525 Week 5 Objectives
FBE 525 - Class Objectives -- J. K. Dietrich
Week 5 – September 28, 2006
Goals and Objectives
(1) Define and carefully differentiate with examples securities trading, dealing, and origination.
(2) For each of the basic securities services listed above, define any principal-agent problems that
arise and any methods of solving or minimizing these problems.
(3) Discuss sources of value in securities related services and types of resources necessary to
achieve potential value production in this business.
Case Questions: Chase's Strategy for Syndicating Hong Kong Disneyland Loan (A) [9-201-072]
The purpose of this case is to focus on credit services (lending) as a source of value creation in financial
services. A key objective is to apply concepts introduced in Chapter 8 in my text in order to understand
where value comes from through offering credit services. The case also is a good introduction into recent
developments in credit services and their relation to other financial services, especially when funding credit
using loan syndiations.
Some key questions for you to be prepared to discuss are:
(1) What kind of human resources were involved in putting together the Disneyland deal? What did the
different member of the “team” bring to the table and why were their particular skills/attributes
important?
(2) What are the principal-agent problems involved in this loan deal? (They may occur at several levels
and in different ways so be explicit and as complete in your analysis as possible.)
(3) What dimensions are there to the “price” of this deal? What role might they play in terms of appealing
to the borrower in terms of cost or convenience? How might some of the loan terms mitigate principalagent problems (at different levels of the transaction)?
(4) What advantages/disadvantages in terms not only of fees and profits but also other aspects of a longterm presence in the business lending market are there in terms of participating at each of the different
levels (e.g. coordinating arranger, arrangers, etc.) in a loan syndication like Disneyland?
(5) How do the different lending parties in the syndication create value for their investors?
Important Vocabulary List from Class
SOURCES OF VALUE IN CREDIT IN LOW-INCOME AND SMALL BUSINESS MARKETS
BROKERS/MARKET MAKERS/SECURITIES ORIGINATORS
INSTITUTIONAL, RETAIL, FLOOR, CLEARING, AND FULL-LINE BROKERS, WIRE HOUSE
DEALER INVENTORY COSTS
LIQUIDITY TRADERS VERSUS INFORMATION TRADERS
UNDERWRITING SYNDICATE
BEST EFFORTS, FIXED COMMITMENT
525 Week 5 Objectives
Suggested Wall Street Journal (WSJ) or other Articles
September 8, 2006
“Stock-Exchanges Grudge Match” (C1) – Competition among exchanges in the shifting equitytrading world illustrates industry reaction to technology and globalization
September 9-10, 2006
“Strategies for ‘Life Cycle’ Funds” (B1) – Developments in product design in asset-management
business
September 11, 2006
“Developing Concern: Bankers and Regulators Clash Over Surge in Real-Estate Loans” (A1) –
How regulatory initiatives can influence credit-market strategies of regulated institutions
September 12, 2006
“Capitol’s New Bank Examiners” (A4) – Analysis of changes in congressional chairmen’s
effects on banking business environment
“Regional Banks Come Courting for Business” (C1) – Discussion of competitive environment
for regional banks in lending and strategic developments like smaller banks buying
smaller investment-banking firms
“Vanguard Expands ETF Offerings” (C15) – Change in product mix for classic indexing firm
September 13, 2006
“Nymex Scrren trade Is Right Recipe” (B3A) – Side-by-side electronic trading and open outcry
triples volume in first attempt to combine traditional and new trading methods
“Hedge Funds Miss Their Target” (C1) – Challenges to “beating the market” amid growing
amount of private-equity in unregulated asset-management sector
“Failed Hedge-Fund Firm Bayou Sues Investors to Return Money” (C7) – Limited partnership
structure of hedge funds may lose allure because of side-agreements as investors sued to
return payouts by a trustee liquidating the fund
September 14, 2006
“Congress to Review Fed’s Plan for Big Banks Capital Cushion” (A10) – Politics concerning
capital regulation under Basel II, discussed later this semester, affect bank capital
regulation
“Vonage Seeks Post-IPO Payment From Customers Who Reneged” (A19) – Wrinkle in selling
IPO shares to customers results in litigation, relevant to Hambrecht case
525 Week 5 Objectives
“Credit Suisse Strategy: Be UBS?” – (C1) – Structuring private banking relevant to organization
structure issues discussed at end of semester, also illustration of ‘bank strategies’
“Venture Firms are Doling Out Large Pay Deals” (C1) – Asset managers’ compensation in
private-equity sector relevant to asset-management discussion
“Lehman Net is Buoyed by Bond Operations” (C3) – Profits from bond trading v. equity relevant
to relative efficiency in trading of two types of securities
“Moody’s to Expand Debt Evaluation” (C5) – Discussion of covenants of debt relevant to our
financial information services discussion
“U.K. Frets Over LSE Takeover” (C12) – Nationalism related to possible strategy based on pure
economic efficiency considerations
September 15, 2006
“In Moscow, Killing Hurts Bank Reform” (A3) – Regulation of banks impacted by dramatic
murder
“Insurers Press for Terror-Backstop Renewal” (A4) – Government guarantee lobbied by casualty
insurance companies as means of reducing costs
“Top Thrift Regulator Breaks Ranks on Loans” (A6) – Example of politics within regulatory
establishment for deposit-taking institutions
“Hedge Margins Draw the Focus of Fed Official” (C1) – Bank regulation may be used to curtail
asset-management customers’ (hedge funds’) investment strategies
“FASB to Issue Retooled Rules for Valuing Corporate Assets” (C3) –Accounting changes will
require reinterpretation of financial reports by analysts, contains a good review of U.S.
accounting history
“ICE Agrees to Buy Nybot, Whose Members Will Weight Offer” (C3) – Consolidation of
exchanges continues and story illustrates power of owner-members (seatholders)
“Sovereign Expects to Be Bought” (C3) – Further example of international mergers and
acquisitions as part of consolidation of banking
“China Halts Brokerage Growth” (C10) – Regulatory intervention changes possible strategy
choices for financial service firms in major growth market
September 16-17, 2006
“The Hedge-Fund King Is Getting Nervous” (A1) – Great background story on life as a hedgefund manager, also great example of difference between fundamental and technical
analysis, details of institutional exchange trading
“Bid for Nybot Futures Market Will Have Wide Implications” (B3) – Many complexities of
exchange mergers discussed and illustrated in story
525 Week 5 Objectives
“Marsh & McLennan Plans Cuts” (B3) – Strategic shifts in large insurance brokers
September 18, 2006
“Card Rewards Swelling, at Merchants’ Expense” (C1) – Illustrates complexity of pricing
transaction processing services, especially when combined with credit and promotional
services, as discussion with Chapter 10
“Bank of America Sees Credit Cards Driving Overseas Expansion” (C6) – Financial institution
acquisitions replaced by direct marketing of cards and corporate banking abroad for one
major firm focused on domestic operations
“Bolsa Italia Seeks federation” (C8) – More global consolidation in securities trading possible
September 19, 2006
“Blue Flameout: How giant Bets on Natural Gas Sank Brash Hedge-Fund Trader” (A1) –
Excellent introduction to atmosphere for traders and limitations of models of value and
problems in monitoring and controlling risk in dynamic organizations
“Amaranth Natural Gas Losses May Have Far-Reaching Effect” (C3) – Story covers zero-sum
game nature of speculative trading with futures and options
September 20, 2006
“What Went Wrong at Amaranth” (C1) – Great background story on trading strategies, and their
vulnerability, used by hedge funds
“Marsh Begins Soliciting Offers For Putnam Unite” (C1) – Valuation of asset management firms
central to story presenting other strategy options for owner
“AIG Tap Citigroup Veteran for Chairman Post” (C1) – Follows-up on AIG case discussed
earlier
“Star Brokers Are Finding Brass Is Greener at Poaching Firms” (C3) – Compensation issues and
labor capital in securities trading business
“Credit-Protection Industry Has Been Thriving” (C5) – Credit derivatives market, focus of later
discussion, is analyzed and discussed
September 21, 2006
“Market Regulation: How to Walk a Fine Line” (A2) -- Nice discussion of issues concerning
risk and regulation
“Fidelity Launches Research Institute” (C13) – Consumer financial education is major issue as
individuals borrow and invest on their own more, changing communication needs with
asset-management firms and brokers
525 Week 5 Objectives