Beware the Ides of March
Reputational risk meltdowns, rogue traders, market abuse, prostitutes - March has been a record month for operational risk loss events.
It all kicked off with revelations in the US press that New York State governor Eliot Sptizer - a man who has single-handedly done more than anyone to populate the Losses & Lawsuits pages each month - had regularly paid prostitutes from the high-class Emperors Club thousands of dollars. A probe into Spitzer began last autumn when a bank's anti-money laundering monitoring framework picked up the wire transfers from Spitzer's account to shell companies set up by the Emperors Club.
Then, in mid-March, Bear Stearns paid the ultimate price for a reputational risk incident. The collapse of the investment bank - after increasing subprime woes caused a stampede of withdrawals by hedge funds - nearly caused a financial markets meltdown. The bank had to be rescued by JP Morgan Chase, in a weekend deal with the US Federal Reserve. The same market dynamics nearly brought Lehman Brothers to its knees as well, according to several news sources, but firms stepped back from the brink and stopped trading down the stock price.
Instead, the negative momentum moved across the pond to HBOS - quoted on the London Stock Exchange - which saw its stock price fall some 17% in a day. It was the victim of malicious rumours and aggressive short-selling, and the UK Financial Services Authority was forced to step in and make an unprecedented statement supporting the bank. Days later, when the smoke cleared, the share price of the bank surged back to pre-crisis levels.
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