« Posts tagged securities lending

Securities Lending VS. Traditional Banking

February 5, 2011 / admin posted in lending / Comments Off

I get asked on a regular basis where our funding comes from. No matter how many times I explain that our money comes from a Global Hedge Fund people insist on asking if its from a bank. I thought I would dedicate this post to that very topic.The one thing that has continued to stall the economy is the same thing that continues to make this program of lending against securities prosper. The banks just don’t want to part with their money!  That’s a generalized statement, and of course the banks do still lend money…..to the Rockefeller family.

For many businesses, turning  to a bank is just not an option.  Securities lending in today’s economy means that publicly traded companies can take on a non-recourse loan and have the collateral that sits otherwise dormant in their coffers put to good use. Since the securities themselves are the collateral, it puts a business in a very good position to continue and run their day to day operations without having to liquidate their remaining cash holds to complete this type of loan.  One upside to this program that I have spoken of very little in the past, is that it allows the company owner or share holder to receive their securities back in the same if not better condition than when they originally pledged the shares. A responsible lender will make good use of those securities by making thoughtful and intelligent trades causing the stock to appreciate over the loan repayment period. As the banks continue to lend money to only the wealthiest and an air of uncertainty continues to plague the financial landscape, other forms of lending will continue to be needed. I believe for this very reason that regardless of how the banking industry fairs securities lending will be here to stay for quite some time.

Todd Rome
Southern Lending Solutions

The Importance of Custodian Banks

January 4, 2011 / admin posted in finance / Comments Off

In Securities Lending, Custodian banks play a very important role. They look out for the client’s shares in case something illegal or undesirable (like a bankruptcy) happens to the lender or other counter party in the deal.  Here’s a great definition of custodian bank , thanks to Wikipedia.   The safeguarding of assets and the management of the settlement of the shares vs. cash are the primary roles of the Custodian and it’s for this reason we only use large global banks for this like EFG Private Bank, Credit Suisse, Citi or HSBC.

Many clients ask us about the safety of their shares given the fraud in the marketplace and the fact that many of our lenders are private companies and it’s this safeguarding done through the Custodian Bank that helps to put their minds at ease so they can move ahead and get funded.

Stu Lustman
Southern Lending Solutions

Asian Stock Exchanges Lead The Way

September 12, 2010 / admin posted in finance / Comments Off

At one time many of the stock exchanges in Asia including:  Hong Kong, Taiwan, and Singapore were once seen as emerging markets and to a degree, they still may be today. This has changed over the years as many US and Canadian businesses have set up shop in these up and coming countries.  The Singapore and Hong Kong Exchanges have become more transparent, offer longer trading hours, and provide more flexibility with clearing and settlement. Many international brokerages and banks such as Goldman Sachs and Credit Suisse see these countries as growing players in the securities market and have focused much of their attention to supporting that growth.

Todd Rome
Southern Lending Solutions

Securities Lending w/Recourse: Who Does It?

September 2, 2010 / admin posted in Uncategorized / Comments Off

When discussing recourse loans within the framework of securities lending, we have to understand who is most likely to offer such a program.  Many firms offer securities lending including:

Banks

Brokerage firms

Trusts

Hedge Funds

Insurers

Private Equity Groups

So who is most likely of this group to offer recourse? The bulk of the money is made in securities lending for the lender by trading in and out of the shares and with recourse, since ownership and title stay in the client’s name, the ability to sell the shares is eliminated.  This instantly eliminates Private Equity groups and Hedge Funds.

So we must need a group where actually having the assets, even if in someone else’s name, still benefits them. Does this sound familiar?  Your bank deposits are in your name but the bank still gets to use them for their capital needs, known as required reserves allowing them to lend more money. The same is true of an insurer but instead of required reserves its called statutory capital. So banks and insurers do it and perhaps some brokerages might if they leave these securities out of their own proprietary trading accounts, which happens but is unlikely. As for trusts, whether they work in recourse lending or not is on a case by case basis.

So if recourse and ownership/title matter to you, look for a bank or insurer or a firm that works with one.

Stu
Southern Lending Solutions

The Recourse Loan in Securities Lending

August 30, 2010 / admin posted in finance / Comments Off

So in our last post, we started the discussion of Recourse vs Non-Recourse lending within the framework of a Securities Lending program. To review or if you missed it, check it out here.

Why would someone take recourse and more responsibility over the repayment of a loan when they don’t have to?

1) Ownership/Title:  Some control positions (when an insider owns a controlling stake in the company) are reliant upon ownership not changing so they continue to own their 51% of the firm instead of the transfer dropping their stake to 49% or 47%. In a recourse loan, the ownership does not change and the shares are physically moved to a bank/brokerage or other account staying in the client’s name.  Many clients don’t care because their firms need the cash but control positions do so that’s how we accommodate them.

Unlike in a non-recourse loan where lenders freely trade in and out of the stock and often become something like a market maker in the stock, in a recourse loan they don’t freely trade the shares.

So how does a lender make money without trading the shares? Since interest rates are typically very low, its not on the payment stream. The one way a lender makes money in a recourse loan that they don’t in a non-recourse loan is that they might actually lend the stock out to another institution for the purposes of hedging or to cover options expiration’s or cover an existing risk in their own trading account.  This is a big difference between recourse and non-recourse and many firms are OK with this and some are not.

Stu

Southern Lending Solutions