ABN Amro cuts rates swaps from €24bn covered bond programme

High cost of downgrade triggers forces Dutch bank to use alternative hedge

ABN Amro
Covered bond documentation required ABN Amro to have swap documentation in place if it was downgraded below certain levels

ABN Amro has removed derivatives hedges from its €24 billion ($27.3 billion) covered bond programme due to costs that would arise in the event of the bank's downgrade. It is at least the fourth European bank to do so since 2013.

The Dutch bank was using interest rate swaps to hedge mismatches between covered bond coupons and the underlying mortgages, but triggers embedded in the instruments would have required ABN Amro to find a replacement counterparty if it fell below a threshold credit rating

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