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Copper Markets Brace for an Uncertain Week

Scandal: Sumitomo trader's unauthorized deals reportedly may have involved up to $20 billion a year.

June 17, 1996|From Reuters

TOKYO — The Japanese copper trader who cost his company the world's biggest loss in a financial market may have made unauthorized deals involving as much as $20 billion a year, the Asahi Shimbun newspaper reported Sunday.

As authorities in Japan, Britain and the United States announced further investigations into how such transactions could go unnoticed for 10 years, copper traders were bracing for a hectic week. Unauthorized copper deals made by Sumitomo Corp. trader Yasuo Hamanaka, who was fired last week, allegedly cost the company $1.8 billion.

The main uncertainty is how Sumitomo, the industrial and commodities company that is the world's biggest trading force in copper, plans to extricate itself from the copper deals Hamanaka had it locked into.

Since the scandal broke on Thursday, the company has been silent as to its market exposure, but a Japanese newspaper gave an indication of the sums involved. It reported that Hamanaka carried out unauthorized trades of up to $20 billion a year--twice the amount he showed in the company's official records.

No suggestion has emerged that Hamanaka enriched himself by the dealings.

Sumitomo executives rejected Japanese newspapers' suggestions that they could have announced the debacle earlier. The executives said they cooperated fully with authorities, and they made statements seeking to reassure the markets.

"We hold positions in the market, but have no immediate plans to liquidate. We hope the copper market will stabilize and regain order," Sumitomo President Tomiichi Akiyama said on Friday, when the company announced its losses.

"We believe it is our mission to continue trading and make efforts to stabilize the market," Akiyama said in an interview with Japan's financial daily Nihon Keizai Shimbun on Saturday.

But most traders said they doubt such comments are enough to assuage the fear of heavy selling orders from Sumitomo.

"Sumitomo still holds many long orders, and some are options-related. A key point is when and how they will liquidate them," one Japanese metal trader said.

"Copper prices may crash again if they start liquidating. World metals markets will remain very nervous in the near term," another metal trader said.

Akiyama said in the Nihon Keizai interview that internal investigations showed Hamanaka had no recent accomplices although he was briefly helped by a trader who left the company eight years ago.

Akiyama said the company was unaware of Hamanaka's actions because the same person--Hamanaka--was in charge of one section for too long. "We will make it mandatory from now on that we rotate the section heads within a shorter time period," Akiyama was quoted as saying.

In an interview with the Asahi that appeared Sunday, in which he revealed the annual amount in unauthorized trading Hamanaka carried out, Akiyama said the trader kept a secret record of his unauthorized dealings. He said they added up to twice Sumitomo's annual copper trading volume. In 1995, that was $9.4 billion.

Akiyama said Hamanaka got away with unauthorized dealings for so long because bank papers related to his transactions that should have been sent to the company's financial department were instead sent directly to Hamanaka. The company was only fully alerted to Hamanaka's activities when bank documents were mistakenly sent to the company's financial department.

The Sumitomo case comes less than a year after Japan's Daiwa Bank debacle, in which a bond trader at the bank's New York branch ran up huge losses on unauthorized deals over an 11-year period.

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