Ivey Publishing

Financial Markets and Institutions

Saunders, A.; Cornett, M.,5/e (United States, McGraw-Hill Irwin, 2012)
Prepared By Athena Ngai, CaseMate Editor
Chapter and Title Chapter Matches: Case Information
Chapter 1:
Introduction

JP MORGAN: LESSONS LEARNED
Stephen Sapp

Product Number: 9B12N024
Publication Date: 9/25/2012
Revision Date: 9/24/2012
Length: 6 pages

Following the revelation of a US$2 billion loss on trading at JP Morgan’s chief investment office (CIO) in London, the company’s board of directors is tasked with recommending changes to its risk management practices and corporate governance structure. The case provides background on JP Morgan's well-respected risk management infrastructure and discusses how the CEO focused on its historic strength in risk management to argue against the need for the United States to implement the strict regulations contained in the Dodd-Frank Act and the associated Volcker Amendment. The role of regulation is significant. As a result of trying to meet the tighter requirements of these U.S. standards as well as the new Basel III accord, the CIO took on significant derivative positions that were not well understood and, rather than decreasing the firm's risk exposure, actually increased it. Of further interest is the concurrent change in JP Morgan's method of calculating risk, which allowed for a significant reduction in risk measurement and thus an improvement in the firm's level of risk-weighted assets.

Teaching Note: 8B12N024 (9 pages)
Industry: Finance and Insurance
Issues: Risk Management; Derivative Securities; Financial Regulation; United States; United Kingdom
Difficulty: 4 - Undergraduate/MBA



CANADA'S RESPONSE TO SARBANES-OXLEY
Vaughan S. Radcliffe, Brooke Harley

Product Number: 9B09M038
Publication Date: 6/10/2009
Revision Date: 7/29/2009
Length: 7 pages

The case reviews responses by governments, securities commissions and others to the U.S. Sarbanes-Oxley Act. It discusses the certification of financial statements and internal controls, the role of boards and board committees, including the audit committee, and issues of auditor independence. The Canadian Public Accountability Board is also discussed.

Teaching Note: 8B09M38 (3 pages)
Industry: Finance and Insurance
Issues: Auditing; Legal Requirement; Financial Regulation; Board and Management Duties
Difficulty: 4 - Undergraduate/MBA



THE 2007-2008 FINANCIAL CRISIS: CAUSES, IMPACTS AND THE NEED FOR NEW REGULATIONS
David W. Conklin, Danielle Cadieux

Product Number: 9B08N014
Publication Date: 6/30/2008
Revision Date: 4/29/2010
Length: 13 pages

The financial system is the heart of free market economies. The 2007-2008 financial crisis raised concerns that the global financial and economic system might experience a truly substantial collapse. New financial instruments had proliferated to the degree that it had become impossible to calculate the market value of many of them, and so it had become impossible to know the market value of institutions that held them or that guaranteed them. The initial disaster occurred with the U.S. subprime residential mortgage market, but it quickly spread globally to institutions that held new financial instruments related to these mortgages. Firms that had guaranteed these financial instruments found that their net worth was disappearing, leading to concerns about the institutions that had relied on their guarantees. Meanwhile, new kinds of hedge funds introduced the risk of greater volatility, and they exposed investors to sudden shocks. Many banks were caught in this web and suddenly had to obtain additional equity capital in order to meet regulatory requirements and maintain the confidence of depositors. As a result of these developments, liquidity disappeared from the financial system. It seemed that recession in the United States was inevitable. Previous expectations that other economies had become decoupled for the United States were being replaced by fears that economies throughout the world would follow the United States into recession. Central banks reacted dramatically with attempts to reduce interest rates and to increase financial liquidity, and the U.S. government cut personal taxes through a tax refund program. It was not clear whether monetary and fiscal policies could prevent a long and deep recession. Debate arose concerning the advisability of a wide variety of new regulations that might be able to prevent future recurrence of such a financial crisis.

Teaching Note: 8B08N14 (5 pages)
Industry: Public Administration
Issues: Government Regulation; International Business; Financial Institutions
Difficulty: 4 - Undergraduate/MBA


Chapter 2:
Determinants of Interest Rates

PREMIER FOODS PLC: INTEREST RATE SWAPS
Jumana Zahalka, Anand Srinivasan

Product Number: 9B13N015
Publication Date: 10/31/2013
Revision Date: 10/29/2013
Length: 10 pages

A vice-president of a hedge fund must determine whether his fund will take a 5 per cent equity stake in Premier Foods Plc (Premier). At the time of the case, Premier, a publicly listed U.K. food and beverage company, was heavily indebted following a period of aggressive acquisition growth. Moreover, Premier had issued interest rate swaps on the majority of its debt. As the financial crisis unraveled, interest rates dramatically declined, and Premier’s interest rate swaps appeared to be further draining the firm. Against this backdrop, the case sets its ultimate objective, which is to simulate the vice-president’s analysis of the firm’s debt, interest rate swaps, caps and floors before deciding whether to invest in Premier.

Teaching Note: 8B13N015 (11 pages)
Industry: Accommodation & Food Services
Issues: Interest rate swaps; interest rate cap/floor; options; risk management; United Kingdom; United States
Difficulty: 4 - Undergraduate/MBA



JV PARTNERS INC.
Robert W. White, Jeff Poulsen

Product Number: 9A99N034
Publication Date: 2/9/2000
Revision Date: 1/21/2010
Length: 3 pages

An innovative financial services provider is struggling to arrive at a fixed interest (or SWAP) rate needed by its client. The client's new project would take five years to reach capacity, at which time debt repayments would begin. Hence the client needed to lock in interest rates for the first 10 years of the project. To arrive at a price, the financial services provider planned to start with the zero coupon rate bond yield curve, testing various points along the curve. (The teaching note for this case consists of a PowerPoint presentation. A Microsoft Excel spreadsheet is also available for use with this case, product 7A99N034.)

Teaching Note: 8A99N34 (377 KB)
Industry: Finance and Insurance
Issues: Derivatives; Pricing; Zero Curves
Difficulty: 4 - Undergraduate/MBA



GREYDANUS, BOECKH & ASSOCIATES: THE YIELD CURVE KINK DECISION
Stephen R. Foerster

Product Number: 9A98N022
Publication Date: 11/19/1998
Revision Date: 2/2/2010
Length: 17 pages

A bond portfolio manager is re-evaluating the funds position in government bonds. His team had attempted to take advantage of a mis-priced bond and was now in the process of re-examining the recent move in interest rates, the current shape of the yield curve, and the forecast for interest rate changes. This case introduces students to fundamental bond valuation and price change issues, including duration and convexity, as well as bond management styles.

Teaching Note: 8A98N22 (10 pages)
Industry: Finance and Insurance
Issues: Investment Analysis; Bonds; Investment Funds; Portfolio Management
Difficulty: 4 - Undergraduate/MBA


Chapter 3:
Interest Rates and Security Valuation

VALUING COCA COLA STOCK
Stephen R. Foerster, Bruce Chin

Product Number: 9A97N017
Publication Date: 12/2/1997
Revision Date: 2/5/2010
Length: 9 pages

An investment advisor with a major brokerage firm gave investment suggestions and helped clients manage their portfolios. Some of her clients had Coca Cola stock in their portfolios and she wondered whether to recommend the stock to any of her new clients or clients that did not currently have Coca Cola in their portfolios. The case can be used to introduce the dividend discount model, capital asset pricing model, and price-earnings models.

Teaching Note: 8A97N17 (7 pages)
Industry: Finance and Insurance
Issues: Investments; Stock Market; Valuation; Investment Analysis
Difficulty: 4 - Undergraduate/MBA



TELUS CORPORATION: CAPITAL STRUCTURE MANAGEMENT
Paul M. Bishop, Larry Wynant, Ken Mark

Product Number: 9B06N020
Publication Date: 11/23/2006
Revision Date: 3/20/2012
Length: 21 pages

The chief financial officer (CFO) of TELUS Corporation (Telus) has just been informed that Moody's, a bond rating service, has downgraded the firm's credit rating to one notch below investment grade. The CFO's challenge is to determine what specific actions, if any, to recommend to the firm's audit committee. First, this case facilitates a discussion on how changes in capital structure impact a firm's earnings, stock price and flexibility to carry out plan. Second, students learn about how bond ratings are set and how a firm's bond rating affects its bond yield. Last, by focusing on the situation faced by Telus during challenging market conditions in 2002, students learn how to manage relationships with investors while in the midst of change.

Teaching Note: 8B06N20 (14 pages)
Issues: Financial Planning; Cash Flow; Financial Strategy
Difficulty: 5 - MBA/Postgraduate



MASKWA RESOURCES: FINANCING WITH A EURO BOND
Stephen Sapp, Ken Mark

Product Number: 9B05N023
Publication Date: 6/30/2008
Revision Date: 10/4/2009
Length: 8 pages

The president of a small mining company is faced with an opportunity to purchase a mining refinery to complement its existing mining operations. It has the potential to bring the company into a situation of positive cashflow, but the small size of the company and high risk of the mining industry has left the president with few alternatives to raise the capital. The case focuses on the issuing of a Euro-denominated bond to finance this purchase and provide funds for future acquisitions. The case discusses the alternatives available in such a situation as well as the risks associated with changes in the price of metals and the value of the U.S. dollar, Canadian dollar and the Euro on the ability to make regular payments on the Euro-denominated bond and other financing alternatives.

Teaching Note: 8B05N23 (10 pages)
Industry: Mining, Quarrying, and Oil and Gas Extraction
Issues: Capital Markets; Risk Management; Hedging; Foreign Exchange; Financial Strategy
Difficulty: 5 - MBA/Postgraduate


Chapter 4:
The Federal Reserve System, Monetary Policy, and Interest Rates

CRISIS IN CYPRUS: WAS IT DIFFERENT THIS TIME?
Nandita Yadav, Pratap Chandra Biswal

Product Number: 9B13N016
Publication Date: 9/10/2013
Revision Date: 9/13/2013
Length: 11 pages

Cyprus is a small island member of the European Union, constituting 0.2 per cent of the eurozone gross domestic product. During its growth phase, the Cypriot banking system developed vulnerabilities after suffering heavy losses during the Greek sovereign debt crisis. The European Central Bank, the International Monetary Fund and the European Union offered a bailout of US$16.9 billion if the Cypriot government could raise US$7.54 billion from within. The government had a few options on the table — a “one-off” stability levy on all bank deposits (a solution loathed by both native and foreign depositors), a bank restructuring plan, seeking help from Russia (which expected access to the island’s oil and gas reserves) and a complete banking system bailout (which would come with oversight and control from those offering the bailout). The economy was fast approaching a standstill and Cyprus had only two days to strike a deal to avoid the collapse of its banking system.

Teaching Note: 8B13N016 (14 pages)
Industry: Finance and Insurance
Issues: Financial crisis; eurozone; bailout; Cyprus
Difficulty: 5 - MBA/Postgraduate



MINISTRY OF FINANCE, JAPAN
David M. Currie, Laurel Adams

Product Number: 9B08M013
Publication Date: 5/6/2008
Length: 4 pages

In June 1997, the Bank of Thailand must decide whether to continue or to abandon the peg of the baht to the U.S dollar. Recent economic performance in Thailand has caused speculation that the central bank will abandon the currency peg, but the bank's stated policy for many years has been that it will maintain the peg. Background about the Thai economy is presented in the core case, product 9B01M025. Other cases enable students to play roles of importer, exporter, investor, lender, currency speculator, the International Monetary Fund, Japan's Ministry of Finance and the Bank of Thailand. The teaching purpose is to provide students with an understanding of the forces influencing a decision about the appropriate policy relating to exchange rates.

Teaching Note: 8B01M24 (20 pages)
Industry: Public Administration
Issues: Developing Countries; Economic Conditions; Exchange Rates; Government and Business
Difficulty: 4 - Undergraduate/MBA



THAILAND, 1997
David M. Currie

Product Number: 9B01M024
Publication Date: 9/27/2001
Revision Date: 12/21/2009
Length: 20 pages

For most of the 1990's, Thailand's economy was one of the fastest growing in the world. Thailand was popular with foreign investors, and the country's currency was stable due to the central bank's currency peg. However, overspeculation, high interest rates, lower than expected exports and job losses were causing speculation that the central bank would abandon the currency peg. The Bank of Thailand must decide whether to continue or to abandon the peg of the baht to the U.S. dollar. Was the country through the worst of the economic problems or was there more to come? The supplementary cases enable role plays designed to provide an understanding of the forces influencing a decision about appropriate monetary policy as importer (9B01M022 - Exclusive Autos of Bangkok), exporter (9B01M023 - Thai Shoes PCL), investor (9B01M027 - International Assets Investment Company), lender (9B01M026 - Hokkaido Bank), currency speculator (9B01M029 - Quantile Investment Fund), the IMF (9B01M028 - International Monetary Fund), and the Bank of Thailand (9B01M025 - Bank of Thailand in June 1997).

Teaching Note: 8B01M24 (20 pages)
Industry: Public Administration
Issues: Economic Conditions; Developing Countries; Government and Business; Exchange Rates
Difficulty: 5 - MBA/Postgraduate


Chapter 5:
Money Markets

WATERSIDE FURNITURE COMPANY
Paul M. Bishop, Margaret Sanderson, Richard Nason

Product Number: 9A89G007
Publication Date: 1/1/1989
Revision Date: 4/21/2003
Length: 7 pages

This case is designed as an introduction to foreign exchange transaction exposure and what can be done about it using the forward currency and money markets. A small furniture manufacturer has contracted to purchase some specialized machinery with deutschemark payments over the next twelve months. Market spot and forward currency prices are provided, together with Eurocurrency deposit rates for the same maturities. The mechanics of the hedging transactions are specified, and it is possible to calculate the all-in cost of each hedging option adjusted for the timing of the required payments.

Teaching Note: 8A89G07 (8 pages)
Industry: Manufacturing
Issues: Money Markets; Financing; Foreign Exchange
Difficulty: 4 - Undergraduate/MBA


Chapter 6:
Bond Markets

HAG'S SINGAPORE NOTE ISSUE
Sundaravaradhan Venkatesh

Product Number: 9B13N004
Publication Date: 9/9/2013
Revision Date: 8/19/2013
Length: 13 pages

In May 2011, Hoang Anh Gia Lai (HAG), a leading real estate company in Vietnam, was going to issue US$90 million of 9.875 senior notes (a debt instrument) in Singapore, due 2016. The company estimated the net proceeds from this offering, after deducting underwriting discounts, commissions and other estimated expenses, to be approximately US$80.7 million. From the perspective of an analyst at a brokerage firm who was monitoring HAG, there were many questions of interest arising from the note issue. These included the cost of the debt and the reasons why HAG chose to raise the money in Singapore, and not in Vietnam. What was the cost at which HAG was borrowing through the Singapore note issue? Was HAG’s level of borrowing, after the note issue, exceeding the optimal level? What was the likelihood that HAG would be downgraded within a year from its B rating from Standard and Poor’s? How would the risk to HAG’s equity be affected as a result of the issue? Would HAG’s stock price decline? The brokerage firm analyst needed to decide whether her firm should offload its equity holding in the company.

Teaching Note: 8B13N004 (6 pages)
Industry: Real Estate and Rental and Leasing
Issues: International finance; emerging markets; cost of capital; Vietnam
Difficulty: 5 - MBA/Postgraduate



UNIHOST CORPORATION
Craig Dunbar, JJ McHale

Product Number: 9A99N008
Publication Date: 6/8/1999
Revision Date: 1/21/2010
Length: 16 pages

The CFO of UniHost Corporation is faced with a requirement to raise capital. UniHost is involved in the development, syndication, franchising and management of motels and hotels in Canada. Most of its properties were flagged under the Quality and Comfort brands. UniHost required capital to repay a $52 million bridge loan facility and fund multiple growth opportunities. Financing alternatives included equity, convertible bonds and high yield debt. The CFO had to decide on both the form and structure of the financing. The case allows for discussion of a number of issues, including: the public financing process in Canada, financing strategy (i.e. choice of the form of financing in the context of a likely sequence of financings), optimal capital structure, and the impact of financing decisions on the overall strategy of a firm. With respect to the debt alternatives, data is provided which allows for analysis of the choice of debt maturity, bond covenants and bond rating agencies.

Teaching Note: 8A99N08 (14 pages)
Industry: Accommodation & Food Services
Issues: Hotel Management; Deal Structuring; Bonds; Financing
Difficulty: 4 - Undergraduate/MBA



HUTCHISON WHAMPOA LIMITED - YANKEE BOND OFFERING
G. Andrew Karolyi, Richard Johnston

Product Number: 9A98N023
Publication Date: 11/25/1998
Revision Date: 2/2/2010
Length: 18 pages

A diversified global interests company, which is financed through medium and long-term loans, is preparing a US$1 billion bond offering. Students will have to figure the individual bond price, including the possible cost of the issue, while considering the receptiveness of the market, given the change in sovereignty over Hong Kong.

Teaching Note: 8A98N23 (6 pages)
Issues: Globalization; International Finance; Financial Strategy
Difficulty: 4 - Undergraduate/MBA


Chapter 7:
Mortgage Markets

RBC MORTGAGE CAPPER
Robert W. White, Neil Rabovsky

Product Number: 9A96B010
Publication Date: 5/14/1996
Revision Date: 2/5/2010
Length: 22 pages

The treasurer of Royal Bank Mortgage Corporation proposes a new residential mortgage product whereby the Royal Bank would use its derivative technology expertise to marry an interest rate cap with a variable rate mortgage. Key issues to be addressed are the design and the demand of the product and the cost to hedge the capped mortgage. As well, the risks and exposures to Royal Bank would require careful consideration before any decision is made.

Teaching Note: 8A96B10 (13 pages)
Industry: Finance and Insurance
Issues: Risk Management; Financial Institutions; Derivatives; Innovation
Difficulty: 4 - Undergraduate/MBA


Chapter 8:
Stock Markets

THE MAPLE ACQUISITION OF THE TMX GROUP INC.
Michael R. King, Amir Barnea, Feroz Qayyum

Product Number: 9B13N023
Publication Date: 11/1/2013
Revision Date: 7/22/2014
Length: 16 pages

In mid-March 2011, the vice-chairman of National Bank Financial had to decide what price to recommend to his Maple consortium partners for the TMX Group Inc. (TMX). The TMX was the owner and operator of Canada’s leading cash and derivatives exchanges. The vice-chairman was leading a consortium of Canadian banks that was planning an unsolicited bid in response to merger talks between the TMX and the London Stock Exchange Group. The case allows for a discussion of mergers and acquisitions and the factors behind merger waves, the mechanics of a hostile bid for a publicly listed company, the changing landscape for stock and derivative exchanges, the valuation of a target company, and the distinction between strategic and financial buyers. An Excel spreadsheet for students is available.

Teaching Note: 8B13N023 (15 pages)
Industry: Finance and Insurance
Issues: Merger; acquisition; takeover; exchange; valuation; Canada
Difficulty: 4 - Undergraduate/MBA



PRADA: TO IPO OR NOT TO IPO: THAT IS THE QUESTION
Stephen Sapp

Product Number: 9B12N017
Publication Date: 8/17/2012
Revision Date: 9/5/2012
Length: 19 pages

Prada currently requires a significant amount of capital both to re-finance debt that is maturing in the next six to twelve months and to finance its intended growth into the Asian (especially Chinese) markets. Since financial markets are aware of Prada’s pressing need to raise capital, it is important for the board of directors to develop a credible strategy for raising the necessary capital of at least €1 billion. Although the press has been suggesting that Prada will do an initial public offering, the company has tried this several times in the past with no success, mainly because of bad timing (9/11, the SARS outbreak, and the ongoing global financial crisis and European sovereign debt crisis). The board has approached Guido Santini of the investment bank Grupo Capo Milano to come up with a number of credible alternatives and a strategy for raising the needed capital.

Teaching Note: 8B12N017 (8 pages)
Issues: International Finance; Capital Raising; IPO, Italy; Hong Kong
Difficulty: 4 - Undergraduate/MBA



LULULEMON ATHLETICA: PITCHING AN IPO
Larry Wynant, James E. Hatch, Ken Mark

Product Number: 9B11N012
Publication Date: 8/17/2011
Revision Date: 11/7/2011
Length: 14 pages

The managing director at a major investment bank is preparing his team for a visit to Lululemon Athletica, a yoga-inspired athletic apparel company. The investment bank has been following Lululemon’s development over the past few years and is impressed by the company’s unique positioning and rapid growth. The bank believes that there is a window of opportunity for Lululemon’s founder and private equity investors to either undertake an initial public offering or raise debt to fund Lululemon’s U.S. expansion.

Teaching Note: 8B11N012 (15 pages)
Issues: Valuation; Private Equity; Initial Public Offering; Yoga; Athletic Apparel
Difficulty: 4 - Undergraduate/MBA


Chapter 9:
Foreign Exchange Markets

LUFTHANSA: TO HEDGE OR NOT TO HEDGE . . .
Stephen Sapp

Product Number: 9B00N022
Publication Date: 2/2/2001
Revision Date: 1/12/2010
Length: 3 pages

Lufthansa, the flagship German airline, was undertaking an aggressive expansion program. The chairman of the board had negotiated a deal with Boeing for the purchase of 20 new aircraft at a cost of US$500 million. The U.S. dollar was at historic highs and he had to decide how much, if any, of the US$500 million purchase price to hedge and best method to use. Since Lufthansa's revenues were mainly in deutsche marks and this amount was payable in one year, he needed to determine how to deal with the resulting foreign exchange risk by examining principle foreign exchange hedging strategies. Covenants restricting Lufthansa to take on new debt made it critical that he be sure of the financing and risk exposure before finalizing the deal.

Teaching Note: 8B00N22 (6 pages)
Industry: Transportation and Warehousing
Issues: Exchange Rates; Risk Management; International Finance; Hedging
Difficulty: 4 - Undergraduate/MBA



IFC MANUFACTURING - FOREIGN EXCHANGE HEDGING
Craig Dunbar, Chand Sooran

Product Number: 9A99N010
Publication Date: 6/8/1999
Revision Date: 1/21/2010
Length: 19 pages

IFC Manufacturing, an automobile parts producer, was attempting to raise capital to fund expansion in Mexico. In order to secure financing, the creditor banks required an assessment of the IFC's financial risk management apparatus. IFC had exposures to foreign exchange and interest rates. IFC had grown aggressively by acquiring firms on both sides of the Canadian-U.S. border, funding these purchases in U.S. dollars. The case allows for discussion of a number of issues, including: internal controls (the Group of Thirty recommendations for good derivatives practices), risk measurement and management. Data is provided which allows students to qualify translational and transactional risk exposures. Information is also provided allowing students to evaluate IFC's portfolio of hedging instruments which includes plain vanilla options, single barrier options, double barrier options and average rate options.

Teaching Note: 8A99N10 (14 pages)
Industry: Manufacturing
Issues: Risk Management; Foreign Exchange; Derivatives; Bank Lending
Difficulty: 4 - Undergraduate/MBA



ONTARIO TEACHERS' PENSION PLAN BOARD: HEDGING FOREIGN CURRENCY EXPOSURE
G. Andrew Karolyi, Dean Tzembelicos

Product Number: 9A97N002
Publication Date: 2/19/1997
Revision Date: 2/5/2010
Length: 13 pages

The international investments program initiated in 1990 by the Ontario Teachers' Pension Plan, Canada's largest public pension fund, had created a large exposure to currency risk. Some successful tactical currency hedging activities in 1995 prompted management to pursue the possibility of a structured foreign currency hedging program. The issue before management was whether such a hedging program should be undertaken and what form it should take.

Teaching Note: 8A97N02 (9 pages)
Industry: Finance and Insurance
Issues: International Finance; Foreign Exchange
Difficulty: 4 - Undergraduate/MBA


Chapter 10:
Derivative Securities Markets

COWEST ENERGY
Robert W. White, Jim Fisher

Product Number: 9A96B019
Publication Date: 5/14/1996
Revision Date: 2/5/2010
Length: 13 pages

The deregulation of the natural gas industry permitted the creation of new companies, gas marketers or gas banks, such as CoWest. Still in its first year of operations, CoWest had the opportunity to bid on a fixed-price long-term contract to supply gas to a cogeneration plant. The focus of the case is to investigate the possibilities of putting a deal together using financial derivatives.

Teaching Note: 8A96B19 (27 pages)
Industry: Utilities
Issues: Risk Management; Derivatives; Bidding
Difficulty: 4 - Undergraduate/MBA



MICHAEL STEVENS' OPTION STRATEGY
Stephen R. Foerster, Sherwin Shao

Product Number: 9A91B025
Publication Date: 1/1/1991
Revision Date: 4/1/2002
Length: 12 pages

Michael Stevens was examining his blue chip stock portfolio and the market outlook for the next six months. He was wondering if he could use some options strategies - buying individual stock puts, writing individual stock calls, writing index calls, or buying index puts - to protect his paper profits and perhaps even improve his return.

Teaching Note: 8A91B25 (11 pages)
Industry: Finance and Insurance
Issues: Stock Market; Investments; Hedging
Difficulty: 4 - Undergraduate/MBA



CITIBANK CANADA LTD. - MONETIZATION OF FUTURE OIL PRODUCTION
Robert W. White, Justin Pettit

Product Number: 9A95B032
Publication Date: 11/7/1996
Revision Date: 2/11/2010
Length: 16 pages

The focus of the case is on deal-making in the context of a structured note. The challenge for the student is the placement of US$125 million of Special Purpose Trust (SPT) paper. The financing was to fund SPT's forward purchase of a portion of the future oil production. The structure of the note has to be modified in order to place the paper in a short period of time.

Teaching Note: 8A95B32 (251 KB)
Industry: Finance and Insurance
Issues: Derivatives; Bank Lending; Securities; Risk Management
Difficulty: 4 - Undergraduate/MBA


Chapter 11:
Commercial Banks: Industry Overview

GROWTH STRATEGIES AT SVC BANK
Gita A. Kumta, Vrinda Kamat

Product Number: 9B12M068
Publication Date: 10/24/2012
Revision Date: 10/22/2012
Length: 12 pages

Primary co-operative banks in India located in semi-urban and urban areas, known as Urban Co-operative Banks (UCBs), were traditionally centered around communities and work place groups. The main business of these banks was lending to small borrowers and business houses but the scope of their operations had increased greatly. The case describes Shamrao Vithal Co-operative (SVC) Bank’s inorganic growth strategy through acquisition of weaker/loss-making UCBS, and the problems and challenges faced by the bank.

It also examines the alternative of organic growth towards its objective of achieving a pan-India presence. One of the fastest growing Urban Co-operative Banks (UCBs) in India, SVC Bank was moving towards this objective. From a total of 38 branches in 2005, with a deposit base of Rs24 billion, the bank had grown to more than 100 branches with a total business of Rs100 billion by 2011. This growth had come in three phases. During 2005-2008, when government policy did not permit opening of new branches, SVC Bank had grown by acquiring three weak UCBs with 24 branches. When the curbs on organic growth were lifted in 2009, the bank aggressively added 26 new branches in two years. During 2010-11, it added 16 new branches and also acquired one UCB with one branch.

Since the vice-chairman of the bank had experienced the advantages and disadvantages of both organic and inorganic growth, he wondered which route made better sense and whether the bank should continue with the kind of aggressive expansion of the past six years.


Teaching Note: 8B12M068 (11 pages)
Industry: Finance and Insurance
Issues: Inorganic growth strategies; organic growth strategies; future strategies; India
Difficulty: 5 - MBA/Postgraduate



AL HILAL BANK: SETTING AN EXAMPLE
Assem Safieddine, Ken Mark

Product Number: 9B11N019
Publication Date: 10/24/2011
Revision Date: 3/8/2012
Length: 15 pages

On December 22, 2010, the chief executive officer of Al Hilal Bank in the United Arab Emirates was preparing to address a group of international banking executives who were interested in understanding what decisions had contributed to Al Hilal’s success thus far, and what challenges the bank would face in 2011 and beyond. In two and a half years, Al Hilal had developed a respected and fast-growing Islamic bank. The Al Hilal team had combined a foundation of strong corporate governance practices, a strong risk management framework, and an innovative customer service culture. As proof of its success, it had become profitable in the third quarter of 2009, and profits were rising rapidly.

Teaching Note: 8B11N019 (5 pages)
Industry: Finance and Insurance
Issues: Islamic Banking; Middle East
Difficulty: 4 - Undergraduate/MBA



BASEL III: AN EVALUATION OF NEW BANKING REGULATIONS
David W. Conklin, David Blaylock

Product Number: 9B10N029
Publication Date: 9/24/2010
Revision Date: 3/11/2013
Length: 19 pages

The most recent recessionary period and credit crisis has precipitated discussions on the importance of stable financial systems. Many national governments are considering enacting stricter regulation on financial markets and bank liquidity. National and international supervisors will implement regulatory adjustments through coordinated efforts or independently in the next few years. There will be major developments in the banking industry within the near future. This case provides a structure for discussing past international efforts to coordinate a strengthening of banking systems. The primary focus is the 2010 Basel negotiation to create new and more extensive internationally accepted regulations. Students can be encouraged to debate the basic concept of international rules, as well as possible versions of these rules. A central message is that such negotiations will likely continue indefinitely. China, India and other emerging nations have indicated that they are not prepared to enforce the 2010 Basel III. Furthermore, the process of analyzing banks’ financial reports in order to develop evaluations of their position vis-à-vis the rules will likely be a long and complex process. With each of the major issues, this case presents the rationales for change and the strengths of Basel III’s provisions, as well as the weaknesses of the proposed changes.

Teaching Note: 8B10N29 (4 pages)
Industry: Finance and Insurance
Issues: Government and Business; Government Regulation; Financial Institutions
Difficulty: 4 - Undergraduate/MBA


Chapter 12:
Commercial Banks' Financial Statements and Analysis

SAXON FINANCIAL
James E. Hatch, James Mazur

Product Number: 9B09N012
Publication Date: 5/14/2009
Length: 20 pages

An analyst at IGM Financial (IGM) is asked to make a presentation outlining the final details of the proposed acquisition of Saxon Financial (Saxon). The analysis was to include the strategic rationale for the acquisition, an estimate of the proposed offering price for Saxon and whether or not the acquisition would be accretive to earnings per share of IGM. To complete the assignment the analyst had to calculate a preliminary valuation range based on several different valuation methodologies.

Teaching Note: 8B09N12 (14 pages)
Industry: Finance and Insurance
Issues: Acquisitions; Valuation
Difficulty: 4 - Undergraduate/MBA



HSBC - THE BITAL ACQUISITION
Jeffrey Gandz, Allen Morrison, David Barrett

Product Number: 9B04N012
Publication Date: 9/20/2004
Revision Date: 10/15/2009
Length: 17 pages

HSBC is one of the largest and most global financial institutions in the world. The company has identified Bital, Mexico's fourth largest bank, as a potential acquisition target. Negotiations have come down to the wire, and the controlling Mexican shareholders are trying to get HSBC to raise its offer. Is it worth it? HSBC must decide on both strategic and short-term financial criteria under some degree of uncertainty as illuminated by a due diligence process. The HSBC executive who has handled the acquisition at a local level, and would be chief executive officer of HSBC Mexico should the deal go ahead, is assessing the pros and cons of the acquisition and must also identify the priorities which he and his team would have to address, including culture change issues, re-branding Bital as HSBC Mexico, personnel issues and maintaining the continuity of the business.

Teaching Note: 8B04N012 (11 pages)
Industry: Finance and Insurance
Issues: Brand Positioning; Cross Cultural Management; Multinational; Acquisition Strategy
Difficulty: 4 - Undergraduate/MBA



BANK STOCK INVESTMENT DECISION
Stephen R. Foerster

Product Number: 9A96B055
Publication Date: 10/24/1996
Revision Date: 2/9/2010
Length: 20 pages

A pension fund manager was examining Bank of Montreal's recent financial performance in comparison with other large Canadian bank stocks, and large U.S. bank stocks as well, to determine what factors appeared to be driving the stock's performance. He then needed to consider whether to change the fund's investment in the stock. This case examines the usefulness of financial performance measures and examines what drives stock values.

Teaching Note: 8A96B55 (8 pages)
Industry: Finance and Insurance
Issues: Valuation; Financial Analysis; Financial Institutions
Difficulty: 4 - Undergraduate/MBA


Chapter 13:
Regulation of Commercial Banks

TOWNEBANK: OF DAVID AND GOLIATHS
Anil Nair, Joseph Trendowski

Product Number: 9B11M073
Publication Date: 10/7/2011
Revision Date: 10/11/2011
Length: 18 pages

During the summer of 1998, Bob Aston and his partners, all bankers, spent many days discussing their plans to start a bank in southeastern Virginia, United States. Deregulation was transforming the banking industry. In Virginia, mergers and acquisitions in the industry had led to the emergence of large banks that had headquarters in other states. Aston felt that banking as he knew it was disappearing. However, before they could start a bank, Aston and his partners faced many questions and decisions: How would they raise the capital? Who would the bank serve? How would they compete with the larger banks that had emerged due to the deregulation?

The decisions they made at the founding had a lasting effect on TowneBank. This became evident a decade later as financial institutions around the country experienced a severe crisis that was triggered by exposure to risky mortgages, while TowneBank remained relatively unscathed. However, the management team had to consider several issues as the crisis unfolded. Should they accept the Troubled Asset Relief Program (TARP) funds that the U.S. Treasury had offered to banks (even those that were unlikely to fail and were adequately capitalized)? How could they ensure TowneBank’s growth? Should they acquire distressed banks in the local market?


Teaching Note: 8B11M073 (13 pages)
Industry: Finance and Insurance
Issues: Banking Deregulation; Bank Founding; 2008 Financial Crisis; TARP; United States
Difficulty: 4 - Undergraduate/MBA



GULF BANK: RE-BUILDING A BANK
Walid Busaba, Zeigham Khokher, Assem Safieddine, Ken Mark

Product Number: 9B11N008
Publication Date: 10/31/2011
Revision Date: 10/15/2012
Length: 22 pages

In December 2009, about a year after it suffered a crisis when clients walked away from massive derivative losses, Gulf Bank’s new CEO is trying to change the governance and operation of Gulf Bank. This case focuses on a turnaround situation and provides students with insight into evolving corporate governance standards in Kuwait. After assessing the situation that the CEO faces, students have to decide what change he should pursue and how he should carry it out. From a broad industry governance perspective, students can examine the state of banking regulation and oversight in Kuwait and suggest ways that corporate governance can be strengthened.

Teaching Note: 8B11N008 (6 pages)
Industry: Finance and Insurance
Issues: Financial Institutions; Financial Management; Government and Business; Bailouts; Middle East; Kuwait
Difficulty: 4 - Undergraduate/MBA



CHINA'S BANKS 2012
David W. Conklin, Danielle Cadieux

Product Number: 9B10M078
Publication Date: 9/24/2010
Revision Date: 5/23/2012
Length: 3 pages

In the 1990s, considerable debate arose concerning the strength and stability of China's banks. Of particular concern were the debts owed to the banks by state-owned enterprises (SOEs). Many SOEs were experiencing financial difficulties and so they might not have been able to repay these loans. Some analysts emphasized that, since the banks and the SOEs were both owned by the government, the only relevant concern was the financial strength of the government and its preparedness to take responsibility for any of the banks' non-performing loans. In the early years of the 21st century, the government undertook a widespread program aimed at improving the balance sheets at the banks by purchasing non-performing loans from the banks and then reselling these at a discount, often to foreign private sector financial institutions. Prior to 2010, this process provided a generally accepted faith in the stability and security of China's banks. Total non-performing loans as a per cent of total bank loans decreased from 20 per cent in 2003 to three per cent in 2008. The year 2010 brought a new realization that the non-performing loan problem had reappeared. However, China's banks now had private as well as government shareholders, and so the solution had become more complex. The government's response was to insist that China's banks increase their capital base by issuing new equity.

Teaching Note: 8B10M78 (3 pages)
Industry: Finance and Insurance
Issues: China; Financial Institutions; Government Regulation; Government and Business
Difficulty: 4 - Undergraduate/MBA


Chapter 14:
Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

IFCI: THE FALL AND THE NEED FOR REVIVAL
Shailendra Kumar Rai, C.P. Gupta, S. Ravi

Product Number: 9B13N026
Publication Date: 12/19/2013
Revision Date: 12/18/2013
Length: 22 pages

After independence in 1947, the government of India founded the Industrial Finance Corporation of India as the first development financial institution to provide medium- and long-term loans to public limited companies and cooperative societies engaged in productive activities. Then in 1991, the government’s New Economic Policy opened the door to liberalization, privatization and globalization of the Indian economy. The company was restructured and incorporated in 1993 but was unable to diversify its business model from project financing to other financial services. By 2004, it had almost collapsed; its profitability had become negative. Non-performing assets had reached their peak, and the company did not have money to do business. It began selling off and/or renting out its premises, going door-to-door to save its future, and employee morale hit rock bottom. The business had become unsustainable and unviable. With this as backdrop, the board of directors needs to decide on the company’s future. What is their best option: liquidation, restructuring, merger or strategic partnership?

Teaching Note: 8B13N026 (19 pages)
Industry: Finance and Insurance
Issues: Accounting; restructuring; financial institutions; India
Difficulty: 5 - MBA/Postgraduate



CONTRASTING CHINA'S YUNAN MODEL WITH BANGLADESH'S YUNUS MODEL FOR MICROFINANCE
Yuping Du, Randall O. Chang, Meng Wu, Chun Li

Product Number: 9B13N012
Publication Date: 7/5/2013
Revision Date: 6/21/2013
Length: 9 pages

In 2008, about the time when the Yunus Model of microfinancing was under attack in its home country of Bangladesh, the Yunan Model was begun in rural China. The original model suffered from inefficiencies, high interest rates and allegations of improprieties against the founder, Nobel Prize winner Muhammad Yunus. By contrast, the Yunan Model relied on social capital and mechanism design theory to enlist the rural population, financial institutions and government in a cooperative effort to increase the financial stability and entrepreneurship level of one of the poorest areas of the country. Could “microfinance with Chinese characteristics” offer a plan to reduce poverty across China?

Teaching Note: 8B13N012 (8 pages)
Industry: Finance and Insurance
Issues: Credit reporting systems; microfinance; China
Difficulty: 4 - Undergraduate/MBA



SKS MICROFINANCE: THE SOUR TASTE OF SUCCESS
Srinivasan Sunderasan

Product Number: 9B12N004
Publication Date: 4/23/2012
Revision Date: 4/20/2012
Length: 12 pages

In August 2010, SKS Microfinance became India’s (and South Asia’s) first publicly traded microfinance institution with a stock exchange listing. A share in the company was offered at INR 985 and it commenced trading at INR 1,036, reaching INR 1,404 within a month. However, that was the extent of the good news as far as the company and its shareholders were concerned. Things began to unravel rapidly. The initial public offering of shares was seen as the initiation of a conflict between the interests of the company’s shareholders and the poor rural borrowers it was expected to serve. Further, the company fired an arguably successful chief executive officer due to “inter-personal issues” within days from the end of the post-listing 40-day silent period. Matters were aggravated when 30 women who happened to be microfinance borrowers committed suicide within a span of 45 days, 13 of whom were reported to have been SKS members. The provincial government in the state of Andhra Pradesh, the hub of microfinance activity in the country, brought out an ordinance that effectively curbed microfinance lending and recovery operations. By May 2011, the Reserve Bank of India, the country’s banking regulator, had issued a notification placing caps on interest rates and margins and specifying minimum tenures for relatively larger loan sizes. Was this the end of the microfinance movement in India?

Teaching Note: 8B12N004 (7 pages)
Industry: Finance and Insurance
Issues: Initial Public Offering; Microfinance; Regulatory Environment; Corporate Governance; Ethics; India
Difficulty: 5 - MBA/Postgraduate


Chapter 15:
Insurance Companies

THE RISE AND FALL OF AIG
Stephen Sapp

Product Number: 9B12N001
Publication Date: 1/27/2012
Revision Date: 1/27/2012
Length: 13 pages

The Global Financial Crisis (2007-2009) has provided fertile ground for careful consideration of how the financial services industry operates. For many years it had been asserted that markets can self-police so that regulation and careful oversight are not required. The events from the crisis have caused many of the strongest proponents of this view, such as Alan Greenspan (former chairman of the Federal Reserve), to publicly acknowledge the problems with this belief. This case considers the events leading up to and following the bailout of AIG to allow for a discussion of how different internal and external factors contributed to the crisis at AIG, and the importance of studying each of them more carefully to avoid such problems in the future.

Teaching Note: 8B12N001 (8 pages)
Industry: Finance and Insurance
Issues: Financial Risk Management; Leadership; Enterprise Risk Management; United States
Difficulty: 4 - Undergraduate/MBA



JA INTERCARE INC.
James E. Hatch, Edward Chow

Product Number: 9B11N013
Publication Date: 10/28/2011
Length: 20 pages

The president and founder of the Taiwanese firm Shacom.com plans to set up an insurance scheme for low-income earners. A financial model for the operation has been created and students must assess the viability of the business, its adherence to financial regulations, and the risks that it entails.

Teaching Note: 8B11N013 (12 pages)
Industry: Finance and Insurance
Issues: Insurance; Financial Model; Financial Regulations; Taiwan; CNCCU/Ivey
Difficulty: 4 - Undergraduate/MBA



ING INSURANCE ASIA/PACIFIC
Rod E. White, Paul W. Beamish, Andreas Schotter

Product Number: 9B06M083
Publication Date: 1/9/2007
Length: 15 pages

The new chief executive officer (CEO) of ING Insurance Asia/Pacific wants to improve the regional operation of the company. ING Group was a global financial services company of Dutch origin with more than 150 years of experience. As part of ING International, ING Insurance Asia/Pacific was responsible for life insurance and asset/wealth management activities throughout the region. The company was doing well, but the new CEO believed that there were still important strategic and operational improvements possible. This case can be used to discuss the local versus regional or global management issue and will yield best results if the class has already been introduced to different strategic and organizational alternatives in the international business context.

Teaching Note: 8B06M83 (12 pages)
Industry: Finance and Insurance
Issues: Subsidiaries; Organization; Leadership; International Management
Difficulty: 4 - Undergraduate/MBA


Chapter 16:
Securities Firms and Investment Banks

LEHMAN BROTHERS' FALL
Ram Kumar Kakani, Vasudha Singhania, Martin Stack

Product Number: 9B12B005
Publication Date: 5/4/2012
Revision Date: 5/1/2012
Length: 12 pages

This case describes the financial undertakings of Lehman Brothers Inc., which was once the fourth-largest investment bank in the world. On September 15, 2008, less than a year after the bank presented its largest profit ever, the world watched its decline. In terms of size of assets, Lehman is considered the largest bankruptcy in history, with assets totaling US$639 billion and liabilities of US$613 billion. The U.S. credit crisis had uprooted the strength of Wall Street, with Lehman announcing a petition it filed under Chapter 11 of the U.S. Bankruptcy Code. The bankruptcy raised some interesting questions, the biggest among them being: How could a large company such as Lehman, with a record of reporting huge profits, become so helpless that it had to file for bankruptcy?

Undoubtedly, the financial scenario in the United States had become dire, especially for those companies involved in mortgage banking. Lehman had some additional drawbacks. This case deals with a couple of these problems, one of them being the accountancy of its Repo 105 transactions. The modus operandi of the company has been unveiled to show how it managed to hide its true financial state through gaps in the financial reporting system and remain clean-handed for years.


Teaching Note: 8B12B005 (14 pages)
Industry: Finance and Insurance
Issues: Financial Reporting Standards; Accounting Transactions and Practices; Bankruptcy; Banking; Wall Street; United States; United Kingdom
Difficulty: 4 - Undergraduate/MBA



CALLMATE TELIPS (B): ORIX INVESTMENT BANK PAKISTAN LIMITED - CALLMATE RISK UNCOVERED
Muntazar Bashir Ahmed

Product Number: 9B09N008
Publication Date: 5/21/2009
Length: 21 pages

Orix Investment Bank Pakistan Limited (OIBPL) was a non-bank financial institution (NBFI) providing corporate finance, brokerage and other services to large enterprises and was listed on the Karachi Stock Exchange. The annual financial statements for the year ended June 30, 2008 revealed that, as a result of default by one customer, the bank had incurred an enormous loss of over half a billion rupees, which had seriously eroded the bank's capital base. As a consequence, the bank had to seek new capital through a rights issue and this had required support of the Japanese sponsor, Orix Japan, to underwrite the issue. The customer in default was Callmate Telips Telecom Limited (CTTL); details are in Callmate Telips (A) - Choice of Accounting Policy case, No. 9B08N028. The case includes the instance of share price volatility that had been faced by the stock market in Pakistan. Two investigations had been done into the abnormal rise of the market. One of these investigation reports had identified OIBPL as a key player in the speculative dealings that were financed through the overnight financing system known as "badla." Another investigation by the NBFI regulator, Securities Exchange Commission of Pakistan (SECP), had examined the abnormally large volume of CTTL share trades on the KSE and found the directors of Callmate involved in manipulating the company share price. The directors were prosecuted and the judge had issued warrants for their arrests. The directors, faced with a difficult situation of a very large loss, decided to delay disclosing the loss by six months. There was circumstantial evidence in the case that would suggest that the directors should have known about the conviction of the directors of Callmate and that this would have an adverse affect on the share price of the company. The auditor's report also was the standard clean report, in spite of the seriousness of the court decision, as it made the shares of Callmate worthless. The case can be used to examine corporate governance by analyzing a) the decisions of the directors b) the report of the external auditor c) the composition of the board of directors. If Case A is also being used, the dealings of CTTL with the regulator of publicly listed companies can also be included. There is an ethical dimension of governance and this viewpoint can also be discussed especially where both cases are being used.

Teaching Note: 8B09N08 (11 pages)
Issues: Corporate Governance; Risk Management
Difficulty: 5 - MBA/Postgraduate


Chapter 17:
Mutual Funds and Hedge Funds

POWERSHARES EXCHANGE-TRADED FUNDS
Chuck Grace, Samir Haji Remtulla

Product Number: 9B10N020
Publication Date: 8/19/2010
Length: 14 pages

In early January, 2009 the president of Invesco Trimark Ltd. (Invesco Trimark) was optimistic about the year ahead, particularly when compared to the perfect storm of 2008. That year saw global investment markets in turmoil, and Invesco Trimark's mutual fund assets had plummeted to almost half its value. The president and his team had spent nearly a year working and re-working a new product launch and by 2009 thought they had developed a unique and differentiated idea that would be difficult for the competition to replicate. This idea was to introduce to the Canadian market a suite of exchange-traded funds (ETFs) built around investments managed by Invesco Trimark's sister company in the United States. This new product combined key features of ETFs traded on U.S. exchanges with key features of Canadian mutual funds. As innovative and exciting as ETFs promised to be, the president knew that it would be met with reservation from Invesco Trimark's traditional mutual fund distributors who remained skeptical. The president wondered how best to communicate the new product idea given the contradictory and competing ideas that existed not only in the market but in his own firm. Was it possible for mutual funds and ETFs to co-exist?

Teaching Note: 8B10N020 (4 pages)
Industry: Finance and Insurance
Issues: Product Strategy; New Products; Active Versus Passive Investing; Exchange Traded Funds
Difficulty: 3 - Undergraduate



GOODWIN WEALTH MANAGEMENT: AN ACQUISITION OPPORTUNITY
Colette Southam, Lisa Conway

Product Number: 9B08N029
Publication Date: 12/8/2008
Length: 13 pages

On November 30, 2007, the chief executive officer (CEO) of Goodwin Wealth Management (Goodwin), decided to hire a consultant to make an assessment of his current situation. Recently, several firms had expressed interest in acquiring Goodwin. The CEO knew he would have to decide whether to consider these offers or not very soon in order to avoid a hostile bidding situation. If the CEO did decide to consider an acquisition, he would have to act quickly in order to take advantage of the current stock's high price. Further complicating the decision was the fact that Goodwin had been built by the CEO's father, George, who would try to influence the decision-making process. The CEO wanted to do what was best for the company while protecting his family's reputation. He awaited the advice from the consultant.

Teaching Note: 8B08N29 (9 pages)
Industry: Finance and Insurance
Issues: Financial Analysis; Business Valuation; Valuation; Mergers & Acquisitions
Difficulty: 4 - Undergraduate/MBA



HYPERION AURORA TRUST
Stephen R. Foerster, Nick Bontis

Product Number: 9A96B026
Publication Date: 3/13/1996
Revision Date: 2/5/2010
Length: 7 pages

A newly hired product manager at CIBC Securities Inc., one of the largest mutual fund administrators in Canada, is asked to develop an innovative equity mutual fund. In addition to examining the current product offering of the bank as well as the competition, she must examine the needs of the key stakeholders in this project. She realizes that it may prove difficult to make everyone happy. Among other suggestions she makes to the CEO, the proposed pricing structure of the new mutual fund is unprecedented and could prove to reshape the industry.

Teaching Note: 8A96B26 (6 pages)
Industry: Finance and Insurance
Issues: Mutual Funds; Pricing; Product Management
Difficulty: 4 - Undergraduate/MBA


Chapter 18:
Pension Funds

EQUINOX ASSET MANAGEMENT: STARTING FRESH
Chuck Grace, Hugh Stewart

Product Number: 9B11N009
Publication Date: 5/30/2011
Length: 10 pages

After a two-year absence from the financial industry, Tom Henne evaluated his options and determined that he could exploit his knowledge of the inner workings of the pension fund business and start a new firm, Equinox Asset Management. Despite claims that many pension funds provided returns that did no more than mirror the average index, Henne believed his fund could beat the market or achieve alpha. He proposed that this success could be had by differentiating the Equinox fund in several ways from the typically large and well-branded funds of banks and insurance companies. Thinking he still had significant time to consider the details, Henne was surprised to receive a phone call from a local company wanting him to do a presentation on Equinox at its offices. Henne had only one week to decide the size of his fund, finalize his fee structure, identify his positioning and marketing strategy, and evaluate an appropriate client base. But most of all, he wondered whether the idea for his fund was even plausible.

Teaching Note: 8B11N009 (5 pages)
Industry: Finance and Insurance
Issues: Industry Analysis; Investment Analysis; Breakeven Analysis; Portfolio Construction; Pension Funds
Difficulty: 3 - Undergraduate



ONTARIO TEACHERS' PENSION PLAN BOARD: THE ASSET ALLOCATION DECISION
Stephen R. Foerster, Dean Tzembelicos

Product Number: 9A97N003
Publication Date: 1/29/1997
Revision Date: 2/5/2010
Length: 13 pages

In 1994, William Booth, a member of the management team of the Ontario Teachers' Pension Plan Board, was asked to re-examine the diversification strategy that the $30 billion fund had been pursuing since its inception and to determine an optimal long-term asset allocation policy for the fund. After inheriting a portfolio that consisted entirely of fixed-income securities in 1990, by the end of 1993, the allocation to equity was only 20% short of a 1995 interim policy target of 66%. Booth's primary task was to determine whether the shift in asset mix should stop at 66% equity in 1995, which was above the allocation to equities for the average pension plan, or whether it should continue to some higher amount (an independent consultant recommended an 80% allocation to equity). Booth knew that a higher allocation to equities would likely increase total returns over the long-term, thereby reducing the cost of funding the plan. However, equities exhibited greater volatility than bonds and a higher allocation to equities therefore created some risk that future funding costs might rise above current levels.

Teaching Note: 8A97N03 (11 pages)
Industry: Finance and Insurance
Issues: Portfolio Management; Assets; Investment Analysis; Pensions
Difficulty: 4 - Undergraduate/MBA



PEGASUS PENSION PLAN
Stephen R. Foerster, John J. Schmitz

Product Number: 9A96B025
Publication Date: 3/25/1996
Revision Date: 2/5/2010
Length: 18 pages

A portfolio strategist for the Pegasus Pension Fund, was reviewing a research paper investigating international tactical asset allocation that had been forwarded to him from a colleague. The president of the Pegasus Pension Fund had recently become concerned with the fund's shrinking surplus and had given a directive to the portfolio strategist to investigate new strategies that could enhance the fund's performance. He thought that adopting an international equity investment strategy might be appropriate to enhance the fund's performance. He was scheduled to make a presentation to the President the following week regarding the merits, risks, and possible introduction of one such strategy: international tactical asset allocation.

Teaching Note: 8A96B25 (9 pages)
Industry: Finance and Insurance
Issues: Investments; Pensions; Investment Funds; Funds Management
Difficulty: 4 - Undergraduate/MBA


Chapter 19:
Types of Risks Incurred by Financial Institutions

CANADA WIDE SAVINGS, LOAN AND TRUST COMPANY
David C. Shaw

Product Number: 9B12N009
Publication Date: 7/9/2012
Revision Date: 7/9/2012
Length: 11 pages

The chief executive officer of a financial institution must decide whether or not to grant a $3 million loan to an investor in mutual funds. The financial institution makes loans of $2 for every $1 invested in mutual funds to qualified investors. The issue here is to determine whether the risks associated with this loan application justify the investment. The case involves assessing the various risks associated with the loan, including the credit risk attached to the borrower, the market risk of the planned investment program, and the currency risk of a loan in Canadian dollars and investments in foreign securities.

Teaching Note: 8B12N009 (4 pages)
Industry: Finance and Insurance
Issues: Investment Decision Making; Risk Assessment; Canada
Difficulty: 4 - Undergraduate/MBA



AVID LIFE (A)
Gerard Seijts, William T. Watson

Product Number: 9B12C003
Publication Date: 1/30/2012
Revision Date: 1/30/2012
Length: 4 pages

Noel Biderman was the president of Avid Life Media, a profitable Canadian growth company whose main businesses were various online social networks for groups seeking sexual partners and romance. Biderman was seeking to raise $60 million via a private placement offering to acquire a privately held online advertising sales company, merge the companies, and take the new and improved entity to the TSX Venture Exchange or the Toronto Stock Exchange. The Avid Life offering represented a legal and potentially lucrative investment. Nevertheless, only one investment bank (GMP Capital) was willing to help Biderman raise capital — because among the various social networks Avid Life owned the notorious Ashley Madison online community for married people seeking to commit adultery. GMP’s relationship was short-lived; after media coverage of the Avid Life offering started to focus on the bank’s willingness to service Biderman’s company, GMP withdrew its support. Possibly it was the bank’s desire to avoid being linked to someone known, rightly or wrongly, as the king of infidelity, that led to GMP’s withdrawn support, leaving Biderman unable to take a potentially lucrative investment opportunity to market.

Teaching Note: 8B12C003 (4 pages)
Industry: Finance and Insurance
Issues: Leadership; Values; Ethics; Investing; Social Networks; Canada
Difficulty: 4 - Undergraduate/MBA



RISK LEADERSHIP AT TD BANK GROUP
Jeffrey Gandz

Product Number: 9B12C001
Publication Date: 1/24/2012
Revision Date: 1/25/2012
Length: 31 pages

TD Bank Group was one of the few large financial institutions in the world to have prospered during the financial meltdown and subsequent recession in 2008/9. It did this without any government assistance. Furthermore, it emerged from the crisis substantially larger in terms of market capitalization and assets while having the best performance of any of the Big-5 Canadian banks in terms of stock price and total shareholder return during the period 2003-2011.

The case describes many of the actions led by TD’s CEO, Ed Clark, following his promotion to that role after severe credit losses at the bank. It describes a shift of strategy that focused on reducing market, credit, and liquidity risk while increasing strategic risk. It also describes in depth the governance and management approach to risk at the bank as well as identifying important issues such as the establishment of a risk-management culture, the relationship between executive compensation and risk, and the formulation and promulgation of a clear statement of risk appetite. Further, it allows the instructor to focus on the many types of risk that have to be managed in a financial organization including strategic, market, credit, liquidity, operational, insurance, legal/regulatory, and reputational risk and how these might be traded-off against each other.

Students are required to identify which actions taken by TD are likely to have contributed to the bank’s excellent performance and the extent to which those actions may have been reflected in the performance of the bank’s stock. They need to consider whether avoiding market, credit, and liquidity risk was worth it for TD given that the company did not achieve superior performance to its peers before the financial crisis, a fact that was reflected in its disappointing stock performance.


Teaching Note: 8B12C001 (4 pages)
Industry: Finance and Insurance
Issues: Risk Management; Organizational Culture; Management of Financial Institutions; Financial Crisis; Canada
Difficulty: 5 - MBA/Postgraduate


Chapter 20:
Managing Credit Risk on the Balance Sheet

ONTARIO TEACHERS' PENSION PLAN BOARD: VALUE AT RISK
Stephen R. Foerster, Dean Tzembelicos

Product Number: 9A96B056
Publication Date: 10/24/1996
Revision Date: 2/9/2010
Length: 16 pages

The Ontario Teachers' Pension Plan Board, Canada's largest pension fund with over $40 billion in assets, had just listened to a presentation addressing a method for identifying and controlling the pension fund's exposure to market risks known as Value At Risk. The Board needed to understand what Value At Risk represented, what assumptions went into the risk management systems and how it might impact on policy decisions. This case introduces students to the risk management of investment portfolios, highlighting benefits and limitations.

Teaching Note: 8A96B56 (12 pages)
Industry: Finance and Insurance
Issues: Risk Management; Risk Analysis; Pensions; Investments
Difficulty: 4 - Undergraduate/MBA



PERREAULT BROTHERS LIMITED
James E. Hatch, Richard Nason

Product Number: 9A89B028
Publication Date: 1/1/1989
Length: 11 pages

The bank has asked a commercial and industrial mechanical contractor for a forecasted cash budget, income statement and balance sheet. The bank is concerned with whether the company can repay its loan. The case is designed to teach students to incorporate a cash budget into the evaluation of a business that requires bank financing.

Teaching Note: 8A89B28 (10 pages)
Industry: Construction
Issues: Bank Lending; Cash Budgeting
Difficulty: 4 - Undergraduate/MBA



GOODFOOD EMPORIUMS LIMITED
James E. Hatch, Larry Wynant, Steven Cox

Product Number: 9A87B036
Publication Date: 1/1/1987
Revision Date: 6/4/2003
Length: 7 pages

A bank account manager is reviewing the risk and credit facility for a specialty food store operator. The case permits a size-up of the company and provides detailed information to decide the loan rate that should be charged.

Industry: Retail Trade
Issues: Bank Lending; Small Business; Loan Evaluation
Difficulty: 4 - Undergraduate/MBA


Chapter 21:
Managing Liquidity Risk on the Balance Sheet

BBC PVT. LTD. AND WORKING CAPITAL CHALLENGES
Nimisha Kapoor, Sandeep Goel

Product Number: 9B12N026
Publication Date: 11/29/2012
Revision Date: 5/31/2017
Length: 6 pages

BBC Pvt. Ltd. (BBC), a chemical manufacturing company, was in urgent need of funds in order to secure an important contract. BBC was able to manufacture a product that involved low investment in the form of fixed assets. Although the product was of an inferior quality due to its cost-effective production, the company was able to pass on that cost advantage to its end customers, enabling BBC to maintain its position in the market. In addition, the company sold the product primarily on credit and was therefore a preferable option for buyers.

BBC followed a traditional approach to working capital management. Its assets were much greater than its liabilities. The company repaid its creditors promptly before the credit period. However, in terms of credit management, the company followed a casual approach. It extended credit sales for large periods and its large inventory in the form of raw material and finished goods resulted in excessive blockage of working capital.

In this case, BBC had the opportunity to pursue a promising contract that would require significant investment immediately. The company’s managing director needed to make a decision about how to obtain and manage adequate funds for the upgrade that BBC needed in order to secure its contract.


Teaching Note: 8B12N026 (7 pages)
Industry: Manufacturing
Issues: Working capital; inventory; accounts receivable; cash management; India
Difficulty: 5 - MBA/Postgraduate



STATE FAIR OF VIRGINIA
W. Glenn Rowe, Karin Schnarr

Product Number: 9B12M050
Publication Date: 4/25/2012
Revision Date: 6/28/2012
Length: 20 pages

In November 2011, the State Fair of Virginia, Inc. (SFVA), which had been operating since 1854, was facing a dire financial situation. SFVA was a privately held, not-for-profit organization that operated the state fair independent of the state government, and received no operating support from state or local governments. In 2003, the organization had borrowed $83 million against a $47 million investment portfolio in order to develop its new fairgrounds, which opened in 2009. The new site had been attractive because it included The Meadow Farm, a horse farm famous for being the birthplace of the Secretariat, winner of the 1973 Triple Crown. The unprecedented collapse of the financial markets in the United States in 2008, combined with a poor economy and terrible weather for the fair’s first two years, resulted in a situation where in late 2011 the organization did not bring in enough income and donations to cover the loan payments. Creditors were demanding an immediate solution. The board of directors of SFVA realized that it had no choice but to consider strategic options including applying for Chapter 11 bankruptcy, which would give it time to try to restructure its debt, or shutting down immediately.

Teaching Note: 8B12M050 (11 pages)
Industry: Arts, Entertainment, Sports and Recreation
Issues: Bankruptcy; Non-profit Organizations; Operations; Strategy Formulation; Risk Analysis; Strategy Execution; United States
Difficulty: 4 - Undergraduate/MBA



AMARANTH ADVISORS: BURNING SIX BILLION IN THIRTY DAYS
Walid Busaba, Zeigham Khokher, Anuroop Duggal

Product Number: 9B08N003
Publication Date: 6/30/2008
Length: 15 pages

This case provides students with a deeper understanding of commodity futures markets in general and natural gas markets in particular. It also provides an introduction to hedge funds and insight into the largest hedge fund collapse in history. Third, it introduces such concepts as liquidity risk, value-at-risk, spread trades and the use of derivatives. As of the case date, Amaranth had not publicly disclosed the positions that led to $6 billion in losses during the month of September 2006. The case was written using public information and provides key pieces of data to allow students to reverse engineer possible positions Amaranth may have held.

Teaching Note: 8B08N03 (11 pages)
Industry: Utilities
Issues: Futures Markets; Risk Management; Hedge Funds; Energy Trading
Difficulty: 4 - Undergraduate/MBA


Chapter 22:
Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

SPENCER HALL (A)
Stephen R. Foerster, Rob Barbara

Product Number: 9A95B045
Publication Date: 1/29/1996
Revision Date: 2/12/2010
Length: 18 pages

The treasurer of The University of Western Ontario was preparing a recommendation to the Spencer Hall board of directors concerning the financing of the $7.7 million expansion to Spencer Hall. The expansion was currently being financed with short-term loans but the board was concerned about increasing rates and was considering such hedging vehicles as interest rate swaps, caps and collars. A follow-up case is available (9A97N004).

Teaching Note: 8A95B45 (6 pages)
Industry: Finance and Insurance
Issues: Loan Evaluation; Interest Rates; Hedging; Financial Strategy
Difficulty: 4 - Undergraduate/MBA



COLUMBIA PINE PULP COMPANY, INC.
Robert W. White, Kristina Klausen

Product Number: 9A95B034
Publication Date: 11/14/1995
Revision Date: 2/11/2010
Length: 10 pages

The bank has to decide if and how it will help Columbia Pine Pulp Company (CRP). The bank must evaluate CRP's projections, capital structure, security, proposed design of the financing, interest rate hedging, and other financial decisions. The company is proposing a greenfield pulp mill on the site of a sister pulp mill and an affiliated paper mill. Students are required to develop a financial strategy. (Two related cases bearing the same name examine recapitalization and interest rate hedging - cases 9A90B036 and 9A90B037.)

Teaching Note: 8A95B34 (16 pages)
Industry: Manufacturing
Issues: Bank Lending; Financial Strategy; Financing; Capital Investment
Difficulty: 4 - Undergraduate/MBA



MARKBOROUGH PROPERTIES INC.
Robert W. White, Paul R. Badeski

Product Number: 9A87B002
Publication Date: 1/1/1987
Revision Date: 6/3/2003
Length: 16 pages

The executive vice-president of Markborough Properties Inc. was preparing for an upcoming Board of Directors meeting. On the agenda was the proposed use of interest rate hedging to minimize the company's interest rate exposure. Among the alternatives were interest rate swaps and caps. Was it an appropriate time for Markborough to hedge its floating rate debt? If so, how and using what vehicle?

Teaching Note: 8A87B02 (15 pages)
Industry: Real Estate and Rental and Leasing
Issues: Bonds; Bank Lending; Hedging; Risk Management
Difficulty: 4 - Undergraduate/MBA


Chapter 23:
Managing Risk off the Balance Sheet with Derivative Securities

ACPANA BUSINESS SYSTEMS INC.: EFFECT OF CURRENCY EXPOSURE ON REVENUE
Colette Southam, Robert Schenkel

Product Number: 9B11N010
Publication Date: 7/20/2011
Length: 6 pages

The vice president of operations for Acpana Business Systems Inc., a Canadian software development and backup-as-a-service provider located in Toronto, Canada, is concerned that the recent appreciation of the Canadian dollar is significantly affecting Acpana’s revenue and undermining the company’s organic growth. The case focuses on understanding and quantifying the risks associated with exchange rate fluctuation and its impact on a firm’s revenues and costs. The case introduces instruments available to hedge risk, including forward contracts and put and call options.

Teaching Note: 8B11N010 (10 pages)
Industry: Administrative, Support, Waste Management and Remediation Services
Issues: Foreign Exchange; Risk Management; Put and Call Options; Forward Contracts
Difficulty: 3 - Undergraduate



AIR CANADA - RISK MANAGEMENT
David Wood, Craig Dunbar

Product Number: 9B10N037
Publication Date: 12/13/2010
Length: 11 pages

The chief executive officer (CEO) of Air Canada was reviewing the company's risk management program with the intent to suggest changes to the policy. Risk management was a topic all corporate boards were dedicating time to since the financial collapse of 2008, and boards had come to realize that hard questions needed to be asked about the source of risk, how it was disclosed, how it was to be accounted for and how it was managed. The CEO knew that he needed to consider the impact of his view of the economy, interest rates, exchange rates and the commodity markets on how aggressive Air Canada should be with its appropriate hedges. He decided to start by identifying the most relevant sources of external risk that could materially affect Air Canada's short and long-term financial performance. He then wanted to understand how these risks were managed today and how they compared to West Jet, their main competitor. Finally, he wanted to determine what changes should be made to either eliminate the source of risk or better manage any significant risks that remained.

Teaching Note: 8B10N037 (16 pages)
Industry: Transportation and Warehousing
Issues: Operations Management; Corporate Strategy; Risk Exposure; Hedging Risk; Risk Management; Defining Financial Risk
Difficulty: 4 - Undergraduate/MBA



LEVERAGED BUYOUT (LBO) OF BCE INC.: HEDGING CURRENCY RISK
Colette Southam, Ahsen Amir-Ali, Samir Meghji

Product Number: 9B08N023
Publication Date: 1/20/2009
Length: 7 pages

In 2007, an analyst in the derivatives group of investment bank Grenfeld & Co. was asked to devise a hedging strategy for Providence Equity Partners (Providence) in Bell Canada Enterprises (BCE Inc.). Providence was based in the United States and any strategy would involve significant foreign exchange rate risk due to the conversion of returns into U.S. dollars. The analyst needed to consider several long-term hedging strategies that Grenfeld & Co. could recommend to Providence. Her vice-president had asked that she create a hedging strategy by initially assuming a 25 per cent IRR for the investment and its performance, based on two outcomes at the end of the investment (investment horizon = five years): a zero per cent IRR and a 25 per cent IRR.

Teaching Note: 8B08N23 (5 pages)
Industry: Information, Media & Telecommunications
Issues: Options; Hedging; Derivatives
Difficulty: 4 - Undergraduate/MBA


Chapter 24:
Managing Risk off the Balance Sheet with Loan Sales and Securitization

RFA CAPITAL MANAGEMENT'S COMMERCIAL MORTGAGE BACKED SECURITY DECISION
Stephen R. Foerster, Ben Rodney

Product Number: 9B03N004
Publication Date: 5/28/2003
Revision Date: 10/22/2009
Length: 21 pages

RFA Capital Management Inc. is the asset management subsidiary of Realty Financial Advisors Inc. The two principals of the company were deciding whether to bid on a recent investment opportunity. An upcoming commercial mortgage backed securities transaction was looking for a risk buyer for its high yield debt bonds and the principals were interested in participating in the transaction. This was a relatively new investment class. They wondered how they could sell this opportunity to one of RFA Capital Management's institutional or private investors, what yield requirements they should demand and how to price these bonds. As time was a factor, they wondered whether they should bid on this investment opportunity without first lining up the capital. They also wondered what long-term opportunities this investment might provide.

Teaching Note: 8B03N04 (10 pages)
Industry: Finance and Insurance
Issues: Securities; Securitization; Bonds; Investments
Difficulty: 4 - Undergraduate/MBA