sixth class summer 2009
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Gathering theGathering the
newsnewsHow to get, use and maintainHow to get, use and maintain
sources of informationsources of information
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Lesson outlineLesson outline
The primacy of reportingThe primacy of reportingKey sources of financial informationKey sources of financial information Interviewing skillsInterviewing skillsHomework reviewHomework reviewPractice interviewPractice interview In-class writing assignmentIn-class writing assignmentFinancial terms: Credit meltdown, theFinancial terms: Credit meltdown, the
Great Recession, credit freeze, etc.Great Recession, credit freeze, etc.
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The primacy of reportingThe primacy of reporting
The best writing is no substitute forThe best writing is no substitute forpoor information.poor information.
The best editing is no substitute forThe best editing is no substitute forweak context.weak context.
Reality checkingReality checking
Feedback loopFeedback loop IntegrityIntegrity
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Key financial news sourcesKey financial news sources
Company public relationsCompany public relations
AnalystsAnalysts
InvestorsInvestors
Industry organizationsIndustry organizationsRival journalistsRival journalists
1. starting points1. starting points
2. relationship development2. relationship development3. ethics and integrity3. ethics and integrity
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Interview TechniquesInterview Techniques
Listen actively, carefullyListen actively, carefully Ask open-ended questions. Avoid yes-or-no questions.Ask open-ended questions. Avoid yes-or-no questions. Ask questions that break news. For example: companyAsk questions that break news. For example: company
plans, targets, personnel movesplans, targets, personnel moves
Keep questions short and clear and assume you will followKeep questions short and clear and assume you will follow
up.up.Repeat the interviewees wording back to them.Repeat the interviewees wording back to them.
Ask for color descriptions, emotions.Ask for color descriptions, emotions.
Dont ask for information you already have.Dont ask for information you already have.
Be as prepared as possible.Be as prepared as possible.
Make friends with public relations people and ask them toMake friends with public relations people and ask them tohelp you get your questions answered. But only offer tohelp you get your questions answered. But only offer togive questions in advance when that is the only way yougive questions in advance when that is the only way youcan get the interview.can get the interview.
Avoid starting with the more difficult questions.Avoid starting with the more difficult questions.
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Capital ratioCapital ratio
Capital ratios are a measure of a bank's capitalCapital ratios are a measure of a bank's capitalstrength used by regulatory agencies. Tier 1strength used by regulatory agencies. Tier 1(core) capital, the more important of the two,(core) capital, the more important of the two,consists largely of shareholders' equity. This isconsists largely of shareholders' equity. This is
the amount paid to originally purchase the sharesthe amount paid to originally purchase the sharesof the bank and retained profits (minus losses). Ifof the bank and retained profits (minus losses). Ifthe original stockholders paid 100 million yen tothe original stockholders paid 100 million yen tobuy their stock and the bank has made 10 millionbuy their stock and the bank has made 10 millionyen in profits each year since, paid out noyen in profits each year since, paid out no
dividends and made no losses, after 10 years thedividends and made no losses, after 10 years thebank's tier one capital would be 200 million yen.bank's tier one capital would be 200 million yen.National regulators now allow instruments otherNational regulators now allow instruments otherthan common shares to count in tier one capital.than common shares to count in tier one capital.
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CDOCDO
Collateralized Debt Obligation. ACollateralized Debt Obligation. Astructured debt security backed by astructured debt security backed by aportfolio of bonds issued by a variety ofportfolio of bonds issued by a variety of
corporate or sovereign sellers.corporate or sovereign sellers.By combining bonds in a portfolio, thenBy combining bonds in a portfolio, then
selling off parts, or tranches, of theselling off parts, or tranches, of theportfolio, the seller can achieve a higherportfolio, the seller can achieve a higher
credit rating for some tranches, enablingcredit rating for some tranches, enablingthem to sell the securities to institutionalthem to sell the securities to institutionalinvestors such as pension funds orinvestors such as pension funds or
insurance companies.insurance companies.
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CDSCDS
Credit default swaps are securities that insureCredit default swaps are securities that insureagainst defaults on bonds. The contract involvesagainst defaults on bonds. The contract involvesa buyer paying an agreed interest rate to thea buyer paying an agreed interest rate to theseller in exchange for the right to a payoff if aseller in exchange for the right to a payoff if a
credit instrument goes into default.credit instrument goes into default.The CDS market has been largely unregulatedThe CDS market has been largely unregulated
and last year was valued at twice that of the USand last year was valued at twice that of the USStock Exchange. The lack of transparency hasStock Exchange. The lack of transparency has
meant exposures to bad debt is unknown.meant exposures to bad debt is unknown.
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LiborLibor
London interbank offer rateLondon interbank offer rate - the- theinterest rate banks charge eachinterest rate banks charge eachother for loans up to one year. Theother for loans up to one year. The
short-term international interbankshort-term international interbankmarket allows banks to borrowmarket allows banks to borrowquickly, allowing them to avoidquickly, allowing them to avoidhaving to keep large amounts ofhaving to keep large amounts of
liquid assets. Libor is officially fixedliquid assets. Libor is officially fixedonce a day at around 11:45 a.m. by aonce a day at around 11:45 a.m. by asmall group of large London banks,small group of large London banks,
but the rate changes throughout thebut the rate changes throughout theda .da .
http://www.guardian.co.uk/business/2007/sep/01/businessglossaryhttp://www.guardian.co.uk/business/2007/sep/01/businessglossaryhttp://www.guardian.co.uk/business/2007/sep/01/businessglossary -
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Naked shortsNaked shorts
Naked short-selling, or naked-shorting,Naked short-selling, or naked-shorting,is the illegal practice of selling a stockis the illegal practice of selling a stockshort without first borrowing the shares orshort without first borrowing the shares or
ensuring that the shares can be borrowed.ensuring that the shares can be borrowed.When the seller does not obtain the sharesWhen the seller does not obtain the shareswithin the required time frame, the resultwithin the required time frame, the resultis known as a "fail to deliver." However,is known as a "fail to deliver." However,
the transaction generally remains openthe transaction generally remains openuntil the shares are acquired by the selleruntil the shares are acquired by the selleror the seller's broker, allowing a trade toor the seller's broker, allowing a trade tooccur when the order is filled.occur when the order is filled.
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Preference sharesPreference shares
Shares in a company which pay aShares in a company which pay afixed dividend but which do notfixed dividend but which do notusually carry voting rights. If theusually carry voting rights. If the
company goes bankrupt, preferencecompany goes bankrupt, preferenceshares are usually repayable at parshares are usually repayable at parvalue, and rank above the claims ofvalue, and rank above the claims of
ordinary shareholders, but behindordinary shareholders, but behindbanks, bond holders and otherbanks, bond holders and othercreditors. Also known as preferredcreditors. Also known as preferred
shares.shares.
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Short-sellingShort-selling
Short-sellingShort-selling involves sellinginvolves sellingborrowed shares in the hope that theborrowed shares in the hope that theprice will fall and they can be boughtprice will fall and they can be bought
back at a profit later on.back at a profit later on.Authorities in the U.S., Britain,Authorities in the U.S., Britain,
Japan and elsewhere have, at times,Japan and elsewhere have, at times,banned short-sales of financialbanned short-sales of financial
shares, and ordered speculators toshares, and ordered speculators toclose down all short positions in bankclose down all short positions in bankshares, or have their names madeshares, or have their names made
public.public.
http://www.guardian.co.uk/business/shortsellinghttp://www.guardian.co.uk/business/shortsellinghttp://www.guardian.co.uk/business/shortselling -
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TARPTARP
Troubled Asset Relief ProgramTroubled Asset Relief Program
The key bank rescue program inThe key bank rescue program inthe U.S. TARP gives theU.S.the U.S. TARP gives theU.S.
Treasury purchasing power of $700Treasury purchasing power of $700billion to buy up mortgage-backedbillion to buy up mortgage-backedsecurities (MBS)from financialsecurities (MBS)from financial
institutions to encourage them toinstitutions to encourage them tolend money to others. The fund waslend money to others. The fund wascreated by a bill thatwas made lawcreated by a bill thatwas made lawin October 2008.in October 2008.
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Glass-SteagallGlass-Steagall
The Glass-Steagall laws were enactedThe Glass-Steagall laws were enactedin 1933 to separate commercial fromin 1933 to separate commercial frominvestment banking, on the basisinvestment banking, on the basis
that the depression had revealed thethat the depression had revealed thedangers of commingling suchdangers of commingling suchactivities. The rules were dismantledactivities. The rules were dismantledby President Bill Clintonsby President Bill Clintons
administration in 1999. Some blameadministration in 1999. Some blamethe current crisis on the re-entry ofthe current crisis on the re-entry ofcommercial banks into the securitiescommercial banks into the securities
business.business.
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Homework QuestionsHomework Questions
Is this possible that Goodcar wouldIs this possible that Goodcar wouldconduct further restructuring other thanconduct further restructuring other thanproduction-cost cuts and bonus salary cutsproduction-cost cuts and bonus salary cutsin order to secure the dividend paymentsin order to secure the dividend payments
in 2010 if the company forecasts a loss onin 2010 if the company forecasts a loss onnet income and operating income again onnet income and operating income again onthis fiscal year?this fiscal year?How would the company use thisHow would the company use this
corporate bond of about JPY 700bn ?corporate bond of about JPY 700bn ? Is this possible if Good car wouldIs this possible if Good car would
consider receiving a sale offer fromconsider receiving a sale offer fromcompetitors based on the recent instancecompetitors based on the recent instancesuch as Fiat-Chrysler merger and Porsche-such as Fiat-Chrysler merger and Porsche-
Volkswagen merge?Volkswagen merge?
G d d lid d i l f h d d M hG d t d lid t d i lt f th d d M h
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Goodcar reported consolidated earnings results for the year ended MarchGoodcar reported consolidated earnings results for the year ended March31. Figures are in millions of yen.31. Figures are in millions of yen.
Operating Pre-TaxOperating Pre-TaxNetNet
Revenue Profit ProfitRevenue Profit Profit
IncomeIncome Full-Year ResultsFull-Year Results 2052957020529570 -461,011 -560,381-461,011 -560,381
-436,937-436,937
Year Earlier PeriodYear Earlier Period 2628924026289240 2,270,375 2,437,2222,270,375 2,437,2221,717,8791,717,879
Versus ResultsVersus Results -21.9%-21.9% -120.3% -123.0%-120.3% -123.0%-125.4%-125.4%
Company ForecastCompany Forecast 2100000021000000 -450,000 -500,000-450,000 -500,000-350,000-350,000
Versus Results Versus Results -2.2%-2.2% -2.4% -12.1%-2.4% -12.1%-24.8%-24.8%
Toyo Keizai Est.Toyo Keizai Est. 2100000021000000 -450,000 -500,000-450,000 -500,000-350,000-350,000
Versus ResultsVersus Results -2.2%-2.2% -2.4% -12.1%-2.4% -12.1%-24.8%-24.8%
2nd-Half Implied2nd-Half Implied 8,339,1658,339,165 -1043079 -1196868-1043079 -1196868
-930,406-930,406
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Goodcar Motor Corp., the world'sGoodcar Motor Corp., the world'slargest automaker, cut its annual dividendlargest automaker, cut its annual dividendfor the first time and predicted a lossfor the first time and predicted a loss
that's almost twice analysts' estimates asthat's almost twice analysts' estimates asglobal car demand plunges.global car demand plunges.
The loss may total 550 billion yenThe loss may total 550 billion yen($5.5 billion) for the year ending March($5.5 billion) for the year ending March
2010, compared with a loss of 436.9 billion2010, compared with a loss of 436.9 billionyen a year earlier, the company said in ayen a year earlier, the company said in astatement today. The maker of Lexus LSstatement today. The maker of Lexus LSsedans and Corolla small cars wassedans and Corolla small cars was
expected to forecast a loss of 284 billionexpected to forecast a loss of 284 billionyen, according to the median of 17 analystyen, according to the median of 17 analystestimates compiled by Temple University.estimates compiled by Temple University.
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