" [COMPANY A] blew up and that was because of us, because of derivative bets placed on its behalf. It was trading structured products. Look at the hedging instruments and financial costs.
The problem with BarCap was that we were making so much money on FX products [hedges] we were constantly looking for structures to fling to clients. We were looking for higher margins. That’s where swaps came in.
In 2008, we see crude go up and up and up. The hedges that we created left companies hugely exposed. There was really no insurance or hedge in there at all. Crude was over $110 and these clients found they had zero protection.
With the hedges we created, the sales guys were making much more money. The margins were incredible. You were making $50,000 as opposed to $5,000 on the same quarter barrel.
In 2008 we got a big lecture about leaving money on the table. The noise from the higher-ups was that we needed to be doing more – much more.
BarCap was the Wild Wild West – that’s what we called it, that’s how it was. That year especially. Commodities was the big thing to be in. Barclays was this old great institution, but it had turned into a bucket shop. We hired a bunch of quants [quantitative traders] to just dream up these products. Layers of complexity in each hedging product. Each layer created a new angle to take a turn.
Suddenly at BarCap we were handed all the corporate clients to sell to. We all talked about it like it was lambs to the slaughter.
The bank was extending its balance sheet to these guys, so the thesis from up on high was that we should be making much more money out of them.
Our budgets just went up and up – so without the volumes to make that money we all had to find ways to squeeze more margin out of the same clients.
Before that, we were trading with people like BHP who knew everything about the market, the prices and the basis on which we set our prices. They knew all the reference points better than we did.
Suddenly our clients are people who know nothing about the business, nothing about trading, nothing about the products they should or shouldn’t buy.
Worse, many of them pretend to know more, because there is such a macho attitude in trading that they want to come off as the 'big I am’.
Instead of an oil major or a mining company you have a smaller business who you are turning into a speculator.
The BarCap mantra was that if at all you had a competitive advantage you ran all the way with it."
Source: 'BarCap was the Wild Wild West – that’s what we called it’ - Telegraph
What really annoys me is that they keep calling tulip that caused massive losses as "hedges", those ain't fooking hedges because by definition if they were they would not cause big loss!
Here is proper hedge designed to protect against big currency movements (say EUR vs USD) - buy both of them in equal value (at the time) and later changes in exchange rates between them would balance each other out.
The other thing I don't get how their clients were so fooking stupid to buy into this tulip - now some products were forced onto small businesses as a condition of getting a loan, but surely big companies could not be pushed around like this?
The problem with BarCap was that we were making so much money on FX products [hedges] we were constantly looking for structures to fling to clients. We were looking for higher margins. That’s where swaps came in.
In 2008, we see crude go up and up and up. The hedges that we created left companies hugely exposed. There was really no insurance or hedge in there at all. Crude was over $110 and these clients found they had zero protection.
With the hedges we created, the sales guys were making much more money. The margins were incredible. You were making $50,000 as opposed to $5,000 on the same quarter barrel.
In 2008 we got a big lecture about leaving money on the table. The noise from the higher-ups was that we needed to be doing more – much more.
BarCap was the Wild Wild West – that’s what we called it, that’s how it was. That year especially. Commodities was the big thing to be in. Barclays was this old great institution, but it had turned into a bucket shop. We hired a bunch of quants [quantitative traders] to just dream up these products. Layers of complexity in each hedging product. Each layer created a new angle to take a turn.
Suddenly at BarCap we were handed all the corporate clients to sell to. We all talked about it like it was lambs to the slaughter.
The bank was extending its balance sheet to these guys, so the thesis from up on high was that we should be making much more money out of them.
Our budgets just went up and up – so without the volumes to make that money we all had to find ways to squeeze more margin out of the same clients.
Before that, we were trading with people like BHP who knew everything about the market, the prices and the basis on which we set our prices. They knew all the reference points better than we did.
Suddenly our clients are people who know nothing about the business, nothing about trading, nothing about the products they should or shouldn’t buy.
Worse, many of them pretend to know more, because there is such a macho attitude in trading that they want to come off as the 'big I am’.
Instead of an oil major or a mining company you have a smaller business who you are turning into a speculator.
The BarCap mantra was that if at all you had a competitive advantage you ran all the way with it."
Source: 'BarCap was the Wild Wild West – that’s what we called it’ - Telegraph
What really annoys me is that they keep calling tulip that caused massive losses as "hedges", those ain't fooking hedges because by definition if they were they would not cause big loss!
Here is proper hedge designed to protect against big currency movements (say EUR vs USD) - buy both of them in equal value (at the time) and later changes in exchange rates between them would balance each other out.
The other thing I don't get how their clients were so fooking stupid to buy into this tulip - now some products were forced onto small businesses as a condition of getting a loan, but surely big companies could not be pushed around like this?
