Tag: risk management

The LTV vs. Pricing For Commercial Real Estate (2015 Edition)

LTV and Loan Pricing

Loan pricing depends on many things including cash flow, geography, property type, tenant mix, lease structure, borrower, loan structure and leverage. While loan pricing is primarily driven off cash flows, banks spend an inordinate amount of time worrying about loan-to-value (LTV), but little time adjusting for pricing. Today, we look at the relationship between LTV and loan pricing using data from the month of March.

 

The Data

 

Judging Leasing Risk in Bank Commercial Real Estate Loans

Real estate lending risk

In loan pricing and structuring, our loan trading and hedging desk often sees dozens of loans per day. We look at loans from banks all across the nation, including our own, and one area that could be improved is the quantification of lease risk in commercial real estate. Unfortunately, there is not an industry accepted methodology for quantifying the risk, but we would like to start to put forward a couple metrics.

 

How The Recent FDIC Customer Risk Guidance Can Make Your Bank Money

Customer Risk Model

If you are planning on banking Cuba-related businesses, legal marijuana growers, gun dealers, money transfer agents, foreign nationals or any other marginalized customer, the Federal Deposit Insurance Corporation (FDIC) issued guidance last week that makes things easier, as they supported a more individual customer risk-based approach instead of redlining complete customer categories.

This Is How Our Regulators Are Viewing Bank Risk, Capital And Org Structure

Bank Capital, risk and organizational structure

The Kansas City Fed released an interesting research paper titled The Effect of Risk and Organization Structures on Bank Capital Ratios. The research looks at how risk and a bank’s organizational structure impacts its capital levels. In times of stress, does a bank holding company (BHC) structure help protect a bank or hurt it?

 

Diversification In Your Bank's Loan Portfolio That Makes A Difference

Commercial Real Estate Portfolio Management

Like Degas obsessed with dancers, bankers have been brought up to obsess over the composition of their loan portfolio. Egged on by our examiners, auditors and random pundits, we slice and dice our loan portfolios as if it means something and pat ourselves on the back when we can show a nice pie chart with lots of even looking slices. The reality is many of our sectors move together and offer little in the way of diversification. When the economy turns, tenants aren’t looking for new office space any more than they are looking for new industrial space.

Nailing Princess Leia and Our New Social Media Policy

Social Media

Call it a social media fail, but late last Friday we posted this picture of an office Halloween costume that made us laugh given the cinnamon rolls in her hair. We thought she totally nailed the costume and used the heading “Nailed Princess Leia.” Unfortunately, we had a technical malfunction and the application that we use to manage social media failed to post the picture.

This View Of Risk Will Improve Your Bank

Bank Risk Management

We think this is a brilliant calculation and sums up the current environment nicely. According to our friends over at Continuity Control (with a cool phone number of 888.We.cmply), there were 82 new regulatory changes in 3Q that took up 3,404 pages – the most since 1995. In response to those changes, community banks had to spend 653 hours (the full-time employee equivalent of 1.86 bankers) just to read, understand and comply. That is a 26% increase over 2Q and equates to a cost of about $45,264 per quarter or $181, 056 annualized. 

 

5 Ways How Bank Hedging Can Add Value To Lending

How Swap / Hedging Programs Add Value to Banks

Banks all understand interest rate risk, so understanding how hedging managing risk is an easy one. However, there is currently a conflict with banks that on one hand say they don’t believe rates are going up so taking more fixed rate exposure is acceptable, yet have a rate view of that of the forward curve (which does show rates going up). This issue is compounded by the fact that these very banks mostly have loan growth for 2015 exceeding GDP (3%) which would indicate faster than expected expansion and indicates higher than expected rates.

Understand Your Bank's Position: New Bank Risk Management Tool (For Free)

Bank Enterprise Risk Management

At our core, banks are risk-adverse. It’s a good thing too, as we are all more leveraged than the average hedge fund such that each decision is amplified. Every time the sun comes up it is a roll of the dice as the market forces of credit, interest rate, liquidity and a dozen of other risks assault a bank.  What separates success from failure is a bank’s ability to understand what risks to avoid, what risks to broker, and what risks to exploit.

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