What is a Bank Guarantee at 75 + 1? BG's are issued by a bank and in some instances approval by the World Bank, to ensure a loss against principal in a transaction. How do you get a BG at 75 percent (discount) of face value? We have a question to ask you. Let's be a little personal now. How many of you have heard of anyone closing a Bank Guarantee deal at 75, 80, or any discount? Truly be honest with yourself? How many times do you believe a bank will wholesale money as described by joker brokers all over the internet? We do not want to burst your bubble, but at the same time we do not want you to waste your time on a fruitless endeavor.
First of all BG's do not come with isin numbers because they are not a public security. They can be "parked", not blocked (as some use) on the screen for authentication purposes and will come with an identifier in that instance. Customer A has 100 million plus dollars in Bank B or Top World Bank, which has a long, good, relationship. Customer A needs a bank guarantee from Bank B for a certain transaction where the bank will need to know of "everything" about the transaction before issuing a bank guarantee on their behalf. In ordinary folks terms, the bank will not issue a BG without knowing the customer, the proposed transaction, and not having the funds in the account.
Therefore, if customer A needs 100 million dollars to have the BG issued how do you get a discounted BG? Let's take a look at the numbers. Customer A had to have 100 million dollars in his account to get the BG issued in the first place. If Buyer B comes along and says I would like to buy your BG at 80 million dollars, why would the first customer (A) do such? They wouldn't. BG's are not traded like bonds. This is where the confusion takes place. BG's come with an owner and if someone would like to borrow against it for a period of time they have to pay for borrowing the instrument. Where is the discount? In our previous paragraph Customer A is not going to discount the BG because he/she would lose money. Let use the example of the bank. The bank which issues the BG would give you the guarantee, (remember, this is a bank guarantee), that you can buy at 80 million dollars, or 80 percent of face, and to get in return one year later about 20 million dollars in revenue for doing what?
The basics of a BG. A bank does not issue them at a discount. We do not care what anyone says. A bank will issue a BG based on criteria met for a proposed transaction where the customer of the bank will have met the requirements for the bank to issue a bank guarantee. In which, a bank will not wholesale you money for no reason. A bank would not give you a BG at a discount because you would be operating at the bank level and this is not going to happen, which is contrary to broker believe.
With that said. If you can get a BG at 80 percent of face from a bank we will use this as an example: Said bank issued you a BG at 80 million dollars, but the instrument will net you 20 million dollars at the end of the term or maturity. The bank, did you a favor by (1) issuing you a BG at a discount, and (2) reap 20 million dollars in benefits. And we say for what? This is not common sense and defies logic.