Swiss bank UBS said a trader had lost it around $2 billion in unauthorised deals, and police in London arrested a man in connection with the case.

UBS would not comment on a Financial Times report on Thursday naming the man as Kweku Adoboli -- a director of ETF and Delta 1 trading in the bank's London office, according to his profile on networking site LinkedIn.

British police said they had arrested a 31-year-old man on suspicion of fraud. Swiss newspaper NZZ cited UBS as saying the trader worked in its London equities division.

'I can confirm that an employee of the bank was arrested in London in connection with the statement,' a UBS spokesman said.

UBS said it might post a third-quarter loss after the rogue trades, a huge blow as it struggles to rebuild its credibility after years of crises.

The loss threatens the future of UBS's investment bank, which is being reviewed by chief executive Oswald Gruebel as part of a wide-ranging restructuring following heavy losses in the credit crisis and a damaging scandal over bankers helping rich US clients dodge taxes.

UBS, which said no client positions were affected, is scheduled to hold an investor day on November 17 at which it was expected to announce major restructuring of the investment bank.

'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 statement.

UBS employed almost 18,000 people in its investment bank at the end of June, most of them outside Switzerland, particularly in London and the United States.

UBS shares were down 8.2 percent at 10.03 Swiss francs at 1034 GMT, while the European banking sector was up 2.8 percent. '(This) is a staggering demonstration that all the clever systems that the banks now have, especially after the financial crisis, still cannot stop a determined individual getting round them if they want to,' said Chris Roebuck, Visiting Professor at Cass Business School in London.

'It will yet again confirm to the majority of shareholders who are Swiss that investment banking is not 'proper' banking, as private banking is.'  

Any losses in its investment bank risk scaring UBS's rich clients and prompting a further flight from its huge private bank, the core of its business.

'This loss has the scope to have a material impact on the perception of UBS's private bank, impacting its future operating trends,' Goldman Sachs analysts Jernei Omahen and Peter Skoog said in a note. 'Today's announcement therefore adds to the long list of arguments (and pressure) for a substantially smaller investment bank.'     

UBS's news caused disbelief among market operators. The last similar case was when Jerome Kerviel, then a trader at Societe Generale , racked up a $6.7 billion loss in unauthorised deals revealed in 2008. Kerviel was sentenced to three years in prison in October 2010.  - Reuters