Starting with the credit crisis in 2008, through the near collapse of the banking system, counterparty risk is now in the same league as market and liquidity risk. Every day, it seems possible that another financial counterparty might fail, leaving corporates suddenly exposed for significant sums and further systemic risk. In particular, OTC transactions and derivatives carry complex and dynamic sets of counterparty risks.
Rather than relying entirely on ratings or on regulation, we help corporate clients with establishing accurate ways to measure counterparty risk, improving credit line management, mitigating unwanted exposures, and optimizing the cost of their credit lines.
Our Corporates Advisory team has an extensive track record of engagements related to counterparty credit questions like the ones that follow, and has published multiple white papers in this regard:
- Can you evaluate accurately your counterparty risk relating to risk management, treasury cash and committed financing?
- Are your credit risk pricing tools adequate? Do you monitor Credit Valuation Adjustments?
- Is your hedging policy efficient from a credit line consumption perspective? Do you take advantage of credit benefits within your risk management portfolios?
- Is counterparty risk properly captured and priced in your derivatives documentation? Are there any second order or implied exposures?
- What are the actual implications of clearing your derivatives portfolio?
- Are you ultimately better off posting collateral on your transactions? What is the marginal interest cost your net debt debt and the impact on your financing headroom?
We assist corporates with appropriate credit monitoring and pricing tools which enables them to manage counterparty exposures over time, as well as create value by avoiding incremental credit costs and optimizing inefficient credit lines. Our services include:
- Assessment of portfolio credit exposure and implied capital usage analysis [RWA ]
- Comparative analysis of valuation adjustments [xVA] by counterparty
- Forward-looking counterparty risk analysis
- Derivatives portfolio compression solutions and credit lines optimisation
- Quantitative impact analysis of clearing or bilateral margin requirements
- Collateral management review