Rogue deals cost Aussie bank £76m

FOUR alleged rogue traders at National Australia Bank have lost their employer A$180m (£76m) through unauthorised foreign exchange option deals.

The employees, one in London and three in Melbourne, have been suspended, the bank said in a statement that sent its shares plunging.

Australian police have been called in to investigate and the Financial Services Authority in London has been informed.

NAB, best-known in Britain for its Yorkshire and Clydesdale bank operations, said the losses were 'not expected to exceed A$180m pre-tax'.

Steps had been taken to close the outstanding positions to minimise any further losses, it said. No NAB customers had been affected.

Analysts questioned the effectiveness of the internal controls at NAB especially in the wake of the John Rusnak affair. Rusnak, a forex dealer for a US offshoot of Allied Irish Banks, ran up losses of US$691m (£374m).

But the latest loss - if fully identified and successfully capped - will barely dent the bottom line at NAB. Last year it made profits of A$4bn.

The rogue deals were in foreign exchange options - instruments that give the holder the right but not the obligation to buy or sell an underlying currency at a pre-agreed price. The options were denominated in Australian and New Zealand dollars.

They took place between October and this month when the Aussie and New Zealand dollars were strengthening against the US dollar.

The UK-based dealer worked in NAB's corporate banking headquarters in the City's Wood Street, which employs about 350 people and is a mid-sized player in the foreign exchange markets. The Australian Securities & Investments Commission said it was monitoring the situation.

Rogue traders often incur losses not by attempting to enrich themselves but by trying to reverse previous losses which they cover up. Nick Leeson, who toppled Barings in 1995, racked up losses of more than £791m trying to reverse smaller bets that went wrong.

Banks try to curb rogue traders by tightening up systems and separating dealers from back-office staff. Melbourne-based NAB is the biggest lender in Australia.

The loss is a fresh setback for chief executive Frank Cicutto, who has repeatedly been stymied in attempts to find a big UK merger partner and botched a share-buying raid last year on the life assurer AMP.

It is also a headache for NAB's Europe-wide head John Stewart, the former Barclays number two who joined last year. NAB's forex options desk in London is thought to place most of its business through the brokers Tradition and Cantor Fitzgerald.