Pain of hedging revisited

June 13, 2008 | By Jim Kim

We've noted recently that hedging in the corporate world at large is a tricky business. Some companies, like Southwestern Airlines, have pulled it off. Others, like Bunge, have failed miserably. On Wall Street, broken hedges likely will add to the losses at top banks. Which brings us to bond insurers. The Financial Times reports that top banks--the likes of UBS, Citigroup and Merrill Lynch--stand to lose billions from the recent downgrades by Moody's and Standard & Poor's of bond insurers. The banks had hedged CDOs with the insurers via credit default swaps, the valuations of which are affected by the bond insurers' credit rating. You can't blame the banks for wanting to hedge, but it's not easy in this environment.

For more:
- here's the article