Swiss bank UBS has admitted discovering a loss of around £1.27 billion (US $2 billion) in its investment banking arm due to ‘unauthorized [sic] trading’.

UBS warned that it could lead to a loss in the third quarter of this year. According to reports, an arrest has been made in London at 2.30 am this morning, in connection with the trading scandal.

In a brief statement, the company said, ‘The matter is still being investigated, but UBS’s current estimate of the loss on the trades is in the range of US $2 billion.

‘No client positions were affected,’ added the Zurich-based banking group.

David Jones, market strategist at IG Index, said news of unauthorised trading would cause damage to the bank’s reputation, which had been seen as a ‘safe pair of hands’, despite having been bailed out by the Swiss government in 2008.

‘You’d have thought three years after the financial crisis, there would now be better controls in place. For a major investment bank like UBS, it really is very worrying. It raises questions yet again for the whole banking system,’ he added.

Jones said the case ‘strengthens the argument’ for the separation of retail and investment banking, as put forward by the Independent Commission on Banking earlier this week. UBS’s share price dropped 7 per cent in early trading.