We have a team that consists of trade finance specialists, attorneys and accountants with decades of experience, who offer innovative and comprehensive solutions to our clients worldwide.
Our clients are importers and trading companies that utilize our services to expand their business by leveraging their existing cash-flow.
Using our knowledge and expertise, we accompany clients through the entire process of a trade finance transaction, offering the best solution available. To this end, Stern Bank specializes in the issuance of documentary letters of credit, standby letters of credit and bank guarantees.
Stern’s trade finance products consist of the following:
In a typical forfaiting transaction, the exporter sells its receivables to a third-party buyer, the forfeiter. The receivable is generally related to payment for goods or services delivered to a buyer under a contract of sale, but has been structured to create a separate payment obligation represented by a negotiable instrument. Forfeiters buy those negotiable instruments from the drawer (or in secondary transactions, from the holder) of those negotiable instruments at a discount of its face value. The forfeiter then assumes the full risk of nonpayment from the drawee of the debt instrument, which is, in most cases, the buyer’s bank, but in some instances may be the buyer itself. The drawer of the bill removes the receivable from its balance sheet and removes its exposure to the credit risk, which is transferred to the purchaser of the negotiable instrument. These negotiable instruments are then bought and sold on the secondary market.
Stern’s Trade Finance Department’s expertise is in further selling on such transactions (e.g., “bank risk” or “FI risk”) to other financial institutions.
In a typical letter of credit financing transaction, the Stern’s client (“client”) purchases goods from one party (“seller”) and sells the goods to another party (“buyer”). The buyer opens a letter of credit in favor of the client, and the client requires financing of the transaction based on an incoming letter of credit. The Bank then structures a credit facility for the buyer in which the proceeds of the letter of credit will serve as the mechanism for the Bank to be paid back on funds that it extends to the client. The Bank first perfects its security interest in the proceeds of the letter of credit and then extends funds to or on behalf of the client for the purchase of goods. Credit is structured through the issuance of another letter of credit to the supplier (e.g., a back-to-back letter of credit) or by advancing funds against a documentary presentation to the supplier, or in some cases advancing funds to the client. In each iteration the Bank maintains control over the goods and the payment channels at all times.
Letters of credit and demand guarantees are contractual payment instruments that promise payment in return for submission of documents. Stern issues letters of credit and demand guarantees for international trade transactions. These instruments are issued to guarantee payment to suppliers of goods and to buyers to guarantee the performance of sellers. Such trade structures also play roles in guaranteeing obligations for bids and tenders in public contracts. Stern earns service income for the issuance of letters of credit backed by cash from the letter of credit applicants. The Bank finances certain clients to provide them with funds to back the letters of credit (such as in the case of a back-to-back letter of credit).
A party advises a letter of credit when it transmits that letter of credit to another party. Advising a letter of credit received from a third-party requires the advising bank to assure itself as to the authenticity of the advice that it received. Today, that is mostly done via the sending and receiving of authenticated SWIFT messages. Stern advises letters of credit for other banks and financial institutions that have limited SWIFT Relationship Management Application networks (“RMA(s)”). RMAs are required for banks to send authenticated messages.
When a bank confirms a letter of credit, the confirming bank takes responsibility for payment against a complying presentation under the letter of credit as if it were the issuing bank, similar to the role of a cosigner on a contract. After assessing the creditworthiness of the issuing bank, Stern may add its confirmation to letters of credit, in return for a fee. Stern’s strategy is to confirm letters of credit, and then “sell on” the risk through participation agreements with other FIs. Similarly, Stern can issue demand guarantees against counter guarantees from another FI. A counter guarantee is a guarantee issued by one FI to a second FI. The counter guarantee requests the second FI to issue its demand guarantee and assures the second FI of payment if the second FI is required to make payment under its guarantee.