Banks intensify focus on due diligence

Banks in Europe have stepped up their lender due diligence in Q1 2011 compared with the last quarter of 2010, according to global business and consulting firm Protiviti.

The firm estimates a 40% increase over the period in demand for due diligence services, which assess the risks involved in securitisation transactions, including the businesses lent to, and assets held as collateral.

During the past three months alone, Protiviti has seen a 250% increase in demand related to proposed new securitisations. Among the factors behind this are companies’ planning for future needs and securing additional liquidity sources, the relatively attractive cost of funds, and improvements in economic outlook.

Protiviti director Bill Byrnes Director said one of the major risks banks face is determining whether an asset has already been pledged as collateral for other financing sources, and to some extent whether the collateral exists in the first place.

The global nature of many of the firms using securitisation results in companies having securitisation facilities in North America, Europe and potentially other parts of the world. Protiviti clients have for reviews on both sides of the Atlantic for the same underlying target company, even if there are different banks providing financing through securitisations in North America and Europe.

Byrnes said clients now want independent views and far greater depth to the reports.

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