We are about to enter our 15th year of business and I wanted to take the opportunity to thank our clients and our talented team.
In many ways, it seems as if we began the business just yesterday and yet as I think back, I realize that what we have learned from our clients and our responses to their needs and demands have led us to where we are today. Over this time, we have been at the forefront of key challenges facing the industry as evidenced by the following firsts.
- We performed the first credit union merger valuation under the new purchase accounting rules. The merger was effective as of January 31, 2009 – the rule had become effective just 30 days earlier. We have performed more than 200 since then. See our white paper on credit union mergers to see what we learned along the way.
- We were the first to posit that a deferral of payment on a trust preferred security was “not tantamount to a default” in the words of major rating agency, reflecting an industrywide assumption at the time. On a related note, we took the position banks that had issued trust preferred securities would initially have a higher incidence of default than the industry average. However, based on our bank-by-bank analysis of trust preferred issuers we believed that after this initial period, the default rate for the banks remaining in the TruP CDO pools would revert to the industry mean. This was contrary to the views of the banking regulators and major rating agencies at the time. We released a white paper in September 2011 supporting our positions and the major rating agency quoted above issued a white paper just a few months later fully concurring with our assumptions. The actual results since then have borne out our assumptions and our work saved our clients tens of millions of dollars in OTTI losses.
- We began building housing price appreciation into our analysis of non-Agency MBS in June, 2009 which caused our loss severity, or loss given default, amount to decrease over time resulting in much more accurate and lower loss estimates. Bloomberg was second to incorporate this assumption and not until 2011. The actual results since then have again been consistent with our assumptions and saved our clients from unnecessary OTTI charges.
- We released a fully compliant simplified supervisory financial approach (“SSFA”) calculator to aid our clients in calculating risk-weighted assets for loans sold under the Federal Home Loan Banks’ MPF® program. We sent the calculator to the banking regulators for their input and learned our model was the first they had reviewed that was fully correct. Each quarter end, the calculator is the most frequently downloaded item from our website.
This commitment to innovation on behalf of our clients led us to developing and offering fully compliant current expected credit loss (“CECL”) model calculations in the fall of last year well in advance of the required deadline of 2021.