BankBoston Securities has come up with a neat twist on receivables finance; EagleFunding. It gives companies about 85 cents on the dollar while giving the bank non-interest income.
EagleFunding issues commercial paper backed by BankBoston's credit. The borrowing company-time-share developers, relocation companies, and private-label credit card issuers-sells its receivables to a special purpose intermediary corporation, which sells them in turn to EagleFunding. EagleFunding then issues the paper.
The two sales result in "true sale treatment" accounting, while the borrowing company gets the money it needs to go forward, minus unspecified fees to the bank. The result is securitized factoring, non-recourse borrowing, plus fees and income for BankBoston. Minimum deal: $20 million.
The principle behind derivatives may be simple, but the paperwork and accounting is ferociously complicated and time consuming in a world where a little time is a lot of money. It's no wonder, then, that dealers favor systems to handle everything from pricing to billing.
Canada's Bank of Montreal (BOM) recently installed an integrated front- to back-office derivatives system, developed in conjunction with Mountain View, CA-based Infinity Financial Technology, Inc., for its growing derivatives operations in interest rate and commodity products, plus foreign exchange options. The bank also does credit derivatives for its own account. "We've really stepped it up in the past 18 months," says David Hyma, BOM's svp, global financial products and money markets.
BOM installed the Infinity system in phases, beginning with its front-end system on the trading desk, doing pricing and analysis. Risk management controls, providing intra- and end-of-day portfolio analysis from the pricing database, followed soon thereafter. In March, BOM installed a back-office module. Previously, back-office functions were handled manually with a variety of other systems, says Steven Priebe, senior systems manager. Now, traders type in a deal once, press a commit button, and it gets captured in the system, so the back office has everything they need to produce confirmations and payment advises."