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Biggest Banks Rue Millions Lost on Trader Who Failed Before

BNP Paribas SA and Nomura Holdings Inc. are among five banks nursing losses of about 120 million pounds ($171 million) on the demise of an obscure bond-trading firm called Invexstar Capital Management Ltd. They shouldn’t be surprised.

Alberto Statti, 49, Invexstar’s manager and sole employee, helped run two firms before the London-based brokerage foundered last year. One ceased trading in 2008 with losses of 54 million pounds, while the other collapsed in 2013, owing about 12 million pounds to creditors including JPMorgan Chase & Co., according to filings with the U.K.’s Companies House.

While the losses on Invexstar represent just a sliver of the banks’ multi-billion dollar trading operations, the episode raises questions over how they manage risk. The banks built up exposure to the company, which began trading bonds in 2014 and went under last May, at a time when record-low interest rates were curbing activity in the debt markets.

“I’m blown away by the whole thing,” said Christopher Wheeler, a banking analyst with Atlantic Equities LLP in London. “The desire to boost revenues and turnover in the fixed-income business perhaps blurred and clouded judgments.”

The officials winding down Invexstar estimated the banks’ combined losses at 97.6 million pounds in July, a figure that swelled to about 120 million pounds in October, according to filings with Companies House. BNP Paribas, based in Paris, was owed 49 million pounds in July and Tokyo-based Nomura 28 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.

BNP Paribas, Nomura, Morgan Stanley and ING officials declined to comment on the losses or what risk-management measures they took before doing business with Invexstar. Japan’s Mizuho, in an e-mailed statement, said “the exposure arose from trading and is small in the context of Mizuho International Plc’s wider business.”

Statti didn’t respond to requests for comment made through e-mail and a note left at an apartment near Earls Court in London that Land Registry documents show he purchased in 2006. E-mails sent to an Invexstar address bounced back and the firm’s phone number no longer works. Michael Ginty, who is helping to oversee the liquidation, declined to provide contact details for Statti.

Months before Invexstar began in late 2013, BLF Global Asset Management Ltd., a firm set up four years earlier as “an arranger in financial instruments,’’ collapsed. Creditors including JPMorgan and Citigroup Inc. were owed about 12 million pounds, filings show.
‘Funny Guy’

While BLF’s shares were held by an offshore company, a 2012 filing with the U.S. Securities & Exchange Commission describes Statti as the company’s managing director. Robert Woolfson, the appointed liquidator, wrote in a U.K. company filing that Statti, BLF’s “de facto director,’’ increased the deficit by engaging in “unauthorized trading.’’ The firm is still in liquidation. Officials at JPMorgan and Citigroup declined to comment.

Statti, who favored three-piece suits at BLF and arrived to work on a scooter, often gave clients Italian wine, according to two former colleagues, who requested anonymity.

“He was a very colorful and funny guy,’’ said Enrico Danieletto, the founder and chief investment officer of hedge fund Pairstech Capital Management LLP, who shared an office with Statti and BLF around 2011. “He seemed a good guy doing short-term trading.’’

Almost a decade before BLF’s collapse, Statti started Bi-Elle Fund & Asset Management U.K. Ltd., where he was listed as the only shareholder and director. By 2008, the firm was losing money and facing litigation claims amounting to about 25 million pounds, company filings show. Bi-Elle ceased operations that year with losses of 54 million pounds and was dissolved last January.
‘Significant Positions’

Invexstar had a staff of Statti and two consultants. Traders had “no formal system for limiting the amount of trading,’’ and the firm’s business model allowed them to take “significant positions’’ without having to pay for it, the administrators charged with settling the firm’s affairs said in filings with Companies House. They cited interviews with Statti and Caterina De’Medici, Invexstar’s only director and shareholder, whose family funded much of the firm’s start-up costs, according to the filings.

De’Medici didn’t respond to an e-mail through LinkedIn or to the note left at the London apartment owned by Statti, which she listed on Invexstar filings as her address. E-mails sent to her at Invexstar bounced back.

Invexstar’s strategy consisted of buying newly-issued corporate and sovereign bonds and seeking to sell them on to other parties before having to pay for them, according to the administrators’ filings. A series of soured trades “in short order’’ brought down the company last year, the filings show. Invexstar wasn’t accused of wrongdoing.
How Desperate?

“The amount of the losses incurred by the big banks raises a question about how desperate they may have been for trading volume,” said Peter Hahn, a former Citigroup banker who’s now a professor of finance at Cass Business School in London. “It suggests a review of risk procedures is on the cards.”

European corporate-bond trading volume slid 11 percent to $1.9 trillion last year, while government-bond volume fell 20 percent to $25.6 trillion, according to data provided by Trax, a subsidiary of MarketAxess Holdings Inc.

“How did the banks fail to do due diligence on a firm like this where the information is public,” said Gennaro Buonocore, a former trader who says he worked with Statti on occasions in the 1990s and early 2000s, and considered taking a job at Invexstar. “For me, we need full clarity, not just on him but on the banks and the regulatory system.”
‘Pretty Straightforward’

Diana Yeboah, a spokeswoman at the U.K.’s Financial Conduct Authority, declined to comment on Invexstar or Statti, whose authorization from the regulator to manage transactions for customers ended in May 2013. The FCA approved Invexstar for trading the following year, although it wasn’t permitted to manage money for clients. There’s no public record of any disciplinary proceedings against Statti in the U.K.

Bloomberg LP, the parent of Bloomberg News, is also a creditor of Invexstar, and was owed 19,132 pounds, based on the administrator’s July filing.

One of the last addresses Statti listed in the filings is a terraced, two-story home in Friern Barnet, a neighborhood north of London. Gynch Shaw Maurice & Co., an accounting firm that used to do work for his companies, has its office there.

“He was OK, pretty straightforward,” said Sunil Mungur, the accounting firm’s managing partner, who said he hasn’t been in touch with Statti for more than two years. “It just happened that he lost a lot of money.”

http://www.bloomberg.com/news/articles/2016-01-18/biggest-banks-rue-millions-lost-on-trader-who-failed-before