Rakesh Saxena

Citigroup's Derivatives Reduce Bailout to a Non-Event

Dear teraplot: This "netting" issue is much more complex than those in command of disclosure have led investors to believe. Firstly, there is the question of maturity mismatches. Secondly, the netting process must be viewed within the context of specific counterparty risks. Thirdly, the evidence already shows that the underlying contractual obligations found in "netted" transactions are not always similar. But, that said, you and other commentators raise a valid point and I will address this in more detail shortly. Many thanks - Rakesh


On Jan 04 12:07 PM teraflop wrote:

> Notional amounts can be netted under criteria unique to each Citi-counterparty/coun...
> parent relationship for credit purposes. In other words, if you want
> to calculate Notional amounts, you need a grid by counterparty, you
> can't just add them all up. Credit risk is mitigated through collateral
> postings at inception and ongoing collateral agreements, which should
> be included in any determination of outstanding credit risk. Additionally,
> Notional amounts should not be considered when evaluating Delta-one
> or Flow Risk in a portfolio because of netting agreements or outright
> additive nature of equivalent positions - they don't equate to market
> risk. A good article but throwing around Trillions is a good way
> to scare unsophisticated readers and garner attention.