Citi may be exposed to painful losses on Centrica stake

Morgan Stanley and Citi may have been left with potentially risky exposures to Danish telecoms company TDC and UK gas supplier Centrica, respectively.

That after undertaking 'block trades' in shares of those two companies, the Financial Times (FT) reports, which may expose both banks to "painful losses."

Morgan Stanley has thus recently been left with 7.2% of TDCs capital, which is valued at $450m, on its hands.

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Similarly, Citi is reported to have an indeterminate amount of unwanted shares in Centrica left on its books. This after having acquired a £587m stake from Malaysias state-owned oil company, Petronas, and later having failed to place all of it.

'Block trades' are transactions whereby banks buy large and sometimes not easy to place amounts of stock from a selling firms shareholders at a discount and then distribute them amongst a base of known investors, off of publicly traded markets.

However, if the market moves against them sufficiently or if the discount secured from the sellers is not enough they run the risk of incurring losses, as may finally occur in these two instances.

Lastly, the FT cites senior bankers who describe the level of competition between banks to participate in these 'block trades' as "frightening."

AB