Risk Takers

Chapter 3 Metallgesellschaft AG

Illusion of Profits and Losses, Reality of Cash Flows

The story of Metallgesellschaft AG39 (MG) is not one of unabashed success or unmitigated failure. It is, instead, the tale of a first-rate company that became an industry leader in energy derivatives40 by introducing innovative and much needed hedging products, only to have the venture collapse because of a failure to understand and an inability to manage risks. During 1993, MG’s U.S. affiliate, Metallgesellschaft Refining and Marketing (MGRM), lost $1.33 billion on energy derivatives, despite an enthusiastic customer base, rapidly increasing sales, a dominant industry position, and highly valued products. MG’s story is important on many levels but especially ...