Andy Krieger worked his first job in trading for Salomon Brothers. He is a graduate of Wharton School, an ivy league school, and part of the University of Pennsylvania. This first position went well for Andy. He traded in currency options, a relatively new economic vehicle at the time.
Bill Lipschutz – another famous trader who worked with Andy at Salomon Brothers – relays Andy Krieger’s story in the book The New Market Wizards: Conversations with America’s Top Traders.
This story starts with Bill lying on a beach in Sardinia. Bill’s vacation was nearing its end, and this had his mind turning to thoughts of the market. He decided to call his offices and found out about a G7 meeting that was affecting the markets. Bill also found out that Andy Krieger was out sick, which was rare for him. Bill eventually got a hold of Andy despite the troubles of 1980s international calls and kept the phone line open for six hours. While fighting the flu, Andy used another line to call into the New Zealand Market. Andy short sold $60 million with the New Zealand Bank, which was an enormous figure at the time. After this, the two of them kept trading in the spot market. They made $6 million — quite an impressive day for being out of the office.
Andy Krieger at Bankers Trust
The time spent at Salomon helped set up Andy Krieger to move on to bigger things. His next position was at Bankers Trust in 1986. They gave Andy a $700 million trading limit, with the standard limit for their traders being only $50m. This limit would certainly be put to use.
The impetus for Andy’s most notable trade would come from Black Monday. On Monday, October 19, 1987, the stock markets fell 22% in a devastating crash. It is the largest single-day decline in history. One week after this is when Andy made his big move. He had analyzed the New Zealand dollar (the Kiwi) and decided it was overvalued and open to an attack. Krieger used his huge trading limit and leverage as high as 400 to 1 in an all-out assault on the Kiwi. Krieger claims that his short selling actually dwarfed the size of the entire New Zealand money supply.
As you might imagine, this had severe repercussions. Within hours the Kiwi had fallen over 5% compared to the greenback. This had such an impact that New Zealand’s central bank complained that Bankers Trust had taken too big a position. They retorted that the position was not too big for them, but it was too big for that market, slightly to New Zealand.
After the Famous Kiwi Trade
This trade profited $300 million for the Trust in just a few hours, making it a world-famous trading moment. This earned Krieger a bonus of $3 million, which he considered an insult. He resigned in 1988, apparently fueled by his distaste for this bonus of only 1% of the trade’s profits. He left to work with George Soros.
Bankers Trust fell under investigation soon after Andy Krieger left. The regulators disclosed that the Trust had overstated their currency options portfolio by $80 million. It is unclear how and why this income was exaggerated. One theory often put forth is that Bankers Trust could not accurately understand Krieger’s sophisticated options positions.