S'pore-based rogue trader hides US$81m loss
Mitsui employee in trouble after wrong bets on naphtha futures
By RONNIE LIM'The market buzz is that the first signs emerged about two weeks ago when the trader didn't show up for work,' an industry source told BT.
Parent Mitsui & Co - considered to be Japan's most aggressive player in oil markets - called a news conference in Tokyo yesterday to disclose the US$81 million of losses as of Nov 17. The company said an MOA trader falsified data to conceal the losses.MOA managing director Fumiaki Araki meanwhile told Reuters in Singapore: 'We're still investigating. It's business as usual.'
The US$81 million of losses will have little impact on Mitsui's bottom line. The multinational giant said yesterday it sees no change to its net profit forecast of 300 billion yen (S$3.96 billion) for the business year to March 31, 2007. Traders said it is likely the MOA man took big positions on naphtha that went against him. Naphtha is a feedstock for petrochemical plants and an ingredient to make petrol.'MOA was the market-maker in the naphtha market with the sharpest numbers - that is, with the highest bids and lowest offers,' a trader told BT.
In the past six months MOA was involved in more than half of all the trades in Tokyo open-specification naphtha, the benchmark forward contract for the product in Asia. Global oil prices soared to a record US$78.40 in July, when naphtha also hit a record near US$670 a tonne. But prices have since fallen more than 20 per cent.
'You can have internal controls, but remember we are in volatile times,' a trader said when asked how the MOA shock could have happened after all the publicity surrounding earlier cases.'Don't forget that the volatile markets this year also claimed US hedge fund Amaranth Advisors, which lost US$6 billion on natural gas trades.'
Back in 1995, rogue trader Nick Leeson's derivatives disasters brought down Barings. More recently, CAO - which has since got back on its feet - was on the brink of collapse in 2004 with US$500 million of losses, after managers and traders bet on fuel prices using options they were unfamiliar with.