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Flow of Benefits in 11/17/89 Structured Transaction
Diagram 1
Purchase Citicorp Notes at the Bid
<
ACM Expected benefit to Bank = $$ BoT/BFCE
Issue Contingent LIBOR Notes at the ask
=
Expected benefit to Bank = $
Swaps
AMerrill Capital puts the bank (BoT or BFCE) into the Expected benefit
Postion of a dealer to Merrill = $$$
ABank expects to benefit by executing transactions at
Dealer prices (benefit shown as $ + $$) ?
AThrough swaps, most of the expected benefit of dealer
Pricing is transferred back to Merrill (shown as $$$) Merrill
ABank is left with sub-LIBOR funding, but has taken Capital
Incremental credit risk
Flow of Benefits in 12/22/89 Structured Transaction
Diagram 2
Purchase Contingent LIBOR Notes at the Bid
Southampton < Sparekassen
Hamilton Benefit to Bank = $$
Hedge Swap
AMerrill Capital puts the bank (Sparekassen)into the Benefit to
Position of a dealer Merrill = $
ABank benefits by executing transacation at a dealer's
Price (benefit shown as $$)
AThrough Hedge Swap, most of the benefit of dealer ?
Pricing is transferred back to Merrill (shown as $) Merrill
ABank is left with above-market asset, but has taken Capital
Incremental credit risk
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