UBS plans to step up its activity with corporate clients confused about how to hedge their liabilities under proposed accounting standards, such as IAS 39. The move follows Adrian Walkling, global head of the foreign exchange structuring group in London, joining the bank from Credit Suisse First Boston in the summer to ramp up fx corporate coverage. It will concentrate on advising corporates that want to hedge fx risk without suffering from swings in earnings volatility.
For example, a knock-in forward is a standard hedging tool for corporates, but would not qualify for hedge accounting. This means mark-to-market gains and losses would have to be registered. If the corporate, however, bought a synthetic forward and reverse knock out option then the synthetic forward qualifies for hedge accounting. Since a forward is more volatile than an option, marking the reverse knock-out to market will have a limited impact on earnings volatility.
The team employs five structurers globally and is planning to add two additional staffers, one in Asia and one in New York.
