Course Description:

 

The focus of this course is primarily on determinants of competitive performance in the global financial services industry. It covers the entire range of commercial and investment banking activities carried out internationally. 

With respect to competition in international investment banking, we cover Eurobond and foreign bond new issues, competition in interest rate and currency swaps and synthetic securities, international equity finance, foreign direct investment and acquisitions transactions from the perspective of the seller of advisory services and financing. 

We discuss the dynamics of competition in international commercial banking, focusing especially on international trade financing, syndicated lending, project financing, and short-term financing alternatives. We also focus on country risk, one of the unique aspects of international finance—we consider both the nature of country risk and how it manifests itself in innovative LDC debt restructuring and asset-trading situations. 

The substantive discussion of competing in various international commercial and investment activities is interlinked to a geographic dimension, which includes discussion of conditions in the financial services sector in North America, Europe, and emerging markets. 

Concluding the course is an assessment of the determinants of competitive strength, market share, profitability, growth and similar dimensions of performance by financial institutions in the global marketplace. 

Contact Information:

 

ROY C. SMITH is Professor of Finance and International Business and Limited Partner, Goldman, Sachs & Co. Office: MEC 9-59, Tel. 998-0719, Fax. 995-4220, e-mail rsmith@stern.nyu.edu. 

INGO WALTER is the Charles Simon Professor of Applied Financial Economics and Director, New York University Salomon Center. Office: MEC 9-60, Tel. 998-0707, Fax. 995-4220, e-mail iwalter@stern.nyu.edu. Secretary: Ann Rusolo: MEC 9-160, Tel. 998-0703, Fax. 995-4220, e-mail arusolo@stern.nyu.edu. 

See Bios 

Administrative Matters

 

Prerequisites:

Students registering for this course should have had previous courses in basic economics, accounting and financial analysis at the undergraduate or graduate level. 

Pedagogy:
The course is case-oriented, and includes extensive classroom participation requiring students to apply principles developed in class to actual international commercial and investment banking situations. The case discussions are interspersed from time to time with "background sessions" to explain the technical aspects of the activities covered by the cases. 

Text and cases:
The text for the course covers both international commercial and investment banking: 

Roy C. Smith and Ingo Walter, Global Banking (New York: Oxford University Press, 1997). 

Roy C. Smith and Ingo Walter, Cases & Readings in Global Banking, Part 1 and Part 2, Spring, 1998. 

Several copies of the textbook and the casebook will be kept on library reserve, as a service to those unable to purchase them. 

Students should have read the assignments before coming to class. Material covered in the assigned textbook readings will generally not be repeated in class. Rather, class time will be devoted to background and case discussions which apply the material covered in the readings. 

Case Assignments:
Students should carefully read and be prepared to discuss all assigned cases. No cases need to be handed-in. However, we will cold call on students in class to present their case findings. The assigned cases will also constitute a significant part of the two examinations. 

Examinations:
There will be a mid-term examination, which will cover the first half of the course, and a final examination, which will cover the second half of the course. Each examination will deal with all of the assigned readings, cases, and classroom discussions. Students who have not read the cases nor been present for the class discussions will find it difficult to pass the course. 

Classroom Participation:
Each student will be expected to participate actively in class discussion. 

Course Home Page:
There is a home page for this course on the Stern network (http://www.stern.nyu.edu/~iwalter/globe/index.html). You can download a copy of this outline at any time. Important announcements will also be sent to all registered students via e-mail. 

Grading:
The course grade will be determined as follows: Mid-term Examination 40%, Final Examination 40%, and Classroom Participation 20%. 

01 - W 1/21 [Walter] Introduction and overview 

Overview of the course. Discussion of global trends in commercial and investment banking at the wholesale and retail level, with emphasis on the implications for competitive conditions in the industry. 

Assignment: GB, Chapter 1. 

PART 2 - GLOBAL WHOLESALE MARKETS 

02 - M 1/26 [Smith] Debt capital markets I 

Discussion of what comprises international debt securities markets, what activities are involved, and how firms compete in them. 

Read GB, Chapters 8-10. 

CASE: The General Electric Company and Its Bankers 

03 - W 1/28 [Walter] Debt capital markets II 

Discussion of the emerging-market sector of debt capital markets, focusing on a case involving underwriting of an Indian, non-sovereign fixed-interest obligation. 

CASE: ICICI 

04 - M 2/2 [Smith] Trading in global capital markets 

Discussion of trading and market-making in global debt markets, focusing on a case in which the London-based finance subsidiary of a major Japanese trading company considers its role in the international money and financial markets, and its profitability, risk profile and future business strategy. This case is contrasted to that of a private hedge fund's trading strategy. 

CASES: Mitsubishi Corporate Finance Ltd. and Everest Capital 

05 - W 2/4 [Smith] Equity capital markets I 

Discussion of international equity securities markets, underwriting, and investor activities. This case involves the $12.5 billion privatization stock sale of British Petroleum under the British method of underwriting during the time of the great stock market crash of Oct 19, 1987. The British underwriting method, and exposure to risk, is contrasted with U.S. practices, the integration of the two systems into a common "global offering," and the effects on the deal of a major market collapse are discussed. 

Assignment: GB, Chapter 11. 

CASE: The British Petroleum Company PLC 

06 - M 2/9 [Smith] Equity capital markets II 

Discussion of the underwriting and distribution of the initial public offering of shares in the national telecommunications monopoly, Deutsche Telekom, in the global market by the Federal Republic of Germany under conditions of deregulation and increased competition. 

CASE: Deutsche Telekom 

07 - W 2/11 [Walter] Global lending I 

Discussion of the process of loan syndication, asset-backed lending, credit backstops and linkages to commercial paper programs. Competitive bidding case involving large-scale acquisition finance for a bottling subsidiary of Coca-Cola. Questions of financing alternatives and pricing form the focus of the case in terms of the commercial banks vying for the deal.

CASE: Prepare Coca-Cola and Schubert National Bank

Mon 2/16 No Class (President's Day)

08 - W 2/18 [Smith] Global lending II 

Discussion of international trade and structured finance, and a case involving a U.S. importer of sportswear from Southeast Asia. Discussion of risk analysis and tactical options available to a U.S. West Coast commercial bank. 

ASSIGNMENT: GB, Chapter 2. 

CASE: Blue Sky Sportswear 

09 - M 2/23 [Walter] Project finance I 

Nature and structure of international project financing and associated risk analysis. Competitive conditions in project finance. Project financing cases based on the early stages of financing the Eurotunnel project between France and Great Britain. 

Assignment: GB, Chapter 3. 

CASE: The Kalimantan Paper Project 

10 - W 2/25 [Smith] Project finance II 

Project financing case based on the early stages of financing te Eurotunnel project between France and Great Britain. 

CASE: Eurotunnel-Background and Eurotunnel-Debt 

11 - M 3/2 [Walter] Country Risk assessment and cross-border lending 

Purpose and techniques of country risk assessment, including tracking of country exposures, components of country risk, and setting of country limits. Application of country risk in a portfolio context, both with respect to banking and securities exposures. 

Assignment: GB, Chapter 5. 

PART 3 - REGIONAL FOCUS 

12 - W 3/4 [Walter] A regional focus: The United States 

Analysis of the U.S. financial system in the context of global capital markets from the perspective of efficiency and dynamism. 

Assignment: RC Smith, Comeback, Chapters 2 & 3 

CASE: Lehman Brothers 

13 - M 3/9 [Smith] A regional focus: Japan 

Assessment of contemporary banking and securities activities in Japan. Discussion of regulatory and economic factors affecting Japanese banking and emerging trends in finance in Japan. Two cases examine the evolution of commercial and investment banking in Japan. 

CASES: Sakura Bank Ltd. and The Nomura Securities Co., Ltd. 

14 - W 3/11 [Walter] A regional focus: Europe Assessment of shifts in the banking and securities environment in Europe in response to the 1992 single-market initiatives, including the Second Banking Directive, the Investment Services Directive, the Insurance Directive and the UCITS Directive. Case analysis of a major European bank pursuing a pan-European strategy. Assessment of risks and opportunities facing the bank. 

Assignment: Jonathan Story and Ingo Walter, Political Economy of European Financial Integration (Cambridge: MIT Press, 1997), Chapter 2. 

CASE: Crédit Lyonnais 

Mon 3/16 No Class (Spring Vacation) 

Wed 3/18 No Class (Spring Vacation)

15 - M 3/23 [Smith] A regional focus: Emerging markets 

Assessment of emerging market capital flows, the development of financial markets, and competitive opportunities provided to international financial institutions. 

Assignment: Smith and Walter, "Risks and Rewards in Emerging Market Investments." 

CASES: YPF, Sociedad Anonima and RAO Gazprom 

16 - W 3/25 MID-TERM EXAM 

PART 4 - GLOBAL M&A, PRIVATIZATIONS, AND THE MARKET FOR CORPORATE CONTROL 

17 - M 3/30 [Smith] Global M&A transactions 

Discussion of corporate advisory services and merger and acquisition activities carried out on a cross-border basis. Competitive simulation relating to cross-border M&A transactions in the case of a friendly but contested bid for a French congnac producer. 

Assignment:GB, Chapter 12 

CASE: The Acquisition of Martell 

18 - W 4/1 [Walter] The global market for corporate control 

Discussion of alternative systems of corporate governance and its implication for global capital markets and financial performance. Specific reference to an abortive effort to execute a European cross-border transaction on a hostile basis. This case analyzes the roles played by the various participants in one of the first unfriendly takeover attempt for a Swiss blue chip company. It illustrates the transference to Europe of various Anglo-American takeover methods, and demonstrates how the merger boom of the 1980s in the U.S. and the U.K. is moving (with all of its faults) to continental Europe. 

Assignment: Jonathan Story and Ingo Walter, Political Economy of European Financial Integration (Cambridge: MIT Press, 1997), Chapter 3. 

CASE: BK Vision and the Pursuit of Chase Manhattan. 

19 - 4/6 [Walter] Privatizations I 

Privatization of state-owned enterprises has become a major aspect of economic reform in developing countries as well as the transformation economies of Eastern Europe and Asia. Discussion of various aspects of privatization, including valuation, alternative distribution of shares, formation of control groups, and financing of bids. Privatization of the second-largest Mexican bank via sale to a Mexican control group. Alternative structures of the new entity, sale of shares and financing of the bid. 

CASE: The Privatization of Bancomer 

20 - W 4/8 [Smith] Privatizations II 

This privatization case involves the sale of a former East German pharmaceutical company by the German privatization agency, the Treuhandanstalt. It address the problems of Eastern European privatization efforts, and the roles played in them by western bankers. 

CASES: The Sale of Jenapharm 

21 - M 4/13 [Walter] Institutional asset management 

Economics of the global asset management business, including international private banking, international mutual funds, and institutional asset management from the perspective of competitive structure, conduct and performance. Competition among strategic groups for assets under management: Commercial banks, trust companies, insurance companies, investment banks, fund managers, and others, including aspects of competitive interpenetration. 

Assignment: GB, Chapter 13 

22 - W 4/15 [Walter] Global private banking 

Analysis of an international private banking case involving a wealthy Mexican client of a major U.S. bank, focusing on value-added portfolio allocation and maintaining the relationship. 

CASE: The Man Who Came to Breakfast 

PART 5 - REGULATION, STRATEGY AND MANAGEMENT ISSUES 

23 - M 4/20 [Smith] Global financial regulation I 

Assessment of the regulatory overlay of the commercial banking and securities industries in a global context. Discussion of the tradeoffs that exist between competitive efficiency, regulation and supervision in the context of different political jurisdictions. The problem of regulatory "fault lines." Conditions of market-access for foreign-based institutions. 

Assignment: GB, Chapter 6 

24 - W 4/22 [Smith] Global financial regulation II 

Case discussion of a major U.S. bank deemed "too big to fail" and its implications for stability and efficiency of the global financial system. 

CASE: Continental Illinois 

25 - M 4/27 [Walter] Stategic positioning and implementation I 

Getting the right strategy, and then, getting the strategy right. Analysis of tecniques for strategic positioning including market-structure analysis, economies of scale and scope. Discussion of shifting competitive structures in international financial intermediation between bank finance, securities finance and direct-connect mechanisms. Options facing global borrowers and investors. 

Assignment: GB, Chapters 7 and 14 

26 - W 4/29 [Smith & Walter] Strategic positioning and implementation II 

Integrative case discussion of a major Swiss undertaking a strategic redirection in the 1980s. A banking strategy formulation and implementation case. Students are required to bring to bear their knowledge of strategic positioning, competitive benchmarking, strategic execution and management of change in one of the most competitive segments of the global financial services industry. Assessment of the track record thus far and strategic options for the future. 

Assignment: GB, Chapter 15 

CASE: Schweizer Universalbank 

27 - M 5/4 [Smith & Walter] Managing conflicts and avoiding disasters 

Problems of managing for high levels of professional conduct in global financial markets, and its impact of the value of financial services firms. 

Assignment: Street Smarts, Chapters 1 and 11. 

CASE: JP Morgan and Banco Español de Crédito 

28 - M 5/11 [Smith & Walter] FINAL EXAMINATION; MEC Room 1-60