Mitsubishi Corp said a rogue oil trader at its Singapore branch lost $320 million in consequence of unauthorized transactions disguised as legal security for patrons.
The worker, a Chinese national working at Petro-Diamond Singapore, was fired and reported to police, Mitsubishi said in an announcement, declining to call him.
The trader, hired in November 2018 to handle oil deals with China, had “repeatedly” engaged in unauthorized trades since January by pretending they “seemed to be hedging transactions,” the parent company said.
An individual aware of the matter identified the trafficker as Wang Xingchen, also often known as Jack Wang.
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Calls to Wang’s cellular phone couldn’t be placed, and a one that answered the phone at Petro-Diamond’s Singapore office reported that he had left the corporate. No other current contact information was available.
A lack of $320 million can be lower than one-tenth of Mitsubishi’s projected profit for the yr. In August, the large department store, Japan’s largest so-called sogo shosha (conglomerate), forecast full-year net income of 600 billion yen ($5.6 billion).
Mitsubishi’s loss, within the context of recent declines in coking coal prices, will likely prompt the corporate to lower its net profit forecast for the total yr, SMBC Nikko Securities Inc. said.
“While the losses are expected to be one-time, they will impact earnings in the second quarter,” analyst Akira Morimoto wrote in a Sept. 20 note.
The oil market has an extended and colourful history of trade crashes.
In 1994, Metallgesellschaft AG suffered a lack of $1.2 billion on account of the failure of its hedging strategy. In 2004, China Aviation Oil made an infamous $550 million mistake when it bumped into conflict over soaring prices.
Another Japanese trading firm, Mitsui & Co, was forced to shut its Singapore oil trading unit in 2007 after the trader lost $81 million in a hidden oil trade. The dealer and his supervisor were sent to prison.
Last December, two top officials at Chinese oil trading giant Unipec were suspended over losses of around $656 million.
In addition to grease, one other Japanese trading company, Sumitomo Corp, suffered its worst-ever commodity trading in 1996, when Yasuo Hamanaka lost $2.6 billion in a copper trade on the London Metal Exchange.
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In the most recent scandal to hit the industry, Mitsubishi said an worker manipulated data in Petro-Diamond’s risk management system in such a way that transactions seemed to be related to actual customer transactions.
“Large derivative trading losses” were incurred starting in July when the value of oil fell, and the unit began investigating the trades in mid-August while the worker was absent from work, Mitsubishi said.
Brent crude, the international benchmark, fell 16 percent from a July peak of $67.01 to as little as $56.23 in the primary week of August.
Petro-Diamond quickly closed the derivative positions when it realized that they might lead to losses for the corporate and likewise determined that they weren’t related to any customer transactions.
Mitsubishi said investigations confirmed its unit had “sufficient internal controls.”
The trader was released on September 18 and turned himself in to the police the subsequent day. Singapore police confirmed that a report had been filed, but declined to supply every other information.
According to a financial profile filed with the town’s accounting regulator, Petro-Diamond Singapore had revenue of $6.7 billion within the yr ended March 2018 and EBIT of $18 million.
This article appeared within the print edition of the South China Morning Post as: Mitsubishi claims that a dishonest Chinese trader lost $320 million
