Johannes Palsson, managing director and senior portfolio manager at Angel Oak Capital Advisors in Atlanta, likes to invest in boring banks.
“There are some unique banks out there, but we just really like traditional banks with a strong core deposit base, with stable earnings, with stable asset quality,” said Palsson. “The banking space is better capitalized than ever and has better liquidity than ever, is better regulated than ever, is better managed than ever. So we like the space.”
Palsson helps institutional players invest in the subordinated debt of 300 community banks.
“We’ve been underwriting these banks for a very long time,” he said. He analyzes the banks with his own version of the rating system used by regulators called CAMELS, which stands for the rating factors capital adequacy, assets, management capability, earnings, liquidity and sensitivity. Angel Oak’s proprietary ratings model uses 15 years of history and 1 million different data variables, Palsson said, to determine the probability of default.
Recently, Angel Oak began using distributed-ledger technology in connection with the securitization and sale of banks’ subordinated debt. According to Angel Oak and its technology partner, Brightvine, this is the first time blockchain technology has been used in conducting bank-debt transactions. To Palsson, the technology has been most valuable so far in providing one place to find all relevant documents and data.
“Where the benefit is, and where the difference is, is a centralized location of all the information,” Palsson said. “Here we have a place where we essentially put everything and different constituencies have access to different documents.” Notes, ratings reports and contracts are stored in the ledger, which was developed and is managed by Brightvine.
It’s the latest example of how banks and Wall Street firms occasionally try out new use cases for distributed-ledger technology.
“There was a period of time when a lot of banks and other big…
