Skip to main content

Gearing and Investment Guidelines

These guidelines contain the Trusted Novus Bank Limited (the Bank) rules applicable to the gearing and investment of assets placed as collateral for lending Facilities with the Bank.

The Bank lends against the collateral value (CV) of liquid assets which is a percentage of the market value. The Bank operates on the principle that the combined CV of any assets held must at all times be equal to or greater than the drawn credit facilities (the Facility), to ensure that at all times the Facility is secured by the CV of the assets held. CVs are determined according to the risk associated with an asset. In general terms the higher the risk associated with an asset, the lower its CV for the purpose of borrowing.

Your capital can be at risk with a Lombard Facility. The worst-case scenario is that you will lose your entire investment and be obliged to cover any losses towards the Bank, which could exceed your original investment

As different types of assets involve different types of risk (explained below) the Bank applies different CVs for different asset types. In addition, specific rules apply to ratings, the breakdown of diversification of investments by amount and sectors, as well as market liquidity. The overall CV granted to an asset for the purpose of lending takes these factors into account.

Requirement to hold full cover for utilised credit facilities

Your Facility should be fully covered by the CV of your liquid assets held with the Bank. Whether due to fall in market value of the assets causing the CV to reduce or the value of Facility increasing relative to the CV (e.g. if you borrow in a different currency than your investments), your Facility should be fully covered by the CV. The Bank will monitor this by applying Green, Amber and Red CV trigger points to your investments, which will determine the action that needs to be taken to ensure the loan is fully covered at all times, as explained below:

Where your Facility falls within the Grey or Amber zone and is not brought back within the Green Zone within the required notice period, or where the Facility has moved into the Red Zone, the Bank will be entitled (without notice or consent) to take action to sell all or part of the collateral provided

Where the Bank assesses that immediate sale is required to avoid or limit a loss, the said periods of notice may notwithstanding the above provisions be dispensed with.

Example

The table below demonstrates how a change in market value will reduce the collateral values of the assets pledged as security and shows how this may affect your Facility.

In Scenario 1, the market value of the assets is £850,000. The Facility of £550,000 is less than the Green CV and within the GREEN ZONE. No further action is required.

In Scenario 2 market values have fallen by 10% and the market value is now £765,000. The Facility of £550,000 is higher than the Green CV but less than the £612,000 Amber CV and therefore within the GREY ZONE.

Action is now required within 14 days to bring the facility back in line with the Green Zone.

In Scenario 3 market values have fallen by 20% and the market value is now £637,500. The Facility of £550,000 is higher than the Amber CV but less than the £573,750 Red CV and therefore within the AMBER ZONE.

Action is now required within 7 days to bring the facility back in line with the Green Zone.

In Scenario 4 market values have fallen by 25% and the market value is now £595,000. The Facility of £550,000 is higher the Red CV of £535,500 and the Facility is therefore within the RED ZONE.

This may trigger immediate realisation and/or sale of the collateral, which the Bank is entitled (but not obliged) to do without notice and without your consent.

Please note that the above example is based on the CV assigned to Equities, however the CV assigned will vary depending on the specifications of the asset pledged as security. The CV that can be assigned to each asset class and the specifications for these are set out below.

Collateral Values Assigned to Different Asset Types

Asset class

Green CV

% of asset market value

Amber CV

% of asset market value

Red CV

% of asset market value

Cash balance Note 1)

100

100

100

Bonds Note 2)

85

90

95

Equities incl. convertible bonds Note 3)

70

80

90

Corporate bonds Note 4)

CV similar to that of a Bond or Equity depending on current rating.

Emerging Market securities Note 5)

50

70

90

Mutual fund units Note 6)

Will be determined separately on the basis of the fund risk profile.

Structured products Note 7)

Will be determined separately on the basis of the product risk profile.

Currency risk

A reduction to the CV of an asset will be applied when the currency in which the asset/investment is denominated differs from that in which the Facility is drawn in order to allow for currency risk due to fluctuating Foreign Exchange rates.

The level of reduction applied is dependent upon the currency rating and the asset/Facility currency mix but would typically be between 0% and 10%. The CV of assets denominated in a currency with an official currency rating of less than BBB-/Baa3 would be reduced to zero.

IMPORTANT - The Bank only monitors the collateral value of assets provided as security for the purposes of the Bank’s own internal collateral risk assessment purposes and not for your benefit. No reliance should be placed on any values attributed by the Bank.