Assessed Blog 8 Wells Fargo-The ethic scandal

Welcome to my final blog,thanks to the teacher and my group mates.l really stimulate a lot from blog,not only concrete my knowledge,more importantly,it has develop a habit for me to read more business news around us.

Bank industry is a really complex environment,the inappropriate corporate culture and temptation from the outside finance area will led to the serious problem happen,for instance,the improper acquisition from RBS,and the LIBOR scandal.l have introduced Warren Buffet last week who is a greatest money marker in the world,and today here is a banking called Wells Fargo make Buffett’s company lose 14 billion in just one day because of the ethic scandal.  

According to the public,the wells Fargo scandal that involving fake accounts with real customer money was a corporate scandal unlike others which is to say,the scandal not only destroy the company’s reputation,but also make the customer suffer a great lose.Moreover,Instead of a select few doing bad things, the unethical behavior was widespread at the bank, with thousands of employees engaged in secretly creating new bank and credit-card accounts for customers without their knowledge, resulting in overdraft and other fees.In the market,we always say customer’s value should be set priority,but Wells Fargo try to damage the customer wealth for pursing higher target.So far,there is about 5300 employees had been fired over this scandal and the company also been punished by the regulator,the company’s share price plummet.

(Figure 2:Share price of Wells Fargo)

Company strategy

This kind of ethic scandal is always follow the inappropriate company strategy.In order to reach the high target of the company,in Wells Fargo,the employees all try to pursue the aggressive sales goal,for instance,a “Gr-eight”initiative has been advocated which is a push to increase the average number of financial products customers held from six to eight.A customer with eight financial products!!How does this possible?This kind of strategy is based on a sell method which is called cross-sell,by recommending another product to customer who is already consume in your company.Basically,this kind of sale can increase the possibility of remaining  your customer more than who have less financial product and reduce the cost of finding a new one.So,it is been spread all over the company.

Corporate cultural

Such serious banking scandal usually have the close relationship with the corporate cultural.If such high goal set by the top management just want to motivate their employees,then it is kind of acceptable,but the truth is,the management in Wells Fargo,according to the employees,is really tough.Everyone who did not achieve the goals,will face the possibility of being fired.The successful company like Alibaba in China and Google,except for their customers,they all think highly of every employees in their company,l mean,in such working atmosphere,workers are all inspired and motivated by their corporate cultural,subsequently,they can generate more ideas or possess high efficiency in doing their work.But in Wells Fargo,employees will suffer both from the unrealistic goals and tough manage from the top manager which is the reason force them to make fake accounts.However,the banking industry is quite different from the internet finance,employee’s salary is quite close with their performance,so l believe the CEO can advocate more welfare ,by showing more concern over their workers to reduce their pressure.

Unique banking scandal and the improper penalty

Unlike the scandal of RBS which is the mistake from the chief executive led the company into failure.Wells Fargo has stole their customer information to make money for themselves,it may not make company lose such money,but it did damage the reputation of the firm’s.In today’s market,most deals are based on the trust,it is the fundamental of a company.But what to my surprise,is what Wells Fargo did after the scandal and the punishment by the regulator,only 1.85 billion dollars penalty and 5000 employees being fired,1.85 billion dollars is a really tiny number to such a bank company,especially they have made such serious scandal.Also,l wonder why there is only 5000 employees being fired,l don’t believe there is no top manager,even the CEO know nothing about the operations before.If such serious ethic problems can be solved with this degree of punishment, l may think there are more scandals like Wells Fargo are hidden from the public,just we don’t find it.

After scandal

If we look at the share price of Wells Fargo,it has experienced a dramatic increase recent month.On the one hand,we can see that the reaction of the company after the scandal is timely,it said that the scandal is direct relate to the pressure from the cross sales to the employees,and Wells Fargo has already forbid that sales method.On the other hand,according to Buffett,when we evaluate a bank company,PB is not the important thing we should consider,we need to focus on the ROA of a company,and the ROA of the Wells Fargo is far exceed the same industry,as we can see from the Figure.

(ROA of Wells Fargo)

(ROA of citibank)

To sum up,in my opinion,l suggest company that care more about their CSR management,not just their profit.Moreover, a concern over the worker is necessary.

 Assessed blog 7 World’s greatest money maker-Warren Buffett

In this week l watched a video about Warren Buffett,the world’s greatest,also the most welcomed money maker.Actually ,l choose to watch is because he is my favorite investor.There are many rich man in this world,they all have their unique rule and method to operate their business,and Warren Buffet is no exception.But how to be a rich man be respected by everyone is what makes Buffet unique.So,in this blog l want to find out how Buffet step into success and has such influence all over the world.  

Warren Buffett’s name is practically synonymous with his biggest success: Berkshire Hathaway. Warren became an integral part of Berkshire Hathaway in the early 1960s and helped the company expand into one of the largest conglomerates in the world. In 1956, his path to success began to accelerate when he moved back to Nebraska with his family.And in 1982,he stake in Coca cola for 1.2billion dollars,about 11 dollar per share,and hold it for a long while,in 1985,the per share has increased to 51.5 dollar per share.However,Business for Buffett hasn’t always been rosy though. In 1975, Buffett and his business partner, Charlie Munger, were investigated by the SEC for fraud. The two maintained that they had done nothing wrong and that the purchase of Wesco Financial Corporation only looked suspicious because of their complex system of businesses.Further trouble came with a large investment in Salomon Inc. In 1991 news broke of a trader breaking Treasury bidding rules on multiple occasions, and only through intense negotiations with the Treasury did Buffett manage to stave off a ban on buying Treasury notes and subsequent bankruptcy for the firm.Modesty and quiet living meant that it took Forbes some time to notice Warren and add him to the list of richest Americans, but when they finally did in 1985 he was already a billionaire. Early investors in Berkshire Hathaway could have bought in as low as 275 a share and by 2014 the stock price had reached $200,000, and was trading around $220,000 earlier this year.

Unnecessary to diversify your investment

Which impressed me most is his unique investment idea.That is,to invest what we understand and care about.Don’t worry about the price,but care the return from the company and whether it was been undervalued.From the traditional portfolio theory l have learnt,it is better to diversify your investment to both reduce the risk and make considerable returns.But Buffett says you can put your eggs in one basket,and wait what happened ,only if you know it well.Warren Buffett is obviously a value investor,and his strategy is try to know everything about the company,choose a undervalued one and hold it for a long time.But l believe such long time investment can only be used into the stable and large size company,like the investment in Coca cola.

Don’t go into debt
The other point is what he mentioned do not go into debt,l remember clearly that his daughter want to borrow money from him to open a restaurant,as a billionaire,the money to him is just a simple thing,but he refused,and the reason is he hate debt.It is a little surprised to me,but maybe is his resistance to his rules can make today’s success.However,to be frank, l think not go into debt is just a warning to pay attention to your debt at every moment.Nowadays,there is no firm’s can get away from debt,they need debt to expand their business,moreover,the benefit of the tax offset can create more value to the shareholders and instruct the company close to the optimal capital structure.So,100% without tax is non-exist,what firm should do is learn to constraint their ambitions,try to adjust a more stable capital structure.

Act like a child,think like a giant

To act like a child and think like a giant is what l can think best to describe Warren Buffett.Here,act like a kid,is not to say his action is naive,quite opposite,what Buffett did made him more closer to the public,that’s why he is respected by everyone.Unlike the other billionaire,he lived a extremely simple life,like eating junk food,hamburg,ice cream,and at least drink 2 bottle Coca Cola(which is quite interesting prove what he said,to invest what you completely understand),furthermore,he like play Ukulele,poke and engage in every entertainment. “My house is good,warm in winter,cool in summer,that is enough.”what he said which explain a simple lifestyle.What l remembered clearly is that his basic idea has also been totally integrate into his corporate cultural when Evan Davis went into the website of Berkshire Hathaway,can you image a modern and high valued company website only have words without any picture in it?But l have to say,that is Buffett,only presented waht is needed.

Charity work

Except for the simple living standard,Buffet also keen on charity work.A shocking news is that he has pledged to give away 99% of his wealth within ten years to support the charity work.Buffett donated a total of 19,608,620 class B shares of Berkshire Hathaway stock to five separate charities. The big winner is the Bill and Melinda Gates Foundation, which received 14,968,423 shares worth an approximate $2.2 billion, As for the rest of the beneficiaries, Buffett decided to keep it in the family, so to speak. He gave 1,496,842 shares ($215 million) to the Susan Thompson Buffett Foundation, named for his late wife, which focuses on family planning programs, and 1,047,785 shares ($150 million) each to the Howard G. Buffett Foundation, The Sherwood Foundation and the NoVo Foundation, which are run by his children Howard, Susan and Peter Buffett, respectively.He even not leave any money for his child which he believe they need to earn their wealth by their own hands.

To sum up,l really want to become a man like Warren Buffett,not because his wealth.But his attitude towards life,and his insistence on his principles. 

Assessed Blog 6 Merger and acquisition-Intel 

In this week lecture,l have learnt about the company merger and acquisition.This is a financial part which make me really interested in,if you look back at my blog,l have list many example about the company merger and acquisition.Like the Chinese real estate company Vanke’s takeover defense,and the downfall of the RBS because of the acquisition of Dutch bank without due diligence.Initially,maybe is the affection of this acquisition failure and defense news experience,to be frank,in my opinion,l think merger and acquisition is not good for a company,especially when they offer such a large premium to the target company which means the loss of the shareholder of bidding company,if the merger is failed,it also will cause a big issues in bidding company’s share price or the liquidity(if they purchased in cash). However,the formula PVAB = PVA + PVB + gains has reminded me that if the company does sufficient research into the area they want to expand,and there exist actual potential profits,such merger or acquisition indeed can bring both company highly returns.

Recently,the chipmaking giant said that they will pay 15.3billion pounds to buy Mobileye,the maker of autonomous driving technology, in one of the biggest deals yet in the emerging field of self-driving cars and Israel’s biggest-ever cross-border acquisition.It should be noted that Intel has paid a lot premium through this deal.Based on FT, the $63.54 per share that Intel is paying is a 34 per cent immediate premium,and all the money is paid by cash.Up to know,l have wondered that did this deal really can reach the expectations of Intel executives?l mean such a big premium will lead to the increase of cost of capital and damage the wealth of shareholders.Even worse,such big payment all paid by cash will seriously affect company’s liquidity.So,what is the real situation of this deal?

Excellent development prospects

If we look into the self-driving industry,it has a huge potential recent years,with the explore of the Silicon Valley,there are already number of cars test in road in street.For example,in California,the number of self-driving car has surged.To go further,l believe this application will spread allover the world,most driver will be placed by advanced software.It will be a big reform of the traffic industry,

Highly technology

The other factor l believe make these two companys together is that they both own best technology in their field.For Mobileye,they own a technology in self-driving called REM,compare by just use the images of the inter connection in cars,signals,and street videos.This can help save the cost,but need a highly advanced connection technology which is the cloud computing technology by Intel,so it is a good combinatioto the traditional self-driving technology highly rely on the LIDAR,this method can save a lot cost n between this two company to share their experience.

Enough cash flow and well-prepared

Through the research,l believe there will not liquidity problem exist inside Intel company.First,some people say that Intel has missing out in large part on the mobile-device revolution and allowing its once seemingly insurmountable lead in semiconductors slip away.But if we look at that time’s data,we can find Intel deal well with their company’s strategy and company’s wealth.  

in market,Intel has dig deep whether in technology or in capital.In particular, both net income and free cash flow have jumped in the years since the financial crisis, with volatile movements from year to year masking, in some ways, Intel's overall upward trend. As revenue has grown, Intel has ensured that more money falls through to its bottom line, supporting its profitability, its return of shareholder capital through buybacks and dividends, and its positive overall cash flow.Moreover,the missing time of the mobile phone period has stimulated lot of capital for Intel to invest in today’s strategy.And if we do deep research into the activity of Intel start in 2016,we can find they do really prepare in exploring in autonomous vehicle market,in April,they takeover a Italian company called Yogitach which is focus on developing chip for self -driving and robot.In May,by takeover a Russian company called Itseez for improving the car safety systems.In September,takeover a semiconductor chip makers which is professional in development of visual chip.It is not hard to reveal the purpose of Intel want to expand a market in self-driving market.Unlike the RBS(blog 2)without due delligence

Unique transaction

If we go into the deal,we may find that this transaction is unique.From the Mobileye report,it said that instead Mobileye will be integrated into Intel,Intel’s automatic Driving group(ADG)will be integrated into Mobileye,and the headquarter will still located in Israel.Whether or not,l believe this is a benefit action both for Intel and Mobileye,for such technology company,it is important to remain their corporate culture and space for self-development,too much dominate for Intel may eliminate the corporate identity,so it is wise for Intel to give a assistance to Mobileye rather than to control them.   

After the acquisition information has published, the share price of Mobileye has rocketed,obviously,the merger by Intel is a great positive motivation for Mobileye, all cash payment is extremely important for this kind of technology company which means they can invest them in where they want to push their reform and innovation. By contrast,Intel experienced a downward of its share price,because of the decrease of its cash flows which makes me think about the assessing success in merger and acquisition in lecture when a merger is success the target will gain 20% in average but the bidding company may gain nothing at first.

On conclusion,in my view,l believe this will be a success acquisition for Intel.The cautious market research,and the brilliant market prospects can afford a affordable gain for Intel.But to be honest,it is still a long way to implement completely automatic driving period,and there still many competitors devoted into develop more sufficient self-driving systems.It is expected that these two company combination can create more value for their shareholder.

Assessed Blog 5 How to become a wolf of Wall street

Assessed Blog 5 How to become a wolf of Wall street

In this week,l watched a film called “THE WOLF OF WALL STREET” which is on the background of American finance center-wall street.Jordan Belfort,the legend of wall street who is acted by Leonardo DiCaprio,showed his business life from glorious to downfall with fraud and drugs.

The film describes the Jordan Belfort,,was start his career as a wall street stockbroker in L.F Rothschild where he employed under Mark Hanna.With the black Monday,the job was terminated.And he find a another job in Long island for selling penny stocks, he gained a lot through that,with the excellent eloquence and strong ambitious ,he start his own chip,found their own company called “Stratton Oakmont ”where create a miracle for gaining 12milliom dollars in 3 minutes.Finally,his job has ended with his crime of financial fraud and arrogant.

It is a kind of biographical black comedy crime film which full of drugs and exaggerate things.But there still many interpersonal skills and knowledge through finance area has inspired me a lot,especially for Jordan Belfort,gaining 12 million dollars in 3 minutes!How a man build up with nothing to become a legend of the American financial center.

Psychological battle

Everyone have a dream to become a millionaire and every rich man want to gamble for gaining more.Belfort use this psychology to make their business step into success.More importantly,they know how to create demand for their customer.l remember in the film,Jordan want one of his friend to sell a pen to him,his friend ask him,please sign your name for me,but he didn’t have a pen,so he need to buy one.That impressed me a lot is that we need to create and help customer realize what they want.When Jordan in Long island to sell a customer a penny stock,he not only decorate the stock,but also make the customer know they need money to pay their mortgage,to raise their children,they give them the pressure to make them understand they need money now which accelerate the deal.

Extraordinary communication skills

In 1987,such stock deal are achieving by telephone,how to make people trust you and attract by you in just 5 minutes talk.That is a great deal of knowledge.Obviously,Jordan handle it very well. “You mailed my company a post card for a few weeks back,requesting information on Penny stock that had huge Upside potential,with very little down side risks.Something just come across my desk,John,it is a packs is the best thing I’ve seen in all last 6 month Aeronautic International, it is a cutting edge high tech firm,Out of mid west.Awaiting imminent path approval,on the next generation of radar detectors that had both huge military and survilliance application .Your profit,on a mare $6000 investment,would be up to Sixty!----Thousand!----Dollars!”It is what he said to a penny stock buyer,not hard to find that how much attraction in this short words,a huge upside potential company,best thing l have seen in last 6moth,the inside information,6000dollars for sixty thousand bonus!!You can image a person who have a billionaire dream heard that news will be such a big temptation to him.

Diversify competence

Of course,it is not only Belfort who led the company to success.He also has a real royal and emotional teammates.They are perfect complementary with each other.Just like Belfort and his friend Porush.They were totally different person.Belfort had sleeping problems. Porush could fall asleep everywhere – even during bumpy plane rides. Belfort was a highly strategic leader who specialized in delegation. Porush was a good enforcer –brutal enough to eat a gold fish to put employees in their place.Belfort was analytical and had a long-term orientation. Porush was emotional and short-sighted.hey were both good at different things – but together they were a great combination.

Strong corporate culture

Except for the brilliant interpersonal skills showed by Belfort.He also create a enticing company culture.Maybe the culture in Stratton Oakmont is a little exaggerate and luxury,but it is easy to addict in your job and get motivated in such company atmosphere.The first thing is to establish a concrete reputation,like Belfort said in once speech“The very idea of Stratton is that it doesn’t mais first year. Anything less and he was suspect. By year two you were making $500,000 or you were considered weak and worthless. And by year three you’d better be making a million or more or you were a complete fucking laughingstock”Every employee want to earn more in the company,such motivation can meet altter what family you were born into, or what schools you went to, or whether or not you were voted most likely to succeed in your high-school yearbook. The idea of Stratton is that when you come here and step into the boardroom for the first time, you start your life anew”Try to imagine when a young people who possess a emotional heart in their career lives and he saw such a speech.He may think that it is the place that they want to work for.The second thing is to make expectation for their employees”A rookie stockbroker was expected to make $250,000 hl their needs and expectations,it can make your employee have the same congruence,work more efficiency.

On conclusion,”The wolf of wall street”is really a great movie that deserve us to appreciate.Undoubtedly,Leonardo’s performance was awesome.In my opinion,the core purpose of this film is not only tell us about the theory knowledge about the stock market in 1987 America,but focus on how we should behave in the workplace,what should we get,what should we avoid.l believe we should always keep confidence,you need to get well with your friend and workmates,always keep cautious and curious,to learn experience from your predecessor and to remember,money is necessary bu t it is not everything,do not be greedy.

Assessed Blog 4 Capital structure-The company of Xiaomi and Letv

Assessed Blog 4 Capital structure-The technology company of Xiaomi and Letv

Through the previous learning in class or research in specific industry like banking area ,it is crucial for a company to highlight the importance of your shareholder’s wealth and create a health corporate cultural.Meanwhile,a suitable capital structure is the fundamental part of the enterprise,a suitable proportion between debt and equity according to the different situation appears particularly important.In this blog, l will compare two technology company which start their business in smart phones and TV respectively in China to evaluate the importance of an health capital structure.

Letv is a company which start their business in TV industry,then the company grow quickly and expand in many different areas,like cars,entertainment,smart phones.It has create a unique operate model which is called”business ecological chain”But to be honest,l think it is just a name,it reveals the arrogant and overspend of Letv invest in different industry in China.Subsequently,the company face the problem of lack of money,then it borrow money from banks by place its shares as mortgage.

Obviously,such a company over-spend their capital in pursue expand larger and invest in different industry without due dilligence will decrease both shareholder and public confidence,moreover,with the lack of both quality and technology in their TV industry recent years. After a rocket in its market share,it bottoming out seriously,the market share is not worth than before.The company has face serious problems in just five years.The debt in company is a big issue,the strategy of pursuing highlight industry blindly has already led a high gearing of the company.With the trigger of downfall of their market share,it has face severe pressure both inside the company and outside the public,the loaner want their money back,supplier found no confidence in Letv.The capital chain rupture has happened.

What’s worse,Letv has been found by regulators for raising capital illegally,things happened in 2015 by emerging a popular method of raising capital called “peer to peer”which is new way to raise capital without bank,but person to person.In 2017,It has been found that Letv has raising the lender’s money for paying back their debt.when the news came out,the share plummet.And Letv face the serious situation of bankrupting.    

On the contrary,Xiaomi is a privately owned Chinese electronic company headquartered in Beijing.The CEO of this company is called Jun Lei.The company start its business and attract lots of customer in China with a series of smart phones which possess extremely lower price and high price-quality ratios.The feature of Xiaomi’s smart phone business which is they don’t have the local store,all their smart phones are sold online,it save them a lot device and management cost.Furthermore,they have advanced technology in phones,but the price is lower beyond your image.For instance,the evaluation of cost in Xiaomi’s forth generation smart phone is about 2000 RMB,but the market price is only 1999!!You maybe surprised,it means the company are doing the business which make them loss money,but the truth is they still gain a lot profit,the reason is Xiaomi was doing some futures trading with their accessories,so the cost of the phone is not worth than the current value.

With the extraordinary successful in smart phones area,Xiaomi was step further in electronic furniture and TV industry still with competence price.Furthermore,it also step in global market,in India,where revenues exceeded $1bn last year and doubled sales of smartphones from 3m to about 6.5m. Xiaomi touted the numbers as evidence that it “truly became an international company”Different from Letv,although Xiaomo has also expand quickly in their market ,but they still put their main business in developing advanced smart phones,the other product line is just the subsidiary.And they do cautious in control their capital structure,in order to avoid the situation like Letv,the CEO has announced recently “We must slow down and earnestly learn from our mistakes. Prevention is better than having to fix things later.” According to the FT,Xiaomi has prepared to slow down its step in international market,the leaving of Hugo Barra(the ex-android executive and take responsibility in India market of Xiaomi)can be proved that.Moreover,Xiaomi did not use a lot debt to push their market growth,it is not even listing on the market,so to prevent the problems like Letv early which is a good decision.

     

l have think about the optimal point based on the trade-off model.l believe there is no fixed one for a industry,even a company.The optimal point is change every time,it is flexible.Company should learn to adjust your capital structure according to changeable economic environment,like Xiaomi,when they found it was a time in starting their smartphones business in China,they try to increase their gearing to meet the better chance appear in the electronic market,as the same,when the situation is serious than before,they take measure to adjust their debt to decrease the risk in this period.If the company want to live longer,they can’t just thinking about expand and step into business based on the popularity,they also need to understand themselves,taking a appropriate capital structure.

        

        

Assessed blog 3 Barclay- Banking scandal

Assessed blog 3 Barclays- The manipulation of LIBOR rate in banking sector

          Welcome back to my blog! Last week, l was talking about the sub-prime mortgage crisis and the fall down of RBS by misleading of Fred Goodwin and other chief executives. L have found that the environment in banking area is quite complex and it is driven by many factors both inside the corporate culture and outside the economic tendency. It is quite fascinated me to get further research in UK bank area. Just after 5 years of financial crisis by the trigger of leman brothers, in 2012, another biggest banking scandal in UK has appeared.

Biggest banking scandal

          “Dude, l owe you big time! Come over one day after work and l am opening a bottle of Bollinger.” Said by an external trader to a Barclay trader. Beginning in 2012, an international investigation into the London Interbank Offered Rate, or Libor, revealed a widespread plot by multiple banks—notably Deutsche Bank, Barclays, UBS, Rabobank, and the Royal Bank of Scotland—to manipulate these interest rates for profit starting as far back as 2003.Barclays and banks from others countries are founded to manipulate LIBOR for making profits and lie to the public.

    

What is Libor? Why does it matter?

      At first, l do not quite understand what Libor is. Based what l learn, l thought it was just a rate which relate the loans bank making to each other. When l do some further studies, l find that it is not the easy things what l think. By contrast, it is the most important base rate. Many banks worldwide use Libor as a base rate for setting interest rates on consumer and corporate loans. Indeed, hundreds of trillions of dollars in securities and loans are linked to libor, including government and corporate debt, as well as auto, student, and home loans, including over half of the United States’ flexible-rate mortgages. It is said about 300 trillion pounds contract and loans are related to this number.

How dose such important rate being manipulated?

      So far, l cannot help to wonder why such important rate can be manipulated. Is there any regulators to supervise it? Nobody to become suspicious when such important rate changed? When l googling some news, l realized that it is possible to manipulate Libor in this particular situation. Firstly, l did like to talk about the formation of Libor rate, to calculate the Libor rate, a representative panel of global banks submit an estimate of their borrowing costs to the Thomson Reuters data collection service each morning at 11:00 a.m. The calculation agent throws out the highest and lowest 25 percent of submissions and then averages the remaining rates to determine Libor. This calculation method give Barclays and other banks a chance to get in, they were came under investigation by a handful of regulatory authorities—including those of the United States, Canada, Japan, Switzerland, and the UK—for colluding to manipulate the Libor rate beginning in 2003. Secondly, the specific economic environment in UK banking area have weaken the supervise power and tempt the bank to interfere Libor rate, as we know,2012 is just after 5 years of financial crisis caused by sub-prime mortgage market. People in UK have already loss a lot confidence in banking area, for banking area, l believe the most essential thing is to let people believe you, if they not, you can hard lend your loans and make your profits. Subsequently, in order to give public confidence and make people believe them, banks are try to make some estimate or fake figures to make their company look health and better, so in my opinion, some banks are not aim directly to rig the Libor rate, maybe they just want their company to look health to public for attract customers. Thirdly, l have found that although the change of Libor rate is a very tiny number, it indeed have big influence to the banks, which l mean such a tiny change is hard to grasp by the regulator. There is an example l find on the finance website which can identity that point. If we see the calculation we can find that the Barclays traders actually affected the rate by only one basis point, they would have made more than $2 million payment based on the notional amount is 80 billion by this tiny change of Libor rate.  

The highest penalties and consequence caused by Libor scandal

      Regulators in the United States, the UK, and the European Union have fined banks more than $9 billion for rigging Libor, which underpins over $300 trillion worth of loans worldwide. Since 2015, authorities in both the UK and the United

States have brought criminal charges against individual traders and brokers for their role in manipulating rates, though the success of these prosecutions has been mixed. The scandal has sparked calls for deeper reform of the entire Libor rate-setting system, as well as harsher penalties for offending individuals and institutions, but so far change remains piecemeal.

Barclays was the first bank to take a penalty, coughing up 290million pound for manipulation. Several others have been hit with fines since, including Deutsche Bank, UBS and Rabobank. No offense, to be frank, l think it is very ridiculous that the government has helped to bail out the UK banks industry in financial crisis during 2007 and 2008, and now they are let down by what they have saved before.

  On conclusion, l think the UK government should have a completely reform in the banking industry, also the external traders and brokers. More efficient legislation and skillful regulator should be built and trained. More important, government and related organization should not always appear when the things has happened, they need to act early, like to publish some mesurament to help public raise confident in bank, maybe that will prevent the Libor scandal happen. But l know economic is always the complex thing, banks should always obey the rules to earn a long living.      

Assessed blog 2-RBS:inside the bank that run out of money

Assessed blog 2 RBS:inside the bank that run out of money

  In October 2008, RBS(The Royal Bank Of Scotland) has published a announcement which has suffered a

loss of nearly 24 billion pounds.That information has completely ruined its reputation and threat the position of Scotland as one of the financial center all over the world.   

    Loss 24 billion pounds in less than 1 year!!How can that happen?Especially one of the most famous bank in the world.The video really surprised me.When l finished watching and to do some research on my own,l can divide the RBS’s failure in 2008 into three main reasons.First,the sub-prime mortgage crisis.Second,the acquisition of Dutch Bank ABN AMRO.Third,the individualism and arrogant of top leaders.

    The first and most important thing l want to talk about is the corporate cultural inside RBS,cause i think the basic reason led to such great loss is the arrogant and individualism of top leaders inside this company.Although the financial crisis and acquisition is also crucially important,it is can be avoided before they do completely due delligence.The case has made me think about the trail blog l wrote about Digby Jones,he has said that if you want to be success,you must go deep research into the market where you want to step in,to know what attract your customer most. As the same,such a big acquisition with out previous investigation and evaluation is a deal that beyond our imagination. The reason why they not doing that is the overconfidence and individualism of the Fred Goodwin’s manage performance.One thing impressed me most is the interview with the pre-colleague of Fred Goodwin,he said Goodwin is a person which possess high knowledge but usually use his knowledge to bully people around him, a little acerbic.What l want to say is that maybe the tough management style did bring RBS excellent efficiency,but the negative aspect is that no one want to express their opinions and suggestions.l always wonder that did nobody give some oppositions to Goodwin in every morning meeting about the Dutch Bank acquisition in RBS?But when l go deep in this corporate culture,l know the meeting maybe is just a “personal show” of Fred Goodwin himself.

   

The second reason is about the financial crisis which we also called the sub-prime mortgage crisis.Actually,there was some apparently indication has appeared since some mortgage institution in America met  problems,then the situation has extended to Europe.Many citizens has used their house as mortgages to bank,then bank sell this to another bank for gaining profit follow this circulation.But with the housing price down and interest rate goes up,the house was not worth than their previous value,individual cannot offer such big loans to bank.The financial crisis began,in October 2008,by the trigger of Lehman Brothers downfall.The stock market in America collapse,bottoming at 7062.

(The Dow Jones index of America)

      

   Then followed the third reason which is RBS decide another acquisition of Dutch Bank ABN AMRO.Such a company in banking area,prepare to takeover a large size and badly operate company during this tense situation(sub-prime mortgage crisis appear)without due dilligence?l wonder why there is no one notice the change of the sub-prime mortgage market.Maybe is their greedy and over-confidence has blinded eyes,undoubtedly,Fred Goodwin’s decision early is brilliant(Natwest,credit card,second-hand car,Citizens)but this time was different because the unpredictable of the market situation.All Fred Goodwin think about is to expand their company size and with his previous successful experience and tough leadership through the company,he can’t get advisable suggestions.Let’s look back at this acquisition,first,Barclay has offered a price of 66 billion pounds to ABN AMRO,soon after,led by RBS including Fortis Bank and Banco Santander made an even big offer of 72billion pounds,RBS wins the battle.But the 72 billion pounds include 50 billion was made up of cash by selling shares in RBS.It makes me think about what we have learnt in our first week,generally,the cost of capital usually is more important than debt finance,to collect such big cash by selling shares have damaged the value of shareholders,to be frank,l think it was the reason why there is no shareholders want to help Goodwin when RBS finally went nearly collapsed.He didn’t appreciate the value of his shareholders,all he think about is to make his company bigger,by afford large premium to ABN AMRO without any due dilligence.Unfortunately,with the financial crisis,Dutch bank ABN AMRO was found about hundreds of millions pounds were related to sub-prime mortgage investment.The RBS finally has suffered about 24 billion pounds.The share price of RBS has plummeted.           

  To sum up,l believe that the sub-prime mortgage market and acquisition on ABN AMRO was just the trigger of this whole thing .The main problem is the over-control of the Fred Goodwin and other top leaders in RBS,they are individualism and arrogant led the failure of RBS.l have learned that if the company want to survive ,it is better to both know your competitor and yourself,always do fully previous research before coming to any decisions in right time.And the most important,cultivate a harmony and open corporate culture for living long.