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General Meeting 5

General Meeting 5. 10.7 .2014. Agenda. Announcements Portfolio Update Market Update Lecture : History of 2008 Financial Crisis Pitch : AAL. First USIT Social. When: October 9 th 8 PM after SCG Workshop Where: Union Cost: $5. IM Volleyball. Kick Some Assets UNDEFEATED.

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General Meeting 5

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  1. General Meeting 5 10.7.2014

  2. Agenda • Announcements • Portfolio Update • Market Update • Lecture: History of 2008 Financial Crisis • Pitch: AAL

  3. First USIT Social • When: October 9th8 PM after SCG Workshop • Where: Union • Cost: $5

  4. IM Volleyball • Kick Some Assets • UNDEFEATED

  5. Second USIT Social • When: October 19th • Where: Lady Bird Lake

  6. SCG Director Office Hours • Focused individual attention • Multiple directors scheduled at various times throughout the week • Will cater to whatever you want to talk about • If you show up and say ummmmmm • I just want to learn stuff

  7. Fall Portfolio Challenge Register at usiteam.org/events • Build and manage your own portfolio • Compete with other McCombs students • Top three winners receive prizes in May $5 entry fee

  8. Workshop Technical Workshops Every Thursday 7-8 CBA4.328 This Week: How to pitch a stock

  9. Announcements

  10. Portfolio Update

  11. General Markets • S&P(1.87%) • NASDAQ (1.88%) • Russell 2000 (4.05%)

  12. Portfolio Update • FNMA (13.5%) – Continued litigation concerns • ADNC (11%) – No major news; market movement; focus in smartphone industry still on Apple • URPTF (8.57%) – Based on uranium, stock tends to trade between $4.50-$5 band. Long run supply decreases/demand increase will drive price up

  13. FNMA Investment Thesis • Fannie Mae is a GSE • Government sponsored enterprise • Primary function is as a mortgage lender • Received major bailout from the federal government in 08 • Now in litigation over the terms of that bailout • During the bailout the federal government claimed all corporate profits; shareholders arguing that’s illegal • Courts • Stock being driven down by a major court loss • Presently being appealed • If court battles go poorly then value of stock will continue to fall • If court battles go well then the stock will skyrocket

  14. Market Update

  15. Jobs Report • Unemployment Rate fell below 6% • Inflation very exmentpectationsdriven • What will happen to ABS/MBS?

  16. Afghanistan Power Sharing • Who are those people?? • Where are they?? • Why are they important?

  17. Afghanistan Power Sharing • Abdullah • Chief Executive • Won first election • Ghani • President • Won run off • Large allegations of corruption

  18. Afghanistan Power Sharing • Security agreement signed • Will allow coalition troops to stay in Afghanistan • Stabilizing force • Karzai departure • Would not sign the security agreement • Became increasingly hostile toward the U.S. over time • Abdullah and Ghani have indicated much greater amicability to the United States • Serious allegations of corruption

  19. Hong Kong Protests • Took over from the United Kingdom in 1998 • Mass protests • Demands for resignations • Chinese authorities are standing firm • Government suppressing the flow of information to the mainland

  20. Limits on election

  21. ReviewExit Multiple Valuation

  22. Exit Multiple Valuation • FCF projects out until 2018 • By 2037 projecting cash flows gets very difficult • Therefore methods of valuing the company beyond 2018 are necessary • One method is via establishing an exit multiple • Method used prominently in LBOs • Idea is buy company • Get some cash flows • Sell company

  23. Types of growth A B

  24. Terminal v Cash Flows • FCF provides less than $200MM • Whereas the Terminal Value provides a huge amount • 2018 EBITDA X EV/EBITDA multiple • $255MM x 23.2=$5,916MM ($5.916B) • Result is that a substantial piece of the valuation comes in down to two inputs • 2018 EBITDA • EV/EBITDA multiple

  25. History of 2008 Financial Crisis Part 1

  26. S&P

  27. MBS/CDOs • MBS=Mortgage backed security • Mortgage thought of as an asset • CDOs= Collateralized debt obligation • Bundled debt based assets • These assets are rated by rating agencies to determine how stable they are • MBS’s were consistently given relatively high credit ratings • S&P • Moody’s • Fitch

  28. Subprime Lending • Simple concept • Start lending to people who you are very confident can pay back • This over time devolves into lending to people with worse credit • Charge higher interest to compensate for higher default rates • Lower down payments • Balloon mortgage payments • Refinancing

  29. Refinancing • Refinancing allows for a new loan • New interest, new balance of debt, chance to get money • Cash Out refinancing • Terms of loan can change • Interest may rise • Adjustable rates • Balloon payments • Reliant on equity portion • Many loans became dependent on the

  30. US Mortgage Delinquencies & Foreclosures

  31. Capital Ratios • Banks are run on credit • The more loans they give out the more they can leverage their own gains • Also increases risk • If major losses occur then problems emerge and a domino effect begins • Confidence in financial institutions is also key • Reduced confidence can exacerbate problems

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