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Ouch – The Guardian Takes A Fall On The Currency Markets

1 September 2009, 15:28

The ups and downs of the currency markets are what keep the Forex traders on their toes.  What we may see as a small increase in sterling’s value against the US dollar – or the opposite in fact – could be a matter of success or failure for many different Forex traders around the world.

It isn’t often that you hear about huge losses on the foreign exchange markets being swallowed by named companies though.  Perhaps they happen more often than we think.  But whatever the story, we certainly saw a big news story breaking early in August that brought the name of the Guardian Media Group to the fore.

The Guardian Media Group is responsible for producing the newspaper of the same name, as well as the Observer.  But it was also responsible for losing £24 million pounds as the currency markets took it by surprise.  We imagine they would have been frantically checking their currency converter when they realised things were going badly wrong.  One of the news stories that broke online was the one by the Times Online business section.  You can read this here.

We’ve seen plenty of businesses struggling through the recession recently.  The best course of action in such a situation is to batten down the hatches, cut back on unnecessary spending and then ride out the storm.  For ‘unnecessary spending’, we should perhaps read getting rid of jobs, and losing money on currency trading.

It is easy to point the finger here at disgust at the level of the losses.  But secretly plenty of businesses are probably breathing a sigh of relief that it wasn’t them.  The cause of the £24 million pound downfall was the sudden resurgence of the British pound against the US dollar.  No one could have expected that.  The pound was barely grabbing $1.25 dollars a while back, and now we are pushing for $1.70.

It just goes to show though how risky trading in currency really is.  Of course most people who get started in it are looking at sums of far less than £24 million pounds.  But that isn’t the point.  The risks are the same – what differs are the amounts being played with.

Many people have expressed concern too in this situation that the Guardian Media Group has announced losses for the past year of £90 million pounds.  Now those losses would still have been £66 million without the disastrous foray into currency trading.  But it is still a big jump up to the £90 million pounds they have to deal with now.

It will be interesting to watch the fall out from this story in the weeks and months to come.  Could this currency trade have a hugely negative effect on the business?  It seems likely that it will.  They are already thinking about getting rid of the Observer newspaper to try and cut costs, and now this huge loss has been announced the future of that newspaper would seem even more precarious.

But let’s not jump the gun.  We must wait until the formal announcements are made concerning the future of that paper and indeed the next steps for the Guardian Media Group itself.  Presumably they won’t be trying any currency trading again for the foreseeable future though.

 

Comment

  1. Ouch indeed! I’d love to have the nerve – not to mention the money – to try and make a huge amount of money on the currency markets. But as this unfortunate episode shows, you aren’t immune from losing a huge pile of money either.

    Although as big piles of lost money go, this has to be one of the biggest. They say there is no such thing as bad publicity, but I think this proves the point wrong. I’d hate to be the one behind those losses – and you can bet they will soon be out of a job, if they are still clinging onto it now, that is.

    — JamieK · Sep 15, 08:00 PM · #

  2. You know, if the Observer newspaper does fold after this event with the Guardian, I’ll wonder whether that has directly stemmed from these huge losses. I’d be bitter if I worked for them and lost my job because of some wrong decisions taken by those in charge of the cash.

    Still that’s life isn’t it? I mean £24 million is a huge amount to lose, but it’s easy to tut and point the finger after the event. Would anyone else have known any better? Maybe not. It will be chalked down to experience no doubt – but how the future will progress for the group is anyone’s guess.

    — Ben · Sep 21, 02:54 PM · #