Traders or Commodity Finance Banks Part VII- BNP Negative Skew

In 2014, BNP Paribas S.A Agreed to Plead Guilty and to Pay $8.9 Billion for Illegally Processing Financial Transactions for Countries Subject to U.S. Economic Sanctions.

The bank’s global energy client franchise in commodities includes LDC Commodities, Vitol and major French-Swiss Trading Houses.

In addition to being fined the French IB has been suspended from clearing USD transactions in energy trade finance during 2 years.

-More money has been lost by BNP in the Iraqi food-for-oil trade scheme than what the franchise has ever made in Commodity Trade Finance.

It suggests a new interpretation to Commodity Trade Finance’s minimal record of defaults and losses: rather than a self-liquidating debt-like liability, trade backed loans are analogous to the position of a put seller in the derivative market.

This is negative skew: frequent small gains and infrequent large losses e.g the classic directional predicament of a call/put seller…

negative_and_positive_skew_diagrams_english-svg

As just one lesson for anyone interested in finance, banking, commodities: you really should never ever want one exposure to ruin twenty straight years of profits.

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Simon Jacques

Commodity Trading and Finance

1 226 348 5610

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Simon is a certified Energy Risk Professional, as distinguished by the prestigious Global Association of Risk Professionals.

 

“I’ve always regarded Simon Jacques as an incredibly well versed player when it comes to complex structuring and multi dimensional transactions. I don’t know a single person in my network that knows as much as him in that space”

-Deal Structurer-Americas Houston, TX

Navigating the commodities markets with Freight and Spreads © 2017

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