ABN AMRO Bank NV said Thursday it will take a $200 million net loss after a U.S. client of the Dutch lender’s clearing division couldn’t meet a margin call on a loan.
The bank’s loss offers the latest evidence of how the fallout of the coronavirus pandemic is spreading through the financial system as banks, hedge funds, and other market participants try to minimize their exposure to potential losses from wild swings across markets.
Canada’s largest bank by assets, sought to sell more than $600 million of debt tied to commercial mortgages that it had seized from clients to try to protect itself from the selloff in mortgage bonds in recent weeks.
ABN AMRO’s clearing operations settle trades of options between buyers and sellers and offer hedge funds and other institutional investors lines of credit to execute trades.
The client behind the bank’s loss had access to one of those lines to implement a “specific strategy” trading U.S. options and futures. But over the past week as markets swung wildly—in some cases rising as much 5% or more in one session, only to give up those gains in the next—the client’s losses mounted, triggering a margin call. The client couldn’t meet that request, forcing the bank to step in and take control of the position, an ABN AMRO spokesman said.
The spokesman declined to identify the client or provide any specifics on the client’s trading strategy or the losses it incurred.
ABN AMRO could have held the client’s positions in the hope of recovering the losses over time. But it decided instead to sell the positions, the spokesman said, in a move that eliminates the possibility of incurring additional losses from the holdings.
Still, the loss appeared to spook investors. In European trading, ABN AMRO recently traded about 3.7% lower to €8.53 ($9.23.)
ABN AMRO has had a checkered history managing through extreme market upheaval. In 2008, the Dutch government was forced to nationalize the bank at the height of the financial crisis, investing nearly €22 billion to support it. Some seven years later the state took the bank public through an initial offering, but not before it had gone through several restructurings and laid off thousands.
Now the bank must contend with another potential hit to its reputation. The loss could raise concerns among other hedge funds and investors about exposing themselves to the lender’s clearing operation. It also comes at a time when ABN AMRO’s Chief Executive Kees van Dijkhuizen is set to step down following the end of his term of office next month.
The bank played down any long term fallout from the loss.
The bank said the loss of $200 million would be incurred in its first-quarter results for this year. That amount represents about 8.9% of the €2.05 billion ($2.23 billion) it earned in 2019.
“We have an overview of the positions of all our clients and [they] look good,” the bank spokesman said.
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