Nomura Blames Biggest-Ever Loss on ‘Incompetent’ Bond Trader

  • Bank says Lombardo’s inaction helped cause $40 million loss
  • Giovanni Lombardo suing Nomura in London for unfair dismissal

A Nomura Holdings Inc. trader who failed to tell his bosses about the deteriorating performance of a client that helped cause the bank’s biggest-ever trading loss was "at best incompetent or at worst deceitful,” a senior manager said during the first day of a London employment lawsuit.

Giovanni Lombardo, who is suing the bank for unfair dismissal, "did nothing" to prevent losses resulting from the 2015 demise of his client Invexstar Capital Management Ltd., Mike Ward, Nomura’s head of equity sales, said in a statement submitted Friday to the court. Lombardo, who will probably give evidence next week, will claim it was not his responsibility to monitor his client’s trades, according to Ward’s statement.

Lombardo, who was paid 310,000 pounds ($446,000) in 2014, "did not, as he should have done, spot significant concerns from Invexstar’s trading activities," Ward said. "I find it utterly unacceptable that the claimant thinks he didn’t have any obligation to monitor clients’ behavior as this is a central part of his day-to-day obligations in his role."

The case is part of the fallout from the demise of Invexstar, an obscure bond-trading firm that inflicted losses of around 120 million pounds on some of the world’s biggest banks when it failed in 2015 after about a year’s trading. The collapse -- and the track record of the company’s manager and sole employee, Alberto Statti -- raised questions over how lenders manage their risks.

Invexstar Collapse

Nomura was owed 28 million pounds when Invexstar collapsed, according to U.K. Companies House filings from July. BNP Paribas SA, the biggest French bank, was owed 49 million pounds while New York-based Morgan Stanley, ING Groep NV of the Netherlands and Japan’s Mizuho Financial Group Inc. also faced losses, the filings show.

Invexstar had “no formal system for limiting the amount of trading,” Statti told officials overseeing the wind-down, Companies House documents show. Statti’s firm had sought to take “significant positions” and sell them on before having to pay for them until “a sequence of trades in short order” brought it down in May 2015, according to the documents.

Nomura terminated all Invexstar outstanding failed trades on May 13 last year. They had a value of about $666 million. That translated to losses of more than $40 million for the bank, the most significant from any single client in the bank’s history, Ward said.

Client’s Trades

Nomura places no limits on the number of trades sales people can complete or the amount of exposure they can occur for the bank, Ward said in his witness statement. He admitted during questioning that the company had never established a point at which traders should escalate concerns about a client’s trades.

Even so, Lombardo should have told his management about Invexstar’s trading situation by May 8, 2015 when the client had racked up $333 million in failed trades, Ward said. Senior management became aware of the problem on the evening of May 12, "when failed trades in U.S. treasuries caused a spike in reported unsecured funding for the U.S. region,” he added.

Before it's here, it's on the Bloomberg Terminal.