Most companies are satisfied with their bank's approach to selling derivatives, according to a recent survey of financial executives.
Nearly nine of 10 respondents to the survey by Emcor Risk Management Consulting of Irvington, N.Y., said their banks were not "overly aggressive" in selling derivatives.
This indicates that few companies would level the same types of criticism against their banks that Procter & Gamble and Gibson Greetings have leveled against Bankers Trust New York Corp. over derivative investments that went sour.
Both companies have sued, alleging that they were misinformed about the risks of the investments. The banking company has denied the charges, but settled with Gibson last week.
"Despite a few corporations suing bankers that sold them derivatives that resulted in losses, a majority of corporate financial executives view banks as partners in providing appropriate derivative instruments to manage financial risk," said Robert J. Baldoni, a managing director at Emcor.
Derivatives are financial contracts whose returns are derived from the performance of interest rates, and other benchmarks.
The 80 financial executives surveyed in October were said-to-be the most senior financial officers at companies of various sizes and nationalities.
Despite the positive reaction from most respondents, banks were not universally praised. Twelve percent of the financial executives agreed that their "bankers did not develop a clear understanding of their companies' needs" or caution them about the potential drawbacks of using derivative instruments.
Heinz Binggeli, a managing director at Emcor, said he sees that as a relatively small level of criticism. But banking regulators have decided more needs to be done to insure derivatives investors are treated properly.
To that end, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Federal Reserve announced this month that they are drafting rules to make sure derivatives are sold properly to the right kinds of investors.
