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Rogue oil trader causes $320m loss at Mitsubishi unit

Sep 21 2019 10:24
Bloomberg News

Mitsubishi said a rogue oil trader at its Singapore unit lost $320m in unauthorized transactions disguised as legitimate hedges for customers.

The employee, a Chinese national working at Petro-Diamond Singapore Pte, has been fired and reported to police, Mitsubishi said in a statement, declining to name him. The trader, hired in November 2018 to handle oil business with China, “repeatedly” engaged in the unauthorized deals since January, disguising them to “look like hedge transactions,” the parent company said.

A person familiar with the matter identified the trader as Wang Xingchen, also known as Jack Wang. Calls to Wang’s mobile phone wouldn’t connect, while a person who answered the phone at Petro-Diamond’s Singapore office said he has left the company. No other current contact details were available.

A loss of $320m would be less than one-tenth of Mitsubishi’s projected profit for the year. In August, the giant trading house, the biggest of Japan’s so-called sogo shosha, forecast full year net income of 600bn yen ($5.6bn).

The oil market has a long and colourful history of trading busts. Metallgesellschaft AG suffered a $1.2bn loss in 1994 when a hedging strategy failed. In 2004, China Aviation Oil suffered its infamous $550m blunder, when the company fell afoul of a surge in prices.

Another Japanese trading company, Mitsui & Co, was forced to close its Singapore oil-trading unit in 2007 after a trader lost $81m in hidden naphtha trades. The dealer and his supervisor were imprisoned. And in December last year, two top officials at Chinese oil trading giant Unipec were suspended following losses of about $656m.

In the latest scandal to befall the industry, Mitsubishi said the employee manipulated data in Petro-Diamond’s risk management system so that the transactions appeared to be associated with actual trades with customers.

“Large losses from derivatives trading” were incurred since July as the price of oil dropped, and the unit began an investigation into the transactions in the middle of August when the employee was absent from work, Mitsubishi said. Brent oil, the international benchmark, dropped 16% from its July peak of $67.01 to as low as $56.23 in the first week of August.

Petro-Diamond quickly closed the derivatives positions once it realized they could result in losses for the company and also determined that they weren’t associated with any transactions with customers. Mitsubishi said investigations confirmed that its unit had “sufficient internal controls in place.”

The trader was fired September 18 and reported to police the next day. The Singapore Police Force wasn’t immediately able to comment Friday.

Petro-Diamond Singapore had revenue of $6.7bn in the year ending March 2018 and EBIT of $18m, according to the financial profile filed with the city’s accounting regulator.

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