CPM desks split on whether to reap windfall on hedges

The value of hedge books was hugely volatile during the crisis, forcing loan portfolio managers to think carefully about whether to monetise their gains. Those who chose not to saw windfall profits wiped out in a matter of weeks – but there’s still little consensus on the topic. Duncan Wood reports


The financial crisis has breathed new life into an old debate – the extent to which bank credit portfolio management (CPM) functions should seek to cash in on spread widening by closing positions early. It’s an issue that goes to the heart of what CPM is about – protecting against losses or helping a bank make profits.

“This was a huge issue for the industry at the height of the crisis,” says Sean Kavanagh, head of the loan exposure management group at Deutsche Bank in New York. “In the first

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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