Photo of Michael Payne, National Express and Yuliya Komleva, Thomson Reuters.

The solution enables National Express to more effectively control financial risk and ensure pricing from their financial counterparties is on-market before entering into a trade. The ability to monitor counterparty risk on a continuous basis provides them with the best chance of avoiding a credit event due to the failure or significant downgrade of one of their financial counterparties. They also track changes in commodity prices, which helps in hedging their fuel exposures.

Risk solution helps this company hedge its fuel

The challenge

National Express relied solely on manual updates to credit ratings for assessing counterparty risk. As the company has more than 16 banks that it trades with, this was labour-intensive and sometimes resulted in the use of ratings that had not immediately picked up on significant changes in a counterparty’s credit quality.

The lack of real-time realistic market pricing also caused issues in trading and required at least two of the team to be on the phone at the same time to ensure prices quoted were realistic and on-market.

The solution

The treasury team monitors each fuel derivative it hedges on a daily basis to observe movements in prices for different hedge tenors. Prices are monitored in the end currency and unit in which the underlying risk is purchased (eg GBP pence/litre). Operating divisions can then be kept regularly up-to-date of movements in available hedge prices at a price that they understand. Individual components within the hedge (eg USD commodity + FX forward) can also be viewed to gain a better understanding of the underlying drivers of price movements.

A range of metrics covering tier 1 capital, CDS, share price vs a financial counterparty index (European and US) and credit ratings are used and feed directly from Thomson Reuters Eikon into a spreadsheet model that Thomson Reuters helped to build. This links to National Express’ internal counterparty limits matrix so it can determine the maximum notional to trade, whether to trade at all (if more than one of the metrics has breached a pre-set level) or whether to reduce exposure to a financial counterparty. This dynamic tool allows the treasury front office to act with confidence when dealing and gives management comfort that policy levels are being adhered to and reviewed regularly.

Thomson Reuters Eikon functionality also allows for fully integrated real-time reporting of market data and other key risk metrics that allow the company to immediately refresh its reports at the touch of a button, automating the process and allowing the team to move away from the copy/paste of charts/data into PowerPoint presentations and Excel spreadsheets. This saves the team a huge amount of time in preparing reports.

Best practice and innovation

By implementing Thomson Reuters Eikon solution, National Express has created a dynamic set of risk reports for the group’s commodity exposures and financial counterparties to provide greater visibility and understanding of each area of risk. Reporting is now reliable, easy to maintain, covers a broad range of metrics and is useful as an early warning tool for treasury to take action with confidence.

The treasury team is now able to track changes in commodity prices to hedge fuel exposures and monitor changes to counterparty credit quality to take action to adjust exposures or credit limits following a change in the credit quality of a financial counterparty.

“FXall (Thomson Reuters’ x aggregator platform) has also made a big difference in helping us more effectively allocate our FX trades across our bank group,” says Michael Payne, Deputy Group Treasurer, National Express.

← Back to winners list    Next case study →