UK Fraud Office examines £1.2m billion Sumitomo loss

 

THE British Serious Fraud Office is investigating the circumstances that led to Sumitomo Corporation, the world's largest copper trader, losing an estimated £1.2 billion in unauthorised copper dealings in the past 10 years. The City of London police are also involved.

Mr Yasuo Hamanaka, the Japanese group's former senior copper trader and once seen as the most powerful man in the business, was dismissed by Sumitomo following an international investigation. Much of his trading was done via the London Metal Exchange.

Fears that the exchange's copper market, already in turmoil, might crash, causing financial casualties, proved unfounded yesterday. After a brief rush of early selling, the copper price rallied. Mr Raj Bagri, chairman, said. "The LME has demonstrated that this market can take this kind of thing on the chin."

Sumitomo helped provide stability by saying it would honour all its copper contracts and would not further disrupt the market by trying to wind down its positions quickly.

Japanese financial markets yesterday reacted calmly to the revelations. The Nikkei 225 index rose 0.94 per cent to a high for the year of 22.289.39, within which trading company shares were mixed, apart from Sumitomo, which was suspended.

However, the group's credit worthiness has been damaged. Standard & Poor's, the credit rating agency, downgraded Sumitomo Corporation's short term debt and placed the company on credit watch for a possible further downgrade after clarification of the exact extent of the loss, which depends on copper prices.

Standard & Poor's said that even though Sumitomo's credit quality had declined, the group's large hidden assets should enable it to absorb the deficit. Moody's Investor Service said it was considering downgrading Sumitomo's long term debt.

Sumitomo's loss was revealed after the close of trading in New York on Thursday. Mr Hamanaka could face criminal charges in Britain and the US, where the deals were carried out.

The British Securities and Investments Board said yesterday it had been investigating transactions ill the copper markets "for several months".

Sumitomo's loss, the second caused by a rogue Japanese trader in less than a year following last September's discovery of a $1.1 billion deficit on unauthorised bond dealing at Daiwa Bank, shocked the Japanese government.

Mr Ryutaro Hiishiiaoto, the Prime Minister, questioned whether the lesson of the Daiwa disaster had been learned.

"As long as a company conducts business activities, there is the possibility of suffering from losses. But it is a problem if there is something against the rules," he said.