As RMB had discovered, the size of the positions were very large. Dumping the shares in the market simply collapsed the prices.

In Nedbank’s contracts-for-difference business, it had been writing derivatives for its clients. If the clients defaulted, the bank would have ended up with those shares. So it moved quickly to limit its exposure, closing out the contracts.

The traders who had accumulated the positions were sacked. The only exposure it could not escape was to listed finance company African Dawn, to which Nedbank has an exposure of at least R200-million.

But Nedbank limited its exposure even there, wringing plenty of other security out of the defaulters. It has now foreclosed on them and become the biggest shareholder in the company.

Nedbank also realised something else: the exposures in its counterparty business were not to its own balance sheet, but to Cortex Securities, and if Cortex defaulted, then to Absa, which had to stand behind Cortex in terms of JSE rules.

It must have been a dead certainty that defaults would occur. At one point, Nedbank held 89% of listed company Acc-Ross as security against the SSFs that it was a counterparty to, while Cortex was on the other side (see lead story).

It would not have taken much to realise that the holders of the SSFs had been using all the cash they had accumulated through futures trading in order to support the share price, and therefore would not be able to withstand any margin calls. Nedbank had met and knew the ultimate holder of the SSFs, Jac de Beer, so it cannot protest that all it could see was Cortex.

But, in the case of Pinnacle, and other stakes that Absa inherited, Nedbank responded with far less urgency than it did when its own balance sheet was exposed. Certain individuals at the bank argued that they could just stick the exposure to "the big red", so why bother. In fact, Nedbank even continued trading after it realised Absa’s exposure.

Banknotes has been reliably informed that Absa is considering legal action against Nedbank. There is no doubt Absa was asleep at the wheel, and has been embarrassed by the debacle. It simply did not realise that the nature of the SSF contracts implied it was exposed.

Questions must be asked about Nedbank’s role. Once it realised Absa was exposed, to continue accumulating further positions was at least reckless. Sure, its own profitability was not at risk - but the risks Absa was unwittingly facing were substantial. And every bank in the South African financial system has some responsibility to prevent banks from sleep walking into a disaster. They have a duty of care to the system.

Banknotes understands that once Absa woke up and realised the size of its exposure, it had to go into the market in December 2008 and short shares in Pinnacle to force down the price in order to induce a default - an action that is subject to other legal proceedings - while Nedbank was on the other side of the market buying up shares to support the share price.

Had Absa not done so, Nedbank’s stake would have grown even larger, and Absa’s exposure with it. Thereafter, the cards came tumbling down, and Absa ended up with major stakes in Pinnacle Point (as Acc-Ross is now known), Sekunjalo, Blue Financial Services, Convergenet and very nearly Beige Holdings, incurring major losses in doing so.

Nedbank, which handed over the stakes to Absa, walked away having banked good money for trading the shares.

Absa will have to think carefully about pursuing legal action. The grounds would be a little tricky were it to argue that Nedbank failed in a duty of care, a vague legal concept.

That does not mean consequences will not follow for Nedbank. Its actions at least created avoidable risk in the banking system, an issue the Reserve Bank will probably take very seriously.

On one reading, Nedbank violated the Banks Act when it landed up with 88% of Acc-Ross because it did not get permission of the Registrar of Banks, as it arguably should have. The Reserve Bank may well use that to make its ire felt.

The registrar can also call for a commission of inquiry to get the whole story out in the open.