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Credit Default Swaps Profit by ftv14677

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Credit Default Swaps Profit document sample

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									Numbers in BLACK represent the total number of reponders who gave that answer
Numbers in RED represent the average rank for that response ("1" is most important)
Numbers in BLUE represent the average for questions where a percentage was requested


                                                                                                                                                                                        3. If you currently mark the loan po
                                        1. What is the bank’s perception regarding large corporate and middle market 2. Do you now or do you plan to mark loans (or the loan            model or if you plan to do so in the
                                        loans?                                                                       portfolio) to market?                                              purpose?
                                                                Loans do not add
                                                              shareholder value by        Loans do not add
                                                              themselves; they are     shareholder value by
                                                                 used as a way of      themselves; they are
                                                                  establishing or         used as a way of
                                                                   maintaining a            establishing or
                                         Loans generate        relationship with the        maintaining a
                                         sufficient profit      client; but the loan    relationship with the                        Plan to                              No plans to
                                          that they add      product must be priced      client; and the loan           Currently    mark to     Currently Plan to mark     mark to         Risk
                                           shareholder        to produce a positive    product can be priced            mark to      model in    mark to to market in      market or     management
                                              value                     NPV.             as a “loss leader.”    Other    model      the future    market    the future      model           only


ORIGINATORS HEADQUARTEREED IN
NORTH AMERICA (5 Responses)                     2                      2                         3               0         2            2           0           0              1               1

ORIGINATORS HEADQUARTERED IN
EUROPE or ASIA (13 Responses)                   3                      5                         3               3         3            1           2           7              1               1
3. If you currently mark the loan portfolio to market or
model or if you plan to do so in the future, what is the      4. How many grades are in your internal risk rating              5. What does your internal risk rating system      6. What is the source of probabilities of default for your
purpose?                                                      system?                                                          measure?                                           internal ratings system?




                                                                                                                                                                     Specific
                                                                                                                                                                 probablilities
                                                                                                                                                                    of default
                                                                                                                                                                  (EDFs) and                               Probabilities of
                                                              No bank-                                                                                  Both       loss in the                             default implied         Internal
                  MIS reporting                   Both MIS      wide                                                                                  borrower      event of         Bond                    from term            review of
                  (including risk     P&L         and P&L     system in                                                         Borrower    Facility and facility default by       migration                structures of          portfolio
                  management)       reporting     reporting     place         1-10          11-19        20-29      30 or more grade only grade only   grade          facility      studies     KMV's EDFs     spread             migration




                        1               1             2           0             2             2            0            0           1          0           3            1               1             1               0               3


                        4               1             6           0             7             6            0            0           5          0           5            3               7             7               3               4
                                         7B. For non-investment
                                         grade loans that your                                                                                                                         9. Between the two        10. Do you use a
                                         bank originates, what is                                                                                                                      CLO structes, which is    transaction pricing
                                         the maximum "hold                                                         8B. If "Yes", rank these motivations by order of importance. (Use   perceived to be more      model as part of
7A. What is the primary factor           level"? What is the      8A. Has your institution done a CLO using your   "1" to denote the most important and "5" to denote the least        effective for achieving   your approval
determining hold levels at your bank?    target "hold level"?     own assests?                                     important.)                                                         your goals?               process?




                             At the
                         discretion of
                               the                                                         Yes - Both
                         syndication /                  Target               Yes -         cash and                                             Balance
  Internal                distribution    Maximum        "hold   Yes - Cash Synthetic       synthetic              Regulatory     Economic       sheet      Exposure                                 Synthetic
  policies    Models         team        "hold level"   level"   CLOs only CLOs only         CLOs         No        capital        capital       room      management        Other      Cash CLO       CLO          Yes




     4           1             0            2.5         5.3           1            0           1           2          2.3           1.7           3.0          3.0            1.0           3            3           4


    12           0             2           10.0         7.5           3            3           6           1          1.5           3.4           2.2          3.4            1.0           1            6          13
10. Do you use a
transaction pricing
model as part of                                                             12. What happens in internal discussions if a
your approval                                                                transaction is proposed that has a return below the                                                               14. What is the average
process?            11. What does the transaction pricing model produce?     hurdle rate?                                          13. Who "owns" the economics of the loan portfolio?         ROE for




                                                                                                             The
                                                                                                          business
                                                                                         The business     sponsor           The
                                                                                            sponsor       pays the       business                                  Portfolio                                Term loans to
                               Profit and Economic or                                    decides - the    portfolio      sponsor     Portfolio                   management                     Revolving      middle-
                      ROE         loss    shareholder     Capital              Always       model is      manager       creates an management      Line units        / line                    and backup market growth
             No    calculation statement value added      usage      Other    rejected   informational     directly    internal IOU exclusively    exclusively    partnership Treasury   Other   facilities  companies




             1          0           1            3           0         0         0             3              2             0            0             2              1           0       1       7.5%        12.0%


             0          4           4            9           5         0         1             4              4             3            4             5              3           0       0       9.4%        16.5%
Numbers in BLACK represent the total number of reponders who gave that answer
Numbers in RED represent the average rank for that response ("1" is most important)
                                                                                                                                              3. If you currently mark the loan
                                                                                                                                              portfolio to market or model or if you
                                                                                                                                              plan to do so in the future, please rank
                                                                                                                                              the following with respect to their
                                                                                        2. If you currently mark the loan portfolio to market importance to your revaluation. (Use
                                1. Do you now or do you plan to mark the loan portfolio or model or if you plan to do so in the future, what “1” to denote the most important and 4. Do you use Loan Sales & Trading, Credit D
                                to market or model?                                     is the purpose? (Multiple responses permitted)        “3” to denote the least important.)      Securitizations to modify your loan portfolio?
                                                                                                                                                                                       Loan Sales and Trading




                                                         Plan to mark to No plans to                         MIS                               Loan prices
                                 Currently   Currently      market or      mark to          Risk          reporting                Both MIS       in the                  Credit
                                 mark to     mark to      model in the    market or      management       (incl risk     P&L       and P&L      secondary    Bond        derivative
                                  market      model          future        model            onlly           mgmt)      reporting   reporting     market      prices       prices          Yes           No


BANKS (!7 Responses)                3            1             11               2              3              7           1           6           1.4         2.6           2.0           17            0


INSTITUTIONAL INVESTORS
(5 Responses)                       5            0              0               0              0              1           2           3           1.0         2.2           2.5            5            0
                                                                                                                                 6. Please rank the credit derivative structures with respect to     7A. In order to transfer loans from the
                                                              5. Please rank the following tools in order of their importance to their importance to the management of your credit portfolio. (Use   institution, has your institution issued a
ou use Loan Sales & Trading, Credit Derivatives, or           the management of your credit portfolio. (Use “1” to denote the "1" to denote the most important and "4" to denote the least           CLO - either cash or synthetic? (Multiple
izations to modify your loan portfolio?                       most important and “4” to denote the least important.)             important.                                                          response permitted)
                     Credit Derivatives      Securitization




                                                               Mgmt.of new
                                                               business and
                                                                renewals of                                                                                                                                             Yes -        Yes -
                                                                  existing  Loan sales and         Credit                         Total return   Credit default   Credit linked   First to default                      Cash        Synthetic
                     Yes         No         Yes         No       business      trading           derivatives   Securitizations      swaps           swaps            notes            baskets              No           CLO           CLO


                      16          1         12          4          1.4              2.8             2.2             3.4              3.2              1.0             2.3              3.3                  5            10            12



                       4          1          4          1          2.4              2.2             2.8             2.3              1.3              2.3             2.5              4.0                  2             3             2
                                                              8. Has your institution used a CLO
                                                              structure as a way of trasferring loan
                                                              exposures into the institution? That     9. Between the two      10. Do you have a
                                                              is, have you purchased the equity or     CLO structures, which   "credit portfolio
7B. If your institution has issued a CLO, rank these          subordinated tranches of someone         is perceived to be      management        11. What are the goals of the Credit Portfolio activities in your firm?
motivations by order of importance. (Use "1" to denote the    else's CLO or have you set up CLO        more effective for      group" in your    Rank the following measures by importance to your instition. (Use "1"
most important and "4" to denote the least important.)        structures using assets from other       achieving your goals?   organization?     to denote the most important and "5" to denote the least important.)




                                                                                                                                                                              Reducing
                                               Exposure                         Yes -     Yes -                                                    Reducing      Reducing       size of                     Economic or
 Regulatory     Economic       Balance      mamagement                          Cash     Synthetic       Cash     Synthetic                        regulatory    economic      balance                      shareholder
  capital        capital      sheet room    (freeing lines)        No           CLO        CLO           CLO        CLO          Yes        No       capital      capital       sheet     Diversification   value added


    1.9            1.6           3.4             2.8               14            3           1             3         11           17        0         3.4          2.3          4.1            2.9             2.0



    2.5            2.0           2.0             3.0                2            3           2             4          2           4         1         4.5          3.5          4.0            1.8             1.3
                                                              13. How would you
                                                              characterize the "style" 14. What happens in internal discussions if a 15. Do you use a
                                                              of the management of transaction is proposed that has a return below credit portfolio
12. Who "owns" the loan portfolio?                            your loan portfolio?     the hurdle rate?                              model?           16. Which of the following is your primary credit portfolio model?



                                                                                                                    The
                                                                                                                 business     The
                                                                                                 The business    sponsor business
                                Portfolio                                                           sponsor      pays the sponsor
  Portfolio                   management /                                                         decides -     portfolio creates an                                               KMV's          Credit
management      Line units         line                                               Always        model is     manager internal                                                  Portfolio      Portfolio
 exclusively    exclusively    partnership Treasury   Other   Defensive    Offensive rejected    informational    directly    IOU       Yes       No     CreditMetrics CreditRisk+ manager         View


      2              4               9        0        1          16           3         0            6             5          5         16       0            3             1            9          0



      3              0               1        0        1           3           2         4            1             0          0          4       1            0             0            1          0
                                                                                    18. What is the primary source of data
                                 17. What is the primary source of probabilities of on Loss in the Event of Default for your
rimary credit portfolio model?   default for you portfolio model?                   portfolio model?




                                                         Probabilities
                                                           of default
                                                         implied from     Internal  Internal    Third-
                   Internally-     Bond                       term       review of review of    party    Industry- Rating
                   developed     midgration    KMV's     structures of    portfolio charge-      data      wide    agency
                     model        studies      EDFs         spread       migration    offs      bases     studies analysis


                        5             5          10           2             3           5         3         9         4



                        3             1           2           0             1           1         0         1         2
Numbers in BLACK represent the total number of reponders who gave that answer
Numbers in RED represent the average rank for that response ("1" is most important)
Numbers in BLUE represent the average for questions where a percentage was requested
                                                                                                                                                                                              4. For purposes of marking to
                                                                                                                                                   3. What is your perception of the          market or model, please rank
                                                                                                                                                   percentage of holders of loans that        the following with respect to
                                                                                                                                                   mark their loan portfolio to market or     their importance to your
                            1. What is your perception regarding loans?                                             2. What is the average ROE for model?                                     revaluation. (Use "1" to



                                                     Loans do not add
                                                   shareholder value by            Loans do not add                                                                               Do not
                                                themselves; they are used        shareholder value by               Revolving and Term Loans to                                   mark to
                                                as a way of establishing or   themselves; they are used                backup       middle-market                                market or
                                                maintaining a relationship    as a way of establishing or            facilities for    growth                                   model and
                              Loans generate     with the client … but the     maintaining a relationship               large,       companies         Currently   Plan to mark have no
                              sufficient profit    loan product must be        with the client … and the             investment-       (below-          mark to    to market or plans to do
                               that they add        priced to produce a       loan product can be priced                grade        investment        market or   model in the so in the      Loan
                             shareholder value         positive NPV.               as a “loss leader.”      Other    corporates?       grade)?          model         future       future      prices


PROVIDERS OF SERVICES
(6 Responses)                        2                      2                             1                  1          8.8%           21.0%           16.0%         53.0%        35.5%         1.7

PROVIDERS OF
SOFTWARE OR DATA
(6 Responses)                        2                      1                             1                  1          6.5%           10.6%           20.7%         54.2%        25.2%         2.0
4. For purposes of marking to
market or model, please rank    5. Please rank the following tools in order of their      6. Rank the credit derivative structures with respect to
the following with respect to   importance to the management fo credit portfolios. (Use   their importance to the management of your credit           7. What do you perceive as the goals of the Credit Portfolio activities?
their importance to your        "1" to denote the most important and "4" to denote the    portfolio. (Use "1" to denote the most important and "4"    Rank the following measures by importance to your institution. (Use "1" to
revaluation. (Use "1" to        least important.)                                         to denote the least important.)                             denote the most important and "5" to denote the least important.)




                                                                                                                                                                                     Reducing
                     Credit      Asset                                                                                                     First to    Reducing       Reducing         size of                      Economic or
           Bond     derivative sales and      Credit                                       Total return   Credit default   Credit linked   default     regulatory     economic        balance                       shareholder
           prices    prices     trading     derivatives    Securitizations    Other          swaps           swaps            notes        baskets       capital       capital         sheet      Diversification   value added




           1.8        2.5         2.5          2.0              2.0            3.0            3.3             1.0             2.8           3.0           2.8           1.7            3.4             2.7             2.3



           1.3        4.8         1.2          2.4              2.3            3.5            2.0             1.7             4.0           2.3           2.7           2.0            3.0             2.0             3.7
                                                               9. What is your perception about the roles and                                                                                                 11. What is your perception of the prim
8. What is your perception about "ownership" of the loan       responsibilities of different groups within firms,   10. What is your perception about the usage of credit portfolio models? Please provide    probabilities of default for credit portfol
portfolio? Please provide percentages.                         with respect to portfolios of loans?                 percentages.                                                                              Please provide percentages.




  Owned by                         Owned by
   portfolio      Owned by          portfolio                                                                         No credit                                                         Credit                   Bond
 management        line units    management /      Owned by     Risk measurement         Portfolio management         portfolio                                                        Portfolio   Internal    migration
  exclusively     exclusively   line partnership    treasury     responsibilities           responsibilities           model         Credit metrics      CreditRisk+        KMV         View        model       studies




   19.0%           29.0%           35.0%           21.3%          Responses can not be summarized                     20.0%            24.0%              10.0%           26.0%        6.7%        37.5%        30.2%



   10.5%           43.3%           28.3%           17.7%          Responses can not be summarized                     21.8%            37.0%              10.0%           20.0%        2.8%        22.5%        45.0%
11. What is your perception of the primary source of    12. What is your perception of the primary source
probabilities of default for credit portfolio models?   of LGD for credit portfolio models? Please
Please provide percentages.                             provide percentages.




                                            Internal
                                           revies of      Internal                  Industry-   Ratings
               KMV      Term structures    portfolio     review of    Third-party     wide      agency
               EDFs        of spread       migration    charge-offs   data bases     studies    analysis




              #####        10.5%           27.3%          36.2%        11.6%        11.4% 22.8%



              #####        14.0%           16.6%          35.0%        15.0%        24.0% 26.0%

								
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