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Natixis $290 Million Korea Losses Part of ECB Scrutiny of Risk

Natixis $290 Million Korea Losses Part of ECB Scrutiny of Risk

(Bloomberg) -- The European Central Bank is scrutinizing how French securities firm Natixis SA lost hundreds of millions of dollars on exotic trades last year as part of a wider review, according to people with knowledge of the matter.

The ECB is examining losses tied to Korean securities which caused Paris-based Natixis to report a 259 million-euro ($292 million) hit in December, citing a “deficient” trading strategy, the people said, asking not to be identified as the matter is private. The review is part of a broader look by the ECB at Natixis’s risk models, the people said.

The bank has been seeking to revive investor confidence since disclosing the losses on securities known as autocallables that combine a bond-like coupon with exposure to gains in equities. The model “used to manage some specific products traded with clients in Asia led to a hedging strategy that proved to be deficient under current market conditions,” Natixis said at the time.

Natixis $290 Million Korea Losses Part of ECB Scrutiny of Risk

The losses led to departures of a handful of top bankers at the firm. Natixis has also sold some of its portfolio of South Korean derivatives to BNP Paribas SA and Bank of America Corp. , people familiar with the matter said in February.

Natixis has also been in the limelight of late because one of the lender’s affiliates, H2O Asset Management, experienced a wave of withdrawals in recent weeks on concern of illiquid holdings tied to a German businessman. The H2O arm suffered redemptions of almost 8 billion euros ($9 billion) from funds after Morningstar Inc. suspended its rating.

Natixis, like other French lenders, had prided itself on its prowess in complicated derivatives, and earmarked South Korea as a key market for growth. It became a major player in the country’s market for autocallables, which are designed to pay the buyer an attractive level of regular income, while maturing automatically if the underlying stock or index breaches pre-set levels.

To contact the reporters on this story: Viren Vaghela in London at vvaghela1@bloomberg.net;Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net;Donal Griffin in London at dgriffin10@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net;Ambereen Choudhury at achoudhury@bloomberg.net

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