5 trading losses that cost billions

JPMorgan Chase announced Friday that a bad trade executed in May and originally estimated to have cost $2 billion US has actually cost the bank nearly three times that since the beginning of the year.

The $5.8-billion loss by the biggest bank in the United States is only the latest example of a financial institution or hedge fund taking a huge hit after a trading blunder.

In other instances of trades gone wrong, those blamed for the losses have faced court action and been convicted on charges such as fraud or forgery.

Arguably the most famous example is the case of Nick Leeson, a derivatives trader for Britain's Barings Bank in the early 1990s, who concealed a series of bad trades on Asian stock markets in a so-called "error account." 

The losses, which eventually reached more than $1 billion, brought down the United Kingdom's oldest investment bank. Leeson spent several years in a Singapore prison and his story inspired the 1999 Hollywood film Rogue Trader.

While Leeson is legendary, his losses are eclipsed by the following five examples, which cost billions.

Morgan Stanley

In the United States, according to Time, one trader "came to embody the financial misdeeds that led to the massive economic crisis of 2008."

His name is Howard (Howie) Hubler, and his mortgage-market actions were blamed for a $9-billion loss at Morgan Stanley in 2007. He left the company that year.

"On his way out the door," the Wall Street Journal reported in 2010, "Mr. Hubler checked to make sure he would be allowed to keep all the shares previously awarded to him, a person familiar with the matter says. The company felt it had no choice because Mr. Hubler hadn't broken any rules or deceived higher-ups about his strategy."

Société Générale

In the biggest trading scandal to hit France, ex-trader Jerome Kerviel was found guilty in 2010 of forgery, breach of trust and unauthorized computer use for covering up bets on the futures market worth nearly $70 billion at bank Société Générale.

Kerviel was sentenced to three years in prison and told to pay €4.9 billion in damages, the loss — about $7 billion at the time — the bank said it took to unwind the deals. Société Générale is still seeking the damages, but admits Kerviel could never reimburse that sum.

In June 2012, Kerviel launched an appeal of his conviction. He says the bank was aware of his exorbitant bets and that he was the victim of a financial system that runs on greed and profits. The prosecution says he is lying.

Amaranth Advisors LLC

U.S. hedge fund Amaranth Advisors LLC managed to lose $6 billion US of its $9.5-billion portfolio in just a couple of weeks in September 2006 by betting the wrong way on the direction of volatile natural gas prices.

The managers thought they'd go up. Instead, they slid to multi-year lows. Amaranth, which was based in Greenwich, Conn., folded in 2006.

Long-Term Capital Management LP

In 1998, hedge fund Long-Term Capital Management LP lost $4.6 billion by taking leverage to unheard-of dimensions — at one point, it controlled $125 billion US of assets with only $4.8 billion US in equity capital.

When Russia devalued the ruble in August 1998 and a worldwide "flight to quality" ensued, LTCM's portfolio took a hit it could not recover from. It barely escaped having to default.

Sumitomo Corp.

In 1996, Sumitomo Corp., a Japanese trading house, said it lost at least $1.8 billion, and blamed the situation on actions by its former chief copper trader, Yasuo Hamanaka. In the end, the losses totalled $2.6 billion.

According to Time, "Hamanaka, known as 'Mr. Five Per Cent' for his control over a vast portion of the world's copper, had been hiding his losses and forging his bosses’ signatures on unauthorized trades for a whole decade of secret swindling."

Two years after the loss was reported, Hamanaka was sentenced to eight years in prison on forgery and fraud charges.