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This case describes how carbon credits are created via planting Mallee Eucalypt trees by CO2 Australia. The case provides useful background to go along with the technical note "Carbon Credit Markets" (UV2543), which discusses in greater detail the regulatory frameworks as well as the various mechanisms that exist to allow carbon credit creation and trading.

In early September 2008, in the midst of the subprime crisis, a manager with the student-run Darden Capital Management fund, wants to evaluate whether Comerica Incorporated, a regional bank based in Dallas, Texas, is a good candidate for inclusion in his portfolio. He needs to perform a valuation of the bank to assert whether the bank seems to be undervalued by the market or whether a further decline in value might be possible. He must account for all the factors that affect bank valuation, both as related to the bank itself as well as to the current market conditions. The case can be taught to: a) examine the valuation of a bank during turbulent times; b) understand the key accounting statements (balance sheet and income statement) for a bank and how they may differ from those for an industrial company; and c) understand the key value drivers of bank value (metrics for profitability, credit quality, liquidity, and capital).

The case examines one of the most significant infrastructure projects in southeastern Europe during a time when the legal and financial environment for project financing was in its infancy (early to mid-1990s). Athens needed a ring road to support its bid to host the 2004 Olympic Games. The road was technically-as well as logistically-complex, involving 33 municipalities and construction that involved a major metropolitan area (Athens) populated by more than 3.5 million inhabitants. The case examines the economics of the project, how private-public partnerships (PPP) are structured, and the broader field of infrastructure finance.

In mid-January 2008, Merrill Lynch announced a $6.6 billion mandatory convertible-preferred share issuance, much of which was placed privately with the Kuwait Investment Authority (KIA), the Korean Investment Corporation (KIC), and the Mizuho Corporate Bank. The case is set amid the subprime-mortgage crisis, which plagued banks and depleted their capital. It focuses on the decision of John Thain to issue capital and place it with sovereign wealth funds (SWFs) in an effort to stabilize the company and put it on the road of growth and profitability again. The case describes the various types and origins of SWFs, their orientation, and their recent intensive investment activity in the global financial-services sector. The case also discusses the transparency of SWFs and their role in the global financial system as liquidity-providing long-term players. Finally, Merrill Lynch's decision to issue the specific financial instrument to replenish its capital (mandatory convertible-preferred) and its terms are analyzed.

This technical note accompanies the case titled "Suntrust Acquisition of National Commerce" and describes the various capital ratios that are commonly used in the banking sector as well as gives an example of those ratios using a hypothetical bank. It also discusses briefly Basel I and Basel II which shaped capital regulations and ratios in the Banking sector.

This case presents an interesting acquisition opportunity that SunTrust considered in 2004: National Commerce Financial, a large commercial bank, based in Memphis, Tennessee, with a strong footprint in North and South Carolina. The case shows how capital ratios are often a key component in the bank-merger process, and it allows for the evaluation of whether Phil Humann (SunTrust's CEO) could justify a multi-billion-dollar acquisition that had the potential to deplete capital, even if the deal were accretive to earnings.

Spreadsheet for case UV1205

In January 2008, Citi and Merrill Lynch are trying to steer their ships back to calm waters. The new CEOs, Vikram Pandit (Citi) and John Thain (Merrill), have been at the helm of their companies for less than three months. This case focuses on their steps to counteract the massive losses resulting from their firms' investments in subprime-mortgage structures. What actions have these leaders taken thus far and what actions should they consider going forward? See also "Warren E. Buffett, 2008" (UVA-F-1550).

In January 2008, in the midst of the subprime-mortgage crisis, Warren Buffett is looking for good investment opportunities for his almost $50 billion in cash. As usual, he has been patient and careful in identifying the right opportunities; however, the amount of cash in his company has grown considerably, and with so much cash sitting idle, returns could suffer. This case can be used to pursue several objectives: (1) to showcase Warren Buffett's leadership in the financial markets; (2) to understand his principles and the principles of value investing more broadly; (3) to understand Warren Buffett as both a thinker and a leader in the world of investing and as an agent of stability in a world of capital markets characterized by continuous change; (4) to discuss Buffett's investment decisions (Swiss Re, Burlington Northern, the funding of his own new bond-insurance business, BHAC) and the timing of those decisions in the midst of the subprime crisis and in an environment of increasing energy demand; (5) to discuss his decision not to invest in banks in the current environment as well as his largest investment, the philanthropic Gates Foundation; and (6) to understand some of the new market forces, such as sovereign funds, as providers of capital.

Student spreadsheet for case UV0511.

This case is ideal for analyzing the currency, liquidity, operating interest-rate, and other types of risk that a bank faces, especially a bank in emerging markets as it was hit during the Asian crisis of 1997. The students can also learn and apply the KMV model to estimate bankruptcy risk.

Dick Mayo, one of the most celebrated value investors in America was puzzled by the New Economy's continuous bias toward growth investment strategies. He examines the basics of his philosophy versus that of a growth orientation by evaluating the long-term expected returns of several value and growth stocks. This case can be used to pursue several objectives: (1) to define value and growth investing--where the differences lie and whether one approach is superior to the other or whether both have merit; and (2) to discuss issues related to consistency of one's investment philosophy. Should one stay true to one's philosophy even when the market seems to run counter to it for a prolonged period of time? Can value investing deliver value in this New Economy or is it only an Old Economy concept? The students are instructed to perform basic valuations of Cisco Systems (a growth company), CVS, R.R. Donnelley, and Manor Care (value companies) and compute their long-term expected returns. The case comes with an Excel spreadsheet containing the data and relevant valuation ratios for the above firms. The valuations are straightforward, but they tell an interesting story: the expected returns of glamorous stocks in reality may not be so glamorous.

The key objectives of this case are to: (1) familiarize students with a simple version of the Markowitz optimal-asset allocation model; (2) develop students' intuition regarding optimal-asset allocation as specific inputs into the model (e.g., expected returns, standard deviations, correlations) change values; and (3) develop students' intuition regarding constraints that alternative investors may face (e.g., the presence of shorting constraints) and their impact on the optimal portfolio.

Fred Bocock was examining the performance of the Energy Hedge Fund and the Energy Portfolio, a hedge fund and a mutual fund respectively, that he manages. Bocock had become increasingly aware that absolute returns or relative returns (returns relative to a benchmark) may not adequately capture his performance and some measure of risk-adjusted performance was necessary. The Dynamis Energy Hedge Fund extends the discussion of performance evaluation into the hedge fund arena. (See "Zeus Asset Management," UV0084, for an examination of performance evaluation techniques in the mutual funds arena.) More broadly, the case engages students in discussions on what hedge funds are, what investment strategies they use, and who their investors are. Since the portfolio manager of Dynamis manages both an oil sector equity mutual fund and an oil sector hedge fund, the case allows for a comparison between a hedge fund and a mutual fund. Students should consider the pros and cons of evaluating the performance of the oil stock mutual fund against a number of oil sector stock indices as well as against a number of generic indices, such as the S&P 500 Index. The use of futures, options, shorts, and leverage by hedge funds makes it a lot more difficult to measure their performance. The case comes with a spreadsheet that contains data on the energy mutual fund, the Dynamis hedge fund, and several relevant indices.

Louise Ito examines option-pricing data from the Wall Street Journal. She wants to make sure that she understands the basic principles behind option pricing and examines whether these prices are consistent with respect to the effects of strike price and maturity. She also computes the intrinsic and the time value for each of the options and compares their relative magnitudes with what theory suggests. This case is taught during the first day in a two-day sequence of teaching the fundamentals of option pricing (second-day case: Ito's Dilemma UVA-F-1283). The teaching note includes a teaching plan of how to effectively teach this case and includes several examples that highlight the determinants of option pricing.

Spreadsheet supplement to case UV0084.