Selling volatility is a dangerous game. Having a little of it around is a good thing, to encourage clients to buy the stuff that your structured equity division churns out. Too much of it, however, and the hedges that sit behind that business can blow up in your face.
That’s what happened in the first quarter of 2020 at those French banks that make a business of selling structured products. But not all bad experiences were equal.
On paper, they looked similar enough. Revenues in the equities division at BNP Paribas fell to minus €87 million, a swing of nearly 120% in the wrong direction when compared with the first quarter of 2019. At Natixis, equities was minus-€32 million, a swing of 125%.
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Frédéric Oudéa, Societe Generale |
At Societe Generale, the business at least stayed in the black, with revenues of €9 million, for a fall of 99%. So, SocGen was the best of a bad bunch, right?
Not necessarily. Some equity derivatives folk reckon it might be more prone to stress in these conditions than its competitors.
