BFI Group Blog

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Daniel Zurbruegg
August 14, 2020

Did You Know About Lombard Lending?

Recently, I realized that many of our clients are not aware of the possibility of Lombard Lending. One of my clients was racking his head about how to finance a project without liquidating his investments with us. I was surprised about his surprise when I told him about the option of using his portfolio as collateral for a private bank loan. Yes, you can retain your portfolio investments while increasing your financial flexibility.In that meeting, I was reminded of the famous quote by Confucius: “Life is simple, but we insist on making it complicated.” My client was coming up with some very expensive and complicated ideas to achieve his goal. I was extremely pleased to help him with a straight-forward solution that we use regularly for our clients, both for long-term liquidity needs as well as in short-term bridge situations.

“Life is really simple, but we insist on making it complicated.” ~ Confucius

Whether you want to ensure access to liquidity down the road, you need to finance a special project or you are interested in improving your investment returns, employing the Lombard lending services offered by our partner banks affords readily available access to liquidity for our clients.

A few possible use cases

Our experience with Lombard Lending spans a variety of use cases. Here are just a few:

  • Large acquisitions without selling existing portfolio assets, implemented in the form of either a fixed-term loan or a current account overdraft. The acquisition is financed against your portfolio assets.
  • Use your portfolio as collateral for exchange-traded or over-the-counter derivatives, and foreign exchange products. Deployed as such, it may serve to cover margin requirements to account for market fluctuations.
  • Use the physical gold stored with your bank or with Global Gold as a collateral and establish a credit line for a real estate project, another investment, or simply to secure a credit line for the future, whenever you might need it.

Why this can be attractive

Clearly, I am not propagating or recommending debt and leverage. In fact, personally, I am very hesitant to take on credit unless it is for a very good reason. However, such circumstances do come up frequently, and being able to then tap into the nest-egg you keep with us, without depleting it or slowing down the returns gained on the portfolio, can be interesting.

It is particularly interesting when you consider the rates at which these loans are available. Contrary to the interest rates you may be familiar with in the U.S., the loans offered by Swiss banks and lenders are based on a combination of the current LIBOR – the London Interbank Offered Rate (today, depending on the currency denomination, other names are being used now) – and a service fee. Depending on whether you employ a variable, short-term contract, or a longer-term, fixed rate contract, the total cost of the loan currently will only be somewhere around 1.2% to 1.3%. That is very competitive internationally.

Depending on the underlying assets you use as collateral, you can achieve a lending rate of up to 80%. Gold and cash afford high lendability, while riskier asset classes will be accepted more restrictively by the bank.

Each case is different and requires thorough consideration. But I certainly want to highlight this excellent service and investment tool, especially since so many investors seem to be unaware of it. Call us if you would like to learn more about it. We will be pleased to review and assess your circumstances and needs to help you decide on whether this is something for you.

>> Read more here.

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