Comercial Mexicana's treasury turned a hedge into a casino — the bet cost $1,080m

Comercial Mexicana, one of Mexico's largest supermarket chains, began using derivatives in 1994 to hedge dollar debt — protecting a third of a $300m loan after the peso crisis — and widened the program in 1998 with a second dollar bond. For a decade the desk hedged. Then, between November 2005 and September 2008, the company signed more than 150 derivative contracts with its banks — and only one of them was a hedge. The rest were TARNs, target-accrual notes the trade press called casino chips: a cheap way in, a bet on the peso staying calm, and losses that could outgrow any possible gain.

Losses climbed through 2008 — $100m, $400m, $600m, $700m — while the board asked on 15 July, on risk-committee advice, to cancel the speculative contracts; most positions stayed open. The treasury doubled down, signing new TARNs at worse rates — the gambler's mentality, the telling calls it: double or nothing. Some July–September trades were made without the board's knowledge, per the company's own lawyer. After Lehman fell the peso dropped, and the desk held open positions to buy $7bn. The recognized loss was $1,080m; the banks claimed over $2,000m and the company acknowledged $1,010m of it.

On 9 October 2008 the board filed concurso mercantil for the holding company — the stores kept trading. The restructuring closed on 10 December 2010: 100 percent of liabilities reorganized into 19,247 million pesos of new instruments plus a 45-million-dollar cash payment, with 88 percent of bondholders aboard. To pay, Comerci sold its Costco México stake. In January 2015 it agreed to sell Soriana 160 stores — its four main formats — for 39,194 million pesos, keeping only 40 premium stores. Learning from its own bad experience, the new company would hold no financial derivatives of any kind.