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Q: * * * Mr. Taylor, based on your experience
with complicated transactions, why did you
not expect or believe that ABN was hedging
its risks with respect to ACM partnership?
A: I didn't-did I say I didn't-I never said they
wouldn't hedge.
* * * * * * *
Q: Okay. Did you believe that ABN would hedge
its risks?
A: Did I believe that they would hedge their
risks? Yes, in some way, sure.
Q: And hedge their risk with respect to their
investment in ACM partnership?
A: However they saw fit.
The expectation that ABN would manage the risks of Kannex's
participation "however they saw fit" does not square with the
notion that a hedge within the partnership was designed for the
principals' mutual benefit. That expectation, however, was a
cornerstone in Merrill's design for the liability management
partnership. The concept of creating a mechanism to separate
treasury risk from credit risk and "allocating to each partner
the risks that it is best able to bear" presupposed that the
foreign partner would make use of the risk management
capabilities in which it possessed a comparative advantage; it
would have made no sense if the foreign partner were expected to
rely upon risk management conducted at the partnership level.
There was no attempt to make the LIBOR Note hedge into the kind
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