Companies' derivatives trading: Complexity - and hypocrisy

During the bull market of recent years, treasurers of many companies flocked to the derivatives markets to make bets that interest rates would decline. Many profited handsomely, but some companies, such as Procter & Gamble (P&G), Gibson Greetings, Mead Corp. and Dell Computer, reported headl...

Full description

Saved in:
Bibliographic Details
Published in:The Institutional investor (U.S. ed.) 1994-05, Vol.28 (5), p.11
Main Author: Schultz, Janine
Format: Magazinearticle
Language:English
Subjects:
Annual reports
Corporate profits
Corporate treasurers
Derivatives
Interest rates
Litigation
Losses
Put & call options
Risk
Securities markets
Stockholders
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:During the bull market of recent years, treasurers of many companies flocked to the derivatives markets to make bets that interest rates would decline. Many profited handsomely, but some companies, such as Procter & Gamble (P&G), Gibson Greetings, Mead Corp. and Dell Computer, reported headline-making losses from leveraged derivatives trades. According to Wall Street analysts, nearly 40% of US companies now operate their treasury departments as profit centers, using derivatives to increase returns. P&G chairman Edwin Artzt claims that the infamous trades that forced his company to take a $157-million pretax charge against earnings in the first quarter were unauthorized. Stung by its losses, P&G is reported to be halting all derivatives use and had broken off its relationship with Bankers Trust Co.'s (BT) derivatives group. P&G was threatening to sue BT, but any suit by P&G will be a longer shot than even the riskiest derivatives trade.
ISSN:0020-3580