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Rockall Technologies

The markets are down 4% – and it’s a tranquil day

8 February 2018

Managing Wealth Lending Through Market Volatility  – with equities wobbling on record highs, market choppiness is likely to be a recurring theme this year.

How well equipped are you to deal with increased credit risk noise as the markets continue to swing?

Wealth lenders certainly lose sleep when the daily market moves sweep beyond 3% as we have seen recently.  Active monitoring of credit risk in such fast-moving market conditions is critical when rapidly reacting to out-of-margin (OOM) events and the management of top-up and sell-out scenarios involving valuable wealth clients.

The first 6 days of February this year has seen the Dow fall by close to 7.7%; and like an ECG, that wild ride on the markets is clearly traced on the VIX chart.  The concern we all share when dramatic volatility hits the market is even deeper for lenders managing exposures directly collateralized by market securities, as is the case with Securities-Based Lending (SBL).

 

Manual SBL systems simply won’t cut it during large market swings – like the 4% plus intraday drop in the Dow on February 5th.  This kind of shift causes greater LTV impact – both in terms of extent and the number of loans affected.

Major market reversals mean that SBL lenders are faced with the twofold issue of:

– Providing comprehensive and near real-time stress testing and impact analysis for the business, and

– Handling immediate out-of-margin and top-up scenarios with important wealth clients

A tranquil day for wealth lenders in seriously volatile market conditions?

Being able to log into an automated SBL management system to get a list of OOM/Top Up alerts and a detailed, aggregated view of the loan book showing how the previous day’s trading has impacted on LTVs at loan, account and book level.  Reports for the business are ready at the push of a button. At-a-glance reporting screens give updates on loan alert resolutions that enable the wealth lender and FA to manage large volumes of loan alerts.  All based on current portfolio, securities pricing and ratings data.

Suddenly the jog and morning coffee seems achievable…

Automated SBL (as offered by our SBL-in-the-cloud product) evaluates outstanding balance information for all SBL loans against the latest marketing pricing data and client portfolio positions. Detailed business insights are delivered, based on the current eligible market value of each portfolio compared with the top-up and sell-out thresholds of the loan concerned. Automatic alerts highlight loans where the eligible market value has fallen below either of these thresholds.

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