Merriam Webster’s definition of hedge: a means of protection or defense (as against financial loss). We thought it would be worth checking on that definition again as we read with interest MetLife’s third-quarter earnings release (just out a short while ago) that included some information about its $1.4 billion investment loss (after-tax) in the quarter. About $860 million of that loss was connected to derivatives.
In its own words: “MetLife uses derivatives – in connection with its broader portfolio management efforts – to hedge a number of risks, including changes in interest rates and foreign currencies.” It went on to say that $582 million of that $860 million came from its own credit spreads improving (this apparently has to do with the way the company values some liabilities on its books, like variable annuities.)
Still seems hard to call that hedging…
October 29, 2009
[...] This post was mentioned on Twitter by Steven George, Muhammad Sadza. Muhammad Sadza said: Randomly Noted » Blog Archive » MetLife Loses Money On Hedges http://tinyurl.com/yjm2rdg [...]