In News:Jan07

Barclays combines units to build wealth management in Asia 

Barclays Group has decided to aggressively build its private-banking business in Asia and is opening an office in Mumbai to service
India’s growing onshore market.
“In
Asia we’re linking more closely to Barclays Capital and Barclays Global Investors,” explains Thomas Karalis, the London-based CEO of Barclays Wealth. The initiative comes from the top, pushed by Bob Diamond, the head of the group.

Islamic financial centre initiative promises brighter year This is expected to be a better year for Islamic banking as Malaysia gears up to promote and implement its Malaysia International Islamic Financial Centre (MIFC) initiative, announced by Bank Negara Malaysia in August last year. The initiative is a national agenda, which aims to create a vibrant, innovative and competitive international Islamic financial services industry in the country.

Barclay’s firms up retail banking forayUK-based banking giant Barclay’s has announced that will pump in $100 million for its foray in retail banking in its
India operations. The bank has already put in $300 million for the launch of its global retail and commercial banking division in
India

Mr. Rajat Gupta appointed as a new Board Director at Qatar Financial Centre Authority
Mr. Gupta is Senior Partner of McKinsey & Company, the global management consulting firm. From 1994 to 2003, he was Worldwide Managing Director of McKinsey. Mr. Gupta serves as the United Nations Secretary-General’s Special Advisor on UN management reform.

CBoT to launch property derivativesThe Chicago Board of Trade announced plans on Tuesday to launch derivatives based on the $5,000bn US commercial property market in a move which would take it head-on with its merger partner, the Chicago Mercantile Exchange.

Goldman infrastructure fund raises $6.5bn

Goldman Sachs is to step up its pursuit of ports, airports and regulated utilities around the world after the investment bank raised more than $6.5bn for its first dedicated infrastructure fund.The fund, which was expected to close on Wednesday, will be one of the largest single pools of capital dedicated to infrastructure investing, which is attracting growing interest from banks, insurers and pension funds eager for assets that offer stable, long-term returns.

Citigroup’s $3.3bn private equity bet Citigroup has raised $3.3bn for private equity investments, highlighting the growing eagerness of Wall Street banks to take part in the high-risk, high-return boom in leveraged buy-outs. The fresh pool of money, to be announced on Monday, exceeds the $2.5bn that was targeted and includes commitments from Citigroup’s clients and employees as well as $1bn of the bank’s own balance sheet.

Focus:Jan07

Background:

Founded: 1812 as City Bank of New York with Samuel Osgood as President

Headquarter: 399 Park Avenue, New York

Major Brand Names: Citibank, CitiFinancial, Primerica, Smith Barney, Citigroup Wealth Advisors, Banamex, and Travelers Life and Annuity

Key Person/s: Charles O. (Chuck) Prince III (Chairman & CEO)

Employee count: 307,000 (2005)

Top Competitors: Bank of America (USD 83,980 Million), JPMorgan Chase (USD 79,902 Million), Deutsche Bank (USD 72,659 Million)

Financials:

Assets Under Management: USD 1,310 Billion (2005)

Diluted Common Shares outstanding: 4,980 Million (2005)

Book Value per Common Share: USD 4.75

Stock Market Price: USD 54.13 as on 10^th Jan(Ticker NYSE: C)

Average daily VaR: USD 93 Million (Primarily on account of exposure to Interest rates, Equity, Commodity and Foreign Exchange)Revenue: USD 120,318 Million (2005), USD 36,323 Million (III Qtr. 2006)

Net Profit: USD 24,589 Million (2005), USD 5,505 Million (III Qtr. 2006)

Growth: Revenue (11.1%), Income (44.3%), Employee (4.4%) 

Core Businesses:

Global Consumer Group

Credit Cards: The credit card business on average delivers about 40% of the profits of this group. Citigroup is the largest provider of credit cards in the world, a position long held by Citicorp, and increased by many acquisitions of card portfolios. It provides credit cards in many countries even where it doesn’t have branches, and advertises directly on TV and by direct mail.

Retail Distribution: Retail Distribution business comprises four businesses: Citibank, CitiFinancial, Primerica Financial Services and Citibank Direct. Citibank provides personal and small business banking products and services, as well as investment services. CitiFinancial provides predominantly consumer loan products and services; Primerica Financial Services provides financial products and services through independent representatives; and Citibank Direct provides bank services through the internet.

Consumer Finance: The Consumer Finance Division (called Citifinancial) accounts for about 20% of the consumer group’s profits. It provides consumer loans through various distribution channels. Loan products are grouped into three categories: Real Estate Lending, Student Loans and Auto.Commercial Business: The Commercial Business Group provides leasing, banking and real estate products and services to small and medium-sized enterprises across a broad range of industries. 

Corporate and Investment Banking

Capital Markets and Banking: Capital Markets and Banking offers an array of investment and commercial banking services and products, including investment banking and advisory services, debt and equity trading, institutional brokerage, foreign exchange, structured products, derivatives, and lending. Capital Markets and Banking revenue is generated primarily from fees for investment banking and advisory services, fees and spread on structured products, foreign exchange and derivatives, fees and interest on loans, and income earned on principal transactions.

Transaction Services: Transaction Services is composed of Cash Management, Trade Services and Global Securities Services (GSS). Cash Management and Trade Services provide comprehensive cash management and trade finance for corporations and financial institutions worldwide. GSS provides custody and fund services to investors, such as insurance companies and pension funds, clearing services to intermediaries, such as broker/dealers, and depository and agency/trust services to multinational corporations and governments globally. 

Global Wealth Management

Smith Barney: Smith Barney provides investment advice, financial planning and brokerage services to individuals, companies and non-profits through a network of more than 13, 000 financial advisors in more than 600 offices primarily in the
United States. Smith Barney generates revenue from managing client assets, acting as a broker for clients in the purchase and sale of securities, financing customers’ securities transactions and other borrowing needs through lending, and through the sale of mutual funds.

Private Bank: Private Bank provides personalized wealth management services for high-net-worth clients in 33 countries and territories. These services include comprehensive investment management (investment funds management, capital markets solutions, and trust, fiduciary and custody services), investment finance (credit services including real estate financing, commitments and letters of credit) and banking services (deposit, checking and savings accounts, as well as cash management and other traditional banking services).

Citigroup Alternative InvestmentsAlternative Investments manages capital on behalf of Citigroup, as well as for third-party institutional and high-net-worth investors. AI is an integrated alternative investment platform that manages a wide range of products across five asset classes, including private equity, hedge funds, real estate, structured products and managed futures. AI’s business model is to enable its 12 investment centers to retain entrepreneurial qualities required to capitalize on evolving opportunities, while benefiting from the intellectual, operational and financial resources of Citigroup.

Financial Terms:Jan07

LDI (Liability Driven Investment)

A form of investing in which the main goal is to gain sufficient assets to meet all liabilities, both current and future.  LDIs are most prominent in the funding schemes of defined-benefit pension plans, which are designed to provide a predetermined pension upon retirement. The liabilities in these funds arise as a result of the “guaranteed” pensions they are supposed to provide to members upon retirement.

In the early 2000s, the entire structure of the defined-benefit scheme was criticized as being faulty. The liabilities that sponsoring companies and plan members must pay for has increased substantially, which has caused some pension plans to reduce benefits to retired members, or even to shut down entirely

LEAPS (Long-Term Equity Anticipation Securities)

An options contract that expires more than nine months in advance, and can last as long as two years. Normal options tend to last no longer than nine months. LEAPS are an excellent way, if not the only way, to make a long-term option investment. They trade like normal options but allow investors to benefit from the appreciation of equities while placing a lot less money at risk than is required to purchase stock. LEAPs were formerly instruments solely for equities; however, more recently, equivalent instruments for indices have become available.

For example, if today was November 2005, one could buy a Microsoft January call option that would expire in 2006, 2007, or 2008. (The further out the expiration date, the more expensive the option.)

Alligator Spread

A position consisting of a combination of put options and call options that collectively create commissions so high that it is almost impossible to turn a profit regardless of which direction the underlier moves. The term originates from the idea of the spread “eating the investor alive.”  Other names for such kind of spread would be Butterfly Spread and Sandwich Spread.

Bear Hug

Often used in risk arbitrage. Hostile takeover attempt in which the acquirer offers an exceptionally large premium over the market value of the acquiree’s shares so as to as to squeeze (hug) the target into acceptance. A bear hug offer is usually made when there is doubt that the target company’s management will be willing to sell. By offering a price far in excess of the target company’s current value, the offering party can usually obtain an agreement.  In Wrestling Terminology, it is a dominant position, with great control over the opponent, and is often a precursor to a takedown.

Bo Derek & Jennifer Lopez – J.Lo (Courtesy: Sidharth Mittal, Ryan Fernandes, Rumit Dugar)

Bo Derek: A slang term used to describe a perfect stock or investment. In the 1979 hit movie “10″, actress Bo Derek portrayed the “perfect woman”, or “the perfect 10″. This term was used more often in the early 1980s, after the movie “10″ first came out.

J.Lo: A Slang used in Technical analysis referring to a rounding bottom in a stock’s price pattern. Traders like the rounding bottom in a stock pattern because it can be an indication of a positive market reversal, meaning expectations are gradually shifting from bearish to bullish. For those unaware, Ms. Lopez is often criticized (or praised) for her round bottom.

Trivia:Jan07

Contributed by Mr. Amardeep Grover

1. Till almost 1960 Kuwait, Bahrain, Qatar, UAE (The Trucial states),
Muscat and Oman shared a common currency name it:  Indian Rupee 

2. What do Australia and Nauru have in common apart from the fact that both are island nations in
oceania:  Have a common currency - the Australian Dollar

3. Identify the currency note (I like history !):  A currency note of Goa before its independence

4. What do Bahamas, Russia, Israel, Cayman Islands and the
Cook Islands have in common:  These are supposedly the money laundering centers of the world

5. What is this German woman doing and why: She is burning German Currency notes for the central heating in her home which, during the period of hyperinflation, burned for longer period than the wood that the notes would have bought !

Financial Terms:Sept-Oct06

Variable Interest Entities (VIEs)An entity subject to FIN 46 is called a VIE. A VIE often holds financial assets (e.g., loans or receivables), real estate or other property. It may be passive or it may engage in activities such as research and development on behalf of another company. FIN 46 defines a VIE as a corporation, partnership, trust, or any other legal structure used for business purposes whose equity, by design, has any of the following characteristics: ·         The total equity at risk is not sufficient to finance the entity’s activities without additional subordinated financial support (i.e., its equity at risk is less than or equal to the expected losses); ·         The equity investors do not have the direct or indirect ability to make decisions about the entity’s activities through voting or similar rights; ·         The voting rights of equity investors are not proportional to their expected losses or residual returns and substantially all of the entity’s activities are on behalf of an investor that has disproportionately few voting rights; ·         The equity investors do not have the obligation to absorb the expected losses of the entity (e.g., the equity investors are protected from bearing their share of the entity’s potential losses through a guaranteed return); or ·         The equity investors do not have the right to receive the expected residual returns (e.g., their return is capped).  

 

Collateralized Debt Obligation (CDOs)Collateralized debt obligations (CDOs) are a type of asset-backed security or structured finance product. At a high-level, a CDO can be thought of as a mutual fund where the owners (i.e. the equity class(es)) leverage their investment by borrowing (by issuing debt) against the portfolio. 

Similar in structure to a collateralized mortgage obligation (CMO) or collateralized bond obligation (CBO), CDOs are unique in that they represent different types of debt and credit risk. In the case of CDOs, these different types of debt are often referred to as ‘tranches’ or ‘slices’. Each slice has a different maturity and risk associated with it. The higher the risk, the more the CDO pays. 

 

Quality Spread
Difference between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating. For instance, the difference between yields on Treasuries and those on single A-rated industrial bonds. Also called credit spread. 

Quality Spread Differential – QSDIn an interest rate swap, the difference between the interest rates of debt obligations offered by two parties of different creditworthiness that engage in the swap. A swap transaction is considered beneficial to both parties only when the QSD is positive. 

For example, suppose ABC Corp can borrow debt at a fixed rate of 10.75% or at a floating rate of LIBOR. And let’s say that XYZ Corp. can borrow debt at a fixed rate of 10% or at a floating rate of LIBOR -0.25%. The fixed rate differential would be 0.75% and the floating rate differential would be 0.25%. The QSD would be 0.5%. Since the QSD is positive, both companies would benefit from entering into a swap transaction. 

In News:Sept-Oct06

Morgan Rejoins Private Equity Morgan Stanley is joining the crowd and getting back into the booming private equity business. The big Wall Street firm, following in the footsteps of Goldman Sachs, Lehman Brothers and other investment firms, named two co-heads for the new division. Morgan Stanley says the group will be led by Stephen Trevor and Alan Jones.

 

Four firms in race to buy out Standard Chartered Fund Standard Chartered Mutual Fund’s sell-off may be finalised soon, with four foreign investment management firms in the bidding short-list. US-based Allianz Global Investors, Deutsche Asset Management, Morgan Stanley and Swiss major UBS are understood to be the four final bidders for the mutual fund.  

Goldman Sachs applies to set up life insurance unit as it launches pension fund buyout Goldman Sachs Group Inc. applied to the U.K.-based Financial Services Authority to set up a life insurance unit in
London as it prepares to launch a pension fund buyout business led by former co-head of European investment banking Addy Loudiadis, Financial Times reported Sept. 25 

IBM Provides Supercomputing Services For Investment Banking IBM and BNP Paribas have announced that the largest on-demand computing service in the global investment banking community has gone live. IBM is providing supercomputing power through its new London Deep Computing Capacity on Demand (DCCOD) center to support BNP Paribas’ expanding derivatives operations.  

HSBC Bank Middle East Limited receives DFSA license HSBC Bank Middle East Limited today announced it has been granted a license from the Dubai Financial Services Authority (DFSA) to provide institutional financial services from the Dubai International Financial Centre (DIFC).  

Fortis picks Barclays veteran as US investment banking chief Belgian-Dutch bank Fortis has recruited a head of US corporate and investment banking from UK rival Barclays to spearhead its growth in the
US. Meanwhile, in London, it has hired a head of marketing and strategic planning for its
UK banking division. 

Lehman expands Europe pensions group with new hire Wal-Mart is selling all 85 of its stores in
Germany to rival Metro. The German retailer will take over 19 pieces of Wal-Mart real estate and lease the remainder of the other locations. Pensions advisory work has become a growing business for investment banks as European companies face increasingly costly pension liabilities. 

Citigroup’s ASEAN CIB business rears new Asian Tigers Catherine Weir says a new commodities business in Singapore and a securities services business in
Vietnam point to the bank’s aggressive ASEAN strategy. 

Focus:Sept-Oct06

Background:

·          Founded: 1869 by Marcus Goldman

·          Headquarter:
New York

·          Leading Centers: New York City, Chicago, Frankfurt, Zürich, Paris, London, Hong Kong, Milan, Sydney and Tokyo

·          Key Person/s: Lloyd C. Blankfein (President and COO)

·          Employee count: 22,425 (2005)

 

Financials:

·          Assets Under Management: USD 532 Billion

·          Diluted Common Shares outstanding: 500.2 Million

·          Book Value per Common Share: USD 57.02

·          Stock Market Price: USD 151.05 (as on 5^th Sept, 2006)

·          Average daily VaR: USD 70 Million (primarily due to higher levels of exposure to equity prices, currency rates and commodity prices, partially offset by reduced exposures to interest rates, as well as reduced volatilities in interest rate and equity assets)

·          Revenue: USD 24.782 Billion (2005), USD 10.10 Billion (II Qtr. 2006)

·          Net Profit: USD 5.609 Billion (2005), USD 2.40 Billion (II Qtr. 2006)

Core Businesses:

a)     Investment Banking

i           Financial Advisory (Mergers & Acquisitions): Includes advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings and spin-offs.

ii         Underwriting: Includes public offerings and private placements or equity, equity-related and debt instruments.

b)     Trading and Principal Investments

i           Fixed Income, Currency & Commodities: Make markets in and trade interest rate and credit products, mortgage-backed securities and loans, currencies, and commodities, structure and enter into a wide variety of derivative transactions and engage in proprietary trading and investing.

ii         Equities: Make markets in, trade and act as specialist for equities and equity related products, structure and enter into equity derivative transactions and engage in proprietary trading. Execute and clear client transactions on major stock, options and futures exchanges worldwide.

iii        Principal Investments: Revenue from corporate and real estate merchant banking investments, including the increased share of the income and gains derived from merchant banking funds when the return on a fund’s investment exceeds certain threshold returns (merchant banking overrides), as well as gains or losses related to investments in the convertible preferred stocks of SMFG.

c)      Asset Management and Securities Services

i           Asset Management: Provides investment advisory and financial planning services and offers investment products across all major asset classes to diverse group of institutions and individuals worldwide and primarily generates revenue in the form of management and incentive fees.

ii         Securities Services: Provides prime brokerage services, financing services and securities lending services to mutual funds, pension funds, hedge funds, foundations and high-net-worth individuals worldwide and generates revenues primarily in the form of interest rate spreads or fees.