Rogue traders have inflicted serious pain on banking institutions over the years. Nick Leeson crushed Barings Bank in the 1990s such that it ended up being sold to ING
Now add to this ignominious list the finance department at Brazilian meat packer Sadia
Oh, you though you were investing in a poultry and beef processor? Welcome to the world of high finance, where even basic commodity companies find it necessary to hedge their businesses against not only commodity prices, but currencies as well.
Sadia wasn't alone in betting against the dollar. Brazilian paper and pulp giant Aracruz
So it makes you wonder who else was placing side bets here, and to what extent. Although a number of Brazilian companies rushed out press releases saying they weren't so heavily exposed, investors are still skittish and sent the Bovespa index down 2%.
The country's economy has been red-hot in recent years, and the real's appreciation over the years -- up 44% since the end of 2004 -- has caused exporters like Sadia to lock in exchange rates using futures contracts. Yet it's also been a successful trade for Sadia, until now, as it realized gains of more than 1.15 billion real -- or $600 million -- over the past five years.
The Brazilian meat packer watched as the market ground its stock up as a result of the disclosure, with shares losing nearly a third of their value within 15 minutes of the announcement. Worse, perhaps, is that management's reputation went through the grinder as well. While the CFO responsible was fired, the company had to secure a short-term line of credit to cover the losses, and its credit rating was dropped, with further downgrades still possible.
The good news here, if there's any to be found, is that while the loss puts the company in an extremely bad situation, the business itself still remains healthy. Brazil's chicken exports grew 56% in the first five months of the year, and even Tyson
Expect Sadia's stock price to remain volatile. If you've been looking for an opportunity to get in on the meat processor, this could be it -- just not yet. Better to miss the bottom than find your shares going through the grinder because other chickens have come home to roost.
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MF Global and Allied Irish Banks are Motley Fool Global Gains selections. Sadia is a Motley Fool Hidden Gems pick. The Fool owns shares of Allied Irish Banks. Try any of our Foolish newsletters today, free for 30 days.