Derivative Sales Program
Success Stories

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Large Regional Bank Wanted to Establish a Derivative End User Program Despite Dodd-Frank and Clearing Uncertainties

Challenge:

Newly-hired senior commercial lending bankers had familiarity with offering commercial clients interest rate hedging products at their previous bank, but the product was not yet approved to offer to their new Bank’s clients.

Conservative bank management wanted to carefully consider their willingness to offer interest rate derivatives as a product solution in a post-Dodd-Frank environment.

The Bank had executed a few derivative transactions for balance sheet management before, but did not have the in-house expertise to design and support a Dodd-Frank compliant client hedging program.

As a Bank over $10 billion in assets, the Bank was required to execute its derivative transactions that would not qualify for end-user or other exemptions on a Clearing Exchange through a Futures Commission Merchant (FCM).

The Bank wanted to remain competitive in winning commercial loans vs. large regional and national banks active in their market, who had greater legal. compliance, and capital markets resources to support a client hedging program.

The Bank wanted to continue to diversify revenue and create non-interest income opportunities.

Solution:

The Bank entered into a partnership with Derivative Path, Inc. in 2013 and utilized the team as their fully outsourced client hedge program solution.

DPI provided a full set of white-labelled client marketing, legal and operational documentation.

DPI helped establish bank credit and risk management policies for client hedging program.

DPI provides ongoing assistance with full trade lifecycle processing and real-time information about the Bank’s derivatives portfolio utilizing DerivativeEDGETM.

DPI helped analyze the incremental cost/benefit impact of clearing on the establishment of their client hedging program as well as helping to analyze and negotiate their best clearing exchange and FCM alternative.

The Bank has experienced strong loan growth and robust fee income generation since the client hedging program was established.

Client Profile:

West-coast regional bank with over $17 billion in assets.

Active in C&I, CRE and Corporate lending.

Had historically hedged some large fixed rate loans, but never offered interest rate derivative transactions to their commercial borrowers.

Regional Bank Needed to Maintain and Expand a Derivative End User Program in the Face of Dodd-Frank Challenges

Challenge:

Had to consider their ability to continue offering interest rate derivatives as a product solution in a post-Dodd-Frank environment.

With no in-house infrastructure and resources to address the complex regulatory requirements, the bank was forced to a) evaluate its ability to continue servicing its existing derivatives portfolio and b) question whether it could continue to offer new derivative hedging solutions to its commercial clients.

Desire to remain competitive in winning commercial loans vs. larger banks with greater legal, compliance, and capital markets resources to support a more regulated client hedging program.

Desire to continue to diversify revenue and create non-interest income opportunities.

Solution:

The Bank signed on with Derivative Path, Inc. in 2013 and utilized the team as their fully outsourced derivative program solution.

DPI onboarded and reconciled over 150 existing derivative positions in less than 2 weeks onto the DerivativeEDGETM trading platform.

Ensured all existing positions were properly hedged, documented and being reported accurately to the Swap Data Repository.

Negotiated new ISDAs and expanded access to trading liquidity with newly established Swap Dealer relationships.

On a daily basis, produce white-labelled payment notices and reconcile them to dealer notices ready to deliver to clients, eliminating hours of manual copy paste processes.

Provide monthly client mark to market statements.

Reviewed bank credit and risk management policies.

Provide ongoing assistance with full trade lifecycle processing.

After hiring DPI, have had the business pass internal audits and other reviews.

Continue to offer hedging solutions to eligible commercial clients and compete very effectively with large and small banks alike.

Client Profile:

Midwestern regional bank with $2.5 billion in assets.

Active in C&I and CRE lending.

Had existing portfolio of interest rate hedging transaction booked prior to Dodd-Frank implementation.

Community Bank Utilizing Derivatives to Help It Achieve Advantageous Funding Solutions and Better Balance Sheet Risk Management

Challenge:

As a community bank, they only had 1 existing Swap Dealer relationship.

They did not have the internal resources to fully manage their derivative program going forward.

They wanted to be able to continue to utilize derivatives to help them achieve better balance sheet risk management and find low cost funding solutions.

Their existing hedging positions required hedge accounting support.

Solution:

The Bank retained Derivative Path, Inc. and immediately began to onboard their existing portfolio of balance sheet trades onto DerivativeEDGETM trading platform.

DPI onboarded many existing, complex derivative contracts, such as step-up Bermudan cancelable swaps, that the Bank had previously executed to achieve cheaper funding.

Bank’s credit and risk management policies were reviewed and updated by DPI.

DPI expanded access to trading liquidity and negotiated an ISDA with a new Swap Dealer.

DPI provided hedge accounting support for all existing and new balance sheet hedge transactions.

DPI provides ongoing assistance with full trade lifecycle processing.

The Bank continues to utilize DPI team to evaluate new funding alternatives and to keep funding options that involve derivative transactions.

Client Profile:

Midwestern community bank with sub-$1 billion in assets

Actively looking to find low cost funding solutions and ensure good balance sheet risk management

Had existing portfolio of brokered CDs and other instruments on their balance sheet that included interest rate derivative contracts with Bermudan optionality

A large Non-Bank Financial Institution Needed to Manage Complex Rate Risk of a Commercial Real Estate Pipeline

Challenge:

The company needed to manage rate risk of a large set of fixed rate loans between origination through to sale to investors.

The company needed to establish relationships with swap dealers, a clearing exchange and a Futures Commissions Merchant (“FCM”) to begin its pipeline hedging program.

It also needed a cost-effective way to manage these transactions and be able to dynamically track the quickly changing portfolio as loans were originated and/or sold.

The company needed a partner that understood the complexities of Dodd-Frank while also being able to provide timely advice on its hedging strategy to offset the exposure in its loan portfolio and meet the demands of loan warehouse financing terms.

Solution:

The company signed on with Derivative Path, Inc. in 2014.

DPI helped the company rapidly establish Swap Dealer and FCM relationships, as well as get set up on the ISDA Protocol and Markit systems, to facilitate clearing and hedging activities.

On an ongoing basis, DPI reviews and assists with the most efficient execution of all trades to manage the rate exposure of the quickly evolving portfolio.

The firm has full access to its derivatives portfolio information through DerivativeEDGETM. The firm greatly values having a trading platform that is available at all times with pricing information updated with real time market data. .

All of these tasks are executed efficiently, while the company has the confidence that with DPI’s assistance, all of this hedging activity is conducted in compliance with Dodd-Frank requirements.

Client Profile:

A large diversified financial services firm founded on the West Coast in 2009, originates commercial real estate loans and sells them as whole loans to investors.

The company was looking to manage the interest rate risk of its rapidly growing new loan pipeline.

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