The announcement sent UBS AG shares plummeting more than 8 per cent in early trading on the Zurich exchange. By mid-morning shares were down 5 per cent at 10.38 Swiss francs (USD 11.83).
The bank provided little information on the incident, saying it was still under investigation. But it said no customer money was affected.
"UBS has discovered a loss due to unauthorised trading by a trader in its investment bank," it said in a statement before markets opened.
"UBS's current estimate of the loss on the trades is in the range of USD 2 billion," it added. "It is possible that this could lead UBS to report a loss for the third quarter of 2011."
A spokesman, Yves Kaufmann, declined to say where the unidentified trader was based, and whether the bank had pressed criminal charges against its employee.
Peter Thorne, a London-based equities analyst at Helvea, said the loss was financially manageable for UBS, Switzerland's biggest bank.
But he said it was a blow to the reputation of UBS and its management, which oversaw heavy subprime losses during the financial crisis and an embarrassing US tax evasion case in recent years.
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