Loan trading: A new business opportunity for your bank?

Trading performing bank loans has become a profitable business for a number of commercial and investment banks. For banks, one of the most important factors in deciding whether or not to establish a par loan trading operation is if it is, or plans to be, in the primary underwriting and syndication b...

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Bibliographic Details
Published inCommercial lending review Vol. 12; no. 1; p. 26
Main Author Bloomenthal, Walter J
Format Journal Article
LanguageEnglish
Published Riverwoods CCH INCORPORATED 20.12.1996
Subjects
Bank loans
Commercial banks
Commercial credit
Communication
Compensation plans
Economic impact
High yield investments
Institutional investments
Loans
Portfolio management
Profitability
Profits
Regional banks
Secondary markets
Securities trading
Treasuries
Underwriting
Wages & salaries
United States > US
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Summary:Trading performing bank loans has become a profitable business for a number of commercial and investment banks. For banks, one of the most important factors in deciding whether or not to establish a par loan trading operation is if it is, or plans to be, in the primary underwriting and syndication business and to what extent. It generally is difficult for an institution to consistently make money trading in secondary markets in which it is not a primary underwriter or does not have access to deal flow. Establishing a par loan trading desk requires people, procedures, and capital. Factors to consider include compensation, the approval process, accounting policies, regulation, where the desk is located, how the desk coordinates and works with other areas, and what the revenue, expense, income, risk, and return parameters will be. The economic returns are good because traded bank loans have become very liquid with low price volatility; thus, relatively little economic or market risk capital is required to support the business.
ISSN:0886-8204