Mitsubishi to shut Singapore oil unit where rogue trader lost US$314 million
- The parent company will liquidate Petro-Diamond Singapore after it closes out oil and fuel contracts and settles debts, it said
- Mitsubishi Corp had only recently began combining its Japan trade operation with that in its Singapore office
Some three years ago, Japanese oil trading firm Petro-Diamond Singapore relocated to a bigger office in swanky Marina Bay, as parent Mitsubishi Corp started combining its Tokyo trade operation with that in the Southeast Asian city state.
The once-conservative Petro-Diamond last year became the global book leader for Mitsubishi’s crude oil and fuel trading businesses, tripling its profits and assets from two years ago, according to interviews with company officials, trade sources and reviews of its financial records.
Like other trading companies, Petro-Diamond had eyed a slice of the fast-growing Chinese crude import market, hiring for the first time a Chinese trader in November 2018 to handle oil business with China, the sources said.
But in September, Mitsubishi said a Petro-Diamond trader had lost about 34.2 billion yen (US$314 million) after he “repeatedly” engaged in the unauthorised deals since January, disguising them to “look like hedge transactions”. They reported the matter to police.
Since it booked such a big loss, we could not reinvest in the same company and it’s better to reinforce our management system
The trader, identified as Wang Xingchen, also known as Jack Wang, denied any wrongdoing in a statement issued through a lawyer, saying he was acting on his managers’ orders and that the losses resulted from “premature” settlement of the derivatives positions.
On Wednesday, Mitsubishi said it planned to shut the 30-year-old Petro-Diamond following the losses.
Petro-Diamond will be liquidated after it closes out oil and fuel contracts and settles debts, the firm said on Wednesday, without providing a firm time frame.
Rogue oil trader causes 34.2 billion yen loss at Mitsubishi’s Singapore unit
Mitsubishi will bring some oil and fuel trading back to Tokyo, chief financial officer Kazuyuki Masu said during the company’s first-half results briefing on Wednesday.
Mitsubishi also cut its full-year net profit forecast to 520 billion yen, from 600 billion yen as of August.
The case has raised questions about why Petro-Diamond had allowed a new trader to take big positions, industry sources said.
Chinese students top list of foreigners with jobs after graduation in Japan
Mitsubishi has since tightened its risk controls, requiring almost every trade to be reported to Tokyo, which has slowed Petro-Diamond’s activities, a second source familiar with the matter said.
While Petro-Diamond is just a tiny part of the massive trading house, Mitsubishi’s dramatic decision shows it wants to draw a line under the incident and contain any further damage.
The loss has joined a list of infamous oil trading busts. Metallgesellschaft AG took a US$1.2 billion loss in 1994 when a hedging strategy failed. In 2004, China Aviation Oil suffered its infamous US$550 million blunder, when the company fell afoul of a surge in prices.
Petro-Diamond, which has led Mitsubishi’s overseas oil business, was established in 1989 and trades petroleum products including oil, naphtha, gasoline and fuel oil, according to the company’s website. Mitsubishi also has separate natural gas and metal trading operations in Singapore.
The parent company will continue its overseas oil operations “once it has reconfirmed that its risk management systems are both sound and thoroughly enforced, taking all possible measures to prevent similar incidents from occurring in the future”, it said.
A company official, who spoke on anonymity, lamented the abruptness of Petro-Diamond’s demise.
“It took 30 years to achieve this and it’s all been ruined,” the official said.
