Dresdner Kleinwort Wasserstein plans to set up a weather derivatives desk to expand its treasury risk management products by the fall. Thomas Roeder, global head of interest rates and treasury in Frankfurt, said the desk will offer weather derivatives, concentrating on marketing degree-day swaps and options to companies looking to hedge their exposure. Roeder said it is setting up the department as a response to customer requests. But he added margins are shrinking on liquid derivative products so banks are looking for new markets.
Roeder thinks banks have an advantage over energy companies in weather derivatives because of their network of clients. He added that since weather is not a commodity no company has an advantage over another in terms of its production or having a position in the underlying. The same is not true of energy derivatives, he continued.
The bank will offer the products to medium and large companies in Europe, especially utilities. It has chosen to start in Europe because it has the most customers in that region. The boost in the number of queries it receives about weather derivatives is because the product is more widely know about and accepted as a risk management tool, according to Roeder. Dresdner will not make markets in these products but will keep some of the risk because the weather derivatives market is not liquid enough to hedge it all.
