 We are Facilitators of Investment, Finance and Trading Programs in direct Cooperation with AAA - rated European Prime Banks, Placement Program Managers and Providers within the international banking system, preferably in Swiss, Germany and Great Britain. Banking Contracts are provided to High Net Worth Clients, whose investments are under their own account name, guaranteed, insured and safely guarded and always under their control during the period contracted. We are providing World Capital Market & Financial Management Research, Capital Market Services as part of Political & Economic Risk Management, Financial Markets Research on Instruments and Institutions, International Capital Movement and Monetary Cooperation, evaluating Economic Performance & Investment Potential towards competitive and yielding Placements on World Capital Markets. Our services incorporate Investment Banking, Private Banking, Personal Banking & Wealth Management, Asset & Financial Management, Investment Funding, Project Finance & Loan Funding through the Facilitation of Specialist Banking Contracts for entering the bank secured Investment Programs conducted by European Prime Banks or Money Center Banks preferably in Swiss, Germany and Great Britain in close Cooperation with Placement Program Managers and Providers - To provide guidance and assistance to principals as private clients and high-net-worth individuals, corporations & institutional investors, banks & funding groups, trusts & foundations, executives & managers, and entrepreneurs through professional excellence according to international banking standards. - To explore innovative financial solutions and facilitate global investment potential for wealth creation and life quality enhancement by providing global reach and connectivity between capital markets and knowledge driven Investors profiteering from yielding investments. For entering Investment Programs, please start your request, and in order to meet the requirements, anticipate our Terms & Conditions, which you find as link below or via Index. The globalization and deregulation of the banking industry and financial markets have intensified competition from securities firms, insurance companies and pension funds. In response, banks have diversified and expanded the spectrum of banking activities. The increasing use of certain Bank Credit Instruments is one of the most important of these because of the enormous expansion in capital that it enables major banks to achieve without encumbering their balance sheet. This business is one of the most confidential activities of major international banks today. The reasons for this secrecy are not difficult to understand. The banks are issuing private bonds to large investors (typically in the $100 million to $500 million range) at higher than market rates to augment their working capital. The banks refuse to disclose the existence of this “wholesale money market” for fear that their larger retail customers will try to negotiate higher deposit rates. In addition, the issuance of these notes represents a real liability to the banks, but one that is not reflected in its balance sheet i.e., “off-balance sheet”, accounting. Therefore, the banks are concerned that disclosure of this extent of these borrowings could reflect negatively on public perception of their financial soundness, credit worthiness and overall fairness to depositors. The buying and selling of Bank Credit Instruments involves a chain of producers, wholesalers, retailers and customers, as mentioned before; analogous to that of many manufactured products. The “producer” in this case is the bank that issues the fresh paper. The wholesaler is a “cutting house” that holds an “option” to buy fresh paper from the bank at steeply discounted rates. This option is normally obtained in return for a commitment by the option holder to purchase a fixed amount of fresh paper during a specified time period. A typical commitment, as mentioned previously, would be $100 to $500 million per week. Obviously, the option holder cannot continue to make purchases of this type without substantial working capital and a resale-ready market for the paper it buys. One way the option holder can increase available working capital is by accepting investments from large investors in a bank credit instrument trading program. The investor gives the option holder (now called a trade manager) a limited power of attorney to utilize the investor’s funds as collateral solely for the purchase and sale of fresh paper. The process involves the issuance of a purchase order from the investor’s account to the issuing bank, in response to which the issuing bank issues an invoice for a fresh cut credit instrument at a particular price. After the investor’s bank authenticates and accepts the invoice, the credit instrument is exchanged for funds and is deposited into the investor’s account. This transaction is done entirely on a bank-to-bank basis without any involvement on the part of the investor. In many cases the same bank is used for the issuance of paper as for the deposit of investor’s funds. Once the fresh paper has been issued, it must be quickly resold in volume. This is accomplished by pre-selling the notes to large investors looking for a long-term fixed return; especially insurance companies, pension funds, major corporations, trusts, notional governments and wealthy private parties. These investors may hold the paper until maturity or resell it in the secondary market once it is “seasoned”. Usually the trade manager enters into contractual arrangements with large securities firms to market the paper to these retail customers. This pre-selling of the notes is what virtually eliminates any market risk to these transactions. The steps in the chain of distribution (investment) can be depicted as follows: 1. The investor proves availability of funds for purchase of bank credit instruments (proof of funds). 2. Bank issues fresh paper. 3. Option/Commitment Holder buys the paper with own funds or Trade Manager purchases paper with Investor’s funds through a Trading Program Account. 4. Securities firm contracts to buy the paper for resale or arrange for its direct sale to large retail (institutional) investors in the secondary market. The distribution system works because it is financially attractive to each member of the chain. This requires that the sale price of the paper at each subsequent level be higher than the previous one and still attractive to each buyer relative to comparable competing investments. The following is an illustrative example: Fresh cut paper is sold by issuing bank to the option holders for 80% of face value. The Option Holder resells the paper to an institutional investor at 94-95% of the face value. The margin of 14-15 points is shared by the option holder, the bank facilitating the transaction and the investor. The institutional investor then holds the note to maturity and receives the spread between purchase price and face value as well as annual interest payment of 7.5%. In this example, the bank issuing the paper receives a rapid cash inflow for higher leverage lending at a very low cost. Since it “buys” the funds in very large blocks, the overhead costs are extremely low in comparison with the cost of accepting retail deposits and the bank has ability to augment its capital on short notice in order to support specific high profit margin business opportunities. HOW BANKS PROFIT WITH THE MULTIPLIER RATIO IN MTN ISSUANCE Let us take a hypothetical example of a bank that has an opportunity to lend $9 Billion for a low-risk major industrial infrastructure project. The bank decides to raise $1 Billion of additional capital through the issuance of its own Bank Credit Instruments (Medium Term Notes) and then to borrow eight times this amount from its central bank to raise the $9 Billion required for the loan. The following illustrates the steps takes: Issuance of 125 - $10 million (face value), 10 year, 7.5% MTN at a price of 80% of face value generates: $1,000,000,000 Borrowing from Central Bank (8 times multiplier ratio) $8,000,000,000 Total funds available for loan $9,000,000,000 Expenses to Bank Interest paid by bank to holders of 125 – 10 year, 7.5% bank debentures 7.5% X 10Million X 125 X 10 years $937,500,000 Interest paid by bank to the Central Bank on borrowing at 3% X 8 Billion X 10 years $2,400,000,000 Total Interest Expense over 10 year Term $3,337,500,000 Income to Bank Revenues to bank from interest paid by borrower over 10 years on $9 Billion @ 7% for 10 years $6,300,000,000 Total interest expense $3,337,500,000 NET PROFIT TO BANK IN TEN YEARS $2,962,500,000 As one can plainly see, the leverage allowed by the central banks allows for very profitable long term lending for member banks. The Bank Credit Instruments created in this example are the instruments which, are traded in the secondary market. In the example shown above, the investor would get a share of the 3-4% margin between the issuing price and resale price of the Bank Credit Instruments. The overall profit to the investor depends on three elements. They are the number of times which the investor’s capital can be turned over during a given period of time, i.e., the number of trades per year, the amount of “spread” or profit per trade and the presence or absence of leverage. The frequency of trades depends on the type of arrangements the trade manager has in place for reselling the paper that is issued. Taking into account the large number of international banking days, trading programs typically conduct between one and four trades per week for 40 weeks per year. Assuming two trades occur each week and each trade pays one percent to the investor, then the return to the investor will be 80 to 100% annually. If the yield per trade or the number of trades is higher, then the return could be proportionately greater. |
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| _____________________________________________________________________________ MISSION Shaping the World, where Intellectual Strength and Human Quality, Asset and Value Creation, and Achievements are Ultimate Goals of an Open Mind capitalizing on Imaginative Thinking and Methods, Knowledge and Leadership for meeting Clients’ Financial Target, and leveraging Visions and enlightening Ideas towards a World as yielding Market Place enhancing human conditions and live quality. _____________________________________________________________________________ (C) World Capital Forum . Com 1999 - 2007. Dr. Thomas C. Heynen, Chairman & Executive Director. All Rights Reserved. | management@worldcapitalforum.com | wcfdotcom@yahoo.com | mobile Asia +66.81.928.7721 | mobile Europe +49.162.183.1801 | Skype ID drheynen | VoipstuntID villafox2005 | _____________________________________________________________________________ |