/ 24 January 2008

How rogue bankers lose billions of dollars

The admission by French bank Société Générale on Thursday that a single trader had defrauded it of €4,9-billion ($7,15-billion) is just the latest example of how a rogue operator can blow a huge chunk of a company’s assets sky high.

From the venerable British merchant bank Barings in 1995, to Sumitomo Corporation of Japan in 1998 through to the Allied Irish Bank in 2002, one man was all it took to plunge a respected institution into crisis.

What rogue bankers have in common is that they are experts in making money. When things start to go wrong and they start to lose millions, no-one at the bank notices.

“A rogue trader is not a crook in the normal sense of the word. He is someone who loses money, and in trying to pretend that he hasn’t lost money, loses more,” the Guardian said.

On Thursday, Societe Generale spoke of a lone trader who “had the intelligence to escape all control procedures”.

One man who was not surprised by the feat was Nick Leeson, probably the world’s best known rogue trader, whose dealings led to the collapse of Barings Bank in early 1995.

“It was always likely to happen,” said Leeson who is now the boss of a soccer club in the west of Ireland, while declining any more elaborate comment.

Leeson hit the headlines in early 1995 when the venerable British merchant bank Barings — which had helped finance the Napoleonic Wars and counted the Queen of England among its clients — admitted that his actions had cost it some £1-billion ($1,5-billion at the time).

Leeson, a 28-year-old Briton working for the bank in Singapore was revealed as the source of the losses, which broke Barings.

Leeson spent three-and-a-half-years in jail in Singapore, which did not prevent him from publishing an autobiography called Rogue Trader, later made into a film.

A fellow rogue trader was Yasuo Hamanaka, working for Sumitomo Corporation of Japan in 1998, who was sentenced to eight years in jail for unauthorised trading over a decade which cost his firm $2,6-billion.

He had forged the signatures of two of his superiors in letters written to foreign dealers, which gave him authority to act on the copper market and to transfer money.

In 2002 John Rusnak, a trader employed by Allied Irish Bank, was jailed for seven-and-a-half-years by a United States court for losing the company $750-million through unauthorised currency trading.

Although he did not personally benefit from the funds, he gained large bonuses for supposed profits.

In September 2007, an American dealer for the New York subsidiary of Calyon, a subsidiary of France’s Credit Agricole, lost €250-million by taking excessive risks without authorisation and beyond the limits set by the bank.

In the mid-1980s a string of US banks, set up originally to cater for small savers and known collectively as “Savings and Loans,” collapsed as a result of deregulation which had allowed them to venture outside their traditional activities. Total losses, which had to be paid by US taxpayers, were estimated to be in the hundreds of billions of dollars. – AFP