Wrong Yuan Bet Sees Derivative Defaults Rising for Taiwan Banks
- Lenders' clients haven't honored $60 million of notes' losses
- Fitch warned that losses could run higher than $2 billion
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Taiwanese bank clients who bought leveraged structured products that bet on a rising Chinese yuan are struggling to honor losses on their positions after the currency sunk.
Investors failed to honor losses on almost NT$2 billion ($59.5 million) of yuan target-redemption forwards and discrete knock-outs, derivatives that cease to exist after certain profit or exchange rate conditions are met, as of mid-January, Austin Chan, director-general of the Financial Supervisory Commission’s banking bureau, said in a Taipei media briefing Tuesday. Fitch Ratings said in December that a large drop in the yuan could see around $2 billion of losses on such notes.