Global Banking and Capital Marketspdf


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Global Banking and Capital Marketspdf

  1. 1. Global Banking and Capital Markets – Course SyllabusCourse B40.3387Prof. Frederick C. Militello, Jr.Department of FinanceCourse DescriptionThe focus of this course is primarily on the determinants of competitive dynamics andperformance in the global financial services industry. It covers commercial and investmentbanking: specifically, markets, products and global activities. It addresses the determinants ofcompetition in global banking; focusing especially on financial strategies, organizationalstructures and geographical dimensions—looking at markets and institutions in the US, Europe,Japan and emerging markets. The course also focuses its attention on the special risks ofoperating in these markets and related products; and, the challenges they present to bothregulators and market participants. Throughout the course, relevant current events areexamined and used to illustrate teaching/discussion points.Course OutlineClass One - July 2, 2011The Global Financial CrisisWinning and Failing Strategies (morning)This opening session establishes the framework for the course. It explores what it means to bea “winning” financial organization. It explores fundamental strategies (and related tactics) andhow they contribute to the workings of sound financial institutions and global capital markets.We will discuss:  Who are the major players in today’s global capital markets—changes and trends?  What do we mean by the “winning” strategies of global banking?  What role did these “winning” strategies play in the recent financial crisis of 2007-09?  When and why did many of these “winning” strategies fail?  What precisely do we mean by the global capital markets? 1
  2. 2. Global Banking and Capital Markets – Course Syllabus  What role have the “winning” strategies played in the development and practices of global capital markets?  Where are these strategies headed given the emergence of a new financial architecture—an initial view?  What role did these strategies play – both positive and negative – in the development and practices of global financial markets?Risk and Regulation (afternoon)This session explores how such strategies and tactics—when ignored, abused ormisinterpreted—lead to the breakdown of otherwise sound financial organizations and globalmarkets; and the eventual re-regulation of almost every aspect of industry behavior andpractice. We will discuss:  What are the specific risks of such strategies—in loan, debt, equity and derivative markets—and how do they manifest themselves?  How have such strategies impacted the thinking of global regulators and their reengineering of the world’s financial system?  What have been some of the specific regulatory manifestations, e.g., the Dodd-Frank Act, Basel III and the new architecture of global finance?  How have these regulatory considerations already begun to influence the organizational structure and behavior of financial organizations and markets?  What are the key sources of risk encountered in global markets and financial market activities?  What are the systemic drivers of risk that are likely to continue to shape the thinking of regulators and the realities of practitioners?  How do these factors impact risk assessment and capital requirements, e.g., VaR and RAROC?A Common FrameworkIn short, these two opening sessions are designed to provide a common framework fordiscussion and reference. As we move forward and discuss organizational behaviors andmarket practices we shall relate back to this framework. Also, we will use this framework—asthe course progresses—to help formulate a vision of what the new financial order (and relatedplaying field) will look like and how it is likely to impact our personal and business lives.Reading Assignment: 2
  3. 3. Global Banking and Capital Markets – Course SyllabusBank for International Settlements (BIS) – 2010 Annual ReportChapters 1 & 6“GB” Chapters 12&13“RWS” Prologue, Chapters 1, 4, 5, 6, and 7For reference it will be useful to review: Assignment:“BB” UBS AG 2008Session Two – July 9, 2011The Global Capital MarketsGlobal Market Integration (morning)The morning session is designed to introduce participants to the global capital markets. Itsfocus is on explaining the development of these markets and their increased integration. It willfocus on the key players and practices of each market—but in the context of their overalldevelopment and general practices. (More specific practices and products of select marketswill be covered as we progress throughout the course). Also, in this introduction to the globalmarkets, we will explore the role that the “winning” strategies have had on the formulation ofglobal markets including the Eurocurrency and Euro-securities markets. Specifically, we willlook at the evolution and increased integration of the following:  Money market instruments, debt and equity securities—the role of securitization and disintermediation  Global bank lending (syndicated loans)—the role of intermediation and re- intermediation  Derivatives (money market, interest rate, foreign currency and equity swaps)—the role of market integration and liquidity—OTC and exchange-traded activitiesThis session is essential for providing participants with a complete view of the global capitalmarkets. The focus of this session will on capital-raising activities. It will also demonstrate theinterplay between market participants and how practices in the global capital markets, whendriven by the “winning” strategies, can lead to increased innovation and more efficient riskdistribution. We will explore the future of securitization and related markets.Global Market Indicators (afternoon) 3
  4. 4. Global Banking and Capital Markets – Course SyllabusThe afternoon session will complete our understanding of the integrated workings of the globalcapital markets. In this final session of the day, we will need to learn how to “read” the marketsfor opportunities. The capital markets are always talking to us—all we have to do is listen. Inthis session we will briefly explore some of the capital market indicators and see how theyimpact various opportunities for raising capital. Specifically, in this session we will explore thekey indicators and their capital market implications: for example, the term structure of interestrates, credit spreads, the level of interest rates (real and nominal), the implied level of volatilityin the markets, etc. These indicators have a great deal to do with how security offerings arestructured and offered/received in the markets. We shall apply these indicators, and the“winning” strategies to an in-class case study of market integration.Reading Assignment:“GB” Chapters 2-5Note: These Chapters will be the foundation for the session and others to follow. It isrecommended that they be read now (as an overview to our discussion) and then later again(individually and in more detail) as we move forward with our discussion of specific marketsand practices.Additional data/information on these markets will be posted on “BB” as the course movesforward.Case Assignment:“BB” Meeting Borrower/Investor Needs: Structuring a Complex Capital-Raising Transaction inIntegrated Global Capital MarketsNote: In teams, this case will be completed and discussed in class. It will be posted on “BB”prior to the session—please have a copy for your reference and review before coming to class.Class Three – July 16, 2011Raising Capital – Part OneThe Debt Capital Markets (morning)The morning session will focus on raising capital through the integrated utilization of the globaldebt capital markets and the syndicated loan markets. The first part of the session will focus onsome of the specifics of the debt capital markets and possible debt capital-raising structures. Itwill also discuss the role of syndicated lending as a bridge to the capital markets and the use ofderivatives (interest and currency) to facilitate the borrowing in markets of comparativeadvantage while managing unwanted liability risk exposure. In this session, we will discuss:  The meaning of comparative advantage 4
  5. 5. Global Banking and Capital Markets – Course Syllabus  Its role in capital market fund-raising  Trends in developed and emerging markets (loan, debt, derivative)  The importance of derivatives to the realization of comparative advantage  The mechanics and politics of syndicated lending  The mechanics of structuring synthetic debt  The role of investors, borrowers and intermediaries  The risks (and regulatory reforms) of the debt, derivative and loan markets and related participant activities/practices.Case Study DiscussionThis session (morning and afternoon) will largely rely on a discussion of the assigned case work;however, it will also focus on how each case demonstrates the evolution of the markets to onewhere bank lending, liability risk management and the capital-raising process have become fullyintegrated. This has implications for our “winning” strategies but also for the future ofmarkets—given the prospect for increased regulation and the possible fragmentation of marketpractices.The Workings of Debt and Derivative Instruments (afternoon)In the afternoon, the session will shift gears a bit and will demonstrate some of the morespecific workings of various capital market instruments, including:  Interest rate swaps (including money market swaps)  Foreign currency swaps  Various debt instruments – with an emphasis on how their structures are designed to influence (satisfy appetites) markets of comparative advantage.Reading Assignment:“GB” Re-read carefully Chapters 3-5“RWS” Chapters 13, 15, and 16Additional data/information on these markets will be posted on “BB” as the course movesforward.Case Assignment:Please order electronic copies @ http://www.hbs.eduPhillip Morris Companies, Inc. (A) (B) (C)“BB” Republic of Argentina $85billion Par Value Debt Exchange Offer 5
  6. 6. Global Banking and Capital Markets – Course Syllabus Class Four – July 23, 2011 Raising Capital – Part Two The Global Equities Markets (Including hybrids) This session will focus on the raising of capital through the global equities markets. Included in this discussion, will be the use of certain hybrid structures designed to provide borrowers/investors with both the benefits of equity and debt. This session will also look at the use of equity derivatives as part of the increased management of equity issuance programs including those related to privatizations and related goals of increased employee stock-ownership participation. Specifically, we will discuss:  The equity markets (domestic, foreign and global)  Trends in developed and emerging markets  Types of equity issuance/distribution  The role of regulation in equity markets  The growth of hybrid security structures  Equity issuance and privatizations  Equity as a tool of capital-raising flexibility  The use and role of equity derivativesReading Assignment:“GB” Chapter 7 & 9 Additional data/information on these markets will be posted on “BB” as the course movesforward.Case Study Assignment:“BB” Deutsche Telecom 1 & 2“BB” The Sale of JenapharmClass Five – July 30, 2011Putting Capital to WorkMergers and Acquisitions (morning)Perhaps no other area has gone through such dramatic changes in thinking and practice thanthat of mergers and acquisitions (M&A). No-doubt M&A has been a huge driver of capitalmarket activities—especially those involving business portfolio management and organizationalrestructuring. Also, the business of M&A has gone through dramatic changes in terms of 6
  7. 7. Global Banking and Capital Markets – Course Syllabusparticipants and the sources of capital that fund such transactions. Accordingly, we will discussin the morning session:  Trends in M&A activity—in both developed and emerging markets  Changes in M&A activity, e.g., diversification, core competency and adjacency strategies  Capital market transactions that compliment M&A activity, e.g., corporate spin-offs, exchangeable debt offerings, etc.  The strategic role and drivers of M&A activities  The funding of such through loan syndications and debt capital markets  The private sponsorship and drivers of M&A activities  The role of private equity firms and investment funds  Some thoughts and “empirical” evidence on the effectiveness of M&A activities  The connection between M&A activities and the “winning” strategiesReading Assignment:“GB” Chapter 8Case Assignment:“BB” The Acquisition of Martell”BB” The Steel War: Mittal versus ArcelorRisk and RegulationRe-visited (late afternoon)For the final session of the day, we will briefly re-visit our earlier discussions on regulation andreassess what impact we believe such regulations, and on-going thought processes anddeliberations, are likely to have on:  The structure of global capital markets  The activities of participants—especially banks—in global capital markets  The impact such regulations are likely to have on the risk-taking activities of financial organizations  The formulation of new bank structures—the role of spin-offs—niche players  The relationship between banks and their commercial customers regarding their need to raise capital and manage riskReading Assignment:“RWS” Review Chapters 7, 13, 16 7
  8. 8. Global Banking and Capital Markets – Course SyllabusFinal Class Six – August 6, 2011Financial Restructuring and Competitive ChallengesThe future of Banking and the Global Capital Markets (morning)This session is designed to take us back to our first reflections together. We will now take a newlook at the global banking and capital market arenas and make a final assessment of theirfuture. Specifically, we will explore—using the tools of competitive strategy analysis—thefollowing areas:  A look at the competitive dynamics of the industry—utilizing various strategy models, e.g., the five forces (porter), C-A-P (Walter)  The strategic positioning of financial organizations  Getting one’s strategy right—back to the “winning” strategies  The future of risk-taking activities  The future of capital-raising activities  The future of bank-funding/lending activitiesReading Assignment:“RWS” Chapter 17“GB” Chapters 14 & 15Case Assignment:“BB” Citigroup 1998-2009“BB” ABN AmroFinal Examination (afternoon)Course InformationCourse PrerequisitesStudents registering for this course should have had previous courses in basic economics,accounting and financial analysis at the undergraduate or graduate level. Prerequisites can bewaived by consent of the instructor. 8
  9. 9. Global Banking and Capital Markets – Course SyllabusPedagogyThe course is conducted over six-classes—each containing two sessions. The course begins onSaturday July 2, 2010 and is completed on Saturday August 6, 2010. Classes run from 09.00amto 04.00pm. Suitable breaks will be given for coffee and lunch. Also, class activities will occurthroughout each day facilitating movement and discussion among the participants. It is stronglyrecommended that you attend classes.The course is case-oriented, and includes extensive classroom participation; requiring studentsto apply principles developed in class to actual international commercial and investmentbanking situations. The case discussions are interspersed with lectures to explain the technicalaspects of the activities covered by the cases. The course does not involve routine lectures onmaterial presented in the readings. All readings and case preparation should have beencompleted prior to the class for which they are assigned.Most of the course material is posted on Blackboard “BB,” where you can download a copy ofthis outline, reading assignments, cases, and copies of exhibits used in class. Students shouldcarefully read and be prepared to discuss all assigned cases, and will be called-on in class topresent their case findings – the cases will also be covered on the mid-term and final exams.Each student will be expected to participate actively in class discussion. Students who do notparticipate will be graded less favorably than those who do.Required Text BooksRoy C. Smith and Ingo Walter, Global Banking, Second Edition (New York: Oxford UniversityPress, 2003)—Denoted “GB.”Viral Acharya, Thomas Cooley, Matthew Richardson and Ingo Walter (Eds.), Regulating WallStreet (New York: John Wiley, 2011)—Denoted “RWS.”Besides designated readings in the required texts, there will be other readings and market up-dates posted to “BB.”ExaminationsThere will be a 90-minute mid-term examination on July 23, 2011 (morning), which will coverthe first half of the course; and, a 90-minute final examination on August 6, 2011 (afternoon)which will cover the second half of the course. Both exams will deal with all of the assignedreadings, cases, and classroom discussions. 9
  10. 10. Global Banking and Capital Markets – Course SyllabusGradingMid-term exam – 50%Final Exam – 50%Classroom participation – Up to + 1 letter gradeInstructorFrederick C. Militello, Jr. is an adjunct professor of finance. Over the years, he has taught manycourses for Stern including international financial management and global banking and capitalmarkets. Appointments are always possible and are best made by email:fcm@futurechangemanagement.comFrederick C. Militello, Jr., is CEO/Senior Thought Leader of Future Change Management, LLC. Heis also an adjunct GBS professor of finance – global markets and strategies at New YorkUniversity’s Leonard N. Stern School of Business.Frederick is an experienced speaker, facilitator, author, professor, executive coach and advisorwith more than thirty-years of experience. He has been a leading practitioner and thoughtleader to financial executives around the world. Specifically:- He has held numerous senior executive positions such as vice president, division executive andmanaging director for the Chase Manhattan Bank responsible for their global corporateconsulting and merchant banking activities. Frederick has also held financial positions for USSteel Corporation, Mobil Oil Corporation, the Bank of Boston International and the AmericanStock Exchange. He has also been founder and co-owner of two Wall Streetfinancial/educational advisory practices.- He has written many books in the field of finance including:. Leverage Competencies: What Financial Executives Need to Lead;. The Empowered Organization: Redefining the Roles and Practices of Finance;. Integrity-Based Financial Leadership and Ethical Behavior;. Reassessing Corporate Banking Relationships: Issues, Practices and New Directions;. Foreign Exchange Risk Management: A Survey of Corporate Practices. 10
  11. 11. Global Banking and Capital Markets – Course Syllabus- Over the years, his clients have included some of the world’s largest corporations includingApple Computer, McDonald’s, Monsanto, Sandoz, Gillette, etc., as well as well-known financialorganizations around the world—both in developed and emerging markets.- He has been a speaker and Chair Person for educational organizations including the Belgian-American Chamber of Commerce, Management Centre Europe, the American ManagementAssociation, the Rotterdam School of Management, the Vlerick Gent Leuven School ofManagement and the Financial Executives International.- As a scholar he was awarded the Wall Street Journal Student Achievement Award inEconomics and is a professional member of the World Future Society and Strategic PlanningSociety.- Educated in New York, Frederick studied at Pace and Columbia Universities earning advanceddegrees in economics and international economics.- He has sat on boards for numerous not-for-profit organizations such as the Children’s MediaProject and the Durham Historic Preservation Commission (Chair). He is married for almosttwenty-five years, has three daughters, one granddaughter and lives on their family-run horsefarm.: 11