general meeting 5

General Meeting 5

10.7.2014

USIT General Meeting 510.7.2014

• Announcements

• Portfolio Update

• Market Update

• Lecture: History of 2008 Financial Crisis

• Pitch: AAL

Agenda


First USIT Social

• When: October 9th 8 PM after SCG Workshop

• Where: Union

• Cost: $5


IM Volleyball

• Kick Some Assets

• UNDEFEATED


Second USIT Social

• When: October 19th

• Where: Lady Bird Lake


• 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

SCG Director Office Hours

USIT General Meeting 510.7.2014$5 entry fee

Fall Portfolio Challenge

•Build and manage your own portfolio•Compete with other McCombs students•Top three winners receive prizes in May

Register at usiteam.org/events


Workshop

Technical WorkshopsEvery Thursday 7-8

CBA4.328

This Week:How to pitch a stock


Announcements

Portfolio Update


• S&P(1.87%)

• NASDAQ (1.88%)

• Russell 2000 (4.05%)

General Markets


• 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

Portfolio Update


• 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

FNMA Investment Thesis

Market Update


Jobs Report

Unemployment Rate fell below 6%

Inflation very exment pectations driven What will happen to ABS/MBS?


Afghanistan Power Sharing

Who are those people?? Where are they?? Why are they important?



Ghani President Won run off Large allegations of corruption

Abdullah Chief Executive Won first election



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


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


Limits on election

ReviewExit 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

Exit Multiple Valuation


Types of growth

A B


• 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

Terminal v Cash Flows

History of 2008 Financial Crisis Part 1


S&P


• 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

MBS/CDOs


• 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

Subprime Lending


• 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

Refinancing


US Mortgage Delinquencies & Foreclosures


• 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

Capital Ratios

general meeting 5

Documents

election usit general

orgevents usit general

mainland usit general

aalagendausit general

stockusit general meeting

usit socialwhen

federal government

major bailout