Monday, 9 March 2009

Derivative-Related Losses in Brazil Probably Reached $30 Billion. Investors are Wondering Who Will Come Next on the Press Release

Market participants in Brazil told us Friday that the central bank estimated that losses based on the current value of derivative contracts at listed and privately-held companies reached $30 billion last week (some of these people sent e-mails to their customers warning them about this.) According to a story by O Estado de São Paulo (click here for the link), banks are facing almost no or no risk at all -- which is remarkable.

Beware of Bloomberg News story -- it's wrong. What the reporter says makes no sense at all. It should read:

''The value of total losses in outstanding derivative contracts at listed and privately-held companies swelled to $30 billion (72 billion reais) at the end of last week.´´
No me sorprende ...

Many more companies will likely have to file for judicial recovery or bankruptcy to avert running out of cash or defaulting on their derivative-related debts. And again this will help put more pressure on the currency -- following a couple of months of relative stability. We reiterate our call on sectors that are likely to be piling up more of the losses: ethanol and sugar cane producers, food processors, meat packers, soybean crushers ...

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