Credit Risk Analysis for Private Bankers

Wealth advisors, including private bankers, are increasingly being asked to extend credit to their clients. Requests range from a home loan to leveraging a hedge fund. This two-day course provides private bankers with the concepts and tools to better evaluate risk.

No sessions currently available. Contact client services to get the next available date.
Portfolio managers, individual investors, private bankers and other wealth advisers wishing to identify additional opportunities for lucrative business while maintaining a strong sense of risk and structuring and a proper risk reward balance.
No advance preparation required.
Students will be able to:
  • Understand the importance of credit analysis for both portfolio quality considerations and new business opportunities
  • Appreciate the benefits of a risk evaluation framework
  • Improve deal structuring capabilities for public companies, private companies, hedge funds, real estate
  • Understand the relationship between qualitative and quantitative aspects of a credit analysis and calculate the ratios for a selected company
  • Gain insight into collateral margining and the collateral process
Day One
Session 1: Why Credit Risk Analysis and Creating a Risk Evaluation Framework
  • Who uses analysis and why
  • Using credit products as a proactive marketing tool
  • The importance of credit analysis
  • Exercises: Creating a Risk Evaluation Framework and calculating Economic Benefit
  • Identifying the true borrower – Know Your Customer
  • The Patriot Act
  • Identifying the true purpose of the loan
  • Identifying how and when repayment will happen
  • Sources of repayment
  • Risks of repayment (understanding the macroeconomic environment; understanding the client’s business)

Session 2: A risk evaluation framework

  • Security and Documentation
  • Types of collateral
  • Documentation
  • Covenants
  • Verifying the existence of the collateral, physical possession of the collateral
  • Structure
  • Pricing

Session 3: Credit products and uses

  • What are typical credit products?
  • What are credit products used for?
  • Foreign exchange
  • Margin trading
  • Personal property
  • Investment property
  • Leveraging existing investments

Session 4: Analyzing Personal Financial Statements

  • Statement of Financial Position
  • Assets – estimated fair value
  • Statement of changes in net worth
  • The difference between net worth and cash
  • The effect of leverage
  • How to calculate liquid and adjusted net worth
  • Estimating future cash flows
  • Warning signs/creative accounting

Day Two
Session 1a - Lending against marketable securities
  • Purpose
  • Borrower
  • Repayment & Risks
  • Primary source: personal cashflows (portfolio income vs interest expense, cashflow generation from other sources)
  • Secondary source: value of other investments (net worth), ability to liquidate, impact on relationship
  • Security
  • Publicly traded shares
  • What exchange
  • Percentage of ownership
  • Float
  • Stock price and volatility
  • Currency and country risk
  • Marking to market
  • The importance of diversification - Enron
  • Lending against Bonds
  • Publicly traded bonds
  • Bond types
  • The effects of interest rate movements
  • Are ratings from Moody's and S&P enough?
  • Giving appropriate haircuts

Session 1b - Lending against marketable securities

  • Marking to market
  • Lending against cash – structural issues

Session 2: Lending against hedge funds

  • Definition of a hedge fund
  • Hedge fund styles - where are the risks?
  • Exercise: Determine expected volatility with different fund styles
  • Due diligence on the fund
  • Where to find non-public information
  • Reviewing recent hedge fund debacles
  • The emergence of the SEC
  • Peter Chabot from Mississippi
  • David Mobley from Florida
  • A word on LTCM - When Genius Failed

Session 3: Lending to privately owned operating companies

  • Purpose
  • Borrower
  • Repayment & Risks
  • Primary and secondary sources: cashflows vs income (analysis of corporate cash flow statements, profit and loss statements)
  • Corporate balance sheet: current and fixed assets, current and long term liabilities, equity, assessing the true value of the assets and liabilities
  • Exercise: Balance sheet recognition
  • Macro-economic and industry dynamics, understanding the business, liquidity
  • Analyzing country risk
  • Exercise: Calculating cash flows
  • Quality of accounts, transparency, timeliness and disclosure
  • Assessing management and shareholders, including assessing shareholder support
  • Security
  • UCC filings, personal guarantees, corporate guarantees (importance of ‘economic benefit’)
  • Structure
  • Repayment terms
  • Ranking/subordination
  • Covenants

Session 4: Lending against property

  • Purpose: Personal property loans, Commercial property loans
  • Borrower
  • Repayment & Risks
  • Primary source: rental cashflow/interest cover (project feasibility), cashflow generation from other sources
  • Secondary source: value of other investments (net worth), ability to liquidate, impact on relationship
  • Security
  • Understanding the cycle
  • The appraisal - which one is right?
  • Cost
  • Income
  • Market
  • Risks in collectability
  • Structure (tenor, currency, loan to value)

Clients who register for this course will receive a complimentary 3 month subscription to the Financial Times and FT.com. The Financial Times is the world's most respected financial newspaper, providing a broad assessment on finance, business and the industrial sector. Subscriptions will start within 6-8 weeks of the application process and are limited to one per client. For questions about your subscription, call 800-628-8088 or email uscirculation@ft.com. U.S. enrollees only. (All non-U.S. enrollees will receive a subscription to FT.com only.) Lunch included for all students taking day classes.

Lunch included for all students taking day classes.