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King & Shaxson Treasury Solutions

King & Shaxson Treasury Solutions has been set up to enhance and complement our existing services to the building society sector. Effective treasury management is achieved by making well-informed decisions, within a robust control environment, with effective risk management and reporting to senior management. We are aware that it is often not cost effective to have a fully resourced treasury function with expertise in all areas of treasury. With this in mind King & Shaxson Treasury Solutions offers the following services:
All services are provided on an individual basis and tailored to the requirements of the client.

Interest rate forecasting and economic reviews (Top)
Information is key when making treasury investment and funding decisions in the money markets.  To give the Society the ability to make informed decisions we provide economic reviews and regular forecasts of both short- and long-term interest rates.  Our forecasts are based on a theoretical overview of economic fundamentals and our practical understanding of current and future market behaviour.  To allow the Society to receive a balanced view of the world we provide commentary on, and assessment of, other economic commentators forecasts.

We would attend the Societys ALCO/Board meetings at least quarterly to present these reviews and forecasts. This provides a strong basis from which senior management can form the Societys own view of interest rates.  A view on interest rates is essential if the Society is to maximise the returns on its liquid assets and minimise its costs of funding.  In addition we would attend quarterly meetings with the Societys executives and senior management to address any treasury issues facing the Society.

While a strategic view on the direction of interest rates is a powerful overall planning tool, it is often necessary to assess likely movements in the short term.  As part of our overall service, each Monday morning we provide our clients with an assessment of the upcoming economic indicators during the week and our opinion on their likely effect on interest rates in the short-term.

We write and distribute a Quarterly Economic Review to all clients.  These reviews tend to focus on specific areas that are affecting the market at the time.  We also provide market updates on topical issues.

Investment and funding advice (Top)
Investment advice
As active participants in the financial markets and using our significant experience and expertise, we can advise the Society regarding investment opportunities and strategies.  We can assist in planning the structure of your investments, taking into account 8-day and prudential liquidity limits.

We can review your liquidity stress testing & scenario analysis policies to ensure they remain relevant, or advise on the use of different scenarios.  We have helped several societies to design their liquidity stress testing policies in the recent past.

We provide advice on the range and quality of instruments available for use by the Society.  This is particularly important as the regulatory emphasis on liquidity moves towards investments in securities rather than cash.  Investments such as Treasury Bills, Floating Rate Notes, Medium Term Notes, and Supranational Bonds will have a significant role in the future.  Post Basel II, money market funds will also be an important part of the armoury.

Funding advice (Top)
As part of our overall service we can advise on funding opportunities and assist in developing an overall strategy and programme for wholesale funding activities.  Planning funding requirements through the year is important and we can activity assist in this process.  We can explore a wider range of funding sources with you and introduce you to new and developing instruments.  For example, covered bonds raised on a club or syndicated basis, may become a vitally important way of financing mortgage assets.  In addition, we can introduce you to bilateral funding suppliers to meet your standby facility requirements. Counterparty services (Top)
In a world where risk management is king, the greatest monetary risk that a treasury function faces is the default of a market counterparty.  To mitigate this risk it is essential to assess the risk profile of all market counterparties.  While in an ideal world you would assess a counterparties risk attributes through individual credit analysis, in reality this is not cost effective.  Credit rating agencies provide an efficient way of assessing individual counterparties risk levels. 

To assist in this process we provide a service to monitor the output from these rating agencies, informing you of any changes in the ratings of counterparties on your authorised counterparty list.  This ensures that your authorised counterparty list remains current, reducing the possibility of lending to counterparties that no longer meet your ratings criteria. 

We can advice the Society on the most relevant credit ratings to adopt within their liquidity policy statement.  In addition we can offer guidance on the most appropriate limit criteria to monitor and the minimum levels of ratings to use, based on the Societys risk appetite and in view of levels used within your peer group. 

On a monthly basis we provide an updated authorised counterparty list, highlighting any changes in ratings that have occurred during the month, plus any counterparties that no longer meet the Societys ratings criteria. 

This service provides our clients with peace of mind in this high-risk area of treasury.  An example of an authorised counterparty list is shown below.

Training (Top)
It is a requirement under FSA regulation to ensure that all individuals within the Society gain competence in their specific operational areas and that they maintain this competence on an on-going basis.  At King & Shaxson Treasury Solutions we can provide comprehensive and relevant training for all levels of staff to help them gain the required competency levels and maintain it with subsequent refresher training as required.  We offer training which is tailored to the specific needs of the individuals, from dealing procedures and reporting requirements for staff involved in day-to-day operations, through to detailed instrument knowledge and market mechanics for senior-management involved in strategic development. 

Typical topics for which we have provided training in the past include:

         An introduction to treasury management

         Advanced treasury management issues

         Risk management issues

         Treasury instruments


The provision of training is included in the overall treasury consultancy service.  Alternatively, training can be provided on an individual basis to meet the specific training requirement of the Society.  Helpline (Top)
We are well aware that your treasury issues do not conveniently occur around the timing of meetings.  As a result there may be occasions when you require advice and assistance to address ad hoc issues.  We are available to deal with your queries relating to treasury issues throughout the working day.  These queries could be anything from checking a quoted price on an instrument to getting confirmation of the correct treatment of an instrument within the gap analysis.

Risk management advice (Top)
Interest rate risk is a major issue for all building societies, irrespective of their selected approach to risk management.  Whilst operating under the matched and extended approaches to risk management exposes the Society to higher levels of interest rate risk, through the offering of fixed rate products, there still remains an element of risk on the administered approach with the ability to invest liquid assets over long periods.
There are many approaches to managing interest rate risk.  Some building societies look to eliminate it as far as possible by matching off any fixed rate exposures with appropriate hedges, whilst others will apply a view on the future direction of interest rates and position their balance sheets accordingly.

At King & Shaxson Treasury Solutions we can work with the Society to develop a strategy that suits your preferred approach to interest rate risk management.  We can help you assess and manage any emerging interest rate risk in line with your approach.  In addition, we can review your monthly gap analysis, where prepared, and assist you in planning for your gap position before each month end to ensure that no surprises materialise within the Societys reporting to the FSA.

An important element of risk management is ensuring that the individual and cumulative gap limits, plus the overall sensitivity limit, remain relevant to the size, complexity and risk appetite of the Society.  We can advise the Society with regard to appropriate limits, set in the context of accepted sector levels.

We can assist in timing of any interest rate hedges.  The Society remains significantly exposed to interest rate risk while waiting for either a pre-hedged position to complete or a product to sell prior to hedging.  A robust view of interest rates in the short term can make the difference between achieving a margin and making a loss.

Whilst we can provide services for the arrangement of hedging transactions, the Society is under no obligation to transact through King & Shaxson.  If fact, we can provide indicative pricing for comparison if you require it.

As societies grow, and the challenge to retain margin intensifies, it is often appropriate to move up the risk management scale.  This can benefit a society in several ways.  A society moving from the administered to the matched approach gains the ability to offer a wider range of products allowing it to provide a better proposition to potential customers.  A society moving from the matched to the extended approach gains the ability to run unhedged fixed rate positions, managing interest rate risk across the whole balance sheet.  In addition, the Society can create a policy for the investment of its capital.  We have considerable experience in taking societies through this process.  This includes assisting them in changing policy statements, implementing reporting procedures, devising product development processes and providing appropriate training.

For societies moving to the extended approach, we can assist in evaluating the output from risk management software packages and advise on the most appropriate instruments to eliminate unacceptable interest rate risk exposures, either now or in the future.  Alternatively, we can offer an outsourced bureau service for interest rate risk management reporting purposes.

The other significant risk that societies face is operational risk.  This has become especially important with the imminent arrival of Basel II requirements under the Capital Adequacy Directive.  We can help the Society to assess and reduce operational risks within the treasury function, which could contribute towards a lower capital requirement. Policy and procedures review (Top)
Most building societies review their liquidity and risk policies on a regular basis to ensure they accurately reflect their strategic and tactical goals and take account of the latest regulatory guidance.  We can assist in reviewing the Societys policy statements, having regard for other societies in your peer group, the risk approach under which you operate, and current regulatory guidance.  It is important to develop policies that give the Society the ability to operate efficiently and effectively, within a robust control environment.

As part of the overall treasury consultancy service, we can undertake a review of your operational environment, assessing your procedures against accepted good practice.  This would provide senior management with an independent review of the Treasury function, which should complement any work undertaken by Internal Audit.  It would also gives us a clear view of how you prefer to operate, allowing us to better tailor the advice we would give you. 

Valuation services (Top)
As part of our overall advisory service we can provide independent monthly valuations of interest rate swap transactions.  The valuations are provided clean, which gives a clearer picture of exposure than the valuations provided by some software packages.  We also provide financial instrument valuations as required.  These valuations could include CDs, gilts, FRNs and other securities.

Product development (Top)
Through our position within the market we are well placed to advise on the development of new products.  We can help structure fixed, capped, floor, escalating and de-escalating retail savings and mortgage products.  Our knowledge and experience can help to spot market opportunities and we are happy to discuss product ideas with your marketing departments.

We can work with the Society in developing white-labelled products in partnership with others.  This can provide access to products and services that would be uneconomic in isolation.  We are currently working on ideas in this field relating to ethical and Child Trust Fund accounts.

We would attend regular review meetings between the Society and its fund managers and provide briefing notes before each review meeting, including relevant questions for each manager.

Capital planning (Top)
As building societies battle against falling margins and rising management expenses there is an increased focus on growth to maintain profitability and management expense ratios.  This can lead to capital constraints as solvency ratios are put under pressure.  To alleviate this pressure a society may require capital funding.  The type of capital funding taken depends on a societies current capital profile.

Capital planning has become increasingly important with the Capital Requirements Directive on the horizon.  At King & Shaxson Treasury Solutions we can assist you in assessing the Societys future capital requirement along with the level/tier of capital required.

As well as advice we are able to source counterparties that will lend subordinated capital to the Society.  We can also advise on and arrange an issue of Permanent Interest Bearing Shares. 

Regulatory issues (Top)
The current regulatory burden comes from Basel III under the guise of the Capital Requirements Directive.  Although most building societies have at least started their Basel II project, most are still battling with elements of the detailed guidance.  At King & Shaxson Treasury Solutions we can assist in interpreting the treasury related guidance within the directive.

Conclusion (Top)
King & Shaxson Treasury Solutions can add significant value to your treasury operations.  We can assist you in gaining improved performance from your liquid assets, within an enhanced control environment and in line with the risk appetite of the Society.  Through our experience and close contact within the financial markets we can provide execution for all types of transactions and meet all your capital needs. 

Fee Structure (Top)
Our fees are tailored to each individual client based on the type of the services required and the size complexity of the building society.