OTTI Impairment Case Study: Publicly-Traded Investment Bank Leverages JSP Platform for Conducting OTTI Impairment Analysis

Client’s Challenge

  • A publiclytraded investment bank needed to enhance OTTI impairment analysis on its consumer and commercial structured securities portfolio that included CDOs, and various assetbacked securities and other credit derivatives.
  • Specifically, the complexity of structured securities and the wide range of consumer and commercial product types underlying the securities made the process extremely cumbersome and prone to potential error in estimating whether the company could recover the amortized cost basis of their securities.

 

Our Solution

  • Among the features needed by the customer to address its OTTI requirements, JSP’s suite of statisticallybased credit and prepayment models provide an accurate portrayal of default experience over time as is needed for OTTI present value cash flow analysis.
  • The JSP Platform embeds a robust cash flow modeling capability taking into account all aspects of a structured securities’ valuation needed for accurate OTTI analysis.
  • Integrating a loan level view of risk with security cash flow rules using the Intex structuring tool JSP enabled the bank to conduct its OTTI impairment analysis in a cohesive fashion.
  • JSP provided complete reporting to the bank for its OTTI exercise and the flexibility of the reporting engine to stratify assets by userdefined categories was an added benefit to the process.

Outcome

  • The bank opted for a twostep process to use JSP where during the firstyear the bank contracted with FBA to use JSP to produce the modeloutputs that could then be used by the bank to complete their analysis.
  • Over time, the bank migrated to using JSP internally for their OTTIimpairment analysis where it has become the analytical backbone to thisprocess.