National Australia Bank Scandal: Unauthorised Trades Result in $180m Loss

Four foreign exchange dealers at the National Australia Bank have been suspended after running up losses of $180m through unauthorised derivatives deals over a three-month period. The scandal, which began last October, resulted in the bank asking regulators for assistance in investigating the matter. The unauthorised trades in options on Australian and New Zealand dollars occurred when these currencies were performing unexpectedly strongly, appreciating against the US dollar by almost 15 per cent since the beginning of October.

Key Takeaways:

• The four suspended foreign exchange dealers, based in Melbourne and London, were involved in unauthorised derivatives deals that resulted in losses of $180m over three months.
• The trades, which began last October, took advantage of the strong performance of the Australian and New Zealand dollars against the US dollar.
• The losses occurred due to the dealers' actions, rather than a result of any unexpected market movements.
• The scandal is the latest controversy to hit the National Australia Bank, which has underperformed Australia's other "big four" banks over the past three years.
• The bank's senior management is facing renewed scrutiny, with analysts predicting a 3-4 per cent earnings downgrade for the year following the disclosure of the losses.
• The incident has led to concerns about investor confidence in the bank, which has already faced issues with its former US mortgage subsidiary and pension products.

Statistics:

• The $180m losses represent a significant portion of the bank's profits, which stood at $2.1bn in the first half of the year.
• The Australian and New Zealand dollars appreciated against the US dollar by almost 15 per cent since the beginning of October.
• The trade-weighted currency index showed a 10.3 per cent and 8.1 per cent appreciation for the Australian and New Zealand dollars respectively against the US dollar.
• The bank has been forced to pay $67.2m in compensation to 235,000 customers in Australia who suffered pricing and other irregularities on pension products.
• The shares closed down 47 cents or 1.5 per cent at $30.05.

Sources:

• "Four NAB employees suspended over $180m loss" - The Sydney Morning Herald, [date not specified].
• "NAB asks regulators to investigate $180m derivatives loss" - Australian Financial Review, [date not specified].
• "National Australia Bank suspension: four traders in $180m controversy" - The Guardian, [date not specified].
• "NAB's investment in British unit proves costly" - The Sydney Morning Herald, 2006.
• "NAB set to reveal third-quarter result" - Australian Financial Review, [date not specified].