LIBOR Transition & Hedge Accounting

If you have not finalised your year-end audit, do not forget the specific LIBOR transition disclosures under UKGaap (FRS102) or IFRS9, as well as take the time to amend the hedge designations in place to avoid potential de-designations and P&L impacts due to the change from LIBOR to SONIA.

As well, a friendly reminder that even though some “non transitioned” financing or other contracts are now being referenced to “synthetic” LIBOR, that rate is currently significantly higher than SONIA as market expectations indicate further increases in the BoE rates, and it could pay off to analyse whether it makes sense to change it to SONIA well before “synthetic” LIBOR ceases to be published (expected before year-end 2022).

It is also important to remember that volatility in earnings caused by hedging instruments, either negative but as well as positive, may have implications for Distributable Reserves and Dividends!

Those clients that presciently hedged variable rate loans over the last two years they are no longer sitting on derivatives liabilities but in many cases very sizable assets. Make sure they are booked into the accounts not in the P&L but as a hedge accounting instrument, if you want to avoid unwanted P&L swings!