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And how much would it cost us to replace those positions, to restore our offsetting hedges?
One filing that quickly gained attention in the market revealed that Morgan Stanley had one of the biggest exposures among Wall Street companies to the ailing French banks — about $39 billion at the end of last year, before factoring in offsetting hedges and collateral.
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Mr. Kalt, for example, said that during December -- when the average basis differential was $17 per million B.T.U.'s -- El Paso Merchant's average differential on natural gas it sold into California was $3.04, after offsetting hedging losses.
That makes it less attractive to hold swaps, as both the swap itself and any offsetting hedge add to a bank's leverage, even though the hedge serves to reduce risk.At the same time the profits from bond-broking are being compressed as trading moves away from adrenaline-driven salesmen on phones and onto electronic platforms.
DealBook » Goldman Reveals Italy Exposure | Goldman Sachssaidit it had $2.32 billion of "funded" exposure to the debt of Italy's government, companies and financial institutions at the end of September, but added that hedges offsetting the risks cut its net exposure to $700 million, Bloomberg News reports.
Goldman has said that its exposure to risk from A.I.G. was offset, or hedged, by other investments.
A trade that can be shown to closely offset, or hedge, a position elsewhere in the bank is more likely to be exempt from the rule.
After including the hedges and offsetting positions that their banks have in Ireland, and allowing that loans to vehicles in Ireland may in turn be loaned to other countries, German banks' exposures to Ireland are far lower than the headline BIS figures.
The team that manages the fund has 44% of its holdings exposed to the U.S. dollar; the foreign holdings do not include offsetting currency positions to hedge away the yen and euro exposure.
The banks argue that offsetting items like collateral and hedges should not be ignored because they provide dependable protection.
But banks and hedge funds have offsetting exposures, having issued some CDS insurance contracts and bought others.
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