Serving the Quantitative Finance Community

 
User avatar
trackstar
Topic Author
Posts: 3420
Joined: January 1st, 1970, 12:00 am

Rogue Trader at Merrill?

March 7th, 2009, 8:21 pm

Merrill Lynch looking at "irregularity" in trading - Reuters March 7(Full article pasted in here)LONDON/DUBLIN (Reuters) - Merrill Lynch said on Friday it had discovered an "irregularity" in its London trading positions and the Financial Times reported that a Merrill trader had been suspended over a suspected $400 million loss.In a statement, the U.S. bank said senior managers were "focused on the issue" and said "risks surrounding possible losses are under control" but did not provide any details."During a recent evaluation of certain positions, we discovered an irregularity," the bank said.The statement came as Irish regulators said they were investigating the "mispricing of trades" at Merrill's London branch, an issue that they said was raised with them on February 18. Merrill said it was helping regulators with the investigation.The Financial Times said a London-based trader at the bank had been suspended after trades on Norwegian and Swedish currencies went wrong, with potential losses of $400 million.If confirmed, the losses will cause more severe financial headaches for Bank of America (BAC.N), the vast banking and investment house that bought Merrill last September and has since incurred sustained losses.As part of its investigation, Ireland's regulator said it was liaising with the financial authorities in Britain and the United States.The UK Financial Services Authority had no comment.Earlier on Friday, The New York Times reported that Bank of America was probing whether Merrill had delayed booking trading losses until hefty bonuses were approved and the buyout deal was sealed.While large, a $400 million trading loss would be little by comparison with the 4.9 billion euros lost by Societe Generale trader Jerome Kerviel in 2007, or the $1.4 billion lost by Nick Leeson in 1995, which collapsed his bank Barings.Merrill's net loss swelled to $15.84 billion in the fourth quarter of last year amid big write-downs and investment losses on collateralized debt obligations and a variety of other high-risk securities.Bank of America's stock has sunk 75 percent since the deal closed on January 1. The largest U.S. bank by assets now faces many shareholder lawsuits over the acquisition.In mid-January the bank received a government bailout to help it absorb losses on $118 billion of troubled assets. Since October it has accepted $45 billion of government aid.New York Attorney General Andrew Cuomo is conducting a probe into $3.6 billion of executive bonuses awarded by Merrill just before the Bank of America deal was sealed.(Additional reporting by Juan Lagorio in New York and Steve Slater in London, Editing by Gerald E. McCormick, John Wallace, Richard Chang)
 
User avatar
trackstar
Topic Author
Posts: 3420
Joined: January 1st, 1970, 12:00 am

Rogue Trader at Merrill?

March 7th, 2009, 11:20 pm

For comparison, A Rogues' Gallery of Traders - Guardian UK March 6I know it's not funny for the people involved, but still, to think about a French trader speculating against Viking currencies...That didn't stop invasions back in the old days and it doesn't seem to work too well now.
Last edited by trackstar on March 8th, 2009, 11:00 pm, edited 1 time in total.
 
User avatar
Traden4Alpha
Posts: 3300
Joined: September 20th, 2002, 8:30 pm

Rogue Trader at Merrill?

March 8th, 2009, 1:29 pm

The fun continues! With all the unusual behavior of the markets in the past few months, I'm surprised there aren't more of these. The number of desperate traders with losses must be quite high right now. How many smaller examples of this have been caught and swept under the rug to avoid a bigger embarrassment?
 
User avatar
jfuqua
Posts: 6
Joined: July 26th, 2002, 11:41 am

Rogue Trader at Merrill?

March 8th, 2009, 3:02 pm

Has anyone seen Rogue Trader (1998) Starring: Ewan McGregor? Based on Barings.I've not found a video store that carries it or even knew about it. Seems to have been distributed mostly in non-US markets.What I have read about it, does sound like a depressing movie. ===================== I wish, but seems unlikely, a movie based on the book "All I Could Get" by Scott Lasser would be made. A very good picture of bond trading---much better than "Bondfire of the Vanities" movie or even book. On a lighter side Danny DeVito's "Other Peoples Money" is a light-hearted picture of corporate takeovers with an ending thatis probably the best presentation Hollywood has ever had on why takeovers occur, esp. for industries that are trying to holdon to products that are no longer needed.
Last edited by jfuqua on March 7th, 2009, 11:00 pm, edited 1 time in total.
 
User avatar
ppauper
Posts: 11729
Joined: November 15th, 2001, 1:29 pm

Rogue Trader at Merrill?

March 8th, 2009, 5:08 pm

City trader in £85 million 'loss' inquiry pledges to stay in Britain
 
User avatar
trackstar
Topic Author
Posts: 3420
Joined: January 1st, 1970, 12:00 am

Rogue Trader at Merrill?

March 8th, 2009, 6:06 pm

So he is Swedish. That is interesting. I had found his name and work history last night and assumed he was French.I stand corrected.***
Last edited by trackstar on March 7th, 2009, 11:00 pm, edited 1 time in total.
 
User avatar
Anthis
Posts: 7
Joined: October 22nd, 2001, 10:06 am

Rogue Trader at Merrill?

March 8th, 2009, 7:01 pm

85 million is just peanuts compared to losses heard on news over the last year or so. I think he failed miserably even in this, to make substantial losses that people wont forget for the next decades....
 
User avatar
trackstar
Topic Author
Posts: 3420
Joined: January 1st, 1970, 12:00 am

Rogue Trader at Merrill?

March 8th, 2009, 7:06 pm

Speaking on the sympathetic side, I wonder how often banks set up arrangements with outside psych professionals to give their staff members a neutral place to discuss things that are going on in the work place. It is hard to do this without seeming paternalistic or worse, Big Brother, and of course, employees do not always use the resources that are made available to them.However, how many firm have truly strong cultures of mentoring? These guys don't turn rogue in a day and there are so many regrets when the big damage is done. This fellow has a wife and young children, so it's a tragedy.Gambling problems are not that hard to spot, if you have lived in those cultures for a fair amount to time. Former traders could become excellent counselors, with the right training.Seeing how the market has been behaving this past year or so, it would be beneficial for everyone to establish an outlet that was safe, but also maintained a responsibility to both parties (employee and employer).Just some thoughts from a gambler/investor who has never worked in a *very* large institutional setting.
 
User avatar
Anthis
Posts: 7
Joined: October 22nd, 2001, 10:06 am

Rogue Trader at Merrill?

March 8th, 2009, 8:21 pm

Mackbar, trading is a blend of entrepreneurship and gambling. I am sure you have seen both failed entrepreneurs and addicted gamblers around you. Nobody is addicted to gambling as long as he is winning. Its when he starts losing that addiction comes in effect with the false hope of loss recovery, and as a result the addicted person slides deeper into shit day by day. On the same token, when an entrepreneur feels things are bad and he is going to lose it all, irrespective of his integrity and ethics, then he thinks he is forced to do thinks he dislikes just for the hope of recovery or or preserving his lifestyle, or much worse for saving his house from foreclosure, for the future of his kids, for keeping his wife, or even for having food tomorrow. In such situations survival instincts prevail and very few people have the courage to resist.The same can be said for traders. As long as they have acceptable profits, not necessarily stellar, they are in the "no problem zone". They will have a job tommorow and they will get a chunk of those profits as bonus. For small profits or small losses there will be no bonus and possibly they may lose their job, but in any case this is not the end of the world. But when losses are bigger, then the trader is in the "big problem zone". Thoughts about wife/mistress/kids/house/lifestyle at risk are unavoidable. Then comes panic and the point of no return has been crossed. Thus its not an issue of psych mentoring. Its an issue of having effective controls and systems in place to give red alert when one trader approaches the point of no return and allow the organisation to take action before things become irreversible. I may sound cruel but i consider as a drag for a trader to have dependants, careerwise. Traders should make families later in their lives when they are on less risky endeavours and are somehow settled financially. Similarly i ve seen people on risky or hazardous professions to refrain from making a family.
Last edited by Anthis on March 7th, 2009, 11:00 pm, edited 1 time in total.
 
User avatar
trackstar
Topic Author
Posts: 3420
Joined: January 1st, 1970, 12:00 am

Rogue Trader at Merrill?

March 8th, 2009, 8:37 pm

Quite right on the personal obligation side, Anthis. It is not cruel, but considerate, actually, and then one is free to gamble, found businesses, and trade to the heart's content.***I do have a difference of opinion with you on when and how the "addiction" rears its head. How many times has a winner failed to pack it in while he or she is ahead? This is fundamental to how the racetrack and casino operate - the House always wins. They just have to entice you to stay a little longer, sometimes with promises of higher payouts.Try looking at the 8th race on a ten-race card. Is that race packed with 2 year old maidens? Non-winners of 3? Or maybe it is a major stakes race that has pulled in alot of tourists and OTB action from all over the country. If it's the maidens or non-winners, watch that Superfecta payoff run into thousands or even tens of thousands. What do you think the bettors do for races 9 and 10? The tracks don't even have to rig the winners, they just cleverly arrange the card. (And I don't spend all my money on the earlier races - I wait for the lottery of the unproven and currently disrespected to run their best race!) I was talking to a man at the local post office the other day, he was just back from a trip to Vegas - got up a few thousand on Black Jack and did not walk away in time. A few more hours and it was gone. He thought about it all the way home on the plane. Aqueduct - March 78th Race - Toboggan S. - Graded Stakes 6 furlongs for 3 year olds - Super paid $11,240 on a $2 bet9th Race - Gotham Stakes - 1 mile and 1/16 - all top finishers with relatively short odds - track does not pay out much Super: $351.4010th Race - odd ball - 4 year olds and up claiming 1 mile 70 yards - Super paid our $39,072 on $2 bet.
Last edited by trackstar on March 8th, 2009, 11:00 pm, edited 1 time in total.
 
User avatar
DominicConnor
Posts: 41
Joined: July 14th, 2002, 3:00 am

Rogue Trader at Merrill?

March 9th, 2009, 12:26 pm

Speaking on the sympathetic side, I wonder how often banks set up arrangements with outside psych professionals to give their staff members a neutral place to discuss things that are going on in the work place.I hear of such things, but for obvious reasons they are not trusted.Even sigining up for counselling is seen as something you would not like to have on your record.I suspect that I'm the nearest thing many people have to a counsellor, a role for which I've received no training at all. My social circle includes some psychs (and one person who has a formal certificate to say he is sane), and it does seem to me that "coaching", "team building" and "time management" type stuff is both easier to sell and less embarassing to buy.Medical doctors are of course under an ethical obligation not to share your confidential information, but as we all know their employers can freely hand it to the banks, regulators or peple they meet in bars with no real fear of any comeback.I get to hear of various people's view that something is not right in their firm. It is in the nature of my job to hear more "issues" than most people.A common thread is that there is no one in the firm they feel they can talk to without serious risk to their careers. Having seen "issues" myself when I had a real job, I know exactly how they feel. For a couple, I've felt it appropriate to affect an introduction to some reassuringly expensive lawyers, but in most cases that is not appropriate, and frankly the best thing to do has been to put distance between themselves and the fallout by leaving.But...Of course at the moment, leaving for another job is not as easy as it was, though of course just leaving is really trivial...As we have seen, the regulators are not only ineffective at protecting whistle blowers, but are seen as actually working for the bad guys. In some ways they are like the Chicago or New York police forces. On TV and films, I'd guess 50% of them are seen as the sort of person that if you report a serious crime will arrange your murder to protect their gangland bosses. That is of course a grotesque exaggeration, but hands up those who would without any fear report wrongdoing to a regulator ?
Last edited by DominicConnor on March 8th, 2009, 11:00 pm, edited 1 time in total.