HSBC Made $120 Million In One Day As Turkish Lira Imploded
Countless Japanese amateur FX traders and Mrs. Watanabes were crushed last summer when the Turkish lira, one of Japan's favorite FX pairs, tumbled in an accelerating avalanche following a sharp deterioration in the Turkish economy and a major deterioration in US-Turkish relations over the ongoing arrest of Pastor Brunson which resulted in brief US tariffs. Yet while the losers were known, the big winners remained under the radar.
Until now. As part of its (disappointing) earnings results, HSBC reported that it made about $120 million in a single day during Turkey’s financial crisis as it profited from the collapse of the lira, Bloomberg noted.
So while the the Lira collapse over the summer hit trading profits for not only Mrs Watanabe and some investment banks such as Barclays, HSBC was conveniently on the other side, and benefited generously from the fall in the Turkish currency value.
According to HSBC filings, the outsized gains "driven by volatility in Turkish lira spot" were more than twice as big as predicted by HSBC’s market risk models, with the bank adding that this profit was the biggest of three exceptions it found when it back-tested its model against actual gains and losses for the year.
As Bloomberg notes, HSBC’s profit appeared to be several times larger than the $35 million profit Deutsche Bank made in two weeks during last year’s Turkish economic turmoil, which saw the lira plunge to a record low against the dollar.
And while we salute the FX trading team at HSBC (and to a lesser extent Deutsche), if only the two banks could replicate this trading prowess to other assets and other sharp currency moves, their shareholders would be far happier today with the performance of the two banks over the past year.