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What_Should_I_Be_Hedging_Tangible_Book_Value_or_Economic_Value_of_Equity

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chathamfig.com 3 The resulting table shows the valuations of the FI using a multiple of TBV, taking into consideration the US Treasury classified as AFS and HTM: While the calculation above yields a different answer, the value of the company is not different. Before moving securities from AFS to HTM, the FI should consider the limitations your FI will have with not being permitted to liquidate HTM to meet funding needs (although the HTM securities are still available for pledging, but pledging the HTM securities for funding needs will cause the balance sheet to increase and thus utilize more capital) or to reposition the FI's interest rate risk position. Chatham's Approach Chatham's approach to Balance Sheet Risk Management (BSRM) advisory starts with the FI providing three key data points: 1. What is the FI's interest rate view? 2. What is the FI's NII and EVE current position? 3. What is the FI's target interest rate risk position? Working with the FI's management team, Chatham uses the answers to these questions to develop BSRM strategies that meet the FI's objectives. Our strategies can include both cash instrument and/or derivative instrument solutions. Path of Least Accounting Resistance (POLAR) When proposing derivative-based solutions, Chatham follows its well-regarded POLAR (Path of Least Accounting Resistance) framework that considers the critical hedge accounting constraints that are associated with the FI's particular balance sheet structure to achieve the most accounting- friendly and economically viable solution. Security is AFS Security is HTM Starting Stockholders' Equity $10.00 $10.00 TBV multiple 1.2x 1.2x Starting Value of FI $12.00 $12.00 Interest Rates Increase 100 Basis Points Change in value of US Treasury ($4.80) ($4.80) Pro forma Stockholders' Equity $5.20 $10.00 TBV multiple 1.2x 1.2x Pro forma Value of FI $6.24 $12.00 235 Whitehorse Lane Kennett Square, PA 19348 | T : 610.925.3120 chathamfig.com Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accoun ng and execu on services related to swap transac ons in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the Na onal Futures Associa on (NFA); however, neither the CFTC nor the NFA have passed upon the merits of par cipa ng in any advisory services offered by CHA. For further informa on, please visit h ps://www.chathamfinancial.com/legal-no ces/. Transac ons in over-the-counter deriva ves (or "swaps") have significant risks, including, but not limited to, substan al risk of loss. You should consult your own business, legal, tax and accoun ng advisers with respect to proposed swap transac on and you should refrain from entering into any swap transac on unless you have fully understood the terms and risks of the transac on, including the extent of your poten al risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicita on for entering into a deriva ves transac on. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the deriva ves markets, capable of making independent trading decisions, then you should not rely solely on this communica on in making trading decisions. 18-0081 About the Author David J. Sweeney is a Managing Director at Chatham Financial and leads Chatham Investment Advisors, a registered investment advisor.

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