DBRS Presents on Evolution of Finance Co. Models & Their Need for Capital at AFSA Conf. in New York

DBRS delivered a presentation entitled ‘Evolving Finance Company Models and Their Need for Capital’ at the American Financial Services Association’s (AFSA) 20th Finance Industry Conference held for Fixed Income investors in New York City between the 24th and 26th of May, 2010.

In the presentation, Roger Lister (Chief Credit Officer – Financial Institutions Group at DBRS), discussed the evolution of the finance company model. Four variations have emerged that can be characterized as: an independent finance company owning a bank, an independent finance company relying on asset-based borrowing, a finance company subsidiary of a corporation, and a finance company subsidiary within a banking organization. Mr. Lister explored the diverse forces driving the capital needs of these finance company models, including business mix and the demands of regulators, investors and rating agencies.

Mr. Lister commented on the limited contribution of hybrids and subordinated debt to “going concern” capital in the current crisis. DBRS sees a smaller role for these instruments going forward, but a greater demand for new hybrids that are some form of contingent capital instruments. The rating agency presented its approach to the rating of the latter instruments. Finally, before taking questions, DBRS presented its thoughts on the difficulty of designing contingent capital instruments that could provide capital when needed at a cost that is acceptable to issuers, while also meeting the risk appetite and required yields of investors.

An electronic copy of the delivered presentation is available on our website.

Note:
All figures are in U.S. dollars unless otherwise noted.