Common Challenges to Hedging FX Risk Chatham Financial White Papers – October 2015 Early 2015 ushered in currency volatility and dollar strength unseen in decades. Every day, new headlines of companies negatively impacted by large exchange rate movements greeted readers of financial news. Earnings calls are littered with references to “constant currency” impacts and earnings forecast reductions driven by significant currency movements. With this background, analysts, investors, Board Members and senior management have asked, “What is stopping us from hedging our risk more effectively?” This article will cover three key hurdles that companies face when crafting and maintaining currency hedging programs: Data, Design, and Accounting.

Read More...

Accountancy Live: Accounting for floating rate loans under IFRS, FRS 102 June 22, 2015, Accountancy Live By Zwi Sacho, Chatham Financial “Preparers and auditors should should carefully consider the accounting consequences when encountering floors in floating rate loans under IFRS and FRS 102, says Zwi Sacho ACA, director of the corporate accounting advisory practice at Chatham Financial Europe” Read Complete Article

Read More...

POLAR: Path of Least Accounting Resistance December, 2014 Selection of the desired interest rate risk position and the corresponding transactions that can be used to broadly support a desired change in a financial institution’s interest rate risk position is critical, but unfortunately, only half the story. The next steps in the larger balance sheet risk management framework are to assess the accounting implications of each transaction and pursue the risk mitigating strategies that best accomplish the FI’s economic and accounting objectives. POLAR can help guide the FI to the simplest, most efficient, and accounting-friendly solution that has the desired impact on the FI’s interest rate risk position. Download This Bulletin

Read More...

Derivatives Regulation Case Study: Regulatory Compliance Assessment Our Client: A Fortune 100 technology company with international operations and multiple hedging programs involving exchange-traded and over-the-counter (OTC) derivatives across different asset classes, including foreign exchange, interest rates, and credit. Situation: The company was concerned about the impact of new derivatives regulations on its hedging programs, including how the parent company and numerous subsidiaries might be classified under Title VII, what new regulatory requirements might apply, and the extent to which hedging costs may increase due to new regulatory requirements. The client’s hedging programs spanned multiple global regulatory jurisdictions and included several different entities including both financial and nonfinancial entities. Summary: Chatham conducted an in-depth review of the hedging programs, spending two days onsite at the client’s premises to interview stakeholders within the company, including representatives from treasury, risk, operations, legal, and…

Read More...

Corporate Case Study: Tracking & Reporting for Hedges Our Client: A global musical instruments manufacturer and distributor who actively manages FX and interest rate risk exposures. Situation: The company was managing over 1,500 derivative instruments in Excel and was applying hedge accounting for more than half of their derivatives portfolio. They were applying a hedge accounting methodology that caused some earnings volatility and wanted to evaluate whether another approach, such as regression for effectiveness assessment and hypothetical derivative method for measurement, could produce better results. The period end process was taking longer than our client wanted, and, unfortunately, it was necessary to enter and maintain every derivative into multiple systems or spreadsheets. The company was seeking to implement a hedging, hedge accounting & derivative reporting solution that would: Ease the administrative burden of tracking and reporting derivative transactions Eliminate risk…

Read More...

Corporate Case Study: Strategy & Accounting Our Client: A global packaging and manufacturing company with over $7 billion in revenues and a complex capital structure. Situation: The company had recently issued fixed rate financing and was considering converting it to variable via a pay-variable, receive-fixed interest rate swap. Management’s objective was to achieve a certain fixed-floating mix, but was sensitive to the earnings impact that could be generated from the changes in fair value of a pay variable interest rate swap. Summary: The company sought our advice regarding the potential application of fair value hedge accounting on the proposed structure. Our analysis not only highlighted crucial issues that hindered the application of the shortcut method (such as the presence of equity-linked options in the hedged bond), but also showed the earnings impact over the life of the hedging strategy, under…

Read More...

In this week’s installment, Part III and our final installment of our series, we look at the impact hedge accounting rules and changes can have on your hedging program in 2014. In Part II, we looked derivatives regulation on your hedging program, and in Part I,  Fed Policy and its impact on hedging programs. Part III: Hedge Accounting. Several key developments in the world of hedge accounting last year could impact your derivatives and hedging programs this year. First, the FASB approved in July 2013 the use of the Fed Funds Effective Rate (or OIS) as a benchmark interest rate, which along with LIBOR and Treasury rates can now receive favorable hedge accounting treatment under many routine hedging strategies. This is great news for entities with floating-rate assets or liabilities indexed to the Fed Funds Effective Rate, as it simplifies their ability to hedge their…

Read More...

In some ways, the turning of the calendar to a new year does what no other deadline nor holiday can do – generally speaking, it stops you in your tracks. Your time and team ran out as if you just played the biggest bowl game of your life, and having secured the victory in the 4th quarter, commenced celebrating the season in grand fashion. Congratulations all around to your winning team! What followed was a well-deserved break, and time to reconnect with friends and family. Wrapping up and reflecting on the prior year, you can be proud of what you accomplished, but still resolve to come back stronger and better prepared next year. Welcome to next year. 2014, that is. Unlike in football, there is no offseason in your business. There is, however, a rhythm and routine that you will…

Read More...

Oscar Wilde would have loved the Twitter genre; he was a veritable epigram machine. Even though everything he wrote is now at least a century old, it hasn’t lost relevance or zing. Think of how pertinent Wilde’s statements still are on topics as diverse as Narcissism: “To love oneself is the beginning of a lifelong romance.” Celebrity: “There is only one thing in the world worse than being talked about, and that is not   being talked about.” Identity: “Be yourself; everyone else is already taken.” Transcendence: “We are all in the gutter, but some of us are looking at the stars.” Modern conveniences: “We live in an age when unnecessary things are our only necessities.” For us, though, the best Oscar Wilde quote is from The Picture of Dorian Gray: “Nowadays people know the price of everything and the…

Read More...

The firm begins developing in-house technology establishing a new core competency.

Read More...