I agree with Jane & Nayan. As Jane pointed out, the missing links are communication & counseling. Every person needs to be given a chance to explain themselves when accused. Frankly, the issues should have been discussed even before the warning letter was issued to him. For all you know, he may have very justified reasons for whatever he did—one of which could be a lack of support from his superior (it happens very often, but since the superior is usually the one who's closer to the top, such things get brushed under the carpet & the employee becomes the fall guy). Like Giridhar suggested, talk to him in a counseling way & ask for his reply to the warning letter. Then you should weigh his reasons with what you were given to understand earlier & then act accordingly.
Regards,
TS