In 2008, during the nadir of the financial crisis, one Barclays trader was already $200 million in the hole and staring at a deal he called an “unavoidable abyss.”
But miraculously, Bob Henderson, then Barclays’ managing director and head of commodity index, hybrids and exotics trading, said he helped steer the firm away from enormous losses and into the bank’s “best trade ever.”
Through a lengthy article in science magazine Nautilus, Henderson explains in a story titled “What I Learned From Losing $200 Million,” the anguish he and colleagues experienced as they fought to get their heads around a losing trade they could no longer control. Henderson personally oversaw a number of positions he says had lost $200 million.
Before the financial crisis took hold, Barclays and Goldman Sachs had sold a derivative acting as “an insurance policy” to Mexico’s government that allowed the country to hedge the rising price of oil as the price of West Texas Intermediate crude oil soared to nearly $150 a barrel, Henderson wrote.
As markets seized, the plunging price of oil meant banks like Barclays, where Henderson worked, be on the hook for the difference. None of the mathematical models he used foresaw a situation like the financial crisis. Henderson wrote:
“The fuel market is small and the deal was ginormous, and so my sales flooded the market with both fuel and information about my position, weakening my bargaining power and making it harder to sell as the days went by. Hitting a market’s ceiling like this was something that none of my methodologies accounted for.”
After briefly being “mentally incapacitated for the first time in my career” as a result of the pressure he was under, Henderson started working on a response plan to the crisis. This included betting on a continued decrease in oil prices to hedge the position he could not control, and working with Mexican government officials to restructure the deal they had with banks.
There was yet more to be done, Henderson wrote:
“There were many other decisions and guesses, some made alone, others with help from my team, and still others made by my boss. All were guesswork, none could I have anticipated in stress testing, and all involved abandoning my original strategy along with the illusion of control it gave me.”
It appears to have worked.
Mexico went on to reap $8 billion on the trade, according to a separate Financial Times report.
And, amazingly, the banks that once faced staggering losses pulled out of their nosedive — and made money.
“I got promoted too, paid a big bonus, and was told that I’d presided over the most profitable deal in my bank’s history,” he writes. For someone who spent a career assembling mathematical models, assuming that provided a form of control over risk, Henderson said “the most stressful part of my 2008 experience taught me how to guess.”
Henderson doesn’t name the firm where he worked at the time of the deal, but his LinkedIn profile shows he was with Barclays throughout the duration of the financial crisis. However, pictures of Henderson from the story and on his LinkedIn profile appear identical. Barclays did not respond to a request for comment.