Tuesday 19 May 2009

Oei Hong Leong loses $1b, takes Citigroup to court


Businessman claims bank gave him an inaccurate picture of his trading exposure

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Guanyu said...

Oei Hong Leong loses $1b, takes Citigroup to court

Businessman claims bank gave him an inaccurate picture of his trading exposure

By Lee Su Shyan
19 May 2009

Local businessman Oei Hong Leong - dubbed the ‘man with the Midas touch’ - lost a whopping $1 billion on foreign exchange and US Treasury bond transactions last year.

While he has fully paid off these losses, he is now suing Citigroup’s private banking arm in the High Court for negligence and misrepresentation, legal documents seen by The Straits Times reveal.

Mr. Oei claims that the bank - with which he has a 30-year relationship - repeatedly gave him an inaccurate picture of his trading exposure, causing him to take on more positions than he would have otherwise done so.

When he knew the full extent of his exposure, he felt he had no choice but to close his positions - at an extremely volatile time last October - thus suffering massive losses.

It is not clear how much of a beating Mr. Oei’s net worth has taken, but he was ranked Singapore’s 29th richest man by Forbes last year with a net worth of only US$210 million (S$308 million). Forbes bases its listing on stakes in publicly traded companies and in private company filings.

Ironically, Mr. Oei has become the latest high-profile victim of the financial crisis because he was trying to reduce his exposure.

In 2007, he believed that the global economy would experience a downturn and decided to trim his trading positions, his statement of claim says.

Meanwhile, he told his private bankers that he wanted to maintain a margin surplus of about US$100 million.

This is cash placed with a bank and clients can trade up to several times that amount. If the trades run up losses, this margin has to be topped up.

Following a change of relationship manager last year, Mr. Oei dealt mainly with two assistants in the private banking department, whom he would call to check on the balance on a daily basis.

Having been told that he had a comfortable margin surplus, he entered into further forex contracts between Sept 16 and Oct 6 of last year.

These were deals involving various currencies, including sterling, US dollars, euros and Japanese yen.

Mr. Oei says that by carrying out US$1 billion worth of trades in this period, he was ‘earning Citibank substantial sums by way of revenues or other charges’.

However, around Oct 23, Mr. Oei was told that his margin surplus had been transformed into a shortfall of US$100 million. He began to trim his positions.

But he was receiving conflicting reports. On Oct 27, he was told that this margin shortfall was about US$90 million, but, by the following day, it had ballooned to US$200 million.

On Oct 29, the shortfall had apparently shrunk to US$28 million, which bewildered Mr. Oei because the market had not reversed far enough for the margin to change so dramatically.

Later on the same day, another report was sent to him, stating that the shortfall on Oct 27 was actually US$348 million.

Mr. Oei alleges that there was a problem in Citibank’s tracking and control systems and that his positions were not being accurately updated. This meant that he had no way of knowing which figures were correct and which were not.

He said he felt at the time ‘that there was no prudent alternative, but that he must trade on the worst view of the figures and reduce his position’.

As a result, after closing out the positions, Mr. Oei was left with a loss of US$518.3 million. Together with a further shortfall, he settled all outstanding amounts on the forex positions with Citibank by early November last year.

Other than those positions, he also suffered more losses from his transactions on US Treasury 30-year bonds than he would have done, had Citibank executed his orders, he claims.

Mr. Oei has not quantified the amount of his claim. He is asking for the court to assess the damages.

When contacted, Mr. Oei declined to comment about the court case.

But he disclosed that he had earmarked $1 billion last year to give to worthy charitable causes.

He added that the losses of about $1 billion which he has paid up in full, ‘has of course set back my financial flexibility somewhat, but it has not dampened my ambition to set up the charitable fund and leave behind a good legacy.’

Yesterday, a Citi spokesman said: ‘The matter is now before the courts. It is not appropriate for us to comment further. We believe that the claim is without merit and we fully intend to defend our position vigorously.’