European Bank's Response To Margin Calls: Just Break The Law And Make It Up

Tyler Durden's picture

While it will hardly come as a surprise to many, the bitter truth that bankers are to blame for much of the inexorable plunge that Europe faces (and for that matter the rest of the Western/Keynesian world) has once again been dragged front-and-center. In an interview on Australian TV, a former Unicredit senior banker, Jonathan Sugarman, discusses (along with no less than everyone's favorite roulette player - Nick Leeson) how rules are broken (not bent) and the 'rotten culture encourages excessive risk taking'. The former head of risk management resigned after being forced to break the law - specifically by dramatically under-reserving (or over-leveraging). These figures were not reported which means that, in Mr. Sugarman's words, he was "100 per cent certain that Unicredit broke the law while he was working there". The rot goes deeper though, as the interview describes, when he turned himself over to the regulators (blood-dripping knife in hand), they simply said "Fine, just don't do it again". Reflecting on the twenty years since Barings, Leeson remarks: “The weakness is in those risk management compliance and control areas. Always has been, still is and probably always will be”. Comforting?

The full interview and transcript from ABC News Foreign Correspondent Emma Alberici.

And the story:

Banks To Blame For Europe's Debt Woes

A former senior executive at Italy's largest bank says the European debt crisis is the result of a rotten culture that encourages excessive risk taking.


In his first interview since leaving the bank, the former head of risk management at the Dublin office of Italy's Unicredit bank, Jonathan Sugarman, told the ABC's Foreign Correspondent program that he was forced to resign after his chief executive consistently asked him to break the law.


In 2007, all the biggest banks in Europe had moved their headquarters to the Irish Financial Services Centre, lured by the lowest corporate tax rates in the English speaking world.


The New York Times dubbed Dublin the wild west of European finance.


Foreign banks found something else attractive about the place; it had developed a reputation for light-touch regulation.


Mr Sugarman was working for a German bank in Dublin when he was head hunted to run risk management at Unicredit's Dublin office.


The Italian bank had a $50 billion operation in Ireland.


Risk managers are required by law to keep assets and cash in reserve equivalent to 90 per cent of the bank's liabilities.


The rules are clear; the bank could, on occasion, drop to 89 per cent, but any lower than that and a report must be filed with the regulator.


But within months of his arrival, Mr Sugarman noticed that Unicredit Dublin was operating with cover of just 70 per cent, 20 times less than allowed.


For six weeks, his chief executive kept telling him not to worry.


But he was worried, so he resigned.


"We were breaking the law and it was my name on the reports day in day out," Mr Sugarman said.


"Under the eyes of the law, I'm the person responsible to make sure that we kept within our speed limit and we went way beyond our speed limit.


"And the law was very clear; I could face five years in prison for doing that and I just didn't want to go to prison."


Mr Sugarman says he was 100 per cent certain that Unicredit broke the law while he was working there.


"That is why I brought in this London-based IT company," he said.


"Whereas the permissible deviation was 1 per cent, they rang me up one evening, soon after they tied in to our systems, linked in to our systems, and said your breach is actually 40 per cent."


Twelve months after Jonathan Sugarman told the regulator that his bank in Dublin was running low on cash, the entire Irish banking system was on its knees begging for a bailout.


Five banks asked for 50 billion euros just to keep their doors open.


Last year, Irish MP David Norris raised the Unicredit matter in Ireland's parliament.


"This is a grossly serious matter and has been reported to the financial regulator," he said.


"A man has lost his job as a result - he honourably resigned - and the degree of breach was 40 times the accepted margin. This is a disaster."


Even after this, the regulator failed to act.


In a letter to the ABC, Ireland's central bank said it was still examining allegations first brought by Mr Sugarman four years ago.


"I left the bank's offices, I walked down to the regulator's office; I wasn't going to leave it to anyone to deliver it but myself, and nothing happens," Mr Sugarman said.


"That is like walking in to a police station with a knife with blood on it and say 'I've just killed someone' and you expect the police to say: 'Well, where's the body? Where's the person? What have you done?'


"And they just say: 'Fine, just don't do it again'. And that left me dumbfounded."
Unicredit posted a record third quarter loss overnight of $15 billion.


The Italian government's debt problems are weighing heavily on the country's biggest bank.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Cognitive Dissonance's picture

We are entering the warp speed phase of the Ponzi.

Beam me up Scotty. I am more than ready to relocate to Alpha Centauri.

Capitalist10's picture

Good!  The EU is doomed sooner or later, so let's get it over with.

All the kicking the can down the road is getting boring.

nope-1004's picture

It's not just the EU... it's ALL western fractionalized ponzi banks.

Greed turned them inside out.  Now we'll see more of them enter politics to funnell taxpayer bailout funds.

Notice that Monti (an ex GS crony) is now naming "himself" as Italy's finance minister?  And the sheeple sleep.


john39's picture

don't fret, the NWO will save them with a brand new bigger world government and digitized currency... then everything will be just fine.  /s

B9K9's picture

It's easier to think in terms of first principles. For example, the very first 'governments' were larger/smarter proto-humans promising 'protection' (intra/extra-tribe/clan) in exchange for pussy & food. The offer was, of course, made with underlying implied/explicit threats, so the weaker/less clever had no position in which to negotiate.

Now, let's turn this kind of analysis to banking. The first fractional loan (ie the very first loan lent against nothing) required two things: 1) collateral value must stay constant/increase ie it can NOT decrease or it renders the lender insolvent; 2) another loan must be issued in order to pay the principle+interest of the first loan. Both #1 & 2 are absolutely imperative, otherwise the gig is up.

When we reduce the problem to bare essentials, it is quite simple to realize that this game must always expand - no ands, ifs or buts. So, rather than complain, criticize, etc, one merely needs to identify the next sector(s) targeted for inflation. Law, morality, all that soft stuff is good for generating outrage & page impressions, but it has no bearing whatsoever on the interests of the fascists. They understand what is at stake (for themselves), therefore, all energies/resources are directed towards continuing the Ponzi.

However, there are those, both insiders trained in a 5,000 yo tradition, and outsiders who happen to be students of history, who realize that the end eventually comes - elementary mathematic principles of exponents makes this an iron-clad law. So, the trick for insiders (aka power hungry thrill seekers) is to not get out too early in order to maximize gains, whereas the task for outsiders is to get out earlier in order to prepare.

But either way, it all eventually comes crashing down. Knowing that should serve to keep one's blood pressure down - nothing is worse than emotion.

macholatte's picture

"The Party seeks power entirely for its own sake. We are not interested in the good of others; we are interested solely in power. Not wealth or luxury or long life or happiness: only power, pure power. What pure power means you will understand presently. We are different from all the oligarchies of the past, in that we know what we are doing. All the others, even those who resembled ourselves, were cowards and hypocrites. The German Nazis and the Russian Communists came very close to us in their methods, but they never had the courage to recognize their own motives. They pretended, perhaps they even believed, that they had seized power unwillingly and for a limited time, and that just round the corner there lay a paradise where human beings would be free and equal. We are not like that. We know that no one ever seizes power with the intention of relinquishing it. Power is not a means; it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship. The object of persecution is persecution. The object of torture is torture. The object of power is power."

-- Orwell, 1984

Contra_Man's picture

Don't forget "Markus Canary", also ex-Golden Slacker, and presently serving as the Centralized Bankster of Canada - also co-incidentally, just recently elected to serve as Head of the FSB (Financial Stability Board).  

This posting was well earned after mandating $300B in over-priced private Cdn. mortgage pools be immediately (2007/8) transferred, at 100 cents on the dollar, from the Big 5 Cdn. Banks (... to free up their balance sheets) and stuffed into the Government's housing agency (CHMC) for a 100% socialized public guarantee on a third of a trillion of mortgage backed securities.

Tsar Pointless's picture

Not me. I have my sights set on a little lakefront cottage on Betelgeuse.

I hear it's lovely there this time of the year.

Cognitive Dissonance's picture

You're gonna get an X-factor sunburn when it goes supernova. I suspect it already has and we are just waiting for the speed of light effect to reach us.

Long-John-Silver's picture

You are falling into a trap! The correct spelling is Beetlejuice and the only thing waiting on you there is this.

Potemkin Village Idiot's picture

Day-O! Day-ay-ay-O! The daylight come & we won go home...

GeneMarchbanks's picture

Sugarman *snicker *snicker

"100 per cent certain that Unicredit broke the law while he was working there".

He's turning himself in then? No?

Fucking Aussies... offspring of criminals.

Harlequin001's picture

but that's exactly what he did when he went to the Regulators...

But they did nothing...

GeneMarchbanks's picture

Excuse me but who enforces the law? Regulators?

He should be cuffed faster than Corzine.

Ghordius's picture

you nailed it +10'000

I have the impression he is bragging

moncon's picture

I hope that's not a Hawthorn guernsey he's wearing...

Tuffmug's picture

Read it again. He did turn himself in! Sugarman not meant to be a banker, not sociopathic enough.

Antipodeus's picture

Apparently, you didn't even read the article, let alone watch the video, before you simply felt compelled to blobifet nonsense out of your pestilential, putrescent, pustulous arse, MORON!


Duuude's picture


Wait...this sounds familiar...


"...It gets worse. Over the last decade, Citi has repeatedly been caught committing a variety of offenses, and time after time the bank has been dragged into court and slapped with injunctions demanding that they refrain from ever engaging the same practices ever again. Over and over again, they’ve completely blown off the injunctions, with no consequences from the state – which does nothing except issue new (soon-to-be-ignored-again) injunctions..."

Read more:
CrashJPM's picture

The banksters must go! They are destroying the economy. I guess they only thing left to do is hedge with commodities and precious metals.

Village Smithy's picture

I am afraid that they have their fingers in those pies, right up to the elbows, nothing is safe.

SheepDog-One's picture

Banksters are just lying, cheating, and stealing? No WAY!

MonsterBox's picture

huh?  it's not just wall street?  someone tell Crowley...


vegas's picture

Life in a fucked up world circa 2011: Nick Leeson talking about risk management.

Regulation in a fucked up world circa 2011: Leave us alone, we're busy watching porn. Please, just don't do it again, OK?

Move along, no story here. BTW, Jon Corzine for Treasury Secretary.

Archduke's picture

hey, at this rate we should promote kerviel for sarkozy's replacement.

disabledvet's picture

I don't understand. The swap lines are open, US banks have been slopping at the trough for years now. Yet the zero percent financing sits there unused?

Hugh_Jorgan's picture

The rates are there, but real money is not being offered to anyone. Go ahead and apply for a business loan. Unless you have an "in" with someone in the industry, you will get NOTHING.

I have a friend who is about to lose her husband's business because Wells Fargo is exercising the "payment in full" clauses of nearly all of their lines of credit that carry large balances. No, they never missed a payment.

They are battening down the hatches because they know it is about to get really bumpy for all the banks. Keynesian stimulus only works when an economy is experiencing a recession, but the fundamentals are strong. We are decades away from claiming ANY fundamental economic health.

However, this problem only ends with the Banksters. It began in Washington DC, the fix will need to begins there as well. As long as we continue down the road of entitletments, social engineering and central planning, we will continue to flounder.

falak pema's picture

hey more euro bashing by the people who invented warped derivative banking; are you seeing your own sad face in the euro banking farce? Who invented this system gone global...the GS disease is now world wide. Thank you very very much Wall Street.

Ghordius's picture

but euro bashing is cool and makes you lots of friends

it's the "seasonal sell" of our beloved MegaBanks

BurningFuld's picture

Un fucking believable. Soon all trust in the Western Financial System will be lost. The Banksters will be all standing around with their dicks in their hand waiting for the next rube to come along........and nobody will come.

If you have any money at all in this "Financial System" you are an idiot. I'm looking at you Robo.

Buy "Stuff" and Gold and hold on.

SheepDog-One's picture

Thats how I see it all, theres no one left to fool, all the zero interest trillions are just getting churned around banks, no ones playing their game anymore so they can pretend all they like I guess but really theyre just standing there playing with their dicks. So now what?

Yep just buy stuff youll need, forget the bankers and stocks and all this nonsense.

MonsterBox's picture

Crowley: if this gets out, who will deal with us?

Oh, the word's out alright, all around the world, and it aint just wallstreet.  Our western markets are going ignored/hurting for generations, thanks to these greedy dickheads.

tempo's picture

Congress exempts themselves from insider trading laws. How corrupt and evil are the USA lawmakers? Focus on the Pan Canadian pipeline...20,000 shovel ready jobs, reduced imports, secure source of crude from oil sands. Obama kills the project so Canada will move oil through existing pipeline to West coast of Canada and Oil will now be sold to China and USA will go begging for more imports from the middle east. Insanity reigns!!

BurningFuld's picture
Ex-ambassador calls U.S. pipeline delay 'catastrophic'

What? An ex-government official with a brain. Get rid of him STAT!

rdenner's picture

The anarchist phrase

"We come to the point in time where it is too late to save the system..... AND TOO EARLY TO START HANGING THE BASTARDS!"

Comes to mind..



Jim in MN's picture

My favorite is 'replace the economy, ignore the government'.

lizzy36's picture

One wonders how much risk JPM and Goldman have taken with this small disclosure:

JPMorgan Chase & Co. and Goldman Sachs Group Inc., among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally. Just don’t ask them how much of that was issued by Greece, Italy, Ireland, Portugal and Spain.

I can hardly waith until either or both of those entites start telling us what the "NET" number is. Because as well all know there must not be a material amount of counterparty risk in hedging the sale of $5 Trillion fucking dollars of risk.  

Harlequin001's picture

it doesn't matter what size of the problem because the gold market is big enough to absorb all money, and thus even $5 trillion of derivatives losses. What is important is that both these banks have access to gold which they do as Authorised Participants in Street Tracks ETF.

When the shit finally hits the fan they take the gold out by taking the long side of short trades with their clients and then cash in the shares in GLD et voila, everybody else loses everything and these banks remain solvent regardless of the extent of their losses. It all depends on the ultimate settlement value of gold.

Which should be significant...

qussl3's picture

Nobody will willingly pull the trigger, it WILL take an exogenous event to crash it.

Something like a tsunami into NY from the Azores or some such.

Otherwise this crap can go on forever, as long they dont print large denominations or allow unions to drive wage inflation, at least till oil prices blow everything the hell up.

MonsterBox's picture

an EMP over NY would be easier, more likely

SheepDog-One's picture

Iranian long range missiles presently parked in Venezuella. Just sayin'.

pods's picture

I just hope that people start to see banking for what it is.

I know, I am an eternal optimist.  You guys will hate me in the FEMA camp.


midgetrannyporn's picture

Newt tapped Freddie for $1.6M. Let it burn.

Marley's picture

“If only they enforced bank regulations like they do park rules, we wouldn’t be in this mess.”

Jim in MN's picture

Make me one million t-shirts of this, no, make it a billion.  Send the bill to (spins wheel) the Queen of frickin' England.

tony bonn's picture

so mary schapiro runs the australian sec too

Antipodeus's picture

WHY are you rabbiting on about the 'Australia SEC' (no such body)?

And if you meant to say the 'Australian ASIC' (Australian Securities & Investments Commission) ... what has ASIC got to do with the article in question, which is about the IRISH (as in IRELAND) branch of an ITALIAN (as in ITALY) bank?

The only thing 'Australian' is the Foreign Correspondent of the (Australian) ABC (Australian Broadcasting Commission)

Another MORON -- they're out in force today, TD.


clawfoot tub's picture

Private banks loaning currency to government is a criminal conspiracy. Start there and work your way out.

SeanJKerrigan's picture

Saw this at the Starbucks the other day...

"It's the nutcracker!" Uh huh.  Sure it is.

adr's picture

So is that why the market jumped 75 points in a couple minutes? Confirmation of complete disregard for the law means everyone is free to break the rules.

Really what happenned at 10:45 to give the market a nice boost?