UBS trader Kweku Adoboli wept in a London court on Friday as he was charged with fraud and false accounting dating back to 2008, a day after the Swiss bank was plunged into crisis by revealing a $2 billion trading loss.

Wearing a light blue sweater and a white shirt, 31-year-old Adoboli wiped away tears as he was accused of two counts of false accounting, and one count of fraud by abuse of position.

The charges state that while working as a senior trader in UBS Global Synthetic Equities, Adoboli dishonestly abused that position intending thereby to make a gain for yourself, causing losses to UBS or to expose UBS to risk of loss.

Adoboli, the son of a retired United Nations employee from Ghana, attended school and university in Britain and joined UBS in 2006 three years after graduating. He spoke only to confirm his name and address and will be held until September 22 when he will appear again in the same court.

They are extremely serious charges, said magistrate Carolyn Wagstaff.

Britain's financial watchdog, the FSA, and its Swiss counterpart FINMA launched a probe into the loss, to be conducted by an independent third party. The Swiss bank would pay for the investigation, the FSA said. [ID:nL5E7KG2WZ]

The false accounting charges, said to have taken place between October 2008 and December 2009, and January 2010 and September 2011, said Adoboli had falsified an exchange traded fund made or acquired for an accounting purpose and falsified an exchange traded fund transaction and other internal records.

Exchange traded funds are securities that track an index, a commodity or a basket of assets, and trade on an exchange.

Adoboli, whose father said his family was heartbroken although he had no doubts about his son's integrity, later composed himself during the short hearing and managed a few smiles at people sitting in the public gallery.

BANK IN CRISIS

Meanwhile, UBS was in turmoil as ratings agencies warned lax risk management could prompt downgrades and senior executives canceled engagements to meet financial regulators.

Kingsley Napley, which is representing Adoboli, declined to comment. The law firm also advised Nick Leeson, whose $1.4 billion derivatives losses triggered the 1995 collapse of Britain's Barings Bank.

Market speculation has centered on the possibility that the UBS loss resulted from the shock decision by the Swiss central bank last week to impose a cap on the red-hot franc, sending the currency plunging and Swiss shares sharply up.

One UBS trader in London said staff were expecting news of more job cuts in the next two weeks as well as zero bonuses.

In my team people are scared and are playing low profile. The idea is to stay there and keep your job. In the current situation, it would be difficult to find another job anywhere else, the person told Reuters on condition of anonymity.

Britain's Financial Services Authority and Switzerland's FINMA markets regulator are both in close contact with UBS.

A senior UBS banker said regular meetings and social events involving senior managers had been canceled, which he presumed was because of crisis management or meetings with regulators.

Morale is dreadful... It's very damaging to our reputation. Equities is one of the businesses where we thought we had got it right, the banker said.

MASSIVE OVERHAUL

Analysts said the massive loss, announced on Thursday, was the final nail in the coffin for UBS' investment bank which has struggled, like others in the industry, against falling markets and tough new regulation as well as the soaring Swiss franc.

Reputational damage could force a restructuring many had already thought inevitable and analysts and insiders expect UBS may now have to move before an investor day in New York already planned for November 17.

I wouldn't be surprised if we got a preliminary confirmation of a major scaleback soon, even this weekend. The announcement can't wait until Q3 results or the investor day, said Matthew Czepliewicz, an analyst at Collins Stewart.

The two biggest political parties, the Swiss People's Party and the Social Democrats, want UBS to split investment banking from its wealth management arm and pressure for it to take radical action is likely to mount in the wake of the scandal.

Ratings agencies Standard & Poor's and Moody's put the bank's credit rating on negative watch, while Fitch said it had put UBS's viability rating on negative watch.

Fitch said the incident strengthens the arguments for UBS to down-scale its investment banking unit while S&P added: UBS is currently undertaking a strategic review of the size and shape of the investment bank division and we consider that the trading loss may influence the outcome of this process.

HISTORY OF MISHAPS

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. The bank has had a history of major risk management glitches.

The $2 billion that UBS said had been lost effectively wiped out the first year of savings from a recently-announced cost-cutting plan involving the loss of 3,500 jobs.

We believe that yesterday's event could have personnel consequences on senior management level, said Vontobel analyst Teresa Nielsen. The exit from non-core businesses inside the investment bank could be accelerated.

In the firing line are Chief Executive Oswald Gruebel, himself a former trader who was brought out of retirement in 2009 to try to turn UBS around, and investment bank boss Carsten Kengeter, the bank's highest paid employee last year.

UBS stock, which fell 10.8 percent on Thursday to end at its lowest close since March 2009, closed up 5.3 percent at 10.26 francs compared with a 0.5 percent rise on the European banking sector index.

New losses in UBS's investment bank risk scaring rich clients and prompting a further flight from its huge private bank, the core of its business that used to be the world's biggest wealth manager but has slipped to third place.

($1 = 0.870 franc)

(Additional reporting by Steve Slater, Sophie Sassard, Sarah White, Huw Jones and Douwe Miedema in London, Kwasi Kpodo in Accra and Kevin Lim in Singapore; Editing by Sophie Walker and Alexander Smith)