Rogue Forex Trader Runs Up $30m In Losses For Electrolux Treasury

STOCKHOLM--A rogue forex trader at the German treasury operation of Electrolux has cost the Swedish company nearly $30 million, the firm announced last week.

During 1999, the unnamed trader exceeded his trading limits to place unauthorized currency deals, and manipulated records to cover up his losses. The employee, who worked at the group's treasury department in Siegen, Germany, was suspended when he confessed he could not cover his losses as the end of the financial year approached in December.

According to Michael Treschow, chief executive of Electrolux, the losses were due to the fall of value in the euro. "He was lucky in the beginning, but the market went against him. All the contracts have now been closed," he says.

The employee, who dealt with foreign exchange transactions for the group's German imports, began unauthorized trading in forward contracts in currencies at the beginning of 1999.

"When the losses increased, he increased the trading volumes. His transactions were not discovered because of manipulative actions," said a statement released by the company last week.

The bank in Germany is for internal purposes and has only four employees.

Following the discovery, Electrolux has centralized all forex derivatives trading to its treasury department in Stockholm.

"There will be much more intense scrutiny of our foreign exchange transactions in our central office," says a spokesperson for Electrolux in London. However, the change will not affect the rest of the four-strong team in Siegen, who will continue dealing in Germany.

Some analysts have responded to the disclosure with charges that the checks in place to prevent unauthorized trading are lax in Sweden.

But Jan Tradgardh, president of ACI Sweden says such a claim is unfair. "The quality of risk management here is probably the best in the world," he says. "Accidents like this can always happen--but it's very unlikely that this would happen to a bank in Sweden.

"Trading risks today are much lower than they were five or 10 years ago. The liquidity isn't there, so people are very cautious about taking risks. If it did happen to a bank in Sweden it would have to be a bank that has a high risk-taking policy."

Electrolux's rogue trader is the third in as many months in the foreign exchange industry.

In December, another Scandinavian institution, Den Danske Bank also suffered losses when a trader exceeded his trading limits.

And in November, Chase Manhattan Bank--in the top three FX earning banks worldwide--had to restate its Q4 trading result by $60 million, after senior currency trader Christopher Goggins was found to have been over-reporting his trading gains for more than a year.