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News > Companies
Russia batters more firms
September 3, 1998: 2:53 p.m. ET

Losses mount for banks, hedge funds that bought emerging market bonds
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NEW YORK (CNNfn) - The list of commercial banks and financial services firms that hedged their bets on Russia, and lost, is growing.
     Long-Term Capital Management, a leading hedge fund in Greenwich, Conn., reported Wednesday that the value of its asset portfolio has plummeted 50 percent so far this year. Most of its losses, which are attributed to emerging market volatility, occurred in August.
     The company disclosed the losses in a probe by the New York Stock Exchange, which questioned whether Long-Term was meeting its margin calls. A number of Wall Street securities firms said the hedge fund is meeting its margin calls.
     Another hedge fund, the High Risk Opportunities Fund, has faced large losses from investments in Russia. The $450-million fund, affiliated with III Offshore Advisors, last month declined to post additional collateral on margin calls since it was unclear how Russian domestic bills would be restructured. It has now apparently filed for liquidation in the Cayman Islands, according to the Financial Times.
     According to traders, several hedge funds have lost money by buying emerging market bonds, particularly Russian bonds, and hedging them by taking short positions in government bonds of G7 countries, such as the United States. Some hedge funds have been hit on both ends, as emerging market bonds plunge and the price of U.S. Treasuries ramps up.
     Late Wednesday, a drop in the Dow Jones industrial average erased most gains on many emerging market bonds. Investors remained concerned about Brazil, with its large fiscal deficit at 7 percent of gross domestic product.
     The yield spread on the J.P. Morgan Emerging Market Bond Index was at 13.79 percentage points above Treasuries late in the day.
     Blaming Moscow's financial tailspin for the decline in quarterly profits, Donaldson Lufkin & Jenrette said Wednesday it earned pre-tax income of about $40 million in the first two months of its third quarter
     DLJ (DLJ)said it earned pre-tax income of roughly $40 million in the first two months of its third quarter, ending Sept. 30. In the year-ago quarter, the company had pre-tax profits of $188.1 million.
     Other financial services firms that have taken a hit in the Russian economic crisis include Citicorp (CCI), Bankers Trust Corp. (BT), Morgan Stanley Dean Witter & Co. (MWD), British-based Barclays PLC (BCS) and Nomura Securities of Japan, which has tallied losses this year of $350 million.
     Bankers Trust said that of the $350 million it lost in July and August, $260 million was tied to investments in Russia.
     Chase Manhattan Corp., (CMB) the nation's biggest bank, warned investors that revenue for the current quarter will likely fall below the performance of recent quarters by several hundred million dollars.
     Last week, Republic New York Corp. told investors it will take a $110 million charge in the third quarter due to losses on its Russian investments. The charge will substantially wipe out its earnings for the period.Back to top

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