From http://www.nytimes.com/2009/02/23/business/23bank.html.
What can happen in the worst day of that firm?
What can their loss be?
How much would the loss be?
This is what we have been discussing in the 4350 class.
This stress test that is going to be tested against the U.S banks exactly aims to answer the question listed above.
It would take several weeks to complete the test and depending on the result we would know if the company needs more capital or it is good as it is now.
Due to this stockholders for these U.S banks started to worry about the value of those stocks.
It is a good thing to measure the outcome in "what if" scenario.
And risk managers often approaches to risk in such manner.
However, it says that the scenario that will be given has the possibility of "highly will not happen" to the firm.
I hope that the outcome of the test does not scare the shareholders to the point where they decide to massively give up on their investment portfolios which they have with the company.
I think that can create a even worse chaos.
Sunday, February 22, 2009
Report: 4 million Americans lost health insurance since recession began
From http://www.bizjournals.com/albany/stories/2009/02/16/daily58.html.
Health insurance plays a critical role on personal finance.
From risk management point of view it is very important to have available coverages in time of need.
However, the economic crisis has driven the people out of their policies.
And report also says that much as 14,000 people could be losing their coverages daily.
In the past, I have researched about the rising health care issues for RMI 4010.
The health care price has gone up 2 times the amount of our inflation.
As unemployment rate rise, the people who are uninsured would go up by a large amount.
As we can expect the condition can get worse, each people must perform their personal risk management to stay in good shape .
Things can happen when you least epect it.
Health insurance plays a critical role on personal finance.
From risk management point of view it is very important to have available coverages in time of need.
However, the economic crisis has driven the people out of their policies.
And report also says that much as 14,000 people could be losing their coverages daily.
In the past, I have researched about the rising health care issues for RMI 4010.
The health care price has gone up 2 times the amount of our inflation.
As unemployment rate rise, the people who are uninsured would go up by a large amount.
As we can expect the condition can get worse, each people must perform their personal risk management to stay in good shape .
Things can happen when you least epect it.
Miners killed in China : at least 74 dies
From New York Times Feb 22, 2009
http://www.nytimes.com/2009/02/23/world/asia/23miners.html?hp
Okay, here is what happened.
China is known as having the most dangerous mining industry measured by the death rates.
This accident happened in the Tunlan Coal Mine in Shanxi province.
Xinhua( China's state news agency) reported thatt he blast or an explosion occured at 2:17AM.
The mining company was called the Shanxi coking Coal group.
This group, listed on the Shanghai Stock Exchange, is one of China's largest producers of coking coal. Which totals to be about five million tons a year.
Surprisingly, this coal mine was considered safe in China sinece it had no accident reports for the past 5 years.
ONLY 5 years.
This accident ranked itself for the 2nd deadliest accident since December of 2007, where it killed 105 miners.
However, due to the nature of being able to make tons of money, coal mine business seems to be attractive among the chinese.
There must be a way to manage these type of losses.
Because having 74 people being killed in a single accident seems very serious.
Government as well as other types of institutions must figure out the way to avoid these riks.
Risk managers in China should be able find a big niche market just by consulting with these large coal mining companies and providing them with an idea of safety standard.
http://www.nytimes.com/2009/02/23/world/asia/23miners.html?hp
Okay, here is what happened.
China is known as having the most dangerous mining industry measured by the death rates.
This accident happened in the Tunlan Coal Mine in Shanxi province.
Xinhua( China's state news agency) reported thatt he blast or an explosion occured at 2:17AM.
The mining company was called the Shanxi coking Coal group.
This group, listed on the Shanghai Stock Exchange, is one of China's largest producers of coking coal. Which totals to be about five million tons a year.
Surprisingly, this coal mine was considered safe in China sinece it had no accident reports for the past 5 years.
ONLY 5 years.
This accident ranked itself for the 2nd deadliest accident since December of 2007, where it killed 105 miners.
However, due to the nature of being able to make tons of money, coal mine business seems to be attractive among the chinese.
There must be a way to manage these type of losses.
Because having 74 people being killed in a single accident seems very serious.
Government as well as other types of institutions must figure out the way to avoid these riks.
Risk managers in China should be able find a big niche market just by consulting with these large coal mining companies and providing them with an idea of safety standard.
Monday, February 16, 2009
calling out "too risky" is sometimes not good?
Ariticle found here.
http://www.businessweek.com/ap/financialnews/D969BKFO0.htm
Major advantage of having risk management is to secure the survival of the firm.
As a student in RMI, we are getting better with many risk managing techniques.
It can be insurance.
It can be non-insurance transfer.
Some type of retention, whether it be active or passive.
Avoidance ( creates "risk free" as we discuss in 4350).
Risk control that can either be prevention or reduction.
It does not have to be a risk manager that goes through the process of knowing how risky the decision or action that the firms are currently making.
In the article it states that the former head of regulatory risk was fired for warning the CEO of riskiness of the firm.
Is it wrong to bring this type of opinion up to the boss?
If you get fired everytime when you warn something about risk how can risk managers have jobs?
It seems like the people who are firing is telling us to manage the risk of you being fired and not the risk that the actual company holds.
It is not a small company when we hear HBOS.
I think many firms should understand how important it is to manage risk.
If every single company did their job by having good risk management,
alot of what we see in the economy could have never happened.
http://www.businessweek.com/ap/financialnews/D969BKFO0.htm
Major advantage of having risk management is to secure the survival of the firm.
As a student in RMI, we are getting better with many risk managing techniques.
It can be insurance.
It can be non-insurance transfer.
Some type of retention, whether it be active or passive.
Avoidance ( creates "risk free" as we discuss in 4350).
Risk control that can either be prevention or reduction.
It does not have to be a risk manager that goes through the process of knowing how risky the decision or action that the firms are currently making.
In the article it states that the former head of regulatory risk was fired for warning the CEO of riskiness of the firm.
Is it wrong to bring this type of opinion up to the boss?
If you get fired everytime when you warn something about risk how can risk managers have jobs?
It seems like the people who are firing is telling us to manage the risk of you being fired and not the risk that the actual company holds.
It is not a small company when we hear HBOS.
I think many firms should understand how important it is to manage risk.
If every single company did their job by having good risk management,
alot of what we see in the economy could have never happened.
The U.S. Government to the Rescue (Again)
Article on business week.
http://www.businessweek.com/investor/content/feb2009/pi20090213_135410.htm?campaign_id=investing_related
Basically, government is trying to help out by buying "toxic" assets from financial institutions.
They would create a program to encourae private sector investors to buy bad mortgate assets.
Recently, government seems to be paying a lot from tax payers.
Including the aid to the automobile industry.
I thinks banks are in need of aid.
If banks fail, nothing is going to move.
Here is what I think.
Government thinks tax payers do not know how to spend their own money...
So let us spend it for you...
How much can each tax payers get if these "rescue funds" are allocated equally back?
This is very personal opinion, however, I believe that government should have better risk management in terms of what would happen by giving out the money as they are now.
Yes, I understand that GM and others are creating a report on how they can cut costs and pay the money back.
But will this be a good enough action to have the tax payers money spent like that?
http://www.businessweek.com/investor/content/feb2009/pi20090213_135410.htm?campaign_id=investing_related
Basically, government is trying to help out by buying "toxic" assets from financial institutions.
They would create a program to encourae private sector investors to buy bad mortgate assets.
Recently, government seems to be paying a lot from tax payers.
Including the aid to the automobile industry.
I thinks banks are in need of aid.
If banks fail, nothing is going to move.
Here is what I think.
Government thinks tax payers do not know how to spend their own money...
So let us spend it for you...
How much can each tax payers get if these "rescue funds" are allocated equally back?
This is very personal opinion, however, I believe that government should have better risk management in terms of what would happen by giving out the money as they are now.
Yes, I understand that GM and others are creating a report on how they can cut costs and pay the money back.
But will this be a good enough action to have the tax payers money spent like that?
Risk : mutual funds
Many investment vehicles are available in today's market.
Needless to say many of them are very structured in a very complicated way.
There are many ways you can invest.
Investing in mutual funds are what many people do these days.
And as part of the class having diversified portfolio is one way to mitigate our risk.
Mutual funds can be a great benifit that creates return on investment.
And it can simply help us to diversify.
However, what happened during January 2009?
Bernard Madoff has made investros recognized how risky it can be when not knowing how returns are made.
Each day in class we discuss how firms are valued.
And first thing we do is to determine the way that they make money.
By knowing those information, we can then apply the costs assosiated with each of the firms and start a valuable anaysis.
Isn't this similar to what we should do to our investment?
People are investing in something many calls it as a "Black Box".
Should we feel comfortable as long as its giving us the return?
No we shouldn't feel comfortable.
Always know how it is making money.
If investors understands how to manage those risks effectively, the market itself should see an improvement.
http://www.businessweek.com/investor/content/dec2008/pi20081216_994051.htm
Needless to say many of them are very structured in a very complicated way.
There are many ways you can invest.
Investing in mutual funds are what many people do these days.
And as part of the class having diversified portfolio is one way to mitigate our risk.
Mutual funds can be a great benifit that creates return on investment.
And it can simply help us to diversify.
However, what happened during January 2009?
Bernard Madoff has made investros recognized how risky it can be when not knowing how returns are made.
Each day in class we discuss how firms are valued.
And first thing we do is to determine the way that they make money.
By knowing those information, we can then apply the costs assosiated with each of the firms and start a valuable anaysis.
Isn't this similar to what we should do to our investment?
People are investing in something many calls it as a "Black Box".
Should we feel comfortable as long as its giving us the return?
No we shouldn't feel comfortable.
Always know how it is making money.
If investors understands how to manage those risks effectively, the market itself should see an improvement.
http://www.businessweek.com/investor/content/dec2008/pi20081216_994051.htm
Sunday, February 8, 2009
Follow up on state farm's decision.
Few weeks ago, I have posted the decision that was made by state farm insurance.
The decision was for them to pull out from the HO insurance market at the state of Florida.
Now, I would like to discuss the potential consequenses of this decision.
First of all, we all know what state farm is and how huge it is.
It had the #1 market share in FL.
This decision for state farm is one of the biggest news in the property and casualty sector of today's insurance division.
The biggest loss I assume does not just lie in the HO insurance.
Now a days, many of the insurance companies offers good rates for combination of having HO insurance plus the automobile insurance.
And what I assume is that many who own the house owns a car...
It must have been a crucial decision that a state farm announced in order to suffer the loss that would be seen without participating in this market segment.
The decision was for them to pull out from the HO insurance market at the state of Florida.
Now, I would like to discuss the potential consequenses of this decision.
First of all, we all know what state farm is and how huge it is.
It had the #1 market share in FL.
This decision for state farm is one of the biggest news in the property and casualty sector of today's insurance division.
The biggest loss I assume does not just lie in the HO insurance.
Now a days, many of the insurance companies offers good rates for combination of having HO insurance plus the automobile insurance.
And what I assume is that many who own the house owns a car...
It must have been a crucial decision that a state farm announced in order to suffer the loss that would be seen without participating in this market segment.
Earnings: The Sting of the Strong Dollar
volatility, uncertainty are some of the terminology we hear frequently when taking RMI courses
volatility of market and volatility of currency are giving much of U.S firms headaches.
However, it is not only the U.S companies that are suffering from change in U.S dollars.
During December, I have visited my country. ( Japan)
Major automobile companies in Japan has announced decline in the profit line and the annual sales estimate was off due to the change in value of Yen vs. Dollar.
Toyota has not seen losses for a while on their operation and sales.
However, due to the economic condition last year they have reported a loss in the firm.
One of the reason that brought them a loss was the annual estimate.
They have done the estimate of sales and expense in assumptions of X yen = Y dollars.
We can imagine what would the consequences would be if there are significnat change in either side of this simple currency formula.
Toyota has announced that move even in 1 Yen compared to dollar can cause them a loss of 1million dollars.
Hedging was one of the techniques we have discussed in class.
Such as Delta or American Airlines hedging against oil prices,
American Barrick hedging against gold prices.
In today's market condition, hedging with currency forwards can create a very big value to each of the firms operating in numerous regions.
volatility of market and volatility of currency are giving much of U.S firms headaches.
However, it is not only the U.S companies that are suffering from change in U.S dollars.
During December, I have visited my country. ( Japan)
Major automobile companies in Japan has announced decline in the profit line and the annual sales estimate was off due to the change in value of Yen vs. Dollar.
Toyota has not seen losses for a while on their operation and sales.
However, due to the economic condition last year they have reported a loss in the firm.
One of the reason that brought them a loss was the annual estimate.
They have done the estimate of sales and expense in assumptions of X yen = Y dollars.
We can imagine what would the consequences would be if there are significnat change in either side of this simple currency formula.
Toyota has announced that move even in 1 Yen compared to dollar can cause them a loss of 1million dollars.
Hedging was one of the techniques we have discussed in class.
Such as Delta or American Airlines hedging against oil prices,
American Barrick hedging against gold prices.
In today's market condition, hedging with currency forwards can create a very big value to each of the firms operating in numerous regions.
High beta financial stocks
As we discussed numerous times in class Beta is a measure used to see the volatility or tendencty of movement of Stock vs. Market.
Beta of 1 moves perfectly along with the market.
Beta of 2 moves twice as much as the market.
and it is the index represented by S&P index.
When investing in stock market, individuals must think about the return and the risk associated with each of the stocks.
And one technique to increase wealth was to have diversity in our portfolio.
Risk management can show a lot of its value in such category as well.
Now, how much a Beta can grow?
I have searched for high Beta companies online and below are some of the companies.
from business week/
1. Citigroup B= 3.2
2. Office Depot B=3.1
3.Ford B=2.9
These seems very high in Beta.
However, according to website at Schaeffers research,
1.Mercadolibre Inc. B=4.55
2.LMI Aerospace Inc. B=3.82
3.LDK Solar Co. LTD B=3.72
I personally think investors should have a very good understanding of the company if they are going to be investing into any of these companies. I don't know how these companies are more volatile than companies such as Citi or Ford, which it is now in ditress.
Beta of 1 moves perfectly along with the market.
Beta of 2 moves twice as much as the market.
and it is the index represented by S&P index.
When investing in stock market, individuals must think about the return and the risk associated with each of the stocks.
And one technique to increase wealth was to have diversity in our portfolio.
Risk management can show a lot of its value in such category as well.
Now, how much a Beta can grow?
I have searched for high Beta companies online and below are some of the companies.
from business week/
1. Citigroup B= 3.2
2. Office Depot B=3.1
3.Ford B=2.9
These seems very high in Beta.
However, according to website at Schaeffers research,
1.Mercadolibre Inc. B=4.55
2.LMI Aerospace Inc. B=3.82
3.LDK Solar Co. LTD B=3.72
I personally think investors should have a very good understanding of the company if they are going to be investing into any of these companies. I don't know how these companies are more volatile than companies such as Citi or Ford, which it is now in ditress.
Tuesday, February 3, 2009
Hard to Say "Stop"
Today, value of risk managers are rising rapidly.
It has grown its status more than just compliance advisor or backroom suppoerter.
Fall down of Lehman brothers seems as it triggered the big mess that wehave right now.
How were the risk been percieved at Lehman, Merril Lynch, AIG, and the big 3?
It seems as it was hard for them to say "Stop" or "No".
Greed is something each of us have and how to manage that can be a hassle.
However, a successful risk managers must analyze the exposure of risk along with the severity.
Even in times of making a lot of money to its firms or organizations, people should not forget what derives value to the firm.
It is the long run outcome of the firm and its absolutely wrong to plan for a short time big reward.
Firms must survive the short run and live long enough to see the long run outcome in order to be valued in the society.
Say "No" when there are figures which may jeopardize the future of an entity.
It has grown its status more than just compliance advisor or backroom suppoerter.
Fall down of Lehman brothers seems as it triggered the big mess that wehave right now.
How were the risk been percieved at Lehman, Merril Lynch, AIG, and the big 3?
It seems as it was hard for them to say "Stop" or "No".
Greed is something each of us have and how to manage that can be a hassle.
However, a successful risk managers must analyze the exposure of risk along with the severity.
Even in times of making a lot of money to its firms or organizations, people should not forget what derives value to the firm.
It is the long run outcome of the firm and its absolutely wrong to plan for a short time big reward.
Firms must survive the short run and live long enough to see the long run outcome in order to be valued in the society.
Say "No" when there are figures which may jeopardize the future of an entity.
Winning strategy for 2009: insurance sector
As we discuss everytime in class, each firm has its own value and various methods of deriving revenue.
Insurance company whether it is Life/Health or P&C creates revenue through competitive pricing among the rivals.
We know that today, U.S economy is at recession.
With the individual income level flattening or declining, insurance industries are suffering.
Big part of revenue for insurance companies are functions of
Price
market segmentation
cash-flow-generation
the liquidity to its consumers( from consumers view)
However, analysts from various insurance companies are now experiencing the difficulties in arriving at proper forecasting due to the volatile market situation or economic instability.
Concentrating on having heavy risk management may create value in these type of situations and clear some of the anxieties among people.
Insurance company whether it is Life/Health or P&C creates revenue through competitive pricing among the rivals.
We know that today, U.S economy is at recession.
With the individual income level flattening or declining, insurance industries are suffering.
Big part of revenue for insurance companies are functions of
Price
market segmentation
cash-flow-generation
the liquidity to its consumers( from consumers view)
However, analysts from various insurance companies are now experiencing the difficulties in arriving at proper forecasting due to the volatile market situation or economic instability.
Concentrating on having heavy risk management may create value in these type of situations and clear some of the anxieties among people.
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