Trading Losses Are Increased by Sumitomo to $2.6 Billion
Sumitomo Corp. said Thursday that losses from unauthorized trading by its chief copper trader were $2.6 billion, far bigger than it first thought, and that as a result this year it will post its first loss in its 77-year history.
The revised loss estimate makes the Sumitomo fiasco one of the worst of its kind, far exceeding recent financial scandals at such institutions as the British bank Barings, Daiwa Bank of Japan and here in Orange County.
The huge Japanese trading firm placed responsibility for the loss--estimated at $1.8 billion when first disclosed in June--squarely on its one-time star trader Yasuo Hamanaka, and said for the first time it will seek criminal charges against him for alleged document forgery and breach of trust.
“What we want to prove most at the moment is that the company was not involved with Hamanaka’s unauthorized copper trading,” Sumitomo President Kenji Miyahara told a Tokyo news conference. “It was done completely by one person. I’m 100% sure of that.”
Miyahara also expressed the firm’s “regret and embarrassment over these extraordinary violations of clearly stated ethical and professional standards.”
Some analysts and investigators have expressed doubt that Hamanaka could have pulled off such massive fraud for a period of 10 years without others inside the company knowing what he was doing, which in part was a risky effort to make money by cornering the copper market and driving up prices.
Hamanaka, who has already been fired, has stayed mainly at his suburban Tokyo home since the scandal broke, saying only that he would give his side of the story in the future.
Miyahara, who had not spoken publicly on the scandal until now, said Hamanaka conducted as many as 2,000 unauthorized deals in a single year, creating false documents to hide his activities.
The Nikkei Shimbun, Japan’s leading financial daily, reported today that Sumitomo Chairman Tomiichi Akiyama, who also served as president until disclosure of the scandal in June, is now expected to resign late this year or early next year. It attributed the report to unnamed company executives. Miyahara said at the news conference that top management will decide on possible resignations after its internal investigation is completed.
Sumitomo said in a statement that it raised its loss estimates from the copper trades partly to reflect a 10% drop in copper market prices since the scandal surfaced. It now predicts a net loss for the current fiscal year, ending March 31, 1997, of $1.3 billion, compared with a pre-scandal estimate of a $218-million profit.
Sumitomo said it will offset the losses through an $800-million gain from sale of equities and real estate, a $400-million charge to operating earnings and a special reserve fund of $1.4 billion set up after the scandal broke.
The revised loss estimate outstrips the $1.7 billion lost by Orange County on interest-rate derivative contracts, made public in 1994; the loss last year of $1.4 billion by Barings on rogue trades in Japanese stock futures, and the loss announced last year of $1.1 billion through 11 years of unauthorized trades in U.S. Treasury bonds by Daiwa.
Sumitomo said its trading losses exceeded its original estimate because not only did copper prices fall this summer, but also the firm felt it should move forward quickly to close open positions on the market.
“These unauthorized positions were . . . large relative to the overall market size and were comprised in part of high-risk derivative instruments,” it said. Miyahara added, “There is almost no risk remaining and it is our judgment that we will not again revise the estimated loss we have announced today.”
Analysts had expected the company to increase its loss estimate, so the announcement did not negatively affect markets. The price of copper for delivery in three months rose $5 a ton to $1,930 on the London Metal Exchange, reflecting traders’ confidence that Sumitomo’s losses are now accounted for and it would not need to sell more copper.
