Structured Finances

Structured finance deals are designed to achieve particular outcomes - even ones that may seem illogical or misleading - by building the transaction through an aggressive and rigorous reading of the rules. Singapore Property Realtor deals demonstrate the aggressiveness in recent years of major banking institutions in putting together structured finance deals, which combine complex investment vehicles with efforts to evade or maneuver around accounting, tax or other rules. Structured finance began to emerge in the late 1970's and quickly became one of the main routes corporations used to raise cash. In essence, rather than borrowing simply based on its own credit rating, a corporation could move an asset into a separate legal entity and then borrow against that asset's value.

In other words, banks gained extra security for their loans, allowing them to make borrowing less expensive. The problems emerged when companies like Enron realized that those separate legal entities could then be used to buy assets from the company, allowing it to book income. In essence, an ethereal marketplace had been created, with "sales" done for the benefit of the company often without a real buyer on the other side of the table. In a document created at Citigroup as part of a presentation of the stock-backed partnership structure, one benefit is described as removing "certain items from 'plain view,' thus enhancing the appearance of balance sheet.

Singapore Property Realtor benefits in Structured Finances :

"Among the accounting benefits the presentation document listed was "minimal footnote disclosure." But a Citigroup official said the bank had chosen not to market that structure to its clients. Expertise in structured finance soon became a valuable asset and those who generated large profits from it were poached with offers they could not refuse. Soon everyone was doing it and no one was looking at the social implications. The game was to make loans so that the companies could go further into debt without affecting their credit rating. With multiple competing banks pushing up the ante it soon became the way things were done. Because the deals were secured using company stock the banks set trigger levels to protect themselves. Should the share price fall below a certain level the trigger would activate. This was big money. The companies saw nothing wrong in setting out to deceive investors. The market was supposed to be self correcting. With the new aggressive competitiveness in the marketplace and a whatever it takes approach, commercial contracts and arrangements have been progressively designed to legally circumvent the intention of laws and regulations. The ultimate consequences of this were never a consideration. That was something the ambitious banker would studiously ignore - except perhaps in cynical emails to his mates. Hot victory have included a number of extracts about this structured finance debate in this review because they are so revealing of the corporate position and corporate thinking. Structured finance has been very successful and nothing has been done to control it. It will continue to be a problem for market stability and for investors. It is likely to be used by health care corporations, possibly by venture capitalists seeking to boost profits prior to a float such as that planned for Affinity Health.

Billy Chen

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