"Managing Noninterest Income and Noninterest Expense"
MOORE SCHOOL OF BUSINESS FINA 765 - Administration of Financial Institutions Spring 2006 Professor: Timothy W. Koch Office: Room 460, Moore School of Business Office Phone and voice mail: (803) 777-6748 Fax: (803) 777-6876 E-mail: email@example.com Office Hours: noon - 2:30 pm, MW, or by appointment Administrative Assistant: Ellen Roueche (Room 461) Phone: (803) 777-2664 E-mail: firstname.lastname@example.org Course Overview The objective of this course is to provide the student with the conceptual framework necessary to analyze and comprehend the current opportunities and problems confronting managers of commercial and investment banks. Course materials do not dwell on the development of financial theories. It is assumed that the student comprehends the basic theoretical concepts of corporation finance, monetary theory, and financial accounting. The course focuses on the operational strategies and performance of commercial banks and investment banks. Initially, students are asked to assess the financial performance of these institutions in terms of how they generate earnings, the nature of the businesses in which they operate, and what risks they take. A portion of the class emphasizes the role and performance of security traders and security analysts. General topics covered include how commercial and investment banks generate profits and manage risk, alternative models to analyze performance, interest rate risk management, capital management, securities underwriting, the role and performance of security traders and security analysts, investment analysis and money management. Each class session will be structured to include lecture, discussion, and/or problem and case analyses. Specific assignments are described in the attached materials. Required Course Materials 1. Bank Management, sixth edition, by Timothy W. Koch and S. Scott MacDonald, Thomson South-Western, 2006 [BM] 2. Selected readings, cases and problems [Supplement] Recommended Reference Materials 1. The Wall Street Journal 8. American Banker 2. Business Week 9. ABA Banking Journal 3. Forbes 10. Banking Strategies 4. Fortune 11. Journal of Lending & Credit 5. Barron's Risk Management 6. Monetary Trends 12. Euromoney 7. Financial Times 13. Economist Course Grading The course grade will be determined on the basis of two written exams plus cases/projects. The grading weights are provided below. Make-up exams, if appropriate, will be given at the end of the semester. Exam conflicts must be resolved prior to the administration of each exam. All exams will be problem-oriented and/or short-answer (key concept) in form. Grading* Points Possible Exam 1 200 Exam 2 (not comprehensive) 200 Cases, Projects 200 Total 600 * Specific material covered in each exam will be discussed in class. Cases & Projects Some case studies and projects will serve as a basis for class discussion to demonstrate key concepts. Students will turn in several case studies and one project for grades. Students will work on the cases in groups as part of groups but will complete the project analysis independently. TOPIC OUTLINE & SEQUENCE OF ASSIGNMENTS PART 1: Banking Performance, Capital Requirements & Interest Rate Risk Management A. Overview and Introduction B. Structure and Role of Commercial and Investment Banks [Chapter 1, Bank Management by Koch & MacDonald: BM] C. Performance Analysis: Commercial Banks 1. Chapter 2: Evaluating Bank Performance [BM] 2. Review data for PNC Bank [Appendix to Chapter 2, BM] 3. Review UBPR data for community bank [FDIC web site, www.fdic.gov] 4. Chapter 3: Managing Noninterest Income and Noninterest Expense [BM] Assignment: Prepare a critique of community bank’s performance including a list of recommended strategies to improve performance D. Performance Analysis: Investment Banks 1. Read “Investment Banks, Scope, and Unavoidable Conflicts of Interest” [Supplement] 2. Analysis of Goldman Sachs’ Structure and Financial Performance E. Capital Management 1. Chapter 9: The Effective Use of Capital [BM] 2. Basel II (IA, etc.) 3. Capital Requirements at Investment Banks E. Return on Risk-Adjusted Capital & Value at Risk Analysis [Lecture Notes] F. Managing Interest Rate Risk 1. Chapter 5: GAP and Earnings Sensitivity Analysis [BM] 2. Sample IRR Report [Supplement] 3. Chapter 6: Duration GAP and Economic Value of Equity [BM] 4. Chapter 7: Using Derivatives to Manage Interest Rate Risk [BM] 5. Case: Midlands Bancshares [Supplement] G. Managing Market Risk 1. Trading Risk: Goldman Sachs’ Trading Risk & VaR [Supplement] 2. Commercial Bank Trading Risk Exam 1 PART 2: Underwriting, M&A, Money Management, & Investment Strategies A. Securities Underwriting and Market Making 1. Initial Public Offerings [Supplement] 2. Road Shows B. Read chapter from Beyond Greed and Fear [Handout] C. Case Study: Security Underwriting [JetBlue Airways: Supplement] D. Mergers & Acquisitions and Other Fee-Based Services 1. Universal Banking Examples: U.S. versus Non-U.S 2. Case Study: General Mills’ Acquisition of Pillsbury from Diageo PLC [Supplement] E. Money Management 1. Read chapter from Beyond Greed and Fear [Handout] 2. Case Study: Zeus Asset Management, Inc [Supplement] F. Securitization 1. Class Notes 2. Case Study: Formula-One: Intangible Asset-Backed Securitization [Supplement] G. Investment Strategies 1. Hedge Funds 2. Case Study: Long-term Capital Management [Supplement] 3. Commercial Banks: Read Chapter 13: Managing the Investment Portfolio [BM] H. Trading 1. Case Study: Pegasus Communications 2. Market Making I. Summary Exam 2 FINA 765: ADMINISTRATION OF FINANCIAL INSTITUTIONS Timothy W. Koch The Moore School of Business University of South Carolina Columbia, SC 29208 tel: (803) 777-6748 fax: (803) 777-6876 e-mail: TKoch@darla.badm.sc.edu PACKET: SPRING 2006