First National Financial LP

Up close and personal with Thomas Kim: Part I

  • First National Financial LP

At First National, our Capital Markets Group is responsible for managing funding and securitization for all commercial and residential mortgage originations and protecting our book from interest-rate risk. It’s a big job for a small but expert team of professionals led by Thomas Kim. Thomas joined us in 2012 and was appointed Vice President and Managing Director, Capital Markets in November 2018. To better understand this important role and the man performing it, we present Part I of Up Close and Personal.

Thomas, what’s it like working in the Capital Markets group?

I would say it’s dynamic and ever-changing. Our team is small with five people and we wear many different hats.  We look after all of First National’s trading operations – bonds, interest-rate swaps, MBS, repos – we manage the company’s securitization programs, we’re the front office for funding partner relations and we’re the main hub for information and advice for most operational areas of the company: servicing, underwriting, originations, legal and finance as well as senior management. This is not the kind of place where you can sit back and wait to react to emerging issues. We are paid to be ahead of the game. Based on our size and operational reach, I would also say we are probably the most efficient capital markets team in the whole industry.

What is the most important part of your job?

Managing different time scales. By that, I mean executing projects that have a here-and-now urgency to them while also making sure that medium and long-term initiatives around things like funding strategies keep moving along so we’re prepared for the future. Like any business, First National can only grow if we have the resources and financial capacity to keep pace with that growth. It may take several months to negotiate a funding agreement with a new securitization program or whole loan investor because it involves due diligence, contract negotiation, the creation of the deal structure, arriving at the price of the trade and the allocation of the risk. Using time wisely is critical.

Years ago, there was an ad with the tagline “When EF Hutton Speaks, People Listen.” When you speak, who is listening and what kind of insight do they want from you?

We communicate externally with investing partners and internally with all operational areas of our company. Investors want to know what’s going on inside our business and with their portfolios. Internally, our teams consult on a variety of topics including funding. Funding very much affects mortgage product design including underwriting criteria as well as our potential for growth so it’s a key topic.

When you talk to investors or others in the capital markets, what are you listening for and what do hope to learn from those kinds of exchanges?

I’m always listening for clues as to what’s going on with their businesses and to keep tabs on any pending regulatory changes that might affect them or First National. If rates or spreads or moving, I’m also seeking context to understand why. I’m also on the lookout to see if there is any stress in an area of the capital markets that might affect us.

How much of an average day do you devote to consulting?

I spend a lot of time on the phone, on email and now with the pandemic, in Microsoft Teams meetings. This morning, I already have 100 emails in my inbox. So, the answer is more than ever.

Speaking of the pandemic, the last few months must have been challenging.

For sure. The move to work from home added to an otherwise stressful time but it’s amazing to me how quickly and seamlessly that whole transition took place. On a Friday we were at our office in Toronto. On the Monday, we were set up and working at home.

How has the pandemic affected your job?

It has absolutely increased the volume of calls and emails and overall dialogue. Internally, we’re still collaborating but it’s remotely. Information still disseminates very quickly, but we all must be very deliberate and disciplined to make that happen because we’re not sitting together in the same office. Externally, everyone wants to figure out what the world will look like three and six months from now. It’s the perfect time for amateur forecasters.

What’s your forecast?

I have my own personal opinions about how quickly the Canadian economy will recover but I’ll keep those to myself. I think if you polled the executive team at First National, you’d see a wide spectrum of forecasts and that’s understandable given how cloudy things are currently.

What words of wisdom do you have for borrowers, mortgage brokers and investors right now?

Mainly that while everyone is under a lot of stress due to COVID-19, it’s important to remember that people and organizations and markets are a lot more resilient than they are given credit for, by and large. It’s just a question of when and what the recovery will look like. On the economic side, the government imposed the lockdown and they can get us out of it as well. It’s just a matter of having a plan.

Are you optimistic about the future?

Yes. I’m usually more of a doom-and-gloom guy than the average person but right now I’m more optimistic than a lot of other people. It’s just a gut feeling but I don’t think things will be as bad on the economic side as the worst-case scenarios being presented.

In this current environment of extreme volatility, how do you guard against being wrong in your analysis or interpretations when making judgement calls?

This is not a one-man shop. We exchange ideas and information as a team to arrive at our positions and decisions. This ensures we don’t make any obvious errors and it provides an opportunity for us to check each other’s logic. We also debate different assumptions and how they may play out. Pretty much everything we do involves a judgement call and I find collaboration is the best way to avoid errors. In normal times if you visited our office, you’d hear a running conversation over our cubicle walls, which is a tremendously productive way of exchanging ideas.

What sources do you use to keep yourself informed and of all the leading and lagging indicators you follow, what’s the most important? 

I would say the usual sources that people in my position would use to stay on top of the news. I have a Bloomberg terminal on my desk and especially in times like these when everything is so chaotic, it’s nice to have it as well as access to synthesized research from various investment dealers. I also follow Statistics Canada, particularly data on employment, not just the headline numbers but the underlying details to get a nuanced view of what’s happening. Mortgage arrears are based on employment, so employment is a key indicator for us.

First National continues to lend through the pandemic. How challenging has it been to preserve the funding model?

Not difficult, in fact I would say for the most part it’s business as usual. First National has always had a lot of diversification in funding sources because again part of our mandate is to always stay ahead of growth. Our constant focus on expansion and diversification has really paid off. Remember too that for the most part First National funds prime mortgages and in any market, these are great assets to own.

First National has described becoming an MBS issuer as a game changer following the 2009 financial crisis. Is MBS still a key part of your funding capability and has it remained viable through this crisis?

Absolutely, we are still an active issuer. We have close to $27 billion outstanding and MBS continues to be well bid even in these times of crisis. That’s because investors are still interested in high quality, liquid assets and at the end of the day these assets are fully secured and come with two levels of guarantee from a ‘AAA’-rated sovereign.

During the financial crisis, the Commercial MBS market evaporated. We have seen the same thing in the past few months. What will it take to get that market back on its feet?

It’s a question of investor demand more than anything and getting investors comfortable with the product again. The market is trying to restart but one issuer does not a market make and right now only the Royal Bank is issuing CMBS.

Although you arrived at First National after the financial crisis, did you learn anything from it that might be applicable today and if so, what?

Probably nothing I would want to repeat publicly except to say that if you grew up in a liquidity crisis, everything after that looks like a liquidity crisis. No two economic situations are the same and it’s necessary to put away the old lens and look at the new situation for what it is.

Today has charitably been called “a risk-off” environment. Is that how you are seeing it?

It depends on the day. Conditions seemed pretty grim back in late March but less so now. Market conditions aren’t normal yet, but every week feels a little better than the week before.

In Part II of Up Close and Personal available shortly, Thomas talks about his career and what he hopes to accomplish. In the meantime, you can always hear more from Thomas through his periodic Market Commentaries.