SOURCE: Kamakura Corporation

Kamakura Corporation

Kamakura Corporation

October 19, 2009 08:00 ET

Rand Merchant Bank and Kamakura Corporation Announce a Collaboration on Default Probability Modeling

Research Pact Designed to Maximize Default Modeling Accuracy Worldwide

NEW YORK, NY--(Marketwire - October 19, 2009) - Rand Merchant Bank ("RMB," a division of FirstRand Bank Limited) and Kamakura Corporation announced Monday that the firms have agreed to a joint research pact focused on default risk modeling for public firms, with a special focus on financial institutions default modeling.

Under the research pact, RMB will serve as a steering committee member on version 5 of the Kamakura Risk Information Services public firm default models. The bilateral exchange of insights will maximize the accuracy of both the KRIS models and proprietary models that RMB has developed specifically for the South African market.

Rautie Nel, Head of Credit Portfolio Management at RMB, said on Monday, "RMB is very pleased to announce this research pact. Credit ratings are used as a key input in, inter alia, credit origination, limit setting, pricing, capital allocation and performance measurement. The appropriate measurement of credit risk is therefore very important for the bank. The accuracy ratio of our rating models, measured in terms of being able to differentiate between companies that have and have not defaulted, are very high if calculated on a database of listed companies in South Africa going back almost 15 years. This project will give us even more confidence in these models as we will be able to test the accuracy ratio thereof (and make refinements if necessary) on the much larger Kamakura Risk Information Services (KRIS) default data base for public firms containing data for firms in 30 countries. By testing RMB's models on the 2 million 'out of sample' observations in the KRIS database, RMB can firmly establish that the fundamental economics of our insights apply consistently around the world. This kind of model testing is also required by the Basel II capital rules put forth by the Basel Committee on Banking Supervision. For seven years, the KRIS multiple models approach to default probability modeling has shown the power of macro factor drivers of credit risk in a fully transparent, 'no black box' way. Our years of partnership with Kamakura and our mutual respect and team work make this new research pact a logical 'next step' for both firms."

RMB has been a subscriber to KRIS default probabilities for many years. With Fiserv, FirstRand and Kamakura announced on June 24, 2009 that FirstRand has also subscribed to the Kamakura Risk Manager ("KRM") enterprise wide risk management system (see more details here: http://www.finextra.com/fullpr.asp?id=28309).

Kamakura's President Warren A. Sherman said Monday, "We are extremely pleased to partner with RMB on this joint research effort. Our Managing Director Robert A. Jarrow pointed out in his 2003 paper for the FDIC that macro factors like home prices and interest rates were the key to driving financial institutions default in the United States. The partnership with RMB allows both of us to further refine and enhance these insights for financial institutions models with maximum accuracy. The ability to load these models seamlessly into Kamakura Risk Manager is another big synergy that our joint research will employ."

As part of the joint research effort, RMB will have direct access from Johannesburg to the proprietary KRIS research data bases and related explanatory variables that reside on Kamakura servers in California and Honolulu. The project teams will communicate daily via real time Vidyo telecommunications, in addition to reciprocal visits by the project teams to each firm's head office. The Kamakura research effort is led by Professor Robert A. Jarrow (Managing Director and Cornell University), Professor Jens Hilscher (Senior Research Fellow and Brandeis University), and Sean Klein (Senior Research Fellow and Massachusetts Institute of Technology), with support from the KRIS team led by Kamakura CEO and founder Dr. Donald R. van Deventer and Managing Director Mark Mesler.

About FirstRand Limited

Listed on the Johannesburg Stock Exchange and the Namibian Stock Exchange, FirstRand Limited is an integrated financial services group providing a comprehensive range of products and services to the South African market and niche products in certain international markets. FirstRand Limited is the second largest financial services group in South Africa by market capitalization.

Since the creation of FirstRand in 1998, the diversified earnings base of the Group has delivered strong growth in earnings, assets and dividends. The Group's track record has been achieved through a combination of organic growth, acquisitions, innovation and creating extra sources of revenue through the start-up and development of completely new businesses.

The Group is differentiated by its decentralized structure and owner-manager culture. It has a portfolio branding strategy and there are a number of leading financial services franchises within the Group, such as Rand Merchant Bank (RMB), First National Bank (FNB), WesBank, Momentum and OUTsurance. For more on FirstRand Limited, see https://www.fnb.co.za/about-fnb/about-us/first-rand-group.html.

About Rand Merchant Bank

Rand Merchant Bank is the investment banking arm of FirstRand, one of South Africa's largest, listed financial services groups, and is active in fixed income, currency and commodities trading, debt capital markets, private equity, structured, corporate and resources finance.

With a presence in the UK, the US, Australia and across Africa, RMB has considerable underwriting capacity due to its ability to trade off the $100bn FirstRand Group balance sheet.

Seeing unprecedented growth since its formation, RMB has developed a reputation for combining innovation and entrepreneurship and has pioneered the introduction of many new financial instruments to the local and African markets, in support of its philosophy of Traditional values. Innovative ideas.

About Kamakura Corporation

Founded in 1990, Honolulu-based Kamakura Corporation is a leading provider of risk management information, processing and software. Kamakura has been a provider of daily default probabilities and default correlations for listed companies since November 2002. Kamakura announced the KRIS Sovereign Default Probability Service on May 19, 2008. Kamakura launched its collateralized debt obligation (CDO) pricing service KRIS-CDO in April 2007. Kamakura is also the first company in the world to develop and install a fully integrated enterprise risk management system that analyzes credit risk, market risk, asset and liability management, transfer pricing, and capital allocation. The Kamakura Risk Manager system, now in version 7.0, was first offered commercially in 1993 and has been continually enhanced since then. Kamakura has served more than 200 clients ranging in size from $3 billion in assets to $1.6 trillion in assets. Kamakura's risk management products are currently used in 32 countries, including the United States, Canada, Germany, the Netherlands, France, Austria, Switzerland, the United Kingdom, Russia, the Ukraine, Eastern Europe, the Middle East, Africa, Australia, Japan, China, Korea and many other countries in Asia.

Kamakura has world-wide distribution alliances with Fiserv (www.fiserv.com), Unisys (www.unisys.com), and Zylog Systems (www.zylog.co.in) making Kamakura products available in almost every major city around the globe.

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