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could have been expected to add an insignificant volatility to
the consolidated financial performance of the Colgate group. The
question arises whether this undesirable accounting byproduct of
Colgate's liability management strategy would have provided
reasonable grounds for hedging within the partnership.
We do not think so. If the standard financial accounting
treatment of hedging activities was a cause for concern
warranting countervailing positions designed to eliminate the
effects from the financial statements of the business, businesses
would routinely offset their own hedges and receive little or no
net economic benefit from them. In July 1989, Colgate had
entered into $300 million notional principal amount of interest
rate swaps for liability management reasons similar to those that
actuated its investment in ACM. That these swaps were also
marked to market for financial reporting purposes evidently did
not trouble Colgate, for it took no action to counteract their
economic effects. Thus, a desire to stabilize the value of the
ACM investment on its financial statements could not have
provided a rational basis for the decision to hedge inside the
partnership.
ABN never had any intention of using the LIBOR Notes as a
hedge for Kannex's interest in the partnership. Instead, it
hedged Kannex's exposure to the Colgate debt by means of swaps
outside the partnership and, by separate swaps, eliminated the
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