Lessons from Financial Disasters - Yats.com

Page 2. Daniel HERLEMONT. Daniel HERLEMONT. Public Funds. ($ million). Orange County. 1,640. San Diego. 357. West Virginia. 279. Florida State Treasury.
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Lessons from Financial Disasters Following P. Jorion, Value at Risk, McGraw-Hill Chapter 2

Daniel HERLEMONT

Daniel HERLEMONT

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Daniel HERLEMONT

Public Funds

($ million) Orange County

1,640

San Diego

357

West Virginia

279

Florida State Treasury

200

Cuyahoga County

137

Texas State

55

Daniel HERLEMONT

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Barings

February 26, 1995 233 year old bank 28 year old Nick Leeson $1,300,000,000 loss bought by ING for $1.5

Daniel HERLEMONT

Metallgesellshaft

14th largest industrial group 58,000 employees offered long term oil contracts hedge by long-term forward contracts short term contracts were used (rolling hedge) 1993 price fell from $20 to $15 $1B margin call in cash

Daniel HERLEMONT

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Orange County

Bob Citron, the county treasures $7.5B portfolio (schools, cities) borrowed $12.5B, invested in 5yr. notes interest rates increased reported at cost - big mistake! realized loss of $1.64B

Daniel HERLEMONT

Daiwa

12-th largest bank in Japan September 1995 Hidden loss of $1.1B accumulated over 11 years Toshihide Igushi, trader in New York Had control of front and back offices In 92 and 93 FED warned Daiwa about bad management structure. Daniel HERLEMONT

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Daniel HERLEMONT

Daniel HERLEMONT

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Big Losses

Bank Negara, Malaysia

$3B

92

Banesto (Spain’s 5th bank)

$4.7B

93

Credit Lyonnais

$15B

94

S&L short deposits, long loans

$150

80s

Japan

$550

90s

Daniel HERLEMONT

Responses

G-30 report DPG = Derivatives Policy Group, risk.ifci.ch JPMorgan’s RiskMetrics www.riskmetrics.com GARP www.garp.com PRMIA www.prmia.org GAO = General Accounting Office, www.gao.gov/reports.htm FASB FAS 133 www.fas133.com, FAS 107 IASC, IAS 39 www.iasc.org.uk SEC = Securities and Exchange Commission www.sec.gov/rules/final/33-7386.txt

Daniel HERLEMONT

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