British police charged UBS trader Kweku Adoboli with fraud on Friday, a day after the Swiss bank said it had lost about $2 billion in unauthorised trades.
UBS was in turmoil as ratings agencies warned lax risk management could prompt downgrades and senior executives cancelled engagements to meet financial regulators.
Adoboli, 31, worked as a director of exchange traded funds at UBS. He will appear at City of London Magistrates court later on Friday, police said.
UK law firm Kingsley Napley has been hired to represent Adoboli. The firm also advised rogue trader Nick Leeson, whose $1.4 billion derivatives losses triggered the collapse of Britain's Barings Bank in 1995.
Most market speculation has centred 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.
A UBS spokesman would only say that the losses were made in equities.
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 were both in close contact with the bank, spokesmen said.
A senior UBS banker said regular meetings and social events involving senior management had been cancelled, 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.
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 from the scandal will force a restructuring many had already thought inevitable and analysts and insiders expect UBS may now have to move before November 17, when it was expected to make the announcement at an investors' day in New York.
"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.
Switzerland's 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 cancelled 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, was up 5.6 percent at 10.3 francs by 1340 GMT compared with a 2.7 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.
"The concern from the wealth management client's point of view is that if UBS cannot even manage their own proprietary trading positions, how can the client expect UBS to manage money on his or her behalf," said Melvyn Teo, professor of finance at Singapore Management University.
The suspect's father, John Adoboli, a retired United Nations employee from Ghana, said he knew finance was a high risk area but he had no doubts about his son's integrity.
"From what the reports are saying, it could be that he made a mistake or wrongful judgment," he told Reuters by phone from the Ghanaian port city of Tema. UBS trader joins rogues' gallery of financial crime