Brexit blows up currency derivatives sold to u. k. companies – bloomberg

Since the pound plummeted 12 percent after the U.K. What does england use as currency voted to leave the European Union, lawyers say they have been inundated with inquiries from companies that claim they were cajoled into buying similar esoteric products. What is the currency in britain The concerns come as British firms are already bracing for economic headwinds likely to accompany a future outside the European Union.

Like Best Foods, many of those companies claim they were pressured into buying products they didn’t fully understand and whose risks weren’t properly explained — so-called misselling. Currency in liverpool england The derivatives sold to Best Foods were so numerous and of such “exceptionally high complexity,” the firm said, that Suchicki lacked the expertise and equipment to evaluate them. What currency does england use now Risk Warning

In the court documents, Moneycorp said that by entering the contracts, Best Foods acknowledged and understood that “trading in options, even when used to cover a commercial position, may involve a high degree of risk and is appropriate only for persons who are able to withstand the risk of loss.” The firms settled out of court this year. Currency for great britain Both declined to comment for this article.

“It’s not until the tide goes out that you discover the hidden risks of some derivatives products,” said Alberto Thomas, a founding partner of Fideres Partners, a consultancy that works with law firms to bring misselling claims.


Great britain military currency “We have seen a rise in cases of less sophisticated investors who were sold highly structured products which turn out to be of little or no use as hedging instruments,” said Thomas, who wasn’t involved in the Best Foods matter.

The story of the unsophisticated investor buying complicated financial products and later facing costs they can’t bear is a familiar one. Currency converter great britain pound Thousands of public authorities, from Jefferson County, Alabama, to Saint-Etienne, France, have paid millions of dollars to terminate swaps that soured. In the U.K., nine banks, including Royal Bank of Scotland Group Plc and HSBC Holdings Plc, paid 2.2 billion pounds ($2.9 billion) in response to claims they missold interest-rate swaps to 18,000 customers.

The difference this time is that many of these instruments are sold by lightly regulated brokers, because bigger banks have grown fearful of getting embroiled in another potential scandal, said Robin Henry, a partner at London law firm Collyer Bristow LLP, which advised Best Foods on its case. What currency does great britain use These brokers cold-call prospective customers, offer their services in newspaper advertorials and motivate their sales people with fat commissions, lawyers said. What is the currency of great britain called Currency Derivatives

The derivatives subject to misselling claims have names like “seagull” and “two-times leveraged accelerated knock-out, knock-in forward.” Most follow a standard format: The company agrees to buy a certain amount of currency each month based on the foreign exchange rate at the time.

In the short term, it gets a better deal than it would get in the spot market or by using simple forwards. What is the currency in great britain However, if exchange rates fall outside a given range — after Brexit or the Swiss government’s 2015 decision to ditch its currency peg, for example — covenants are triggered that force the company to purchase much more currency than it needs or buy at unattractive levels.

“We’ve seen examples of companies who need to swap $50 million worth of currency a year but, because of the leverage, they end up being obliged to buy $500 million,” Collyer Bristow’s Henry said. Official currency of great britain “That’s where you get these losses of $10 million or $15 million, which are completely unsustainable and take these companies completely by surprise.”

Suchicki’s problems started in early 2013, when the pound, spurred on by a buoyant U.K. Best uk currency rates economy and a series of Polish rate cuts, began a two-year ascent versus the zloty. What is great britain’s currency Ordinarily, such moves would have helped the bottom line of Best Foods, which imports Polish meats and vegetables into the British market. Great britain currency coins Instead, according to the legal filings, the company suffered heavy losses. What currency does london england use At one stage, the company said it was paying as much as 16 times more than it would have in the market to transfer pounds into zlotys. Great britain currency euro Soured Contracts

It’s unclear just how many companies are struggling with soured contracts like these. Vedanta Hedging Ltd., a firm that provides financial expertise for lawyers who bring misselling cases, has helped its clients settle seven currency product cases, and says it has received 18 inquiries since the June 23 Brexit vote. United kingdom of great britain and northern ireland currency Collyer Bristow is currently working on about half a dozen cases.

Few are likely to make it to court, according to Clive Zietman, a partner at Stewarts Law. Currency of great britain pound “We are seeing more of these types of claims, but we are talking about small businesses, and it’s prohibitively expensive to bring action,” said Zietman. Currency used in great britain “They are complicated, there’s a lot of evidence work, and banks and other sellers will fight them.”

The total market for foreign exchange derivatives is close to $3 trillion globally, according to the Bank of International Settlements’ most recent review, but most of that is made up of transactions among large financial institutions, funds and sophisticated multinationals. What is currency of britain Big Players

Still, the money to be made from the small and midsize companies market has attracted big players. Britain currency rate in india In August 2014, Bridgepoint, one of the U.K.’s biggest private equity firms, acquired Moneycorp in a deal worth 212 million pounds. Currency rate of england pound The previous year, World First UK Ltd. What currency does great britain use now sold a 40 percent stake to U.S. Currency in britain private equity firm FTV Capital for an undisclosed sum.

The U.K.’s Financial Conduct Authority has seen little evidence of widespread misselling and doesn’t view it as a significant problem, according to a person at the regulator, who asked not to be cited by name. Currency in great britain and europe The FCA declined to comment.

So far, at least, many brokers have been willing to work with companies to find a solution behind closed doors — either through restructuring, delaying payments or increasing credit limits.