Top five op risk loss events in October 2008


1. Loss amount: $1.9 billion

Firm: Citic Pacific

BIS event type: Unauthorised activity

BIS business line: Trading and sales

Hong Kong-based Citic Pacific reported an estimated $1.9 billion loss due to unauthorised trading in currency derivatives contracts. To help fund the company's mining operations in Australia, finance director Leslie Chang placed unauthorised bets on the continued weakening of the US dollar in relation to Australian currency. Citic Pacific expected a total year-end loss of $1.9 billion due to the trades, and had already realised $104.15 million in losses.

2. Loss amount: $1.89 billion

Firm: Visa

BIS event type: Improper business or market practices

BIS business line: Retail banking

Visa and MasterCard reached a $2.75 billion settlement with Discover Financial Services for alleged antitrust violations. In 2004, Discover filed a lawsuit against Visa and MasterCard for not allowing their member banks to distribute credit cards offered by Discover and other competitors between 1996 and 2004. As part of the settlement, Visa agreed to pay $1.89 billion, which included quarterly payments of more than $450 million to Discover beginning in 2009.

3. Loss amount: $938.05 million

Firm: Caisse Nationale des Caisses d'Epargne

BIS event type: Unauthorised activity

BIS business line: Trading and sales

Caisse Nationale des Caisses d'Epargne (CNCE) lost an estimated $938.05 million due to unauthorised trading. Beginning in mid-September this year, a trader in the bank's equity derivatives division took proprietary positions that exceeded the bank's authorised limits. Global markets fell sharply during the week of October 6, and the bank unwound the positions at a loss. Several top CNCE executives resigned due to the incident, and trader Boris Picano-Nacci faced preliminary charges.

4. Loss amount: $862.5 million

Firm: MasterCard

BIS event type: Improper business or market practices

BIS business line: Retail banking

As part of the $2.75 billion settlement over alleged anticompetitive violations, MasterCard agreed to pay $862.5 million to Discover Financial Services. In 2004, the US Department of Justice concluded that the practice of prohibiting member banks from distributing rival cards was in violation of antitrust laws, leading rival companies of Visa and MasterCard to file lawsuits. Settlement allocations were based mainly on Visa and MasterCard's different payment card volumes.

5. Loss amount: $107 million

Firm: Export-Import Bank of the United States

BIS event type: Theft and fraud

BIS business line: Commercial banking

Export-Import Bank of the United States lost $107 million as a result of loan fraud by Andrew Maxwell Parker. Parker's export company, San Antonio Trade Group, obtained medium-term loan guarantees from Export-Import Bank between February 2003 and November 2006. The guarantees were for $107 million in fraudulent commercial loans that later went into default. Parker submitted falsified supporting documentation in applying for the guarantees.

Source: SAS Software.

Criteria: Financial institution operational risk events that closed or settled during October 2008. Market, credit, strategic and non-financial institution events have been excluded from this list.

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