Corporate Governance
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Corporate Governance
Metallgesellschaft Hedging Debacle
Introduction
Metallgesellschaft AG is sometimes referred to as MG which is a German conglomerate that does it business with a wide range of practices including excavation, technology, trade and other fiscal services (Klapper and Inessa 704). The organization was founded in 1881 by Sir Wilhelm Merton among others like Leo Ellinger and Sir Zacharias Hochschild. Initially, the organization was operating in the line of metal work that was owned by Deutsche Bank AG, Dresdner Bank AG, Daimler-Benz, Allianz, and the Kuwait Investment Authority. The MG Corporation has a known subsidiary in the Energy Group that operates in the United States. Metallgesellschaft Refining and Marketing Inc. (MGRM) was mandated to refining and marketing crude oil products in the U.S. region. The MG had made a loss of approximately $1.5 billion that lead to its bankruptcy due to massive deficit.
When the organization got to bankruptcy, there occurred the mismatch challenges within the corporation. The mismatch problems occurred between the short term hedge and the supplying long term contracts. The lack of the corporate governance and shift of the oil market from the backwardation to contango. Also, conflict in the U.S. and the German Accounting Systems contributed to these challenges.
Entry of MGRM to Derivative World
MGRM began to control and lead in the derivative markets as early as 1991 due to hiring of hiring Arthur Benson. From 1991, the MG started selling contracts at fixed prices in terms of up to 10 years to the retailers and the independent wholesalers. At that time, the set out contracts were very successful, since the organization had a secured cost above the prices at the current spot price. Thus, the counterparts of contracts would tend to exit their contracts early enough if next month New York Mercantile Exchange futures contracts had more outstanding products than the monetary value that MGRM sold the main oil...
Metallgesellschaft Hedging Debacle
Introduction
Metallgesellschaft AG is sometimes referred to as MG which is a German conglomerate that does it business with a wide range of practices including excavation, technology, trade and other fiscal services (Klapper and Inessa 704). The organization was founded in 1881 by Sir Wilhelm Merton among others like Leo Ellinger and Sir Zacharias Hochschild. Initially, the organization was operating in the line of metal work that was owned by Deutsche Bank AG, Dresdner Bank AG, Daimler-Benz, Allianz, and the Kuwait Investment Authority. The MG Corporation has a known subsidiary in the Energy Group that operates in the United States. Metallgesellschaft Refining and Marketing Inc. (MGRM) was mandated to refining and marketing crude oil products in the U.S. region. The MG had made a loss of approximately $1.5 billion that lead to its bankruptcy due to massive deficit.
When the organization got to bankruptcy, there occurred the mismatch challenges within the corporation. The mismatch problems occurred between the short term hedge and the supplying long term contracts. The lack of the corporate governance and shift of the oil market from the backwardation to contango. Also, conflict in the U.S. and the German Accounting Systems contributed to these challenges.
Entry of MGRM to Derivative World
MGRM began to control and lead in the derivative markets as early as 1991 due to hiring of hiring Arthur Benson. From 1991, the MG started selling contracts at fixed prices in terms of up to 10 years to the retailers and the independent wholesalers. At that time, the set out contracts were very successful, since the organization had a secured cost above the prices at the current spot price. Thus, the counterparts of contracts would tend to exit their contracts early enough if next month New York Mercantile Exchange futures contracts had more outstanding products than the monetary value that MGRM sold the main oil...