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of course, ABN would take steps to manage these risks
independently.
To secure a partner for Colgate that would bear most of the
interest rate risks of the liability management partnership's
investments, Taylor approached the Financial Engineering Group of
a major foreign commercial bank. As a rule, financial
institutions like ABN do not expose themselves to interest rate
risk; it is a common practice of such institutions to hedge their
positions as promptly and fully as practicable. Taylor and his
Swap Group knew this well enough to offer structured transactions
that eliminated interest rate risks to BOT, BFCE, and
Sparekassen, as well as to all the banks that issued or purchased
LIBOR Notes in connection with each of the section 453
partnerships that Merrill promoted. Taylor's Swap Group would
not need to offer similar services to ABN. That would be the
responsibility of den Baas and his Financial Engineering Group,
whose regular business was to devise sophisticated structures for
hedging interest rate and currency risks. As Kannex's financial
adviser, den Baas's Group performed the function for which they
had been recruited.
As a witness, Taylor was asked about his expectations
concerning the manner in which ABN would handle the risks of
Kannex's participation:
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