- Количество слайдов: 27
Nick Leeson at Barings Bank in Singapore So famous that he became a movie: ”Rogue Trader” (1999) Bo Sjö VT 2014
Barings Bank • 1992, Nicholas Leeson, clerk, moved from London to Barings Futures Singapore (BFS). • To head the Singapore International Monetary Exchange (SIMEX) • Trade in options and futures on NIKKEI-225, mainly 10 year Jap. Gov. Bond, 3 -mths euroyen. 2
Leeson’s Job • In 1992, took SIMEX exam. • Became a floor trader in Singapore. • And, the General manager and the Head trader for BFS. • But, Trading and Back office are normally split in two units to keep separate records. • N. L. ’s task was to look for arbitrage between Osaka and Singapore Exchanges. NIKKEI-225 and Jap. Gov. futures. No risk -taking was allowed. 3
But, Nick Leeson • He did speculate, againstructions! • He placed bets on the direction of price movements on the Tokyo Stock Exchange. • Did well at first, soon looses mounted… • 1992: - $2 m, 1993: -$21 m • 1994: -$185 m 1995: -$619 m, early Jan. and then … 4
Wait there is more… • In 1994 he began selling (equity) straddles (short), speculating in a lower stock volatility on NIKKEI -225. • In early January 1995, he was short in 37, 000 calls and 33, 000 puts. • Plus long in 1000 futures. Now. . 5
In January 17 1995 – A Major Earthquake in Kobe • Markets explode in volatility and N. L. looses even more and now het bets even harder (he has nothing to lose), so by February 23 he holds: • 61, 000 March futures contracts 49% of open interest. • + 24% of all June contracts. • + 88% of all Jap. Gov. Bond futures. • + Large amounts of euroyen contracts, betting on lower Japanese interest rates. 6
Margin Calls All Over • In Feb 1995 Leeson has to spend $740 m in Margin calls. • Barings in London gets suspicious, they hear rumors about an extremely big speculator on the Asian Markets. 7
London Calling • In the last days of February 1995, Baring sends an inspector. • Leeson and his wife decide to leave Singapore for Germany. • The total loss was almost 2. 10 times Baring’s Equity value. • Baring was bought and recapitalized by ING, The Netherlands. 8
Lessons of Leeson? • Bad management, Leeson was sitting on two chairs. Trading and back office. • Better regulations ? Maybe • What has changed - not much, mostly details says Leeson. 9
Final Words § ”They have learned nothing” according to Nick Leeson § The scandals have changed from derivatives to accounting. § The nature of man? Moral Hazard is the problem - not derivatives as such. 10
Some sentenced individuals in trading scandal 11
Toshihide Iguchi 1995 • • • Institution: Daiwa Bank Activity: US Treasury Bonds Loss : $1. 1 bn Sentence: 4 years ”Star trader” who forged 30, 000 trading slipes. Hide the losses of $1. 1 b over a decade.
Nick Leeson 1995 • • • Institution: Barings Bank Activity: Nikkei Index Futures Loss: $1. 4 bn Sentence: 4 years Positioned in Singapore, made money at first, but later losses. His hidden losses of £ 827 brought down the bank.
Yasuo Hamanaka 1996 • • • Institution: Sumito Corporation Activity: Copper Loss: $2. 6 bn Sentence: 8 years Controlled a relatively large part of the market for copper (5%). Tried to manipulate copper prices. Hide losses for some time.
John Rusak 2002 • • • Institution: Allied Irish Banks Activity: FX options Loss: $691 m Sentence: 7. 5 years ”Solid performer”, spent five years cover up his losses.
Vince Ficarra, Luke Duffy, David Bullen and Gianni Gray 2003 • Institution: National Bank of Australia • Activity: FX Options, Loss: $268 m • Sentences: – Ficarra 44 months – Luke Duffy: 29 months – Bullen 28 months – Gray: 16 months • Broke trading limits 800 times, and inflated profits minutes before the end of the year to get bigger bonuses. Bullen and Ficarra were sentenced first.
Chen Jiulin 2005 • • Institution: China Aviation Oil Activity: Jet Fuel Futures Loss: $550 m Sentence: 4 years + 3 months
Matthew Taylor 2007 • • Institution: Goldman Sachs Activity: S&P 500 futures Loss: $118 m Sentence: ? Pending?
• • Jerome Kerviel 2008 Institution: Société Générale Activity: European stock index futures Loss: $7. 2 bn Sentence: 5 years of which 2 years are suspended, to be served starting fall 2014? • The first court sentenced him to pay-back, but this was upheld by a higher court in 2014.
• • • Kweku Adoboli 2012 Institution: UBS (UK) Activity: Exchange Traded Funds (ETF) Loss: $2. 3 bn Sentence: 7 years Used his knowledge about back office routines to cover his losses from 2008. Worked 16 hours a day, slep under his desk. Hunted by the back office he went home and sent a mail to his boss confessing his losses. He was close to recup some of the losses but sold off one day to early.
Also, not fully covered here • Boris Picano-Nacci, 2008: € 751 m Equity derivatives, ongoing investigation? • Orange County, $1. 7 b, 1994. • Metallgesellschaft, $1. 3 b, 1993 • Substantial amounts of money but how and why did it get wrong?
Gold Prices go up and Gold Mines go under? An example 22
Gold and Derivatives § Gold mining companies Ashanti in Ghana and Cambior in Canada. § 1999 September gold prices went up, but these firms made big losses and almost got into default! § How could that be? 23
Miners have long positions! ü Typically, mining companies hedge at least 30 -40% of future sales. ü Some mining companies used 15 -20 years derivative contracts. ü 15 -20 years is a long time! ü Critique: Many investors might are not prepared to mandate companies that sell vast proportions of ore reserve at low prices. 24
What happened in 1999? § In Jan/Feb 1999 gold prices fell. § Miners thought that prices would stay low for the rest of the year. § They saw losses from their positions, that could be compensated by incomes from selling out-of-the money call options on Gold. § Since, they assumed that gold prices would stay low, it seemed safe and would reduce, or off-set expected losses. 25
Earnings from derivatives? § In these firms derivatives trading was seen as a source of income. § Thus, they mixed speculation and hedging § When they foresaw low prices, they thought that selling options - and cash in on premiums would lead to better earnings. § But, they did more than selling the plain ”vanilla options” 26
They did some Exotic Options Ø The Escalating Ounce: The number of ounces that the writer might have to deliver raises with the gold price. Ø The Parisian: The price at which the firm can be asked to sell falls with increasing market prices of gold. Ø The outcome was catastrophical. 27