FirstRand Limited, South Africa's second-biggest bank by market value, is standing behind its London-based “best” traders, who lost Rand Merchant Bank, the outfit's investment-banking unit, more than $200 million (£102 million) in the final six months of last year.

The bank's best-performing team was transferred from Johannesburg to the United Kingdom just over a year ago after making spectacular gains for the bank on the local South African bull market, which, driven by a commodities boom, has performed consistently well for the past four years.

However, the team, which played emerging market equities and emerging market equity derivatives, came unstuck dramatically. When the market turned because of the impact of the sub-prime crisis in the United States, it was caught out.

One South African fund manager who has monitored the team's performance closely said: “This is a classic case of big fish in small ponds not being able to operate so successfully in a much harder, tougher environment. Frankly, it raises questions over the bank's judgment and growth strategy.”

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Johan Burger, the chief financial officer, said yesterday that the bank was sticking by its team of traders, whose losses were detailed in the bank's interim (June-December) results this month. “There was no rogue trader,” he was quoted telling investors at a London presentation. “The team is still intact. We are still backing the team to recover over the long term.”

Rand Merchant Bank lost money in the fiscal first half after trying to profit on differences between small and medium-sized companies and larger stocks. A flight by investors to safer investments during the second half of 2007 caused trading in smaller companies to dry up, while a drop in the world's largest equity indices caused losses on the bank's hedging strategy.

The losses were within FirstRand's risk-management framework, which allocates no more than 4 per cent of its capital to market risk, Mr Burger said.

“Overall, the bank is sound,” the fund manager said. “These same people made a lot of money before this, but what beggars belief is how they failed to lock any in and seemed to believe [that] their system would just work and work. The fact they argue [that] the market dislocation which caused the problem is a one-year-in-forty development is also cause for concern.”

FirstRand missed earnings targets for the first time in its history in the six months that ended on December 31. It said early last month that it would not meet full-year goals as the highest interest rates and inflation in four years stall lending and spur bad debts in South Africa.

Rand Merchant Bank, a heavyweight on its local market, has curtailed its positions on the equities that caused the loss, but the incident is likely to raise questions over its expansion strategy, which involves moves into India and Brazil.

“The whole thing shows that when you venture outside your own patch, risk is much greater. It is not just a simple fact of moving a team,” another investment banker said.

Johannesburg blue chip

— FirstRand was created in April 1998 through the merger of the financial service interests of Anglo American Corporation of South Africa and RMB Holdings

— It has assets under management of $127 billion and is one of the top ten listed companies on the South African stock exchange

— The group employs 42,882 people and has 766 retail branches

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