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Another pieceinthe CAbot strategy revealed Basel II accord&InternationalAccou nts S39


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Government Business - Cabot Financial

 

has anyone seen the above link

 

 

Cabot Financial [/url] Cabot Financial expands into Europe Cabot Financial pioneered the UK debt purchase market in its present form in 1998 and continues to be the leading debt purchaser and servicer company today. Over the last decade, Cabot has purchased large volumes of debts from a wide range of lenders within the UK and is now expanding its business across Europe, with recent acquisitions in Spain and Ireland. Ken Maynard, CEO of Cabot Financial (Europe) Limited, considers the outlook for debt sale.

 

The huge rise in consumer debt in recent years has driven debt sales from less than 1 billion per annum five years ago to an expected 7-8 billion in 2008 as lenders increasingly look for cost effective ways to manage their delinquent debt effectively. Today all major lenders in the UK actively sell debt. This includes everything from credit cards, instalment loans and car sales to mortgage arrears and, more recently, mobile phone, mail order and utility debts. Lenders are now recognising that specialised debt purchase and collection players can be more effective at recovering non-performing loans than doing the job in-house. By selling the debt, the lender can focus instead on writing new business and managing the performing book.

 

In addition, lenders are becoming more sophisticated at using the Basel II accord and International Accounting Standard 39 (Financial Instruments: Recognition and Measurement) to recognise the increased cost of keeping non-performing loans on their balance sheets and the value released in selling the debt. Specialist debt purchasers are generally not covered by Basel II and international accounting standards in the same way and so there is generally a price at which both lender and purchaser can create value. As the UK market develops further, banks are tending to sell directly to purchasers, rather than using third party brokers or intermediaries, and a secondary market for non-performing consumer debt is starting to emerge.

 

The growing market has attracted a large number of players and there are now over 35 companies buying debt in the UK market. These range from specialist debt purchasers, traditional debt collection agencies that have seen the contingency debt market reduce as a result of debt sale and specific investors who see the returns from debt purchase outstrip other current investment opportunities. This increased demand together with the reduced growth rates of a maturing market in the UK will ensure strong price competition for any debt being sold. At the same time, increasing interest rates will start to bite into debt purchasers’ profits as existing books become harder to collect.

 

These conditions underpin Cabot’s strategy to maintain its leadership position in the UK, while at the same time expanding into continental Europe where debt sale markets are generally less well developed despite some countries are experiencing high consumer credit growth rates. With increasing consolidation and knowledge sharing across territories, European lenders have greater appreciation for experience gained in other countries, making Cabot’s UK expertise extremely valuable.

 

The first part of Cabot’s European expansion strategy was executed earlier this year with the opening of offices in Spain and Ireland. Both countries have relatively undeveloped debt sale markets, with only a small number of sales completed to date. In Spain, which has had strong credit card penetration for some time, the consumer credit market is expected to increase by 15-20% per annum. Similarly, in Ireland consumer lending has shown the highest growth rates in the EEC with unsecured debt now standing at an average of €6,030 per person, according to the IIB Bank/ESRI Consumer Debt Survey 2006. In both cases, Cabot bought into existing debt collection agencies with established relationships with the key lenders in order to gain a strong local foothold in the market.

 

There are a number of other countries in Europe where Cabot believes its extensive experience within debt sale can be applied successfully and we expect to expand into more territories over the coming two to three years. Although there are huge differences in culture, customs, language and legislation between European countries, as well as significant differences in the maturity of its consumer debt sale markets, there are also a number of important similarities which offer opportunities for debt purchasers. Most importantly, despite our cultural and language differences, we are all the same human beings underneath. We all get into debt for the same reasons and most of us genuinely want to repay our debts. In addition, when debtors are treated fairly and with respect, they tend to repay their debts faster. Cabot’s ethical approach to debt collection therefore transfers well in different regions, producing market leading collection rates while preserving the underlying customer relationships.

 

At Cabot we believe that there is value in translating experience gained in the mature UK market to other European countries. By combing local knowledge of culture, language and legislation in different territories with our proven data gathering expertise, advanced technology and ethical collections philosophy, we have an excellent platform to develop our services and cement our position as a leading player in the European debt purchase market.

 

For more information

For more information please call David Connell on 01732 775 060 or email \n [email protected] This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

 

Website: www.cabotfinancial.com

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http://www.iasb.org/NR/rdonlyres/1D9CBD62-F0A8-4401-A90D-483C63800CAA/0/IAS39.pdf

 

IAS 39 Financial Instruments: Recognition and Measurement

The objective of this Standard is to establish principles for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. Requirements for presenting information about financial instruments are in IAS 32 Financial Instruments: Presentation. Requirements for disclosing information about financial instruments are in IFRS 7

 

Financial Instruments: Disclosures.

Initial recognition

An entity shall recognise a financial asset or a financial liability on its balance sheet when, and only when, the entity becomes a party to the contractual provisions of the instrument.

Derecognition of a financial liability

An entity shall remove a financial liability (or a part of a financial liability) from its balance sheet when, and only when, it is extinguished—ie when the obligation specified in the contract is discharged or cancelled or expires.

 

Initial measurement of financial assets and financial liabilities

When a financial asset or financial liability is recognised initially, an entity shall measure it at its fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

 

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

 

Derecognition of a financial asset

The following flow chart illustrates the evaluation of whether and to what extent a financial asset is derecognised. SEE THE THREAD FOR THIS

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Basel Committee review of international accounting standards

 

"Second, the Basel Committee devoted significant attention to IAS 39 Financial Instruments: Recognition and Measurement, a standard that covers the accounting for most of banks' assets and liabilities. The IASC invited Committee representatives to discuss the complex issues associated with IAS 39 with representatives of the IASC and the banking industry. The Committee believes that these discussions enhanced mutual understanding of the relevant concerns and provided a valuable supplement to the IASC process. "

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