525 Week 10 Objectives
FBE 525 - Class Objectives
J. K. Dietrich
Week 10 – October 26, 2006
Goals and Objectives
(1)Relate portfolio theory to balance sheet and risk management problems facing financial institution managers.
(2)Identify and trace the implications of leverage and portfolio constraints on optimal portfolio or balance sheet composition.
(3)Contrast the regulatory establishment and standard rationales and methods of regulatory interventions for deposit-taking firms in the United States.
(4)Describe self-regulatory organizations (SROs) in U.S. securities markets and analyze the regulation of various relationships between parties trading and originating securities
(5)Describe regulation of insurance products in the United States and discuss the major advantages and disadvantages of the structure of regulation in U.S. versus other countries.
(6)Contrast the regulatory establishment and standard rationales and methods of regulatory interventions for deposit-taking, securities firms, and insurance in the United States.
(7)Outline and discuss the significance of the major provisions of the Gramm-Leach-Bliley (GLB) Act of 1999
Important Vocabulary List from Class
PORTFOLIO THEORY
LEVERAGED PORTFOLIOS
CONSTRAINED PORTFOLIOS
VALUE AT RISK (VAR)
RATIONALE FOR REGULATION
SELF-REGULATORY ORGANIZATIONS
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS
BANK HOLDING COMPANY, FINANCIAL HOLDING COMPANY
Suggested Wall Street Journal (WSJ) or other Articles
October 9 , 2006
“PNC Nears $6 Billion Mercantile Deal” (A3) – Another bank merger, illustrating consolidation in banking in U.S. and possible reasons for value creation
“Bad Loans Draw Bad Blood” (C1) – Risks in mortgage lending, including buying back soured loans, illustrates long-tailed credit risk from that business
“NYSE’s Speed Test Starts Off Well” (C2) – Shortening of response time for transactions using electronics on traditional exchange may change order flows on oldest exchange
October 10 , 2006
“Private-Equity Firms Face Anticompetitive Probe” (A3) – Possible litigation from auction and bidding processes followed by cozy private-equity firms’ relations
“Sovereign to Force CEO to Resign In Compromise With Santander” (A3) – Another good story about how poor performance leads to changes in CEOs
“Spitzer Aims At Another Mark: Fee Disclosure” (C1) – Regulation of asset-management firms conditions economic environment
“Tracking the Numbers: PNC Merger May Put to the Test Regionals’ Ability to Compete” (C3) – Challenges to banks as business restructures
“Moody’s, S&P Still Hold Advantage” (C5) – Discussion of credit-rating business provides insights into nature of important industry
October 11, 2006
“U.S. Banks Woo Migrants, Legal Or Otherwise” (B1) – Serving lower-income retail market with transactions services, also illustrates competition by Federal Reserve System with private providers
“Citigroup Connects With Microfinance” (B5E) – Interesting connection between wealth management and tiny loans in emerging markets
“Probe Brings ‘Club Deals’ to Fore” (C1) – Bidding practices in large private-equity fund privatization deals examined by Federal lawyers
“Egan-Jones Looks at Mutual Funds” C11) – Small debt rating agency considers entering asset-management assessments, an example of competition in financial information business
“Bank of America To Offer Free Trading” (D1) – Aggressive pricing (zero cost) to gain from cross-selling and other possible synergies, bound to have an impact on discount brokers and raise serious concerns about realizing “synergies”
October 12 , 2006
“Visa IPO Should Speed Innovations in Payments” (A3) – Good story on restructuring of payments (transaction processing) and efficiency issues raised by organizational structure of member-owned clearing system
“Sovereign CEO Sidhu Resigns; Campanelli Takes Interim Post” (B7) – More boardroom politics as architect of three-firm combination is ousted
“Expedia Might Trip Debt Covenant” (C3) – Importance of indenture covenants illustrated, relevant to our discussion of debt at the beginning and later this semester
“Banks Push Harder to Get You to Switch” (D1) – Switching costs from changing relationships are reduced by aggressive bank competition for deposits
October 13, 2006
“Joining the Club: Inside Goldman’s Secret Rite: The Race to Become Partner” (A1) – Great story about success and what it takes at one of the best traditional investment banks
“Bank of America’s Quick Shifts Roles” (B7) – Unique insight into role and risks of specialists on New York Stock Exchange under changing trading environment
“Wachovia’s Deal For Golden West Is Put to the Test” (C1) – Vulnerability of major financial institution merger to credit risk is discussed
“Fund Track: A Strategy Aiming to Pump Returns Gains Clout but May Be ‘No Free Lunch’” (C1) – Discussion of asset-management strategy and its risks
“Economists See Hedge-Fund Risks” (C3) – Discussion of risks of hedge-fund strategies illustrate dangers of asset-management in this segment
“Deutsche Boerse, Borsa Italiana Plan to Link, Pursue Euronext” (C3) – More on global consolidation of exchanges
“’Microloan’ Father Yunus Is Awarded Nobel Peace Prize” (B1) – Illustration of how money can be made and economies stimulated by tiny credits in emerging market economies
“Your Fund Manager’s Secrets” (B1) – What can be learned about portfolio managers and insight into reporting requirements of asset-management firms
“Green Thumb: Does Offer for Free Trading Pay?” (B1) – Good discussion of Bank of America’s trade pricing strategy and limitations of its appeal
“Bids and Offers: Severance at Sovereign Irks Governance Advocates” (B3) – Discussion of consolation prize of aggressive manager forced out by minority shareholders
“Hedge Fund, Regulate Thyself” (B4) – Great discussion about possibility of self-regulation (discussed on October 26) for growing hedge-fund industry
“Valuing Google Is a Shot in the Dark” (B14) – Absolutely great example of how business evaluation, as in group project, is conducted in the real world: read it!
October 16 , 2006
“Banks Vie for Lucrative Prize: Chinese in U.S.” (C1) – Challenges and competition in a given market segment
October 17 , 2006
“Interest-Rate Pressure Damps Wachovia’s Profit” (A2) – Good example of how spread affects financial firms’ earnings
“Popolare Italiana Accepts Bid From Verona” (A10) – Another example of banking sector consolidation around the world
“Debt Buyers vs. The Indebted” (C1) – Sources of credit risk, discussed later this semester, illustrate risks of one type of asset-management firm
“On the ‘D’ List: Big Starts Try to Avoid A Nasdaq Exit Amid Options Probes” (C1) –Listing requirements are discussed, illustrating exchanges’ effort to develop reputations and enforce regulatory commitments
October 18 , 2006
“Futures Shock: Chicago Merc to Buy Board of Trade” (A1) and “Chicago Exchanges Combine Thunder”(two more stories on C1) – Major development in structure of securities markets resulting from globalization and technology, as well as recent IPO for exchanges, providing great comparison of deal to other markets and useful summaries of histories of exchanges and their development
“Wachovia Aims to Nab Bigger Share Of Retirement-Planning Market” (B2D) – More evidence of the importance of demographic changes on financial services demand
“Citigroup Agrees to Buy 20% Stake In Turkish Bank” (C4) – More international banking initiatives
“Did Nuveen Miss ETF Gold Rush?” (C11) – Reviews issues facing one asset-management firm in considering managing ETFs, a good review of business
“Insuring Against Hedge-Fund Taxes” (D1) – A good illustration of the importance of the protection of insurance products’ “inside buildup” again taxation
October 19 , 2006
“Bloomberg Says Media Company Isn’t Being Sold” (B4) – Case company discussed
“Chicago Deal Could Force Rivals’ Hands” (two stories) (C1) and “Exchange Deal Fuels Caution On Sector’s Stokcs After Run-Up” (C3) – Discussion of implications for trading and exchanges of combination of two giant derivative markets in Chicago
“More Home Loans Go Sour” (D1) – Consumer credit risk is discussed and can be compared to corporate risks we discuss later this semester