Interest Rate Risk and Balance Sheet Management
Dwyer Capital Strategies L.L.C. provides balance sheet consulting with a deep Capital Markets / Interest Rate Risk / Derivatives Management focus. We provide more than just a typical “investment portfolio” perspective. We bring extensive experience in implementing and managing all capital markets applications related to the balance sheet. This includes fixed income investment cash flow analysis, interest rate derivatives (Swaps), wholesale funding, and global interest rate strategies as they apply to the balance sheet. Specifically, we offer the following:
- Assist in your ALCO objectives, presenting an independent opinion of possible concerns regarding general market conditions and specific strategies being implemented. As an example of ALCO assistance, we have recently completed a review of a bank’s duration risk residing in the loan portfolio, and how this risk is having a negative affect on the broader IRR profile.
- Once you have a strong confidence in the ALCO numbers, we explore asset structuring and funding strategies that, when combined into the overall balance sheet, might reflect the opportunity to enhance yield AND maintain or reduce overall interest rate risk.
- Additionally, we can explore the broader balance sheet and how the next rising or falling rate cycle might impact your institution in a negative way due to hidden optionality within both the loan and deposit portfolio (i.e. prepay/extension risk), or perhaps loans that have been ineffectively priced or structured. There are effective and prudent strategies to alleviate this risk.
Derivatives (Swaps) Consulting
Regarding interest rate derivative strategies, as independent consultants we bring a “disinterested third party” viewpoint to the ALCO-based strategies being offered by the marketplace, and being contemplated by management. Because we have the proper background and tools, we can assist in evaluating Swap, Cap, and Floor strategies, and will act as your advocate when dealing with this marketplace. Specifically, we provide the following:
- Assist in reviewing counterparty-proposed strategies and assist in quantifying the overall value that the strategy will provide to your ALCO objectives.
- Provide alternative swap/cap structures as well as organic hedging strategies focused on accomplishing your asset/liability objectives.
- Review all ISDA documentation and schedules, and help negotiate terms regarding credit support as well as other covenants.
- Provide the ability to monitor markets and scrutinize how specific structures are being priced by your counterparty. (This alone can save potentially significant real capital.)
- Assist in educating your lending team (and potential clients) as to the potential benefits and risks of the derivatives marketplace.
Management and Board Counsel
As a member of your team, we will strive to provide the best advice and counsel to your management team and your board.
Next Steps…
Daniel J. Dwyer – Managing Principal
952.807-8775