Dutch lender ABN Amro will make a profit of $ 200 million in profits after the financial market turmoil left the bank on the hook when a client was unable to accumulate the extra money needed to continue trading.
The client, which ABN did not identify, had not been able to meet the margin demands needed to continue trading US futures and options amid the wild swings of the past few weeks.
ABN, which remains owned by the Dutch government, said in a statement Thursday that it had been forced to close the client’s positions and saddled with the loss. The loss equates to nearly 10% of the bank’s annual profits.
The disclosure pushed ABN’s shares to drop 5% in early afternoon trading, worse than the 2% drop in Europe’s largest Stoxx 600 index.
The commercial loss, which occurred in ABN’s clearing arm, is one of the biggest successes for a bank due to the market turbulence triggered by the coronavirus epidemic.
ABN’s clearing arm earns much of its profits by standing between exchanges and clearing houses, charging customers a commission to provide the capital that traders are required to set aside if their bets are acidic. However, banks remain exposed if a client is no longer able to meet the clearinghouse requests to resolve failed operations.
The Dutch bank’s clearing arm processes over 20 million securities and derivatives transactions per day for clients including high-frequency merchants and market makers, many of which are based in the Netherlands and Chicago.
The market chaos has already caused losses to some trading companies. Last week, Ronin Capital, a Chicago-based proprietary trader, collapsed after he was unable to meet margin requests on his futures and bond contracts. His main clearing house, the CME group, said he had Ronin’s wallets auctioned.
The intense volatility, which has seen landmarks such as the Vix volatility index rise suddenly, has also damaged the ability of proprietary traders, or those companies that trade with their own money, to operate.
The ABN, which was mostly owned by the Dutch state since its rescue during the 2008-09 financial crisis, had already been under pressure since the beginning of the coronavirus pandemic due to its strong 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 experienced a sharp increase in non-performing loans among customers in the offshore oil and gas sector, even before the recent drop in crude oil prices.
In recent weeks, traders have urged regulators to loosen options trading rules in light of recent volatility, arguing that they may suddenly be left forced to accumulate much more money when the notional value of options decreases. On Monday, the industrial group FIA Epta warned that some traders could withdraw from the markets as a result.