Jim Andersen joins Chatham to focus on his passion for helping financial institutions through the use of derivatives
Jim Andersen joins Chatham’s Financial Institutions advisory practice with over a decade of experience to assist bankers in their origination efforts through the prudent use of interest rate derivatives.
Can you summarize your experience within derivatives and the capital markets?
A few years ago, while working for an emerging bank in the Southeast, I developed and managed a back-to-back swap program geared towards our commercial and middle market banking clients. Over a four-year period, the program experienced substantial growth, generated significant fee income for the bank, and helped it secure relationships that likely weren’t possible without derivative products. While managing the program, I oversaw structuring, marketing, execution, and servicing of the client-facing derivatives portfolio.
My goal was to help my colleagues win more deals while making the process easy for them. I visited with clients and lenders to educate them on the products, worked with the bank’s dealer counterparties to structure, price, and transact deals, and collaborated with credit officers and legal counsel to ensure the deals closed properly.
I have held many roles within a commercial bank in addition to my experience within derivatives. Working in commercial lending, corporate banking, and credit gave me a unique perspective on what it takes to develop, secure, and retain good business.
What is important for financial institutions to consider over the next three to five years?
There are two primary factors that I think are important for financial institutions to consider:
Banks with borrower swap programs are better positioned to gain market share in rising-rate environments
Over the last 10 years, the combination of historically low rates coupled with fierce competition for growth has led to borrowers gaining more pricing leverage over banks today than ever before.
If the market’s expectations for higher rates become a reality, demand for long-term fixed-rate pricing will likely increase. Banks must position their business to accommodate clients or risk losing the market share they fought to obtain this cycle. Having the ability to offer borrower swaps will provide borrowers with the long-term fixed financing they seek while allowing the bank to generate enhanced earnings profiles in rising-rate environments.
Because banks can offset interest rate risk with swaps, this tool is often the lowest fixed-rate available, enables the bank to offer longer terms, and enhances their ability to compete for the most coveted relationships in the market.
Some things will change, much will remain the same
Over the next three to five years, I imagine we’ll see further adoption of technologies that enable banks to compete in new markets, operate more efficiently, and play a more significant role in the overall success of their clients.
What is unlikely to change is strong demand from banks for high-quality assets, borrower’s desires for long-term fixed-rate financing, and the importance of relationship banking.
Since competition is unlikely to slow, banks need to arm themselves with as many tools as possible to continue growing market share. Competition comes in different forms, as non-bank lenders and private funds enter the commercial banking space. Their long-term impact is to be determined, but the lower cost structures could serve as a headwind for banks’ growth prospects. Borrower swaps are another tool that can help the bank compete with these potential entrants.
What is important for financial institutions to understand about interest rate hedging?
Borrower swap programs put the bank and borrower in the same position
With traditional fixed-rate lending, banks benefit when rates decline (they are earning an above market rate) while borrowers are worse off (they are paying an above market rate). The converse is true with back-to-back swaps. Both borrowers and banks stand to benefit in rising-rate environments as the bank earns more interest income from the variable rate loan, while the borrower has locked-in a below market rate.
Borrowers have pricing power over banks with traditional fixed-rate loan offerings. Borrower swaps help change this dynamic.
On balance sheet, fixed-rate loans are one-way floaters, where the borrower has leverage to get the bank to reduce its rate if a competitor comes knocking. Borrower swaps create stickier relationships due to a bilateral prepayment structure, making it more challenging for borrowers to demand a rate reduction in a lower-rate environment.
Chatham makes life easy for all parties involved in the transaction.
When working with Chatham, our clients can outsource parts of their capital markets activities to us, enabling them to focus on their core competencies while providing them additional tools to play better offense and defense. We work with lenders and banks who are entering into their first swap as well as seasoned swap providers who completed hundreds of transactions with us. No matter their experience, our goal is to enhance our client’s ability to win deals, bring transparency to the process, and reduce our client’s workload.
When working with Chatham, our clients can outsource parts of their capital markets activities to us, enabling them to focus on their core competencies while providing them additional tools to play better offense and defense.
Why is Chatham the right fit for you?
I was introduced to Chatham in 2015 while exploring ways to scale the bank’s swap program. Of all the derivative advisory firms I met, Chatham had the best combination of people, technology, and processes. While we ultimately could not work together because of an M&A event, Chatham made a strong impression, and I stayed in touch hoping an opportunity to work together in the future would present itself.
When Chatham reached out earlier this year to see if I had an interest in joining the team, it did not take long for me to determine this was the perfect fit. Capital markets and derivatives have been a passion of mine, and the opportunity to return to work in this field and for the largest independent advisory firm in this space, was tough to pass up.
I joined the firm in March and there were two initial observations that stood out and have remained true. First, is how much our clients appreciate the work we do. Because we consistently strive to and deliver exceptional outcomes for them, they trust us to help with their largest and most important transactions.
Second, Chatham is a special place. Being a remote hire with the closest office over 700 miles from my home in Atlanta, my colleagues went out of their way early on to build relationships with me and helped me establish a foundation to be successful. Many of my new teammates have been here for years, and further confirmed that this organization was doing something right.
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.21-0327