Natixis Stops Creating the Korea Notes That Lost It Millions

(Bloomberg) -- Natixis SA is no longer creating the structured products that led to the huge Asian trading loss it reported this week.

On Tuesday, the French bank reported a 260 million-euro ($296 million) hit from Asian equity derivatives, complex contracts that derive their value from underlying shares. It booked a provision of 160 million euros to cover the management of a trading book of so-called autocallables linked to stocks in Korea, and a further 100 million euros in lost revenue.

“We have stopped the production of these products,” a Paris-based spokesman for the bank said by email on Friday. As the book of existing products runs down naturally over time, “the size of our exposure is being reduced,” he said.

Autocallables are complex equity-linked securities that aim to generate regular income for buyers. They had boomed in Korea amid demand from yield-hungry investors, and the French bank plowed into the market using its derivatives expertise. Natixis said earlier that the model it used to hedge the products backfired, proving “deficient under current market conditions.”

“Most autocallable products are dangerous’’ to the cautious investor, and also “dangerous for the hedging companies’’ that have to manage their volatility, said Hyo Seob Lee, an academic who studies the products at the Korea Capital Market Institute.

(An earlier version of this story was corrected to show Natixis reported on Tuesday.)

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