Black swan and Credit story: Difference between pages

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''Risk management''
''Treasury - borrowing - credit - credit strength - investor relations''.


An apparently unusual event of very high impact.
The credit story is a fundamentally important part of investor relations.


Particularly one which - before it happened - was believed in error to be highly improbable, or even impossible.
A borrower's credit story means the content and presentation of information about the borrower's relative credit strength, to potential lenders and investors.




The use of the term in finance derives from the widespread historical (and wrong) belief in the Northern hemisphere that black swans did not exist.  This wrong belief was held in the period before the common occurrence of black swans in the Southern hemisphere had been reported in the North.
A key element of the credit story is the trust that investors hold toward the integrity and competence of the leaders of the borrowing organisation.


The concept was popularised in a 2007 book by Nassim Nicholas Taleb - "The Black Swan".
It is very important, therefore, not to over-promise when presenting the credit story, but rather to take the opportunity to maintain and build a well-founded reputation for frankness.




Taleb summarises the problem in risk management as "the confusion of <u>absence of evidence</u> of Black Swans (or something else) for <u>evidence of absence</u> of Black Swans (or something else)". 
:<span style="color:#4B0082">'''''How to select an agent bank for a private placement'''''</span>


This means that the existence of financial "black swans" tends to lead to systematic under-assessment and <u>understatement</u> of financial risk.
:"Clearly companies will have different reasons for selecting an agent bank, but there are probably several key areas to differentiate:


:Positioning the credit – the bank’s ability to sell the credit story (position the credit strengths while mitigating the weaknesses) is key to stimulating investor demand and maximising terms...


<span style="color:#4B0082">'''''Turning black swans white'''''</span>
:Team – it is the distribution person who will be selling the company’s credit story to the investor not the origination team so how well does that person know the company?"


:Taleb points out that black swan events depend on the observer, and the information and analysis obtained and applied by him or her.
:''Assessing the US private placement market from a corporate perspective - the Treasurer's Wiki.''


:Being slaughtered shortly before Christmas is a black swan surprise for a turkey; especially following 1,000 days of consistent - apparently predictable - feeding and friendliness from humans.


:The slaughter of the turkey is not a black swan event for the human butcher.


:Turkeys need to gather more information and to analyse it.
== See also ==
 
* [[Agent]]
:''How not to be a sucker - A Black Swan is relative to knowledge - The Black Swan, 2010 pp40-44.''
* [[Agent bank]]
 
* [[Assessing the US private placement market from a corporate perspective]]
 
* [[Competence]]
 
* [[Credit]]
<span style="color:#4B0082">'''''Robustness not fragility'''''</span>
* [[Credit ratings: helping supply to meet demand]]
 
* [[Creditworthiness]]
The key message from Taleb's work is about seeking robustness and avoiding fragility.
* [[Debt investor relations]]
 
* [[Friction]]
:"You have to avoid debt because debt makes the system more fragile. You have to increase redundancies in some spaces.
* [[Green story]]
 
* [[Integrity]]
:"You have to avoid optimization. That is quite critical for someone who is doing finance to understand because it goes counter to everything you learn in portfolio theory....
* [[Investor relations]]
 
* [[Ratings]]
:"I have always been very sceptical of any form of optimization. In the black swan world, optimization isn't possible.
* [[Treasury]]
 
* [[US private placement]]  (USPP)
:"The best you can achieve is a reduction in fragility and greater robustness.


 
[[Category:Financial_products_and_markets]]
:"You may have heuristics, but not an optimization rule.
[[Category:Long_term_funding]]
 
[[Category:The_business_context]]
:"I hope the message will finally get across because I haven't succeeded yet.
 
:"People talk about black swans but they don't talk about robustness, which is the real lesson of the black swans."
 
 
:''Living with Black Swans - Nicholas Nassim Taleb.''
 
 
== See also ==
* [[Fat tail]]
* [[Guide to risk management]]
* [[Heuristic]]
* [[MCT]]
* [[Portfolio analysis]]
* [[Probability]]
* [[Stress test]]

Revision as of 14:08, 29 July 2024

Treasury - borrowing - credit - credit strength - investor relations.

The credit story is a fundamentally important part of investor relations.

A borrower's credit story means the content and presentation of information about the borrower's relative credit strength, to potential lenders and investors.


A key element of the credit story is the trust that investors hold toward the integrity and competence of the leaders of the borrowing organisation.

It is very important, therefore, not to over-promise when presenting the credit story, but rather to take the opportunity to maintain and build a well-founded reputation for frankness.


How to select an agent bank for a private placement
"Clearly companies will have different reasons for selecting an agent bank, but there are probably several key areas to differentiate:
Positioning the credit – the bank’s ability to sell the credit story (position the credit strengths while mitigating the weaknesses) is key to stimulating investor demand and maximising terms...
Team – it is the distribution person who will be selling the company’s credit story to the investor not the origination team so how well does that person know the company?"
Assessing the US private placement market from a corporate perspective - the Treasurer's Wiki.


See also

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