Moody's may cut Gulf Bank

Moody's Investors Service said it placed the C bank financial strength rating of Gulf Bank on review for possible downgrade, along with its Aa3 long-term local- and foreign-currency deposit ratings. The prime-1 short-term ratings are not affected.

The review was prompted by news that the bank has incurred sizeable losses from trading foreign-exchange derivative instruments on behalf of its customers, Moody's said. The bank said it maintained a hedged trading position as these transactions were conducted on a back-to-back basis, but assumed substantial counterparty risk.

The losses have arisen as a result of the failure of some customers to honor obligations, the agency said.

The bank has yet to disclose details about these transactions, but Moody's said it believes they involved complex instruments. This raises questions as to whether the underlying risks assumed by customers, and by extension the bank, were properly identified and managed.

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