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Module I: Finance and Leasing Companies
Analytic overview
Section aims: apply the purpose payback model to understand the key credit issues of finance and leasing
companies.
Perspective on finance and leasing companies: rating agencies, debt and equity investors and banks
Purpose payback model: dependence of finance companies on debt markets and refinance; warehouse
and borrowing base facilities and other structural issues
Case Study: Purpose Payback applied to a leasing company.
Operating environment
Section aims: understand the impact of macro competitive and regulatory issues on risk profile and strategy.
Key risks and competitive issues by sub-sector: sales finance, direct finance, captive finance, equipment
finance and leasing, credit cards
Comparison across various European countries of country specific strengths and weaknesses
Impact of regulation and supervision.
Course Outline
Financial fundamentals
Section aims: benchmark key performance indicators of different types of finance and leasing company in
order to identify both strong and weak performers and recognise early warning signals of credit deterioration.
Statement logic: accounting policies for income, receivables, delinquencies and leases (finance versus
capital leases)
Business risk: use of financial tools to assess quality of lease and loan book; reserve adequacy, owned
versus managed book; residual risk
Funding risk: stability and variety of wholesale funding sources, gap management, availability of
contingency funding, liquidity and capital adequacy
Securitization: benefits and risk of off balance sheet funding vehicles; residual risk, mortgage servicing
rights and gain on sale accounting
Performance risk: balancing risk and return; income stability and expense control
Case Study: apply the financial fundamentals to a leasing company.
Leasing companies
Issues specific to leasing companies: types of leasing companies, residual values, cash flow
Operating leases
Hire purchase agreements
Key ratios for a peer group of equipment leasing companies.
Operating environment
Section aims: understand the impact of macro competitive and regulatory issues on risk profile and strategy.
Securities markets: foreign exchange, equity, fixed income, futures and other derivatives, commodities,
etc.
Differing business models: broker, broker dealer, wholesale, retail and internet based
Exercise: Identifying risks in brokerage companies
Regulation and supervision: focal points of international, regional and local regulation; compare and
contrast key markets.
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Course Outline
Financial Fundamentals
Section aims: benchmark key performance indicators of different types of securities companies in order to
identify both strong and weak performers and recognise early warning signals of credit deterioration.
Statement logic: matching business model to expected financial statements; key accounting policies on fair
valuation; risk of window dressing
Performance risk: revenue sources, earnings volatility and cost control
Business risk: risk profile of broking, trading underwriting, advisory, settlement and clearing
Market risk / asset quality: modelling market risk, securities haircuts, fair value techniques, off balance
sheet exposures
Counterparty credit risk in brokerage and derivatives activities
Financial risk: managing funding stability and liquidity risk
Capital adequacy: regulatory and analytic tools to assess the strength of capital and the risks of leverage;
net capital, working capital and core capital
Case study: financial indicators for a securities broker.
Orientation
Types of fund: regulated mutual funds/unit trusts, managed accounts, closed ended funds and investment
trusts, tracker and exchange traded funds (ETFs), fund of funds, master feeders, REITs etc
Structure and legal status of funds and managed accounts.
Investment strategies
Investment strategies: risk profile of strategy, policies, practices and restrictions
Traditional strategies: fixed income (money market, bond, municipals) equity and specialist funds; growth,
value and balanced strategies
Alternative investment strategies: use of derivatives and leverage.
Analytic overview
Section aims: apply the structured approach to analysis to fund transactions in order to recognise the key
challenges of exposures to funds.
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Course Outline
Risk Analysis
I. Operating environment
Section aims: understand the macro competitive and regulatory drivers of performance, strategy and financial
strength.
III. Management
Section aims: evaluate the roles and responsibilities of key parties to a fund with a focus on the fund manager.
Key parties
Roles and responsibilities of various parties: manager, trustee, directors, administrator, custodian etc.
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