Top > Business > 2006 > August > 2006-08-13

ABN Amro Faces Loss from Borrowing

Dutch banking giant ABN Amro will have to deal with a $100 million loss from heavily lending to a hedge fund, led by former New York Mercantile Exchange President Robert "Bo" Collins. The loss could jeopardize the terms of ABN Amro`s ongoing US$386 million deal with the Swiss investment bank UBS. ABN is selling its global futures business to UBS and will finalize the deal in October. The latest developments could end the deal or lower its market price. "The business is now worth substantially less and it also puts into question ABN`s risk-management skills," one source told reporters.

Motherrock was the hedge fund managed by Collins. It went bust last week as it gambled investors` money amounting to $450 million on natural gas gone awry. ABN had brokered trades for Motherrock and facilitated the fund to deal with huge amounts of borrowed money. The bank is now left with more than 1 million futures and options contracts on natural gas, according to reports. UBS officials opted not to comment but sources said it was studying the situation and has not gotten its hands on the details of the extent of ABN`s losses.

The Dutch bank will most probably charge Motherrock and Collins for the lent money. The chances of reimbursement are next to impossible as there is reportedly nothing left of the hedge fund. "You can`t take blood from a stone," said one futures trader. Motherrock`s downfall came when unexpected levels of natural gas were taken out during the heat wave, which sent prices zooming. A spokesman for ABN Amro chose not to comment.