Merrill Lynch investigates rogue trader in London

In a throwback to Jerome Kerviel's shenanigans at Société Générale last year that cost the French bank billions, New York-based Merrill Lynch is working with the authorities to investigate the activities of a possible rogue currency trader in London. See: French regulator fines Société Générale $6.3 million for lax internal controls

Merrill Lynch said in a statement this morning: "During a recent evaluation of certain trading positions, we discovered an irregularity. We informed regulators immediately and are working closely with authorities to thoroughly investigate the matter. Senior managers of the business are focused on the issue and believe the risks surrounding possible losses are under control."

The comment from the bank followed a report in the New York Times naming the trader as Alexis Stenfors, who is still an employee at Merrill Lynch. Stenfors told the New York Times that the issue was a "misunderstanding", and his lawyer, Ian Ryan, said he was co-operating with the investigation. The report suggested he had gambled away $120m of the bank's money.

Merrill lost $13.8 billion in the final three months of last year alone. The losses did not ''spill into plain view'' until after Bank of America investors had approved the $33 billion takeover in December and Merrill Lynch disbursed $3.6 billion in bonuses to bankers, the newspaper said. Bank of America later sought additional government funding.See: Merrill docked for wrongly enriching executives )

Bank of America bosses are demanding to know why many losses at Merrill did not appear on the books at the time of the deal.

Many of Merrill's top executives have left since Bank of America's takeover, including CEO John Thain, Greg Fleming, head of investment banking, and Robert McCann, who led the wealth- management unit. The bank's markets division is run by Thomas Montag, who Thain hired from Goldman Sachs Group Inc. (See: Former Merrill boss Thain ousted from Bank of America amid losses)

Three weeks ago, risk officers discovered that a London currency trader who had recorded a trading profit of $120 million for the fourth quarter may instead have lost a large amount, the New York Times said, citing an unidentified Bank of America executive.

The newspaper identified the employee as Stenfors. Stenfors previously worked at Calyon, the investment- banking unit of France's Credit Agricole SA, according to the UK Financial Services Authority's register. He joined Merrill Lynch in 2005, and is listed as being ''inactive'' since 25 February. British regulators are also examining the employee's trades, the newspaper said.