Essay on “International Banking The Royal Bank of Scotland”

Essay on â€Å"International Banking: The Royal Bank of Scotland† Bank History and Overview The Royal Bank of Scotland Group Plc. or the RBS refers to a holding company of one of the leading and largest financial services and banking groups (Datamonitor Report, 2011). Primarily, RBS operates in the United Kingdom, the United States (Citizens), Asia and other international markets through its main subsidiaries NatWest and Royal Bank. The RBS is headquartered in Edinburg Scotland with an employment base upwards of 150,000. Historically, RBS was founded in 1727 as a corporation by grant of a Royal Charter (Datamonitor Report, 2011). RBS expanded all over Scotland during the 19th century and by the 20th century; it had established its presence in several parts of England. It acquired several acquisitions such as Glyn Mills and Williams Deacons Bank through its strategic expansion in England. Equally, it amalgamated with the National Commercial Bank of Scotland, which had already diversified its networks and customer bases across the region (Datamonitor Report, 2011). During the 1970s, RBS expanded to other oversea finance and leasing markets such as Hong Kong and the US. Other business initiatives undertaken by RBS include setting up of a car insurance company in 1985 to deal with selling auto insurance to customers (Datamonitor Report, 2011). This direct telephone insurance service was referred to as the Direct Line Insurance. Other investment activities included the acquisition of Citizens Financial Group that guided RBS to acquire several struggling banks across the United States. Retail banking became the core business of RBS during the early 1990s and this spurred the bank’s merchant interests, a move that guided the acquisition of Adam Company. Direct banking, a round-the-clock telephone service was launched in 1994 while online banking service was introduced in 1997. Since then, RBS has undergone several organization changes and re-engineering activities that focused on commercial and corporate customer requirements (Datamonitor Report, 2011). Situational Analysis Speaking of RBS business environment, the groups’ business environment is diversified in financial and banking activities. The Royal Bank of Scotland Plc. has its business activities diversified into nine core divisions. These includes but not limited to Global Markets, RBS Insurance, US Retail Commercial Banking, Wealth, UK Retail, Central Items, and Ulster Bank. This means that RBS operates in different environments that can be analyzed using several aspects including political, economic, technological, social, and level of competitiveness. First, PEST analysis can be used to analyze RBS’s political, economic, technological, and social aspects. Politically, RBS operates in environments characterized stability with well-developed regulatory and financial systems (Barth, Caprio, and Levine, 2006). Such regulations are critical in protecting operational activities (Mullineux, 2009). For instance, the Financial Services Authority (FSA) is influential in regulating banking and financial activities across the UK (Financial Services Authority Board Report, 2011). Equally, most governments in the operating regions intervened the activities of the banking industry during the financial crisis through bailouts and economic packages. Economically, RBS operating regions were heavily hit by the 2007-2011 global financial crises, and this had an adverse effect on operational activities of RBS. Reduced GNP, declined demand for credit services, low revenues, and declined consumer confidence are some of the economic effects that R BS suffered during the global credit crunch. However, the low capital costs and probable demand for credit increases can enable RBS to capitalize on the effects of the credit crunch. Social aspects that affected RBS during the 2007-2011 global financial crises include effects relating to consumer confidence, interest and pension worries, and career attitudes among others (Berezin, 2008). It was emphatically crucial that RBS maintains its corporate social responsibility to enhance its reputation during the crisis. Technologically, financial information systems and software platforms facilitate data mining activities, risk analysis, neural networks, and criteria for financial scanning for RBS (Elving, 2009). These tools strengthen the analysis and assessment of expenses, liabilities, and revenue streams. A Bank evolution before, during, and After the Banking Crisis of 2007-2011 The global financial crisis of 2007-2011 is the recession to hit the banking industry since the global recession of 1930s (Elving, 2009). Invariably, the crisis is linked to the Euro crises and Europe Sovereign Debt crisis, plays a fundamental role in influencing the welfare of banks and other financial institutions. The collapse of the Northern Rock and Icelandic banking system and the crisis that affected the Royal Bank of Scotland threatened many account holders. The global financial crisis of 2007-2011 led many banks to purchase risky assets for later resell. Due to less demands of these assets, many a financial institution found themselves on the verge of insolvency. Deposit withdrawals from panicking customers worsened the financial situation for such banks. In times of financial distress, even a solvent financial institution or bank may fail to realize its obligations given the opaque and illiquid nature of its assets (The Times, 2012). During the financial crises, bank runs, implicit, and explicit deposit guarantees increased the likelihood of the crisis. For the Royal Bank of Scotland, the period after the 2007-2011 global financial crises spells a period of recovery and rebuilding. A statement released by Philip Hampton, Group Chairman of RBS shows that the overall financial performance of the group represented a step-change. Operating profit is one of the factors that reflect improved performances of the Royal Bank of Scotland. External market recovery, internal rebuilding processes, and improved economic conditions are other factors that represent another significant stride for the Royal Bank of Scotland. However, the recovery to improved performance could have come that easily given the uneven spread of economic recovery across many countries, particularly the European period suffered a massive deal of financial turbulence. RBS shocked the world on February 2009 when it announced a loss of  £24.1bn from 2008, a figure recorded as the highest in the corporate history of the United Kingdom. During the same period, RBS’s fo rmer Chairman Sir Tom McKillop and Sir Fred Goodwin were summoned to appear before the Treasury Select committee to explain the roles they played in the global financial crisis (Huisman, 2011). Royal Bank of Scotland, the Global Financial Crisis, and strategic moves Before the Global financial crisis, RBS had established itself as one the leading banking partners providing financial services to corporations and financial institutions all over the world. Other services included the provision of extensive ranges of debt financing, investment services, and risk management services. Primarily, majority of these services were provided through the Global Banking and Markets division of RBS. In 2008, RBS made an announcement of  £20bn capital raising programme underwritten by the HM treasury. However, the terms of the share offer seemed unattractive to the majority of RBS shareholders and hence, the UK government acquiring a majority stake in the bank. This shows that the global financial crisis made RBS, a proud financial institution with a fine heritage in prudent banking to be bailed out by the government. RBS bosses, particularly the Chief Executive, Sir Fred Goodwin, were overoptimistic with regard to the prevailing economic situation and never took precautionary to cushion adverse financial and economic fluctuations. Despite warnings from the Financial Services Authority and the Bank of England, RBS bosses failed to oversee possible challenges that lay ahead. Risk recognition was a crucial element that lacked in the institution before the credit crunch. Following the failure shares offered to investors, the CEO resigned and as well, the Chairman offered to step-down at the expiry of his contract. The government continued injecting funds to RBS thereby increasing its ownership percentage. The release of full year trading losses and write-downs of goodwill amounted to the  £24.1bn in losses. A fall in share price from 354p per share to 10.p per share followed this announcement. Earlier in June 2008, the Royal Bank of Scotland made frantic efforts to raise  £10bn cash from the sale of its assets and this led to the  £3.6bn sale of Angel Trains, RBS’s subsidiary. Welsh and English RBS branded branches were also sold off and as well, NatWest branches in Scotland. Other failed investments included the loss of the 4.26% stake it held in the Bank of China thereby affecting the profitability of its wealth management division. Although a desperate measure, the closure of RBS tax avoidance department enabled the bank to avoid a  £500m tax levy. This move was influenced by two key factors that included the high government stake in the institution and lack of funds. The consumers also benefitted from dramatic cuts in certain fees and levies operated by the bank and this included declines in monthly maintenance charges, card misuse fees, and unpaid item fees (Datamonitor Report, 2011). However, there was massive retrenchment at the bank that led to nearly 3,700 job cuts. Many employees also suffered unpaid bonuses. GE Capital also acquired the factoring and invoice financing business from RBS at undisclosed amount. Credit rating agencies such as Moody’s downgraded RBS in 2011 due to what was termed as weaknesses in its financial system. Perhaps, the greatest loss to RBS during the financial crisis can be attributed to the purchase of the Dutch Bank, ABN Amro. It is argued that the RBS did not get a fair deal from the acquisition of ABN Amro due to overpayment. In conjunction with Spanish bank Banco Santander and Belgian bank, Fortis, RBS acquired ABN Amro for  £49bn. RBS used funds from the investment and wholesale banking division, an a lready ailing segment of RBS from its risky assets. Worse, the acquired bank ABN Amro was already exposed to the effects of the subprime mortgages coupled with the depletion of its capital base (Datamonitor Report, 2011). Investment and Mergers Before the crisis RBS had undergone several mergers and acquisitions (Kemal, 2011). In 2000, RBS acquired the National Wesminster Bank (NatWest) in a deal worth  £21 billion. IN 2001, RBS purchased a large share of capital from Virgin One business and as well, as Euro Sales finance. Direct Line Group (RBS Subsidiary) acquired Royal Insurance. Nordisk Renting and Santander Direkt Bank’s loan and credit card portfolio were acquired in a move aimed strengthening US and European operations. Churchill Insurance Group was also acquired during this period(Datamonitor Report, 2011). During the crisis During the last five years, RBS has undertaken several investment initiative and mergers. Starting in January 2007, RBS’ global banking and markets division entered into a joint agreement with Renaissance Capital to provide currency, credit derivatives, and interest rates to corporate, government, and institutional clients in Russia. February the same year, RBS’ subsidiary, Citizens Financial Group acquired GreatBank in the US thereby enabling Citizens to be the fourth largest commercial bank in Chicago. The acquisition of ABN AMRO in late 2007 was perhaps the largest acquisition and one of the worst in the history of RBS. Although the consortium was led in conjunction with Fortis and Santander, RBS used its own resources. Ventures in 2008 included the sale of ABN AMRO private equity assets and 65-branch retail banking network in Indiana. RBS sold its 4.3% stake in Bank of China and started a wealth management business in India in January 2009 (Datamonitor Report, 2011) . In efforts aimed at boosting its capital management portfolio, RBS received a  £3 billion from the British government. Several fund management assets and contract of RBS were sold to Aberdeen Asset Management PLC in early 2010. In August 2010, Santander UK plc. bought 318 branches and associated liabilities and assets from the RBS group and as well, 80% interests in Global Merchant Services were also sold. Other initiatives included joint ventures with RBS Sempra Commodities (RBSSC) and Sempra Energy (Datamonitor Report, 2011). After the Crisis As earlier mentioned, the financial crisis of 2007-2011 spelled a bad period for the RBS group and since then, the group has implemented plans to guide its financial performance and subsequently guide the road to recovery. Among the major initiatives under the development plan include rebuilding and recovery, enhancement of business achievements, and implementing measures to lessen effects of the economic backdrop (Worthington, Welch, 2011). RBS’ SWOT analysis Owing to its diversified banking and financial activities in Europe, Asia, and UK, RBS uses key strategic moves to ensure that it enhances its competitive advantage. Equally, the support from the UK government shows that RBS is an important institution in improving financial activities across the region. Strengths As a strategic approach, RBS increasingly uses mergers and acquisitions (MA) to improve its level of competitiveness in addition to expanding its portfolio and reduction of business risks (Altunbas., Ibanez, 2004). Equally, mergers and acquisitions enable RBS to enter new markets, geographical regions, and capitalize on the economies of scales (Kemal, 2011). Even though increased number of global franchises increases its exposure to risks, this move enables RBS to be a leading global financial group. With presence in more than 50 countries, RBS confers its competitive advantage. Its strategic importance in the economy of the United Kingdom enabled it receive government support in times of distress. Currently, HM Treasury owns approximately 84.4% of stake at RBS meaning that the government has interests in all RBS activities. Another RBS’ strength lies in the ownership of leading corporate and retail franchises across the UK financial sector. For instance, the retail sector of UK banking comprises of strong brands from NatWest and RBS. RBS Insurance also forms a major part in the UK retail and SME markets. From a financial approach perspective, RBS exhibits a declining reliance on wholesale funding for its efforts of improving the risk profile. This move was evident during the financial crisis where RBS minimized its reliance on volatile wholesale funding (Royal Bank of Scotland Group, 2010). Weaknesses Strategically, RBS is at risk of being controlled by the state in part due to the large stake controlled by the government and as well in part due to provisions of the Government’s Asset Protection Scheme (APS) that RBS entered in 2009 (Sutton, Lannoo, and Napoli, 2010). Although, RBS received critical support from the government during this period, this moves spells a price for RBS. Financially, restrictions placed on dividend payments prevents RBS stakeholders from paying dividends on coupons and Tier 1 securities and other restrictions laid on ordinary shares (Royal Bank of Scotland Group, 2010). Opportunities Strategically, RBS can utilize restructuring opportunities to reposition itself as a leading provider and supplier of financial services. RBS also has a restructuring plan that was designed to be implemented over five-year duration ending 2013. This turn-around plan was aimed at addressing the weaknesses identified during the rescue package offered by the government. Currently, the progress on the restructuring plan has been phenomenal particularly, the development of the non-core division aimed at housing businesses and assets that do not conform with revised RBS risk appetites and strategies. Primarily, the creation of the non-core portfolio is fundamental because it facilitates key improvements within the group. This includes funding, risk, and earning profiles and as well, material exposure and concentrations. Other strategic opportunities include reviving partnerships with leading institutions particularly those in emerging markets such as China and Asia pacific. RBS made substantial progress from its partnerships with the Bank of China that enabled it to issue 1.2 million credit cards. This opportunity also enabled RBS to access one of the fastest growing markets in the Asia Pacific region. Speaking of financial opportunities, RBS has the capabilities of focusing on investment banking thereby enhancing its opportunities of increasing profitability. This means that there are increased chances of hiring more staff to boost the investment banking, merger and acquisitions, and debt underwriting (Ashby, 2010). Threats Several threats stand in the way of affecting operational activities of RBS. First, several measures have been put in place to bring structural reforms in the banking sector, competition in the industry, and enhanced stabilities. Among these measures is the setting up of the Independent Commission on Banking (ICB) by the UK government, a move that could bring adverse effects on RBS. Findings from this commission will provide a framework for guiding all competitive activities within the banking sector in addition to putting in place measures that could strengthen the stability of these institutions. Similarly, reports from the Treasury Select Committee are likely to affect the structure of RBS. Financially, IFRS regulations have led the group to incur deferred tax assets on those losses that were expected to revive future profits. Deferred Tax Assets are quantified depending on the current level of tax legislations and prevailing accounting standards (Oxera, 2011). On the other hand, increased regulatory changes relating to quality in insurance, particularly the elimination of gender as a rating factor throughout the insurance industry will affect insurance operations of the RBS group. Competitive pressures will mount among insurance companies thereby leading to a lower rate of premiums paid on insurance contracts (Oxera, 2011). Performance measurements Revenue analysis Starting with the revenue analysis, the RBS Group recorded a reduction of 3.5% of total revenues in the FY2010 as compared to the FY2009 results. The groups’ revenues are calculated depending on the core business divisions with the Global Banking and Markets division recording the highest figures. Alternatively, revenues are also analyzed depending on their geographical locations, which comprise of the UK, the US, Europe, and the rest of the world. The UK region accounts for more than 60% of the total revenues followed by the US and Europe. Ratio Analysis Income Statement: 10-Year Summary DATE SALES EBIT DEPRECIATION TOTAL NET INCOME EPS TAX RATE (%) 12/11 61.11 Bil -1.24 Bil 3.04 Bil -3.32 Bil -0.03 0.00 12/10 65.60 Bil -647.31 Mil 3.49 Bil -597.01 Mil 0.00 0.00 12/09 74.54 Bil -4.29 Bil 3.51 Bil -4.16 Bil -0.10 0.00 12/08 76.96 Bil -41.68 Bil 3.86 Bil -20.59 Bil -1.30 0.00 12/07 82.01 Bil 15.95 Bil 3.04 Bil 12.37 Bil 1.04 20.80 12/06 68.29 Bil 14.90 Bil 2.72 Bil 10.37 Bil 0.87 29.30 12/05 60.54 Bil 12.87 Bil 2.96 Bil 8.92 Bil 0.89 30.00 12/04 50.21 Bil 11.82 Bil 2.72 Bil 6.76 Bil 0.66 27.40 12/03 40.52 Bil 9.86 Bil 2.73 Bil 6.96 Bil 0.46 31.10 12/02 36.87 Bil 7.87 Bil 2.64 Bil 6.83 Bil 0.56 32.60 Source: MSN Money, 2012 Balance Sheet: 10 Year Summary DATE CURRENT ASSETS CURRENT LIABILITIES LONG TERM DEBT SHARES OUTSTANDING 12/11 2,444.63 Bil 2,323.24 Bil 42.70 Bil 5.51 Bil 12/10 2,358.17 Bil 2,236.28 Bil 43.89 Bil 5.47 Bil 12/09 2,752.25 Bil 2,626.14 Bil 61.08 Bil 5.37 Bil 12/08 3,896.26 Bil 3,800.73 Bil 79.74 Bil 1.97 Bil 12/07 2,986.42 Bil 2,900.37 Bil 61.72 Bil 500.31 Mil 12/06 1,413.74 Bil 1,348.48 Bil 44.86 Bil 484.75 Mil 12/05 1,260.26 Bil 1,202.78 Bil 45.87 Bil 491.47 Mil 12/04 954.12 Bil 899.12 Bil 33.04 Bil 487.79 Mil 12/03 737.23 Bil 694.89 Bil 27.58 Bil 455.61 Mil 12/02 668.40 Bil 624.51 Bil 22.66 Bil 446.01 Mil Source: MSN Money, 2012 RBS Fundamentals Year Ending Revenue (m) Pre-tax (m) EPS P/E PEG EPS Grth. Div. Yield 31-Dec-07 30,366.00 9,832.00 97.81p 3.8 n/a -50% 33.20p 8.9% 31-Dec-08 25,868.00 (40,836.00) (43.10)p n/a n/a n/a n/a 0.0% 31-Dec-09 33,026.00 (2,647.00) (13.20)p n/a n/a n/a n/a 0.0% 31-Dec-10 31,798.00 (399.00) 0.50p 78.1 n/a n/a n/a 0.0% 31-Dec-11 28,911.00 (766.00) 0.20p 100.9 n/a -60% n/a 0.0% Market Capitalization In terms of market capitalization, the RBS ranks as one of the leading large-cap stocks as of 28 April 2012 with a market capitalization of USD 43.60bn. in the past 12 months, the RBS stock has reached a high of GBp 42.76 and a low of GBp 17.34. As of 28th April 2012, the current stock price was GBp 24.35. This figure places it 43.1% under its 52 week high and 40.4% over its 52-week low (Money Center Banks, 2012). Price level analysis Using Peter Lynch’s methodology of comparing projected earnings growth and dividend, RBS can be said to fundamentally undervalued if comparisons are made with the original theoretical price. When compared to the aggregate of other European Banks, RBS’ valuation appears less attractive (Money Center Banks, 2012). However, the fundamental price potential for RBS is rather good even though other stocks in the industry might appear better. Technical trend and relative performance For nearly a month, the medium-term technical trend of RBS has been negative with a price of GBp 26.1 with an adjusted technical reverse point of GBp 26.62. Using the DJ Stoxx 600 reference index, the four-week relative performance against the reference index is -12.1% (Money Center Banks, 2012). Given the negative technical trend, it is evident that underperformance for RBS is validated. Critically, this shows that majority of investors are interested in other stocks. Risk Analysis In order to assess the risk equity of RBS, several risk analysis tools will be used. This includes but not limited to beta, correlation, and volatility, and the risk factor in bear markets. Beginning with Beta as a risk measurement tool, a situation where beta is greater than 100 represents a more volatile and risky stock. For instance, a beta value of 1.93 indicates a 1% variation in indices, which happens to be the case with RBS. Similarly, correlation refers to the degree of similarity of stock fluctuation compared to the reference index (Money Center Banks, 2012). RBS has a correlation rate of 0.80 meaning that index variations explain 80% of its stock movements. On the other hand, volatility is used to measure the magnitude of low and high stock or index movements. RBS’ annualized volatility for April is 30.5% (Money Center Banks, 2012). Using the risk factor in bear markets to measure the behavior of RBS in less performing markets, it shows that RBS exhibits a tendency of amplifying the risky positioning of the group in situations of market decline. The risk factor in rising markets also depicts situation-sanctioned pressures for the RBS. Analysis of Ratios and Financial Reports Five-Year Plan Strategy The effects of the financial crisis uncovered several key issues that undermined RBS and these issues included risk concentration, leverage, and business stretches. The continued sale and rundown of assets weakened the performance of the RBS group (Royal Bank of Scotland Group, 2011). This necessitated the need to change the balance sheet by focusing on risk objectives. The five-year plan 2009-2013 was developed to focus on three key objectives (Essinger, 2009); Restoring RBS’s performance to undoubted standalone strengths Providing efficient service to customers Rebuilding sustainable value for all shareholders These goals are interdependent on one another because customers cannot be served in an unsafe and risky banking environment (Essinger, 2009). Equally, the banks’ standalone strength cannot be rebuilt without rebuilding shareholder value. RBS’ strategy of serving customers is embedded in different frameworks that guide the process of satisfying customer value and streamlining customer service prepositions. Creating sustainable strength for the bank started with the creation of improvements in liquidity and capital in 2009. By 2010, Risk Management objective was launched to aid the Group in approaching risk issues such as audit and risk functions. This has been fundamental in enabling the ban to create a safe, sustainable, and valuable banking environment to all people (Royal Bank of Scotland Group, 2011). Lastly, the creation of sustainable value to shareholders was developed to enable the bank to develop a strong foundation for all its core businesses. This option has been fundamental in enabling RBS to generate a 13% increase in equity return in FY2010 and aims to extend this figure by upwards of 15% by 2013. This is aimed at increasing confidence from the banks’ investments will generate increased va lues and core synergies (Rose, 2009). Importantly, realization of sustainable value is seen as a major move for convincing the UK government to sell its stake in the institution. Several measures have been taken to realize RBS’s strategic and core business objectives. RBS has targeted several market-leading franchises and market positions to improve customer satisfactions. Income growth by focusing on sustainable businesses is another move taken by the bank (Royal Bank of Scotland Group, 2011). Other key strategic moves include focusing on cost control and rigorous capital and cost allocation programs. Speaking financial measures, RBS reduced its balance sheet scale by de-risking and shrinking the Balance Sheet as a move for careful control of future growth. Measures have also been put in place to reduce over-reliance on wholesale markets to improve its liquidity reserve. On the other hand, realization of a strong capital base has been achieved through excess risk maintenance equity capital and running off-excessive risk concentrations. Progress so far RBS has managed to achieve several key accomplishments and economic improvements despite uncertain volatilities and tight monetary policies in several countries. RBS’s core businesses have remained resilient while the Group has managed to realize annualized cost savings of  £2.5 billion and expected to exceed  £3billion by 2013. The loan-on-deposit ratio by the end of 2010 was 117% and the reliance on wholesale funding reduced from  £250 billion in 2009 to  £157 billion in 2010 (Royal Bank of Scotland Group, 2011). On risk management, RBS has stood strong in the line of realizing four-risk objectives that include maintenance of capital adequacies, delivering stable growth in earnings, ensuring efficient and stable access to liquidity and funding (Royal Bank of Scotland Group, 2011). The risk management model has been concentrated on the management of liquidities and risks on the balance sheet. These measures have enabled the bank to record tremendous improvements towards overcoming the effects of the 2007-2011 financial crises. Conclusions and Recommendations The analysis conducted in this paper reveals that the failure of the Royal Bank of Scotland amidst the global financial crisis can be blamed on a liquidity run. On the other hand, the system-wide liquidity crisis was well rooted in the market uncertainty that banks could have lost. This factor was fundamental in determining the nature of the banks insolvency and capital inadequacies. Studies show that RBS had strong capital resources totaling  £68bn but registered loss of  £40.7 bn. According to a report by the Financial Services Authority in the UK Financial Services Authority, several key factors can be blamed for the failure of RBK in 2008 (Financial Services Authority Board Report, 2011). These factors were; Notable weaknesses in capital position of RBS and this was attributed to poor management decisions and inadequate global regulatory framework The acquisition of ABN AMRO without taking heed of possible risks Uncertainties and concerns over underlying asset quality of RBS Over-relying on risky short-term wholesale funding Substantial losses occurring from credit trading activities leading to the erosion of consumer and market confidence underestimation of how bad losses can affect structured credit the prevailing crisis in the banking sector Based on the information gathered and presented in this study, the future prospects for RBS are still difficult. First, the 84% government ownership means that the government will continue to dictate its operational activities including investment, operations, and financing thereby impeding strategic moves (Wilson, 2011). Credit write offs cannot guarantee the bank future profitability either and as well, the staff restructuring. The volatility of its risk portfolio also calls for important measures to be put in place. For this reason, I recommend that RBS do the following: Use its strengths and opportunities to overcome the threats and weaknesses Concentrate on the rebuilding and recovery plan in order to enhance its financial performance and gravitate its return to operating profits (Rose, 2009). Convince the government to sell its stakes in the Group Reduce its exposures to particular type of risks by forming a strong risk restructuring and management plan Strengthen its core business that will enable the institution to achieve its future objectives Invest in sustainable banking and corporate social responsibility initiatives Reference List Altunbas, Y., Ibanez, M. D. 2004. Mergers and Acquisitions and Bank Performance In Europe: The Role of Strategic Similarities European Central Bank, 1-35. Ashby, S. 2010. The 2007-2009 Financial Crisis: Learning the Risk Management Lessons, Financial Services Research Forum, Nottingham. Barth, G Caprio, G., and R Levine. 2006. Rethinking Bank Regulation: Till Angels Govern, Cambridge University Press, New York. Berezin, M. 2008, Emotions and the Economy, The Handbook of Economic Sociology. Second Edition, Princeton: Princeton University Press. Datamonitor Report, 2011, Royal Bank of Scotland Plc. Datamonitor August 2011 Elving, W., 2009. Corporate communication in the new era: confronting the financial crisis, Corporate Communications: An International Journal, 14 (1) Essinger, J. 2009. The Virtual Banking Revolution: The Customer, the Bank, and the Future. London: International Thomson Business Press. Financial Services Authority Board Report, 2011. The failure of the Royal Bank of Scotland. FSA Huisman, W. 2011, Corporate Crime and Crisis: Causation Scenarios, in Mathieu Deflem (ed.) Economic Crisis and Crime (Sociology of Crime Law and Deviance (16), pp.107-125 Kemal, M. U. 2011. Post-Merger Profitability: A Case of Royal Bank of Scotland (RBS). International Journal of Business and Social Science. 2 (5), pg. 157-162 Money Center Banks, 2012. Royal Bk.of SCTL.GP.PLC. MSN Money, 2012. Royal Bank of Scotland Group ADR representing 20 Ord Shs (NYSE). Mullineux, A. 2009. The regulation of British retail banking utilities, Journal of Financial Regulation and Compliance, 17 (4), pp.453 466 Oxera, 2011. Assessing State Support to the UK banking sector. Oxera Consulting ltd Rose, P. 2009. Commercial Bank Management. Boston: McGraw-Hill Royal Bank of Scotland Group, 2011. Annual Review and Summary Financial Statement 2010. RBS Royal Bank of Scotland Group, 2010. Independent Commission on Banking and response to issues paper. RBS. Sutton, A. Lannoo, K. and Napoli, C. 2010. Bank State Aid in the Financial Crisis: Fragmentation or Level Playing Field? Brussels: Centre for European Policy Studies The Times, 2009. Royal Bank of Scotland: the bank that sank, www.timesonline.co.uk (accessed 29/04/2012) Wilson, H., 2011. Royal Bank of Scotland Collapse: the 10 questions the FSA must answer. [Online]. Available at: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8933151/Roy al-Bank-of-Scotland-collapse-the-10-questions-the-FSA-must-answer.html [accessed 29 April 2012] Worthington, S. Welch, P. 2011. Banking without the banks, International Journal of Bank Marketing, 29 (2), pp.190 – 201

Assessing the Zara brands success worldwide - Free Essay Example

Zara is one of the most well known brands in the world and is also one of the largest international fashion companies. They are the third largest brand in the garment industry and are a unit of Inditex. It their flagship range of chain stores and are headquartered in Spain. Zara opened its first outlet in Spain in 1975. The headquarters of the company is based in Galicia. There are more than 2600 stores across 73 countries in the world. The Zara clothing line accounts for a huge bulk of its parent groups revenues. There are other clothing brands owned by Inditex such as Kiddy ´s Class (childrens fashion), Pull and Bear (youth casual clothes), Massimo Dutti (quality and conventional fashion), Bershka (avant-garde clothing), Stradivarius (trendy garments for young woman), Oysho (undergarment chain) and Zara Home (household textiles). Inditex owns all Zara outlets except for places where they are not allowed ownership of stores (thats where Franchises step in). Zara is renowned for coming up with products on a short timescale instead of taking forever. They are known for taking around 2 weeks to develop products and have been known to come up with around 10,000 new designs every year (which is an industry record). They have bucked the trend by ma king productions in Europe instead of shifting their entire production to Third World or Developing countries. However some of their clothes are manufactured in parts of Asia due to the fact that they have a longer shelf life. They make most of their own products inside Spain or other European Countries as they own a large number of factories in both Spain and Portugal. They also dont have to depend on anyone else as they can get everything done by themselves. Zara is unique in the way that it does not spend money on marketing and instead concentrates on opening new stores instead. Their brave experiments have led them to be labeled as one of the most innovative retailers in the world. Zara started out with low priced products which were pale imitations of high end fashion products. This move led to Zara being a smashing success and allowed them to expand by opening more stores in Spain. The company management also managed to reduce the time it took to create new designs and c ame up with the term instant fashions which allowed them to capitalize on new trends really fast. Zara is known to use teams of designers instead of individuals. Zara has to face a lot of competition from HM, Gap and Bentton internationally. Fortunately Zara is considered to be more fashionable than the rest of the brands despite the fact that its price is less than Benetton and Gap. HM is still cheaper than Zara but is equally fashionable as Zara. Gap and Benetton are less fashionable and more pricy. SWOT Analysis Strengths Zaras biggest strength is the fact that it provides cost leadership strategy by aiming at efficiency and cost reduction on products. There is a lot of efficiency merely due to the fact that products are put on fast track and costs are kept really low. They dont take a long time to come up with new collections. Zara is able to come up with collections really fast (around 2 weeks to get a collection ready). Zara focuses on what its customers want and thats why they have managed to do so well. They are able to get the opinions of its customers on a daily basis. The data is sent over to the headquarters where it is analyzed. This is a great way of saving time and helps them understand what sort of trends to follow. Since it does not take them a long time to come up with products they are able to cash in on the trends. They are also able to design, manufacture and send out the new products in less than 2 weeks. They are also very efficient when it comes to delivery of the products. Zara employs a huge team of designers who are able to design the clothes they require. Most of these designers are fresh out of Fashion schools and are able to do more for less. Most of the clothes manufactured are made in Spain and there is no need for outsourcing. Zara manufactures and distributes its clothes so it manages to cut out the middle man. This is one reason why they are able to get clothes out there so fast. They also have a great Information technology solution in place which allows for decentralized decision making. Weaknesses Zara does not spend any money on marketing or advertising. This is a huge weakness for them as its competitors spend a lot of money on advertising. Zara relies on goodwill and word of mouth so that people can shop at their stores. This is a weakness which can be exploited in the future by its competitors. Another weakness is the fact that Zara only has one manufacturing and distribution centre in the world. This is a double edged sword as it is both a weakness and strength. The fact that they have a huge distribution centre makes it an asset but then if it is hit by some sort of natural disaster or some logistical problem then it can have an adverse effect on its revenues. Opportunities There are a lot of opportunities for Zara lying ahead. They need to expand their presence in the USA where they face competition from the likes of GAP. They only have around 49 stores in the US which is not bad but then based on the size of the US that is equivalent to around one store per state. In comparison there are more than 300 stores in Spain which is a fraction of the size of the US. They may have conquered Europe but they still need to expand into the US market so they can give Gap a run for its money. They can grow properly if they expand their presence in the US. Zara is only going for markets where it is doing well such as Italy. However there is a huge opportunity for them to tap into the Indian market. The Indian Economy is doing really well and people over there love to buy good quality brand names at a reasonable price. Zara already has 2 outlets in India but then it wouldnt hurt to expand a bit more and form alliances with local manufacturers. This will make it easier for them to slowly grow within the Indian market. Threats The biggest threat facing Zara is the fact that it is Europe Based. Zara is based in Spain and has a huge number of stores in Europe. Critics believe that there is an over saturation of stores in Europe and that having such a huge number of stores will dent the revenues over the longer term. The other reason is the fact that the Euro tends to be stronger than the Dollar. This is one reason why merchandise from Zara tends to be more expensive in other countries. This can be a big turn off and can have an adverse effect on their revenues in the longer term. Porters Five Forces Porters Five Forces allows us to look at the five forces which help us determine the competitive intensity and the attractiveness of a market. Some of these forces are related to competition from external sources while the rest are internal threats. These are basically all related to the macro environment. The various Forces are threat of substitute products, the threat of established rivals, the threat of new entrants, the bargaining power of suppliers and the bargaining power of customers. Porters Five Forces Analysis Threat of Competitors Zara faces a lot of competition in the market. There are a large number of competitors in the market such as HM, Benetton, Gap, etc. Fortunately The high level of competition makes it tough for everyone as they are all struggling to get a piece of the pie . The biggest problem is that due to the large number of competitors the growth rate is low due to the number of manufacturers around. The clothing industry has peaked and it is very difficult for people to stay in the industry as the competition is cut throat. Customers are spoiled for choice due to the number of brands within the market. They are also very fickle minded and base their buying habits on the basis of new trends. They will only buy based on price and brand recognition and this is why the manufacturers have to keep changing what they do and come up with new ways of gaining customers. The costs of manufacturing new goods are quite high plus it is not easy to procure raw material so thats why the ones who have the reso urces and the ability to do so are able to survive within the market. Threat of New Entrants There is always the threat of new entrants but then the risk is not so much as Zara already has a huge presence in most parts of the world. The barriers for entry for distribution are quite low in Spain ( where the bulk of their clothes come from.) New entrants will have it easy as the cost of distribution is quite low as they only need to rent a shop and need a bit of capital to start out. However when it comes to manufacturing then the barriers of entry are really high mainly due to the fact that it requires a huge investment to get started within the market. Substitutes There is no threat of substitutes as it is a basic necessity for everyone. Customers Bargaining Power Customers have varying levels of bargaining power as they can decide what they want. Customers are quite fickle when it comes to buying clothes. However the good thing is that each customer has a love purchase volume and that means that even if some tend to change their brand there will still be some who will buy Zara. It is not an item like a burger or a snack which is available easily anywhere for a low price. The good thing about the clothing business is that there is no risk nonpayment because customers pay for clothes during purchase. Supplier Negotiation Power There are too many suppliers in the market which is one reason why the suppliers dont have much negotiating power. The fact that Zara procures or makes most of the stuff itself is also another factor which doesnt work in the suppliers favor. If the supplier decides to cut down the supplies the manufacturer can easily go to another manufacturer. PEST Analysis The PEST analysis is a study of the environment before a company begins its marketing process. It is a study of the external macro environment. It stands for Political, Economic, Social, and Technological analysis and is an environmental scanning component of strategic management ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Political The political factors affecting Zara are when the government intervenes into the economy and comes up with laws which change the way things are done in the country. The government can easily change its policy and change the ways a business can operate in the country. They can change the laws and do drastic things like changing the interest rate. Zara needs to know the entire system and to be prepared for any potential problems it can face from the government due to a change in policies. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Economical Economic factors come into play as they are related to factors such as interest rates, taxation changes, economic growth, inflat ion and exchange rates. These have the potential to create many problems in the future. There are different duties and levels of tariffs in different countries and this can cause the prices of products to vary in different countries. The price of goods will also vary based on the country of origin and thats what Zara needs to keep in mind. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢Social If there are Changes in social trends it will have a huge impact on the demand for Zaras products and the availability and willingness of individuals to work. However that is not likely to happen as its not as if Zara makes niche products. They focus on a huge market and make different types of products so it is quite unlikely that there will be a social shift in this part. However the company still needs to work on trends and to make sure its updated with the times so that it can satisfy its customers and meet the demands of its demographics. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢Technology Due to advances in technology companies have to make sure that they keep up. Zara has to make sure that they have the latest technology and that they are innovative in every way. The more advanced the technology the more it can bring about some quality. Zara has invested in technology and it has to keep improvising because if they dont then their competitors will get a head start on them. Part 2: Zara is the biggest contributor towards Inditexs profits. Its the most well known brand in the group and has played a huge role in the growth of the group as well as bringing about huge sales and profits. Zaras success has brought about a large number of case studies and reports. It has consolidated its position in the fashion industry and has made a good name for itself. Zaras business model is basically based on the principle that it can sell medium quality fashion clothing at affordable prices. Basically vertical integration and the ability to come up with a quick-response is a key factor to Z aras successful business model otherwise they would be no where without it. The process for Zara has been designed in such a way that it has the various functions within the business system such as designing, sourcing and manufacturing, distribution and retailing. They do all of these themselves and that is one reason why their growth is at a good rate. However what goes up must come down and Zara is not immune to the problems in the world. The way they operate can also prove to be their undoing due to the model they are currently utilizing. The fact that they have their own distribution centre and manufacturing unit is a very weak point. This can be discussed further in this document. The management at Zara have come up four fundamental success factors: short cycle time for creation of product, small quantity per product (and not too much of the same stock) , extensive variety of product every season (so that users can choose easily) as well as a huge investment in information a nd communication technology to allow them to stay on track . Zara knows what its customers want by tracking their preferences on a year round basis. They have their own team of designers who have been recruited fresh out of fashion school. It is not a tough job to tell them what they want based on the input they receive. They make around a limited quantity of clothes based on the 11000 various items designed by its in-house staff. Zara does not make any losses as they only order a limited quantity of each item which they believe is stylish and will be more restricted season wise. For example if they have miniskirts in design they will only be available for a short time due to the short summer period in Europe. Other clothes which can work the year around and for which the trend does not change are outsourced to Asia as the cost wont be so high. The outsourcing operation is very handy mainly because these clothes have a longer shelf life. It does not take a long time for the cloth es to be prepared as it merely takes around 4 weeks total for the whole process : from design to the finished product in the stores. The fact that Zara knows what sort of trends are there in the market and are quick enough to change their strategy to match the trends in the fashion industry gives them a huge advantage. They are able to modify their timetable easily to adjust for a change in the trends in the market. Normally it takes around 8 to 12 months for any normal retailer to forecast trends and come up with a style and send it for production. They are unable to match what Zara does and they end up losing big time. Even if a style fails to sell much, Zara can easily sell the clothes on a discount. The fact that they quantity of clothes manufactured was so low that they lose much. Their low volume strategy has helped them have a very low number of discount sales every year as compared to a high rate for the rest of the industry. However this leads to higher costs which is a disadvantage but then they dont have to worry about having higher inventories. This method allows for a low inventory and high profit margins. They dont save any money here with costs but then they get the maximum out of their clothing line. A problem they face is the fact that since Zara controls everything it is not easy for them to expand or relocate as they have to stay put in one place or the whole operation will suffer and the goods will cost more to distribute. Zaras business model is wonderful in the sense that it has a very fashion forward line as they know which trends to cash in on. They seem to have the midas touch of turning everything into gold. Their policy is to have a mostly young and fashion conscious staff so that they will also be able to double as trend setters. If for instance a certain item in a store sells well then the management decides to sell the same item in other locations as well. The key is that most of the items are in short supply and people p resume that there is a shortage of items which ends up making consumers want to buy more. A key factor in Zaras success is the fact that it has sourced its products from the right places. They have based their procurement offices in a couple of fashionable cities in the world. This allows them to witness the trends first hand and then to quickly come up with a solution of their own. They dont buy all the raw products on their own as they use one of their parent groups procurement units to do all its purchasing. One clever move on their part is that they buy most of their fabric in grey so that there is greater flexibility. It doesnt take long for the fabric to be prepared. The main distribution artery is in Spain where they have their biggest distribution centre. They also have some smaller distribution centers in countries such as Argentina, Brazil and Mexico. The problem with the distribution centre is that it is purely based in Spain and does not have the capacity for a hea vy load. It is a huge distribution centre and occupies around 500,000 square feet in total. They only have the capability of processing around 60,000 folded garments in an hour. They need to find a new distribution centre or increase their operations so that they can save more time. However the biggest advantage for them is the fact that they have vertical integration which allows them to manufacture and distribute their own stuff without having to be at the mercy of any supplier. It is not tough to move any of their products as they have their own railway network which allows them to move goods easily to its distribution centre. Once the goods are ready they are shipped out immediately though the shipping schedule is only twice a week. European stores get their goods early (around 24-36 hours) while other destinations get them within 2 days. This system has allowed them to achieve a very high level of accuracy in its shipments. The other good thing is that the outlets dont take lon g to display the new outfits once they reach their destination and this allows them to show new stock to their customers. The clothes are also coded according to their color so that the staff knows where to place them. This makes it easier for the customers to go around color matching the items they want to buy. Problems with Zara Zara is facing a large number of issues which can cause them a number of problems in the future. Despite the fact that Zara has a consistent business system which gives them a competitive advantage it is always in the danger of tanking badly. Zaras biggest advantage is the fact that its economies of scale are really good and that they have been able to ramp up their distribution system. The continued growth is good for them in every way. They have been helped a lot by their expansion in the international market. However their growth in the international market will be curtailed due to the reason that Zara has a very centralized logistics model. It is understandable that Zara has to expand its distribution centers and to increase its capacity. Zara has its main distribution centre in Spain and it wont be easy going trying to expand when their base is only in Spain. This will affect their plans to go international and to target more regions. They cant simply survive with a Europea n presence alone. It is true that they do have a presence in other countries but then it is not as much as it should be. They have a huge presence in Spain but quite limited when it comes to other countries. They can easily target the North American region where they dont have much of a presence compared to the huge size of the region. The problem is that there are a lot of outlets there and a lot of competition coupled with the need for plus sized clothing, high cost of operations and a very mature market. Zara needs to come up with a strategy so they can compete very aggressively over there. They can also target South America but the problem is that it is not a very stable region and any geopolitical problems can lead to profits being low. A good market would be the ever reliable Middle East where Zara already has a small presence. However with talks of revolution in the air and other geo political problems it can be a risky bet. There are a few countries in the region which will lead it to be profitable but then the market is small compared to other regions. They can easily opt for countries such as the South East Asian markets and South Asia which have a lot of potential. Recommendations Zara can easily go around and expand its operations in many ways. The best thing would be to take it easy for the short term and to go for further expansion in Europe. Spain and Italy are neighbors and the fact that Zara has its main distribution centre in Spain will make it easy for Zara. For the time being they dont need to open any more distribution centers as they can work with regions which are quite near in proximity to them. Italy is one of the most fashion savy countries in Europe along with France. Zara already has 70 plus stores in the country but then they can do a lot better. They can enhance their presence in the market and try and take some share from some of its know rivals such as Benetton and HM. the biggest way for Zara to expand is to try and open another Distribution Centre in Eastern Europe and to be able to expand its operations in Eastern Europe. A number of countries are coming into the European Union and are ripe for the picking. They already have a presenc e in some countries but the number of stores per region is not as much as it should be. Zara should expand further in the Asian markets once they have been able to do their bit in Europe. They have already tested the waters in Asia despite the fact that there is a lot of competition from local vendors there. However the fact that people in the developing countries and with surging economies will be sure to try out Foreign brands and that would be one reason why its a good idea to expand further in Asia. The only problem is that Zara is based in Spain and that all their designs come from that region. The fact that they make items in limited quantities ensuring a low inventory will scuttle their plans to expand easily. If Zara decentralizes its manufacturing policy it can easily set up its own operations and distribution centre in Asia. It wont be easy as they will still have to procure items via local vendors. If they are unable to create a distribution centre in Asia they can sti ll create a larger upscale distribution centre in Spain where they are able to take the load of supplying to a larger number of stores. In this way they will be able to keep up with the demand and supply. This will help in the growth of the company and allow them to face challenges. It wouldnt be a bad idea to expand in the US market in the long term even if it is not so friendly towards European labels. Competitors such as Benetton and HM have faced problems with the US market in the past. However Zara has the resources and the ability to be able to expand within the market. They can expand easily in the US market only if they manage to curb their costs which are quite high at the moment. They also need to invest in a proper high end IT system which can help them go with the trends. They will not have the advantage of the system they have in Spain as its a totally different ball game over there. There will be different political and economic circumstances which will dictate t he way they do everything. It wont be easy to change their entire business model just for another region. This would mean that they have to decentralize the way they work so that they can work in the US. They would have to establish a distribution centre in Mexico or another cheaper place so that they can cater to the needs. The cost of labor wont be so much but the fact that it is decentralized and not under the control of the Spanish HQ. On the bright side it will be cheaper to ship products and the tariffs will be low. This will allow them to save a lot on costs and they will be able to keep their prices the same way they are in the origin countries. They will also be able to enjoy greater margins in this way. They will also be able to resolve other matters such as retailing overcapacity, less fashion-forwardness, need for larger sizes, and considerable internal variation. Risks The risks associated with expanding overseas are that it will require a lot of capital. They need to establish new facilities and it is not an easy task. They have to do a number of studies and research the market properly before they go ahead. It wont be an easy feat setting up everything from scratch. They will also have to train people the way they operate in Spain. However they can still keep the design and procurement process centralized as technology will allow their units to do what they want. Its just the units which need to be decentralized. There is the huge possibility that they will face a number of obstacles and losses before they can actually do something. The only problem is that they will face problems with their margin while they are at it. They will have to face increased costs and will have to pass on the buck to consumers so that their bottom line is not affected. Hypothetically they can also opt for joint ventures or franchising if they dont want to go and e xpand in the US. The only problem is that joint ventures and franchises dont always pan out as required. It can create problems for their brand name and can cause many unforeseen problems in the future. It is never a good idea to give out a franchise or work in a joint venture unless there is synergy between the two partners. Conclusion In the end it is highly recommended that Zara keep its house and affairs in order before they can think of expansion. Due to the environmental factors and the fact that the Euro Zone will not always be so stable should shake it out of its comfort zone. Expansion is the key but they have to play their cards right and plan their move properly before they end up making some costly mistakes.

Factors To Consider When Moving To A New Home In Texas...

Factors to Consider When Moving to a New Home in Texas Purchasing a home is a significant and costly decision. The procedure is long and complicated because of the moving process, research and work involved. Many families look for a dream home that can be liked by everyone in the neighborhood. The real estate market changes every time, and this brings new experiences regardless of having bought a house before. However, buying a home in a new region and moving can be daunting procedures because majority of families do not have an idea where to begin. Translating your thoughts of your dream home to a real estate agent can be a challenging thing to many people. This guide provides essential factors that people consider when moving to a new†¦show more content†¦You can modify it to whatever design you love with time. Design The layout of a house is essential. It is much easier to repaint walls, but the addition of more rooms and changing of the floor is expensive and takes a lot of time. Small details and designs that are unique make a home a beautiful place to live. When you decide to move to a new home in Texas, you have the choice of either keeping the designs simple or extravagant. Hiring Home Inspection Services Home sellers in Texas are required to fill a disclosure form to ascertain the features of the house. As a buyer do not rely so much on the document. You should hire an unbiased home inspector to inspect the property. Regardless of whether you are buying a new or old home, once the seller accepts your offer, make sure the professional checks the house properly before giving out the money. Work With an Agent There are many real estate agents in Texas. If you are buying a home for the first time, you need to make sure that the agent you choose has a remarkable experience in the real estate market. The agent must be willing to give competitive offers based on your best interest. The prices of properties keep changing depending on the location. 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Underlying Derivatives Of The Global Financial Crisis Finance Essay - Free Essay Example

Sample details Pages: 3 Words: 1023 Downloads: 5 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? As we known, the global financial crisis really started to show its effects in 2007 and into 2009. Around the world, stock markets have fallen, large financial organizations have collapsed, and governments in even the wealthiest nations have had to deal with the problems of financial systems. There are many researches for the reasons of crisis, people were told they are about subprime mortgages, poor accounting standards, bad financial tools made by Wall Street and the investment banks, specifically Lehman Brothers failure and AIGs credit default swaps. Derivatives are the underlying issues that link all of these items. High Risk of Derivatives Financial derivatives have many forms, including futures, forwards, swaps, options, and various combinations. Derivatives can reduce business risks, trade for profit, manage capital and funding costs, and alter the risk-reward profile of a particular item or an entire balance sheet. (Risk Management of Financial Derivatives Comptrollers Handbook January 1997).Due to their various functions, they have been used widely these years and become more and more popular all around the world, meanwhile, the characters of derivatives make them sensitive to external impacts, such as market price, liquidity, interest rates ,foreign exchange and credit. The volatility of those changes can influence derivative products easily. Unfortunately, these impacts change all the way, it is difficult for people to deal with all the sides when they make investment decisions. We can find out the main risks of derivatives are: price risk, foreign exchange risk, liquidity risk, interest rate risk and credit ri sk. At present, many financial organizations put derivatives together to create more sophistic derivatives, the innovation is over and improper because they are too difficult for people to understand, so people may be misled when they make investment decision. Don’t waste time! Our writers will create an original "Underlying Derivatives Of The Global Financial Crisis Finance Essay" essay for you Create order The Improper Risk Management Caused Financial Crisis Financial derivatives were the tools to manage risk at first, but when they work without the proper management system of controlling risk, it is quite easy to cause problem, such as crisis. In essence, what had happened was that banks, hedge funds and other financial organizations had become over-confident as they all thought they had figured out how to deal with risk and had ability to earn money efficiently by these tools. It was a result of a system heavily grounded in bad theories, bad theories, bad statistics, misunderstanding of probability and, ultimately, greed Naseem Taleb said, who once was a famous options trader in America. ¼Ãƒâ€¹Ã¢â‚¬  Naseem Taleb 2006 ¼Ãƒ ¢Ã¢â€š ¬Ã‚ ° During these 10 years, the finance industry flourished as more people began to think of how to against the downsides when investing in something. For instance, once options could be priced, it became easier to trade. Combined with the widely use of computer and Internet, the derivatives market exploded quickly. As people became successful easily, they used derivatives not to reduce their risk, but to take on more risk to earn more money, they were making more gambling. The crisis came about when the market was speculative. Some institutions are paying for risk on margin so people do not need to pay the full price in advance; it means that people are able to make big profits with little capital. They forget about the probability of losses, pay no attention on setting limit for risk. The financial organizations ignore to calculator the risk and make warning for attracting more customers to buy the derivatives. Governments play the most important roles of monitor in financial system. They encourage the financial institutions to make innovation to heavily develop finance all the way. Unfortunately, before the crisis, they focused on benefit rather than the risk of excessive innovation. The imperfect laws give opportunity to many financial companies to earn illeg al money. For example, the market for credit default swaps was enormous, exceeding the entire world economic output of $50 trillion by summer 2008(https://www.globalissues.org/). It was obvious that they were lack of controlling. The worlds largest insurance and financial services company, AIG alone had credit default swaps of around $400 billion at that time. Furthermore, many of AIGs credit default swaps were on mortgages, which course went downhill, and so did AIG. Hence, the eventual bailout (now some $150billion) of AIG by the US government to prevent them failing.( https://www.cnbc.com/id/26680263/AIG_In_Crisis) The Measures to Deal With The Crisis That Caused by Derivatives The measurement of derivative-related risks is necessary for proper monitoring and control. All significant risks should be measured and integrated into a bank-wide or corporate-wide risk management system. (Risk Management of Financial Derivatives Comptrollers Handbook January 1997 P10-11) Every department must corporate with each other to manage risk of derivatives. For example, price, liquidity, foreign exchange, market analysis and so on need to be monitored by different departments in the institutions. Team work can efficiently collect useful information and set models for analyzing, so the final report could be more valuable. Management should ensure that the various components of the institutions risk management process are regularly reviewed and evaluated. (Risk Management guidelines for derivatives July 1994 p8)This review should take into account the changes in the activities and in the market environment, since the changes may have created exposures that we should pay attention on . Any material changes to the risk management system should also be reviewed. A system should set boundaries for risk and make ensure the positions whether exceed proper levels .The limit system should be consistent with the effectiveness of the organizations overall risk management process and with the adequacy of its capital position. (Actions Needed to Protect the Financial System Statement of Charles A. Bowsher 1994 P14) An appropriate limit system should permit management to control exposures and monitor risk-taking. Conclusion In conclusion, the over development and excessive use of financial derivatives is one of the most important reasons to cause this crisis. Some major financial institutions such as end-users, mutual funds, hedge funds, securities firms, and even banks have incurred derivatives-related losses, most of these losses are due to inadequate risk-management systems and improper control and supervision. To prevent that from happening, governments and financial organizations should focus on improving the risk controlling system and pay more attentions on structure, evaluation and risk limit.

Invisible Men - 763 Words

Hist 2516, 9:00 Dr. Babicz October 18, 2013 Invisible Men The Negro Leagues were one of the most important and influential movements to happen in baseball history. Without these ‘Invisible Men’, who knows where baseball’s racial standpoint with not only African American’s, but others such as Cuban, Dominican, and South American players, would be in the Major Leagues. Throughout the book, one pressing theme stays from beginning to end: Segregation. The Negro Leagues flourished from 1920 to 1951, with the first all-pro African American team actually being formed in 1885.1 From that time period, a handful of players made their way to stardom. Of those players, Satchel Paige, Josh Gibson, and Jackie Robison among others had a monumental†¦show more content†¦This type of writing engages the reader, and almost gives them a feeling of being in the moment. Rogosin engages and keeps the reader hooked throughout the book while giving factual information and being formal when need be. Another impressive aspect of Rogosin’s book is the way he ties the hardships that African American’s faced and baseball together in a seemingly smooth connection. Rogosin realized that although he was writing a book on The Negro Leagues, he also couldn’t neglect the background information that came along with that time period. Rogosin includes stories of how teams remained afloat by scheduling exhibition games whenever possible to make money for the team. Rogosin goes on to say â€Å"it was pure economics: white people had more money.†2 Another aspect that is appealing in the book is Rogosin often draws comparisons to The Major Leagues on how the leagues differed and how they were similar. The disparities between the leagues really shocks the reader, and challenges their perspective of the time period the book acknowledges. As with every book, there will be flaws with the writer’s argument. In the time period this book was written on, the ideology of the Jim Crowe Laws were prevalent throughout the country. However, Rogosin doesn’t go into enough depth for it to be an effective argument that resonates with the reader. Rogosin does a phenomenal job describing baseball and America’s stance on AfricanShow MoreRelatedThe White Men Have Intentions Opposite Of Those From Invisible Mans880 Words   |  4 PagesI. The white men have intentions opposite of those from Invisible Mans. IM is merely an entertainer or comedy act for the wealthy white men. In Twarie’s article, he discusses an element of moral and emotional ambiguity to the novel, contributing to the mode of questioning that dominates it. Symbolic situations are illuminated in Ellison’s novel such as the Battle Royal, and the boxing match which give rise to the stereotypes we see throughout the chapter (196). When the IM first arrived at the ballroomRead MoreThe Invisible Victims : Prevalence Of Domestic Emotional Abuse Among Men2277 Words   |  10 PagesThe Invisible Victims: Prevalence of Domestic Emotional Abuse among Men 1. Introduction When speaking about domestic violence the picture that comes to mind is that of a man physically abusing a woman. Domestic violence manifests itself in other forms other than physical abuse. Domestic abuse can also take other forms like emotional, psychological and sexual abuse. Recent statistics show that domestic abuse against men is also on the rise (Cook, 2009). This can be argued in two ways: that it alwaysRead MoreThe Invisible Victims : Prevalence Of Domestic Emotional Abuse Among Men2277 Words   |  10 PagesThe Invisible Victims: Prevalence of Domestic Emotional Abuse Among Men 1. Introduction When speaking about domestic violence the picture that comes to mind is that of a man physically abusing a woman. 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However, through several unjust experiences, the Invisible Man doubts the possibility ofRead MoreInvisibility in Invisible Man by Ralph Ellison Essay958 Words   |  4 Pagesconcept of invisibility is taken to the extreme effect of being physically transparent and unseen by anyone. In popular media, the hero is also often portrayed as being invisible, going behind the enemys back to complete his or her mission. In Ralph Ellisons Invisible Man, this view of invisibility is reversed; rather than being invisible and getting noticed, a man is in plain sight of everyone- however, due to a slew of stereotypes and prejudices, nobody recognizes what he accomplishes. Beginning hisRead MoreThe True Maeaning of Invisiblity942 Words   |  4 Pagesscience fiction and deals with the super natural. Upon actually reading it however it becomes painfully obvious that the main character of â€Å"Invisible Man† is quite visible inde ed. 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Racism And Prejudice Racial Profiling - 1078 Words

Racism and Prejudice Inflicted black communities since segregation and is still continues in today’s 21st century. The past and present assure us that history once again repeat itself with no difference. Americans has become divided to an expectation of what an American is. It seems that there has not been any solution to racial profiling. Unconsciously criminal’s assumptions are being beaten, violated, and murder over the decades. According to Thandisiwe Chimurenga, NO DOUBT THE MURDER OF OSCAR GRANTS illustrates the importance of a white supremacist system that has been designed to oppress people by racial profiling by color through the rigged judicial system, and media bias. Race and ethnicity defines the character and morality of†¦show more content†¦It is an exclusion of all American life. â€Å"†¦ what come out of the man’s mouth simply because the man was black†¦ because the person was not white. â€Å"of course he or she is a thug, a criminal, scumbag, a gang member, drug dealer, on welfare, a prostitute: he or she is black.† (Chimurenga, 171). This quote reveals the injustices we find against the African Americans, how the African Americans are commonly a suspicion. For this reason, Oscar’s criminal record was used as a motive for resisting arrest during the trial. â€Å"The imputing of crime to color continues with what we know to be racial profiling. Within the logic of white supremacy Blackness equals criminal.† (Chimurenga, 176). It is clear to see that the approach of police happens to be brutal from assumption of being black and dangerous to society. Police act based upon assumptions and no evidence. Mehersle encounter blacks differently than his own race. The judicial system favors police officers. Authority are protected by POBRA (Peace Officer’s Bills of Rights Act) restrict public access to police’s officers past. This shows a difference between civilians and the police force. They have the privilege of pleading not guilty on felonies being convicted. There is a clear conspiracy between prosecutors, judges and the police department. Proven that not a single African American picked to experience on the trial of Oscar Grant (153). â€Å"at the end of the trial Judge PerryShow MoreRelatedRacism And Racial Profiling And Prejudice1827 Words   |  8 Pageswith those words instead of my name. I do not say that I am ashamed of my culture or who I am but I just get tired of how society, giving and calling me by the labels, the labels built from their own stereotypes and racial discriminations. And here’s how my life has been filled with racism and discriminations. 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Advance Business Communication Commodities and Services

Question: Describe about the Advance Business Communication for Commodities and Services. Answer: Case Study 1 Company Background Enron was an American company which was in the field of energy, commodities and services. The company was founded in the year of 1985 after the merger between Houston Natural Gas and InterNoth. The company used to be one of the major companies in the field of electricity, natural gas, communication and pulp and paper. However, the company was involved in a massive financial scandal and as a result, the company become bankrupt (Markham 2015). Analysis and Reason for Failure Enron become bankrupt due some major financial and accounting reasons. One of the reason for Enrons downfall was the revenue recognition process of the company. instead of using the Agent model for reporting revenues, the company used to report the entire vale of trades as revenue. This is the reason for which the revenues of the company tend to increase unexpectedly year by year (Abdel-Khalik 2016). The introduction of mark-to-market accounting was a mistake for the company. After the introduction of mark-to-market, the viability and costs of the contracts were difficult to estimate and the investors and stakeholders of the company were provided with false and misleading information. Corporate governance was another reason for the failure of the company. It was reported that the board of directors of the company was involved in illegal trade practices to gain a large amount of remuneration along with the auditors of the company (McLean and Elkind 2013). The auditors of the company w ere criticized and accused for the audit results. These are the main reasons for the collapse of Enron. However, there are other reasons behind the collapse like increase in the executive compensation, ethical and political issues and others (Jones and Stanton 2013). Conclusion and Recommendation From the above discussion, it can be observed that the main issue behind the collapse of Enron is the accounting and auditing reasons. Thus, it is recommended that the companies needs to maintain and prepare the financial report as per the guideline of the respective authority of the country. On the other hand, the auditors must remember that they should not collaborate with the board of directors for their personal interests. The auditors are here to save the public interest and they should do that as per the guidelines. These are the recommendation in respect to the Enron collapse. Case Study 1 Company Background ABC Learning was an Australian company which was the worlds largest provider of the early education for children. The company was founded in the year of 1988 and the headquarter of the company was at Brisbane, Australia. The company was involved in some massive scandals and as a result, ABC Learning was voluntary liquidated in the year of 2009. After that, the company was acquired by Goodstart Early Learning. Right now, it has more than 600 early learning centers all over Australia. It was a public company and was listed in the Australian Stock Exchange (Sumsion 2012). Analysis and Reason for Failure There were various issues behind the collapse of ABC Learning. The company was not able to repay its debts and as a result, it sold its entire United Kingdom subsidiary and sold 60% of its United States subsidiaries. The Stock price of the company fell to $0.54 from $8.62 (Ross, Sy and Tinker 2012). The company faced massive controversy over the accounting practices adopted by the company. The controversy was about the asset valuation method. There are two types of assets valuation methods; they are historical cost and fair value. The value cannot exceeds the value of recoverable assets. However, the value of assets exceeded the value of recoverable assets (Christakis and Christakis 2012). There are other reason behind the collapse like the over complexity, poor decision making process by the management of the company and others. The corporate governance process of the company was not effective. On the other hand, the confidential data and information were disclosed for personal purp oses. The board of directors and the top level managers of the company misused the power given to them. Aggressive growth strategy was another reason contributed to the collapse of the company (Galloway 2016). Conclusion and Recommendation As per the above study, some of the recommendations are provided. First of all, it is recommended that the recognition process of the revenues must be proper and effective. It is recommended that the companies need to focus on the core activities of the organization in order to gain the desired growth of the organization. The financial position of the company is the health of the company and this is why the financials of the company need to be recorded in a proper way. It is recommended that the companies need to implement effective corporate governance strategies in order to establish coordination in the organization. References Abdel-Khalik, A.R., 2016. How Enron Used Accounting for Prepaid Commodity Swaps to Delay Bankruptcy for One Decade: The Untold Story.Available at SSRN 2747119. Christakis, E. and Christakis, N.A., 2012. Harvard Cheating Scandal: Is Academic Dishonesty on the Rise?.Time ideas,4. Galloway, C., 2016. Crisis Communication Research in Australia.The Handbook of International Crisis Communication Research,43, p.337. Jones, M.J. and Stanton, P., 2013. Enron Cartoons: Accounting in the Spotlight. In K. Kokubu, N.N. Sawabe and M. Sakaue eds.,,Seventh Asia Pacific Interdisciplinary Research in Accounting Conference(p. 136). Kobe: The APIRA Conference Committee. Markham, J.W., 2015.A Financial History of the United States: From Enron-Era Scandals to the Subprime Crisis (2004-2006); From the Subprime Crisis to the Great Recession (2006-2009). Routledge. McLean, B. and Elkind, P., 2013.The smartest guys in the room: The amazing rise and scandalous fall of Enron. Penguin. Ross, P., Sy, A. and Tinker, T., 2012. ABC Learning: accounting lessons never learned?.International Journal of Critical Accounting,4(1), pp.21-29. Sumsion, J., 2012. ABC Learning and Australian early education and care: a retrospective ethical audit of a radical experiment.Childcare markets local and global: can they deliver an equitable service, pp.209-225.