In detail: debt derivatives

Credit Suisse's Head of Foreign Exchange, Sabine Chappard, introduces her team's work

Where does your team fit in?

We're a team within investment banking who deliver hedging, that is, risk management, solutions to our clients. We work closely with our colleagues in M&A and in our sector-specific teams. We advise clients on specific risks associated with an investment banking transaction and offer them products to protect them against these risks, which could be the risk of change in currency exchange rates or interest rates. I personally specialise in advising on currency risks.

Can you give an example of a type of situation where clients often come to you for help?

We might be advising a client who is making an acquisition. The price of the company being acquired and the financing the client is using to acquire that company might be denominated in different currencies. Quite often, there's a delay of several months in M&A deals between agreeing the financing terms and completing the acquisition, so the client is at the risk of losing money - the financing currency could fall in value substantially against the acquisition currency during this time. We can make sure that the client will have the right amount of money in the right currency at the moment they need to make the payment to complete the acquisition.

How exactly do you help them?

We work with clients from the beginning of a project such as an M&A deal to formulate a hedging plan to manage a risk, which will usually involve providing them with derivative products. For example, in the acquisition situation I described, my team might sell a client an option to purchase a set amount of a particular currency from Credit Suisse for a set amount of another currency on a certain date in the future. Finding the right solution for a client can take anything from a couple of weeks to several months. It takes this length of time to put an effective product together because we have to carefully assess the risks involved and tailor the product to an underlying transaction in which the terms may change before being finalised.

What's happening in debt derivatives at the moment?

We're definitely seeing a pick-up in M&A activity, or at least in clients looking at M&A opportunities, which means more work for us. Plus we have a very interesting context for European cross-border M&A deals at the moment given the ongoing issues with the euro. We're talking a lot to our clients about currency risks and will be for the foreseeable future - it's been a rollercoaster for months and I'm pretty sure it will carry on being so!

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