The Sterling Crisis: The profits . . . and the losses: The money men

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FORBIDDEN by their banks to discuss profit levels, and reluctant to kick the Government when it is down, foreign exchange dealers went about their business yesterday as if Black Wednesday had been just another day at the office.

But it did not fool the outside world. When you make between pounds 25m and pounds 50m in a few hours, as some dealers probably did, someone somewhere has got something to celebrate.

Take Mark Clarke, a dealer at the Bank of America, who told Channel 4 News that his foreign exchange unit had made pounds 10m. He seemed very chirpy with the day's work, but not so his bank. 'He exaggerated the amount and was slightly led on by the interviewer,' Paul Chappell, a senior vice-president, said frostily. 'But it was an inordinately frenetic day.'

According to Robert Thomas, head of research at National Westminster Capital Markets, the profits on Wednesday could have been enormous. 'The big investment houses, frequently the American-based ones, who are prepared to take a view of these things, could in some cases put many hundreds of millions in it. If someone was prepared to do a billion, it would be quite possible to make pounds 50m.'

Much of this depends on the skill of the dealer. For example, if a dealer sold sterling at DM2.78, but then bought it back when it had fallen only to DM2.70, rather than DM2.63, half the potential profits would have gone, according to Mr Thomas. Much of the profit can also be eaten away by the cost of a bank's overnight or over-weekend financing. But many would have made half a million pounds.

The size of the movements yesterday and the amounts at stake left quick profits for the taking. The pound closed at DM2.7750 on Wednesday. Had pounds 1bn been poured into German marks at that rate, a dealer could have reaped pounds 25m by selling as the pound hit DM2.7075. It went on to close in London yesterday at DM2.6279.

Paul Curle, 39, a foreign exchange corporate adviser at the Bank of America, does not deny that there is some speculation at his bank. But like other traders, he is keen to concentrate attention on the core of his business, clients such as small companies who hedge their position when sterling is under threat.

'Say a UK company is importing materials from Germany. You have to pay in marks at the fixed exchange rate. If you think sterling's position is at risk, and you think you will not be able to buy the same amount of marks in three months' time, you are going to want to buy the marks now. That is the sort of thing that was happening on Wednesday.'

Common sense, perhaps, for the UK companies, but it was nerve-racking for the dealers. 'I mean literally nerve racking,' said Mr Curle who drove into the City from Chelmsford, Essex, on his motorcycle on Wednesday, having no idea what lay before him.

'You suddenly have all this sterling which is dropping in value by the second and you have got to get rid of it. In this game, you stand to risk as much as you gain. People who criticise us for casting patriotism aside should come into the real world,' he said.

There in the real world, high street banks yesterday revealed they had benefited from Wednesday's events without lifting a telephone. They earned pounds 14m in interest on a one-day 2 per cent rise in interest rates. Although the major banks announced they would revert to 10 per cent rates from the start of business today, they were still estimated to have earned about pounds 2m gross each from the temporary increase.

Citibank, the US bank, was the first to announce the drop within 20 minutes of the Bank of England's announcement, and the big four high street banks - Midland, NatWest, Barclays and Lloyds - followed suit within hours. Like the foreign exchange dealers, they were not crowing over their profits, but they wouldn't mind a few more Wednesdays like that in these recessionary times.

Nor would the London International Financial Futures Exchange, where dealing-floor business doubled on Wednesday as interest rates and currencies moved chaotically.

(Photograph omitted)