EON AG (EOAN), Germany’s biggest utility, will probably lose millions of euros after “irregularities” by a former employee were discovered last month.
“EON Energy Trading SE in Dusseldorf has detected some irregularities of a single trader,” Georg Oppermann, a spokesman for the power and natural-gas company, said yesterday by phone. “We expect only minor financial impacts on our portfolio in the lower double-digit million euro range,” he said, declining to specify the amount because the trades were in forward markets. He wouldn’t name the person or say which commodities were involved.
EON’s losses follow money-losing bets in financial markets in the past year which hurt banks including JPMorgan Chase & Co. and UBS AG. The utility’s trading and optimization unit’s earnings before interest and tax were 125 million euros ($157 million) in the first quarter, compared with a 434 million-euro loss a year earlier, as it renegotiated multi-year natural-gas contracts linked to oil, it said in a May 9 earnings report.
EON had already terminated the trader’s employment when the irregularities were discovered, Oppermann said. The problems were detected before the forward contracts reached their delivery date, he said.
The company fell to its lowest price since Sept. 23, sliding as much as 2.5 percent to 14.05 euros in Frankfurt and traded at 14.17 euros at 2:38 p.m. That values the company at 28.3 billion euros.
“It raises questions about how utilities manage proprietary trading,” said Patrick Hummel, an analyst in Zurich for UBS AG, who has a “neutral” rating on EON shares and a price target of 17 euros. “When you have prop trading in an institution, a rogue trader can do financial damage whether it’s a bank or a utility. There was an immediate share-price reaction on this story,” he said today by phone.
EON, whose shares have fallen 23 percent in the past year, has pursued a 15 billion-euro asset-sale program, cut jobs and expanded in non-European markets including Brazil after the Fukushima nuclear disaster in Japan prompted German Chancellor Angela Merkel to call for the permanent halt of all atomic plants by 2022. The first phase of shutdowns trimmed the utility’s earnings by 2.5 billion euros in 2011.
The trading unit, which buys and sells commodities for its own account and maximizes the value of the parent company’s power plants, links it to markets including electricity, natural gas, oil, coal, freight, biomass, and carbon allowances.
A spokeswoman for the European Energy Exchange AG said the transactions didn’t take place via the Leipzig, Germany-based power-trading platform.
“According to our findings, these trades were not made at the EEX,” Katrin Berken said by e-mail today. “That’s why the market surveillance has not detected any irregular trading activities of EON.”
German power for 2013, the regional benchmark, reached a record low 48.25 euros a megawatt-hour yesterday in intraday trading and has dropped 18 percent in the past year. It gained 0.3 percent today to 48.70 euros.
EON may comment further on the former trader’s activities once investigations have been completed and a course of action decided, Oppermann said. He declined to say whether police are involved, or whether the utility plans to prosecute the trader. “We will check all options we have,” he said. “We do not see a material financial impact from the group perspective.”
Oppermann declined to provide further information when reached today via e-mail.
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