When Peregrine boss Philip Tose hired a thrusting young team of bond traders from Lehman Brothers in 1994, he promised to dominate the emerging Asian fixed-income market. His chief lieutenant was Andre Lee, a boyish Korean-American, who had driven the nascent Dragon bond business at the United States firm. The union proved fateful. As the Indonesian rupiah began its precipitous descent in July, trouble loomed. Having apparently seen the Thai crisis coming, Peregrine largely closed its baht exposure. But in Indonesia, it had quite literally bet the bank. Rumours of insolvency began in Jakarta after the firm's entire portfolio of debt and bonds was offered for sale. There were no takers. As a prominent underwriter and market maker for Asian corporate bonds it naturally held a sizeable inventory on its book. Few at the firm realised that US$260 million or so - about a third of its equity base - had been lent to a taxi firm named Steady Safe. The Indonesian company is effectively bankrupt. At yesterday's close, its market value was just US$4.7 million. Senior Peregrine figures insist there are no other significant Indonesian positions. Staffers close to Mr Tose insist he knew nothing of the exposure and that fixed income was operated as the personal fiefdom of Mr Lee and the firm's finance director. Only when the rupiah was devalued were senior management alerted, triggering a crisis hotline with the Jakarta office, they say. Steady Safe was the transport-concept play run by controversial wheeler dealer Jopie Widjaya. Anchor earnings were a Jakarta taxi franchise but the stock was pumped up on promises of car-ferries between Java and Sumatra and commercial railway operations. Peregrine's involvement came when Steady Safe sought to refinance its short-term debt and a US$118 million loan from Hongkong Bank. To secure the underwriting deal, Peregrine is understood to have granted a bridging loan for the entire sum. The intention was to square the position when the bonds were sold. The rupiah's collapse then led to investor interest vanishing. Talk is of a debt-for-equity swap. Yet, given Indonesia's economic collapse and Steady Safe's stake in a toll road operator run by President Suharto's daughter, that is an investment of dubious, if any, value. How so much money was advanced is unclear. Mr Tose is a stockbroker who is less familiar with the bond business, say company cohorts. He allows managers great freedom and Peregrine's trademark gung ho approach was simply extended to the fixed income business. Maybe, but it seems hard to believe that such sums were advanced without the knowledge of senior management. If correct, a familiar failure of risk and management systems was allowed to develop. One insider likened the lending practices to those seen in the high-yield debt boom of the 1980s in the US. Talk has surfaced that Zurich Insurance will buy an expanded stake in Peregrine at renegotiated terms. There are suggestions the Swiss may buy up to 34.5 per cent just below the takeover threshold. It is noteworthy that none of the big local firms offered financial assistance. Question marks remain. Peregrine is thought to have bond holdings - perhaps as high as US$50 million - in other Indonesian firms. A full accounting of its Korean debt exposure has not been required. In addition, direct financing to big shareholders is an area most banks would rather not talk about. It must be assumed that Zurich Insurance performed thorough due diligence, suggesting the bad debt exposure is capped. Of course, the spiral of decline in regional markets means little can be said with certainty. Counter-party banks will remain extremely wary without a full omission of its exposure. Those cautious Swiss are likely to clip the big bird's wings. Peregrine is unlikely to figure as a key Asian debt player in the future. Andre Lee became a rich man during the bull run but he must be wondering about his future.