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CMBS: Credit Risk Workshop (Europe)

Develop a structured approach to assessing the risks and returns of CMBS asset classes.

Course Objectives

The overall goal of this intensive three day workshop is to equip relationship managers with the analytic skills and understanding to enable them to act as strategic partners for their bank clients in meeting capital, funding, investment and risk management needs.
Specifically the goals of the training are to equip participants to:
  • Anticipate client need by cultivating a better understanding of the key business and financial drivers of bank performance
  • Understand the changing economic, regulatory, risk management and accounting issues faced by banks and how they help shape bank strategy
  • Use a structured approach to analysis to spot potential business opportunities and identify the right questions to ask in client meetings
  • Recommend higher value added solutions for clients which incorporate capital markets, risk and portfolio management, financing and ALM product capabilities.

Target Audience

Relationship managers, coverage officers and other origination professionals in banks who wish to identify business opportunities with their client banks. This course is pitched at an intermediate to advanced level and assumes participants have a reasonable understanding of bank business models and products.

Content

ANALYTIC OVERVIEW
The goal of this section is to establish a framework of analysis within the context both of the bank’s value drivers and management goals and the market environment.
Value drivers: structured approach to analysis
  • Value drivers and business model of a bank
  • Risk return criteria: risk adjusted return on capital and economic capital
  • Changing perspectives on analysis post credit crunch: rating agencies, shareholders, regulators and debt providers
  • Market perspective: using CDS, bond and equity market indicators to understand market appetite and refinancing issues
  • Structured approach to analysis: using an understanding of the business model to anticipate financing needs.
Risk and performance drivers
  • Strategic focus: differing business models of banks in both mature and emerging markets
  • Business drivers and associated risks: lending, trading and investing, services, trade finance
  • Financing drivers: liquidity, asset and liability management, solvency
  • Capital targets: internal, regulatory and market requirements.
Illustration case study:

Understanding the risk and performance drivers of a bank and how they influence funding and capital decisions.

KEY DRIVERS I: CAPITAL MANAGEMENT
The goal of this section is to review the key capital adequacy requirements from the perspective of the regulator, the rating agencies and debt and equity investors and to anticipate the impact this has on bank capital management strategy.
Capital adequacy criteria
  • Types of capital: shareholder, regulatory and economic capital
  • Regulatory capital: proposed Basel III changes, leverage limits
  • Case study: required capital raising for Basel III compliance
  • Hybrid capital: tier one, upper and lower tier two and tier three capital instruments: key structural features, pricing differentials, country differences
  • Exercise: comparing capital instruments – contingent capital instrument (coco) and a reserve capital instrument (RCI)
  • Basel III vs. Basel II and I risk weighted assets, differences between standardised and internal methodologies; impact on portfolio management and risk adjusted pricing; proposed changes to trading and securitisation positions.
Case study:

Impact of capital on business strategy.

Key performance indicators
  • Benchmarking capital adequacy from a risk return, rating agency and shareholder perspective
  • Stress testing bank capital – high growth, loan losses, investment write-downs and trading losses
  • Equity valuation: using price/earnings and price / book multiples to benchmark appropriate equity valuations against peers.
Case study:

Optimisation of capital structures – comparison of banks between different emerging markets and mature markets.

Banking opportunities
  • Focus on capital securities: issuer and investor motivations
  • Sources of capital: capital markets, sovereign wealth funds, private equity, government
  • Differences in terms and conditions in different markets.
KEY DRIVERS II: LIQUIDITY AND ASSET AND LIABILITY MANAGEMENT
The goal of this section is to review the key drivers of asset and liability management in a bank, with a focus on liquidity and refinancing risk.
Financing strategy
  • Key drivers of asset and liability management strategy, cost, stability, tenor, interest rate and foreign exchange matching
  • Regulatory issues: local liquidity rules – quantitative and qualitative measures, local market conditions and market practices, Basel guidelines for sound liquidity management and local implementation
  • Contingency liquidity: Central Bank eligible collateral, availability and tenor of discount window, standby facilities from commercial and multi-lateral banks
  • Asset liquidity: defining liquid assets in the context of local market conditions, risk weighting of assets for both capital and liquidity purposes.
Financing strategy continued
  • Funding sources: stability and variety of funding sources – deposits, money market, debt capital markets, standby facilities and other contingency funding
  • Using the tenor mismatch and debt maturity tables both to spot acceptable refinancing opportunities and to screen unacceptable risks
  • Securitisation as a funding source: benefits and risks of future flow and asset securitisations, key regulatory and market requirements.
Case study:

Comparing an RMBS and a covered bond.

Key performance indicators
  • Qualitative and quantitative measures of liquidity and refinancing risk
  • Benchmarking acceptable levels of liquidity risk: sensitising access to funding sources.
Case study:

Lessons learned from a challenging liquidity situation.

Banking opportunities
  • Cash management opportunities given changing global liquidity rules
  • Funding sources: lines of credit, syndicated loans, unsecured medium term notes, covered bonds and securitisations
  • Originator and investor motivations
  • Differences in terms and conditions in different markets.
Case study:

Future flow securitisation.

KEY DRIVERS III: PORTFOLIO MANAGEMENT
The goal of this section is to understand how banks manage their credit and investment exposures.
Types of exposure
  • Categories of credit risk: loan, investment, contingent, pre-settlement, settlement, country / transfer, other
  • Portfolio management targets: diversification of single borrower, sector, country, asset class and commodity risks
  • Equity and commodity risks in the loan and investment portfolios
  • Investment portfolio: types of investment; liquidity and price risk in equities and asset backed securities, impact on hedging strategies, affiliate investment holdings
  • Portfolio management techniques, syndication, sub-participation, whole loan sales and purchases, derivatives (credit, equity and commodity), political risk cover, securitisation.
Case study:

credit portfolio management.

Key performance indicators
  • Qualitative measures: growth, concentration and type of exposure
  • Measuring credit exposures: loan and investment portfolio quality
  • Understanding bank credit appetite.
Banking opportunities
  • Focus on portfolio management techniques
  • Identifying client bank credit appetite and risk profile
  • Synthetic securitisation
  • Equity derivatives
  • Exchangeable bonds.
KEY DRIVERS IV: MARKET RISK MANAGEMENT
The goal of this section is to understand market risk exposures banks have to interest rates, foreign exchange, equities and commodities in both the banking and trading books and to identify potential risk management business opportunities.
Types of exposure – banking book
  • Banking book vs. trading book exposures to market risk
  • Interest rate risk: re-pricing risk and how it is managed both using funding and investment choices and derivatives
  • Foreign exchange risk on the funding and lending portfolios: devaluation, credit and liquidity risks, lessons learned from previous crises
  • Regulatory restrictions on market risk gaps
  • Gap management: tenor, interest rate and foreign exchange gaps – identifying risk appetite of the client bank with respect to mismatches
  • Strategy for managing banking book mismatches: portfolio and financing alternatives, hedging with derivatives.
Case study:

Interest rate risk management.

Case study:

Foreign exchange risk management.

Types of exposure – trading book
  • Trading book risk: key assets and liabilities, volatility of trading profits
  • Value at Risk (VaR): using the VaR data to identify risk appetite.
Key performance indicators
  • Key market risk measures: interest rate and FX gaps, VaR; equity risk
  • Disclosures and accounting methods for different types of investment and derivatives
  • Future outlook: stress and scenario testing exposures to measure risk appetite.
Banking opportunities
  • Trading opportunities: identifying business opportunities for trading and brokerage activities
  • Focus on derivatives
  • Asset and liability management concerns
  • Accounting, capital and risk management considerations when using derivatives.
Case study:

A bank with significant FX or equity exposures.

GROUP CASE STUDY
  • The goal of this closing case study is for relationship managers to apply the analytic tools to identify business development opportunities for a banking client.
Banking opportunities
  • Present a marketing plan for a client bank and suggest business opportunities based on client’s business and financing key drivers.

Workshop Times

Below are typical timings for our courses; upon registration we shall advise you if these have changed.

Breakfast: 8.30am
Course Start: 9.00am
Course End: Between 5.00pm and 5.30pm

Lunch starts between 12.30pm and 1.00pm, and lasts no longer than 1 hour.
Short breaks of 10 - 15 minutes are taken mid morning and mid afternoon.

Please make your course selection
London - £1,850+17.5% VAT
24 - 25 February, 10
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8 - 9 December, 11
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The majority of Fitch Training programmes are offered at an intermediate and advanced level. There are no specific prerequisite courses to attend our programmes, however some topic knowledge maybe required. Please refer to the target audience on the course page for more details.

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