Forex Disasters

Despite the plethora of brokers attempting to persuade you that forex trading is easy, it is estimated that 95% of all day traders are losing money. The large institutional traders lose money on occasion. Usually in much the same way day traders do – attempting to recover an initial loss quickly by using a high leverage and speculating heavily. Most banks claim the traders concerned were acting on their own without authorization from the bank themselves. Unsurprising really, if the bank makes money it was authorized, if they lose, it was the result of “rogue” traders; heads roll (metaphorically) and everyone moves on, except the unlucky trader who may or may not get to spend a few years in prison and become a successful author based on the publicity.

Here are few foreign exchange trading disasters that have been in the news over the last few years. Far be it for me to suggest that most bank’s forex losses are quietly covered up and forgotten ☺ These are the ones that were too big to sweep under the rug.

National Australia Bank's investigation in 2004 into unauthorized currency options trading disclosed losses of $360 million. Two of the four foreign exchange dealers allegedly responsible pleaded guilty in court, after Gianni Gray confessed to three counts of dishonesty. Mr. Gray, who worked for NAB in London, had previously been awarded a bonus of $85,000 in 2003 for his part in earning bank profits that were later discovered to be false. Luke Duffy, the head of the currency options team, pleaded guilty to three counts of dishonesty and was sentenced to 29 months' jail, with a minimum of 16 months, after he agreed to co-operate with the Commonwealth Director of Public Prosecutions. Mr Duffy handed back his $129,000 performance bonus to the bank prior to sentencing. The two traders most heavily involved in the disaster, David Bullen and Vincent Ficarra, were sentenced to 44 and 28 months jail respectively.

AllFirst Financial, a subsidiary of Allied Irish Bank — Ireland's second largest bank — lost US$750 million on foreign currency options trading when its trader, John Rusnak, systematically falsified bank records and documents to hide losses from speculative trades.

Croatia’s third largest bank lost US$100 million (nearly 75% of the bank’s capital) in March 2002 when its currency dealer, Eduard Nodilo, indulged in “unauthorized” foreign exchange trading to hide past losses. German bank, Bayerische Landesbank, sold its 59 per cent share in Rijecka Banka to the government for a symbolic price of US$1 shortly afterwards.

Vietnamese government inspectors blamed the central bank for losses incurred by two state-run banks that carried out foreign currency deals with Dutch bank ABN Amro.

The inspectorate found that State Bank Governor Le Duc Thuy “would take responsibility for major losses suffered by Agribank and Incombank in the course of foreign currency trading.”

Police last year blamed losses incurred by Incombank on ABN Amro and detained or jailed four of the Dutch bank's staff who were only freed after the foreign bank paid $4.5 million.

ABN Amro has consistently denied claims that it was to blame for losses incurred by Incombank, the Industrial and Commercial Bank. Police had also blamed ABN Amro for losses at the Bank for Agriculture and Rural Development (Agribank). The government inspector said that the SBV had “failed to tighten supervision of the inter-bank foreign currency market” and, “mistakes were not corrected immediately once discovered nor were the staff involved strictly punished.”

So don’t feel too bad if you have dropped a few grand forex trading – you are not alone. At least you are not going to prison – hopefully.