Show me the money: banks explore DVA hedging

Debit value adjustments are considered accounting voodoo by many – but Goldman Sachs thinks the numbers are real enough to control with a hedging programme. Other banks may follow suit, at least for their derivatives liabilities, but it remains a controversial subject. By Laurie Carver

Debit value adjustment (DVA) is controversial for obvious reasons – it allows an institution to report profits as its health deteriorates, reflecting the declining value of its liabilities. Banks downplay it in their earnings reports, while analysts and investors ignore it, but there is another way to reduce its impact – it can be hedged. This is already happening to some extent on the derivatives side, sources say, and Credit Suisse, UBS, UniCredit and one Canadian bank are all considering