INVESTING

Three of the biggest banking and investing bungles in history

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In what a US court judgement called "one of the biggest blunders in banking history", Citigroup mistakenly repaid $US900 million in loan principal to a consortium of lenders years before it was due.

When Citi asked for it back the lenders and court both said no, leaving Citi on the hook for US$900 million, though it intends to appeal the court's decision.

Citi's US$900 million mistake is unusual but not unheard of. History is replete with these events.

citibank revlon loan banking investing bungles

In March 2018, erroneous trade orders executed by BNP Paribas Securities led to Formosa Petrochemical Corp losing about US$3 billion of its market value in one fell swoop. The mistake was put down to a glitch in BNP's system.

A company may save face by blaming a glitch, but it's much harder when the mistake is the result of liquid confidence.

One early morning in 2009, commodities broker Stephen Perkins woke up to a call from his London-based firm, PVM Oil Futures. They wanted to know why he'd bought seven million barrels of crude oil the previous night, valued at more than half a billion dollars. It accounted for 69% of the global market, and pushed the price from $71.40 to $73.05 a barrel.

Problem was, Perkins could not recall doing anything of the kind.

Turns out he'd enjoyed 18 holes of corporate golf, drinking his way to a stupor. Hours later, intent on capping off what had been a stellar day, he executed the boldest trade of his life before finally tucking himself into bed.

The next morning, realising an excuse was needed, he claimed that he'd made the purchase on behalf of a client. That lie quickly unravelled when the firm realised the trade had been made with its own money.

PVM was eventually able to unwind the position, but not before realising a US$10 million loss.

Perkins was banned from trading for five years by the Financial Services Authority (FSA) and fined   £72,000. In its final report, the FSA said, "Mr Perkins poses an extreme risk to the market when drunk".

Australia is not immune, either.

In 2015, Credit Suisse bought shared in Payce Consolidated $7.90, a generous bid price given the share had previously traded at $5.55. Payce shares skyrocketed by over 42 cents.

Then, on the same day, it did it again, buying up Alcoa Inc at $26.86 despite the stock last trading at $22.40. Alcoa's price rocketed up 19.9%.

Both orders were the only trades of the day for both companies.

The Payce and Alcoa trades had been part of a larger tranche of automated trades. ASIC fined Credit Suisse $74,000, concluding that the trades had evaded the usual process of filters and alerts.

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David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
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