Yesterday we mentioned the $2 billion loss incurred by Chinese investment group Citic, after one of its units made some unauthorised bets on the Australian Dollar. This is part of a bigger trend. The Wall Street Journal notes today that a host of companies, many located in Latin America, have incurred big losses from currency bets gone awry:
In Brazil, the growing list of blue-chip casualties includes paper-pulp giant Aracruz Celulose SA and industrial conglomerate Grupo Votorantim. In Mexico, trading in tortilla maker Gruma‘s stock was halted earlier this month after its potential losses mounted to $684 million.
The surprise disclosures have sent stock prices tumbling, and regulators in both countries are investigating whether companies adequately disclosed their trading risks to investors.
Some local reports have speculated that the damage in Brazil alone could exceed $30 billion and may affect two hundred companies.
Of course, the natural question is whether these companies were hedging against a change in currency prices, or whether they got caught trying to squeeze extra profits from their currency market actions. It’s probably not such a binary choice.
Meanwhile, outside of the currency realm, the pattern persists. Southwest and UAL both booked big losses this quarter due to oil hedging. Ethanol producers got slammed when corn reversed direction and moved lower. Next time around, perhaps, a little more subtlety and sophistication in these positions is called for.