STORIES ABOUT LOANS
Syndicated Loans

  SYNDICATED LOANS

Over the summer I was working at an internship at one of the major investment banks. At first I had no idea what to expect because all they told me I would be doing is working in Operations. It turned out to be a very eye opening and interesting experience. It turned out that I was working in a group that was involved in a fairly new product. The product is called syndicated loans. A syndicated loan can best be explained with an example. Suppose that IBM wants to borrow 20 million dollars from Bank A. Perhaps Bank A does not want to have such a huge liability. So what they will do is syndicate the loan. Basically they will invite other banks to take certain amounts instead of one bank taking the entire 20 million. The interesting part is that these "shares" of the loans can then be traded in between banks. So it becomes almost a secondary market of loans. It is quite intriguing because they do all the trades by fax. So everything is pretty much OTC in this market. What I was doing was working in a group that helped keep track of the trades. However, we sold our services to other groups, we weren't just servicing our investment bank. So we were a profit center that advertised that we had the best system of keeping track of the loans. I was involved in booking trades, and recording the interest and price changes on the loans in certain portfolios. All in all, it was quite an eye opening experience. It is interesting how the investment world can take a simple product such as a loan, and create numerous new ways to make money of it.

Credit Rating

A friend of mine graduated from college two years ago and has had a very hard time dealing with banks and getting loans ever since. While Eric was in college, he had three major credit cards thinking it would be a good idea to build up credit. He basically bought everything with these credit cards not paying much attention to how he was going to pay the bills when they came in. He did not realize how high the interest rates were on the credit card bills and just figured he could put off paying the bills for a few months, while searching for a higher paying job. Well, time kept going by and after he graduated, he was $10,000 in debt. He has been paying off his bills slowly, but not fast enough. Eric is supposed to get married in 6 months and he and his fiancé want to buy a condo. Unfortunately, he cannot get the loan because of his bad credit. He is in the same situation with buying a new car. Even though he is not looking at very expensive cars, he still cannot get a good enough loan to pay for the car. Eric now realizes how important it is to stay on top of your bills because the interest can add up very quickly and once you have bad credit, banks will not give you a loan.