Finance Companies-- Types Sales Finance
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Finance Companies-- Types Sales Finance

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Finance Companies-- Types Sales Finance Finance Companies-- Types Sales Finance Presentation Transcript

  • Finance Companies-- Types
    • Sales Finance
    • Personal Credit
    • Business Credit
    • Differ from banks?
    • Types of lending
      • consumer
      • business
      • mortgage
  • Balance sheet and trends
    • Business and consumer loans are major assets
      • 63% 1997
      • 95% 1977
    • Increases in real estate loans
    • Growth in leasing
  • Balance sheet and trends
    • Consumer loans
      • Primarily motor vehicle
      • Generally riskier customers than banks
      • Increase in loan shark firms
    • Mortgages
      • Recent addition to finance co. assets
      • May be direct mortgages
      • Growth in home equity lending
  • Balance sheet and trends
    • Business Loans
      • Business loans comprise the largest portion
    • Liabilities
      • Commercial paper and other debt
      • Finance firms are the largest issuers of commercial paper
  • Asset Securitization
    • “ the process of pooling and packaging existing loans into securities suitable for resale”
    • Home mortgages Auto loans
    • 5 Step process
    • 1. loan originator
    • 2. the loan purchase
    • 3. the loan pooler
    • 4. the guarantor (optional)
    • 5. the investor
  • Securitization
    • Asset is homogenous
    • Terms on loans are standardized
    • Asset-backed loans
    • Often guarantors
    • Investor purchases diversified pool
  • Captive Finance Companies
    • Captive examples
      • GMAC
        • $80 Billion
        • 68% of assets in receivables
        • 40% liabilities notes payable
        • 33% long term debt
        • 16% equity
      • Ford Motor Credit
        • $70 billion
        • 73% of assets in receivables
        • 81% short term credit
        • 16% equity
  • Regulations
      • Fed reserve definition
        • “ Firm, other than a depository institution, whose primary assets are loans to individuals and businesses”
      • Subject to state-imposed usuary ceilings
      • Much lower regulatory burden
      • Lower leverage
  • Summary question 5-6
    • What advantages do finance companies have over banks in offering services to small business customers?
    • Why is the rate charged on motor vehicle loans often higher for a finance company than a commercial bank?
  • Mutual Funds
    • 4-1
      • What is a mutual fund and in what sense is a mutual fund a financial intermediary?
    • 4-6
      • What economic reasons can you provide for the existence of mutual funds?
  • Mutual Funds
    • Open ended
    • Close ended
    • End of 1997
      • > 5300 stock and bonds mutual companies
      • $3.7 trillion
  • Size, structure and composition
    • First mutual fund
    • Slow initial growth
    • Advent of money market mutual funds
      • Regulation Q
    • Total assets
      • 1940 $0.4 billion
      • 1990 $568 billion
    • By asset size the second most important group
  • Types of funds
    • Long term funds
    • Short term funds
  • Regulation
    • SEC
    • NASD
  • Valuation -- Net Asset Value (NAV)
    • Three factors affecting NAV / income on fund
      • dividends and income earned on assets
      • capital gains or losses when the assets are sold
      • capital appreciation in the underlying value of the stocks held in the portfolio
  • 4-14
    • Open end Fund A has 100 shares of ATT @ $100 each and 50 Shares of Toro at $50 each.
    • Closed-end fund has 75 shares of ATT and 100 shares of Toro.
    • Both funds issued 100 shares
    • What is NAV of each?
    • If ATT increases to $105 and Toro declines to $45, how does that impact NAV?
    • Assume another 100 shares of ATT are added to A. What is NAV of A if original price remains unchanged ($100)?
  • 4-12
    • A mutual fund has 400 shares of Fiat, Inc., currently trading at $7 and 400 shares of Microsoft, currently trading at $70.
    • 100 shares outstanding
      • NAV?
      • If investors expect the price of Fiat shares to increase to $9 and Microsoft’s to decline to $55 by the end of the year, what is the expected NAV at the end of the year?
      • What is the maximum that the price of Microsoft can decline to maintain the NAV as estimated above?