Bayerische Landesbank to use Algo for cross-product margining

Bayerische Landesbank (BayernLB), 50% owned by the Association of Bavarian Savings Banks with the remainder held by the Bavarian regional government, plans to implement Algo Collateral for all its cross-margining by March next year.

The Bavarian bank assessed a number of other systems during a three-month due-diligence process, including another front-runner, SunGard Collateral, before opting for Algo Collateral, a collateral software application designed by Canadian enterprise-wide risk management services company Algorithmics. Initial proposals to use a JP Morgan Chase outsourcing service were dropped as part of a strategic business decision.

“We needed to automate and improve the operational aspects of our existing repo margining processes, and to support the future growth of our OTC derivatives margining programme,” said head of BayernLB’s collateral department Jurgen Pohl.

He added that a short implementation timeframe, plus the willingness of current Algo clients to provide references that had boosted his confidence in the product, were key determinants in choosing Algo Collateral. Pohl told RiskNews that the Algo system could be implemented two months ahead of the SunGard service. Key references came from ABN Amro, a large participant in the market, and the UK's HBOS, a similar sized participant to BayernLB.

Ease of data import and export was also important, with BayernLB intending to use the system to update its limit systems with intra-day collateral balances and its regulatory data warehouse with collateral requirements and collateral trade costs.

BayernLB paid between €300,000 and €1 million for a 10-year Algo Collateral licence. This includes free upgrades to the service as and when they are developed.

The Bavarian bank has around 100 partners in the repo markets and has signed deals with 20 OTC derivatives participants to collateralise trades.