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.

Outliers: The Story of Success 

Autor: Malcolm Gladwell 

No se trata del típico manual que describe una serie de fórmulas mágicas para triunfar en la vida. Profundizando en ideas de libros anteriores (The Tipping Point y Blink), Malcom Gladwell identifica los factores individuales y sociales que contribuyen al desarrollo y éxito profesional. Por ejemplo, la regla de las 10.000 horas: para saber de algo, hay que dedicarle ese tiempo. El libro, en definitiva, trata de  dar respuesta a la siguiente pregunta: el fuera de serie (outlier), ¿nace o se hace? Con ejemplos y anécdotas sorprendentes y divertidos.

The Failure of Risk Management: Why It’s Broken and How to Fix It
Autor: Douglas W. Hubbard

Este libro analiza cómo muchos de los métodos tradicionales de gestión del riesgo tienen limitaciones que los convierten en poco útiles, sobre todo si no se aplican de manera razonable. Utilizando conocidos casos como el de la actual crisis crediticia, o el de algunos desastres naturales y técnicos, Hubbard revela los fallos de algunos métodos de gestión del riesgo y muestra cómo pueden emplearse de manera más correcta. En este sentido, el autor aboga por una mayor colaboración entre las iniciativas privada y pública. El tema es de mucha actualidad y se lee con interés.

Maria Tudor. La gran reina desconocida
Autor: Maria Jesús Pérez Martín

Excelente biografía sobre esta figura histórica, fruto de décadas de investigación en el personaje y en el entorno histórico. Muy conveniente para amantes de la historia interesados en conocer algo más sobre este período. Publicada por Editorial Rialp en 2008.

Y como en verano también hay que relajarse con alguna novela, recomiendo El inventor de historias, de Marta Rivera de la Cruz. Publicada por Planeta. La 3ª edición es de 2008.

Brendan Quirk has just contributed to our financial blog…. Thanks Brendan!

Goldman is set to pay huge bonuses, but don’t worry be happy.

How ever you may feel about yesterday’s news that, in the second quarter, Goldman Sachs posted record earnings, we should all agree that this is a positive sign for the financial sector and maybe even the economy as a whole. Huge bonus condemnations aside, his is good news.
The company is demonstrating that it can make money in areas other than its historic income makers, like the M&A, by being profitable in areas such as fixed income, commodities, foreign currencies (FICC), and under writing. This shows that the industry can be versatile and flexible. Goldman is not filing for bankruptcy it actually made a profit. Let’s not get too upset about bonuses. The company is required to set up a provision for bonuses based on the rules of accounting and industry standards. We should also bear in mind, that Goldman has fewer employees so there are less people getting a cut of the pie and it makes the bonuses look larger, but this is only an incentive the employees.
Finance executives have performance incentives built into their contracts and thus get paid when they perform well, just like a professional athlete gets paid a bonus when he or she achieves goals. However, this issue also has political dimensions to consider as many believe that these incentives fueled the financial crisis by making executives more concerned about short-term gains than long-term sustainability. This news will certainly give critics something to argue about.
So rather than argue, whether or not you agree with executive compensation, we should not lose sight of the fact that a healthy financial sector is a precondition to a healthy economy, and this is good news for everyone.

Last research report published by UBS summarises the new Spanish banks provisioning system as follows:

New specific provisioning framework for RE guaranteed loans

Although not confirmed by BoS yet, according to “ El Pais” the BoS will ease the

specific provisioning system. We estimate the theoretical positive impact for the

domestic banks at c40% of EPS2010e (we do not think would be applied

retroactively in 09) if we assume that the banks decide to lower provisions

regardless of halving their coverage ratios. This regulation change is designed to

allow the “Cajas” to capitalize & minimize the FROB (restructuring fund by BoS).

How was the “old” specific provision?

Formerly Spanish banks had to provide for 100% specific provisions on NPLs

among RE developers, unsecured loans to SMEs and consumer finance over the 2

Yrs after the NPL was declared (90 days loans in arrears). For mortgages to

individuals with LTV <80% the calendar was 6 Yrs to provide for 100% coverage.

… and what changes?

According to the press, now the banks will not have to make any specific provision

on NPLs with real estate collaterals (regardless it is a RE developer or an

individual) as long as the LTV stands below 70% (although only applies to already

built properties including commercial RE assets but not land or under construction

RE). We estimate that >50% of NPL formation this year would benefit from this.

Our PTs are P/BV-based. We remain underweight Spanish banks

Upward revisions of 2010 EPS lying ahead depending on how aggressive banks are

with coverage ratios. However in economic/value terms this accounting change

does not impact our NAVe, although could also boost dividends & capital ratios.

A new course is born…

Financial Math Programming is a brand new course within MIF (Master in Finance) and MIAF (Master in Advanced Finance). 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 <a HREF=»http://www.netvalue.es»>NETVALUE FINANCIAL ADVISORS (www.netvalue.es)</a>, ANALISTAS FINANCIEROS INTERNACIONALES (www.afi.es) o SUPERDERIVATIVES (www.superderivatives.com) use MATLAB in order to value structured products and derivatives.

PROGRAM: 20 SESSIONS

UNIT 1: FINANCIAL MICROSOFT EXCEL

Excel has become the financial tool of choice.

UNIT 2: VISUAL BASIC PROGRAMMING

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.

AREA 3: OCTAVE & MATLAB

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 !

Madrid, Junio de 2009. Financial Times ha incluido el Executive Master en Dirección Financiera, el Master in Advanced Finance y el Master in Finance de IE Business School en el Informe 2009 sobre los mejores programas financieros del mundo.

Este informe, que destaca a 44 instituciones europeas, 38 norteamericanas y 7 de la región Asia-Pacífico, evalúa parámetros como el grado de internacionalización de los alumnos, la empleabilidad de los graduados al término del master o el hecho de que los programas sean ’partners’ de CFA Institute, institución que acredita a los analistas financieros.

El Master in Finance de IE Business School es el primer programa que obtiene el reconocimiento de ’program partner´ de CFA Institute en España. Esta acreditación internacional, con la que ya cuentan instituciones como London Business School, Oxford, Cornell University, Boston University, o The Hong Kong University (HKUST) entre otras, refuerza la cualificación profesional en el mundo financiero y constituye una garantía de calidad y excelencia.
_________________________________________________

Madrid, June 2009. Financial Times has included IE Business School’s Executive Master in Financial Management, Master in Advanced Finance and Master in Finance in the 2009 report on the best finance programs in the world.

The report, which features 44 schools and universities from Europe, 38 from the US and 7 from the Asia-pacific region, is based on criteria like levels of internationalization of the student body, employability of graduates on completion of the program, or the fact that the programs are partners of the CFA (Chartered Financial Analyst) Institute, whose program is a key qualification in the finance world, guaranteeing levels of quality and excellence.

IE Business School’s Master in Finance is the first program in Spain to attain the status of program partner of the CFA Institute. CFA Program partners worldwide include London Business School, Oxford, Cornell University, Boston University, and The Hong Kong University (HKUST).

Suicides have shocked global investors during crisis.

Only in the last 12 months. German billionaire Adolf Merckle stepped in front of a train in January. David Kellerman, chief financial officer of Freddie Mac in McLean, Virginia, hanged himself in April. U.K. investor Kirk Stephenson jumped in front of a train last September.

The last one happened as of July 3rd of this year.

Boumeester, ex-CFO of ABN AMRO BANK,  was found dead in Reading (England) having suffered shotgun wounds to his head.

See below for Bloomberg article.

Double click for article

Hi all,

Time has come: 1y. Euribor moving towards 1.5%… Have you ever thought about fixing your interest rate in your floating rate loan or mortgage?

Let me briefly explain how to do it. This is not meant to be technical but rather a quick note on a «do it yourself» fashion.

1. Look at the duration of your loan. Not to be confused by maturity! Duration of a «french loan» mortgage with 12/15 years should be around 5/7 years because of the decreasing nature of «french loans».

2. Look at the fixed swap rate that matches the obtained duration in the following website:

Double click for swap rates

3. For example if duration if 7 years, your brand new hedged rate will be slightly above 3%, lets say 3% for the sake of simplicity.

4. You will call your bank and close a swap where you pay every year 3% and you receive 1y. euribor (in order to pay your mortgage interest payment), so effectively you are paying a 3%.

5. Have you noticed of the negative carry nature of swaps? You could be paying a 1.5% only… That’s the price of being safe!

I hope its useful for you! See you next…