3 Nov 2016

Real Estate Finance Training - May You Live In Interesting Times

The Need to Ensure All Staff Engaged in Real Estate Lending Are Able to Fully Evaluate Opportunities and Assess Risks Has Never Been More Relevant and Necessary Than It Is Today

We all know of the supposed ancient Chinese curse “May you live in interesting times…”   Well, for real estate professionals these are certainly interesting times!

There is the political impact of Brexit to play out in the UK and Europe, the impact of lower oil prices impacting real estate prices in parts of the Middle East, long term low interest rates in most markets, the increased capital costs of Basle III and with the impact of a divisive US election still unclear.

There are also fundamental long term changes occurring in the industry itself with the trend to shorter commercial leases with more frequent breaks, the continuing movement of demand from high street retail to distribution centres as internet retail continues to grow, and movements in residential markets from build to sell to new professional build to rent models.
It is at times of market disruption like this that the principles of good risk management come to the fore, and the high levels of current uncertainty should be causing Banks to stop and think how they respond to these changes to ensure they manage this difficult but important asset class through the cycle. 

This course is not about trying to predict what might happen next – it is about ensuring you are prepared whatever happens next.

So What Is the BG Training Solution to These Issues?      
   
BG Consulting has many years real estate experience and can tailor make a real estate course to client’s specific needs dependent on both their existing exposures and their ambition for the future.
It can also be designed as either an introductory programme for new staff less familiar with the real estate market and working with SME businesses, or as a master class programme for those more familiar with the sector and currently working with Corporates or looking to do so.

The programme covers the four main asset classes of:
  •       Commercial Investment
  •       Commercial Development
  •       Residential Investment including the rapidly growing Purpose Built Private Rented Sector (PBRS)
  •       Residential Development



The course will be based around the three fundamental of good real estate lending which are an understanding of:
  •       Asset quality
  •       Counterparty risk
  •       Deal structure


BG Consulting adopts a practical approach to learning and the course includes a balance between instruction, group discussion and exercises and real life case studies.
Please view the full outline of the training programme here.

About BG Consulting

BG Consulting is a leading global provider of bespoke training for financial institutions, offering our clients trainers who are proven leaders and experts in their field.  Our trainers have worked for the leading global banks and have experience of the full range of real estate deals from small local SPV developments through the to major cross-border syndications.


For more information, or to register an interest please contact us at marketing@bgconsulting.com

18 Oct 2016

The Evolution of International Banking, the Impact of The Euro and the Likely Impact of Brexit

The Evolution of International Banking, the Impact of The Euro and the Likely Impact of Brexit

By Richard Bottomley

During the summer months, I was able to spend some quality time with graduate recruits, all aspiring to be the coverage bankers and transaction banking experts of the future. I believe it is worthwhile to record the issues they raised and some of the discussions we had during that time.

The Bedrock: Domestic Banking

Once upon a time, banking used to be a domestic activity. In these good old days, banks largely (sometimes exclusively) serviced their own domestic market places. The accounts of the banks themselves were safely housed within their own Central Banks. The banks’ Clients held their own bank accounts at “home”, within their own financial centre (for each currency), domestic clearing and settlement systems efficiently processed domestic payables and receivables (from cash, to cards, to wire transfers) and domestic single currency liquidity solutions offered Clients robust opportunities to optimise their overall cash positions. “Cash is King, I used to be taught.” “Richard, 98 % of companies go bust because they run out of cash, not because they are unprofitable.”

In the 1970s and 1980s, cash management became a vibrant domestic specialisation and the role of the Corporate Treasurer morphed from the Finance Department into a specialist role, so as to ensure each company was able to “meet the obligations of the company as and when they fall due”, still to this day a primary role of the Corporate Treasurer.

Domestic banking capabilities and activities form the bedrock of the banking market place and still dominate the transaction volumes of banking as a whole.

Where is the Real Money?

Whether we are talking about my personal account, or the accounts of a large company or institution, our real money is represented by a computer entry in the books of bank ABC, or bank XYZ. Bank ABC and bank XYZ both hold their domestic currency account with their own Central Bank. So when a client of bank ABC pays a client of bank XYZ, then bank ABC’s account at the Central bank is debited and bank XYZ’s account is credited, resulting (at the moment of settlement) in something called “Finality”, when the real value exchanges hands.  In reality, the money never really leaves the Central Bank. Everything else is just a series of book entries. These principles help me to lead on to explain the workings of international banking.

The Evolution of International Banking

In the 1970s/1980s, “trade” instruments were becoming expensive and international trade was growing rapidly. As both sellers and buyers expanded internationally, the cost of trade instruments was becoming prohibitive.  Both sellers and buyers wished to move to “open account” settlement, particularly with counter-parties they trusted, having traded with each party for a growing number of years. Cash based Foreign Currency Accounts (FCAs) increased in number rapidly, initially still in the “home” financial centre of the companies concerned, to facilitate foreign currency payables and receivables. However, these payables and receivables were still made on a cross-border basis, with cross-border access to the clearing and settlement systems for the currencies concerned, all based upon washing funds through the “nostro” accounts of bank ABC, XYZ.

These latter accounts were held either directly with the Central Bank in the country/currency concerned, or with “Correspondents”, a chosen partner bank in each financial centre. As cash payments grew and grew, as international trade activity grew and as more traditional Trade instruments became less and less popular, the incidence of these FCA based solutions also grew. Time zones impacted heavily on solutions of this nature and “cut-off” times within both financial centres were key drivers behind services of this nature.

Now, the cost of cross-border wire payments also became prohibitive and both banks and Cients sought to re-locate these FCAs from the “home” financial centre, to the appropriate financial centre for the currency concerned, what we used to call “away”.  This logical next step gave Clients in-border access to clearing and settlement systems, in-border payables and receivables and in-border single currency liquidity solutions for the currencies concerned.

I hear you ask “and where is the real money behind all of these transactions?”

The answer my friends is that the real money is always with the Central Bank for the currency concerned, because International Banking is 100 % based upon the Domestic Banking principles described above.

So, the saying “all US Dollars are in New York” is 100 % correct. No matter where you are told your US Dollar account is based, the actual dollars are in a bank’s account in New York City and their account is with The Federal Reserve Bank (FRB), thus proving the theory.

Technology and connectivity.

I won’t spend much time in this part of the journey, particularly as, unlike some of my colleagues in Moneta I am not really known as an expert in this field.  Suffice it to say that with one bank domestically with a fully functional domestic banking based “electronic banking system”, built upon and operating to single country domestic formats, is a much more simple solution to provide than those involving multiple currencies, in multiple locations, possibly with more than one bank involved.

Indeed, there was a time when multiple bank systems/platforms were a common sight within a Corporate Treasury Department. Through the passage of time, a few global banks have evolved these systems, improved them, given access to bank accounts based in many different locations, together with host to host systems for high volume transaction processing, all formatted in compliance with local standards.

For the top end of the Corporate and Institutional market, however, it is likely that SWIFT will become the selection of choice.


The Euro: How is it different?

Simply put, because now nineteen countries (and growing by the day) have the same currency.

So, how do I apply my golden rule of “All US Dollars are in New York” to The Euro? Where is the financial centre of The Euro? In which country does it reside?

The answer of course is that The Euro still works to exactly the same principles described above, in that Euros never really leave The European Central Bank(ECB), being in the accounts of bank ABC, bank XYZ within the ECB, just as in our previous, past experiences. The real difference with The Euro is in the ability to effect payables and receivables as in-border transactions, despite the accounts debited/credited being in different countries within the Eurozone.

This will enable banks and their Clients to rationalise their respective bank account structures and payables/receivables flows markedly over time. Furthermore, liquidity structures in Euro will be greatly enhanced under these enhanced capabilities and these simplified resultant structures.

My real concern with the Euro is over its longevity. A shared currency is a big undertaking. It works in GBP because the four countries have learned to “share” the good times and the bad times, with surpluses in one of the four countries being used to cover the deficits of others, possibly rotating in the short term, for example with Scottish oil revenues. However, over the longer term, the four support each other. In The United States, not all States generate surpluses, but again “the common good” created by a single market alleviates the burden on the “surplus” States, making their willingness to support the whole structure a viable alternative.

In 2015, Germany and The UK together represented almost 35 % of EU GDP.  In my view, given the relatively small size of certain “surplus” nations, the burden upon Germany and the German people will become intolerable. Therein lies the real problem with The Euro, namely its’ sustainability!

Brexit: A Contentious Issue!

In my view, not really. The UK banks were never “in” The Euro, and yet still offered(offer) Euro based products and services, as they do with US Dollars. The major UK banks will look to continue offering these, possibly through “partner” bank arrangements, possibly directly through a branch or subsidiary. The European reaction to the latter possibility is awaited.

Again, in my view, London will always be in The Euro. Indeed, it will be difficult for London to function without The Euro, but equally The Euro cannot fully function without London. London is not a UK city, it is a global city!


A Crash in the Pound Will Affect your Profits

A Crash in the Pound Will Affect your Profits
by Raymond Moore

The Sterling has had its worst week since the Brexit vote falling by 6% against the dollar in 2 minutes on Friday. Can a Supply Chain Finance solution offset increases in the import price of goods due to the weakening pound? 

 As GBP continues to weaken, UK importers are increasingly exposed to "margin pinch”. Supply Chain Finance “SCF” could be potentially be a solution that allows some or all of this "pinch" to be recovered without the need to revise contracts with suppliers and create a 'win win' solution for both buyer and supplier.

How does it work? 

Basically it is an arbitrage play on the interest rate differential between the buyer's and supplier's relatively cost of borrowing, the buyer's typically being a lower cost. A financial institution whether it be a bank or a specialist trade finance house, sits in the middle of the buyer and supplier and makes available non-recourse finance to the supplier once the buyer has approved the invoices submitted to it by that supplier. Let's consider a simple example. 

A supplier submits and invoice to their buyer for $100,000 with 90 days terms. The supplier's cost of borrowing is 4% pa. Hence if it were to fund the invoice via a working capital line with one of it's partner banks it would get a discounted receivable of $99,014 against the invoice equating to a cost financing of $986.

Alternatively the buyer has a cost of borrowing of 2%. The $100,000 invoice is included in a SCF solution provided by a bank/trade house who on presentation of the invoice to them by the buyer make available non-recourse financing to the supplier. As it is non-recourse and the bank/trade house credit risk is with the buyer, the cost of borrowing is 2% (i.e. the buyers cost), the discounted receivable to the supplier against the invoice is is $99,507 equating to a cost of financing of $493. 

The difference in the cost of financing between the 2 scenarios of $493, and overall the solution provides a win for the supplier (reduced borrowing cost on its debtor position), a win for the buyer (ability to share in the interest rate differential and thus potentially offset some or all of the margin pinch) and lastly a win for the Bank or Trade Finance House providing the solution (it will have a potential annuity stream of income from the provision of a SCF solution and a very “sticky" client). 
How can we help?

 Implementing an SCF provision is not easy.  There are legal documentation and supplier on boarding problems to overcome together with ensuring the Trade credit Taken position on the buyers balance sheet remain undisturbed, i.e. there is no reclassification of Trade Credit Taken to Bank Debt. That said with the continued potential for margin pinch and the increasing differentiation between credit spreads/costs borrowing it is likely that the upward trend in the market for using this sort of solution will continue.


At BG we have recent hands on experience of developing and delivering SCF solutions for some of the world’s largest companies. Whether a bank, trade house or end-user, we can partner with you to devise solutions and identify other areas of working capital optimisation. 

19 Sep 2016

Two Asset Management Simulations to Bring Your Training to Life


Portfolio Trader
Portfolio Management Simulation

Description

Portfolio Trader lets you gain valuable knowledge and experience in the process and execution of portfolio management. You are given a certain (fictive) amount of capital which you can invest in a variety of securities. The goal is to maximise your returns while adhering to your clients’ portfolio objectives and balanced trading risks. The online simulation uses real market instruments in a real-time environment.

You will get the opportunity to see which market theories work as you expected and what happens when a theory breaks down in practice. You will gain an in-depth understanding of market dynamics and create and follow (your own) market expectations as well as experience the emotions involved in managing a portfolio of real instruments in real time.

Duration

The simulation software is Internet-based and runs ‘live’ (either with a 15-minute delay or in real time) over a period of at least four weeks. The length of a session can vary considerably depending on the experience of, and time available for, the participants. A normal length is five to eight weeks.

A standard session would require either one hour of e-learning or a classroom presentation before the start of the simulation.

After a simulation session, the group feedback takes on average two hours. Individual feedback (partly given during a session), can range from ten minutes to two hours per participant depending on the required depth of coaching.


Key Issues Covered
  • Active management of a portfolio of various instruments
  • Risk and return appetites of clients
  • Formulating of investing and trading strategies to build a balanced portfolio
  • Establishment of risk parameters, trading limits and goals
  • Selection of target instruments, sectors and companies
  • Analysis of expected returns, volatility and portfolio ’fit’ for each investment
  • Instruments to hedge or leverage a position
  • Realistic ‘take profit’ and ‘stop loss’ levels 


Evaluation

The instructor will interact with you and the other participants by analysing your strategy and performance and give continuous feedback. During and after a session you are reviewed individually by an instructor on specific aspects including the following:

  • Profit and loss (volatility)
  • Risk management
  • Identification of (own) trading styles
  •  Knowledge and awareness of market developments/products
  •  Reaction to news and market changes
  • Liquidity management
  • Fundamental and technical analysis





Portfolio Manager
Asset Management Simulation
Description

Portfolio Manager gives you the opportunity to gain valuable knowledge and experience in the process of portfolio management and strategic asset allocation.

You are given a certain (fictive) amount of capital which you can strategically invest over asset classes and their constituents. The goal is to maximise your returns while adhering to your fund objectives and risks.

You will gain an in-depth understanding of market dynamics and can create and follow (your own) market expectations as well as experience the emotions of managing a fund over a longer time horizon. You will get the opportunity to see which market theories work as you expected and what happens when a theory breaks down in practice.

Duration

The simulation software is Internet-based and is normally played over a period of one full day. The portfolios are constructed in a simulated environment that spans over five years, which translates to one simulated month per five minutes. The duration may be adjusted to match the participants’ experience and available time.

A standard session would require either one hour of e-learning or a classroom presentation before the start of the simulation.

After a simulation session, the group feedback takes on average two hours. Individual feedback can range from ten minutes to two hours per participant depending on the required ‘depth of coaching’.

Key Issues Covered
  • Active management of a portfolio of various instruments
  • Risk assessment and rating
  • Risk and return appetites of clients
  • Pricing, covenants and collateral
  • Formulation of investing and trading strategies to build a balanced portfolio
  • Establishment of risk parameters, trading limits and goals
  • Credit portfolio management
  • Selection of target instruments, sectors and companies
  • Analysis of expected returns, volatility and portfolio ’fit’ for each investment
  • Instruments to hedge or leverage a position
  • Realistic ‘take profit’ and ‘stop loss’ levels


Evaluation

The instructor will interact with you and the other participants by analysing your strategy and performance and give continuous feedback. During and after a session you are reviewed individually by an instructor on specific aspects including the following:


  •  Profit and loss (volatility)
  • Risk management
  • Identification of (own) trading styles
  • Knowledge and awareness of market developments
  • Reaction to news and market changes
  • Liquidity management
  • Fundamental and technical analysis
  • Fund strategy handling 

The Investment Association & BG Consulting Present The Impact of the Financial Markets on The Business of Asset Management

16 Jun 2016

Excellence in Modelling Training: The BG Financial Modelling Manual

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Excellence in Modelling Training:
The BG Financial Modelling Manual

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A Comprehensive Yet Succinct Step By Step Guide to Building a Financial Model in Excel

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The BG Consulting Financial Modelling Manual is a comprehensive but succinct step-by-step guide to building a financial forecast model in Excel. 

All the steps are fully explained with screenshots from a case model which can be downloaded online and used to practice as you work through the manual. The manual contains additional chapters focusing on circularity in models and how to troubleshoot related problems.

The manual also includes a guide on to how to thoroughly check a model for errors and how to resolve them, and an introduction to the key Excel keyboard shortcuts and functions that will ensure fast, accurate modelling.

This manual is useful to anyone new to financial modelling wishing to ensure that they are following all the best practise to build models which are robust, accurate and easy to use.

BG Consulting is a leading provider of training to the financial services sector. We deliver financial modelling training to Analysts, Associates, Investors and Credit Professionals - anyone wishing to build, interpret and audit financial models in their day to day roles.

To find the BG Financial Modelling Manual on Amazon click here.  

To find out more about BG Consulting's expertise in modelling training click here.  
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About BG Consulting

Established in 1995, BG Consulting is a leading global provider of bespoke training for financial institutions.

For more information please click here.  

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9 Jun 2016

Excel Shortcuts




20 May 2016

Everything You Need to Know about Balance Sheet Management but Were Afraid to Ask…

Everything You Need to Know about Balance Sheet Management but Were Afraid to Ask…

Short training workshops from BG Consulting, the leaders in financial training – face to face or via webinar – these short training workouts to demystify the modern balance sheet

Overview of Basel III
¾  Causes and lessons from the Global Financial Crisis
¾  From I to II to III – Evolution of Basel Accords
¾  Connecting Risk Asset Ratio to Returns on Risk Adjusted Capital (RoRAC)
¾  The  impact of leverage
¾  Ambitions of Basel III
¾  Focus on Globally Systemically Important Banks
¾  How are banks responding

Overview of Net Stable Funding Ratio (NSFR)
¾  Why the ‘premier’ of liquidity risk in Basel III
¾  Ambition of NSFR
¾  What qualifies as Available Stable Funding [ASF]
¾  What is Required Stable Funding [RSF]
¾  How Liquidity Coverage Ration [LCR] and NSFR work in harmony
¾  The impact on banks and their clients

Funds Transfer Pricing (FTP)
¾  What is FTP and what does it achieve
¾  Why is FTP needed
¾  Construction of an FTP curve
¾  Best practices in derivation of both behavioural term and FTP
¾  Pricing of contingencies and cushions
¾  FTP as a rudder to ‘steer the ship’

Impact of Regulation on Capital
¾  Constraints on quality – changes to the hierarchy of capital and differences between CT1 and CET1
¾  Constraints on risk – changes to the required capital mix
¾  Constraints on ‘dominance’ Additional requirements for Globally Systemically Important Banks (GSIB’s)
¾  Constraints on Size – The Leverage ratio and its impact on Net Funding Generation
Impact of Regulation on Market Risk Management
¾  Overview of changes to evaluation of Market Risk under Basel II.5 and III
¾  Impact of Stressed VaR, how it is calculated and scenarios against which it is measured
¾  Impact Incremental Risk Capital (IRC) and Comprehensive Risk Measures (CRM), the regulators motivation for them and how they are calculated
¾  Counterparty Risk Management under Basel III and the evolution of Credit  Value Adjustments (CVA)
Credit Risk - Internal Rating Based Methodology Demystified
¾  Recap of Standardised Methodology for calculation of Credit Risk Capital
¾  Carrot and Stick – the benefits of complex risk management architecture
¾  Differences between FIRB and AIRB
¾  Intuitive Example
¾  FIRB model for Wholesale
¾  FIRB model for Retail
Counterparty Risk - Credit Value Adjustment (CVA) Demystified
¾  When do derivatives generate counterparty risk
¾  Ambition of CVA and how it’s impact on trading activities
¾  Key Risk Measures– EE, EPE, PFE
¾  Calculation of the CVA charge
¾  Challenges with implementing CVA
¾  Wrong Way Risk
¾  Overview of the rest of the XVA family
Banking 2020 with Foresight
¾  How has banking changed post Global Financial Crisis
¾  How may it change over the next 4 years
¾  Dividing the Family Silver – impact of Volcker, Structural Reform et al

¾  What may Basel IV look like