For several years now, Country Club Bank (which owns AMG) has been assisting clients with hedging strategies. This was a small sideline business that we offered to good customers simply because we had experience in this area, and could provide some hand holding through the transactions.
However, in today's environment, things have changed.
The long stretch of record low interest rates and waves of excess liquidity have gone from helpful to problematic to potentially disastrous for community banks. Funding costs have reached their floors near 0%, yet asset yields continue to fall. Bond yields are embarrassingly low, and loan demand is weak. Worse yet, the Fed is determined that these conditions will stay with us for the next few years, at least. As a result, small banks across the country are reaching for yield in an effort to slow the margin compression.
Hedging is no longer something for a few banks with specific exposures. It is necessary for all banks if they want to compete for the best loans without adding dangerous interest rate risk at the bottom of the rate cycle.
With that in mind, we have moved this from a sideline business to a core offering at AMG. And today, we would like to introduce the Flex Loan Program.
Flex Loan is a program we have designed that narrows down the derivatives world from something big and scary to very narrow, specific, and safe. With Flex Loan, AMG will help you execute loan level, plain vanilla interest rate swaps. These transactions allow you to make a fixed rate loan to your borrower, and then swap the rate to floating.
The structure is clean and simple, and the policy template we provide ensures that regulators and directors alike will be comfortable with the transactions. And best of all, this structure provides spreads that are 20 to 50 basis points better than matched funding, all without grossing up the balance sheet with advances you don't currently need.
Contact us today to get details on the Flex Loan Program, and find out if it might help you win more deals with less risk.
Great idea for community banks, who are under continued pressure to extend traditionally five year CRE loans to 7-10 years. A banker won't look like a genius while receiving the floating rate in this ultra low short interest rate period. But they won't look like a fool when rates rise. Let's face it, we're in a "lesser fools" environment.
ReplyDeleteDrop me an e-mail Dallas as I would like to know your pricing on this product and the current counter-party market price on floating.
~ Jeff
www.jeff-for-banks.blogspot.com