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U.K. Thrift Enters FX Swap

Yorkshire Building Society, the third-largest thrift in the U.K. with more than GBP12.5 billion (USD17.8 billion) in assets, has entered a foreign exchange swap to convert into sterling USD350 million of a USD500 million bond deal it sold last month. Chris Parrish, group treasurer in Bradford, said the building society entered a swap with Royal Bank of Scotland Financial Markets to convert the bond into its base currency. Gordon Taylor, director of origination at RBOS in London, confirmed the bank acted as Yorkshire's counterparty.

The seven-year floating-rate deal, which was the group's first in dollars was targeted at Asian investors. It was priced at 20 basis points over three-month LIBOR. RBS was the underwriter for the offering. In the swap Yorkshire will receive a floating dollar-denominated rate and pay floating sterling. The building society usually raises money through fixed-rate sterling deals and then converts the liability into floating-rate. "We're a floating-rate institution, anything we do, we swap into floating sterling," Parrish said. The building society has used fx swaps in the past but never on this scale.

Parrish said Yorkshire mainly uses U.K. banks to conduct derivatives transactions although it has open swap lines with more than 20 institutions. It selects counterparties based on their willingness to offer standby credit facilities. "We reward the banks that will provide standby facilities by concentrating our derivatives transactions, we're quite upfront with them," Parrish said.

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