With bulge-bracket underwriters offering an array of financial services to bond issuers, First Tennessee National Bank unit Capital Assets Corp. is in the process of expanding its free-of-charge portfolio analysis product into the consumer finance sectors, aimed at helping lenders properly assess and restructure the risks within their loan portfolios.
In turn, First Tennessee hopes, these lenders will hire Capital Assets to manage the portfolio, through either a securitization, a whole-loan sale or even a portfolio acquisition.
The plan, dubbed Consumer Portfolio Performance Analysis (CPPA), the brainchild of First Tennessee Capital Asset department president Jerry Hubbard, is an expansion from mortgage-related analysis into the consumer loan sectors. Hubbard, a 20-year veteran of the Memphis-based bank, is known as a "loan balance-sheet guru."
The program is targeted at focusing lenders who are unfamiliar with the benefits of the aforementioned activities on balance-sheet restructuring and the benefits of accessing the capital markets. CPPA will be available to analyze portfolios consisting of the whole spectrum of asset classes. Six such portfolio analyses are currently under way, to be completed within 30 days, sources said.
With a portfolio's first analysis, a company essentially gets an independent audit of a loan portfolio, with a focus on concentration risk of loans held as investments, rather than loans earmarked for securitization. With subsequent follow-up analyses First Tennessee can take its historical data to model for future prepayment and loss data.
In this way, wet-behind-the-ears lenders can evaluate the benefits of various portfolio maneuvers. "When they are first approached, most managers say they are happy with their entire portfolios. After our analysis, some are questioning why certain loans were originated in the first place," said DL Auxier, spokesman for Capital Assetts.
First Tennessee, a player in the non-conforming jumbo mortgage sector as well as the agency debt market, has offered this service in the mortgage market for 15 years and is now motivated to get information and data from a wide array of portfolios and in turn advise lenders on their best options with the loans. "This is a great entree to create dialogue and relationships," Auxier also said.
Auxier adds that since the 1998 credit crunch spurred by the Russian debt crisis, which led issuers to place a high value on liquidity, banks that can offer lines of credit have risen to the top of the league tables. This service is viewed as a valuable service that will build relationships and lead to an increased role as an underwriter of consumer loan receivables deals.
"We don't have the balance sheet to compete with the top underwriters, which build relationships by establishing a revolving credit facility," Auxier added. "It just isn't in our business plan."