As the dominoes begin to fall in the wake of the collapse of energy hedge fund MotherRock LP. earlier this month, reports were circulating that Dutch bank ABN AMRO could be stuck with losses totaling $100 million, putting in jeopardy the banking giant’s plans to sell its global futures business to Swiss bank UBS, according to a story in the New York Post last week. Calls for comment to ABN AMRO were not returned.

After less than two years of operation, word on the trading floor of the New York Mercantile Exchange (Nymex) was that MotherRock was closing its doors following an alleged $200+ million loss in natural gas trading over the last two months (see NGI, Aug. 7). The fund was founded by former Nymex President J. Robert “Bo” Collins, former Nymex vice president of strategy John D’Agostino and former Nymex trader Conrad Goerl in late 2004 and began operations in 2005 with great fanfare. MotherRock was a significant natural gas futures player with $430 million in assets under its management at the company’s peak.

According to the New York Post, which cites traders and sources close to the situation, ABN AMRO brokered trades for MotherRock and allowed the fund to trade with borrowed money. With the fall of MotherRock, the newspaper said, ABN AMRO is now holding over 1 million futures and options contracts on natural gas.

However, the position and loss figures regarding ABN AMRO don’t quite add up for some market experts who have been monitoring the situation. “Something is wrong with somebody’s figures here because total open interest in natural gas futures does not equal 1 million contracts, so someone here has their decimal point in the wrong place,” a New York-based analyst said. “I don’t think Enron even had a position that big.

“The other thing that sticks out about the report is that if ABN AMRO’s position, by way of MotherRock, was that big, I don’t see how ABN AMRO would only be out $100 million. If the report was true, the bank would be out at least 10 times that amount. The report almost sounds like it was given by an exaggerating eight-year old.”

The analyst added that the whole MotherRock blow-up was “a shocker” that people didn’t see coming. “It is hard to know if we have anything resembling the whole story, but we do know that MotherRock was profitable through May,” he said. “They made money during the first five months of the year and then lost it hand-over-fist in June and July. I have been around the markets long enough to understand that it is possible to lose a lot of money in a short time, but you would have thought they would have had a more disciplined approach with regard to position sizing. Their position size was just too big.”

Echoing the analyst’s comments, a Northeast broker said that while it is possible that ABN AMRO may have incurred losses of $100 million through MotherRock, the report by the New York Post that ABN AMRO is left holding 1 million in natural gas futures and options contracts as a result does not add up. “First of all, total futures open interest is less than a million,” he said. “Secondly, to lose $100 per contract isn’t such a big deal in natural gas when you consider that each contract at Nymex is for a lot of 10,000 MMBtus. I think these numbers are getting blown a little out of proportion.”

Some even found a way to pin fallout from MotherRock on the gains seen last Wednesday in September natural gas futures. On that day, prompt-month natural gas soared as high as $7.940 before closing at $7.651, up 49.3 cents for the day. According to one New York broker, word on the New York Mercantile Exchange trading floor was that MotherRock and the clearing member, ABN AMRO, were “engaged in massive short-covering Wednesday,” trying to get out “of a bad position.”

The New York Post added that ABN AMRO’s losses could jeopardize the company’s plans to sell its global futures and options business to UBS for $386 million in cash. The deal, which was first announced in late May (see NGI, May 29), was expected to close towards the end of the third quarter of 2006.

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