This case examines how insiders can expropriate value from shareholders in emerging markets when property rights are ill-defined. As such, it provides a platform for considering how institutions and legal rules impact financing patterns and economic outcomes. CME, controlled by the former U.S. Ambassador to Austria, Ronald Lauder, and its Czech partners win the bidding for the first private broadcast frequency with national coverage in the Czech Republic in 1993. After the entity succeeds dramatically, the primary Czech partner wants to sell his share in the operating company. CME must decide whether to buy the stake and at what price.
Provides background information on copper and zinc markets as of mid-1996. Discusses supply and demand conditions, forecasts of the spot prices of the metals, and contracts for future delivery (forwards, futures, and options).
In early 1997, Smith Breeden Associates, a money management and consulting firm, was pondering the future of the Equity Plus Fund. The Equity Plus Fund was an S&P enhanced-index fund that tried to outperform the S&P Index by replicating the index using low-cost derivative strategies and investing the remaining cash in a hedged portfolio of mortgage-backed securities. The fund had performed well since inception, with an annualized total return above that of the S&P Index. However, this performance had not resulted in significant growth of the fund's assets. With its performance record, Smith Breeden had a number of options. It could market the fund more aggressively, it could offer other sector-specific funds, or it could set up an enhanced index fund based on an international stock-market index.
Provides a brief overview of the history of the savings and loans, the savings and loans crisis of the 1980s and 1990s, and the creation of the mortgage markets in the United States. Also explains briefly the most common types of mortgage-backed securities available.
In early 1997, Harrington Bank, a small Indiana savings and loan (thrift) wondered what its next move should be. Harrington was acquired in 1988 by the principals of Smith Breeden Associates, a money-management and consulting firm specializing in the application of modern financial technology to the pricing, hedging, and risk management of mortgage securities. The Smith Breeden principals had established an arms-length contract with Harrington, where Smith Breeden advised Harrington on the pricing, hedging, active management, and risk management of Harrington's assets and liabilities. Since the acquisition, the bank had done very well. Assets had grown from $75 million in 1988 to over $520 million at the end of 1996. Its net interest margin had more than tripled, core operating profits had grown by over 400%, and return on equity had been substantially increased. Still, Harrington in 1996 was not an average thrift. 80% of its assets consisted of mortgage-backed securities (vs. 30% for the median thrift), and most of its liabilities were not deposits but other forms of wholesale funding.
In June 1996, executives of the multinational mining company RTZ-CRA contemplate bidding to acquire the Antamina copper and zinc mine in Peru. The Antamina project is being offered for sale by auction as part of the privatization of Peru's state mining company. RTZ-CRA has to determine what the mine is worth and decide whether and how it should bid in the upcoming auction. The bidding rules put in place by the Peruvian government dictate that each company's bid contain two components: an up-front cash amount and an amount the bidder will invest to develop the property if development is warranted after further exploration is completed.
The Mexico City office of a large U.S. bank is asked by clients to develop currency swaps, a derivative financial product. This case deals with the new product development process in financial services, and the problems and issues that are raised in product development in a volatile environment.