Sumitomo Corporation And Yasuo Hamanakas Copper Scandal Finance Essay

Sumitomo Corporation And Yasuo Hamanakas Copper Scandal Finance Essay The financial world had been confronted heavily by trading scandals in 1995, with Japans Daiwa Bank and the rouge trader, Nick Leeson. When it seemed the scandals couldnt get much worse, the Sumitomo Copper Scandal emerged. This was the biggest scandal in the history of commodities trading and ranked in the top five trading losses in financial history up until the late 1990s. Sumitomo Corporation is a Japanese trading house, which is currently one of the largest worldwide trading companies headquartered in Tokyo, Japan. In the 1990s Sumitomo owned large amounts of both physical copper, which was stored in warehouses and factories, as well as numerous futures contracts. Copper was a relatively small market compared to other metals, such as aluminum. According to Andrew Beattles article, The Copper King: An Empire Built on Manipulation, copper is an illiquid commodity that cannot be easily transferred around the world to meet shortages. For example, a rise in copper prices due to a sho rtage in the United States will not be immediately cancelled out by shipments from countries with excess copper. This occurs because moving copper between storage and delivery costs money, which can cancel out the price differences. It is important to note that Yasuo Hamanaka was the chief copper trader of this trading house, and attempted to corner the entire worlds copper market leaving Sumitomo with a loss of more than $1.8 billion (Beattle). WHAT HAPPENED: For ten years, Yasuo Hamanaka had successfully managed to control the worlds price of copper. He eventually came to control five percent of the entire supply of copper, which may not seem like much considering ninety-five percent was in other traders hands (Beattle). However, due to the fact the abundant and cumbersome challenges that exist in the copper market (in movement, delivery, etc.) and the fact that even the largest traders in the market owned an even smaller percentage, Hamanakas five percent was indeed very significant. During the ten years of his manipulation he was able to use Sumitomos size and large cash reserves to corner and squeeze the market through the London Metal Exchange. The London Metal Exchange is the worlds biggest metal exchange. Furthermore, the London Metal Exchanges copper price essentially dictated the worlds copper price at the time (Beattle). Although the London Metal Exchange was large in size, it was fairly poor in terms of regulation. In fact, this exchange had little to no regulation at the time of Hamanakas rampant market manipulation. The Sumitomo Copper Scandal lasted for about a decade due to these negligent and almost nonexistent regulations on behalf of this particular exchange. To put the entire crisis into laymens terms, one must first understand that Hamanaka was taking a long futures position on copper and simultaneously buying up a substantial amount of physical copper as well. This caused any one trader who took a short futures position to have to buy long positions in order to cancel out their short positions. Due to the fact that Hamanaka had a large number of long positions, those people looking to buy them had to pay increasingly higher prices. These skyrocketing futures prices are what Hamanaka was able to control; the more the prices rose, the more money he made. This is because those with short positions were still paying this higher price in order to liquidate those positions. Another way that Hamanaka was making money was that while these prices continued to rise, some people holding short positions thought that instead of paying a high price for a long position they would buy the physical copper and deliver it to the holder of the long positi ons. So, because Hamanaka also owned 5% of the physical copper he could charge a very high price to those with short positions because they didnt want to keep paying money to liquidate their short positions. Essentially, he was making money by owning long futures as well as physical copper. WHY: There are no assured reasons as to why Hamanaka engaged in such illegal trades. Perhaps he felt pressured to maintain the consistent levels of annual revenue for Sumitomos traditional copper business-about ten billion dollars. He would therefore maintain his reputation as a phenomenal copper trader as well as his firms dominance in the commodities market. It is also important to note that individuals such as Hamanaka, do attempt to corner the market in order to create an unfair advantage by purchasing a significant amount of shares. This eventually increases the price of shares, making them appear to have a greater value. As the price of the shares continues to rise, more buyers become attracted, and then demand further increases the price of the shares. This causes short sellers to be driven out of the market through a short squeeze. In the article Short Squeeze, it explains that a short squeeze is a situation in which an increase in the price of the stock triggers a rush of buying activity among short sellers. Therefore, it is necessary for the short sellers to buy stock in order to close out their short positions to minimize their losses, causing a further increase in stock prices. Overtime, this causes one to sell their holdings at an artificially inflated price and then leave their investment or opt to sell their shares with the knowledge that the price will decrease once normal supply and demand forces return (Investing Answers). WHO WAS RESPONSIBLE: Yasuo Hamanaka, also referred to as Mr. Copper, was the former copper trading chief for Sumitomo Corporation. Following research of the Sumitomo Copper Scandal, one can confidently say that Hamanaka is the key player who is held responsible for the 2.6 billion dollar loss over a ten-year period. In fact, the article, Sumitomo Corporation states that, it believed that Mr. Hamanaka was solely responsible for the unauthorized trading (215). His attempted action to corner the worlds entire copper market by falsifying financial records and forging signatures alluded to such a significant loss for the company. It is also important to note that prior to the discovery of Hamanakas accumulation of illegal trades, he was given a great amount of responsibility within the company. This was because he was perceived by top executives to have superior knowledge and experience within copper trading. Therefore, one can also conclude that the top executives within the corporation can also be held responsible for the Sumitomo Copper Scandal. This is because the Sumitomo Corporation and senior management did not have secure safeguards in place to ensure that they knew exactly what their employees were doing. Furthermore, Hamanakas reputation as being a superstar copper trader only worked to solidify the lack of regulation and discipline (Sumitomo Corporation). When Sumitomo Corporations reputation began to tarnish from individuals outside the company, they responded to the allegations by stating that Merrill Lynch and JPMorgan Chase were the two banks responsible. In the article The Copper King: An Empire Built On Manipulation, author Andrew Beattle explains that Sumitomo Corporation claimed that Merrill Lynch and JPMorgan Chase granted the loans to Hamanaka via future derivatives; hence the two banks kept the scheme going. Consequently, both banks were found guilty to some extent (Beattle). RIPPLE EFFECTS ON THE MARKET: Historically, there has been a close correlation in the behavior of metal prices. When one metal falls, the others tend to follow. However, the Sumitomo announcement did not harm other metals despite the recent dramatic drop in copper prices. Copper is a relatively small market compared to other metals, such as aluminum and gold. The price of the metal was above $1.25 a pound in New York in early May of 1996, but it fell to $1.04 on June 13, just before Sumitomo announced its loss. Following the announcement, copper was trading at about 89 cents (Wall). The decline in prices of copper before the Sumitomo scandal was believed to have risen from people being concerned about the number of new copper mines that were planned and the potential supply problems that it could bring about (Wall). Copper prices fell ten percent in the weeks following Hamanakas removal (Fletcher), however, prices had been falling for a while, and the scandal only exacerbated the trend (Uchitelle). The main effect of Sumitomos losses was the decline in public confidence in financial institutions. Americans wondered how well their local financial institutions were handling oversight of management. They also were concerned about a temporary decline in stock prices as well as higher interest rates for money to seek to borrow from banks (Uchitelle). The dollar is driven by peoples perception of commodity price movements, and although the dollar had weakened before news of the Sumitomo scandal, the fall in copper prices has contributed to the dollars softness (Wall). The Sumitomo affair concerned the United States about the openness of Japans financial system and the implications for interest rates. These worries as well as the copper crisis had contributed to the decline of the yen. The collapse in copper prices also hurt the Australian dollar. RISK MANAGEMENT ERRORS: In the Sumitomo copper scandal, the financial debacle originates from the failures of proper risk management. By entering into fictitious trades for over ten years and manipulating several accounts, Hamanaka successfully misled his management into believing that he was making huge profits. Hamanaka had been trading on the London Metal Exchange forward market for copper. Sumitomo was the largest participant in the physical market for copper-he handled twice the volume as his competitors. Hamanaka was known in the copper markets as Mr. Five Percent because Sumitomos copper trading team traded approximately 500,000 metric tons of copper a year, which was five percent of the total world demand for copper (Weston). In regards to risk management, whenever any hedge fund or speculator who was aware of manipulation tried to take short positions, Hamanaka invested more money into his positions, thus sustaining a higher price because he dominated the market. However, despite these illegal practices no action was taken against Hamanaka because of the profits he generated for the company (Weston). There are several reasons from a management perspective as to why the scandal carried on as long as it did. The middle office may have bypassed early warning signals perhaps because Hamanaka was perceived as an experienced senior trader. Hamanaka was chief of the trading office and intentionally had an incentive to maximize profit opportunities through illegal ways. Employees within the firm may have allowed the fraud to occur by turning the other way. This is a case of decentralization (Tschoegl). The Sumitomo scandal has provided valuable insight and enables one to appreciate and understand the importance of internal and external controls. If there had been any controls, it is believed that the scandal would have been detected much earlier and before a loss of $1.8 billion. WAS IT PREVENTABLE? IF SO, HOW? The Sumitomo Copper Crisis was, at its core, a very preventable crisis-almost embarrassingly so. The huge financial swings that the copper market saw in the late 1980s and early 1990s as a result of Hamanakas indiscretions were exactly that: the result of one mans greed and indiscretions. Hamanaka initiated and participated in the illegal trade of copper-like making off the book deals in order to recover unrealized losses-and incited a wave of regulatory laws by the London Metal Exchange and the Commodity Futures Trading Commission (CFTC). Hamanaka exploited various agents and partnerships in his ten-year long market-manipulating extravaganza. He was able to do this due to serious misgivings and loopholes in the commodity futures markets, as well as taking advantage of gaps in the chain of command and knowledge. Hamanaka maintained two different sets of trading books: one that recorded fabricated profits for the Sumitomo Corporation and another real record of all the off-the-book and under-the-table deals that were made to maintain control of the market. This long-term interference and domination of the copper market was nonetheless very hard to maintain due to one key fact: in order to corner a commodities market, the company must actually hold the assets, which presents an additional strain on resources and funds. This very requirement may be the answer to preventing scandals like this in the future (Wall). As aforementioned, the Sumitomo Copper Crisis was largely unavoidable simply because one mans poor decisions affected the rest of the affiliated market. The essence of the problem was unauthorized trading that the culprit undertook to enhance his firms profitability and then his own career and pay, Adrian Tschoegl mentioned in The Key to Risk Management. However, the true debacle is a result of a lack of internal and external controls. The Sumitomo Corporation, which was divided into essentially three separate offices (front, back and middle), simply did not harbor or even encourage communication between departments and sectors (Tschoegl). The middle office (which is responsible for one of the most key business functions: risk management) can easily be said to have failed most spectacularly in this scandal. The lack of risk awareness and management led to a loss of $1,800 million dollars and a stain on the Sumitomo name, all because of a decentralized, non-communicative corporate str ucture (Tschoegl). The most effective approach to avoiding something like this in the future is basically three-pronged: more and better management-level controls, independent transaction monitoring, and more stringent regulation (of the London Metal Exchange, by the government, and of corporations e.g. corporate social responsibility) (Tschoegl). The management-level controls should consist of a conscious effort at centralizing every part of the company, as well as maintaining strict inter-company discipline and training. Independent transaction making should be monitored so no two-book accounting systems are permissible; that is to say, that there is a system of checks and balances within the corporation to ensure above-board transactions. In terms of regulation on behalf of various agencies and governments, its only necessary to say that more of it is probably needed to avoid price manipulation. Perhaps a system of rigorous reporting and accounting policies could be implemented, which would strength en the markets effectiveness anyways. CONCLUSION: Its fair to say that the Sumitomo Copper Crisis leaves the skilled and careful trader with a few pivotal takeaways. First, both internal and external management controls are absolutely crucial to the success of any company, but if said management is left to run unchecked through the system, mishaps and misdeeds are bound to occur. Strict and standardized corporate training and discipline is the remedy to this pitfall. Second, given the right amount of determination and finesse, the market on almost any given commodity can be cornered, for better or for worse. Events like this, despite their far-reaching negative implications for the perpetrator, always help make the market a more efficient and fluid network. The lessons that are learned from scandals such as the Sumitomo Copper Affair in the long run only work to better and enhance the market.

Laertes in Shakespeares Hamlet Essay -- GCSE English Literature Cours

Laertes in Hamlet  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚        Ã‚  Ã‚   In the Shakespearean tragedy, Hamlet, the reader or viewer meets a dashing young man who is key to the climax of the tragedy, and key to the fulfillment of the Ghost’s admonition to Hamlet. He is Laertes, whose character forms the subject of this essay.    Marvin Rosenberg describes Laertes in his essay, â€Å"Laertes: An Impulsive but Earnest Young Aristocrat†:    Laertes is a dashing, romantic figure who excites striking, spectacular moments in the play. Not much attention has been paid to him by scholar-critics and theatre observers; for all his activity in the later acts, he is not much cursed with inward struggle – while being surrounded by others fascinating for their infernos of inwardness. After Laertes’ brief, bright introduction in I,i and I,iii, he disappears from the play – and Denmark – until he returns at the head of a rebellion in IV,v. . . (87).    Laertes makes his appearance in the drama after Marcellus, Barnardo and Horatio have already seen the Ghost and have trifled with it in an effort to prompt it to communicate with them. Horatio and Marcellus exit the ramparts of Elsinore intending to enlist the aid of Hamlet, who is dejected by the â€Å"o’erhasty marriage† to Hamlet I’s wife less than two month’s after the funeral of Hamlet’s father (Gordon 128). After this scene, Laertes is one of many in attendance at a post-coronation social gathering of the court at Elsinore. Laertes, like Fortinbras a rival of Hamlet (Kermode 1138), comes with his father, Polonius, who manipulates both him and his sister (Boklund 122).G. Wilson Knight says, â€Å"Instinctively the creatures of earth—Laertes, Polonius, Ophelia, Rosencrantz and Guildenstern, league themselves with Claudius... ...on Nardo. San Diego: Greenhaven Press, 1999. Rpt. from The Masks of Hamlet. Newark, NJ: Univ. of Delaware P., 1992.    Shakespeare, William. The Tragedy of Hamlet, Prince of Denmark. Massachusetts Institute of Technology. 1995. http://www.chemicool.com/Shakespeare/hamlet/full.html    Ward & Trent, et al. The Cambridge History of English and American Literature. New York: G.P. Putnam’s Sons, 1907–21; New York: Bartleby.com, 2000 http://www.bartleby.com/215/0816.html    West, Rebecca. â€Å"A Court and World Infected by the Disease of Corruption.† Readings on Hamlet. Ed. Don Nardo. San Diego: Greenhaven Press, 1999. Rpt. from The Court and the Castle. New Haven, CT: Yale University Press, 1957.    Wilkie, Brian and James Hurt. â€Å"Shakespeare.† Literature of the Western World. Ed. Brian Wilkie and James Hurt. New York: Macmillan Publishing Co., 1992.

Compare and Contrast Michael Dell and Andy Grove Essay

Michael Dell, founder of Dell Computer Corporation had his humble beginnings in the computer industry when he began selling personal computers directly out of his dorm room. This impressed upon him that this was the path to take in his professional life, he started his company in 1984, registered as Dell Computer Corporation. Krames, (2003) Unlike other computer companies at the time, Dell was heavily focused on the end user, the consumers who would actually be purchasing the computers. By placing the emphasis on the consumers instead of big box stores to sell his product he brought a new way of selling computers to the industry, which was an uncommon way of doing business at that time. This is a notable contribution to the computer field, as it made other computer companies rethink how they would sell their products, to try to combat Dells’ growing market share. As Krames (2003) â€Å"Dells direct model of â€Å" mass customization† was not born of any desire to revolutionize an industry. Instead, it was foraged through a â€Å"bottom-up† strategy based on customers’ needs and preferences.† (p.59) This proved to be a successful strategy, in 1988, 4 years after opening, Dell went public bringing in an impressive $30 million at its IPO. Krames, (2003) Seeing soaring success in personal computer sales, Dell decided to try a new direction, Olympic was introduced. â€Å"Olympic was a line of desktop and workstation computers that were able to perform a wide array of tasks.† (Krames, 2003, p. 67) In releasing this new program Dell neglected the principle part of his successful strategy-what do the costumers want? Resistance from consumers was noted, the consumers did not feel that they needed what the new line offered. Olympic proved to be Dells biggest tanking product. Andy Grove, born Andras Grof of Hungary, cofounded Intel corporation in 1968. Krames, (2003) Grove’s contributions to the computer industry is highly notable. Grove, along with his partners revolutionized how the computer industry looked at and transistors on computer chips. His contribution to the field was so noticeable, that Time magazine bestowed on him title of Person of the Year â€Å"for his role in fueling the computer revolution† (Krames, 2003, p. 135) Grove met with considerably more resistance and opposition that Dell. Intels’ first large confrontation and change was in 1980. The Japanese began producing chips that were not only lower cost wise but also considered better in quality. Krames, (2003) Groves was able to associate several factors that were partially responsible for this crisis. Intel had of recent, been constantly late with the release of new products. To compound this, the company had also neglected to invest in new manufacturing plants in a timely manner. As Krames (2003) states â€Å"†¦ the cause of the problem came down to the wrong strategy and poor execution† (p. 137) Grove and the then current CEO made the hard decision to get out of memories. Even though this is what the company was based on, and started from, they realized that if they remained in this market segment it could be the end of Intel. They made the hard decision to move into microprocessors, â€Å"the thinking part of the computer.† (p. 139) The next big issue Intel faced was 14 years later, in 1994. Intel was releasing its newest microprocessor, The Pentium. A small design flaw was detected, which prompted IBM to halt shipment of all Pentium-based computers. â€Å"Intel’s credibility- and, by extension- the entire company- was threatened as anxiety about the â€Å"bug† spun out of control in the business community.† (Krames, 2003, p. 140) Grove made the decision to replace all processors at the cost of a half billion dollars. This strategy, while costing a massive amount to the company, restored customers’ faith. Dell and Grove have a few similarities that can be noted. Each created a hugely successful business out a need or want that they saw that was not currently being fulfilled. Dell with his customer oriented selling approach, Grove with a computer chip that enabled a computer to run better and faster. Each man faced a point in their career of what Grove called a â€Å"strategic inflection point†Kramer (2003) While the magnitude of these was vastly different for each, it caused each man to reexamine how the company was running. The biggest difference that can be seen between these two is, while Dell simply restructured an already successful method of operation by segmenting it further. Grove completely changed how his company did business by changing the product, which could have ended in massive failure, but thankfully did not. Dell chose to focus more microscopically on the end user, on a person-to-person basis. Grove chose to focus more on the big picture with a mass production outcome. I think Dells’ beginnings of selling computers out of his dorm room gave him a taste for the personal aspect which his business is so well known for. Dell saw that this more approachable method worked for people, and obviously worked for him, thus creating one of the largest PC sales companies in the world. Grove’s very obvious personal factor that affected his business, is his background from before he entered the US. It even gave him â€Å"His personal manta, â€Å"only the paranoid survive†Ã¢â‚¬ ¦Ã¢â‚¬  (Krames, 2003, p. 135) With this in mind he was able to overcome Intels’ crisis involving the Japanese, coming out on top, more successful than before. Each man is hugely successful, simple choices made throughout their careers differentiate them from one another.

My Personal Favorite Communication Learning Goal Essay

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