National Australia Bank: The Forex Scandal And The Boardroom Battles
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Code : GOV0009
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Region : Australia |
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About NAB The National is the holding and main operating company of the National Australia Bank group. Incorporated in 1893, this public limited company is the largest financial services institution (in terms of market capitalization of Aus$44 billion) to be listed on the stock market ofASX and is one of the top 30 most profitable financial services companies in the world.11 The National’s history can be traced back to the establishment of The National Bank of Australasia in 1858. It expanded over the years through several acquisitions and has a presence inAustralia,Asia, Europe and New Zealand... The Scandal On January 13th 2004, unauthorized trading at foreign currency options trading desk of The National by four traders (three in Melbourne and one in London) came to light. Initially estimated to be at $180million (pre-tax), the loss to the Bankwas later confirmed to be $360 million after the internal revaluation (post-tax-A$252million).The four foreign exchange traders had engaged in risk-based proprietary trading activities using spot foreign exchange and currency options transactions. The traders’ dealings resulted in a large long US dollar position againstmany other foreign currencies by the last quarter of 2003... |
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Operations at the Desk The currency options traders took up proprietary trading on behalf of the Bank. They traded against the US dollar and other major currencies.Whenever they incurred losses or profits, they over/under reported the real transactions.When the traders incurred losses in 2001, they misreported them by overstating them in the currency options book by Aus$4 million approximately...
Concealed Losses TThe traders hid the losses by entering fictitious trades into the systems in the first quarter of 2004 (September-December). The losseswere covered by: P&L smoothening using spot FX (fromlate 2001 toMay 2003); lossmasking through ‘surrendered’ Spot FX trades (July 2003 to January 2004) and fictitious option trades (fromOctober 2003 to January 2004).21 Traders ‘smoothened’ daily profits or losses by using incorrect dealing rates and processing false spot foreign exchange and currency option transactions...
