Angry that some big hedge fund blow-ups might be stealing the limelight, in the third quarter Credit Suisse (NYSE:CS) lost $120m from derivatives trading in Korea. Adding some spice, looks like the bad trade might have been swept under the rug as well:
Credit Suisse Group, Switzerland's second-biggest bank, lost about $120 million on South Korean derivatives in the third quarter, an undisclosed stumble by equity traders struggling to catch the leaders in the securities industry.
The debacle, which wasn't reported to shareholders, resulted from the Zurich-based bank's failure to protect itself against swings in the value of Korean stock options, said two people with knowledge of the matter. The loss equals about 13 percent of Credit Suisse's second-quarter revenue from equities trading.
Strange, losing $120m from trading seems like on of those things a company owner might want to know ASAP. Not quite 100% on what Bloomberg means here by wasn't reported, (how did Bloomberg find out... or is this truly cutting edge journalism) so probably worth some investigation. Reading further, we also find it striking that Korean stock index options in 2005 had higher trading volume than the US.
Credit Suisse was drawn to Korea as options trading in the country surged. In the third quarter of 2005, trading of Korean stock-index options rose 71 percent to $12 trillion, surpassing U.S. volumes for the first time, according to a December report from the Bank for International Settlements in Basel, Switzerland.
...
When Korean stocks leveled off in the third quarter [2006] after slumping in May and June, option values fell. Credit Suisse, which hadn't taken positions to hedge against the decline in market volatility, was then forced to write down the value of its holdings, the people said.
And thus lost $120m... bad news ahead for 3Q06 earnings?
Rating Downgrade
Deutsche Bank AG analyst Matt Spick said there is ``a chance of a negative surprise'' from private banking or sales and trading when Credit Suisse reports third-quarter earnings. He cut his investment rating on the company to ``hold'' from ``buy'' on Oct. 12.
Spick estimates Credit Suisse's third-quarter net income fell 13 percent to 1.67 billion Swiss francs ($1.31 billion) from a year earlier. The company is scheduled to report its latest financial results on Nov. 2.
....
Korea's structured-notes market grew 50 percent last year to about $15 billion in sales. Credit Suisse competes in it against companies including Paris-based BNP Paribas SA, Citigroup Inc. in New York, Frankfurt's Deutsche Bank and Zurich-based UBS AG, according to research from Arete Consulting, which tracks the market for structured products.
And as a background nugget, we didn't realize Societe Generale and BNP Paribas were the top two players in the world for equity derivatives. Goldman, (NYSE:GS) where are you on this one? Oh wait probably too old-fashioned for them.
France's Societe Generale SA and BNP Paribas are the world's leaders in equity derivatives, said Kian Abouhossein, a London- based analyst at JPMorgan Chase & Co. Societe Generale's revenue from equity derivatives will reach $3.6 billion in 2007 and BNP Paribas's will be $2.4 billion, he estimates. Credit Suisse will have $1.1 billion of comparable revenue, he said.
Revenue from equity derivatives is increasing at an annual rate of 15 percent, Abouhossein said.
Final classic quote:
``If you're not willing to take that risk, then you shouldn't be in the business,''
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Posted by: www.badcreditonlineloans.com | June 12, 2008 at 09:29 PM