Mexico’s National Bank and Securities Commission (Comision Nacional Bancaria y de Valores – CNBV) has opened an investigation of several undisclosed Mexican banks and investment banks relating to foreign-exchange derivatives they sold to Mexican corporations resulting in mark-to-market losses to those corporations in excess of US$2 billion, according to a report by Adam Thomson in the October 20, 2008 edition of the Financial Times. 

The report said that the investigation expands on an investigation commenced by the CNBV last week of the corporations that suffered the losses.  An excerpt from the report follows:

Just over a week ago, Comercial Mexicana, Mexico’s third-largest retailer, took the market by surprise when it declared bankruptcy after failing to meet a $400m loan payment. The company, which had hitherto reported strong growth, later admitted that it had accumulated more than $1bn (€743m, £578m) in debt from exchange-rate derivatives.

Since then, several Mexican companies have issued statements clarifying the extent of their exposure to exchange-rate derivatives.

Among them is Gruma, the corn flour and tortilla producer, whose mark-to-market losses stood at $684m on October 8 compared with just $291m a week before. Cemex, one of the world’s biggest cement producers, last week announced that its mark-to-market derivatives losses had topped $700m.

Mr Babatz said that his investigation would focus initially on two Mexican non-financial companies, though he said he could not provide names because of legal reasons.

He also clarified that the probe would only look at whether these companies had complied with their legal obligation to inform authorities and the market about their derivatives positions in a timely fashion.

Mr Babatz said it would be unlikely that the investigation could have legal consequences for any banks, but added that they would be called to account if they were found to be selling derivatives without sufficiently explaining the risks involved.

“We would be shutting our eyes if we didn’t think that the people who were selling these instruments should have known better,” he said. “These are not the standards that we want to see in our markets.”

He said the initial results would be known by the end of November, and could involve fines for companies and individuals of up to 5m pesos ($390,000, €292,000, £227,000) for each case of wrong-doing.

Mexico Law Blog believes that the mark-to-market derivative-related losses disclosed by Comerical Mexicana, Gruma, and Cemex may be the first of many such losses to be disclosed by significant Mexican companies.