Switzerland's UBS said Thursday it had discovered unauthorized trading by a trader in its investment bank that caused a loss of some $2 billion.
"The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion," the bank said in a brief statement just before European stock markets opened.
"It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected."
UBS shares immediately tumbled 8 percent at the open and were trading down 5.8 percent at 10.30 Swiss francs at 0714 GMT (3:14 a.m. ET), compared with a flat European banking sector index.
"It is amazing that this is still possible," said ZKB trading analyst Claude Zehnder. "They 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."
"With this they are losing a lot of credit that they had regained with effort," he added.
UBS had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank.
UBS AG announced last month it is to axe 3,500 jobs to shave 2 billion Swiss francs ($2.3 billion) off annual costs as it joins rival investment banks in reversing the post-crisis hiring binge and preparing for a tough few years.
Investment banks worldwide have been hit by slow trading due to the debt problems in the euro zone and United States, as well as regulations aimed at forcing banks to hold more capital to protect them from future shocks after the 2008 global financial crisis.
UBS expects to book a restructuring charge due to the job cuts of some 550 million francs, and around 450 million francs of this will be booked in the second half of the year, with the majority recognized in the third quarter.
($1 = 0.880 Swiss Francs)
(Additional reporting by Andrew Thompson; editing by Sophie Walker)