Turkish lira crisis: Winners and losers in the market

One man’s loss is another man’s
gain.
Reuters;
Reuters

• The collapse of the Turkish lira is the big story in
  global markets.
• A big winner has been Deutsche Bank’s CEEMEA desk,
  which made $35 million over two weeks on the back of emerging
  market turmoil, according to Bloomberg.
• But a Barclays trader lost $19 million trading Turkish
  bonds over three days.
• Millennial investors in the US have also been stung by
  the turmoil.

Markets have been gripped by the developing crisis in Turkey
over the last few weeks.

The country’s currency plummet, contagion spread to other
emerging markets, and a war of words broke out between President
Erdogan and President Trump.

Traders love a crisis. A crisis tends to create volatility, which
creates the opportunity to make larger sums of money by betting
on price moves. The reverse, of course, is also true: losses tend
to be greater in times of volatility.

It’s no different with the Turkey situation, with several media
reports of large financial institutions making and losing large
sums of money.

The biggest win reported so far is at Deutsche Bank, where a
group of fixed income traders made a profit of $35 million in
less than two weeks,
according to a report published by Bloomberg.

The traders, who trade from a desk “focused on central and
eastern Europe, the Middle East and Africa,” made as much as $10
million in a single day on August 10, which saw the biggest fall
in the Turkish lira, Bloomberg’s story says citing people with
knowledge of the matter.

Prior to the lira’s slump, the team had positioned itself to
profit from falling asset prices across the region, although it
is not believed that they had placed any trades specifically
focused on the Turkish crisis.

The desk from which the profits came has reportedly made $135
million this year, trading products connected to credit in the
region.

Deutsche Bank declined to comment when contacted by Business
Insider.

But not everyone is having a good time

Bloomberg also reports that a senior trader at Barclays lost
around $19 million over the course of three days trading
Turkish bonds.

That figure is relatively small in the grand scheme of Barclays’
emerging market corporate fixed-income trading operation, from
which the bank makes revenues of around $100 million per year,
but still represents a significant amount of money.

“Barclays has an established and diversified credit business with
all our trading positions hedged across the business,” the bank
said in a statement provided to Bloomberg. It added that its
Turkish trading operation “represents a very small part of our
overall credit business.”

Barclays declined to comment further when contacted by Business
Insider.

Other investors to be stung by the Turkey crisis include
millennials using popular platforms like Betterment and
Wealthfront. The businesses, which are two of the most
popular online investment platforms in the US, are both top 10
holders of the Vanguard FTSE Emerging Markets exchange-traded
fund.

The fund makes up as much as 15% of some portfolios on
Betterment. The Vanguard ETF has lost more than 7% of its value
since the start of August.

Turkey’s crisis has spiralled in recent weeks, with a sharp fall
in the Turkish lira the most obvious impact.

The lira’s initial slide came amid rising tensions between
the US and Erdogan over trade. US President Donald Trump
authorized increased tariffs against Turkey on Friday in response
to Turkey’s unwillingness to release an American evangelical
pastor, Andrew Brunson, who has been imprisoned in the country
since late 2016.