Getting in on the hedging and pre-hedging for a deal used to be a game changer for DCM banks. Some swaps are more lucrative than others, but with long-dated cross-currency swaps, for example, they could often make many multiples of their underwriting fee.
More competition and new regulation have, however, made fee generation from the derivative far more of a challenge. “The swap business used to have a much higher margin built into the bid-ask,” says one banker.
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