ABN Amro withstands $200m loss from margin call failure of one client
Dutch lender ABN Amro will take a $200 million hit to its profits after the financial market turmoil left the bank on the hook when a customer was unable to stump up extra money needed to keep trading, according to the Financial Times.
The customer, which ABN did not identify, had been unable to meet margin calls required to keep trading US futures and options amid the wild swings of recent weeks.
ABN mentioned in a statement on 26 March, that it had been forced to close out the positions of the customer and saddled with the loss. The loss is equivalent to almost 10% of the bank’s annual profits.
The disclosure sent shares in ABN down 5% in early afternoon trading on 26 March, worse than the 2% drop in Europe’s broader Stoxx 600 index.
The trading loss, which came in ABN’s clearing arm, is one of the biggest hits yet to a bank from the market turbulence unleashed by the coronavirus outbreak.
ABN’s clearing arm earns much of its profits sitting between exchanges and clearing houses, charging customers a fee to provide the capital that traders are obliged to set aside if their bets sour. However, banks are left exposed if a customer can no longer meet the demands from the clearing house to settle failed trades.
The Dutch bank’s clearing arm processes more than 20m securities and derivatives transactions a day for customers including high-frequency traders and market makers, many of which are based in the Netherlands and Chicago.
The market mayhem has already inflicted losses on some trading firms. Last week Ronin Capital, a Chicago-based proprietary trader, collapsed after it was unable to meet margin calls on its futures and bond trades. Its main clearing house, the CME Group, said it had auctioned off the portfolios of Ronin.
ABN, which has been majority owned by the Dutch state since its bailout during the 2008-09 financial crisis, had already been under pressure from the start of the coronavirus pandemic because of its heavy exposure to the energy sector.
In February, it announced a second review of its corporate and investment banking business in as many years. It had suffered a sharp increase in bad debts among customers in the offshore oil and gas sector, even before the recent collapse in crude prices.