Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - (Page 17)

LA PAROLE AUX ANNONCEURS cally on the premise of how past due an account is and what interest should be charged based on the company’s funding levels, not assessing the probability of being paid based on the credit of the client. So is IFRS 7 really asking corporates to think about their credit risk like banks think about the credit risks they have with their clients who buy their products? Should money owed on a widget be any different than treating the credit risk of a loan? For banks it’s a way of life that’s driven by the very nature of the financial products they offer and long standing regulatory requirements that ensure proper capital for banks to stay afloat. For corporations this can be a nightmare as for most manufacturers and other nonfinancial instutitions, credit risk is just not high on the list of business risks and depending on how far you want to take it, there probably is credit risk under every rock. DON’T FORGET DERIVATIVE COUNTERPARTY CREDIT RISK As if there wasn’t enough regulatory pressure with derivatives with IAS 39 and now a re-focus on FAS 133, IFRS 7 opens the door to disclosure on derivative counterparty credit risk. As mentioned previously, this risk is typically very low for most corporations since they already owe a lot of money back to the banks anyway. With IFRS 7, companies should measure counterparty credit risk with swaps. The simple method would be to take the mark to market (“MTM”) of each derivative and total by derivative dealer. While this may satisfy the IFRS 7 requirement, it’s not a very useful number as the MTM can change from second to second so by the time the ink dries on the annual report the picture could look very different. A better approach that follows best practices used by banks and more frequent users of derivatives is not just to take the MTM but also add a Potential Exposure charge. This cushion allows for better credit exposure management and can be calculated as simply as taking a percentage of notional or by using a statistical method like Valueat-Risk or VaR. Following the doctrine of IFRS 7, the method should be something that you would use in practice for management reporting and risk management so why not employ best practices if you are starting from scratch. Also, as Credit Risk is a defined risk, it implies that sensitivity analysis should be applied to credit risk. Using a Potential Exposure method that is in line with your sensitivity methodology may kill two birds with one stone. CREDIT EXPOSURE VS. CREDIT DEFAULT In the previous section, one could look at measuring the credit exposure to a swap counterparty, but that is very different from measuring the likelihood of default. For example, if Company ABC has $10mm of swap MTM exposure to Bank XYZ that is rated AAA and $10mm of swap MTM exposure to Bank DEF that is rated BB, the probability of default by Bank XYZ may in fact be close to zero whereas Bank DEF may have a high likelihood of default. So if Company ABC did not take into account the actual default risk of the dealer bank, it may end up overstating the risk to Bank ABC and understate the credit risk to Bank DEF. Adding this layer of default risk on swap counterparties is challenging as the MTM will swing from period to period, whereas if you are measuring credit risk on a loan or bond, you are measuring it against the notional principal of the instrument which will typically be constant. The table above highlights the nuances between the absolute credit risk on a swap (i.e. the MTM) vs. the bond (i.e. the Principal) vs the default risk where the exposure with the stronger credit ratings have lower probability of defaults and therefore lower Credit Default exposure. HEDGING CREDIT RISK Issues aside, IFRS 7 has raised awareness on swap counterparty credit risk and some treasuries are thinking about using Credit Default Swaps (“CDS”) to hedge this risk. Like other over-the-counter derivatives, CDS are Le Magazine du Trésorier - N° 56

Table des matières de la publication Le Magazine du Trésorier - n°57 - 1er trimestre 2007

LA PAROLE À ... : M. JACQUES GALLOY
LA PAROLE AUX ANNONCEURS
INTERNET
SOMMAIRE
BRÈVES
VIE DE L’ASSOCIATION
DOSSIER : ASSET Management pour une meilleure gestion du cash
EDITORIAL
EACT

Le Magazine du Trésorier - n°57 - 1er trimestre 2007

Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - (Page Couverture)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - SOMMAIRE (Page 1)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - SOMMAIRE (Page 2)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - EDITORIAL (Page 3)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - EDITORIAL (Page 4)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - EDITORIAL (Page 5)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - LA PAROLE À ... : M. JACQUES GALLOY (Page 6)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - LA PAROLE À ... : M. JACQUES GALLOY (Page 7)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - LA PAROLE À ... : M. JACQUES GALLOY (Page 8)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - DOSSIER : ASSET Management pour une meilleure gestion du cash (Page 9)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - DOSSIER : ASSET Management pour une meilleure gestion du cash (Page 10)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - DOSSIER : ASSET Management pour une meilleure gestion du cash (Page 11)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - DOSSIER : ASSET Management pour une meilleure gestion du cash (Page 12)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - DOSSIER : ASSET Management pour une meilleure gestion du cash (Page 13)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - DOSSIER : ASSET Management pour une meilleure gestion du cash (Page 14)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - DOSSIER : ASSET Management pour une meilleure gestion du cash (Page 15)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - LA PAROLE AUX ANNONCEURS (Page 16)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - LA PAROLE AUX ANNONCEURS (Page 17)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - LA PAROLE AUX ANNONCEURS (Page 18)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - LA PAROLE AUX ANNONCEURS (Page 19)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - LA PAROLE AUX ANNONCEURS (Page 20)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - LA PAROLE AUX ANNONCEURS (Page 21)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - VIE DE L’ASSOCIATION (Page 22)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - EACT (Page 23)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - BRÈVES (Page 24)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - BRÈVES (Page 25)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - BRÈVES (Page 26)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - INTERNET (Page 27)
Le Magazine du Trésorier - n°57 - 1er trimestre 2007 - INTERNET (Page 28)
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