In 2016 Einar Aas was the top individual tax payer in Norway. One Monday in September sunk his entire portfolio
'Phantom' Norwegian trader's confidence comes back to haunt him
For almost two decades, Einar Aas was the most successful trader on one of Europe’s largest power markets.
He was also a phantom.
Every other trader knew his name, but hardly anyone had actually ever met him. The 47-year-old didn’t attend trader meetings, conferences or other industry gatherings. Instead, he spent most of his time at home, making huge bets on Nordic power from his house in Grimstad, a small seaside town three hours south of Oslo. There he amassed a fortune trading on his own account - in 2016 it was enough to make him the single biggest taxpayer in Norway. This year, he made one big bet too many.
On Thursday, Nasdaq, which sets prices in the Nordic power market that supplies millions of homes and businesses across northern Europe, announced it had expelled Mr Aas after he racked up millions of euros of losses he couldn’t make good.
Mr Aas is incredibly shy. He bought a huge house on the water in 2004 and later spent many millions on buying up properties around it to ensure his privacy. He appears never to have given an interview. Attempts to reach him since the scandal broke were unsuccessful.
Bloomberg pieced together the story of his rise and fall from talking to fellow traders, who asked not to be identified, as well as reports in the Norwegian media.
Mr Aas graduated in the early 1990s from the Norwegian School of Economics, the nation’s elite business school, whose alumni include top crime writer Jo Nesbo, the chief executive of energy company Equinor, Eldar Saetre, and the head of Norway’s $1 trillion wealth fund.
He got his start working as a risk manager at Interkraft Trading, but soon became a trader in his own right. His old boss, Lars Eckhardt, told local business newspaper Dagens Naeringsliv that Mr Aas had a “speculative drive” and soon became their best trader. He left in 2001 to set up his own firm, Kraftinvest. From 2005 he traded in his own name.
But it wasn’t just the power market that took his fancy. As his wealth grew, he piled into everything from a cutting edge energy-technology provider to property, both at home and abroad. He bought a giant apartment on the Oslo waterfront, one of Norway’s most expensive neighbourhoods.
At the start of the last decade, energy markets from power to oil and coal were on a roll that lasted years - until the financial crisis strangled credit lines for trading and prices plunged. And while Mr Aas suffered losses like most traders, since 2002 he’s posted a total taxable income of 3.5 billion Norwegian kroner (Dh1.5bn).
Easily his best year was 2016 when he earned 833 million kroner and paid 227m in tax, making him the top individual tax payer in Norway, where people’s returns are public documents.
One admiring trader said that, despite his huge loss, you can’t take away from him that for 15 years he probably bet bigger, and better, than anyone else in the entire market.
The trade that ended Mr Aas’s golden run was a bet that the spread between the Nordic and German power would narrow. As the market opened on Monday, carbon emission allowances, the best performing commodity this year, were on a tear. That helped push up the German market, while at the same time, wetter weather forecasts sunk the Nordic next-year contract by the most since January 2017. Mr Aas was in trouble.
In a statement to Dagens Naeringsliv on Thursday, he said he’d taken a position that was too big in relation to the liquidity in the market. After “extraordinary price changes” in the Nordic and German contracts, he was forced to pay the exchange his last free liquid funds. That wasn’t enough and at 8.20am on Tuesday he was declared in default and put under administration. His portfolio was liquidated on Wednesday night.
The market movement that day was 17 times larger than the normal observed daily spread changes and could be characterised as a true “Black Swan event”, Nasdaq said on Friday.
While the loss is a personal disaster for Mr Aas, it’s also a big blow to Nasdaq, which bought the market in 2010 as part of its drive to expand in commodities. Once the kingpin of European electricity trading, activity on the world’s oldest power market is now languishing at its lowest level since 1999 after some of the biggest banks, hedge funds and industrial consumers left the market, driven away by rising costs and prices that were little changed for years.
“It is sad to hear about it, and it is one big trader less,” said Hermund Ulstein, chairman of the Nordic Association of Electricity Traders. The market now will have to move on without “Einar from Grimstad”, he said.
But as the dust began to settle, traders and utilities have started to question how Mr Aas’ demise could have happened.
Unusually, Mr Aas was allowed to be his own clearer, or guarantor of trades. That meant that at least one level of oversight was gone. If he’d gone through another clearing member, that company could possibly have stopped the bets earlier by demanding additional collateral.
“This is a question that Nasdaq Clearing has to answer,” said Daniel Gedeon, director of financial markets infrastructure supervision at the Swedish Financial Supervisory Authority. “As a supervisor we are investigating the situation thoroughly."
Other clearing members - banks, brokerages and utilities - now will have to top up Nasdaq’s default fund that was used to help cover Mr Aas’ losses to the tune of more than €100m (Dh427.1m). Fortum Oyj, Finland’s biggest utility, will pay as much as €20m, it said on Friday. The company “expects Nasdaq to have adequate collateral and security arrangements at all times”, it said.
The exchange said it will raise margin levels on spread positions and has hired an independent company to review all clearing house processes and risk practices. In addition, a temporary “Junior Capital” facility of about €19m has been set up to help replenish the default fund.
Traders also raised the prospect that the Aas default could help the European Energy Exchange’s push into the Nordic market. The rival exchange in Germany is planning to expand its offering, a spokeswoman said.
As for Grimstad, a quiet town where painted wooden houses line a horseshoe-shaped harbour, Mr Aas’ tax payments will be sorely missed. He alone contributed 145m kroner in taxes from 2014 to 2016, according to the municipality. The town has probably "lost" a significant tax payer for 2018, Tone Marie Nybo Solheim, the city’s top administrative official, said by email.
“Potential big losses might produce large tax losses carried forward, which will reduce taxable income for years to come,” she said.