1 The head trader of Chemical Banking Corp. 's interest-rate options group has left the company, following valuation errors that resulted in a $33 million charge against its third-quarter results.
2 Chemical said Steven Edelson resigned recently, but one individual close to the situation said the resignation was forced.
3 Mr. Edelson couldn't be reached for comment.
4 A separate inquiry by Chemical cleared Mr. Edelson of allegations that he had been lavishly entertained by a New York money broker.
5 That inquiry hasn't resolved similar allegations involving another Chemical options trader.
6 In other personnel changes stemming from problems in its options unit:
7 -- Chemical named James Kennedy, a trader in swaps contracts for the bank, to assume Mr. Edelson's duties and to be trading manager for derivative products, including swaps and interest-rate options.
8 -- Lee Wakeman, vice president in charge of options research who discovered the valuation errors and was asked by senior management to straighten out the mess, resigned to take a position in asset and liability management at Continental Bank in Chicago.
9 Mr. Wakeman, whom Chemical tried to keep, didn't return calls for comment.
10 Separately, Chemical confirmed that it took an undisclosed charge in the second quarter for losses on forward-rate agreements involving foreign currency written by its branch in Frankfurt, West Germany.
11 A Chemical spokeswoman said the second-quarter charge was 'not material' and that no personnel changes were made as a result.
12 The spokeswoman said the Frankfurt situation was 'totally different' from problems in the interest-rate options unit.
13 According to individuals familiar with the situation, the Frankfurt loss stemmed from a computer program for calculating prices on forward-rate agreements that failed to envision an interest-rate environment where short-term rates were equal to or higher than long-term rates.
14 While the incidents involving interest-rate options and forward-rate agreements are unrelated, some observers say they echo a 1987 incident in which Bankers Trust New York Corp. restated the value of its foreign exchange options contracts downward by about $80 million.
15 These complex products require close monitoring because each must be valued separately in light of current market conditions.
16 In an interest-rate options contract, a client pays a fee to a bank for custom-tailored protection against adverse interest-rate swings for a specified period.
17 In a forward-rate agreement, a client agrees to an exchange rate on a future currency transaction.
18 Some competitors maintain the interestrate option loss, in particular, may have resulted more from Chemical's taking large and often contrarian positions than a valuation problem.
19 Started three years ago, Chemical's interest-rate options group was a leading force in the field.
20 From 1987 to 1988, the value of Chemical's option contracts outstanding mushroomed to $37 billion from $17 billion.
21 More importantly, the volume of options written exceeded those purchased by almost 2-to-1.
22 With such a lopsided book of options, traders say, Chemical was more vulnerable to erroneous valuation assumptions.
23 The Chemical spokeswoman said the bank has examined its methodologies and internal controls. 'We consider our internal controls to have worked well,' she said, adding that some procedures have been strengthened.
24 Its valuation methodologies, she said, 'are recognized as some of the best on the Street.
25 Not a lot was needed to be done.'

Chemical said Steven Edelson resigned recently , but one individual close to the situation said the resignation was forced .
one individual
Who was the individual?