Bank Instrument Leasing, the Untold Story
The private placement business is mostly composed of brokers who have never closed a deal, and many of them are desperate for money. Over the last few years, these inexperienced brokers have realized two things: they aren’t getting paid on the “big deals” they’re chasing, and there are a growing number of small clients showing interest in private placement that don’t meet the net worth requirements. With most of the brokers having little in their pockets, and a large demand for private placement programs, the bank instrument leasing business was created.
Leasing bank instruments involves the temporary assignment of a bank instrument for an agreed upon fee between the instrument owner and prospective borrower. This is similar to the idea of “proof of funds”, which has been around for years. To summarize, if the owner assigns the funds to a temporary beneficiary, that beneficiary may be able to show these funds for future transactions which require proof of sufficient capital. The problem with this isn’t so much the leasing of the assets, but rather the leasing of the bank instrument.
Every time you come across a broker trying to lease bank instruments, the story is always the same. They claim you can enter private placement, access loans, finance projects, and more, all by paying a UPFRONT FEE via Escrow to access a bank instrument. They also claim the instrument will be in your name, and you can do whatever you want with it. Though success in these scenarios is possible, you would have a better chance putting it all on a hand of poker. Think about it, the majority of bank instruments are 100M and more, and are owned by the most affluent individuals in the world. Do you really think they would allow you to use it as collateral for risky transactions, all for just a 5-10% fee per year? No, that would ignorant, and not worth the risk.
Let’s take a look at the REAL FACTS:
1. Leased Bank Instruments can RARELY be Used for Private Placement Programs
Real private placement programs are regulated by the Federal Authorities, and due diligence is completed by the banks specific to their rules. When a client goes through compliance, the asset goes through compliance as well. If you claim to own an asset on the contract, and it is actually leased, you are committing fraud and the banks WILL find out. In addition, many private placement programs require that you block the bank instrument in favor of the trader via MT 760. Once again, the bank will NOT allow you to block the instrument in another person’s favor, because they can see it is already encumbered by the REAL owner when it was leased to you.
2. You can RARELY Get a Loan against a Leased Bank Instrument, Since you Don’t Own It
Can you walk into a bank with your brand new leased BMW, and ask for a loan against it? I don’t think so. They will background check on the vehicle and see you are not actually the owner. This is the same idea with leasing a bank instrument. Since it is an asset, banks must complete their due diligence on it so they know that if you failed to pay on the loan, they can seize the collateral and repair what was lost. If the collateral is owned by another individual who has not signed off on the loan contract, the bank CAN’T seize that person’s collateral, and therefore, the bank would not loan to anyone but the real owner of the asset. In short, your only option for a loan against a leased bank instrument would be from a private lender.
3. MOST Bank Instrument Leasing Deals End Up as Fraudulent Transactions
Most of the time there isn’t even a real bank instrument to be leased. The chances of finding a broker who is connected with an individual who owns this specific type of asset is tough, but when you add that this owner also must be willing to lease the asset for a low fee, it is next to impossible to find. Though in theory you can lease bank instruments, the odds are stacked against you to say the least!
4. Bank Instrument Leasing Contracts ONLY Protect the Provider and Brokers
When you see a contract to lease a bank instrument, you will notice that there are no representations or warranties made by the providers or brokers. This allows them to block an instrument in your favor with restrictions, and if you can’t use it for anything, it’s your loss. Even though they may have to “deliver” the instrument via SWIFT before the money is released from Escrow, there is no guarantee that this instrument will be delivered properly, or that it will still be applicable to the opportunity you were using it for. In essence, you are taking a BIG gamble, and if the provider of the loan, service, or private placement program doesn’t perform, (which is usually the case) then you are out the full fee.
5. Leasing Fees DON’T Even Make Sense Compared to the Risk for the Owner
Most brokers who try to lease bank instruments charge an upfront fee, and claim that the instrument owner is getting most of it. This fee can be 5-15% of the face value if the bank instrument is leased for a year. Let’s take a step back and think about this for a second. If you were the owner of a bank instrument worth 100M, would you really risk transferring it for only a few percent a year? Once again, I don’t think so. As the owner of the instrument, you already get 6%+ per year on the coupon, so it’s not like you need the extra cash.
As you can see, even though it doesn’t make sense to lease instruments, brokers are still pushing these deals because they hope that they can get commissions. While the dollar signs are blinding them, they lack the interest to complete due diligence on the provider, which leads to an unsafe transaction for the client. Unfortunately, we have spoken to 100’s of individuals who have fallen for this, and now most are out several hundred thousand, if not millions of dollars.
The moral to the story is: use common sense, not hope when trying to complete private transactions. As you may see, we have mentioned this in many other articles, and it’s truly the KEY to mitigating your risk. Though leasing liquid assets and “proof of funds” is a viable strategy, leasing bank instruments, in our opinion, is a sure avenue to disappointment.
Stay safe, and diligent.
InsideTrade LLC Staff
(412) 235-2855
I wish I had read this post a few months ago… Ughhhhh….
JT
One thing is this article didn’t spend much time on is the SBLC leasing problem. Recently, we have found tons of brokers who claim that you can use the leased Standby Letter of Credit to enter PPP.
This is obviously not true, so if you find people trying to lease SBLC’s, be careful with that as well.
Cheers!
If you want to lease a bank instrument, then try proof of funds instead. You have a much better chance to use someones cash than their bank instrument…
Ive tried to broker bank instrument leasing deals several times through a number of providers, and its never come through.
Unfortunately- Leasing funds or instruments is more complicated then the most brokers understand.
More times out of ten the broker can not orchestrate the right leased product for may reasons.
The WINNER…THE LEASING COMPANIES!!!
PS: I have met few brokers who undertand the master account, bank comfort letter, B to B Phone, and perfect language in a 760- for compatibility purposes
Leasing instruments is not a problem if you can afford to do it. Expecting a third party to pay upon delivery is a very risky move.
is a Bank Guarantee (BG) considered a “leased Instrument” or can this work for PPP?
A BG can be purchased or leased. They are expensive.
Also, there are two types of leased instruments. When I say “TYPES” I am referring to the actual product not the format (mtn, bg, cd)
If you are familiar with proof of funds- funds often they come to you in a pretty package with DTC block, letter of confirmation, Bankers POF letter and sometimes a few more docs pending on how much you paid. “Leased” instruments in this format are usually worth less as you can not send them, block them, or have a HARD COPY of the instrument.
The leased instrument that you find commodity company’s use to trigger credit lines are thecash backed type instruments you can monetize.
If anyone is interested in a sample of the different types, I have clients who have given me permission to share their file to show the difference between the two. I did not sell these. I have acquired the files for informational purposes to educate others.
[...] NOTE: First, the issuing bank sells the instrument directly to the trader for a significant discount (ex. 60% of face value). After the trader buys the instrument, they then sell it to the “commitment holder/exit buyer” (ex. 66% of face), who then sells it to their “commitment holder” for a higher price (72% of face). This continues until someone purchases it with the intent to hold the note to collect the coupon/interest, and the difference between the discounted note and its value at maturity. This is the basic idea of how profit is generated in Private Placement Programs that use bank instruments. [...]
[...] 7. Traders that Accept Leased Bank Instruments: If a private placement trader accepts a leased bank instrument, move on before you waste your time. No REAL private placement program will accept funds which you do not have full control over. Though leased bank instruments have become extremely popular, in all reality, you have a one in a million shot of being successful. For more information, visit our article on the FACTS of bank instrument leasing. [...]
In response to the last comment- It seems as though no matter how many times it is told to perspective clients for Programs that Leasing an instrument is a waste of time- They do not get it!
For the record, I Lease Instruments. I have never leased an instrument for a program because those of us who are professional understand WHY it will not work. However, if you know better I will gladly lease you an instrument at a great price!
My typical clients are in commodities (i.e. oil) and have the instruments delivered into their accounts for collateral purposes only.
Unless you have a guaranteed source who will monetize your instrument so you can take your CASH into the program- I do not believe it could EVER work! If I ever saw a monetization of an instrument I would have done it!
For some reason, street brokers who tell you it will work and you can get a BONAFIDE leased instrument for 100K, 300k, or 350k- NOT TRUE.
The money they are requesting goes into their pockets! The cost of a 100 M MTN BOND or BG on my BEST day with no broker chain is about 6-6.5% which = 6M-6.5M. The MAX out of pocket expense to reserve is 20K EUR which goes directly to the Lender.
Do all of your homework on the leasing company as well- do not handover any money to anyone until you know the instrument, the cost, the lender.
If your Broker who is placing you in a program suggests the Leased Instrument as an option make sure you deal with the Instrument Provider separately so you understand the process & the costs.
Hi Lauren,
I am VERY interested in your sample of different *types* of leased instrument as I am going to see a Program Manager this week and their Buy/Sell program is based on Cash-Backed Leased Instruments.
May I have a copy of the sample information you refer to?
Which email address of yours should I send my info to?
Also, what can I do to ensure the funding gets to completion for my client and/or their 40k Euro is safe (MT103) and the remaining 960k Euro too?
Thanks
CarefulBrit
Careful Brit
BPVLLC@aol.com
I would very much appreciate seeing a sample copy of the different types to compare what I am considering before I make an expensive mistake caused by lack of full understanding. Thanks!
Hi Lauren,
I would like to see these as well, how can we do so?
Steve
The idea of bank instrument leasing is ridiculous. Why would people even believe in this? Oh yeah, because they are greedy and looking for the easy way out.
[...] ONLY in amounts of 50 Million EURO or greater. Though those are intriguing qualities, the key is: bank instruments can be purchased at a discount from face value, and traded to investors in the secondary [...]
I would like to see a sample as well.
If you don't mind my asking, did you ever receive any samples or other helpful information from this person?
[...] client. Commitment Holder: An individual/institution who is contractually obligated to purchase a bank instrument at an agreed upon value. Without “prior commitment”, the seller of the bank instrument [...]
Thanks for the post Lauren. Can you please forward the file you are referring to.
[...] there were very few passive investments which could compete with the benefits of owning a bank instrument. Given the high annual interest rate, possible discount from face value, and solid backing by top [...]
Friends its great being here and seeing the site. I am from India i would like to be in touch and understand to get finances against BG from prime banks of india. Can some genuine discounters let me know the acceptability of lease documents from prime banks from India like BG and SKR specifically. these BG would be raised by collateral of large lands with projects on them. Indian builders specifically with large projects would be intrested in discounting there BG's. Kindly revert.
Can you please contact to me for further details I am wishing to lease an instrument.
Duane Berry
313 740-5062
ezpivot@yahoo.com
Duane,
We can do the basic phone and fax verification from a top 25 bank (BANK OF AMERICA, WELLS FARGO, J.P.MORGAN CHASE ETC.)
1m-5m = 10-20k
6m-10m = 20-30k
11m-25m= 30-45k
26m-50m =50-65k
51m-100m = 70-95k
100m-500m = 100-200k
If the client requires a fully cash backed account requiring swift message capability the investor cost is:
mt799/760
10m-50m = 1.5% every 60 days
51m-100m = 1% every 60 days
100m-1b = .075% every 60 days
If the client chooses they can J.V. 15-25% of the back end profits for a lower upfront cost for a cash backed mt 799 or mt 760 account. The cost is a 1 time for setting up the account and and sending the swift.The account remains open as lonf as it is generating a profit. I have attached the investor information with procedures etc.The cost for the J.V. investor is as follow's:
10M-25m = .075%
26m-50m is 1/2%
50-99m = 350k
100m = 500k
250m = 1m
251m- 500m = 1.5-2m
SBLC/BG/CD/SEND VIA MT760 ALL TOP 25 WORLD BANKS HSBC, BARCLAY'S, DEUTCHE ETC..
10M-100M Investor cost is 10-12%
100m-250m cost is 8-10%
251m-1b = cost is 7-8%
The client can pay one of 3 ways for an SBLC,BG,or CD.
1- Escrow the funds for the leasing fee
2- Client must send leasing fee in full via swift mt 103/23 then we deliver instrument via mt 760 to the clients designated bank.
3- Client can block and reserve 2% of the total transaction send an mt 799 from their bank to our bank at Agricultural Bank of China once we receive the 799 we will respond by sending the instrument to the clients designated bank and the client has up to 15-20 banking days to pay us or we will call on the instrument.
Please contact me with any questions you may have.
949-973-4166
Leave your response!
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