial changes since discovering the losses, including fixing the weakness in its financial reporting.


The bank added it was retraining staff on the importance of risk management and had changed the way it evaluated and compensated employees.


UBS is changing its own structure to make itself a simpler organisation.


The bank’s chief executive, Oswald Gruebel, left the company in the aftermath of the scandal.


His successor, Sergio Ermotti, announced a major restructuring last month to run down the large, risky parts of the investment banking division.


UBS said it had fully co-operated with the regulators’ investigations and that it accepted their findings and the penalties incurred.


UBS’s fine was discounted from the original level of £42.4m for early settlement.


Switzerland’s financial regulator Finma said in a statement that it would also check whether UBS had adequate capital backing for its operational risks.


Finma said it had identified “serious deficiencies in risk management controls” and that it would appoint a third party to make sure proper measures were introduced.


UBS has been banned by regulators from making new acquisitions and it also needs to get prior approval from Finma for any new business initiatives.


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