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Enron Mail |
ISDA PRESS REPORT - TUESDAY, NOVEMBER 7, 2000
* Tax Change to Boost Danish Derivatives Market * ISDA plans restructuring info session. * ECB intervention fails to bolster euro * Corporates Caught Napping As Deadline For FAS133 looms. * Derivatives traders at JP Morgan are delighted... Derivatives Week - November 6, 2000 Tax Change to Boost Danish Derivatives Market A change in Danish tax law that is expected to be passed this month should lead to a surge in derivatives use among pension funds and life insurance companies. Jens Kristensen, head of the financial division at the Danish Ministry of Economic Affairs in Copenhagen, said the tax rates for all the gains on investments for pension funds and life insurance companies are being equalized, at 15%. Previously, there were tax incentives to investing in cash equities-gains on equity positions were taxed at 5%. The flip side of this was that non-equity investments, including, hedging, were taxed at a much higher rate - 26% - and losses on cash investments were not offsettable against gains on hedges. Clause Stampe, chief investment officer at pension fund Laegernes Pensionskasse in Copenhagen, said it plans to increase its use of derivatives because of the taxation change. It will use more derivatives to hedge all of its non-euro and non-krone denominated fixed income portfolio and its equity portfolio where it feels there is currency risk. About 10% of the funds DKK35 billion (USD4 billion) portfolio is in non-euro or krone-denominated fixed income products. The pension fund already occasionally uses foreign exchange swaps and options to hedge equity investments, but not fixed income products. Stampe said he envisages its use of derivatives to hedge equity would increase slightly, but said it was too early to estimate by how much. Pensionskassen for jusristernes og okonomernes, a pension fund, is going to start using derivatives, according to Jesper Jakobsen, strategist and head of asset allocation in Copenhagen. He said it was too early to tell exactly what strategies it will pursue but he envisages the fund will use derivatives for hedging all asset classes because of the change in tax law. Previously, there was a lower tax for equity to encourage Danish pension funds and life insurance companies to invest in local equities. With global capital increasingly dominating the local equity market, local institutional investors are no long required to maintain liquidity on the Danish stock market. Derivatives Week - November 6, 2000 ISDA plans restructuring info session. The International Swaps ant Derivatives Association is holding a meeting in the next two weeks to discuss restructuring as a credit event. Credit derivatives players recently were at loggerheads regarding whether restructuring should be listed as a credit event under the standard terms of single-name credit default swaps (DW, 10/9). A group of dealers in New York elected last month to stop including restructuring as a credit event when quoting prices for standard single-name credit default swaps. Restructuring as a credit event will still be available as a menu choice on the ISDA confirm, ant will not be removed from the 1999 ISDA definitions. According to Bob Pickel, general counsel at ISDA in New York, dealers and end users have had numerous questions regarding the decision, and ISDA's credit derivatives documentation task force is providing a forum for those questions to be answered. Some dealers reported a slowdown in the credit default swap market following the decision. Others said that they saw no slowdown in their trading activity, and noted that even if there was a slowdown, it cannot be linked to the decision. Cash markets remain volatile, and there has been little in the way of new bond issuance or loan activity recently, they added. Pickel emphasized that the main point of the meetings is to allow participants to provide information, rather than provide a forum for debate. Because this is a market practice issue, it is not up to ISDA to rule how parties should trade. Meetings will be held concurrently in New York and London, with a brief conference call joining both of the meetings. The meeting is open to all ISDA members. Separately, ISDA is planning to complete its strategic documentation review by year-end. Financial Times - November 7, 2000 ECB intervention fails to bolster euro By Christopher Swan and Adrienne Roberts The European Central Bank intervened in foreign exchange markets yesterday for the second consecutive trading day, emphasising its determination to defend the currency. The unilateral move by the bank initially drove the single currency almost a cent higher to $0.87. But the impact was short-lived. The release of figures indicating that growth is slowing both in the eurozone and in its biggest economy, Germany, pushed the euro back below the level at which it had started the day. It finished in London at $0.861, down from its close on Friday. In Birmingham, Romano Prodi, president of the European Commission, expressed full confidence in Wim Duisenberg, chairman of the European Central Bank, and insisted that the euro would recover more ground. Sales of distressed assets by Japanese banks and other financial institutions to investors, such as US hedge funds, have unexpectedly slowed in recent months, bankers and analysts say. The decline is likely to raise new unease about the health of Japan's financial industry and its slow progress in cleaning up the problems caused by the collapse of the country's 1980s bubble. Some industry observers suspect that one reason for the slowdown is that falling Japanese share prices have eroded the banks' capital - and left them unwilling to make additional provisions for losses. If the slowdown persists, this could leave some foreign funds and banks re-examining their attempts to build a distressed-debt business in Japan. Precise data on the distressed-debt market is not available because it is one of the most secretive sectors of Japan's financial markets. Derivatives Week - November 6, 2000 Corporates Caught Napping As Deadline For FAS133 looms. A raft of corporates have delayed implementing the Financial Accounting Standards Board's Statement 133, and are scrambling to meet the deadline, which for most companies is Jan. 1. "The big five have been warning people for years not to delay in figuring out how to implement FAS 133, but a lot of people didn't listen," said Rob Royall, partner in the national accounting group at Ernst & Young in New York. Dilip Kumar, partner at Arthur Andersen in New York, added that billion-dollar companies have been laggards in implementing the measure, although he declined to name them. "We were worried that would happen," said Bob Wilkins, senior project manager in charge of FAS133 at the accounting standards board in Norwalk, Conn. He noted that the standard was originally slated to come into effect for fiscal years beginning after June 15, 1999. Corporations concerned about digesting the bulky standard while also preparing for Y2K persuaded the FASB to push the deadline back to fiscal years beginning after June 15, 2000. For most companies, that's Jan. 1. "Cynics here said that some companies would just let the standard sit on their bookshelves for another year," he added. The standard itself is daunting, consisting of about 280 pages plus 260 pages of derivatives implementation group interpretations. Ernst & Young's Royall said the whole document could balloon to 750 pages by a year from now as hazy parts of the standard are cleared up. Satish Rishi, v.p. and assistant treasurer at Dell Computer in Austin, Texas, noted that his company has preparing for some time for the new standard, and will be ready for it when the deadline arrives. But he noted that companies that have not planned adequately are reaching a crunch point now. ZD. U% AND LAST BUT NOT LEAST....... The Daily Telegraph - November 7, 2000 Derivatives traders at JP Morgan are delighted... Derivatives traders at JP Morgan are delighted their bank has been taken over by Chase Manhattan. "Hopefully they will sort out the toilets on our floor," one says. "There are only four of them, and they never get cleaned."
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