Gathering The News

Gathering the news How to get, use and maintain sources of information

Lesson outline  The

primacy of reporting  Key sources of financial information  Interviewing skills  Homework review  Practice interview  In-class writing assignment  Financial terms: Credit meltdown, the Great Recession, credit freeze, etc.

The primacy of reporting  The

best writing is no substitute for poor information.  The best editing is no substitute for weak context.  Reality checking  Feedback loop  Integrity

Key financial news sources 

Company public relations Analysts Investors Industry organizations Rival journalists 1. starting points 2. relationship development 3. ethics and integrity

Interview Techniques   

Listen actively, carefully Ask open-ended questions. Avoid yes-or-no questions. Ask questions that break news. For example: company plans, targets, personnel moves Keep questions short and clear and assume you will follow up. Repeat the interviewees wording back to them. Ask for “color” descriptions, emotions. Don’t ask for information you already have. Be as prepared as possible. Make friends with public relations people and ask them to help you get your questions answered. But only offer to give questions in advance when that is the only way you can get the interview. Avoid starting with the more difficult questions.

Black Swan An event that is extremely hard to predict. Nassim Nicholas Taleb applied the concept to finance in his book, The Black Swan, which many credit with predicting the global financial meltdown. Black swan events are typically random and unexpected, and some think the current financial crisis is a black swan. The term arises from teh fact that, before Europeans arrived in Australia, it was assumed that all swans were white because nobody had seen one of a different shade. Taleb’s point was that markets tend to ignore the possibility that financial ``black swans’’ may occur, even if we have never seen one.

Capital ratio 

Capital ratios are a measure of a bank's capital strength used by regulatory agencies. Tier 1 (core) capital, the more important of the two, consists largely of shareholders' equity. This is the amount paid to originally purchase the shares of the bank and retained profits (minus losses). If the original stockholders paid 100 million yen to buy their stock and the bank has made 10 million yen in profits each year since, paid out no dividends and made no losses, after 10 years the bank's tier one capital would be 200 million yen. National regulators now allow instruments other than common shares to count in tier one capital.

CDO  Collateralized

Debt Obligation. A structured debt security backed by a portfolio of bonds issued by a variety of corporate or sovereign sellers. By combining bonds in a portfolio, then selling off parts, or tranches, of the portfolio, the seller can achieve a higher credit rating for some tranches, enabling them to sell the securities to institutional investors such as pension funds or insurance companies.

CDS 

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Credit default swaps are securities that insure against defaults on bonds. The contract involves a buyer paying an agreed interest rate to the seller in exchange for the right to a payoff if a credit instrument goes into default. The CDS market has been largely unregulated and last year was valued at twice that of the US Stock Exchange. The lack of transparency has meant exposures to bad debt is unknown.

Libor  London

interbank offer rate - the interest rate banks charge each other for loans up to one year. The short-term international interbank market allows banks to borrow quickly, allowing them to avoid having to keep large amounts of liquid assets. Libor is officially fixed once a day at around 11:45 a.m. by a small group of large London banks, but the rate changes throughout the day.

Naked shorts Naked short-selling, or naked-shorting, is the illegal practice of selling a stock short without first borrowing the shares or ensuring that the shares can be borrowed. When the seller does not obtain the shares within the required time frame, the result is known as a "fail to deliver." However, the transaction generally remains open until the shares are acquired by the seller or the seller's broker, allowing a trade to occur when the order is filled.

Preference shares  Shares

in a company which pay a fixed dividend but which do not usually carry voting rights. If the company goes bankrupt, preference shares are usually repayable at par value, and rank above the claims of ordinary shareholders, but behind banks, bond holders and other creditors. Also known as preferred shares.

Short-selling  Short-selling

involves selling borrowed shares in the hope that the price will fall and they can be bought back at a profit later on. Authorities in the U.S., Britain, Japan and elsewhere have, at times, banned short-sales of financial shares, and ordered speculators to close down all short positions in bank shares, or have their names made public.

TARP Troubled Asset Relief Program The key bank rescue program in the U.S. TARP gives the U.S. Treasury purchasing power of $700 billion to buy up mortgage-backed securities (MBS) from financial institutions to encourage them to lend money to others. The fund was created by a bill that was made law in October 2008.

Glass-Steagall The Glass-Steagall laws were enacted in 1933 to separate commercial from investment banking, on the basis that the depression had revealed the dangers of commingling such activities. The rules were dismantled by President Bill Clinton’s administration in 1999. Some blame the current crisis on the re-entry of commercial banks into the securities business.

Homework Questions Is this possible that Goodcar would conduct further restructuring other than production-cost cuts and bonus salary cuts in order to secure the dividend payments in 2010 if the company forecasts a loss on net income and operating income again on this fiscal year?  How would the company use this corporate bond of about JPY 700bn ?   Is this possible if Good car would consider receiving a sale offer from competitors based on the recent instance such as Fiat-Chrysler merger and PorscheVolkswagen merge?

Goodcar reported consolidated earnings results for the year ended March 31.  Figures are in millions of yen.                                  Operating    Pre-Tax    Net        Revenue     Profit     Profit     Income  Full-Year Results     20529570   -461,011   -560,381   -436,937  Year Earlier Period   26289240  2,270,375  2,437,222  1,717,879  Versus Results          -21.9%    -120.3%    -123.0%    -125.4%  Company Forecast      21000000   -450,000   -500,000   -350,000  Versus Results            -2.2%      -2.4%     -12.1%     -24.8%  Toyo Keizai Est.      21000000   -450,000   -500,000   -350,000  Versus Results           -2.2%      -2.4%     -12.1%     -24.8%  2nd-Half Implied     8,339,165   -1043079   -1196868   -930,406

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  Goodcar Motor Corp., the world's largest automaker, cut its annual dividend for the first time and predicted a loss that's almost twice analysts' estimates as global car demand plunges.       The loss may total 550 billion yen ($5.5 billion) for the year ending March 2010, compared with a loss of 436.9 billion yen a year earlier, the company said in a statement today. The maker of Lexus LS sedans and Corolla small cars was expected to forecast a loss of 284 billion yen, according to the median of 17 analyst estimates compiled by Temple University.