You have no idea how banks operates. A business loan can be obtained by most everyday people - the banks have no say how you operate the business or step in to deal with risk. A car loan is given out mostly without question to everyday people - a 99% depreciating asset. All banks have stakes in funds, some win, some lose. Yes they are stupid, you are the smart guy here calling them absolute morons from your home. They only make a net profit of around 10 $billion a year.
yes, business loans can be obtained by most people. but guess what? you're still required to tell the bank what business the loan is for, which means before the bank gives out the loan, the bank has information on what kind of business the loan is for. loans come with interest. whether or not the loan recipient does well due to the loan has no bearing on the amount of interest paid back. so there is zero upside to loaning over a hundred million dollars to a fund trading one of the riskiest assets. oh and 1) you're changing my words b/c i never said it's stupid for banks to give out loans to funds. i said it's stupid for banks to give out loans to funds that trade super risky assets like fx, ng, cl. and 2) you ad hominem attack sure makes you sound smart. because earning 10 billion a year automatically means you can't be stupid in a certain area. first of all, you think the interest they earn by loaning out money to funds trading risky assets comprises even 10% of the 10 billion in profits they're earning? it's like saying google knows more about succeeding in social media and messaging apps just because they make billions and billions of profits in their adwords and adsense business. look at how well that turned out. how much citi makes in their other businesses really has no bearing on the soundness of a practice engaged in their "loaning out to risky funds" business. believe it or not, and this is something americans fall for all the time, being rich and prestigious doesn't actually mean you're smart at everything. *gasp. also, being smart in one area doesn't make you smart in another. you should spend some time with mckinsey consultants, the best of the best, the creme de la crop. very smart and very cool. muh prestige. until you realize these consultants are simply using their limited internal research team or outsourcing research and charging a premium for it by virtue of the 'mckinsey name' and CEOs buy that shit up not b/c they think it's the best thing since sliced bread, but b/c it relieves them of accountability. so when shit goes south, they can point their fingers at mckinsey. according to your logic, b/c it's 'mckinsey' and they make MUH money, they would know more about how to turn around companies when the truth is that mckinsey is terrible when it comes to turning around companies in some industries and are prone to stripping the company down so that the board and shareholders can benefit very short-term. mckinsey is good at some things and terrible at others; no different with citi.
Can't believe I missed that but oh well I wasn't too far off. And I had a suspicion that it must have something to do with China seeing how everything is so hush-hush with no names mentioned just "an Asian hedge fund". Yup I was right GF Holding is a wholly-owned subsidiary of GF Securities, the largest investment bank from China. It's so interesting that China doesn't allow its own currency to be traded and yet it happily trades and "manipulates" other countries' currencies. Talking about double-standard. Serves them right that they lost and Citi has to be dodgy about it to save its face. LOL
The hedge fund is managed by GF Holdings from Hong Kong, a wholly-owned subsidiary of GF Securities from China, PR of China. Yeah it's big, of course it's big. It's from China. Anything from China is big nowadays. LOL And I have another feeling that Citi didn't just extend this money to fund some forex trading, no I am sure it's to fund some China's "agenda" through the back-channel and it's just now exploded in its face.
Thanks! It wasn´t mentioned when I read the article the first time. I know GF Holdings - they have a couple of subsidiaries. Strange enough, their stock price didn´t react at all: https://www.bloomberg.com/quote/1776:HK My guess is, it must be an external fund using GF as execution/clearing broker?
I guess I wasn't the only one who missed it. Bloomberg must've added it later. No my guess is GF Asset Management Limited; might be one of their own in-house funds or outsourced funds but it's that unit. The article says "The hedge fund, managed by a unit of GF Holdings (Hong Kong) Corp." That unit is the only one that would manage funds. The reason why the stock price didn't react could be 1) They gambled largely with Citi's money and not with GF's capital and 2) China could be propping the share price up you never know. Citi wouldn't have lost money if it just lent money to a brokerage that matches trades and takes no positions. It would only lose money if it lent money to some "asset management co" who actively traded in some forex thinking it could make a killing but instead got its a$$ whipped.
I believe Citi would have asked for collateral before loaning GF the money to play the markets. Don't think Citi is that dumb to make this rookie mistake, although it seems like to be the case based on information available. GF 1776.HK is up >25% since its Oct 18 low. So, it does seem GF is shielded. Not surprising since subsidiaries are limited-liability. It does puzzles me how did this subsidiary persuade Citi to part with their money. I would expect Citi to request sufficient collateral from GF to protect their backside in case the loan sours. Everyone knows forex trading is risky and highly leveraged. I thought bankers are good at protecting their backside.
there's a more up-to-date article in the FT about this: https://www.ft.com/content/8867734a-03aa-11e9-9d01-cd4d49afbbe3
Selected extracts from the article. It was the Turkish lira trade! Were they long Turkish lira all the way down? GF Holdings is not well known in banking and investment circles, and some market participants have expressed surprise that it could be big enough to run up such losses without developing a more public profile. GF Holdings did not respond to a request for comment. The scale of the loss for Citi will depend on how successful the bank is in unwinding the trades. The exact nature of the fund’s losses is unclear but they are thought to be related at least in part to the Turkish lira, which crashed to record lows earlier this year. It is also unclear how the losses for the bank ballooned to such a size without the fund being forced to post extra collateral earlier.
Here is the title of the article for those of you who want to read it: Citi to tighten rules for currency funds after Asia debacle