asset liability management - intro
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Asset Liability Management for banking. Quick review guideTRANSCRIPT
Asset Liability Management
Jawwad Ahmed Farid
ALM at a glance
Value/
Income
Maturities
Interest Rates
Repricing
Funding
Dimensions
Maturity
Liquidity
Funding
ALM
Equity Liabilities Assets
Re-price Liabilities
Re-price Assets
Risk - Return
Metric or Target
Account
Change in Interest Income
Change in Market Value
Driver Change in
Interest Rate
Setting Balance
Sheet Income
Statement
ALM Framework - I
Business Model
Risk Analysis
Financial Model
Liquidity Model
Capital Model
Stress Tests
ALM – Framework - II
Value at Risk
Simulation ALM Portfolio Review
Capital
Building the ALM model
Balance Sheet
P&L Valuation
ALM Reports Interest Rate
Generator Calculation
Engine
Presentation
ALM Cheat Sheet
Sigma
Duration
Convexity
Asset Sensitive
Liability Sensitive
Value at Risk
Hedging Tools
ALM Cheat Sheet
See link above for ALM convention & FAQ’s • R.P Reprice • As Assets • L Liabilities • NII Net Interest Income (PnL) • MVE Market Value of Equity (Value) • EaR Earning at Risk (NII with VaR) • Asset Sensitive • Liability Sensitive
ALM Cheat Sheet
Liquidity Risk & Stress Testing
Name Crisis
Change in market conditions
Operational Loss
Asset related Loss
Regulatory scandal
Accounting Scandal
Liquidity Crisis Name Crisis
Asset and share price under
pressure
Rating Downgrad
e
Counterparty Limits
Withdrawn or
restricted
Margin and
Collateral Calls
Liquidity driven
Asset Sale
Cash Generation • Repurchase agreements
• Discount window
• Outright sale at depressed prices
• Off market settlement for netting off liabilities
Asset Sales
• Secured Term loans
• Equity Injection
• Asset Swap for Cash
• Regulatory driven cash injection or take over
Cash Generation
• Realignment and restructuring of resources
• Discontinued operations
• Limit management
• Centralization of cash management
Cash conservation
Bear Stearns
Under 90 days
Crisis in full bloom 20th December 2007 – Q4 Loss
JP Morgan Takeover 16th
March 2008 @ 2$ a share
Lehman
Under 30 days
Crisis in full bloom 19th August 2008 – Q3 Loss & write
downs
Lehman Bankruptcy Filing
15th Sep 2008
9th June: $45 billion in liquidity, 20% reduction risky assets, leverage from 31:1 to 25:1. Survived March Bear fallout. Raised US$ 10 billion through capital issues in April/June
Jawwad Ahmed Farid
alchemya.com FinanceTrainingCourse.com