Major Japanese trading house Mitsubishi Corp. said Friday it was carrying out an investigation after its Singapore-based subsidiary lost $320 million because of unauthorized trades by an employee.
In a statement, the firm said the losses involved a local employee of Petro-Diamond Singapore who was hired “to handle its crude oil trade with China.”
The employee “was discovered to have been repeatedly engaging in unauthorized derivatives transactions and disguising them to look like hedge transactions since January of this year,” the firm said.
A fall in crude prices from July resulted in “large losses,” and the subsidiary began investigating the employee’s work in mid-August, the statement added.
PDS “expects to book a loss of approximately $320 million,” it said.
Mitsubishi Corp. said the derivatives position was quickly closed and investigations were carried out at the subsidiary and other group companies and in-house departments involved in derivatives trading.
“These investigations confirmed that there are no such problems or risks at present,” it said.
The employee has been fired and the subsidiary has filed a complaint with police, it added.
“Investigations are currently ongoing to determine all of the details,” Mitsubishi Corp. said.
Although Mitsubishi is apparently trying to downplay the case, it is a blow for the leading trading house, which invests in everything from salmon to natural gas and trades many commodities around the world.
It is the first loss of its kind in Mitsubishi’s storied history, a company spokesman said.
It may be the biggest loss in the oil markets — where trades often blow up — since China’s Sinopec Corp. said last year it lost about $700 million on crude hedging.
In what will be a reminder of the collapse of Barings Bank after Nick Leeson’s trades in Singapore in 1995, and the huge losses at Societe Generale by rogue trader Jerome Kerviel in 2008, the trader who Mitsubishi has alleged carried out the series of unauthorized trades this year disappeared in August.
Mitsubishi has a reputation as a careful trader and only reported its first group annual loss in 2016, when commodities markets slumped. It was founded in 1954.
“It’s a bit surprising (because) in the Japanese houses there are a lot of checks and double-checks but I’m not sure what automated compliance systems there are, or if they have any,” said one longtime trader in the Asian market, who has worked at a Japanese trading house.