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Asset Liability Management - Intro

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Jawwad Farid
Jawwad Farid

Asset Liability Management for banking. Quick review guide

Economy & Finance
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Asset Liability Management Jawwad Ahmed Farid
ALM at a glance Interest Repricing Rates Maturities Funding Value/ Income
Dimensions Funding Liquidity Maturity
ALM Equity Liabilities Assets Re-price Re-price Liabilities Assets
Risk - Return Metric or Change in Change in Target Interest Market Account Income Value Change in Driver Interest Rate Balance Income Setting Sheet Statement
ALM Framework - I Business Model Stress Risk Tests Analysis Capital Financial Model Model Liquidity Model
ALM – Framework - II Value at Portfolio Simulation ALM Capital Risk Review
Building the ALM model Balance P&L Valuation Sheet Calculation Interest Rate ALM Reports Engine Generator 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 β€’ R.P  Reprice β€’ As  Assets β€’ L  Liabilities β€’ NII  Net Interest Income (PnL) β€’ MVE  Market Value of Equity (Value) β€’ EaR  Earning at Risk (NII with VaR) β€’ Asset Sensitive β€’ Liability Sensitive
ALM Cheat Sheet
Liquidity Risk & Stress Testing
Name Crisis Change in market Operational Asset Regulatory Accounting conditions Loss related Loss scandal Scandal
Liquidity Crisis Liquidity Name driven Crisis Asset Sale Asset and Margin share and price Collateral under Calls pressure Counterpar ty Limits Rating Withdrawn Downgrad or e restricted
Cash Generation β€’ Repurchase agreements β€’ Discount window Asset Sales β€’ Outright sale at depressed prices β€’ Off market settlement for netting off liabilities β€’ Secured Term loans Cash β€’ Equity Injection β€’ Asset Swap for Cash Generation β€’ Regulatory driven cash injection or take over β€’ Realignment and restructuring of resources Cash β€’ Discontinued operations β€’ Limit management conservation β€’ Centralization of cash management
Bear Stearns Under 90 days Crisis in full bloom 20th December 2007 – Q4 Loss JP Morgan Takeover 16th March 2008 @ 2$ a share
Lehman 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 Under 30 days Crisis in full bloom 19th August 2008 – Q3 Loss & write downs Lehman Bankruptcy Filing 15th Sep 2008
Jawwad Ahmed Farid alchemya.com FinanceTrainingCourse.com jawwad@alchemya.com

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Asset Liability Management - Intro

  • 1. Asset Liability Management Jawwad Ahmed Farid
  • 2. ALM at a glance Interest Repricing Rates Maturities Funding Value/ Income
  • 3. Dimensions Funding Liquidity Maturity
  • 4. ALM Equity Liabilities Assets Re-price Re-price Liabilities Assets
  • 5. Risk - Return Metric or Change in Change in Target Interest Market Account Income Value Change in Driver Interest Rate Balance Income Setting Sheet Statement
  • 6. ALM Framework - I Business Model Stress Risk Tests Analysis Capital Financial Model Model Liquidity Model
  • 7. ALM – Framework - II Value at Portfolio Simulation ALM Capital Risk Review
  • 8. Building the ALM model Balance P&L Valuation Sheet Calculation Interest Rate ALM Reports Engine Generator Presentation
  • 9. ALM Cheat Sheet Sigma Duration Convexity Asset Sensitive Liability Sensitive Value at Risk Hedging Tools
  • 10. ALM Cheat Sheet See link above for ALM convention & FAQ’s β€’ R.P  Reprice β€’ As  Assets β€’ L  Liabilities β€’ NII  Net Interest Income (PnL) β€’ MVE  Market Value of Equity (Value) β€’ EaR  Earning at Risk (NII with VaR) β€’ Asset Sensitive β€’ Liability Sensitive
  • 12. Liquidity Risk & Stress Testing
  • 13. Name Crisis Change in market Operational Asset Regulatory Accounting conditions Loss related Loss scandal Scandal
  • 14. Liquidity Crisis Liquidity Name driven Crisis Asset Sale Asset and Margin share and price Collateral under Calls pressure Counterpar ty Limits Rating Withdrawn Downgrad or e restricted
  • 15. Cash Generation β€’ Repurchase agreements β€’ Discount window Asset Sales β€’ Outright sale at depressed prices β€’ Off market settlement for netting off liabilities β€’ Secured Term loans Cash β€’ Equity Injection β€’ Asset Swap for Cash Generation β€’ Regulatory driven cash injection or take over β€’ Realignment and restructuring of resources Cash β€’ Discontinued operations β€’ Limit management conservation β€’ Centralization of cash management
  • 16. Bear Stearns Under 90 days Crisis in full bloom 20th December 2007 – Q4 Loss JP Morgan Takeover 16th March 2008 @ 2$ a share
  • 17. Lehman 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 Under 30 days Crisis in full bloom 19th August 2008 – Q3 Loss & write downs Lehman Bankruptcy Filing 15th Sep 2008
  • 18.
  • 19. Jawwad Ahmed Farid alchemya.com FinanceTrainingCourse.com jawwad@alchemya.com