BNP Paribas has emerged as the acquirer of Crédit Industriel et Commercial's structured equity book. The identity of the acquirer was under wraps, but BNP Paribas has now started to unwind and offset some of the positions that caused CIC millions of euros of losses. CIC is thought to have mispriced exotic options in the book and closed down its structured product business after losses became apparent several years ago. It is not clear exactly when CIC shuttered the business, but it decided to sell the book this summer.
Several market officials were surprised the book went to BNP Paribas rather than a less-established firm looking to kick start an equity derivative business. "I was very surprised," said one structured product trader, before adding, "But not when I found out the price." Market buzz is that BNP Paribas bid, in volatility terms, 4% below the value of CIC's portfolio. CIC said in its first-half statement at the end of June the capital losses on the sale of the portfolio amounted to EUR597 million. Officials at BNP Paribas referred calls to Ruth Lavelle, spokeswoman for the firm, who declined comment. Bruno Brouchiquan, spokesman for CIC in Paris, also declined all comment.
A structured product trader at a rival firm added not only did BNP Paribas get a good deal on the price, the purchase also gives it the opportunity to lay off some of the trading axes it has through its structured product business. He declined to speculate on what those positions might be, but several other traders noted BNP Paribas has been aggressive recently in variance swap dispersion.
In dispersion trades through variance swaps, players typically sell single stock volatility and buy index volatility. CIC's book would likely have been long single stock volatility, so selling through dispersion trades could be a way of unwinding this position. Although it was hard to confirm BNP Paribas was behind the trades, there was a surprising volume of EuroSTOXX dispersion traded last week.
Dealers are expecting more fallout as the firms which have purchased TD Securities' structured product book (DW, 4/29) look to unwind that. Dealers said TD has been auctioning its book in tranches. The first section was snapped up by Bear Stearns, and Bank of America has reportedly secured another tranche. Genevieve Rooney, spokeswoman for TD in London, Renu Aldrich, spokeswoman for Bear Stearns did not return messages. Liz Wood, spokeswoman for BofA, declined comment.
