Corporates fear CVA charge will make hedging too expensive

Uncollateralised trades will consume up to four times more capital under Basel III, dealers say. If that translates into a similar jump in pricing, corporates believe they may have to hedge less. Michael Watt reports

From 2013, Lufthansa investors should remain in their seats with their seat belts fastened – they may be heading into some turbulence. The airline’s Cologne-based head of finance, Roland Kern, expects its earnings to become more volatile – not because of unpredictable passenger numbers, interest rates or jet fuel prices, but because it does not post collateral in its derivatives transactions.

The reasoning might not seem obvious. At its heart is the new Basel III capital charge for credit value