Howie Hubler
Howard Hubler III | |
|---|---|
| Born | Boonton, New Jersey, U.S. |
| Occupation | Bond trader |
| Years active | Late 1990s–2007 |
| Known for | Causing the largest single trading loss in Wall Street history in 2007 |
Howard Hubler III, commonly referred to as Howie Hubler, is an American ex-Morgan Stanley bond trader who is infamous for causing the fifth largest trading loss ever recorded. He successfully shorted risky U.S. subprime mortgage assets but financed this position by selling insurance on ostensibly safer, AAA-rated mortgage-backed collateralized debt obligations. These instruments ultimately proved to be worthless, leading to a colossal net deficit. His handling of credit default swaps (CDS) directly resulted in losses totaling around US$9 billion amid the 2008 financial crisis, marking the largest single trading loss in Wall Street history when adjusted for inflation, and the biggest at that time. Only later did larger nominal losses occur, such as those by Bruno Iksil in 2012 and Bill Hwang's $10 billion setback involving total return swaps in 2021.
Early life and education
Hubler grew up in Boonton, New Jersey, where his father worked as a real estate broker. He attended Montclair State College, where he was also a member of the college's American football team.
Career
Starting in the late 1990s, Hubler joined Morgan Stanley’s fixed income division as a bond trader. Known for his sometimes volatile demeanor, he was assigned in 2003 to lead a team that shorted subprime mortgage bonds using proprietary credit default swaps (CDS). After initial profitable results, he was promoted in 2006 to head the newly formed Global Proprietary Credit Group (GPCG).
$9 billion loss
The GPCG was established to generate quick, high-return trades but struggled with low profitability due to premium payments on CDS positions. To support its activities, Hubler instructed his traders to sell CDS protection on $16 billion worth of AAA-rated collateralized debt obligations (CDOs) while purchasing $2 billion in CDS on riskier mortgage assets. Unbeknownst to him, the insured CDOs included similarly hazardous subprime mortgages, though Hubler reassured senior management and risk teams regarding the portfolio’s safety.
Following a compensation dispute, Hubler earned $25 million in 2006 with expectations for increased income in 2007. Nevertheless, stress testing exposed significant risk: at a 10% default rate, anticipated gains of $1 billion turned into losses of $2.7 billion. Hubler dismissed these scenarios as unlikely.
As the housing market deteriorated and subprime defaults surged, disagreements emerged over CDO valuations linked to CDS settlements. Hubler challenged counterparties’ assertions that CDO values had sharply declined, postponing acknowledgment of losses. This hesitation intensified the group’s exposure until senior executives removed him from his role. The GPCG liquidated $5 billion in CDOs and earned $2 billion from initial CDS trades but ultimately recorded a $9 billion loss—ranking as the fourth-largest trading loss in Wall Street history. Morgan Stanley experienced total losses of $58 billion during the 2008 financial crisis.
After Morgan Stanley
In October 2007, once Morgan Stanley’s leadership fully grasped the scope of the losses, Hubler was given the choice to resign rather than face termination and received a $10 million severance package.
In 2008, Hubler launched the Loan Value Group, which supports mortgage lenders dealing with underwater borrowers who may consider strategic default. He has consistently declined all interview requests concerning his time at Morgan Stanley.
In the 2015 movie The Big Short, Hubler’s narrative is portrayed through a fictional Morgan Stanley trader named "Benny Kleeger".
See also
- List of trading losses
- Kweku Adoboli – responsible for a $2 billion loss at UBS
- Jérôme Kerviel
- Nick Leeson – triggered a £827 million deficit resulting in the downfall of Barings Bank
- Yasuo Hamanaka – generated a $2.6 billion loss through illicit copper trades on the London Metal Exchange