Dresdner Bank Ag Uncovers Another Rogue Trader

The Frankfurt-based bank said the unnamed trader confessed to the falsification of records that inflated trading profits on interest rate futures contracts.

Dresdner, Germanys third-largest commercial bank, just 10 days ago on October 21 said it had lost four million marks ($2.64 million) as a result of false accounting by a trader in its bond department. Dresdner did not say whether the latest trader to be caught had left the bank but said the volumes involved were insignificant and that the problem was solved quickly.

A bank official declined to comment on information from banking industry sources that the losses from the latest incident totalled about 16 million French francs ($3.13 million).

 

The first trader was dismissed without notice for conducting false accounting in his trading book, possibly to present better trading profits, a bank official said. Dresdner said that in both cases its internal risk controls quickly discovered the discrepancies. It noted that both traders were discovered within a short period of time of the false entries being made into the books.

Top commercial banks have built up better internal controls over traders following the spectacular collapse of Barings Bank in February 1995 under the weight of some $1 billion of unauthorised dealings by Singapore-based trader Nick Leeson. Barings was later acquired by Dutch bank. Leeson is currently serving a 6-1/2 year prison term in a Singapore jail after pleading guilty to fraud charges. German rival Deutsche Bank AG also suffered from alleged irregular dealings by former fund manager Peter Young.

The Frankfurt-based bank purged four top managers at its Morgan Grenfell investment banking subsidiary who were found to bear responsibility for failing to spot Young.

Young was sacked from Morgan Grenfell Asset Management (MGAM), the fund management unit of Deutsche Bank, after the irregularities were found. The activities are now under investigation by British regulators and the Serious Fraud Office, which reviews allegations of financial crimes.