Magazine article American Banker

National City Courts Small Businesses with Loans It Hedges

Magazine article American Banker

National City Courts Small Businesses with Loans It Hedges

Article excerpt

National City Corp. is offering small companies a way to manage interest rates on their borrowings without the hassle of handling derivatives. The trick is that the bank, rather than the customer, owns the derivative.

Through the National City Corporate Select loan product, clients can choose among a number of loans with various fixed or variable-rate combinations. Then, using derivatives to hedge its own risk, the company gives customers the option to alter their rates as market conditions change.

"The bank is doing all the hedging, utilizing instruments such as swaps, caps, floors, and options on swaps," said Tony Crisalli, senior vice president and managing director in the derivatives products group of NatCity Investments Inc., National City's section 20 securities firm. Mr. Crisalli worked with Edward B. Reilly, senior vice president of the corporate products management group, to develop the product.

Charles Smithson, a managing director at CIBC Wood Gundy, said some other banks are offering similar products but that the idea is still relatively new.

"It's part of the continuing evolution of being able to use derivatives closer to the retail end of the spectrum," he said.

The product has mainly been targeted to small and midsize businesses looking for debt funding of $1 million to $10 million. Maturities on the loans have varied from the three- to five-year range up to 15 years.

Since rolling out the product in February, National City has completed 78 corporate select transactions, totaling $230 million. "We have gained some new business-we have taken some business from other banks," Mr. Reilly said.

Many offer flexible-rate loans with derivatives products to corporate borrowers, but the packages are mostly designed so that the clients must handle the derivatives themselves. And smaller companies usually don't have the staff for that. …

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