Archivo de la Categoría ‘Uncategorized’


Brand Practice: American Express

Escrito el 18 febrero 2010 por Administrador de IE Blogs en Uncategorized

On February 18th, 2010, IE University held the second session of the “BBA Insight Series” called Branding Practice: American Express. The speaker for February was Yun K. Lee, Marketing Consultant for American Express in Europe. The agenda for the conference included brand description, company’s goals and the marketing strategy in the European market.

Yun K. Lee worked in the marketing sector for many leading multi-national companies in Asia, the US and now in Europe. Her early career started in Lucent Technologies where she worked on customized products and rolled out marketing campaigns throughout Asia Pacific. After finishing her MBA, Yun joined the American Express in New York, expanding her role to strategy. She currently works as a leader of the internal consultant team for pan-European initiatives for American Express in Spain.

American Express is a global company and a leader in the U.S. credit card market. The company focuses not only on its Premium Segment, but also tries to develop a position in the car market, and at the same time to be as competitive as other companies. Its strategy is based on the brand promise “World-class service through Personal recognition” maintaining superior customer service and top-tier performance. American Express, by using call listening, customers satisfaction survey and complaining latter service gains emotional and rational customer engagement. On the other hand, employees are engaged in social projects in order to support the brand.

For Yun the most important and challenging mission of the company is effective marketing. In order to achieve career success, she always tries to be consistent, aggressive, and strongly focuses on the market share. In her opinion, this is the only way to expand the market and beat the competition. Its strategy in Europe is to focus on and understand small business owners and to try to help with their company’s growth (B2B).

Yun K. Lee, consultora de marketing de American Express en Europa, impartió una conferencia dentro del ciclo “BBA Insight Series”, que organiza el Bachelor en Bussiness de IE University. En su ponencia, titulada “Branding Practice: American Express”, Yun K. Lee, describió la potencia de la marca, analizó los objetivos de la compañía y explicó la estrategia de marketing de American Express en el mercado europeo.

Yun K. Lee ha trabajado para varias compañías multinacionales en Asia, Estados Unidos y ahora en Europa. Su carrera profesional comenzó en Lucent Technologies, dedicándose a la realización de campañas de comercialización y marketing en la región del Asia Pacífico, actualmente la región económica más dinámica del mundo.

Después de terminar su MBA, Yun K. Lee se incorporó a American Express en Nueva York con la tarea de mejorar la estrategia de la compañía en Europa.  Actualmente trabaja como responsable del departamento de consultoría interna para iniciativas pan-Europeas de American Express en España.

American Express es una compañía global que es líder en el mercado de tarjetas de crédito en Estados Unidos.  La compañía no solo se centra en su segmento más desarrollado si no que también intenta adentrarse en otros mercados como el sector del automóvil. Su estrategia está basada en ofrecer un servicio de alcance mundial con un tratamiento hacia el cliente muy personalizado.

Para Yun K. Lee, el más importante objetivo de la compañía es desarrollar un “marketing efectivo”. Para alcanzar éxito, sostiene que “hay que ser consistente, agresivo y enfocarse fuertemente en el mercado”. En su opinión, esta es la única manera de expandirse en el mercado y ser competitivo. American Express intenta adentrarse en el mercado europeo y ser cada vez más reconocida y valorada por los consumidores. La estrategia de American Express en Europa se dirige a entender los pequeños negocios y a contribuir al crecimiento de las empresas (B2B).


IE Business School IMBA: A new elective is born…

Applied Financial Engineering is a brand new course within IMBA. Similar to the financial engineering computer-based ones in Carnegie Mellon and MIT.

The course introduces numerical methodologies and computer programming in order to solve complex financial problems.

At the end of this course, students will be proficient in Financial Excel, Visual Basic (Excel) and Octave-MatLab software.

Students will be able to include the knowledge of three software packages in their CVs which, as a result, will be very useful in order to show quantitative/programming skills to potencial financial employers: Investment Banks, Hedge Funds, etc.

All double sessions will take place in a computer laboratory.

Specific areas like Random number generation, MonteCarlo simulation, Matrices, Correlation calculations, Efficient portfolio theory or derivatives programming will be covered.

This knowledge will be greatly applied in many other courses like: Portfolio Management, Derivatives, Fixed Income, Fixed Income Derivatives, Hedge Funds, Value At Risk and many others.

In Spain many financial advisory firms like NETVALUE CONSULTANTS (, ANALISTAS FINANCIEROS INTERNACIONALES ( o SUPERDERIVATIVES ( use MATLAB in order to value structured products and derivatives.



Excel has become the financial tool of choice.


Like the BASIC programming language, Microsoft Visual Basic (Excel) was designed to be easy to learn and use. The language not only allows programmers to create simple GUI applications, but can also develop complex applications. Programming in VB is a combination of visually arranging components or controls on a form, specifying attributes and actions of those components, and writing additional lines of code for more functionality. Since default attributes and actions are defined for the components, a simple program can be created without the programmer having to write many lines of code. Performance problems were experienced by earlier versions, but with faster computers and native code compilation this has become less of an issue.


MATLAB is a numerical computing environment and fourth generation programming language. Developed by The MathWorks, MATLAB allows matrix manipulation, plotting of functions and data, implementation of algorithms, creation of user interfaces, and interfacing with programs in other languages. Although it is numeric only, an optional toolbox uses the MuPAD symbolic engine, allowing access to computer algebra capabilities. An additional package, Simulink, adds graphical multidomain simulation and Model-Based Design for dynamic and embedded systems. OCTAVE is a free software 100% compatible with MatLab.

I hope you like this brand new course !


Dubai World to Restructure $26 Billion of Debt

Escrito el 30 noviembre 2009 por Antonio Rivela Rodríguez en Uncategorized

According to Bloomberg,  Dubai’s debt risk, after jumping the most last week since January, is still below the level signaling a potential failure as investors expect the emirate will be rescued by oil-rich neighbor Abu Dhabi.

The cost to protect against Dubai reneging on obligations doubled last week after state company Dubai World, with $59 billion of liabilities, sought a “standstill” agreement from creditors. The amount investors demand to insure $10 million of Dubai debt fell to $589,000 per year today from $647,000, less than the price of $1 million, or 1,000 basis points, associated with borrowers considered distressed.

Dubai triggered the biggest stock market slump in three months in Asia andEurope’s worst rout since April as the proposal for Dubai World risked adding to the $1.7 trillion of losses and writedowns suffered by banks in the global credit crisis. Commerzbank AG, Bank of America Merrill Lynch and Banque Saudi Fransi, the Saudi lender partly owned by Credit Agricole SA, say Abu Dhabi is likely to bail out Dubai rather than risk driving investors from the region because of a default.

“I’m not desperately worried that we’re going to go into some death spiral,” saidNicholas Field, who helps manage about $11 billion in emerging-market stocks at Schroders Plc in London. “This is not going to turn into some sort of major prolonged move downward.”

The price of Dubai credit-default swaps implies a 32.5 percent chance the emirate will default on its debt by December 2014, according to CMA Datavision figures that assume a 25 percent recovery rate.

Central Bank

Dubai hasn’t guaranteed the debt of Dubai World, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance, said in an interview with state-run Dubai TV today.

Royal Bank of Scotland Group Plc was the biggest underwriter of loans to Dubai World while HSBC Holdings Plc has the most at risk in the U.A.E., according to JPMorgan Chase & Co.

The United Arab Emirates’ central bank said yesterday it “stands behind” the country’s local and foreign banks and offered them access to more money under a new facility.

The announcement “is a step in the right direction, but this is a bare minimum,”John Sfakianakis, the chief economist at Banque Saudi Fransi in Riyadh, said in an interview yesterday. “This is only dealing with the domestic banking system and they have not yet made any announcement dealing with the debt of Dubai Inc.”

$10 Billion

The central bank, which has its headquarters in Abu Dhabi, the wealthiest of the seven sheikhdoms that make up the U.A.E., bought $10 billion of Dubai bonds in February in a private sale to support the emirate’s state companies. Abu Dhabi-controlled banks added a further $5 billion last week. The assistance is short of the $20 billion Sheikh Mohammed Bin Rashid Al-Maktoum, Dubai’s ruler, said he planned to raise by yearend.

Sheikh Ahmed Bin Saeed Al-Maktoum, who chairs the Supreme Fiscal Committee in charge of apportioning financial support to ailing companies, said last week that Dubai’s government announced the Dubai World debt plan in the “full knowledge of how the markets would react” and will provide more information “early” this week, after the Islamic Eid Al Adha holiday.

“There is a strong incentive for Dubai to support its investment companies to ensure an eventual, if not necessarily timely, repayment of its debts,” Luis Costa, an emerging-market debt strategist at Commerzbank in London, said in research report Nov. 27.

Tourist Center

Sheikh Mohammed transformed Dubai from a desert emirate to a financial and tourist center with iconic building projects that included a real-snow ski slope and the world’s tallest tower and biggest man-made islands.

Dubai has a total $4.3 billion of government and corporate debt due next month and $4.9 billion in the first quarter of 2010, Deutsche Bank AG data show.

Dubai World had $59.3 billion in liabilities and $99.6 billion in assets at the end of 2008, subsidiary Nakheel Development Ltd. said in an August statement. The government sought a “standstill” agreement from creditors last week on debt that includes Nakheel’s bonds.

Moody’s Investors Service and Standard & Poor’s cut their ratings on Dubai state companies, saying they may consider Dubai World’s plan to delay payments a default.

Nakheel PJSC, the Dubai World property unit that has $3.52 billion of bonds due in two weeks, asked Nasdaq Dubai to suspend the securities “until it is in a position to fully inform the market,” according to a statement to the bourse today.


Nakheel may still meet the Dec. 14 deadline to repay bondholders, Abu-based newspaper The National reported Nov. 28, without citing anyone. Options considered by Aidan Birkett, the Deloitte LLP managing partner hired as chief restructuring officer for Dubai World debt, also include offering holders of the sukuk an 80 percent redemption and a similar offer to bankers, the newspaper said.

The price of Nakheel’s bonds dropped 1.7 percent today to 58 cents on the dollar, according to Citigroup Inc. prices on Bloomberg. The securities traded at 110.5 cents a week ago and reached an intraday low of 42 cents on Nov. 27.

Dubai’s dollar-denominated Islamic bonds due 2014 rose to 89.993 cents on the dollar today from 89.680, according to ING Groep NV data on Bloomberg, reducing the yield to 8.954 percent, below the 10 percent level considered distressed by investors. The government sold the bonds last month, raising $1.93 billion.


Dubai World’s biggest creditors outside the emirate include Abu Dhabi Commercial Bank, which is owed about $1.9 billion, according to two people familiar with the situation who declined to be identified because the information isn’t publicly available. British banks have the most to lose among international lenders from a crisis in the U.A.E., with a combined $49.5 billion of loans outstanding, according to a report from Royal Bank of Scotland Group that cites Bank for International Settlements data in June.

Sheikh Mohammed said Nov. 9 that those who doubt the unity of Dubai and Abu Dhabi, which holds 8 percent of the world’s oil reserves, should “shut up.”

The cost of protecting Dubai bonds against default is the sixth-highest worldwide after Pakistan, Argentina and Latvia, and exceeds Iceland’s, according to CMA Datavision prices. Default swaps on Dubai World unit DP World Ltd., the Middle East’s biggest port operator, fell 93 basis points today to 651 after jumping by a record to 744 basis points last week.

‘Burden Sharing’

The contracts, which increase as perceptions of credit quality deteriorate, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. One basis point, or 0.01 percentage point, is equivalent to $1,000 a year on a contract protecting $10 million of debt.

While volatility is likely to “dissipate fairly quickly,” Commerzbank said there’s a higher likelihood of spreads widening over the next four weeks than tightening.

“A fairly high degree of ‘burden sharing’ might be required from the investor base,” Commerzbank’s Costa said. “Given the levels of haircut in other recent emerging-market restructuring deals, a 40 to 50 percent destruction of principal would not be absurd at all.”

Sheikh Mohammed earlier this month removed the chairmen of Dubai Holding LLC and Dubai World, two state-owned business groups, as well as the head of the U.A.E.’s biggest developer Emaar Properties PJSC from the board of the Investment Corp. of Dubai, the emirate’s main holding company. He also ejected the governor of the Dubai International Financial Centre, Omar Bin Sulaiman, who had led efforts to transform Dubai into the Middle East finance hub.

Buying Bonds

“Will the U.A.E. allow Dubai to default? For Dubai World, the answer seems absolutely yes,” said David Lewis, an emerging-market credit analyst in global research at Bank of America Merrill Lynch in London. “For the Dubai sovereign itself, we would think that Abu Dhabi would be very reluctant to see it default.”

Sergio Trigo Paz, chief investment officer for emerging markets at Fortis Investments, the asset management unit of Fortis Bank SA/NV, which oversees $3 billion globally, said he’s considering buying Nakheel’s bonds. The bank’s $3.8 billion convertible bond fund, run separately from Trigo Paz’s investments, will keep its $3 million holding of the bonds, portfolio constructor Benoit Ruelle said in an interview.

Fortis bought bonds of Kazakhstan’s biggest lender BTA Bank, which is seeking to restructure as much as $13.3 billion of debt, Trigo Paz said. He also holds Qatar and Kuwait bonds.

“Some people are betting that buying Nakheel under 50 is a very good six-month trade,” Trigo Paz said in an interview. “We are actually doing some shopping on the collateral damage with very good sovereigns. We are starting to look at Nakheel.”

Nakheel may extend the maturity on its bonds due in two weeks by about five years, Louis Gargour, chief investment officer of hedge fund LNG Capital LLP. Gargour bought some of the debt after prices dropped last week and has since sold the position, he said in an interview.

Dubai World said it began “constructive” talks with banks to restructure $26 billion of debt, including liabilities owed by units Nakheel World and Limitless World.

Debt from subsidiaries such as Infinity World Holding, Istithmar World and Ports & Free Zone World will be excluded from the negotiations because those companies “are on a stable financial footing,” Dubai World, one of the emirate’s three main state-related holding companies, said in a statement.

The company is seeking to delay payments on less than half its $59 billion of debt, damping concern that its potential default may set back the global financial system’s recovery from the credit crisis that sank the world economy into recession. Stocks erased losses in the U.S. after the announcement, sending theStandard & Poor’s 500 Index up 0.4 percent.

“Now that they’re saying $26 billion, it reduces some of the panic that built up in the last few days,” said Nick Chamie, an analyst at RBC Capital Markets in Toronto. “This is positive. The market was feeding on its own concern and there were talks of $60 billion debt that would need to be restructured.”

The cost of protecting against a default by Dubai fell yesterday for the first time in a week. The country’s credit- default swaps declined 75 basis points to 571 basis points, according to prices from CMA Datavision. Default swaps, which fall as the perception of credit quality improves, for Abu Dhabi narrowed 34 basis points to 144 and contracts linked to DP World Ltd. dropped 109 basis points to 631. A basis point equals 0.01 percentage point.

‘Minor Problem’

Dubai shares tumbled and Abu Dhabi’s stock index fell the most in at least eight years yesterday on the first trading day since the government announced state-run Dubai World may delay debt payments. The Dubai Financial Market General Index dropped 7.3 percent to 1,940.36, the biggest decline since October 2008. Abu Dhabi’s ADX Index fell 8.3 percent, the most since Bloomberg began compiling the data in 2001.

The Nov. 25 announcement triggered the biggest stock market slump in three months in Asia and Europe’s worst rout since April as the debt request risked adding to the $1.7 trillion of losses and writedowns suffered by banks in the global crisis.

The $26 billion figure “is slightly smaller than I thought,” said Michael Atkin, who helps oversee $10 billion in fixed-income assets as head of sovereign research at Putnam Investments in Boston. “That confirms that it’s a relatively minor problem. Dubai was never big enough to be a systemic shock to the global system.”

U.A.E. Support

Royal Bank of Scotland Group Plc was the biggest underwriter of loans to Dubai World while HSBC Holdings Plc has the most at risk in the U.A.E., according to JPMorgan Chase & Co.

The United Arab Emirates’ central bank said Nov. 29 it “stands behind” the country’s local and foreign banks and offered them access to more money under a new facility. U.A.E. Central Bank Governor Sultan Al-Suwaidi told Abu Dhabi TV yesterday there was “no need to worry” about lenders in the Persian Gulf nation.

The amount of obligations Dubai World plans to restructure includes about $6 billion of Islamic bonds sold by Nakheel, according to the statement. The debt, known as sukuk, is governed by Shariah laws barring investors from profiting from the exchange of money.

Creditor Group

“Initial discussions have commenced with the banks of Dubai World and are proceeding on a constructive basis,” Dubai World said in the statement. “It is envisaged the restructuring process will be carried out in an equitable way for the overall benefit of all stakeholders.”

The Dubai government said Nov. 25 its Financial Support Fund will spearhead the restructuring of state-owned Dubai World and named Aidan Birkett of Deloitte LLP as its chief restructuring officer. The government said Dubai World would seek an extension of loan maturities until at least May 30, 2010. More than 75 percent consent from creditors is needed to approve extraordinary resolutions.

Bondholders of Nakheel PJSC, Dubai World’s property unit whose $3.52 billion Islamic bond is due Dec. 14, formed a creditor group that represents more than 25 percent of that debt, according to Jo Shepherd, head of public relations at Ashurst LLC, which was appointed legal adviser. The group is considering its options, Shepherd said.

$80 Billion

Bondholders will “want a detailed plan as to how and what the repayment strategy will be and what the eventual source of repayment will be,” said Abdul Kadir Hussain, chief executive officer of fund manager Mashreq Capital DIFC Ltd, before the Dubai World statement was released.

Dubai’s government told creditors of Dubai World yesterday that they should help in a restructuring the holding company because it hasn’t guaranteed the debt.

“The lenders should bear part of the responsibility,” the director general of the emirate’s finance department, Abdulrahman Al Saleh, said on state-run Dubai TV. The government’s Nov. 25 decision to seek a halt Dubai World’s debt payments is “in the interest of all parties, the investors the creditors and the contractors,” he said.

Dubai, the second-biggest of seven states that make up the U.A.E., and its state-owned companies borrowed $80 billion to fund a boom in growth and diversify the economy. The global financial turmoil and a decline in property prices hurt companies such as Dubai World as they struggled to raise loans.

Housing Slump

The company received financing based on the “viability of its projects, not on government guarantees,” Al Saleh said.

Home prices in Dubai plummeted 47 percent in the second quarter from a year ago, the steepest drop of any market, according to Knight Frank LLC. Property prices may drop further, a survey by Colliers International showed Oct. 14.

Istithmar World, Dubai World’s investment unit, bought New York luxury retailer Barneys in 2007 for $942.3 million. Dubai World agreed in 2008 to invest about $5.1 billion in U.S. casino company MGM Mirage as part of a plan to diversify the emirate’s economy into entertainment and financial services.

Dubai, home to the world’s tallest tower, set up a $20 billion Dubai Financial Support Fund after the seizure in credit markets. Dubai said Nov. 25 it borrowed $5 billion from Abu Dhabi government-controlled banks for the fund, after raising $10 billion by selling bonds to the U.A.E. central bank in February.

Ratings Cuts

Dubai’s government raised $1.93 billion in October from the biggest sale of Islamic bonds from the Gulf Arab region this year, and paid off a $1 billion Dubai Civil Aviation Authority sukuk due Nov. 4. The sheikhdom and its state-owned companies have to repay $9.2 billion of bonds and loans maturing in 2010, $19.8 billion in 2011 and $17.3 billion in the following year, Deutsche Bank AG said in report in August.

Istithmar World breached the covenants on 895 million pounds ($1.5 billion) of loans backed by London’s Adelphi office building, the issuer said in a statement.

Moody’s and Standard & Poor’s cut their ratings on Dubai state companies, saying they may consider Dubai World’s plan to delay payments a default.

“The times of implicit support are clearly over,” said Philipp Lotter, vice-president of Moody’s Investors Service in Dubai. “In the past, entities such as Dubai World certainly represented themselves as quasi-government entities, whereas there was no legal obligation on behalf of the government to support, and that has certainly shifted with last week’s announcement.”


CIT Group files for bankruptcy today

Escrito el 2 noviembre 2009 por Antonio Rivela Rodríguez en Uncategorized

Unluckily as I forecasted many moons ago, it did happen at the end… CIT Group is down.

Financial Times has just reported that CIT Group, the troubled US commercial lender that has been in business for more than a century, on Sunday filed for bankruptcy after attempts at a restructuring or bail-out failed.

See below for Financial Times article…

In a statement, CIT said it had asked the bankruptcy court to quickly confirm its prepackaged bankruptcy plan, which has broad support from its debtholders and on Friday received backing from Carl Icahn, the billionaire investor.

r Icahn, who had been critical of the CIT plans, has agreed to provide a $1bn line of credit. The company said it would aim to emerge from bankruptcy by the end of the year.

Under the plan, the lender, which has $71bn in assets, said it expected to cut debt by about $10bn, reduce liquidity needs over the next three years and boost its capital ratios. Some bondholders would receive a mixture of new debt and equity with others getting only equity.

The US government’s $2.3bn capital injection made in December is likely to be wiped out.

There is a provision to repay the money if there is a surge in the value of CIT after the bankruptcy plan is completed; however the chance of the Treasury being repaid was described by people involved as “a long shot”.

The filing comes after stock markets closed in a jittery mood last week. The S&P 500 stock index lost nearly 2 per cent in October, its first monthly decline since February. Investors are nervous about whether the signs of economic growth will lead to lasting recovery, or whether there will be another dip in the economy.

CIT’s filing does not include any of its operating subsidiaries, such as CIT Bank, a Utah-based bank. People involved in the deal said this meant the lender was more likely to hold on to its customers, as they would not experience any impact from the bankruptcy filing.

CIT is a big lender to retailers and small businesses in the US but it ran into problems after wading too far into risky businesses such as subprime mortgages and student lending. Its reliance on financing from the bond markets created problems when access to such debt dried up after the bankruptcy of Lehman Brothers.

Consolidation in the banking industry and continued reluctance by banks to lend has made access to new credit difficult for small companies in particular. CIT has been working for months to reach agreement with bondholders in an attempt to restructure its $30bn debt.

Operating units of CIT received $3bn in rescue finance from a small group of investors at the end of July and a $4.5bn secured financing facility more recently from a much broader group of the company’s creditors.

Creditors have said they plan to install a new management team soon.


Islamic Finance at IE Business School

Escrito el 26 octubre 2009 por Antonio Rivela Rodríguez en Uncategorized

Brendan Quirk (IMBA 2009 class) has written this blog on Islamic Finance. I hope you enjoy it as much as I did.

Last week, IE had the pleasure to have Dr. Ibrahim S. Aboulola, from the Islamic Economic Research Center at King Abdul Aziz University in Saudi Arabia. Dr. Aboulola came to speak to the students about Islamic Finance.

Given today’s current banking crisis. Recently, there has been a lot of interest in Islamic Finance these days because it is not only a widely used and proven method of financing but has an ethical component as well, which has been lacking in the current system used in the west.

For that and many other reasons Islamic Finance is being used more and more in the west. According to Ernst & Young in this year’s Islamic Funds and Investment Report, there have been significant increases over the passed few years with the number of 700 funds and now reaching almost US$ 50 billion in fund assets under management.

So what is Islamic Finance? Well what we learned from the Dr. Aboulola’s lecture is that Islamic Finance is a form of financing used in Islamic banking institutions that work in accordance with Islamic Law, or Shari’a. It is understood broadly to be asset based and not currency based because it does not use interest on money lending. This is the idea known, as Riba is that money has no intrinsic value and is only a means of payment. Therefore, Islamic Banking is linked and directed to real activities like buying physical assets like a house on behalf of a borrower. Then the borrower pays the bank payments that are previously agreed to. I know what you’re thinking. Same as western finance, right? Wrong. These payments are fixed and there is no interest on the money. It’s based on ownership and exchange of real assets and not money. Therefore, it avoids potential injustice by unfavorably enriching one party at the expense of another.

Therefore, each bank has a Shari’a board that serves as an oversight committee of Muslim scholars from many different parts of the community to ensure the integrity of the investment as well as its religious sanctity. They serve as a control and review all investments to make sure they are in line with the laws of Islam and issue a fatwa or ruling on each and every investment that the bank is considering to invest in. In that concept at the core is that ethics is considered in the business deal. Yes, I know this is hard to understand from a western point of view. Therefore, gambling, alcohol, and pornography are prohibited. And so is interest on the assets or currency. This is because money has no intrinsic value, and is only a measure of it and therefore believes that one should not charge for its use. Now this makes sense and is a total rethinking of western finance, however it has been around a long time.
Being based on real assets avoids some risks because it shares the risk between the borrower and the lender and does not get out of hand. That means in the event of a default the losses are shared and then it is done. There is no interest that keeps accumulating or overwhelming debt trap that is becoming all too common in western society. Therefore, you could imagine that there is a lot of credit risk assessing before a deal is made in Islamic Finance.

The truth is that putting ethics in finance has been long overdue and it is about time that this is making news. I really tip my hat to the Islamic world for having done so and for their success with it. A true testament to what the Islamic world can teach the west.


A new attempt to regulate the derivatives market.

Escrito el 3 octubre 2009 por Antonio Rivela Rodríguez en Uncategorized

As all the derivatives participants know, this measure is more a populist advertisement than an effective measure because it is very difficult to value exotic swaps. So once again, I strongly doubt that a bunch of public servants can do it.

See below for an excellent article by Bloomberg.

Legislation tightening oversight of the $592 trillion over-the-counter derivatives market would give regulators authority to ban so-called abusive swaps.

The Securities and Exchange Commission and Commodity Futures Trading Commission would get the power to “prohibit transactions in any swap” that regulators determine “would be detrimental to the stability of a financial market or of participants in a financial market,” according to a 187-page draft measure released yesterday by House Financial Services Committee Chairman Barney Frank.

Opaque financial products, including some derivatives, have contributed to almost $1.6 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg. Among fallen companies are Lehman Brothers Holdings Inc., the investment bank that filed for bankruptcy, and insurer American International Group Inc., which has been surviving on government loans.

“Lacking and lagging regulation of OTC derivatives was a major contributing factor to last year’s crisis, including the highly leveraged credit-default swaps at AIG that prompted government intervention,” Representative Melissa Bean, an Illinois Democrat who serves on Frank’s committee, said in an e- mailed statement.

The legislation offered by Frank, a Massachusetts Democrat, would require the most common and actively traded over-the- counter derivatives contracts to be bought and sold on exchanges or processed through a regulated trading platform.

‘Clear Window’

“We can’t effectively protect American consumers — and make sure they are paying fair prices for food, gas and other commodities — unless we have a clear window into the trading that affects commodity pricing,” Bart Chilton, a CFTC commissioner, said in a statement that described Frank’s proposal as helping “to move this discussion down the road.”

The measure also would give the Treasury Department the final say if the SEC and CFTC couldn’t agree on joint regulations, including setting position limits or the treatment of products that are economically similar, such as stock options and stock futures. A three-page proposal released by Frank in July would have given that power to a new Financial Services Oversight Council.

Derivatives are contracts used to hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather. Credit-default swaps are derivatives that were created primarily to protect lenders and bondholders from company defaults. Some lawmakers and regulators have said they may have been used to spread false rumors about financial companies to drive down stock prices.

‘Naked’ Swaps

Frank’s proposals stopped short of barring “naked” credit-default swaps, where the buyer doesn’t own the underlying asset being hedged. The lawmaker had said he was considering such a ban.

The draft by Frank won praise from potential opponents in the New Democrat Coalition. The group, which includes Bean and describes itself as moderate and “pro-growth,” had offered competing legislation that would have given Treasury veto power over regulations enacted by the SEC and the CFTC.

“Chairman Frank’s draft provides a solid start to discussions about reforming the derivatives market,” said Representative Michael McMahon, a New York Democrat who was lead sponsor of the competing measure.


Unilever to buy Sara Lee Unit

Escrito el 25 septiembre 2009 por Antonio Rivela Rodríguez en Uncategorized

How to calculate a exit value? or how to do an easy valuation of the equity of a firm?

If you value all the cash flows of a company, but as a shareholder you assume that you sell your equity after 5 years (that cash coming from that sale is the so called “terminal value”).

The easiest way to calculate an exit value (terminal value) is to use a ratio to produce a quick calculation.

Depending on the industry, ratios do differ.

This example will be appreciated by all of you that want to pursue a career in marketing (P&G, Unilever, L’Oreal, etc).

Once you master the discounted cash flows techniques is always good to remember that the most used procedures are much more simple -> Comparable Firm Ratios.

For example… Companies like Unilever, Loreal, P&G tend to use the ratio: Firm Value to Sales, not to be confused by Price to Earnings (PER).

Firm Value = Debt + Equity, but these type of companies do not have much debt, so the ratio is often confused with Equity to Sales.
This blog refers to the acquisition of the Soap´s unit of Sara Lee Corp by Unilever.

If you read this article (Source: Bloomberg) you will realize that… Unilever’s offer price values Sara Lee’s body-care operations at 1.7 times annual revenue. In 2006, L’Oreal SA bought Body Shop International Plc for 1.5 times its sales.

So you see… that the ratio “equity price to sales” is the most used in that industry because its a “revenue-driven” industry.

So if you want to value a firm like Loreal, just multiply their revenues by a ratio (1.5x – 2x) and you will obtain a pretty accurate “back of the envelope” calculation of the value of the shares (= equity value = Market Capitalisation).

As I said if that company has financial debt, you need to subtract that debt to achieve the value of the equity. Because the ratio should be Firm Value / Sales.
See below for the article:

Unilever, the maker of Dove soap, agreed to buy Sara Lee Corp.’s personal-care and European detergent unit for 1.28 billion euros ($1.88 billion), gaining Sanex shower gel in its biggest purchase in nine years.

Unilever, based in London and Rotterdam, will pay cash for the business, which makes Duschdas and Radox soap and had sales of more than 750 million euros for the year ending June 2009, according to a statement today. Sara Lee, which has been shedding units to focus on coffee and food, said the proceeds would help it buy back up to $1 billion in stock.

The purchase is the largest by Chief Executive Officer Paul Polman since he took the reins at Unilever at the start of the year. He focused the company on winning back cash-strapped shoppers and boosting sales volumes by cutting prices, and was rewarded as the company unexpectedly posted volume growth in western Europe in the second quarter.

“We’re not convinced that this is the greatest collection of assets, but another acquisition shows Unilever is still moving from the back foot — cost cutting, disposals — to the front foot — volume growth, acquisitions,” Credit Suisse analysts said in an e-mailed note.

The deal is Unilever’s biggest acquisition since buying SlimFast Foods Co. and Ben & Jerry’s Homemade Inc. for a combined $2.6 billion in April 2000. Unilever’s brands besides food include Vaseline and Axe deodorants.

Comparable Valuations

“This transaction builds on our portfolio in Western Europe and also in Asia,” Polman said in the statement. “The Sara Lee brands enjoy strong consumer recognition, offer significant growth potential and are an excellent fit with Unilever’s existing business.”

Unilever dropped 10 cents to 19.19 euros in Amsterdam trading at 11 a.m. local time. The shares have added 11 percent this year. Sara Lee, based in Downers Grove, Illinois, rose 40 cents, or 3.7 percent, to $10.94 in German trading.

Unilever’s offer price values Sara Lee’s body-care operations, which also include Zwitsal baby shampoo and Zendium toothpaste, at 1.7 times annual revenue. In 2006, L’Oreal SA bought Body Shop International Plc for 1.5 times its sales.

The transaction needs regulatory approval and the companies will consult with European employee works councils, Unilever said today.

To entice cash-strapped European consumers, Polman has also increased ad spending, boosted promotions and accelerated new product introductions since he took over as CEO.

Unilever is taking “quicker actions where we’re feeling that our brands are out-positioned or at a disadvantage, where we’re losing share,” Polman said in May. He said he’s fighting an “inherited assumption that the company will not grow.”

“This is a show of confidence” by Polman, said Julian Hardwick, a Royal Bank of Scotland analyst in London who recommends investors hold Unilever stock. “It fits very well with their personal-care categories.”

Sara Lee Chief Executive Officer Brenda Barnes, a former PepsiCo Inc. executive who took over as CEO in 2005, has sold off clothing lines in the U.S. and Europe, as well as a U.S. coffee unit.


Morgan Stanley CEO steps down

Escrito el 11 septiembre 2009 por Antonio Rivela Rodríguez en Uncategorized

Bloomberg has just announced that John Mack, who struggled to return Morgan Stanley toprofitability after surviving the worst financial crisis since the Great Depression, will turn over his chief executive officer title to Co-President James Gorman.

Mack, 64, will step down at the end of the year and remain chairman of the New York-based bank for at least two years, he said in an interview yesterday. Gorman, 51, will become CEO and Walid Chammah, 55, co-president with Gorman since 2007, will relinquish that role and remain chairman of Morgan Stanley International in London. The changes take effect Jan. 1.

In more than four years leading the firm, Mack sought to improve profits and repair divisions that appeared under former CEO Philip Purcell. Mack’s strategy of boosting trading risks backfired in 2007 when bad bets led to the firm’s first quarterly loss. While the company survived the financial crisis that devastated some rivals, Morgan Stanley has lost money since the third quarter of 2008 and reined in trading even as Goldman Sachs Group Inc. earnings hit an all-time high.

“Mack has been beaten up a little for not taking as much risk in the capital markets as Goldman,” said Matt McCormick, a banking industry analyst at Bahl & Gaynor Inc. in Cincinnati, which manages $2.3 billion. “He was given a tough job, I think he handled it above average and history will judge him a solid leader on Wall Street.”

Morgan Stanley slashed the assets on its balance sheet by almost a third to $677 billion at the end of June from $987 billion at the end of August to cut its reliance on leverage, or borrowed money. The firm’s average value-at-risk, a measure of how much the company estimates it might lose in a day’s trading, was $154 million in the second quarter compared with $245 million at Goldman Sachs.

Missed Opportunities

Led by Chief Executive Officer Lloyd Blankfein, Goldman Sachs set a new Wall Street record for fixed-income and equities trading revenue during the second quarter. Colm Kelleher, Morgan Stanley’s chief financial officer, said in July that the firm’s fixed-income team “didn’t pursue the opportunities we could have” in the second quarter.

Gorman, born in Australia, was recruited by Mack in August 2005, less than two months after Mack became CEO, to run the retail brokerage division. Gorman previously worked at Merrill Lynch & Co., now part of Bank of America Corp.,which is Morgan Stanley’s biggest competitor in providing financial advice to individual investors.

Brokerage Business

Earlier this year, Gorman increased Morgan Stanley’s investment in its brokerage business when he formed a joint venture with Citigroup Inc.’s Smith Barney. Morgan Stanley paid $2.75 billion in cash to Citigroup to gain a 51 percent stake in the venture, dubbed Morgan Stanley Smith Barney, which had 18,444 financial advisers as of June 30.

Gorman said in an interview that he doesn’t expect to change Morgan Stanley’s strategy.

“We’re pretty clear about what kind of company we’re going to be,” Gorman said yesterday. “A lot of what has to happen now is to really focus on day-to-day execution.”

Morgan Stanley in July reported its third consecutive quarterly loss, weighed down by accounting charges and costs as well as fixed-income trading and asset-management revenue that Mack said was unsatisfactory.

The company’s stock, at $28.64 in New York Stock Exchange trading yesterday, is down 34 percent from its closing level on June 30, 2005, the day Mack was named chairman and CEO. Goldman Sachs shares are up 71 percent and JPMorgan Chase & Co. shares climbed 22 percent over the same period. Morgan Stanley’s shares slipped to $28.39 as of 11:15 a.m. in Frankfurt trading today.


“Mack is a bigger-than-life individual” who has had both negative and positive effects on the firm, said Brad Hintz, an analyst at Sanford C. Bernstein & Co. and a former treasurer at Morgan Stanley. “Mack’s leadership stabilized the firm after Purcell left and he pulled the firm back from failure in 2008.”

Mack’s decision to step down was unrelated to the firm’s recent performance or the stress of last year’s financial crisis, Mack said. He said he told the board 18 months ago that he would like to hand off the CEO title after he turns 65 in November.

“I’ll stay as chairman at least for two years working with James, working with clients,” Mack said. “I’m not leaving this firm. This firm is part of my DNA.”

Mack, the youngest of six boys born to Lebanese immigrants, entered the securities industry by accident, according to a biography posted on the Horatio Alger Association’s Web site. In his junior year at Duke University, a cracked neck vertebra ended the football scholarship that had paid his way, forcing him to take a clerking job at a North Carolina brokerage.

Bond Salesman

He graduated from Duke in 1968 and joined Morgan Stanley as a bond salesman four years later. He spent most of his career at the firm, working his way up in fixed-income sales and trading before becoming president under CEO Richard Fisher in 1993. He encouraged Fisher to sell the firm to Dean Witter Discover & Co., the brokerage firm led by Purcell, only to leave in 2001 after Purcell refused to relinquish power.

He helped run Zurich-based Credit Suisse Group AG for three years, leaving after a clash with the board. When Morgan Stanley shareholders and employees helped to oust Purcell in 2005, fed up with a lackluster share price and an autocratic management style, they turned to Mack to restore the firm’s former glory in investment banking and trading.

Like Purcell, Gorman worked at consulting firm McKinsey & Co. before running a retail-oriented financial brokerage and has never worked as a trader or banker. That’s led some analysts to question whether he’ll have the same difficulty winning over the institutional-securities side of the business as Purcell did.

‘Lost Decade’

“I am concerned that the Morgan Stanley board of directors is placing an admittedly capable executive with a largely retail brokerage operating background in charge of a global capital markets firm with the second-largest investment banking franchise in the world,” Bernstein’s Hintz said. “It was a similar decision in 1997 that led to the lost decade of Morgan Stanley.”

Mack dismissed the concerns, saying that Gorman is much more accessible to bankers and willing to make client calls than Purcell was. Gorman said that a majority of his recent client meetings have been with customers of the institutional- securities side of the business.

Mack said he considers his own greatest accomplishment to be leading the firm through last year’s crisis, which wiped out Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch. One week after Lehman’s Sept. 15 bankruptcy, Morgan Stanley and Goldman Sachs converted to bank holding companies, ending their history as independent securities firms to win the backing of the Federal Reserve.

Japan Investment

Morgan Stanley shares fell as low as $9.68 on Oct. 10 before the firm won a $9 billion investment from Japan’s Mitsubishi UFJ Financial Group Inc. and $10 billion from the U.S. government on Oct. 13. Mack has since repaid the Treasury and the stock has rebounded. Spreads on the company’s bonds, which widened during the financial crisis, have since narrowed to bring them in line with peers.

“You’ve got to give him some credit for surviving,” said Kenneth Crawford, a senior money manager at Argent Capital Management LLC in St. Louis, which oversees $700 million. “The good thing is there’s an MS ticker on my screen that changes price each day, and there are a fair number of his peers that aren’t on my screen anymore.”


Spanish banks in top shape or shaping up to topple over?

Escrito el 3 septiembre 2009 por Antonio Rivela Rodríguez en Uncategorized

It is widely believed that Spanish banks dodged much of the financial crisis due to better banking regulation. The argument is that Spanish banks were more prepared to handle the financial crisis due to rules introduced by the Bank of Spain like dynamic provisioning, basically having more capital reserves in boom times to pay for losses in down times. There are many articles written about this and how Spanish banks are strong in the face of the crisis, see Forbes: Spanish Banks in Top Form. As the article illustrates, BBVA and Santander beat expectations with considerable increases in interest income and more lending. In more recent news, BBVA acquired Guaranty Bank in the US, a deal arranged by the FDIC showing faith in BBVA´s financial health. BBVA’s expansion into the large US market shows their foresight to invest in a country that is rebounding from the recession. Furthermore, another sign of strength is the fact that Santander’s recent IPO of its Brazilian business, the largest IPO in Brazilian history, raised $4.6 billion making it one of the largest banks in Latin America’s biggest economy.

However, in the latest report published by Variant Perception titled Spain: The Hole in Europe’s Balance Sheet, they accuse investors who support this view of smoking crack! Notwithstanding the parlance used by the authors in this report, the findings are worth mentioning. They make the case that Spain’s crisis is more severe and that Spanish banks are more vulnerable to it than previously understood by investors. The report illustrates the severity of Spain’s economic crisis: Spain accounts for 30% of homes built in the EU since 2000, and only 10% of EU GDP; and it has as many unsold homes as the US, a country seven times its population. Outstanding loans to developers and construction companies are at $470 billion, (almost 50% of Spanish GDP) and most will go unpaid. With unemployment at 17% and growing, while Spain is showing signs of deflation means that this crisis will crush Spanish banks regardless of the extra provisions.

The report also accuses Spanish banks of taking advantage of recent changes in accounting rules to avoid posting losses; not marking loans to market because they own real estate firms and can manipulate appraisal values; and refinancing bad construction loans to 40 years at lower interest rates when it is known that these companies will likely fail. All this is to delay the inevitable effects of an economic meltdown in hopes that a turnaround will pull them out of this mess.

This report presents Spanish banks as risky when many investors and politicians think they are role models. Hopefully people won’t ignore the fact that Spain’s dynamic provisioning is still a good regulation that should be emulated in the rest of the world. However, neither extra provisions nor the banks growth internationally will be enough to save them from Spain’s economic disaster.

Article written by Brendan Quirk (IMBA – April Intake).


Ben Bernanke: Swapping Beetles for Toads

Escrito el 23 julio 2009 por Antonio Rivela Rodríguez en Uncategorized

I appreciate Brendan Quirk taste for finance journalism once again. I hope you like his opinion on US economy:

In the 1930s beetles ravaged Australia’s sugar crops. As pest problems escalated, farmers successfully lobbied the Australian government to introduce a non-native species of toads into the environment thinking that the toads would eat the beetles. Americans, when faced with their own crisis, albeit financial, decided to experiment with the toad solution. To combat the recession and threats of deflation, Ben Bernanke reduced the Fed’s rate practically to zero, while printing and pumping substantial sums of money into the economy. Although most economists agree that the American government was right to take action, the Fed’s strategy has only replaced the problem of deflation with inflation.

In Australia the toads had different culinary desires then expected and ended up feeding on other native species. Basically exacerbating the situation and ending up with two problems and no solution. Ironically toads have become an invasive threat to Australian biodiversity, even to this day. While Americans may have successfully traded beetles for toads as their economy has seemingly thwarted deflation. They are still not raising interest rates, and won’t for some time, as expressed by Ben Bernanke in his 21 July 2009 article in The Wall Street Journal, “The Fed’s Exit Strategy.” Bernanke says that it is necessary to make sure that the crisis is over before the Fed can start increasing interest rates and essentially slowing the economy.

Americans want to feel reassured that their government has a plan and that it is working and maybe a few want an early Christmas in July. Bernanke‘s exit strategy will involve increasing interest rates and it is only a matter of when and by how much. But he reminds the American people that they are not out of the woods yet and the road to recovery is long and far. Inflation is a real fear, but still more important is restoring the economy and showing that we are not just throwing toads at our beetle problem.

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