While the company is still current on its $235 million in bank loans, securities backed by those loans as collateral are trading at about 30 cents on the dollar, down from 70 cents a few years ago, traders in distressed debt say.
From Monday, RBS will charge interest to about 70 customers, such as banks and pension funds, on the cash they place with the state-controlled bank as collateral for trading complex financial products.
Even so, from Monday, about 70 RBS customers will start to receive negative rates because they will charged for any cash they place as collateral for trading in complex financial products, such as futures or options.
Gordon Howald, who tracks El Paso for Crédit Lyonnais Securities, said: "There isn't a near-term liquidity risk, but it's a situation where if the ratings agencies react negatively to this, their cost of capital will rise and they may have to post additional collateral with trading partners, all the things that got Williams and Dynegy into trouble".
He told investors he would use their cash and stock deposits as collateral in trading on their behalf for the hedge fund, the SEC said.
Other institutions may demand more collateral to trade with the company, resulting in a slight increase in trading costs, Ms. Dublon said in the conference call.
This means making sure high-quality government bonds, say, are not needlessly tied up as collateral for trades where lower-quality assets would be acceptable.
A lower rating, which suggests greater risk, can mean higher borrowing costs for a bank, and other institutions may demand more collateral to trade with the company, also raising costs.
When prices moved against AIG on its credit default swap contracts, AIG owed cash (collateral) to its trading partners.
The measure to protect swap traders' collateral used in trades to reduce risk was approved by a 4-1 vote.
