اخر خبر عن شركة انرون
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12/6/2001 8:22:00 AM
By Tom Bergin
LONDON, Dec 5 (Reuters) - A significant proportion of the losses to be incurred by banks who extended multi-billion dollar loans to collapsed energy trader Enron (ENE) will end up being shouldered by the insurance sector, dealers said on Thursday.
Insurance companies gained the Enron exposure through the use of credit derivatives. Financial regulators across the globe have previously warned about the risks posed by the transfer of credit risk from the banking to the insurance industry via these instruments.
"They (the lenders) are not taking as much of a hit as they would have done historically," said the head of credit derivatives at a European bank.
Credit derivatives are insurance-like tools that allow a party, such as a bank, to buy protection against the risk that a company will default on a loan or bond. The protection seller, often an insurance company, participates to earn premia.
More and more bank lenders are using credit derivatives to hedge the default risk on their loan portfolios. Swiss bank group UBS (UBSZN) told Reuters on Tuesday that it had bought credit protection for its entire $74.3 million exposure to the Enron group. Other banks did likewise. "We have bought a lot of Enron protection," said a senior credit derivatives trader at a bank with over $100 million worth of exposure to Enron.
OVER-THE-COUNTER MARKET
As the market is privately-negotiated, or over-the-counter, it is difficult to tell how much Enron exposure has been hedged with credit derivatives but dealers say it is probably significant.
"My guess is a fair amount of it (Enron exposure) is covered," said the head of credit derivatives structuring at a European investment bank.
Banks usually buy their credit protection from investment banks. The investment bank will repackage a portfolio of such risks into a special investment vehicle (SPV), which then issues a range of bond-like securities of varying credit qualities to investors.
Insurers tend to opt for the lower rated securities, which can yield as much as 40 percent per annum.
"The insurance community is a community that is involved in the lower end of the sector," said the European head of credit derivatives for a U.S. investment bank.
If a reference entity in the portfolio defaults on its obligations, the SPV must pay out. The holders of the lower-rated securities are the first to suffer a loss. Hence, in the case of Enron, it will not only be the lending banks who end up bearing the burden of any unpaid loans.
"The people who have taken the risk on are suffering...but they've been compensated for taking that risk," said the U.S. investment bank dealer.
REGULATORS WORRIED
Regulators have welcomed the use of credit derivatives as a means of spreading credit risk across the financial system, reducing the impact of major shocks. However, they have also warned that the pace at which credit derivatives are facilitating massive risk transfer is putting risk management practices under pressure.
"Risk transfer also creates dangers of opaqueness in bearing risks and potentially lack of approriate risk management practices if institutions purchase risks they don't fully understand," Andrew Crockett, general manager of the Bank for International Settlements said in September.
Crockett was speaking at a meeting of the Financial Stability Forum, a body formed by the group of seven rich industrialised nations in the wake of the 1997/98 Asian financial crisis, to spot vulnerabilities in the financial system. He said insurance regulators needed to monitor insurers' use of credit derivatives more carefully. (with additional reporting by Jon Cox in Zurich)