City trader runs up potential losses of more than £7bn

Karlos69

I think this chap has been watching too much Fonejacker

Ben6899

How so?

pinno

How on earth does 1 man manage to fritter away £7 billion ? What is so fundamentally wrong with the systems within the higher echelons of capitalism that allow this to happen ?
I do the books for a voluntary organisation and then it is audited. If there is a 1p discrepancy, it will get picked up by the auditors, never mind 7bn.
PS Can we all have some of it please? £1000 pounds each - that will kick start Chinas economy.

OffTheBackAdam

A mere rounding error compared to the UK's deficit!

Karlos69

http://www.youtube.com/watch?v=UeFB-Jgq ... re=related

rick_chasey

Had a good chat with him a couple weeks before he got arrested. And it was more like 2bn.

7bn was that Soc Gen Kerviel guy.

rick_chasey

pinarello001 wrote:

How on earth does 1 man manage to fritter away £7 billion ? What is so fundamentally wrong with the systems within the higher echelons of capitalism that allow this to happen ?
I do the books for a voluntary organisation and then it is audited. If there is a 1p discrepancy, it will get picked up by the auditors, never mind 7bn.
PS Can we all have some of it please? £1000 pounds each - that will kick start Chinas economy.

How did he lose £2bn?

He committed fraud, basically.

He had pretty strict risk limits, but put on bogus positions for clients, created other bogus positions so that some of his positions appeared 'hedged' etc.

There was also something about the time delay for compliance to work out who was what which he exploited.

dodgy

Kweku Adoboli is his name by the way.

usedtobefast

Greedy f*****r is his real name. Suppose he has to pay for the pies somehow looking and those chubby chops.

Peddle Up!

Why single him out?

asquithea

Peddle Up! wrote:

Why single him out?

Why not single him out? He was running a fraud.

Peddle Up!

asquithea wrote:

Peddle Up! wrote:

Why single him out?

Why not single him out? He was running a fraud.

Unlike RBS etc., etc.?

KentPuncheur

asquithea wrote:

Peddle Up! wrote:

Why single him out?

Why not single him out? He was running a fraud.

Having worked in the city for a few years now (not on a trading desk though) and working under tight compliance guidlines, I think the finger should be equally pointed at the bank and his managers/compliance team too. There is no way he should have been able to exceed his trading limits by such a huge amount, so easily. If I remember the story correctly, he was working in the exotic currency trading desk, where voltaility between open positions are common, so for him to be able to open such large, risky, unhedged positions is as much a compliance foul-up as it is individual gross negligence.

brianonyx

Rick Chasey wrote:

Had a good chat with him a couple weeks before he got arrested. And it was more like 2bn.

7bn was that Soc Gen Kerviel guy.

If you had a good chat with him a couple of weeks before he got arrested - and he told you the details, surely if you didn't inform the authorities you are in a bit of trouble??

rick_chasey

brianonyx wrote:

Rick Chasey wrote:

Had a good chat with him a couple weeks before he got arrested. And it was more like 2bn.

7bn was that Soc Gen Kerviel guy.

If you had a good chat with him a couple of weeks before he got arrested - and he told you the details, surely if you didn't inform the authorities you are in a bit of trouble??

Eerr no. Unsurprisingly he didn't mention he was illegally and fradulently betting away £1.4bn...

rick_chasey

KentPuncheur wrote:

asquithea wrote:

Peddle Up! wrote:

Why single him out?

Why not single him out? He was running a fraud.

Having worked in the city for a few years now (not on a trading desk though) and working under tight compliance guidlines, I think the finger should be equally pointed at the bank and his managers/compliance team too. There is no way he should have been able to exceed his trading limits by such a huge amount, so easily. If I remember the story correctly, he was working in the exotic currency trading desk, where voltaility between open positions are common, so for him to be able to open such large, risky, unhedged positions is as much a compliance foul-up as it is individual gross negligence.

He was working on the Delta one desk. Broadly, using a variety of equity derivatives and financing options, whether they're ETFs, index swaps or whatever, to mirror the underlying performance (hence delta one) but more cheapy or to get exposure to just one stock without being exposed to the rest - which is why it usually sits in the equity finance space.

More recently, since prop. trading is virtually banned, banks, who like to prop trade, have been 'hedging creatively' on some of these desks, to pump up their P&L.

Either way, Kweku was being fradulent and using his middle office background managed to forge a lot of bogus hedges which were in fact big exposures. I think the biggest loss he incurred was a 'hedge' (which wasn't, it was just a fradulent bet) the wrong way against the Swiss frac which changed value dramatically after the swiss gov't intervened.

The risk guys and the heads of equities all got tinned.


He was even spreadbetting and losing at home (despite that not being allowed for traders at UBS) so it's clear he had a bit of a gambling problem.

For sure, compliance should bare the brunt, and UBS were not careful enough and it serves them right, but don't make out he's like the rest or that it's perfectly allowed.

KentPuncheur

Rick Chasey wrote:

For sure, compliance should bare the brunt, and UBS were not careful enough and it serves them right, but don't make out he's like the rest or that it's perfectly allowed.

Don't think I was making that out at all RC...I certainly didn't intend that sentiment and reading back over my post, I don't think that message comes accross at all?

You need the will to beat compliance...and his will was great, as it seems. The will is what is truly wrong here and he is rightly being punished. But, as I have said, and you agreed with, his will succeeded due to compliance failings. All are (or at least seem to be) being punished.

rick_chasey

He beat compliance because he used to be in middle office, so knew the entire clearing, accounting and compliance process.

It was said when Kerviel rouge traded away €4.9bn (managed down from €7) that he got away with it because he knew the middle office processes and banks should seriously consider whether traders should be allowed to make their way from middle office.

UBS is the same, Goldman love taking people from middle office too. Other banks are more mixed.

Banks are reluctant to change it since a) it's expensive and b) they're less likely to get talent into middle office functions on the promise that if they outperform they can get a chance on a proper desk.

How much can banks do to stop these mega rouge traders than fraudulently trade away enormous amounts?

I'm a little sceptical. If there's a will there's a way, and the highly liquid nature of it means any compliance will always be a step behind.

I wouldn't be surprised if delta one got more heavily regulated though. It's quite clear they've become vehicles prop.trading, since eveywhere else it's more or less banned.

nathancom

It is sad that even at the point at which they get caught many still seem to look up to bankers as ingenious creators of wealth as if they are doing something the rest of us couldn't fathom. They are good at creating smoke screens by which they might extract wealth from the real economy and they rely on the fact than any system can be gamed. Talentless scumbags.

Vino2007

nathancom wrote:

It is sad that even at the point at which they get caught many still seem to look up to bankers as ingenious creators of wealth as if they are doing something the rest of us couldn't fathom. They are good at creating smoke screens by which they might extract wealth from the real economy and they rely on the fact than any system can be gamed. Talentless scumbags.

hah so talentless that finance pretty much relies on you getting a strong economics degree or similar?

nathancom

Vino2007 wrote:

nathancom wrote:

It is sad that even at the point at which they get caught many still seem to look up to bankers as ingenious creators of wealth as if they are doing something the rest of us couldn't fathom. They are good at creating smoke screens by which they might extract wealth from the real economy and they rely on the fact than any system can be gamed. Talentless scumbags.

hah so talentless that finance pretty much relies on you getting a strong economics degree or similar?

So doing PPE at Oxford is at fault for turning the young into grasping bankers who are willing to do anything to make money? OK, they are talented at obfuscation but that is hardly something to be lauded. Banking has essentially become an institutional attempt to game the system and we are surprised when 1) individual bankers managed to game the system in a dangerous manner 2) the banking system is unstable. The current system of international finance has become ridiculous, so no, personally I don't think bankers have shown themselves to be usefully talented.

rick_chasey

nathancom wrote:

It is sad that even at the point at which they get caught many still seem to look up to bankers as ingenious creators of wealth as if they are doing something the rest of us couldn't fathom. They are good at creating smoke screens by which they might extract wealth from the real economy and they rely on the fact than any system can be gamed. Talentless scumbags.

I don't thnk anyone in finance sits there and thinks "we're going to create a smoke screen to extract wealth from the real economy".

It's their job to make money. They do that using and creating financial instruments and services.

It's up to the regulators to make sure that when they do this it's in the interest of wider society.

pinno

Not sure about some of the threads here, or the argument about the supposed creation of wealth.

Its a bit like Alex Salmonds side kick and 'business advisor' McColl, who lives in Monaco, is a multi millionaire and does not pay income tax in the UK. Salmond was asked if McColl should pay income tax in the UK but after dodging the question he seemed to imply that because he was creating a lot of wealth in Scotland, he somehow could wave his duty to pay income tax and remain domecile in Monaco whilst ironically advising the SNP on economic policy.
This is the spurious argument that seems to crop up repeatedly "Oh but they create so much wealth", whether its individuals or bankers. For whom ? For their pay packets and bonuses ? They get the wealth ultimately from us. They get the money and play casino games with it.
Banks should be institutions of stability, complete and utterly honest, that serve the nations interests and the individuals interest. We are in this f***ing global mess because of institutionalised greed - on a massive scale but because they are part of the status quo like no other institution, we somehow think that the supposed creation of wealth allows them to continue in their current form without major change.
You cannot espouse the virtues of capitalism without serious consideration of the deep and fundamental flaws in the 'creation of wealth' and the greed that goes with it. The elite are their to serve their own interests - this current administration is the elite for the elite and the banks are no different.

You may find this interesting

pinno

Rick Chasey wrote:

He was working on the Delta one desk. Broadly, using a variety of equity derivatives and financing options, whether they're ETFs, index swaps or whatever, to mirror the underlying performance (hence delta one) but more cheapy or to get exposure to just one stock without being exposed to the rest - which is why it usually sits in the equity finance space.

WTF ?!?

You give me some money. I will 'invest' it for you. I will then loan that money to someone else who is going to invest for me. He is then going to borrow some money so that now he has the money I gave him and the money he borrowed so he can lend out to 10 people and charge them interest. Its a pity you can only give me one pound 'cos I can triple your money. Its a great system.

You are the bloke in the street, the investor, I am the wealth creator, the money I lent is the equity fund and the 10 people who borrow the money are the people who are going to create wealth and triple our investment. The interest they pay is the derivative of the loan. 1 flaw - 1 of the ten is dodgy and didn't have the assets to back the loan up. 5 of them go bust and the other 4 break even but don't pay the loan back in time 'cos you , you miserable basket want you money back now. So its your fault and we haven't got the money to give back to you 'cos you didn't give me enough in the first place so what I need from you is more money so that I can invest it for you...

rick_chasey

You're describing investors.

Banks aren't investors. They're not investing money.

Their clients in this instance are the investors.

The investors, for example, want exposure to a certain number of stocks, but not others in a similar industry.

They go to a bank and the bank offers such a financial service, as part of their delta one offerings, and the bank gets a fee for doing so.

That's it.

That's why people involved in markets at IBs are usually referred to the 'sell side' as opposed to the 'buy side' who are the lot who actually have the cash, whether it's your pension fund, a fund of funds, a bunch of rich investors in a hedge fund or whatever.

Banks offer a service, rather like hairdressers. Only their services are related to investment and finance.

nathancom

And they have become more and more skilled at skimming the maximum amount out the the system through an increasingly complex set of products and charging mechanisms. They don't create wealth because they don't create anything of value. Admittedly, banks have the fundamental role in maintaining liquidity across the Economy, for which they are remunerated through interest payments, but that doesn't justify the activity that has been allowed to take place since Thatcher. Spivs and Speculators in Vince's own words.

rick_chasey

nathancom wrote:

And they have become more and more skilled at skimming the maximum amount out the the system through an increasingly complex set of products and charging mechanisms. They don't create wealth because they don't create anything of value. Admittedly, banks have the fundamental role in maintaining liquidity across the Economy, for which they are remunerated through interest payments, but that doesn't justify the activity that has been allowed to take place since Thatcher. Spivs and Speculators in Vince's own words.

Do you take the same view to the entire service industry?

Or just finance?

pinno

Rick Chasey wrote:

nathancom wrote:

And they have become more and more skilled at skimming the maximum amount out the the system through an increasingly complex set of products and charging mechanisms. They don't create wealth because they don't create anything of value. Admittedly, banks have the fundamental role in maintaining liquidity across the Economy, for which they are remunerated through interest payments, but that doesn't justify the activity that has been allowed to take place since Thatcher. Spivs and Speculators in Vince's own words.

Do you take the same view to the entire service industry?

Or just finance?

Well, the financial services were merged with merchant banking, thats when things started to go wrong.
So how do you differentiate between the two?
A few points:
For every industrial job lost, you have to replace it with at least 3 in the service sector to replace the value created by that industrial position.
Thatcher/Blair and the current administration have systematically promoted the 'industry' (finance) because of a dwindling and dissapearing industry that suffered under investment for eons. Their policies freed up financial limits and gave them more scope so that they can prove that the British Ecomony is thriving. So the foundation of this greed was laid down in the late 60's when we started slipping behind every other industrial nation because of arrogance and massive under investment. Successive political parties have given far too much freedom to the financial sector to offset out poor economy/GDP/unemployment.
Average manufacturing re-investment figures in the UK: Between 1.5 and 2.5 %, Germany, A statuatory 2% but averages are around 6-8%. Funny how the German economy is flourishing, innit?
UK PLC is in a quandary, so much so that we are trying to keep the good side of Beijing because we intend to act as a financial hub to them, by providing a financial link to the Western Markets/banking. So we don't say boo to them about poaching, humanitarian issues etc etc 'cos we have allowed ourselves to be so reliant on the whole financial sector to the extent that we are now financial whores.
So in answer to your point - the whole foundation of finance in the UK is flawed and driven by an enormous political symbiosis/need due to the lack of real industry, real investment, short-termism and pitiful social policies.
This need has shattered any threads of morality, solidity and substance that was associated with banking. This need is so great and desperate that rules and regulations have been bent or bypassed in the drive for profit and an unsustainable paper based 'growth' bubble, which has now burst and we are suffering.

nathancom

Rick Chasey wrote:

nathancom wrote:

And they have become more and more skilled at skimming the maximum amount out the the system through an increasingly complex set of products and charging mechanisms. They don't create wealth because they don't create anything of value. Admittedly, banks have the fundamental role in maintaining liquidity across the Economy, for which they are remunerated through interest payments, but that doesn't justify the activity that has been allowed to take place since Thatcher. Spivs and Speculators in Vince's own words.

Do you take the same view to the entire service industry?

Or just finance?

Finance in its current manifestation. It has clearly failed to create wealth for anyone except those working in the industry. Our current national debt is proof of this. What is the value to the economy and society at large in the services and products offered currently? Small business is still finding it hard to get hold of the capital it requires to grow so with the failure of successive governments to invest in business we are left with a very unbalanced and increasingly uncompetitive economy.

nathancom

...

symo

Hmmm wealth creation or money invention?

Here is an interesting fact, these people seem to be able to make money out of nothing. Which is interesting when you think the LSE was created in 1801 just as alchemy died out in western europe.........................

Salmond is on sticky ground as no trickle down effect has ever been proven from such 'wealth creators'. Wealth creation can only be proven to occur when the factory is based in a country and can sell for export but the taxes and all employees and owners are within the country, after that wealth creators have to rely (lie?) on economists to prove they create wealth in countries. Economists interestingly claim to have a science yet have failed to predict any financial crisis revising their nobel prize winning bell curve predictions after the event.

Still I don't work in finance so what do I know. :?