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Derivatives

Traders Speculate Selling Calls Caused NABs Fx Woes

Rival fx traders are pointing to Aussie and Kiwi dollar call options sold last October as the source of a recently uncovered AUD600 million (USD464 million) hole in National Australia Bank's foreign exchange book.

Rival fx traders are pointing to Aussie and Kiwi dollar call options sold last October as the source of a recently uncovered AUD600 million (USD464 million) hole in National Australia Bank 's foreign exchange book. The thinking behind the trades was that the currencies had been rallying steadily against the greenback and were widely believed to be ready for a retracement, explained one currency strategist. "It's not clear if it was a complex structure, rogue trading, the selling of call options at miscomputed prices, or a combination of the three," he added.

Some traders said NAB likely covered its positions in the spot market via buying Aussie dollars early in the New Year, several days before the losses were announced. The strategist added that in the first days of 2004, the Aussie dollar appreciated swiftly to USD0.78 from USD0.75, perhaps driven by NAB buying Aussie dollars in the spot market. "This was an extremely odd move," an official at a European bank concurred.

Brandon Phillips , spokesman at NAB, said, "The four traders that were responsible for fx options have been suspended and the desk has been filled with new staff moved internally." He declined to disclose the names of the staff involved.

A trader at a rival Aussie bank said the trading loss is likely the largest domestic hit ever. "What's scary is they've revised the figure up by three times," he added.

Fitch Ratings put NAB's AA credit rating on negative watch early last week. "The uncertainty of the losses have prompted a ratings watch until more precise numbers and we get more detail on improvements of risk management," John Miles , director at Fitch in Brisbane, told DW . Standard & Poor's and Moody's Investors Service have not changed their AA and Aa3 ratings.

 

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