Stock secured loan finance for securities lending [Expert Interview]
Stock secured loan finance for securities lending [Expert Interview]
Best REPO stock secured loan finance for securities lending
Stock secured loan definition:
A stock secured loan is a loan granted against pledged listed share as collateral to secure the loan amount. The banks are subject to more regulation. They have become more reluctant to offer loans against listed shares. Hedge-funds and family offices entered in this market offering much better terms and conditions.
Enzo Caputo: You are the owner of a listed company, of a company listed at the Stock Exchange and you have been rejected by many Swiss banks or by many other banks and you are looking now for alternatives for a REPO transaction, for a stock secured loan, you should watch this video until the end.
Enzo Caputo: Hi, it is Enzo Caputo, Swiss-banking-lawyers.com speaking from Zurich Paradeplatz. Today, we have a very important guest with us, Mr. Dario Berta; he is a former director of UBS, he was many years with UBS involved with investment banking; he has an impressive track record in closed businesses and in closed REPO transactions. So Dario, thank you to be here with us today.
Dario Berta: Thank you for your invitation.
Enzo Caputo: Thank You Dario. So if a shareholder of a listed company was rejected by a couple of things, what can he do? Who can help him to find a loan? How it works, why we can help him? Can you maybe explain in a more precise way, how can we help such desperate people to find the stock secured loan they are looking for?
“… Today, the banks have become very selective with granting loans to their clients …”
Dario Berta: That’s indeed a very good question. Today, the banks grant less and less number of credits to their clients. There are many good companies, good shareholders with good stock but maybe not the most liquid stock, maybe not the biggest company, they are looking for additional liquidity. Maybe they need the liquidity for the acquisition, maybe they only need the liquidity to just buy a house or maybe they have a divorce and they need to pledge their shares for special situations, for special times. So we worked since many years with repurchase agreement called REPO, so we are very much familiar in helping those clients to get additional liquidity for their stocks with stock secured loan.
Enzo Caputo: Exactly. But sometimes, some banks are reluctant to give loans because they have to fulfill so many pre-conditions, they are subject to laws and regulations. Can you explain Dario how it works with such regulations, why the banks are in a very difficult situation and are not in a position to give loans anymore as they did before? Before it was much more easier than these days and that’s why we have developed our own business to help right now.
“… Before 2007 nearly everyone received loans but today there is less liquidity for stock based loans and banks have become risk averse. …”
Dario Berta: Absolutely. We think that since the last financial crisis in 2007-2008, the balance sheets and of course also because of the new regulations and also rules that the banks have less and less liquidity to grant to their client, the balance sheets become more and more short. So it means they are not really happy, the banks, to grant any additional credits to their clients. Before 2007 nearly everyone received loans but today there is less liquidity for stock based loans and banks are risk averse. So those clients with less liquid stocks have a big problem detaching their shares.
Enzo Caputo: And this is exactly the point, we are coming into the scene because we help these clients because we are financed, not by banks, but we are financed by hedge funds and other liquidity provider which are not under this hard regulation as banks, so they are more flexible. So if we approach such a source for loans, they have not that implications the banks have and that’s why it’s much easier with our help to find such a loan. So we’ll help these people, the shareholders of listed company to find a stock secured loan, not through a bank but through hedge funds.
Dario Berta: Absolutely right. We work with several hedge funds and they have big appetite to finance stocks between half a million up to 100 million US dollars in credit per client. So the appetite is really big. We are also working with some Luxembourg Funds. They offer REPO to clients from 3 million to 10 million.
How does a stock secured loan work?
Enzo Caputo: Can you explain a little bit how it looks a typical REPO transaction? So if somebody wants to work with us, what is a typical client? How is the procedure? How it works? How simple it is to work with us?
Dario Berta: So the typical situation, we have a CEO or a founder of a company who got stocks between 5 and 10 million, maybe the market capitalization of the company is about 50 to 200 million market cap, the stock that is traded in a first market or in the second market at the stock market. The most of our clients, the stock is the not liquid like we have with a UBS stock or Apple stock, of course those stocks are not so liquid. But most of the times we got the daily liquidity between 50 and let’s say 500,000 US dollar per day trading volume. Market capitalization as I said before will be 50 and 250 million US dollars; typical amount of credit between five and ten million US dollars. But this is just a typical case, we’re also interested in giving credit for half a million but we are interested also in huge clients and to finance 100 million US dollar. So we have finance with this. But it was good, your question, to explain a little bit what is our typical client.
What are the factors influencing the LTV?
Enzo Caputo: And what are the factors, the terms and conditions influencing the LTV? How the LTV is composed? What is influencing the LTV?
Dario Berta: That’s a very good question. Of course the clients, they always would like to have an LTV of a hundred percent of the stock value, but this is not reality. So there’s different factors we have to take into consideration like the daily volume trading in the stock, like the market capitalization of the stock, also the client, what is the actual situation of the client? also the country we are financing, of course also the currency in which we are financing.
Enzo Caputo: So the counter risk evaluations are very important?
Dario Berta: Yes. The balance sheet of the company and there’s many other factors influencing the LTV. Normally we deal with LTVs between 35% for less good deal up to 75% for routine, so that’s our typical range of LTV we can grant to the client. But of course, based on my experience as you know, many of our clients, they were rejected by the bank; so the banks said lower LTV and we then grant to the client a better LTV only on the stock and most of the clients are very happy with our LTV.
How we can protect our clients from fraudulent transactions?
Enzo Caputo: I see. And what are the risks for the client if he works with us? What kind of comfort can we give to the client? How we can protect our clients to not be defrauded. From time to time you hear some fraud cases, how we can protect our clients to not be victim, to ensure he’ll never be victim of a fraud scenario?
Dario Berta: So we work only with just a few hedge funds and we know the hedge funds and our counterparty and it’s very important we do deals with very serious entities. Our hedge funds, most of them are domiciled in London and we’re also working with a Luxembourg Funds which is absolutely trustworthy, a serious counterparty. So I suggest not start business with some strange companies, some of them in Asia, some of them in Israel; I would really have a good look on with whom you are doing business.
Invest time and money with your due diligence. Check the background information in connection with your counterparty you start doing business. There are many fraudulent companies with the sole target to take away all of your listed shares. Avoid a change of title agreement. You are giving up the control over your shares. If you are forced to sign an agreement with change of title, you must be sure to deal with counterparties with impeccable reputation and a successful track-record.
Enzo Caputo: Very important, this is very important, very important.
Dario Berta: The REPO deal is a very sensitive business because as you know we go to two parts; on one side we can do a change of title, that means the stock goes to the borrower or we have on the other side also non change of title, the stock remains with the client.
Enzo Caputo: What is less risky for the client?
Dario Berta: It’s less risky for the client and most of the clients, they do prefer to do a non-change of title situation as the stock remains with the client and it’s just a pledge in favor of for example, our hedge-fund in London.
Change of title or non-change of title?
Enzo Caputo: For example, okay. So as you can see as everywhere, it’s very important; it’s crucial to check your counterparty, you have to check the CV of your counterparties; we do that for our clients, we check exactly the counterparty we do this, to check the counterparty is the basis, it’s very important. Now Dario spoke about the fund involved in the REPO business, can you explain a little bit about this fund, what is the unique selling proposition the USP? What is the USP of this fund because I never heard that there is even a REPO fund, I never heard that but now and there is a successful REPO fund launching and then promoting this business tell us a little bit about this Luxembourg REPO fund, what they do?
Dario Berta: They exactly are doing what the banks did 10, 15 years ago, financing good business, financing good clients, that’s a really important thing. They really enter in a niche because the banks are not granting any more credits, these funds are specialized in helping wealthy clients to get additional liquidity and to really offer unique business and I think a part of our partner fund in Luxembourg, they will come in the next years, many authors in this sector. I think the first funds, they will have tremendous success in doing this.
Who is the owner of the stock based loan?
Enzo Caputo: Very interesting. And who is behind these funds? Are there family office controlling, helping the fund with own money, we own family money, rich family office, rich families behind supporting the fund, please explain a little bit..?
Dario Berta: Most important partners for example, our Luxembourg fund, the money is from a family office, a very rich family office from Zurich. So the money behind the idea is or the biggest seed investor in the fund is a big family office of Siri.
Enzo Caputo: Very good. So they invest with own money basically.
Dario Berta: Own money.
Enzo Caputo: With own money, so it’s not money collected from ‘I don’t know where’.
Dario Berta: It’s a little bit part. Let’s say…
Dario Berta: …in Luxembourg and we got around 70/75 million from the family and the rest is collected in a few other family offices in a few banks.
Enzo Caputo: Very good. So it’s a people’s related business?
Dario Berta: Absolutely.
“… We protect our clients because we work with just hand-picked counterparties. …”
Enzo Caputo: You see how much important it is to have good connections, not only banks, but also these funds controlled by family offices which are controlled by real families, a simple estate. So you don’t work anonymously or on anonymous basis, you exactly know who is giving you the money, you know the source of funds and you know it’s in Switzerland. The placement power in Switzerland Zurich is huge, it’s very impressive, that’s why we have all these assets here to be invested, that’s why we work with such funds and we are happy to do that. You know we don’t want to bring our clients in any sort of adventures, we don’t want our client to lose money; we want our clients to be happy to introduce these clients to the table and meet directly the people, the natural people giving the loans. This is possible if you work with us because we are delivering tailor-made business.
How many days to close a REPO-Deal?
Dario Berta: What is also very important to me Enzo, is that we are very fast. From the first application to the granting of the loan amount, it takes from 10 to 14 days only. We are very fast and that’s a big advantage.
“…to close a REPO-Deal it takes from 10 to 14 days only…”
Enzo Caputo: Huge, because if you do such a transaction with the bank, maybe you can wait let’s say one month for account opening and two months for the credit committee and all these procedures takes times; at the end you don’t want to close this business anymore because you have so many paperwork, so many formalities. But here if you work with us, it’s very simple; it’s very fast; we are tremendously fast and efficient. Why? Because we have the personal connection, direct a personal approach. We introduce you directly to the people giving you the money, so it’s like a kind of a “club deal” I would say, so very confidential; it’s not the bank, it’s something completely different but very powerful.
Dario Berta: And very fast.
Enzo Caputo: And very fast of course. So we are not only fast with swiss bank account opening, we are fast also in providing such a REPO loan. So we will guide you to find the right people, to meet the right people, to close your transaction very fast and very successful. Thank You Dario, thank you for your support.
If your bank has rejected you due to illiquid shares,
If you are looking for a reliable partner granting a stock-based loan,
If you want to be sure to not lose your shares,
If you are looking for outperforming terms and conditions,
If you have been rejected from your bank, that’s no problem, because we have access to alternative sources for a loan at more competitive terms and conditions.
“We can submit an offer with stock-secured loan rates within few days…”
If you have been rejected by your bank, don’t give up. There are other players offering loans. The terms and conditions are often more competitive. Before you close a REPO deal with your bank, let us submit an offer to you. Don’t hesitate and call me immediately, take the phone in your hands and give me a call. Call the number 0041 44 212 44 04 and give me a call and I will answer all of your questions.