Leased Bank Instrument Monetization Myth
We get emails from some “broker” who tell us you cannot monetize a Leased Bank Instruments eg A Leased Bank Guarantee, a Leased Standby Letter of Credit or a Leased MTN,
Their logic is a Leased Bank Instrument is NOT an Asset and therefore it CANNOT be monetized! Black and White, its just that simple they say!
The issue is they are 100% CORRECT that a Leased Bank Instrument is NOT an asset, just like a Leased car is NOT an asset. But they are 100% WRONG about Monetization.
The Truth is a Leased Bank Instrument can be monetized but not because it is an asset… because its not an asset! A Leased Bank Instrument can be monetized because the Lease (just like a car lease) is…. “The right to use the asset for a predetermined period of time.”
And that Leased Bank Instrument right to use the asset for a predetermined period of Time:
a) Has Value
b) Can be used by Monetizers to create a Profit (which pays for Monetization)
It is unfortunate that some people have such closed minds and are often so determined to prove themselves right that they don’t open themselves up to being able to learn something that they do not currently know. So we thought we would write this article to do a little wholesome educating while at the same time putting to bed the Myth that Leased Bank Instruments cannot be monetized.
A Glimpse into a Monetizers World……
The only reason a monetizer will take any asset for monetization is because they make money. They are not a charity, not a Non Profit Organization, they are experienced, knowledgeable financial experts whose life goal is to make a LOT of money!
So when we offer to Monetize and pay money for a Leased Bank Instrument, we are not doing it from the joy in their heart of helping you out, we are doing it because we have a clearly defined, well thought out financial strategy that pays you and makes us a pile of cash! Each monetizer has their own monetization recipe for Leased Bank Instruments, but below is just one example of how a monetizer can make money from monetizing a Leased Bank Instrument.
- Step 1: Monetizer receives the Leased Bank Instrument by DTC, Swift MT760 or on Euroclear
- Step 2: The Monetizer Draws a Line of Credit against the Leased Bank Instrument. Note: The Line of Credit is ONLY Valid 1 year because the LOC has to be issued and aligned with the life of the Leased Bank Instrument and therefore has to be repaid in full 15 days prior to the Leased instruments expiry.
- Step 3: The Monetizer then pays the client their Non Recourse Monetization Payment eg 50 to 65% of the value of the Leased Bank Instrument. Often the monetization is completed in 2 or 3 payments over the course of 30 days, you will understand why they do this in the Step 4.
- Step 4: The Monetizer then takes the balance of the money from the Line of Credit and places these funds into Trade / PPP using a proprietary trading platform. This platform is a group of experienced often bank traders who use the monetizers cash and trade it generating significant profit returns on a weekly or monthly basis. Often the Platform uses normal trading risk protection strategies to ensure the Monetizers funds receive significant protection from all trading downside risk.
- Step 5: 15 Days prior to expiry of the Leased Bank Instrument the the monetizer uses some of the cash profits he has made from trading to repay the Line of Credit he raised the original funds against in Step 1. He then also returns the Leased Instrument unencumbered to its original issuing bank.
The End Result….. Leased Bank Instrument Myth Solved!
- The clients get paid a Non Recourse Monetization Payment on a Leased Bank Instrument
- The Monetizer makes Profit trading funds he normally would not have had access to
- The Leased Instrument Issuing Bank receives their Leased Instrument back unencumbered before expiry
- And we all live happily ever after!