The Mail on Sunday
Price warning on hedging against currency swings
SMALL and medium-sized businesses may be paying well over the odds to insure themselves against the risk of trading in foreign currencies, according to a former bank salesman.
James Ducker has set up his own firm to offer advice and even to negotiate on behalf of companies that he believes may be paying too much to cover themselves against currency movements or interest rate rises, or that may not need cover at all.
Companies that trade heavily abroad, either with suppliers or customers, may find their profits severely hit if the exchange rate moves dramatically against them.
Most banks offer business customers the option to buy a hedge – a financial contract that covers them against adverse currency movements. Similar products are also offered to cover companies against unpredicted movements in interest rates.
These products are based on wholesale market prices where complex derivatives are traded. Ducker claims that banks have a huge advantage because their smaller business customers lack the access or expertise to see and judge these markets and decide whether their hedging cover is good value or whether they need to hedge at all.
‘I believe customers need to look at hedging, but I think there are vastly fewer customers who need this than are being pushed into it by the banks,’ says Ducker.
Although he sold hedging prod- ucts to customers when he was a bank salesman, he says the banks take advantage of their professional knowledge and access to wholesale market prices to make as much profit as possible from customers.
‘The banking industry is concentrating on profit more than customer protection,’ he says.
His company, Benchmark Treasury Pricing, which is expected to gain approval from the Financial Services Authority this week, offers a range of services from one-off advice on pricing a particular product to continuous support and even taking over negotiations with banks. Fees will range from £500 to £24,000.
Ducker estimates that most companies with turnover of £1 million or more in foreign currency are being targeted by their banks with hedging products. ‘I think people will be surprised how much banks will be willing to move their prices on these products,’ he says.
A spokeswoman for the British Bankers’ Association says: ‘The industry welcomes competition and as long as this company complies with all regulatory rules and offers clear and transparent service we would welcome it as an extra service to business.’