Syndication & Securitization Risk Management

Banks originating large loans or other financial assets may form a syndicate to mitigate the risk of those assets by allowing other syndicate members to assume a beneficial interest in that asset. Participating financial institutions do so because of the favorable risk-adjusted return offered. Similarly, banks originating financial assets may package those assets in securitized pools to lessen their risk exposure allowing other financial institutions to purchase beneficial interests in those pools to earn a favorable risk-adjusted return. Once distinct and relatively straightforward, the two processes have become increasingly intertwined and complex. As these investment vehicles become increasingly sophisticated, the risks to all participants in the process have become more difficult to evaluate. Clarifying the risks to the various participants in these processes is the subject matter of this book. Risk management for banks and other financial institutions has become increasingly more difficult and complex as a result of the continuing evolution of new classes of capital assets and the changing structure of capital markets. Banks have played a role in this evolutionary process both as creators and consumers of these assets. In creating such assets, banks have exposed themselves to new types of risks: capital markets risk, securitization risks, default risks, regulatory and accounting risks, special purpose vehicle risk, and international risk. As consumers of such assets, banks have exposed themselves to highly volatile securities that respond to interest rate and other economic changes in unexpected ways. The sudden loss of liquidity and the explosion in risk premiums that occurred in the Summer and Fall of 1998 as a result of the Long Term Capital Management fiasco, the Russian devaluation and continuing troubles in Asia illustrated the sensitivity of domestic financial conditions to what would have once been considered unrelated events. The risks to banks and other financial institutions from this volatility can only be expected to increase. The fist step in managing this risk is understanding how capital markets have changed and exactly what types of risks are associated with syndications and securitizations. SSRM is a tool for understanding the risks to those financial institutions syndicating loans and securitizing financial assets as well as to those institutions participating in a syndication or purchasing shares in securitized pools of assets. Successful participation as buyers or sellers in the syndication and securitization processes is often a matter of execution. Good execution requires having the right people in the right place at the right time. Attracting and retaining qualified financial professionals has become increasingly difficult in the current labor market. As a result, this book also addresses the critical personnel areas of recruiting, compensating and training in these fields.