Magazine article American Banker

Eyes on Credit: Chicago Merc Hedge Product Is Stuck in the Gate

Magazine article American Banker

Eyes on Credit: Chicago Merc Hedge Product Is Stuck in the Gate

Article excerpt

By CHARLES KEENAN The Chicago Mercantile Exchange hopes its bankruptcy futures contract, designed to help lenders hedge against losses, will soon trade as fast as pork bellies.

So far, it has not. Since the opening bell last Monday, the security tied to quarterly bankruptcy filings has not traded even once.

Exchange officials said they think credit card issuers will be attracted to the product once they figure out how it can help them.

A company can lock in a particular bankruptcy rate for a future date, assured that if the rate goes higher, it would be compensated for losses.

"We've got to get people comfortable with looking at this stuff," said Peter Barker, director of currency and interest rate marketing at the exchange.

Once bankers and investors scrutinize the concept, Mr. Barker said they will "stick their toe in the water."

Despite the slow start, some observers said the new instrument comes at a good time, given economists' predictions of a slowdown.

"Banks are concerned about credit risk and bankruptcies," said Sung Won Sohn, senior vice president and chief economist of Wells Fargo & Co. The derivative "is one of the ways you can hedge against that risk."

In the third quarter there were 353,515 business and personal bankruptcies, a 15% jump over the same period last year, according to the Administrative Office of the U.S. Courts.

The Mercantile Exchange has called on banks' treasury departments to sell them on the product. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.