Vedanta Hedging spoke with Reuters earlier this year about the issues associated with waiting until the end of the year to transition away from LIBOR as opposed to actively transitioning now.
With the majority of clients opting to wait, there will undoubtedly be increased information asymmetry and less favourable pricing when there is no choice but to transition to a replacement benchmark.
Abhishek Sachdev, CEO of Vedanta Hedging, and Paco Carballo, Head of Derivatives Accounting at Vedanta Hedging, share their thoughts with Thomson Reuters on Libor Transition and Synthetic Libor:
What will happen is only so many elephants can fit into the exit at one time. The problem is that the pricing is going to suffer. You’re going to see people entering [revised] contracts without due diligence. You’re going to see lawyers signing this stuff off without understanding it. You’re going to see again, a greater asymmetry of information between the banks and the borrower
Let’s face it, synthetic Libor is a good tool for what’s going to happen, which is tons of contracts, not only with banks, and with swaps, but leases and SPVs that link to Libor will not be able to be transitioned. Clients will not be able to find Sonia to calculate it or simply there will be no time and I actually doubt that it will ever happen. We’re talking about billions of contracts
Please see below for the full article by Thomson Reuters:
Libor crush March 21