While I was working in General Electric as credit manager, some friends used to call me Dr. No.
Nothing to do with the infamous villain from Bond movies, but they said (and was not far from reality) that my only work was to say No from time to time to the credit operations that showed up in my table.
Risk Assesment & CAMPARI
Summer time..., moment to relax, enjoying the views from a sunny terrace and sipping a refreshing drink... yes, is time for C.A.M.P.A.R.I. These letters summarize what you have to remember next time you are lending to somebody, anybody...
Who are you lending to? What is their history? Are they good at what they do? Are there areas of weakness? By asking detailed questions of the borrower one can establish if they are of good character. Bad character traits would be a poor credit history, no experience in the sector in which they are operating, not being qualified for the job they are doing, and so on.
Can the borrower afford to repay or refinance the loan over the period they are asking to borrow for? For this one can look at bank accounts, the business financial accounts, forecasts and projections. Questions such as “who produced the information?” are also valid, as a business plan written by a reputable firm of accountants carries more credence than one that isn’t. This also includes the ability of the owners and their capacity to run the business properly.
Margin / Means
First Margin. Very simply, how much interest income do you want to make? For lower risk, such as a 60% mortgage, the margins will be small as the risk is lower due to the level of equity in the property being funded. For higher risk, the margins are higher to compensate for the greater risk of loss. Secondly Means, or the proper resources and operations to run the business that can safely create enough returns to comfortably pay the interest.
What is the loan for and does this fit with the nature of the borrower? For example, a fish and chip shop wanting to borrow money to buy a new deep fryer would be an acceptable purpose. The same shop wanting to buy a knitting machine wouldn’t.
Size really does matter. The more money someone borrows, the higher the risk. The amount also has to be compared against the apparent value or wealth of the borrower. Banks are happy to lend several million pounds to large companies, as the borrowers have the assets to support the loan. The average man in the street won’t get a loan of this size because he hasn’t got the assets or the ability to repay.
How will your loan get repaid? Getting some of your capital back each month reduces your risk of loss. Full repayment over 3 years is less risky than full repayment over 25 years, as there is less time for things to go wrong and the borrower default. If the borrower does default, how do you get your money back?
Also known as security. If the borrower stops making repayments, what assets can be used to repay the loan in full? Each type of security has its own risks and these should be considered before making a loan.
Once you are back to work, remember the CAMPARI approach before taking your next credit decission..
July 04, 2016 at 11:39AM
Open in Evernote
100 distress indicators
If you ever face a potencial customer that shows any or many of these bullet points.... watch out!
They are split by the key parameter that drives the indicator
Debt Activity Induced
1. Senior lender with debt exceeding 10% of total funded debt terminates customer’s facility
2. Any senior debt is classified from long term to short term in any given month on the customer financial statements
3. Bond interest payment in excess of 5% of YTD EBIT is missed by customer
4. Working capital lender ceases funding for customer
5. A default against any of the borrower’s financial obligations other than secured debt
6. A breach of any manufacturing contract in excess of 5% or YTD revenues
7. Any non-monetary default under a loan or lease obligation
8. Any monetary default under a customer loan or lease obligation
9. The customer restructures or refinances any of its other debt obligations at the request of its senior lender
10. Any customer with an unscheduled over advance under their revolving line of credit
11. Senior lender representing 10% or more of total funded debt has given the customer any request, whether verbal or in writing, to get refinanced within a one-year timeframe
12. Customer has changed primary senior lender one or more times in the last 24-months
Customer Management Induced
13. CEO immediate family member suffers material personal tragedy
14. Whole management team quits
15. CEO quits
16. CFO quits
17. Top salesman representing 10% or more of annual revenues quits
18. Death of any one member of senior management
19. Regular turnover in senior management
20. Protracted illness (90 days out of work) of key senior management
21. Any break up of partnership
22. Any transfer of ownership
23. New management team brought into the company
24. Company is acquired by national consolidator as stock purchase
25. Company pulls cash out of business to buyback investment of a stockholder
26. Credit report for PG shows judgments within the last 12-months
27. Customer retains any crisis management firm
28. Employee turnover exceeds 10% in the last 12-months
Operating Results Induced
29. A pre-tax financial statement loss in any one month for a customer
30. Charter service looses its 135 certificate
31. Any domestic subsidiary owned 50% or more files BK
32. Any international subsidiary owned 50% or more files BK
33. Failure to file any SEC required statements in a timely manner
34. Any debt forgiveness that exceeds 10% of funded debt thereby generating a taxable event
35. Customer engages and investment firm for sale of 50% or more of its business
36. 10% reduction in freight shipments over a 12 month period
37. A bankruptcy of one of the borrowers competitors
38. A 10% increase in the borrowers raw material costs
39. Any decline exceeding 1% in the borrowers gross margins for two consecutive years
40. Customer has had more than one NSF with GE in the last six-months
41. Any customer that fails to meet 100% of its payroll
42. Loss or bankruptcy of a borrower’s customers whose revenues comprised more that 5% of total revenue
43. The value of the collateral securing the debt has fallen by more than 15% in any given year
44. Work under a given contract representing 20% of company’s revenues comes up for renewal and the company looses the contract
45. Any customer that allows a lapse in insurance coverage on leased equipment
46. Company is involved in leveraged buyout, which results in a substantial negative impact on company’s liquidity and leverage ratios
47. Company purchases future contracts on raw materials in anticipation of increasing costs
48. Company looses market share in excess of 30% due to product reliability issues
49. Loss of major employer in a local market has ripple effect on other businesses serving businesses and consumers in that market
50. EBIT has declined by more than 20% versus the comparable YAG period
51. Customer’s production plant is damaged by fire, natural disaster, etc, decreasing the company’s production output by greater than 10%
52. Equipment financed to customer representing greater than 20% of customer’s product output is recalled by manufacturer
53. A/P days have increased (faster turn) by more than 10% from the previous year’s A/P turnover
54. Inventory days has slowed by more than 20% from the previous year’s inventory turnover
55. Cash burn exceeds 50% of total operating cash flow in any one month during the last six-months
56. Private-company customer pays a dividend to shareholders that exceeds 50% of net income
57. Any customer with multiple facilities and one of the facilities generates net losses exceeding 20% of total company earnings
58. Backlog has declined by more than 20% from the comparable YAG period
59. Insurance costs increased by more than 15% in the last 12-months
60. Any loss of bonding insurance
61. More than one change in accounting firm representation in the last 12-months
62. Company has been unable to negotiate new union contracts that are due within 90 days
63. Customer is publicly-traded and has been de-listed by one of the US stock exchanges within the last 3 months
64. Any credit-rating downgrade, whether by S&P, Fitch or other major rating agency, of more than two levels in the last 12-months
65. Any credit-rating agency downgrade to junk status within the last 12-months
66. Any customer with KMV rating that has declined to CCC+ or less within the last 12-months
67. Equity sponsor refused continued support
68. A strike is initiated by more than 10% of the company’s workforce
69. Customer has greater than 20% of its receivables aged 90-days +
70. Transportation company with more than 10% of their power units sitting idle
71. Transportation company with a 15% increase in brokered freight
72. Technological changes in equipment used effecting 20% of the cost of equipment
73. Technological changes in product manufactured effecting 20% of the cost of equipment
74. Customer increase in aviation fuel prices by 20% within any 60 day period
75. Customer increase in diesel fuel prices by 20% within any 60 day period
76. Customer increase in heating oil prices by 20% within any 60 day period
77. Customer increase in any natural gas prices by 10% in any 60 day period
Trade Vendor Induced
78. Loss of any key supplier representing more than 10% of annual raw material purchases
79. Utility bill remains unpaid for 60 days
80. Sewer and sanitation bill remains unpaid for 60 days
81. Adverse Administrative ruling entered against customer or one of their key suppliers or customers entered resulting in a 15% decline of TNW
Litigation/Judgment/Legal suit Induced
82. Any judgment in excess of 10% of aggregate current assets
83. Any casualty loss exceeding 10% of total assets
84. Any IRS levy event
85. Any IRS lien event
86. Notice of any lien or judgment being filed on the company as a result of a lawsuit against the company
87. Any working capital fraud is perpetrated by management or any operating division of the obligor representing 15% or more of annual revenue base
88. Any criminal indictment of a company officer
89. Adverse Legal judgment against one of their key suppliers or customers
90. Product liability filed against company or against supplier (10%) or purchaser (10%) or which results in cessation of production of product
91. Eminent Domain against customer or one of their key suppliers or customers entered
92. A judgment against the company in excess of 10% of its net worth
93. Unpaid payroll taxes, FICA and Fed Withholding
94. Customer relies on patents that will expire within the next 6-months and such products protected by patents constitute at least 10% of total revenue
95. Customer has been advised by bankruptcy counsel within the last six-months
96. Customer has hired a turnaround consultant within the last 12-months
97. Customer relies on patents that will expire within the next 6-months and such products protected by patents constitute at least 10% of net income
98. Any violation of patent, trademark, or copyright laws where such infringements would result in fines exceeding $100,000
99. Customer environmental damage/contamination with remediation costs exceeding 10% of aggregate current assets
100. Customer is identified as a PRP in any environmental claim
Tags: published, business, financial, risk
June 01, 2016 at 01:18PM
Open in Evernote
Pensando fuera de la caja
Yes,we all know the typical game with the pen and the nine dots (http://ift.tt/1YEL4UC
) and yet, at first we all need to think back. "how was it again?" And because we all know we have to think out of the box, what we do is making the box bigger... , something similar to what Malcolm Gladwell said in the What the Dog Saw articles in The New Yorker: "If everyone had to think outside the box, maybe it was the box that needed fixing"
The reason I am talking about this is a story I read a while ago (I can´t trace it back so all my credits to his author) about a father of a little girl (let´s say 10 years old) that fails a math exam. The key is that the girl is a genius on that field so the father don´t believe she has failed so he goes to talk with the teachers. Sumarizing: the girl fails the exam because the answer to a question was not the expected one! The answer is right though!, but it is no the expected from a 10 years old girl.. and so she is "out of the box" and "penalised" . Curious about the question?
* What is the highest number you can make using three times a 2?
The obvious answer (10 years old) is 222. But it is not the correct answer... , you have to think out of the box! Understand the rules and make them work better!
That´s why I always ask "why are you doing this? " every time I go to a customer and revise the processes. The worst answer is "we aways did it in this way" ... it shows that people in that company are so into the box they can not even figure there is anything else out there! Any employee should know why is he/she working , why is doing that report in that way, why it is important to do it and do it right, what is the reason for the task is being assigned,... because then he/she can think answers that go beyond the request, can make a report that is easier to read or use a tool that avoid errors or... ..he/she wlll think out of the box of the job description and go into the "company rol" described by the holacracy methodology.. "Roles instead of job descriptions"
Then the company will move quicker and react more flexible to changes from outside of the box!
By the way.. have you think the answer to the exam? think again... and write in a paper 2 to the power of 22
March 31, 2016 at 06:31PM
Open in Evernote
The dark side
The dark side
Lo reconozco, me he pasado al lado oscuro. Durante mucho tiempo cultive mis habilidades en la fuerza para intentar entrar en la élite pero al final el lado oscuro me ha conquistado...
No, no estoy hablando del despertar de la fuerza ni de la próxima película de star wars. Hablo de financiación.
Si en otros articulos hablaba de Unicornios, en este hablo de Dinosaurios... La banca tradicional es como un enorme dinosaurio que se va moviendo lentamente y casi por inercia desde hace mucho tiempo. Incluso las pequeñas entidades financieras de credito son como velociraptors incapaces de adaptarse a los nuevos tiempos y que pese a su velocidad acabaran transformandose o siendo devorados. Y a ello ayuda (y no para bien) la carga administrativa y regulatoria impuesta. Obviamente esa regulacion es necesaria porque el negocio financiero es un negocio de confianza, sin ella los clientes no depositarian su dinero en ninguna entidad (al fin y al cabo lo que hacen es prestar dinero al banco) a cambio de tan misero rendimiento como se ofrece actualmente.
El caso es que durante un tiempo yo fui parte de una de esos entes malditos: la banca. Como trabajador de una entidad financiera de credito asisti desde un palco privilegiado al cruce de opiniones sobre la crisis economica y financiera de los utlimos años: La Banca, ese sector maldito, que habia sido rescatado con el dinero de todos para disfrute de unos pocos....
No entraré aquí en si el rescate fue bueno o malo, en si la forma fue las mas idonea o en por qué unas entidades cayeron y otras fueron apoyadas. Si comentaré que no entiendo porque hay gente que se rasga las vestiduras con las ayudas o subvenciones a la banca y en cambio no lo hizo en su momento con con las ayudas al carbón o a los astilleros o a la agricultura... En todo momento ha habido sectores en peor situacion que otros y en muchos casos ha acabado necesitando ayudas puntuales para seguir adelante.
Ah, pero esto es diferente piensan algunos. Por que? Pura cuestion de imagen creo yo. Los banqueros van todos trajeados y se les asocia a la buena vida... Es verdad, pero podriamos decir lo mismo de los abogados o de los medicos o muchos otros del sector servicios, porque al fin y al cabo la banca es una empresa que como todas pretende ganar dinero ofreciendo un producto o servicio, igual que cualquier otro sector que ha recibido ayudas durante los últimos años, pero me estoy desviando de la historia.
Como iba diciendo, trabaje durante un tiempo en una entidad financiera, una empresa que estaba regulada por el banco de España y que por tanto debia enviar con regularidad una cantidad increible de informes muy detallados sobre todas y cada una de las transacciones, los clientes, los riesgos, las posiciones de garantia,... Era el lado luminoso: transparencia total, informacion minuciosa.... y un coste enorme para poder procesar todos esos datos y emitir los informes. Una enorme burocracia que ralentizaba o impedia la rapida adaptacion a los cambios en el mercado.... y por otro lado estaba el lado oscuro..
La banca en la sombra o sistema bancario en la sombra (en inglés, shadow banking system), es decir, el conjunto de entidades financieras, infraestructura y prácticas que sustentan operaciones financieras que ocurren fuera del alcance de las entidades de regulación nacionales. Incluye entidades como hedge funds, fondos del mercado de capitales y vehículos de inversión estructurados.
Los mercados de capitales y la banca en la sombra se han convertido en los nuevos canales de financiación para las empresas que no pueden acceder al crédito bancario tradicional. En el sector del shadow banking se incluyen entidades como las socimis en el mercado inmobiliario, los business angels, el crowdfunding, los fondos de capital riesgo, o incluso a los hedge funds.
Estas sociedades son en general mucho mas agiles, mas proactivas, mas adaptables, ....no estan tan reguladas y por ello podrian ser mas arriesgadas... o no... (todo depende de los responsables de las empresas y todos conocemos lo ocurrido en entidades reguladas..). Estas empresas arriesgan su capital o su reputacion o ambas en cada financiacion que hacen, y analizan cada caso con cuidado porque saben que no tienen colchon alguno en caso de equivocarse, y por ello desde mi punto de vista son mas de fiar pese al nombre. Al fin y al cabo si estan en la sombra es porque a buen arbol se han arrimado...
Tags: published, Accounting, financial
January 17, 2016 at 12:30PM
Open in Evernote
Goals of Financial Analysis
(1) financial statements are representations by management;
(2) the public accountant has the responsibility for conducting his examination in accordance with accepted auditing standards; and
(3) the accountant (certified or otherwise) has the sole responsibility for writing his opinion stating, among other things, whether the financial statements are presented in accordance with accounting principles applied on a consistent basis.
Tags: published, Accounting, business, financial, management, lease, risk
October 26, 2015 at 11:13AM
Open in Evernote
12 things to remember before lending
1. Think that each loan is a challenge not a chore.
Each loan is an opportunity to put to work the knowledge, the experience. Here’s a challenge to my judgement, a problem to be solved, analyzed, evaluated, and concluded. An opportunity to grow and to increase my effectiveness by learning more about a borrower, a business, an industry, ...
2. Do not prejudge , listen instead and understand.
Sounds easy isnt´t ? but it is one of the most difficult things a human being can do. Most of us don’t listen (we are so busy thinking of what we’re going to say, that we fail to hear and understand in fully). We judge ourselves by our thoughts and others by their actions and words. We must strive to hear precisely what the other person says and then to understand why he said it and what he really meant. Only after we have listened attentively and sympathetically and have understood intelligently should we attempt to evaluate.
3. Don’t pretend to know if you don´t .
You are very wise if you know your limitations. So never hesitate asking questions about other things you don’t know. When a borrower assumes incorrectly that you know certain things about him or his business or his industry or even about commercial lending or law, it is dangerous to let him proceed on that assumption.
4. Don´t get lost on details.
Keep pushing yourself back from the details (though they must be covered) in order to stand off and view the credit as a unified whole. We can become so immersed in figures and details as to lose sight of, or give inadequate attention to, the broad strengths or weaknesses of the credit as a whole. Keep standing off for perspective to see that the picture is complete, that nothing has been left out, that no loose ends remain. Keep looking at the tree, the whole tree, and its place in the forest about it.
5. Remember “how good” is less important than “how liquid.”
A safe transaction is a transaction that has no loss. A sound transaction is a transaction loan that can be repaid within its maturity terms without hardship or stress on the borrower. Any transaction must be safe and it must also be sound. Borrowers must not only have adequate balance strength or adequate security, they must also have adequate repayment ability. Always ask yourself this question: “How is the borrower going to pay it back?”
6. Don’t ever commit yourself too soon
Don’t speak the word until you’re prepared to do so and until you’re prepared to be bound by its consequences:
Be sure you have all the facts and that every consideration has been weighed before you commit yourself on any point or in any way at any stage of the discussion. Once a statement is prematurely made or a decision prematurely announced, you’ll be so busy trying to justify your position..
7. Don’t attribute the dirty work to “Headquarters” or “the Credit Committee”.
Never say that you might well agree but that the loan refusal or some other disagreeable decision, is the work of “HQ” , “the Credit Committee” or “those people at central office.” . You represent your company; you are YOUR COMPANY; you must assume full responsibility for any decision made by your company (we think; we have decided; we...), even if you agree little with it. Your responsibility is to argue the merits of the decision; once it is made, it becomes your decision also. If it then needs defending, you must defend it as your own decision.
8. Never apologized.
Timidity has no place in our makeup. Be sure of your ground, evaluate carefully, then say straight out what your considered judgment dictates, without apology or hesitation because you suspect it may prove disagreeable.
9. Accept full responsibility
and make decisions promptly on your own when you know you have all the facts, have considered all aspects of the case, and have sound reasons for the decisions you make. When you are certain, act, because you believe in your judgement and not by a desire to show your authority or that you have the power to act without consulting.
10. When you are going to say “yes,” just say it.
Most problems in life have shades of grey. When you’ve concluded that you’re going to grant a loan request, you must have decided that the pros outweigh the cons. Let it go . Weaknesses that might be helped through constructive comment should be discussed before the decision is reached; once reached, a favorable decision overrides such weaknesses and should be given positively. Don´t imply you are making a favour to anybody.
11. Lend, as if the money you are loaning were your own .
If you say “No” to investing your own funds, then the answer should be “No” for investing your company’s.
12. Be yourself and forget this list.
Lending money soundly and constructively is primarily a matter of applying intelligence to the facts in each case. Intelligence is simply common sense--or perhaps uncommon sense. It is the ability to apply knowledge and experience to the successful solution of a new problem.
Sound lending requires intelligence; setting up list like this is something anybody can do.
Tags: published, financial
November 24, 2015 at 11:07AM
Open in Evernote
Cenas y Unicornios
El otro dia estaba en una de las multiples celebraciones de estos dias prenavideños: cenas de empresa, cenas de amigos, cenas de ex-colegas, cenas de padres de alumnos... y como siempre ocurre, la conversacion paso por el tema del trabajo. "y tu a que te dedicas?" suele ser la coletilla de aquel que ha estado explicando durante los aperitivos y hasta el segundo plato con todo lujo detalles su dia a dia... Me tocaba a mi, pense. .. Antes, solia explicar mi trabajo con una broma: "soy el que dice que no". Explicar las funciones de un director de riesgos o un credit manager a una persona ajena al mundo de la financiacion empresarial era complicado. Luego vino la crisis, y todo el mundo entendia el trabajo, mas o menos.. Ahora, tenia que explicar a mi compañero de mesa que era eso del fintech, ..... su cara me indico que no habia oido eso en la vida... crowdlending, el P2B lending,........ rictus serio, ojos fijos..... financiacion alternativa... arqueo de cejas.... , asi que acabe explicando que era un mercado donde todo el mundo podia ser banquero. Ahhhh ... y si la plataforma le iba muy bien se convertia en un unicornio... ojos como platos, y mirada seria a mi vaso de vino ...
Porque la verdad es que hay mucha informacion sobre el fintech, y los unicornios y como afectara la entrada de los nuevos jugadores en el sector bancario y... pero toda esa informacion sigue estando a nivel de nicho.. Solo aquellos que saben de que van leen sobre el sector. Y aquellos a los que podria resultar interesante no tienen idea o les parece muy complicado.
Asi que me puse a pensar como explicarlo en la proxima cena:
Las empresas de FinTech aplican technologia a los servicios financieros y se pueden clasificar como:
Aqui solo hablare de las plataformas de financiacion de deuda. Las FinTechs utilizan la tecnología y el denominado 'Big Data' para proporcionar financiacion más rápida, más barata y a mas empresas que o bien no están cubiertos o parcialmente cubiertos por los bancos tradicionales. Lo hacen mediante
Y en base a quien mantiene el riesgo se pueden clasificar como
Los tres pilares fundamentales para que una empresa de préstamos a empresas tenga exito son
Los Bancos establecidos y EFCs pueden pedir prestado dinero mas barato que las empresas FinTech (mayoritariamente empresas de nueva creación). Los bancos también tienen desarrolladas relaciones con el tejido empresarial que les permite añadir nuevos segmentos a costos incrementales teoricamente bajos. Por el contrario, las FinTech necesitan enfoques no tradicionales de adquisición de clientes, usando intensivamente el marketing digital y redes de franquiciados virtuales (agentes, empresas de software,....). Asimismo, las FinTech basan sus procesos en soluciones tecnologicas mas rapidas, baratas y flexibles que les evitan la carga de costes humanos y de infraestructura de los bancos tradicionales .
La clave para el crecimiento sostenible una empresa de financiacion de deuda radica en la orientación al cliente de una forma obsesiva. Es decir,
Por tanto, las cuatro preguntas que los inversores deben preguntar al evaluar una empresa de crowdlending comercial son:
Dentro del amplio campo de empresas de financiacion las plataformas que unen inversores individuales -que tienen algo de dinero extra para invertir- con pequeños empresarios -que necesitan dinero en efectivo para hacer crecer sus negocios- se denominan plataformas de préstamos P2B o crowdlending. Sin embargo actualmente la gran mayoria de los fondos en las plataformas de préstamos P2P se originan a partir de fuentes institucionales. Así que para todos los efectos prácticos, el dinero institucional domina el lado de abastecimiento de la ecuación en la mayor parte de las plataformas de financiación de la deuda. La excepción a esta regla general son algunas plataformas de préstamos sociales (por ejemplo, Ecrowdinvest), pero que atienden a un segmento estrechamente definido de microempresarios con tamaños de entradas muy pequeñas o tienen un propósito específico impacto social. Estos FinTechs no entran en la categoría de masivamente escalable, esos unicornios de los que queria hablar... pero lo dejare para otra cena, me he dado cuenta que el resto de comensales estan atacando el postre...
Tags: published, financial, fintech
December 11, 2015 at 02:54PM
Open in Evernote
Licenciado en Empresariales soy por lo tanto un empresologo...y he trabajado como morosologo, analista,...