Natixis Said to Seek Sale of Korean Derivatives That Blew Up

(Bloomberg) -- Natixis SA, the French bank that had sought growth in risky trading businesses, is looking to sell the portfolio of complex Korean derivatives that blew up in the fourth quarter, losing almost $300 million, according to people familiar with the matter.

The firm has approached potential buyers including JPMorgan Chase & Co. and BNP Paribas SA to gauge their interest, said the people, who asked not to be named discussing information that isn’t public. It has also asked one of its partners in selling the products to retail investors -- South Korea’s largest brokerage, Mirae Asset Daewoo Co. -- if it’s interested in buying the portfolio, another person said.

Natixis, like other French lenders, had prided itself on its prowess in complicated derivatives, and earmarked South Korea as a key market for growth. The bank 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.

French banks have struggled to navigate the increasing risk in global markets, with the volatility sideswiping some of Natixis’s Paris-based rivals as well. Both BNP and Societe Generale SA are weighing bonus cuts. Bloomberg has reported that BNP, the biggest French lender, lost $80 million in derivative trades linked to the U.S. stock benchmark late last year.

One of Natixis’s executives told a trade magazine as recently as August that its latest product would be “disrupting the largest equity derivatives market in Asia,” tapping yield-hungry investors. That senior salesman, Nicolas Reille, left Natixis last week, people familiar with the matter said at the time.

Spokespeople for JPMorgan, BNP and Natixis declined to comment. Mirae didn’t respond to attempts to contact the company after the close of normal business hours in Seoul.

The exact size of the portfolio is unclear, although it could have a notional value of several billion dollars, according to people familiar with the matter. There were about $48 billion of Korean autocallables as of November, according to Gyun Jun, a derivatives analyst at Samsung Securities in Seoul. Natixis accounted for about 12 percent of that market, according to a Risk.net article last year.

In December, Natixis said it would cease creating Korean autocallables after they saddled the bank with losses and provisions of 260 million euros ($298 million). The revelation sent its shares to a two-year low. It said the model it used to hedge the products backfired, proving “deficient” amid market conditions that saw Asian equities plunge amid U.S.-China trade tensions.

Natixis subsequently said it would let the products run down naturally over time. However, a sale could resolve the matter more quickly. The products typically have a three-year maturity, but that can be shorter in a bull market that triggers the products’ automatic redemption feature.

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