Barclays Managed To Lose $400 Million Betting Against Hedge Fund That Lost $850 Million

Discussion in 'Wall St. News' started by ajacobson, Dec 14, 2018.

  1. ajacobson

    ajacobson

    Not the best source, but an interesting take and they claim to be quoting Bloomberg.

    Betting Against Hedge Fund That Lost $850 Million

    By JON SHAZAR

    Post a Comment / at 5:34 PM
    [​IMG]
    Getty Images

    According to hedge fund Red Kite Management, it lost as much as $850 million on the copper market because its prime brokers at Barclays were a little loose-lipped with their proprietary trading colleagues, who allegedly used that information to bang the close and fuck over Red Kite.

    Given the scale of the alleged losses, the fact that in spite of all of that Barclays still probably managed to lost almost as much as it allegedly cost Red Kite will be cold comfort. But, you know, it’s still a pretty amazing example of incompetence and buffoonery, even by Barclays’ high standards.

    Two metals traders at Barclays were dismissed seven years ago after racking up losses of $396 million, according to documents disclosed in a court case…. The hedge fund claims that Macrae and Saunders used their knowledge of Red Kite’s positions to trade heavily against the fund. In court filings last week, Red Kite cited disclosures from Barclays that the fund said indicates that Macrae had sought to justify his position to risk officers by pointing to Red Kite’s opposing trade.

    This is made all the more interesting given that Barclays—a publicly-traded company—pretended at the time that it never happened.

    In 2011, Barclays denied reports that it had suffered significant losses in metals trading. “The reports of big losses are nonsense,” a spokeswoman for Barclays said at the time. “There has been no abnormal trading in the commodities business.”

    Barclays, a Hedge Fund and Two Traders’ Hidden $400 Million Loss [Bloomberg]
     
    Onra and dealmaker like this.
  2. ajacobson

    ajacobson

    Barclays, a Hedge Fund and Two Traders’ Hidden $400 Million Loss
    By
    Jonathan Browning
    and
    Mark Burton
    December 14, 2018, 4:05 AM CST

    • Hedge fund’s London lawsuit uncovers trading losses from 2011

    • Bank had previously denied losses, calling reports ‘nonsense’
    [​IMG]
    Photographer: Luke MacGregor/Bloomberg

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    A hedge fund’s lawsuit has unearthed some trading losses that Barclays Plcmight have preferred to forget.



    Two metals traders at Barclays were dismissed seven years ago after racking up losses of $396 million, according to documents disclosed in a court case. The losses -- some of the biggest ever disclosed by a bank in the commodities markets -- were denied by Barclays at the time.





    Iain Macrae, who ran metals trading at Barclays until his firing in 2011, was let go “for irresponsible risk taking” that led to a $327 million loss. The hedge fund, Red Kite, cited materials Barclays turned over as part of a London lawsuit into alleged market abuse in the copper market.



    It’s the first time the bank has detailed the size of the trader’s losses and comes in the middle of a $850 million dispute with Red Kite. Founded by Michael Farmer and David Lilley, Red Kite alleges that Barclays allowed staff to share confidential information about its positions with the bank’s proprietary traders on the floor of the LME, London’s last venue for open-outcry trading.



    Macrae’s colleague Christian Saunders, a copper trader at the bank’s Canary Wharf desk, also suffered losses totaling $69.2 million. Red Kite says that he was "summarily dismissed," again citing Barclays documents.

    Contact details for the traders wasn’t available and attempts to reach them through former colleagues, business associates and family members weren’t successful. A spokesman for the bank said only that the Red Kite claim "is without merit and Barclays will be vigorously defending it."

    In 2011, Barclays denied reports that it had suffered significant losses in metals trading. "The reports of big losses are nonsense,” a spokeswoman for Barclays said at the time. “There has been no abnormal trading in the commodities business.”

    Still, the next year Barclays quit the trading floor of the London Metal Exchange citing a "challenging trading environment," and in 2014 decided to withdraw from most of its global commodities activities.

    The losses came at a time when banks like Barclays, Goldman Sachs Group Inc. and Morgan Stanley, were powerful players in global commodities, able to make big bets with the banks’ own money.

    In the years since, many banks have reduced their presence in commodities amid pressure from heightened regulations and tough trading conditions. Goldman, which has retained one of the biggest businesses in the sector, last year suffered high-profile losses in natural gas and power trading.

    The hedge fund claims that Macrae and Saunders used their knowledge of Red Kite’s positions to trade heavily against the fund. In court filings last week, Red Kite cited disclosures from Barclays that the fund said indicates that Macrae had sought to justify his position to risk officers by pointing to Red Kite’s opposing trade.

    The disclosures suggest that the trading undertaken by Saunders and Macrae may have run afoul of the bank’s internal risk controls.

    In one document, Macrae told an employee "Red Kite had a very large position the other way as ours." The fund’s lawyer Alain Choo-Choy said that as a proprietary trader -- someone who trades with the bank’s own money -- Macrae had "no business" knowing what the positions of Barclays’ prime brokerage customers were.

    Red Kite alleged that Barclays carried out an investigation into the two traders and the broader commodities division in 2011 and 2012, amid rumors that Macrae and Saunders had sought to manipulate markets and traded against Barclay’s clients. They were also alleged to have personally traded against the bank’s positions.

    The Barclays trading collapses are among a number of high-profile losses in the base metals business. Glencore Plc founder Marc Rich lost $172 million when his company tried to corner the zinc market in 1992, according to a biography of the trader. Sumitomo Corp. copper trader Yasuo Hamanaka’s losses were in the billions of dollars.
     
    dealmaker likes this.
  3. It's a problem when position size gets so big that the broker is tempted to trade against the client to do a squeeze.
     
  4. mlawson71

    mlawson71

    What a terrible mess. You'd think big companies like this would know how to avoid such things, but apparently they don't.
     
  5. zdreg

    zdreg

    I am waiting to hear a revelation about Deutsche Bank. These banks like Deutsche bank and Barclays are peas in a pod, all the same.
     
  6. JSOP

    JSOP

    Ok how could this happen? They lost trading against a losing hedge fund? When you take the opposite side of a losing transaction, aren't you supposed to win? How can they lose??!! LOL And the funniest is when they actually ended up quitting trading metals altogether because it's a "challenging trading environment" basically saying "we are too stupid to trade this instrument". LOL :D:D

    Just another example to show that pro is not always better. For all those people who come on here on ET posting threads asking how do they break into the industry, how do they learn from the pro, get mentored by pro..., we should quote them this article. LOL
     
  7. mlawson71

    mlawson71

    Deutsche Bank used to have a great reputation and look where they are now. How the mighty have fallen.