Welcome back
my lovely followers! I hope my posts have been keeping you entertained. This
week we will be focussing on value of shares and the company? Sounds good
right? Well I hope so! This week I will be blogging about a fictional movie I
had my eyes glued to, Margin Call! Guys I highly recommend you to watch this movie,
I found it particularly interesting! If you would like to see how an investment
bank was portrayed during the early stages of the financial crisis, click the link below!
"Rather a mix of dread, disgust, pity, and confusion."
Corporate finance theories and practices have evolved since the 50's from normative to positive approaches to explain why and how investors react to companies decisions and announcements with respect to companies financial investment decisions. The ways and methods used to estimate companies values are essential issues in corporate finance. Several events during last years have changed the validity of the models and methods of corporate valuations.
Example: The case of Enron is one of these events that make
us re-evaluate the classical and neoclassical methods. Anyhooo... let's not go
there! This blog will be focussed on Margin Call & Margin Call only.
We can say corporate valuation depends on purpose of
valuation, stage of business, past financials, expected financial results &
industry scenario. Now we need to ask ourselves was this Wall Street investment
bank revising these valuations? Hmm...
I understand that the subject matter of mortgage-backed
securities (MBS) is a bit dry and complicated but the cast is full of well
known Hollywood stars! The fictional head of a Wall Street firm "John
Tuld" ( a composite character resembling Merrill Lynch's John Thain and
Lehman Brothers Dick Fuld and played by the wonderfully villainous Jeremy Irons)
is told that the firm is drowning in toxic mortgage- backed securities. The
firm had eventually realised the assets they held were penniless. The movie I
felt portrayed a set of psychological causes rather than the stages of the
financial crisis, which I personally feel is important. Companies setting their
minds on greed & money? I feel this is exactly what happened in this movie.
Trader Peter Sullivan, discovers that the firms exposure is potentially greater
than the entire value of the firm, meaning bankruptcy if the market goes not
improve markedly.
Tuld, realised that its only paper money they were talking
about. The figures did not end up any more? Can we blame the CEO's for not
understanding the basics? Appalling! I feel that the CEO's did not evaluate the
company as well as they should. Did they have a look at the expected financial
results? or even the past financial results? I don't think so! What do you all
think? You would think that with the CEO's being at the top of the business
chain this would all have been embedded. Lack of corporate valuation and
valuing shares! I just think this was just a bunch of investing banking psychopaths
and greedy CEOs!
What interests me about the investment-bank role in the 2008
financial crisis is that how banks sold high risk MBS securities- which they
knew were junk - to institutions and claimed with a straight forward face that
these MBS securities deserved a triple-A credit rating. Like how could they do
this deliberate act? I am disgusted! I personally feel that they did not value
the company at all or even think about valuing the shares! Sure, in passing the
characters mention that the MBS securitization process was "very
lucrative" for the investment bank and the bank's risk manager has "warned"
higher-ups that the firm was over leveraged? Did anyone consider this in the
movie? Bollocks!
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| Corporate Valuation Model |
Hit me up with your comments below!
It's a wraaaaap!
RS.
Good info! Thanks I watched the movie very interesting!
ReplyDeletethank you yes it was a good movie
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