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Hi futuresbright,
.."The model however, recapitalizing a bank to reinvest deposits in asset-backed inventory is, from my perspective, a rock-solid move..."
I think your description is an oversimplification. A 'rock solid move' would be the recently described Jiko bank deal, where a 3 branch Minnesota bank was recapitalised and then customer inflows swept daily into/out of shortdated US Government Treasuries.
In SYME's case, I think the regulator will be concerned at a recapitalisation that is used to attract depositors to invest in products that - by virtue of the platform and captive bank - are originated, structured, managed , in the custody of, overseen and sold by essentially the same connected group of people.
With the best will in the world, that leaves - IMO - an undesirably large number of potential points for failure.
Put this way, if this was available at a 'retail' level - and bearing in mind the above - would YOU invest a meaningful amount of money for a 2-3 % annual return ?
ATB
If you look at the Greensill regulatory issues - it's namely to do with captive bank assets been overwhelmingly tied to the same asset and individual (not asset class, just asset). SYME's model will be hugely diversified across multi-sector and the captive bank funds will be reinvested and securitzed across global inventory through the platform. This is very different to the Greensill issue that Extrader has just popped into his post rather subtly.
The model however, recapitalizing a bank to reinvest deposits in asset-backed inventory is, from my perspective, a rock-solid move.
Hi all,
The article from a Euromoney subsidiary is 'meatier' than most, SYME PR-generated 'puff pieces' for the most part.
From this we learned :
- that there are 4 distressed banks in the frame to be taken as a 'pure captive lender' ;
- that target customers will be non-investment grade (but not 'distressed') and will receive 85% - 8% = 77% of the value of the inventory. This doesn't square with the 100% + VAT that has been asserted previously as one of the product's attractions.
- the article states that.."Existing liabilities and deposits will stay in place, funding the investments into captive..." They are only available if the matching assets (loans) are repaid, which seems unlikely if the banks are 'distressed'. So new funding - to be directed to SYME-originated/sourced business will have to come from fresh liabilities. So the re-capitalisation is key.
- we're also told that ..". Supply@Me intends to move from a single tranche structure [ which allows the deal to fall outside the European Securitisation Regulation ] to a more usual securitization approach when the bank deal is closed, with the bank anchoring the junior notes and co-investing with third parties in the senior tranches ".
- from "With these elements together — tranching and external ratings — the firm hopes to cut costs to its companies down to 4%, making use of the product attractive to firms that have access to lower cost capital", SYME's 'net' is also likely to fall, surely ?
- a tiered risk/reward structure - duly supported by external credit rating agencies (3) - is , by implication, and acknowledged by both the journalist (Trafigura example) and AZ ("“We know there are a few players that typically manage a single name transaction with a large corporate, a bespoke transaction with a longer lead time.”) an added complication to an already complex concept. IMO, there will be slippage to AZ's ambitious time-line;
- CB regulators will be mindful of the risks (if they remember anything from the GFC) ...and fellow CB Bundesbank's recent chastening experiences with WireCard and the challenges posed more recently by fellow working capital fintech Greensill, mentioned approvingly by some here as a potential model for SYME.
A quick google of Greensill highlights issues that regulators/auditors will be (or should be !) sure to look at :
- https://www.pymnts.com/news/b2b-payments/2020/greensill-faces-swath-supply-chain-finance-defaults/
- https://ftalphaville.ft.com/2020/08/19/1597828155000/-System-generated-truncations---Greensill--Gupta-and-the-hunt-for-the-mystery-holding-company/
-https://www.bloomberg.com/news/articles/2020-08-19/billionaire-greensill-s-german-bank-draws-regulatory-scrutiny
-https://www.fnlondon.com/articles/ex-city-minister-pushes-for-probe-of-softbank-backed-greensill-20200702
Seadoc, short, replied to an aggrieved 'long', that 'we could both be right, just not at the same time'
This article IMO makes the case for both.