A Singapore-based subsidiary of Japanese trading giant Mitsubishi recently booked a $320 million loss after several unauthorized derivatives trades went sour, the company revealed in a press release Friday.
The bank blamed the losses on a ‘rogue trader’ who allegedly manipulated the subsidiary’s risk-management system, allowing him to place massive derivatives bets on the price of oil and disguise them as hedges similar to what JPMorgan did with the whole London Whale debacle.
Though the bank didn’t release the trader’s name, according to the press release, he was fired earlier this week. The bank has since reported his actions to the local police.
The trader had been taking unauthorized derivatives positions since January, but he suffered heavy losses over the summer as oil prices fell. He reportedly occupied a relatively senior position, and was in charge of all transactions involving China for the subsidiary.
The bank launched an investigation into the traders’ positions while he was out of office in the middle of August. It soon discovered the unauthorized positions, and decided to unwind them immediately (the bank probably could have minimized losses if it had waited until Monday to unwind those positions, when prices spiked nearly 20% intraday).
Because the trader had manipulated the subsidiary’s risk-management system, he was able to make it look like the derivative trades were associated with customer orders.
As the FT points out, Mitsubishi made a $5 billion net profit last year, so the trading loss is more of an embarrassment than a threat to the bank’s survival. But according to Bloomberg, the oil market has a long history of massive trading busts.
The incident is a reminder of the damage that a rogue trader can cause to a large financial institution, according to the TF. The Mitsubishi rogue trader will join a growing ‘rogues gallery’ that includes Société Générale’s Jérôme Kerviel, JPM’s “London Whale” (a.k.a. Bruno Iksil), and Barings’ Nick Leeson.
