August 6, 2012

Müller burns fingers on cross-currency swaps

Erwin Müller (photo: Matthias Richter)
Exuberant spirits: Erwin Müller bet against the Swissie
Erwin Müller obviously likes a swing on the market, but he isn't the type of punter you should ask for a tip on the Derby.

The entrepreneur, whose minority stake in "lifestyle" group Douglas remains controversial, has clearly put his own money on the wrong horse.

Drogerie-Müller's newly published balance sheet for 2010/11 is anything if not intriguing. The 630 outlets of the Ulm-based company grew annual net revenues by a healthy 10 per cent to €2.65bn, but profit for the year was a piddling €1.7m.

The main reason for this scalping are continued negative effects from financial market transactions already witnessed in 2009/10. The cross-currency swaps have now incurred a book loss of nearly €87m and virtually erased group operating profit.

Damn that Swissie

Müller uses several financial market derivatives aimed at profiting from currency fluctuations in a forlorn bet against the Swiss franc. According to Lebensmittel Zeitung information, some of Müller's property loans are also held in foreign currency. It is generally believed that the Swabian patriarch owns at least a quarter of the group's storebase.

Meanwhile, the company's equity ratio has fallen from 15.2 to 13.3 per cent, and indebtedness to banks has increased from €283m to €394m. Most of this (€270m) is attributable to loans maturing within one year.

Predicting currency movements is notoriously difficult, but what went wrong here? Did the man at the top ignore the advice of his financial advisers, or did he fall prey to the type of banker who bets against his own clients?

Trader hubris

Perhaps it was the hubris which befalls all successful traders in the end. Müller is said to have made a lot of money on cross-currency swops in the past which Lebensmittel Zeitung understands were primarily yen trades. These made huge book profits beyond the dreams of most retailers.

In a world financial crisis where many investors fly to currency safe-havens, as per the motto "It's not money until it's Swiss francs in a Swiss bank", Müller's more recent bets against the Swissie are, at the very least, counter-intuitive.

Perhaps Erwin Müller is, after all, better at retailing than roulette?
 

Related article in German: Lebensmittel Zeitung, no. 31, 03.08.2012, by Jan Mende


Comments for this article are closed.

  1. paddy19
    Created 7 August, 2012 15:55 | Permanent link

    The slur on this fine body of men (they always seem to be men) cannot go unchallenged.

    I'm shocked that you would suggest that a member of the banking community would bet against their own clients.

    Next you will start accusing the banksters of fixing LIBOR rates or laundering money for the Iranians.

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