Investment banks, including Deutsche Bank, ABN AMRO and Barclays Capital, have begun to receive requests from European corporates to restructure interest rate and foreign exchange swaps to ensure they can be treated as hedges under International Accounting Standard 39. European corporates have to start preparing for the accounting standard now as they must file IAS accounts from next year, according to bankers.
It is common for corporates to issue fixed rate debt and leave that exposure to interest rate risk, later entering generic swaps to hedge the risk in a portfolio, noted Gary Hawkins, head of interest rate trading at ABN AMRO in London. These types of trades, known as macro hedges, need to be restructured to match a specific risk exposure to be treated under hedge accounting in the IAS 39 accounting rules, Hawkins added.
Corporates are asking for similar reworkings for foreign exchange swaps or hedge positions, said Lutfey Siddiqi, global head of fx structuring at Barclays Capital in London. He added that these positions include swaps that hedge cash flows and interest expense. In some cases it will be possible to restructure them, but in others Barclays will just help the corporate to unwind exposures. Deutsche Bank has also received requests.
