Scene 1 - A News Conference
Ashen-faced and uncharacteristically humble, the Chairman announces:
"It is with the greatest regret that I have to inform our shareholders that we have suffered severe financial losses because of the actions of one of our staff".
"This individual, so fiendishly clever that even the great Sherlock Holmes could not have detected his wrongdoing, has lost several years 'profits speculating on the markets."
"We have engaged a firm of private investigators to get to the bottom of this and will report their findings to you soon."
In answer to reporters' questions, the CEO provides the suspect's name and reports that "he was really only a minor figure in the organization, his activities have been reported to the authorities and his employment has been terminated. His direct supervisors have been suspended until investigations are complete."
As the CFO monotones about capital adequacy ratios and write-down impact after taxes, the reporters rush from the room to file their copy and to locate the latest 'rogue trader'.
Scene 2 - A substantial but understated house in a leafy suburb.
A gaggle of reporters are comparing notes outside the front gate:
"Are we sure we have the right guy - everyone in the street said he is a nice polite family man, churchgoer, pillar of the community and so on?"
"His work colleagues all say that he is quiet and hard-working, never took a holiday, good but not spectacular profit-maker."
"His family is very proud of him, middle class kid from the provinces doing very well indeed in the big city."
"His old professor could not remember very much about him but said he was not spectacular, and could not believe he is a criminal mastermind".
"His picture looks cute, there is a rumor that he is to be played by Brad Pitt in the movie".
To one side, a TV crew is interviewing Nick Leeson. Nick was the star of the very first production and has been guaranteed a talk-on part on all subsequent revivals.
Just then the front door opens and a thin, pale man emerges, surrounded by several policemen. He is bundled into a waiting car and whisked away.
The waiting reporters turn to a small, well-dressed man who turns out to be the man's lawyer and is happy to answer questions.
"My client is innocent. He has not stolen any money from the firm. His bosses encouraged his actions to make money and when it went wrong he was cut adrift. We look forward to our day in court".
Scene 3 - A crowded interview room in police headquarters.
There are several simultaneous interviews in progress. The dialog cuts backwards and forwards rapidly between the interviewers.
"You say that the company was warned several months ago that something was wrong?"
"The suspect was due a large bonus next month - did you say?"
"The limit reports were ignored - how often!"
"The local banking regulator did what - sent a warning but the board did not follow up?"
"The audit department warned the CEO but he did not tell the Board?"
"The audit committee signed off an adverse audit report in ten minutes because they were too busy?"
As the interviewees left the room, the detectives shake their collective head.
"What a shambles, I reckon we have the wrong guy but he is going to go down anyway." "I must move my savings to another bank."
Scene 4 - Final - An Annual General Meeting
The faces are different - a new Chairman, CEO and CFO. The new chairman opens proceedings.
"Shareholders, as you are well aware, we have had a bad year, announcing losses for the first time in over two decades."
"But the good news is that we are well on the road to recovery. The new board has endorsed plans to 'return to our core business' and has agreed with a European bank to acquire our overseas subsidiaries for what is, regrettably, a purely nominal price."
"Our overall position is strong, however, following the injection of significant capital from an impeccable source." He nods in the direction of two men of vaguely foreign appearance, sitting silently at the end of the top table.
"With the assistance of our regulator [nodding to a somber-suited gentleman at the other end of the table] we look forward to returning to profitability this financial year and thank you for staying as investors although the journey has been rough".
"Refreshments in the lobby."
The curtains close, to lukewarm applause.
The critics, as usual, are perplexed. Is this tale a tragedy or comedy? The plot would be unbelievable were it not frequent in reality. The reviewers reluctantly agree that it is in fact a farce.
In 1995 the original trading scandal, Barings, came a shock to the financial industry and its regulators. At that time the losses of $1.4 billion, resulting from 'rogue trading' by Nick lesson, were mind-boggling and used as a prime argument for new banking regulations covering Operational Risk (in Basel II).
Thirteen years on, the number of scandals has increased not only in number but also in scale. Recent losses of some $6 billion and $7 billion, by Brian Hunter (Amaranth 2006) and Jerome Kerviel (Societe Generale 2007) respectively, are bigger than the annual GDP of some small Pacific and African countries.
As the Basel II rules on Operational Risk have been widely discussed and dissected by the industry and subject to intense regulatory scrutiny in individual institutions, it is disappointing that scandals, such as these, continue to happen.
A more disturbing question is whether, now that Basel II is up and running, the new rules will act a brake on such losses? The jury is out.
While there probably is 'no business like show business', financial markets too can be entertaining. As Robert W. Sarnoff, the TV pioneer, once remarked, "Finance is the art of passing money from hand to hand until it finally disappears", which should be the motto of all rogue traders?
