Consulting Services
We offer a full range of consulting services to meet the needs of structured finance professionals. The list below reflects only some of the common ways we are helping our clients. If you have an interest in a specific service not listed below please feel free to contact us.
Independent Valuations
Financial institutions with access to independent valuations are better prepared in both liquid and illiquid markets. Black Swan Consulting’s unique valuation framework is clear and consistent and is specifically designed with transparency and regulatory compliance in mind.
We specialize in valuing highly illiquid level 3 securities. Our firm’s valuation methodology utilizes a granular credit approach that provides outputs useful in OTTI determination. Our methodology has been used by many institutions with respect to FASB 157 accounting.
Even large institutions with experienced personnel can benefit from independent valuations that utilize a credit-driven framework. By incorporating model-driven valuations, investment managers can assess whether market prices are consistent with performance.
Capital Charge Calculations
Basel III contains a new set of methodologies outlining how banks need to calculate risk-weightings for private label securitization exposures. These rules require banks to consistently choose either the Simplified Supervisory Formula Approach (SSFA) or the Gross-Up Approach.
SSFA is a formula-based approach which takes into account the risk weighting of the underlying assets, the exposure’s subordination level, the performance of the underlying assets, and whether or not the exposure is a re-securitization. Thus, the resulting risk weightings dynamically evolve as the performance of the underlying assets and subordination levels change over time. Although not without its flaws, SSFA improves upon the static nature of prior ratings-based approaches.
There are many SSFA calculators that can be found online. While the calculation itself is fairly straightforward, obtaining accurate and reliable inputs can be a challenge without the right tools. Our proprietary analytic software does most of the heavy lifting. We utilize Intex deal models that cover nearly every public and privately issued global RMBS, CMBS, ABS, CLO and CDO transactions.
Our structured finance experts will fully support institutions to meet the requirements of the Basel III Securitization Framework. We are here to help in whatever capacity you need, from validating work that your team has completed to a complete end-to-end calculation solution.
Our Calculation Support can provide:
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Guidance in choosing between the SSFA and Gross-Up Approach
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Calculation support for both SSFA and Gross-Up Approach for all structured finance securities types
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Complete coverage including highly complex re-securitizations that require additional analysis on the underlying transactions
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Support to meet newly imposed due diligence requirements with respect to private-label securitizations and structured credit derivatives
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Transparent and detailed reporting that is customized to client needs
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Full support to address any questions or concerns from regulators and auditors
Download our Free Whitepaper: Basel III Risk‐Based Regulatory Capital Framework for Securitization Exposures
Model Validation
Model risk is on the rise, exposing institutions to financial loss and a damaged reputation with investors and regulators. Model validation is the cornerstone of effective risk management to help identify, manage and mitigate model risk.
With so much at stake, it is imperative that banks and insurance companies adopt a framework that promotes reliable, consistent and cost-effective model validation. Black Swan Consulting has been providing model validation services since 2008 and has developed an innovative proprietary framework, Logic Canvas®
Black Swan specifically developed Logic Canvas® as a financial modeling platform to address the shortcomings of traditional modeling software. We rely on Logic Canvas® in all of our consulting work to quickly and efficiently model complex calculations.
We know from experience that financial institutions rely on a combination of spreadsheet, homegrown and vendor models across many different parts of the organization. Rather than setting up an ad-hoc validation process for each model, organizations can gain a competitive advantage by adopting a centralized and independent model validation framework.
Cash Flow Analysis
Our product specialists can run any cash flow analysis based on client specification or recommend appropriate scenarios and assumptions. Black Swan can implement a rules-based framework that incorporates rating agency, pricing or internal rating data. Black Swan specialists can document all aspects of the analysis and report on our findings to ensure that the analysis meets client’s needs.
Stress Testing
Black Swan has significant experience applying and developing stress testing frameworks. Stress testing can combine any number of factors including default, recovery, correlation, and rate shocks. Black Swan provides full documentation and support for any in-house model validation.
Surveillance
Tracking the performance of structured products is a complex task. Underlying each security is exposure to hundreds of credits, each with its own unique credit risk. In addition to tracking the performance of the underlying credits, structured product surveillance entails monitoring collateral and structural test compliance.
The ability to track the ongoing performance of structured products is critical. In some cases, deteriorating credit quality can lead to an Event of Default. It is important to have a constant awareness of the performance of the underlying collateral pool as well as its effects on the value of the investment.
Black Swan Consulting can assist in setting up surveillance processes that measure the ongoing performance data required to take preemptive action before significant cash flow deterioration begins.
Investment Due Diligence
A successful investment program begins with proper due diligence. A lack of, or inadequate, due diligence can result in the lapse of fiduciary responsibility and unnecessary losses. Each investment merits a customized approach to due diligence. Our due diligence process is independent with no affiliation to any managers, funds or advisors.
Black Swan provides custom investment due diligence and valuation advisory services for clients on the following:
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Asset allocation
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Structured products
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Performing and non-performing assets
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Pricing
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Portfolio acquisitions and mergers
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Risk management
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Trustee support
Litigation Support
As an independent consulting firm, Black Swan is positioned to provide unbiased litigation support for matters related to structured finance. Our unique financial modeling platform, Logic Canvas, gives us the ability to quickly model past transactions and scenarios with a high degree of transparency.
We have the technology and industry expertise to provide litigation support in the following ways:
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Clarify Facts
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Serve as an Expert Witness
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Serve as a Testifying Witness
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Model "what-if" Scenarios
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Quantify Damages
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Clearly & Concisely Communicate Findings