More Muck In The Swaps Swamp

Another corporate swaps customer has taken a hit. Air Products & Chemicals, based in Allentown, Pa., said on May 11 it had reduced second-quarter earnings by $60 million, to $13 million, to reflect a decline in the value of five leveraged derivative contracts. Its banker: Bankers Trust, which also was involved in derivative deals in which Procter & Gamble, Mead and Gibson Greetings booked losses. "We understood the formula," says Gerald White, Air Products' CFO. "Our risk analysis did not pick up the effect of the leverage feature on the downside." Bankers Trust says it believes "derivative products are useful and will continue to be used." Beginning May 10, Congress held hearings to consider regulating derivatives.

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