Around the time Peabody was served with a $534 million margin call on its hedging coal futures short, which it funded with a new $150MM unsecured (10%) revolver from Goldman Sachs, one of China’s largest banks was also served with a margin call for hundreds of millions of dollars on a nickel short gone terribly bad after the price of Nickel did… well this:
However, unlike Peabody, a unit of China Construction Bank Corp – one of China’s “Big Four” banks – was given additional time by the London Metal Exchange to pay hundreds of millions of dollars of margin calls it missed Monday amid an unprecedented spike in nickel prices. The reprieve from the LME – which just last week sent out thousands of erroneous margin calls on metals contracts – means that the unit, called CCBI Global Markets, is not formally in default, Bloomberg reported citing sources.
The details of the non-payments aren’t quite clear: Bloomberg notes that the deferred default “isn’t necessarily an indicator of any problems at the parent company” although Bloomberg may be merely trying not to antagonize a major client. Instead, the media conglomerate suggests that the non-payment is more likely due to a failure by one of its metals-industry clients to make margin payments to CCBI Global Markets, which is a broker on the LME’s open-outcry trading floor. That in turn, left CCBI Global Markets struggling to arrange payment of the unusually large margin calls after the end of the business day in Asia, as nickel prices exploded throughout Monday.
As reported earlier, Monday’s monster squeeze was driven by market participants with short positions being forced to close out as they couldn’t meet margin calls.
But while a big Chinese bank may have had immunity, others may not be so lucky: Bloomberg previously reported that Chinese entrepreneur Xiang Guangda – known as “Big Shot” – had a large short position on the LME through his company, Tsingshan Holding Group, the world’s largest nickel and stainless steel producer. It’s unclear whether that particular trader received a margin call and if he paid it.
And so, as we wait for more massively short squeezed names to emerge, we can’t help but wonder if this is precisely the start of the “liquidity crisis” predicted by Zoltan Pozsar; after all, he has called virtually everything else spot on so far…