Banking
Northwestern Credit Financial offers its clients...
Northwestern Credit Financial offers its clients access to some of the most elite international private banks that provide a suite of banking services, all focused on meeting a client’s long-term needs and achieving future goals. We also offer direct financing, liquidity, and lending services, including lending against investment portfolios, and connect clients with managers to administer cash deposits and foreign exchange. Clients can hold cash in a variety of currencies, receive competitive rates on their cash deposits, and administer foreign exchange transactions via our service offerings.
All banking services are tailored to individual circumstances, situations and priorities. At all times, portfolio managers remain committed to delivering the best banking services available to meet your requirements, including the most appropriate form of deposit accounts at the most appropriate rates, currency accounts that allow instant access to funds and that provide competitive rates with fixed terms or with requirements of notice ahead of withdrawals. Our affiliates also offer a cash administration service, which can mitigate risk by spreading large sums of money across different institutions while retaining one, simple point of access, and fixed-term deposit accounts in many currencies, with durations ranging from one day to one year.
We appreciate that a majority of our clients operate on an increasingly global stage. In view of this, we have evolved our service and solutions to provide access to a large variety of currencies and currency transactions, including currency trades at a spot rate, forward foreign exchange contracts, and foreign exchange swaps.
Securities Financing
Loans secured by securities investments are best suited for ultra-high net worth investors, foundations, institutions, and corporations that have an existing investment portfolio that can be leveraged in pursuit of higher investment returns, for diversification reasons, or to bridge liquidity needs. Northwestern Credit Financial understands that an investor's requirements for cash differ over time and that liquidating long-term investments to meet short-term needs may not be the best strategy. As an alternative, Northwestern Credit Financial can lend funds to clients secured against a portfolio of investments through our collateralized non-recourse stock loan program.
This program enables investors to:
Profit from short-term investment opportunities
Enhance returns by leveraging static components of a portfolio
Invest in more financial instruments to diversify risk
Bridge liquidity needs in a simple, cost-efficient, and convenient way
Enter into derivative contracts (e.g. options) which require a security margin
Non-recourse collateralized stock loans are not risk-free. Market volatility, currency fluctuations, or the volatility of the credit exposure related to derivatives can lead to collateral shortfalls and may cause an investor to forfeit all ownership rights in the collateral. Because of these risks, Northwestern Credit Financial only enters into a non-recourse collateralized stock loan with accredited investors in jurisdictions that do not impose excessive regulations or that otherwise prohibit this form of leveraged transaction.
Investors might have as many reasons to execute a transaction for a non-recourse collateralized stock loan as there are benefits that they can derive from the loan:
The investor can use almost any type of unrestricted publicly-traded shares as collateral, including stock from recent IPOs, non-marginable stock, warrants, debt instruments, and publicly traded fund shares
The investor needs capital and wants to procure that capital without selling shares in the open market or some other private transaction
The investor seeks to retain an ownership interest in the shares, with a right to receive dividends and capital gains that accrue during the loan term
The investor requires cash liquidity that is not burdened by positive or negative covenants that are generally part of loan facilities that are procured through banks and other commercial lending institutions
The investor needs flexible loan terms and conditions, including interest-only payments during the loan term and a principal balance payment at the end of the loan, which is typically two to five years in duration
The investor needs a novel mechanism to protect wealth from market fluctuations and crashes and seeks to utilize a stock loan within a special purpose investment vehicle that is established as a hedge against down-market risks
The Northwestern Credit Financial Difference
The stock loan industry has blossomed in both developed and emerging markets as loan finders and facilitators have adapted stock loan transactions from a mechanism that solely served the needs of large investment banks into a loan facility that offers a myriad of benefits to individual investors. Investment banks first developed securities lending and stock loans as a means to leverage the value of the pools of securities that were held in their accounts. Individual investors took notice of this practice, and financial entrepreneurs expanded the industry with non-recourse loan transactions that extended stock loan benefits to those individual investors.
Many of the current loan facilitators in the non-recourse stock loan industry take a fee to funnel investor requests to other lenders that complete the transaction. Unlike those loan facilitators, Northwestern Credit Financial is a direct lender in all of its loan transactions. Our internal underwriting team evaluates the collateral in every proposed loan transaction and sets loan terms and conditions as a function of their evaluation. When the loan is ready to close, Northwestern Credit Financial continues to be the direct lending counterparty and the funder of the loan. While the loan remains in full force and effect, Northwestern Credit Financial administers the loan.
As the direct source for funding and administering a loan, Northwestern Credit Financial maintains a relationship with the investor throughout the entire loan process. We verify that all aspects of the loan process are transparent, that the borrower's privacy and security are protected, and that problems are addressed and remedied quickly.
Loan Process
Every non-recourse collateralized stock loan transaction that is completed and funded by Northwestern Credit Financial is crafted specifically for the borrowers that approach us for the loan. We do not use standard loan documents or merely fill in the blanks on pre-printed forms.
The process begins in every instance with an investor that approaches Northwestern Credit Financial to request a loan. Investors generally receive assistance from one of our independent loan origination consultants, who work with the investor throughout the loan process and beyond to complete all requirements to close a loan transaction. The loan origination consultant also conducts an initial review of the investor's proposed collateral securities assets to verify that those assets meet certain minimum standards. Following this initial contact, the process moves very quickly to closing and funding with steps that include:
- Northwestern Credit Financial's preliminary verification of the bona fides of the collateral, and preparation of a proposed term sheet for the investor's review and signature
- Loan underwriting by Northwestern Credit Financial's internal underwriting team, which verifies that the proposed collateral meets our standards for liquidity and trading volume
- The investor completes and returns Northwestern Credit Financial's "Know Your Investor" due diligence information and document request to provide sufficient information for us to meet our client identification obligations under international anti-money laundering rules and regulations
- If the underwriting team approves the loan, Northwestern Credit Financial prepares and forwards a loan agreement and corollary documents to the investor for review and execution.
- The investor signs and returns the loan agreement and forwards the collateral, in electronic format, to a third-party custodian that will hold and manage it during the loan term.
- Upon verification that the collateral has been properly transferred to the custodian, Northwestern Credit Financial closes and funds the loan.
This entire process can be completed and the investor will have loan funds in under 21 days after the initial contact.
Northwestern Credit Financial charges no upfront fees to apply for a non-recourse collateralized stock loan. Certain fees will be deducted from the loan principal at closing, including a fee that is payable to the loan origination consultant and legal and administrative fees.
Borrowing and Repo Transactions
Like stock loans, securities borrowing and lending (“SBL”) has emerged beyond its roots as an institutional business. In essence, securities lending is the temporary transfer of securities on a collateralized basis. In many markets, these transactions contribute to greater liquidity, narrower spreads, and improved risk management. Most SBL activity is between large, sophisticated institutions that follow certain transactional conventions. Northwestern Credit Financial has pioneered an SBL program that individual investors can use as an alternate mechanism to realize the value of their securities holdings.
In legal terms, an investor does not actually lend securities but sells them to a borrower under an agreement for subsequent reacquisition of equivalent securities. The original securities may be sold onward by the borrower to third parties. Hence, absolute title passes over both the securities lent and the collateral received. The economic benefits associated with ownership, specifically including dividends, belong to the legal owner. Those benefits are credited to the investor’s account by the borrower that makes equivalent payments to the investor. The investor surrenders the rights of ownership, including voting rights. If the SBL agreement allows, the investor may retain the contractual right to recall equivalent securities from the borrower to do so. The nature of the ownership rights that are surrendered is the primary difference between an SBL transaction and a non-recourse collateral stock loan.
Most SBL transactions are made against collateral, which can be in the form of cash, securities, or other assets. The eligible collateral will be agreed upon between the parties at the outset, including the initial margin, the maintenance margin, and concentration limits (which ensure that the collateral can be liquidated in need). The collateral is often held by a custodian, to which the borrower pays a fee. The custodial agent is usually a large custodian bank or international central securities depository that receives the eligible collateral from the borrower and holds it to the account of the investor.
In legal terms, an investor does not actually lend securities but sells them to a borrower under an agreement for subsequent reacquisition of equivalent securities. The original securities may be sold onward by the borrower to third parties. Hence, absolute title passes over both the securities lent and the collateral received. The economic benefits associated with ownership, specifically including dividends, belong to the legal owner. Those benefits are credited to the investor’s account by the borrower that makes equivalent payments to the investor. The investor surrenders the rights of ownership, including voting rights. If the SBL agreement allows, the investor may retain the contractual right to recall equivalent securities from the borrower to do so. The nature of the ownership rights that are surrendered is the primary difference between an SBL transaction and a non-recourse collateral stock loan.
Most SBL transactions are made against collateral, which can be in the form of cash, securities, or other assets. The eligible collateral will be agreed upon between the parties at the outset, including the initial margin, the maintenance margin, and concentration limits (which ensure that the collateral can be liquidated in need). The collateral is often held by a custodian, to which the borrower pays a fee. The custodial agent is usually a large custodian bank or international central securities depository that receives the eligible collateral from the borrower and holds it to the account of the investor.
Where the investor receives cash collateral, he is free to reinvest it or to use it for any other purposes, generally without restriction.
Repo transactions and buy-backs are similar to securities lending transactions. They are characterized by sale and repurchase agreements in which one party agrees to sell securities to another against a transfer of cash, with a simultaneous agreement to repurchase the same or equivalent securities at a specific price on an agreed date in the future. The resale price will reflect the original sale price together with accrued interest at the repo rate. Buy/sell backs are similar in economic terms to repos, but are structured as a sale and simultaneous purchase of securities, with the purchase agreed for a future settlement date. The price of the forward purchase is typically agreed with reference to repo rates.
In both SBL and repo transactions, borrowers might borrow securities in order to cover a short position (settlement coverage, naked shorting, market making, arbitrage), to support a financing transaction motivated by the desire to lend cash, and to transfer ownership temporarily to the advantage of both lender and borrower (tax arbitrage, dividend reinvestment plan arbitrage).
SBL and repo transactions involve a high degree of risk, including the risk of loss of the full value of the securities that are the foundation of the transaction. In view of this, Northwestern Credit Financial limits its SBL and repo transaction services to an elite group of ultra-high net worth investors that have the knowledge, experience, and sophistication to participate in these transactions and to absorb their risks.
