It is amazing how we remember things. When we talk about rogue traders the two names that come to mind are, Jerome Kerviel and Nick Leeson. But their € 5 billion and respectively £ 2 billion are not the most a trader lost and lived to tell the story. Of course we now add the UBS trader Kweku Adoboli with his € 2 billion loss but only because is new.
The record goes to Howie Hubbler who lost $ 9 billion for Morgan Stanley. Somehow people do not talk about him although his loss is almost as big as the loss of the other three together.
Although it did happen quite often in the last decade every time we wonder how can such a thing be possible. How can a trader have this much power to open a position this big to lead to these losses?
In my last position I did oversee trading and in my view there are only two ways. One, the direct manager and who is responsible to manage risk knows about the position. Two, there is no direct manager with power to decide on the trader’s position.
Both are very frequent in banking as regulators do not always check the details from back to front of a transaction, including responsibilities and decisions. And they should not most of the time. But shareholders should ask more detailed info about how the trading floors are run. Who approves limits and who requests them. Who manages the risk, who can open a position and who can close it. IF shareholders only care about the upside of trading from time to time one surprise like this can bring them back to zero.
Along the lines of what I am saying, Rolling Stones Politics