x Abu Dhabi, UAETuesday 25 July 2017

The myth of the rogue trader

Why weren't basic safeguards put in place to prevent Nick Leeson, Jérôme Kerviel and now Kweku Adoboli from making unauthorised trades that cost their employers billions?

Illustration by Sarah Lazarovic for The National
Illustration by Sarah Lazarovic for The National

Nick Leeson, Jérôme Kerviel and now, Kweku Adoboli. Three names linked in infamy, the most devastating rogue traders in the history of the financial markets. Three men who broke banks, humbled reputations and incurred spectacular losses. And they did all of this alone.

Leeson famously brought down Barings Bank, one of Britain's oldest financial institutions, when his speculative trades as a derivatives broker spun out of control and the Japanese markets unravelled in the days after the Kobe earthquake shattered confidence in the Far East.

Leeson fled as his losses rose to £827 million - how trifling that figure looks now in the years of multi-trillion dollar wars and trillion-euro firewalls - and was briefly the most wanted man in the world. He was pursued across Asia, before being arrested in Europe and later imprisoned in Singapore. It was there, in the loneliness of his prison cell, that he would pen his memoir, Rogue Trader.

His former bosses were happy to write off this softly spoken man as a hapless maverick, just as he seemed content to be cast in that role too - after all, he had a book to sell and an unlikely post-prison career to chisel out as an after-dinner speaker in the gilded halls of the City of London. And once they'd packed him off to jail, the banking authorities would assure the world that this could not and would not happen again.

Jérôme Kerviel laid waste to that claim in 2008 when Société Général, the French bank, unearthed a $7 billion hole in his books. Kerviel, who was sentenced to three years in prison last autumn, maintained throughout his trial that his trades were conducted with the full knowledge of Soc-Gen's bosses, that he was only cut adrift once he stopped returning decent numbers.

Kerviel, Leeson and, indeed, Kweku Adoboli, who was last week arrested under suspicion of making in excess of $2bn worth of fraudulent trades at the London offices of the Swiss bank UBS, share common lineage: all three graduated from the back offices of financial institutions they served to become the rogues of their respective trading floors. The suggestion here is that those who know the system best can cheat it best too; that the institution is powerless against such deep knowledge of the terrain.

One must tread carefully here. Adoboli, 31, remains innocent until convicted by a court of law. This has not, of course, stopped several carefully worded profiles moulding his image into something approaching an updated version of Kerviel, the hapless poster-boy of the subprime-fuelled financial crisis of 2008, and, indeed, Leeson, the original rogue trader.

Adoboli is portrayed in these stories as quiet, polite and unassuming - less like a master of the universe, more like the mailroom boy who knew too much - the antithesis of the loose cannon he would later become.

But it is the storytelling that is bent out of shape here. Can we genuinely believe, 16 years after Leeson skipped out of Singapore, that there is any such thing as a rogue trader?

If your bank can contact you, wherever you are in the world, minutes after you make a transaction that does not fit the spending profile of your current account - and mine did recently when I made three purchases online in quick succession - then why can't a financial institution keep a watching eye on its trades or simply program its software to stop losses?

It can, of course, but behind every supposed rogue trader sits an ineffectual manager, ready to take the praise when profits are rolling in and quick to distance himself from the crisis when the storm clouds gather. Surely, the time is now ripe to turn the spotlight on the corner office and the unseeing eyes that stare out from within?