Yasuo Hamanaka is also known as “Mr. Copper” or “The Copper King” for being the chief copper trader at Sumitomo Corporation, which is one of the largest trading companies in Japan. Other monikers include “Mr. Five Percent” because he controlled 5% of the world’s yearly supply of copper and managed it with an aggressive trading style.
In June 1996, Hamanaka was found guilty of unauthorized copper trading on the London Metal Exchange, chalking up a loss of $1.8 billion for Sumitomo Corporation. Three months later, the company disclosed that the actual financial losses amounted to $2.6 billion as a result of these trades. Because of that, Hamanaka was sentenced to eight years in prison but was released a year early in 2005.
Hamanaka served as the head of Sumitomo’s metal trading division, controlling large amounts of physical copper on top of futures contracts. As such, he was able to use the company’s large cash reserves to corner and squeeze the market through the London Metal Exchange, which essentially dictated global copper prices.
Rumor has it that Hamanaka was able to keep the price of copper artificially high until 1995, getting large premiums on sales of Sumitomo’s physical assets. He took advantage of the fact that the London Metal Exchange wasn’t required to report statistics on open interest, leaving other market participants in the dark when it comes to other open copper positions held by Sumitomo or other traders.
However, trading conditions changed in 1995, primarily due to the mining boom in China. This increase in supply put the copper market in correction, with the glut heavily weighing on prices and leaving Sumitomo in no position to prop up prices artificially.
Hamanaka was then “transferred” by Sumitomo in light of these copper losses, but this action was enough to spur panic in the metals market and push prices even lower. Sumitomo later on claimed that Hamanaka was a rogue trader and that his positions were not disclosed to management. However, many believe that the management of Sumitomo Corporation knew what was going on all this time but turned a blind eye since Hamanaka’s moves were bringing in a lot of dough anyway.
During Hamanaka’s fallout, Sumitomo implicated the likes of JPMorgan Chase and Merrill Lynch, blaming these institutions for granting loans to Hamanaka in order to keep the unauthorized positions going. Hamanaka was also convicted for forging his supervisor’s signatures on approval forms. Since then, new protocols were introduced to the commodities market to prevent similar situations from recurring.
Sumitomo Corporation’s massive loss in 1996 was its first loss in 77 years, causing Moody’s to lower the ratings on the senior debt of the company and its subsidiaries from A1 to A2. The loss represented 40% of the company’s net worth, covering it by liquidating assets and raising $300 million through the sale of 2.9 acres on the Tokyo waterfront.
Hamanaka reportedly lives in the Tokyo suburb of Kawasaki presently and has been quoted by Bloomberg saying that he is amazed by how the price of copper has risen even while he was in jail.
Source:: Trader Fact Files: Yasuo Hamanaka