This spring, it looked like Russia’s incursion into Ukraine would spell disaster for international markets and geopolitical security.
So Wall Street prepared for calamity, and the market volatility that it expected to come with it, by hedging.
Of course, now we know that calamity never came.
So what happened to those hedges?
On the conference call following Citigroup’s earnings Monday, CFO John Gerspach said that the bank lost around $US100 million hedging against disaster in Ukraine.
He also said that it caused a 40% drop in equity market revenue in Q2 2014.
There is a flip side to that disappointing news, though. Once markets decided that catastrophe had been averted, bond markets did better than expected. Citi said that turned into a “relief rally” in bond prices.
So there’s that.
Of course, this isn’t to say that Citi’s fixed income trading revenue was that great — it was still down 12% from the same time last year. Still, Wall Street was expecting absolute carnage in that sector. Back in May Gerspach himself said that fixed income, currency and commodities and equities revenue could decline 20%-25%.
So yeah, a 12% drop gets a round of applause.