Siemens Financial Services, a financing subsidiary of Siemens, is considering joining a handful of corporates that sell--as well as buy--credit protection on high-grade names as an investment tool. The company already buys protection referenced to its receivables portfolio, said Ralf Lierow, director of portfolio management for the European equipment and sales financing department of SFS in Munich. He added it has not yet sold protection because the equipment and sales department does not have a banking license and will not consider applying for one because the expected volume of business would not justify it. However, it is currently reviewing other areas of Siemens through which it could sell the protection, he said, declined further comment on this point. Once it has established how it can become a protection seller, Lierow said he will present the idea to the board for internal approval. The entire process could take several months.
Antonio di Flumeri, European head of credit derivatives trading at Deutsche Bank in London, said there are only a handful of corporates that sell protection at the moment as this is not most companies' core business. He welcomed SFS' move, saying it could open the door to more corporates.
SFS will invest on a case-by-case basis and does not plan to be a market maker. "There will not be a trading book. There will be no Enrons here," said Lierow. His plan is to diversify the receivables portfolio--which stands at over EUR1 billion (USD957 million)--by selling protection on credits it does not have exposure to through its business lines.
Lierow said it will be selling default swaps with standard documentation. It will choose counterparties on the basis of the firm willing to buy protection at the highest price.
The contracts would use Siemens credit rating, which Moody's Investors Service puts at Aa3 and Standard & Poor's rates at AA minus.
