Background - Sembcorp Marine
When the news first broke on SembCorp Marine on Oct 23, 2007, it was reported that Jurong Shipyard paid US$83m and facing unrealised loss of another US$165m.
Of course, the figure has balloned way beyond US$300m.
Background - Labroy
Labroy is the other company who caught the forex superbug. It reported forex losses of $167m in its third quarter, but it also disclosed that it had entered into forex contracts running into billions of dollars.
At the time, Labroy said that it had entered into derivative financial transactions to sell euros and purchase US dollars 'for the purpose of hedging against currency exposures in relation to anticipated euro monies coming in the next three years'. These future receipts arise from the contracts for the construction of two heavy lift jack-up vessels that Labroy secured in March 2007, for a total combined contract value of 283.6 million euros (S$567 million).
Is there a severe mismatch in the size of hedging against what Labroy is receiving. So is the company really hedging against a forex exposure or are they involved in currency speculation?
When I was a rookie in the private banking many years ago, we were constantly reminded of "no surprise culture". If we had made a mistake in effecting a client's instruction or when a client's investment has gone awry, we are to inform our superiors as soon as possible. Time is the essence. We should attempt to cut the position asap to limit further exposure.
In reality, there could be people who attempt to sit on a mistake and pray that the market should reverse and move in his favour. The losses would keep piling up and snowball into an avalanche!!!
In summary, solve the problem first when a problem arises. Witch hunting can come later.
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