Risk Management & Analytics: The Most Important Aspect of Data Has Nothing To Do with Data

The Most Important Aspect of Data Has Nothing To Do with Data

The rush to collect more data is becoming a priority for many organizations that believe that by collecting more relevant data, they will have an information advantage over competitors. There is no doubt that the data opportunity is unprecedented and may even represent the biggest driver of business growth and transformation across a wide range of industries, influencing business models, products, infrastructure, marketing effectiveness, and even altering how we think about currency. In the financial services and real estate finance industries, data provides information about everything from borrower stability and product cross-sell opportunities to portfolio and asset value.

As an analytics provider to the financial services and real estate finance industries, the Situs family of companies has spoken with many organizations that are inspired by the data opportunity. We’ve found that although many financial institutions know exactly how to use pieces of data as they relate to a specific function, they may still struggle to get their hands around the bigger data opportunity. We often hear, “We are collecting all of this amazing data, but we are sitting on a gold mine trying to figure out how to use it.”

In the race to collect data, many businesses fail to define their objective. In our 20+ years of delivering analytics, we’ve parsed, organized and analyzed a lot of data. In doing so, we know that our objective is to extract insights that will inform business, balance sheet or risk management decisions, whether we are valuing a mortgage servicing rights portfolio or uncovering risk in a financial model. Knowing how our clients will use the data enables us to focus our attention on the right data attributes and characteristics. It helps us better organize, standardize, perform quality control and supplement the information to ensure we can effectively meet our objective. In short, it helps us use data strategically and verify or refute business assumptions.

While collecting data is critically important, it is even more important for organizations to develop a strategy and objective for that data. When the data objective is defined, it’s much easier to optimize the data and extract insights. If your executive team is struggling to define the objective, invite others to the table who may think about practical problem solving from a user’s perspective. Run a data hackathon. Start with the intent to improve data quality within the organization and identify solutions for internal and external clients. Like any other entrepreneurial opportunity, a vision and objective will ensure your organization is not just accumulating information but utilizing it to shape real business change.

Situs provides clients with a range of solutions including data optimization and management, as well as analytics and advisory to the financial services and real estate finance industries. To learn more about how we can help optimize your data and drive informed and confident decisions, email us: inquiries@situs.com.

Companies Pay the Price for Ignoring Blankfein’s Debt Advice

In late 2012, Goldman Sachs CEO Lloyd Blankfein advised corporate clients to watch out for the bond market.

There was a general complacency, he said, about low interest rates that was creating a risk that corporations would get caught behind the curve when they eventually did rise. He instructed corporate America to borrow as much as it could for as long as it could. It’s not clear how many executives took his advice.

Corporate America has certainly borrowed a lot. But seven years later, few companies have followed Blankfein’s second piece of advice, to lock in low rates for as long as possible, and that is whipping up a headwind for stocks.

As of the end of the first quarter, the median company in the S&P 500 will have to pay back its debt in 97 months, or just more than eight years. That’s roughly the same time to maturity that the median S&P 500 company had when Blankfein made his comments in 2012. Now that interest rates are finally rising, some companies, and their investors, will perhaps wish that they taken the opportunity to lock in low rates for longer.

Read more: Bloomberg

Firms From Neuberger to BlueMountain Shed Skin-in-the-Game Debt

Managers of collateralized loan obligations are shedding chunks of their deals after a rule requiring them to hold on to a portion of their own transactions was repealed by a U.S. appeals court this year.

Neuberger Berman, Seix Investment Advisors, Blue Mountain Capital Management and Credit Suisse Asset Management have either sold or are marketing almost $800 million of bonds they had to retain under the rule known as risk retention, according to people familiar with the matter, who asked not to be identified discussing a private matter.

Managers of CLOs won an exemption to the risk-retention provision in February. The rule requires sellers of repackaged debt like mortgage bonds to own a chunk of the bonds they assemble and sell. Known as the “skin-in-the-game,” it was designed to prevent a repeat of the subprime crisis, where lenders made bad loans and sold them off to investors that bore the losses when the debt soured. Ending the requirement has added fire to an already hot market for CLOs as investors thirsty for yield fuel a record pace of sales.

Read more: Bloomberg

Banks Might Not Have Long to Cheer for Regulatory Relief

It has been a decade since Bear Stearns imploded, and bankers are ready to stock up on champagne after the passage of significant legislative changes to the Dodd-Frank Act.

But before they uncork those bottles, they should be put on notice that credit signals are not good.

Recent data shows that commercial and industrial loans extended are at the highest point they have ever been since the Federal Reserve started tracking the data in the 1940s. Since 2009, corporate debt has been growing faster than consumer debt.

And there are additional worrying signs: The leveraged loan market has, for example, doubled in just five years to $1 trillion. This growth comes despite new guidance about better risk management requirements for leveraged loans released by the Fed and the Office of the Comptroller of the Currency in 2013. In April 2018, covenant-lite, first-lien institutional loans outstanding hit a record high of 77% of that market. Covenant-lite loans typically come with fewer periodic financial performance obligations for the borrower that other loans require. This is a significant rise from 2007 when these types of loans represented about 20% of outstanding leveraged loans in the U.S.

Read more: American Banker

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