Insight into the key factors behind value development
With its own valuation desk, Zanders provides an independent and reliable service to its clients. In short, the valuation desk determines and validates the market values of financial products, such as derivatives and loans, for all market segments. Rogier Galesloot, who heads the valuation team, answers a few questions.
What exactly does the valuation desk do?
“The valuation desk performs valuations of financial products or portfolios of financial products, either periodically or on a once-only basis. We can provide support in the valuation process, perform the valuation ourselves or give a second opinion regarding valuations or reports delivered by external parties. Zanders is completely independent of banks and auditors. Our clients’ auditors consider our independence in the valuation process to be an advantage.
The market standard for performing valuations of financial products has changed tremendously in recent years. In addition to monitoring developments in this context, the valuation desk seeks to play a proactive role in setting the valuation standard. A lot of time is therefore devoted to conducting research into the latest developments.”
Why is the valuation of financial products a complex process?
“In addition to a very different market standard, the importance of an accurate valuation has also increased. The introduction of IFRS 13 tightened accounting rules. These rules determine how the market value of financial products must be recognized on the balance sheet or in the income statement. Valuations are also increasingly being checked both internally and externally. Moreover, risk management is being given increasing attention both within commercial organizations and in the public sector. With increasing frequency, for example, the valuation desk is being asked to carry out stress tests to determine the market value in an extreme scenario.”
In what current market developments can the valuation desk play a role?
“A good example is the credit value adjustment (CVA), which can be loosely defined as the market value of the counterparty risk. Under Basel III regulations, banks must maintain additional capital to cover against the counterparty risk of derivatives positions (more on this subject is provided in the article by Samuel de Visser on page 16). The counterparty risk means additional complexity in the valuation of financial instruments. The valuation desk can assist in calculating the CVA and provide insight into the key factors behind value development.
Another development with far-reaching implications for the valuation process is overnight index swap (OIS) discounting for collateralized swaps. Among other things, this has far-reaching implications for the hedge accounting process. Partly due to good experiences with a number of assignments, we can provide advice in this area regarding problem-solving approaches. We continuously monitor key developments in the field of valuation, and fortunately our clients truly appreciate this monitoring.”