PROCTER & GAMBLE

Laurent L Jacque

Chapter 12 in Global Derivative Debacles:From Theory to Malpractice, 2015, pp 199-215 from World Scientific Publishing Co. Pte. Ltd.

Abstract: On April 13, 1994, Procter & Gamble announced a one-time pretax charge of $152 million against net income. The loss resulted from the early closing of two seemingly innocuous leveraged interest rate swaps, which Procter & Gamble had entered into with Bankers Trust as a way of reducing financing costs. For a company with over $30 billion in sales which reported net income of $2.2 billion in fiscal year 1994, this noncash charge was hardly life threatening. And yet the episode — by pitting in a landmark lawsuit a blue-chip American multinational corporation against one of the pillars of the financial establishment—redefined the relationship between Main Street industrial firms and their Wall Street investment bankers. Indeed Procter & Gamble alleged that it had been played, manipulated, and deceived by Bankers Trust and initiated a lawsuit against the latter. The landmark lawsuit was settled out of court and allowed Procter & Gamble to pay a much reduced amount of $35 million. Bankers Trust which was then proudly proclaiming in one of its advertisement “Risk wears many disguises. Helping you see beneath its surface is the strength of Bankers Trust” saw its wings clipped and came out of this imbroglio with its good name tarnished and the “Trust” under a cloud…

Keywords: Derivatives; Debacles; Options; Swaps; Futures; Forwards; Financial Engineering; Market Manipulation; Rogue Traders; Speculation; London Whale (search for similar items in EconPapers)
Date: 2015
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