With his steel-rimmed glasses and grey flannel suits, he was a generic senior Japanese salaryman.A description of Yasuo Hamanaka from the Independent
Yasuo Hamanaka looked innocuous, like an ordinary bank employee. However not only did he become notorious as the rogue trader responsible for one of finance’s biggest losses, but was already well-known in the trading world before this point as perhaps the supreme performer in his asset class.
Nicknames for the chief copper trader at Japanese conglomerate Sumitomo Corporation included “Mr. Five Percent” because of how much of the world’s yearly supply of the metal he controlled, “Hammer” because of his power over the market, and simply “Mr. Copper”.
Hamanaka was so highly regarded that a profile of him, complete with photos, had been included in Sumitomo’s 1991 annual report. One fellow market participant said he was even named the company’s “Man of the Year” at one point.
As is often the case, the origins of the dominant position Hamanaka built so successfully for Sumitomo had its origins in an attempt to overcome weakness. Unlike rival conglomerates such as Mitsubishi and Mitsui, Sumitomo had no copper mines of its own.
Hamanaka’s brilliant solution, according to rival traders that the Independent spoke to at the time he was arrested, was to build Sumitomo’s position by buying copper derivatives – futures and options. He also grew its physical supplies of the metal. As a result of his efforts, Sumitomo became the biggest trader in copper in the world by the early 1990s.
Hamanaka used Sumitomo’s controlling position – plus its large cash reserves – to keep the price of copper high. This meant continually good profits for Sumitomo from both its own dealings in the metal and from the commissions it charged on the value of copper transactions it brokered for other parties.
But by 1995 there was market pressure for lower prices. This was exacerbated, according to Investopedia, by a spike in raw copper supplies from Chinese mines. In addition, the London Metal Exchange, where Hanamaka did much of his trading, and the Commodity Futures Trading Commission had begun an investigation into copper market price manipulation.
As pressure on him grew, Hamanaka was removed from his role by Sumitomo. This shocked the market and prompted other traders to start to short copper. Prices began to fluctuate so much that emergency meetings were held between ministers from the Japanese and UK governments, the Financial Times reported at the time.
Sumitomo, meanwhile, found itself long on copper as the value of the metal went down. In June 1996 the corporation reported a loss of $1.8 billion from copper trading by Hamanaka, at that point the highest trading loss ever reported. This figure would subsequently increase to around $2.6 billion.
The scandal saw Hanamaka lose not only his job, but also the reputation he had enjoyed. Sumitomo claimed he was a rogue trader who had acted without its authorisation. He was also accused of forging his supervisor’s signature, according to Investopedia.
He was arrested and tried and subsequently sentenced to eight years in prison, then the longest period of jail time ever given for rogue trading.
Sumitomo did not escape without blame, however. It received some censure after being sued by other institutions involved in the copper market. Meanwhile, the London Metal Exchange felt the need to change some of its rules to avoid anything similar happening in the future.
Hanamaka served his sentence without apparent comment or complaint. However, according to the Atlantic magazine, he told a Bloomberg reporter on his release in 2005 that he was “amazed” at how much the price of copper had risen while he had been in prison.
Three years later, according to the Financial Times, he returned to trading.
There's nothing to talk about.Words of Hamanaka’s wife when the Wall Street Journal tried to speak to him at the couple’s Tokyo house in 2008