Corporate Traders Turn to Banks to Reduce Risk in Uncertain Times

Friday, 11/09/2015 | 16:19 GMT by Andy Traveller
  • Tony Bedikian explains how corporate treasury departments seek to mitigate their risk as they battle with increasingly uncertain FX markets.
Corporate Traders Turn to Banks to Reduce Risk in Uncertain Times
Bloomberg, Managing risk is key for brokers and clients
Citizens Bank_large

[dropcap color="#000000" font="0"]S[/dropcap]peculators are not the only ones with a stake in Forex markets. Indeed, as globalisation has increased, more and more businesses have exposure to fluctuating exchange and interest rates, which pose a real risk to the financial foundations of these companies.

Tony Bedikian, Citizens Bank

Tony Bedikian, Head of Global Markets, Citizens Bank

Consequently, banks and other financial institutions offer these internationally-engaged businesses hedging products to help mitigate the risks of being on the wrong side of Volatility .

Finance Magnates caught up with Tony Bedikian, Head of Global Markets at Citizens Bank, to better understand how the tumultuous events of summer have been affecting business.

Globalised Finance

Indeed, summer 2015 has seen an unprecedented level of volatility in global forex markets, at a time when traders and money managers have traditionally been at the beach.

Specifically, Mr. Bedikian pointed to the centrality of China in recent weeks, from which emanated a number of highly correlated events, including the devaluation of the renminbi, the stock market crash and a slowing economy that continues to impact global commodity markets and currencies. The combined result: “When China coughs, the rest of the world catches a cold.”

As Mr. Bedikian explains: “At the moment, the market is driven by China. The China story is interesting. Everything – currencies, equities, Chinese growth and commodities – has been extremely correlated.

Clearly they’ve been in a boom for the last 10-plus years. They have probably gotten into a bubble mode and now they’re in pullback territory … They are now clearly trying to spark growth, devaluing their currency to help exports."

China is clearly involved in stimulus mode at the moment, and it takes time obviously to take effect.

Putting it in perspective, Mr. Bedikian elaborates: “We have seen booms and busts in the U.S. and other countries many times over the last several decades. And stimulus is often needed by central banks and governments. China is clearly involved in stimulus mode at the moment, and it takes time obviously to take effect.”

Other than China itself, the hardest hit markets will be those directly linked to it in investment portfolios, such as emerging markets, commodity exporters and Asian economies. European equity markets are also facing corrections and the U.S Fed is less likely to hike rates as it was inclined to only recently.

Consequently, corporate treasury departments have had to battle with plummeting emerging markets currencies (EM) and lower yields on U.S. securities.

Hedging Exposure

In such an uncertain environment, banks like Citizens have a role to play to help their corporate clients mitigate the interest rate and currency risk that they have in their businesses.

To do so, Citizens offers interest rate products, such as interest rate swaps and options, and FX products, such as swaps and forwards, which they execute and match on the market.

As EM currencies plummet, with the Mexican peso, for example, at an all-time low, a lot of clients have been expressing interest in trading some of these currencies.

We have clients that have exposure to EM currencies, and many of these currencies have pulled back to all-time lows.

Mr. Bedikian explains: “We have clients that have exposure to EM currencies, and many of these currencies have pulled back to all-time lows, or near 2008-crisis lows. So we have a lot of clients expressing an interest to hedge their exposure to some of these foreign currencies where they have payroll expenses to pay.”

“We try and provide a perspective to clients and say look, if you’ve got exposure to say the Mexican peso rising, then this may be a good time to take some risk off the table if you have not done so already,” he added.

Given that no one can accurately predict the movement of the market, “taking risk off the table” is an ongoing endeavour, particularly with the heightened volatility of late. “If China does hit a turning point and things do improve, then it’s also likely commodities will improve and EM markets will also improve – the markets can turn on a dime.”

Corporate clients will be increasingly seeking ways in which to reduce risk and plan for the future.

Given the uncertainty of global markets combined with the trauma of recent events such as the SNB-inspired Black Thursday, and an increased regulatory effort to make OTC (over-the-counter) markets more fair and transparent, corporate clients will be increasingly seeking ways in which to reduce risk and plan for the future.

Moreover, as investment banks scale down their in-house trading portfolios and retail markets become increasingly competitive, banks catering to corporate clients will likely see continued demand.

Citizens Bank_large

[dropcap color="#000000" font="0"]S[/dropcap]peculators are not the only ones with a stake in Forex markets. Indeed, as globalisation has increased, more and more businesses have exposure to fluctuating exchange and interest rates, which pose a real risk to the financial foundations of these companies.

Tony Bedikian, Citizens Bank

Tony Bedikian, Head of Global Markets, Citizens Bank

Consequently, banks and other financial institutions offer these internationally-engaged businesses hedging products to help mitigate the risks of being on the wrong side of Volatility .

Finance Magnates caught up with Tony Bedikian, Head of Global Markets at Citizens Bank, to better understand how the tumultuous events of summer have been affecting business.

Globalised Finance

Indeed, summer 2015 has seen an unprecedented level of volatility in global forex markets, at a time when traders and money managers have traditionally been at the beach.

Specifically, Mr. Bedikian pointed to the centrality of China in recent weeks, from which emanated a number of highly correlated events, including the devaluation of the renminbi, the stock market crash and a slowing economy that continues to impact global commodity markets and currencies. The combined result: “When China coughs, the rest of the world catches a cold.”

As Mr. Bedikian explains: “At the moment, the market is driven by China. The China story is interesting. Everything – currencies, equities, Chinese growth and commodities – has been extremely correlated.

Clearly they’ve been in a boom for the last 10-plus years. They have probably gotten into a bubble mode and now they’re in pullback territory … They are now clearly trying to spark growth, devaluing their currency to help exports."

China is clearly involved in stimulus mode at the moment, and it takes time obviously to take effect.

Putting it in perspective, Mr. Bedikian elaborates: “We have seen booms and busts in the U.S. and other countries many times over the last several decades. And stimulus is often needed by central banks and governments. China is clearly involved in stimulus mode at the moment, and it takes time obviously to take effect.”

Other than China itself, the hardest hit markets will be those directly linked to it in investment portfolios, such as emerging markets, commodity exporters and Asian economies. European equity markets are also facing corrections and the U.S Fed is less likely to hike rates as it was inclined to only recently.

Consequently, corporate treasury departments have had to battle with plummeting emerging markets currencies (EM) and lower yields on U.S. securities.

Hedging Exposure

In such an uncertain environment, banks like Citizens have a role to play to help their corporate clients mitigate the interest rate and currency risk that they have in their businesses.

To do so, Citizens offers interest rate products, such as interest rate swaps and options, and FX products, such as swaps and forwards, which they execute and match on the market.

As EM currencies plummet, with the Mexican peso, for example, at an all-time low, a lot of clients have been expressing interest in trading some of these currencies.

We have clients that have exposure to EM currencies, and many of these currencies have pulled back to all-time lows.

Mr. Bedikian explains: “We have clients that have exposure to EM currencies, and many of these currencies have pulled back to all-time lows, or near 2008-crisis lows. So we have a lot of clients expressing an interest to hedge their exposure to some of these foreign currencies where they have payroll expenses to pay.”

“We try and provide a perspective to clients and say look, if you’ve got exposure to say the Mexican peso rising, then this may be a good time to take some risk off the table if you have not done so already,” he added.

Given that no one can accurately predict the movement of the market, “taking risk off the table” is an ongoing endeavour, particularly with the heightened volatility of late. “If China does hit a turning point and things do improve, then it’s also likely commodities will improve and EM markets will also improve – the markets can turn on a dime.”

Corporate clients will be increasingly seeking ways in which to reduce risk and plan for the future.

Given the uncertainty of global markets combined with the trauma of recent events such as the SNB-inspired Black Thursday, and an increased regulatory effort to make OTC (over-the-counter) markets more fair and transparent, corporate clients will be increasingly seeking ways in which to reduce risk and plan for the future.

Moreover, as investment banks scale down their in-house trading portfolios and retail markets become increasingly competitive, banks catering to corporate clients will likely see continued demand.

About the Author: Andy Traveller
Andy  Traveller
  • 154 Articles
About the Author: Andy Traveller
  • 154 Articles

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