The Banker's Blog

CAREERS ADVICE: The Goldman Sachs Guide to Interview Preparation

2010-02-11T13:22:00.000-08:00

Preparing for a first round interview at an investment bank can be a daunting and overwhelming experience. For people who may have not experienced an investment banking interview before, it can be difficult to know what subject matter to prepare. It can become a process of stabbing in the dark, which induces stress and in turn poor performance at interview. To alleviate this pressure, Goldman Sachs have prepared an excellent presentation to outline how best to prepare for an investment banking interview. When taking advice on investment banking, who better to take it from than GS...

This presentation provides an excellent checklist for any candidate prior to an interview. It is equally applicable to front, middle and back offices roles. Covering off all points mentioned during your preparation (click the link below to view the presentation) will ensure that you are well placed to handle most if not all the questions the interviewer(s) might throw at you.

Click here to view the presentation

SPREADSHEET TIPS & TRICKS: The “Trim” Function

2010-02-11T11:47:00.000-08:00

Ever had a data series that needed cleaning? This function removes spaces from the front and back of a set of characters in an Excel cell. For example, you may need to perform the Vlookup function on a list of client codes in an Excel spreadsheet.

However, the data you are given may contain unnecessary spaces at the front or end of each client name.

For example, “ClientA” may be in your spreadsheet as “__ClientA___“, where the underscores illustrate the spaces.

To clean the data and remove the spaces from the front and back of the characters, use the =TRIM() function, where you would place the cell reference within the brackets.

After cleaning the data in this way, your Vlookup function would work.

MARKET UPDATE: Tarnishing the Euro’s Good Name

2010-02-11T04:34:00.000-08:00

 Market participants openly wondering whether recent fiscal troubles are the start of the end of the European project
 The EUR reacted positively to news that some form of support package is being considered (from France and Germany) but nothing concrete has appeared yet, leaving markets on edge
 The market is heavily short EUR according to IMM data, suggesting a potential sharp rebound in the event that some support package for Greece is announced
 A solution for Greece will only constitutes around 2.5% of eurozone GDP will also not prevent focus from continuing to shift to Portugal, Spain and other countries with fiscal problems despite comments by Moody’s ratings agency to differentiate between the countries
 Even if the EUR rebounds on any positive news about support for Greece any relief is likely to prove temporary and will provide better levels to sell into to play for a medium term decline in the currency

These are the salient points kindly contributed by Mitul Kotecha, Managing Director & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website; The Econometer

FX MARKET UPDATE: What To Watch This Week

2010-02-07T13:09:00.000-08:00

 The G7 meeting, held in Iqaluit, Canada, over the weekend, left markets with little to chew on
 G7 officials maintained their commitment to stimulus measures and timely exit strategies
 The current environment remains conducive to more USD and JPY buying and selling of currencies such as the AUD, NZD, CAD, GBP, NOK, SEK, ZAR etc
 Ironically, the US and Japan have arguably more severe deficit/debt concerns than some of the European countries under pressure but as most of Japan’s debt is held domestically there is little worry of a collapse in JGBs
 The US January jobs report, released at the end of last week, will give little direction to markets in the week ahead. Although the 20k drop in payrolls and revisions to past months were slightly disappointing, the surprise drop in the unemployment rate was positive
 This week, January US retail sales report and December trade balance are worth watching, with the market expecting a rise in US retail sales to firm a, thus far, faltering economic recovery
 For the week ahead, the risk off tone is set to continue though the moves are looking increasingly stretched
 The USD, JPY and CHF will remain on the front foot
 EUR is set to continue to struggle against the background of Eurozone deficit concerns. After breaking 1.40 last week, 1.35 is the next target
 AUD may also struggle following the latest RBA meeting where interest rate expectations were altered
 UK markets will focus on the Quarterly Inflation Report from the Bank of England
 Prospects of a hung parliament will weigh on GBP, particularly as the BoE has not ruled out further asset purchases

These are the salient points kindly contributed by Mitul Kotecha, Managing Director & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website; The Econometer

MARKET COMMENTARY: Currency Tensions Intensify Ahead of G7

2010-02-05T02:13:00.000-08:00

 Portugal, Greece and Spain remain firmly in the spotlight but it may not be long before the light broadens to include UK, US and many other countries facing similar difficulties on the fiscal front
 In Portugal, parliament began to vote on a bill on financial transfers to the regions, which could damage the ability of the government to reduce the deficit
 In Greece tax collectors have started a 48-hour strike as social unrest worsens
 European officials pour cold water on the idea that the whole EMU Project could unravel bond markets are not taking any chances whilst the EUR looks destined to languish at ever weaker levels until there is a semblance of calm
 The G7 meeting in Canada will move rapidly into focus this weekend, with a joint press conference expected on Saturday
 US pressure on China to strengthen the CNY has increased
 There is growing speculation that the upcoming US Treasury report in April will label China as a currency manipulator which could result in tensions ratcheting up to a higher level

These are the salient points kindly contributed by Mitul Kotecha, Managing Director & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website The Econometer

MARKET COMMENTARY: Selling Risk Trades On Rallies

2010-02-04T14:48:00.000-08:00

 A poor outturn for the US service sector (the ISM non-manufacturing index failed to match expectations, coming in at 50.5 in January versus consensus of 51.0) has weighed on markets. Reversed the boost to markets from the positive manufacturing purchasing managers (PMIs) indices earlier in the week
 However, Cisco Systems beat equity analyst expectations Meanwhile US ADP jobs data fell less than expected, resulting in a flat month for January
 Confidence is still shaky, with worries over Greek sovereign debt not abating and spreading to Portugal. Ratings downgrade fears remain
 The US has not escaped either, with Moody’s warning that the US AAA credit rating would come under pressure unless more stringent actions were taken to reduce the country’s burgeoning budget deficit
 The current environment remains negative for risk trades and the pullback in high beta currencies has been particularly sharp over recent weeks
 Data in Australia will not help sentiment for the AUD too. Australian retail sales dropped by 0.7% in December, a worse than expected outcome
 The overall strategy against this background is to sell risk trades on rallies. There are still too many concerns to point to a sustained improve in risk appetite

These are the salient points kindly contributed by Mitul Kotecha, MD & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website The Econometer

VIDEO: The Deutsche Bank Unofficial Guide to Investment Banking

2010-02-03T04:48:00.000-08:00

This video is a light hearted but insightful snapshot of what it is like to work for a global investment bank, in this case Deutsche Bank. None of The Banker's Blog's team have worked for DB but from the IBs we have worked for, and our friends at DB itself, we can testify that this video is certainly indicative of what you would expect from joining a global IB in general. We can relate to the characters they have interviewed, and testify that such characters do exist in the industry. The video gives a fair reflection of the international nature of global IBs, with interviews of people working in the London and New York offices.

DB also release a written pamphlet called the Unofficial Guide to Investment Banking, which is available at university open evenings held by DB at their offices... We would recommend sourcing a copy if you can, as if you have zero knowledge or background in investment banking, but are interested in entering the field, it is hands down the best piece of literature provided by any of the bulge bracket investment banks for graduates to learn from.

Clear and concise, it provides explanations of each functional area and will undoubtedly help you to decide which area you feel you will be best suited to. Finally, you can use it to provide answers to your first round interviews. For instance, to questions such as, "Why do you want to work in investment banking / sales / trading / etc" - Simply memorise the reasons they provide, and support them with your own examples to validate your claims.

MARKET UPDATE: Central Banks take centre stage

2010-02-01T23:17:00.000-08:00

 Monetary Tightening in China and Greece’s debt woes have caused risk aversion to take a turn for the worse over the past fortnight
 There have been spikes in currency and equity market volatility and risk currencies have remained under pressure, including AUD, NZD, CAD and man emerging market currencies
 Greece’s problems remain a major burden on the EUR, with speculative sentiment for the currency dropping close to all time lows, as recorded by IMM data
 Markets will have much else to focus on this week, with various manufacturing and service sector PMIs, four major central bank decisions, and the January US non-farm payrolls report, due for release
 The most interesting central bank decision this week is likely to be that of the Reserve Bank of Australia. Recent data has if anything given more reason for the central bank to raise interest rates, including the latest release which was the TD Securities inflation gauge, which jumped 0.8% in January, the biggest increase in 6-months
 The UK Bank of England is unlikely to shift policy at its meeting on Thursday the statement will be scrutinized for clues as to whether quantitative easing is over
 IMM Data shows net short aggregate USD speculative positions have dropped sharply, with USD positioning close to being net flat
 Appetite for carry trades was not be helped by a report in the UK press, which fuelled a sell of in JPY crosses. The UK’s Lord Turner has signalled a regulatory crackdown on FX carry trades, but it is thought this would be impractical to implement

These are the salient points kindly contributed by Mitul Kotecha, MD & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website The Econometer

CAREERS ADVICE: How to secure a job at an Investment Bank

2010-01-31T08:52:00.000-08:00

1. Understand the structure of an Investment Bank

Broadly speaking, an investment bank is divided into the front, middle and back office functional areas. There are many other areas, such as marketing and legal departments, but for the purpose of this article, we shall focus on the aforementioned areas.

Front Office:

The front office houses the revenue generators. These are the investment bankers, sales people and traders, whose responsibility it is to generate revenues for the firm in the form of fee income, in return for advisory services, or trading profits, from intelligently executing trades in the financial markets. The front office is divided into the public and private sides by an imaginary Chinese wall. This wall is intended to stop the flow of private information held in the private side, by investment bankers, to the public side, to sales people and traders, who could unfairly profit from such information against the rest of the market who are not privy to such information.

Skills required for a position in the front office vary from team to team and role to role, but generally they include strong communication skills, excellent spreadsheet skills, an analytical mind, pleasant soft skills (for clients and “upward management”), a head for numbers, the ability to work under pressure and or long hours.

As has been the case for the past eight to ten years, you will be hard pressed to find a front office team willing to hire a candidate without at least a 2:1 university degree. The better the university, the more likely it is that your CV will catch the eye of a hiring manager.

• The Private side of the Chinese Wall houses Investment Banking teams
o Corporate Finance
o Mergers & Acquisitions
o Equity Capital Markets
o Debt Capital Markets
• The Public side of the Chinese Wall houses Sales & Trading teams
o Salespeople sell financial products to corporations and financial institutions
o Traders market make and undertake proprietary trading in a variety of asset classes

Middle Office:

The middle office houses product control teams. It is their job to generate the profit and loss (P&L) accounts on a daily, weekly, monthly and annual basis for trading desks. Other responsibilities include investigating discrepancies between the trader’s expected P&L and that generated by the product control team.

The skills required include strong excel and VBA skills, good time management, strong communication skills and at times thick skin to deal with stressed traders.

Generally, a 2:1 university degree is required for an entry level position in the middle office. For experienced hire positions, increasingly, due to the oversupply of candidates in the current market, middle office departments have increased their candidate criteria and are now often looking for qualified accountants, although in years gone by this was not the case.

Back Office:

The back office houses a number of areas whose aim it is to settle and confirm trades executed by salespeople and traders with the other counterparties across the market. Skills required include strong spreadsheet skills and investigation skills. Often a university degree is not a prerequisite for a position in the back office. Teams include the following:
• Reconciliations
• Confirmations
• Settlement

2. Decide Who to Apply To:

Some global investment banks that you may consider applying to;

UK Investment Banks:
Barclays Capital
RBS

US Investment Banks:
Goldman Sachs
Morgan Stanley
Citigroup
JP Morgan
Bank of America Merrill Lynch

French Investment Banks:
Societe Generale
BNP Paribas

German Investment Banks:
Deutsche Bank
Dresdner Bank
Commerzbank Corporates and Markets (CBCM)

Asian Banks:
HSBC
Nomura

Suisse Investment Banks:
Credit Suisse
UBS

Corporate Finance Advisory Firms:
Lazard
Greenhill
Rothschild

3. Decide how to apply to them

You could apply directly to graduate or associate schemes (if you are an experienced hire). Bear in mind, timing is essential when applying to graduate schemes. Applications normally open in September for full time analyst positions and the sooner you apply the more chance you will have of securing an interview. Applicants always reach the tens of thousands for each global bank and are in the hundreds per position available. The faster you submit your applications the fewer graduates you are competing against. Alternatively you could contact recruitment companies and solicit their help for positions outside of graduate schemes, often a side route into investment banks, if you have missed application deadlines. A list of regularly used firms is as follows:

To Find Permanent Positions:

Cornell Partnership
http://www.cornellpartnership.com/
An excellent recruitment company who have deliver a personalised service to graduates and experienced hires alike. The company is run by talented and pleasant people who have great contacts in the markets and will be able to get you placed.

PER (Private Equity Recruitment)
http://www.perecruit.com/
This firm will help you find a front office entry level or experienced hire position in a Private Equity Firm or a Venture Capital Firm. Very organised. Deliver interviews. It is then down to you.

To Find Temporary or Permanent Positions:

Robert Walters
http://www.robertwalters.com/
This recruiter focuses on temporary and permanent positions in the Back and Middle offices of investment banks. One of the main recruiters in the city and has a large database of job opportunities.

Morgan Mckinley
http://www.morganmckinley.com/
Historically, this recruiter focussed on temporary and permanent positions in the Back and Middle offices of investment banks in the UK. Recently however, they have also branched out to offering jobs in the front office too. They also have offices worldwide and have a comprehensive range of recruitment consultants around the world. Again, one of the main recruiters in the city and has a large database of job opportunities.

Michael Page
http://www.michaelpage.co.uk/
Along the same lines as Morgan Mckinley, this recruiter offers temporary and permanent positions in the Back and Middle offices of investment banks as well as a comprehensive suite of front office positions too. They have offices worldwide and can assist with comprehensive searches of jobs on the global market. Again, one of the main recruiters in the city and has a large database of job opportunities.

Joslin Rowe
http://www.joslinrowe.com/
In a similar vein to Robert Walters, this recruiter focuses on temporary and permanent positions in the Back and Middle offices of investment banks. However, they do offer some front office positions. One of the main recruiters in the city and has a large database of job opportunities.

There are many other recruitment companies across the City of London that might also be useful. This list is a starting point.

MARKET UPDATE: Risk Aversion Takes Hold of Markets

2010-01-29T23:09:00.000-08:00

 Risk aversion has come back with a vengeance over the last 10 days driven by a host of concerns that continue to damage market sentiment
 USD and JPY remain the best currency plays against the background of rising risk aversion and both currencies look well supported
 Market concerns have not completely abated, although fears plaguing markets have receded, particularly on the US political front, with Obama’s State of the Union address, Geithner’s testimony on AIG and Bernanke’s reappointment all passing without too much incident
 Euro-sovereign spreads continue to suffer from the ongoing Greek saga whilst the other major fear remains further monetary tightening in China
 Mitul Kotecha, the author of these posts and MD & Head of Global Currency Strategy at Calyon has been on the road recently and cites dominating sentiment seems to be for a “W” shaped double dip recession
 EUR/USD slipped below the psychologically important level of 1.40 this week and is showing no sign of turning around
 PIIGS face ratings downgrades (Portugal, Ireland, Italy, Greece, Spain), which have not helped
 In the UK the S&P have warned that UK banks are no longer among the “most stable and low-risk” in the world, which have played against GBP

These are the salient points kindly contributed by Mitul Kotecha, MD & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website The Econometer

VIDEO: Options Trading: Delta Hedging & Gamma Scalping...

2010-01-24T13:57:00.001-08:00

In this video, Joe Troccolo discusses some of the fundamentals of Options trading, including a description of Gamma Scalping; the dynamic management of an options trader's Delta position. For more on Joe Troccolo, click on the link in our post titled, "Market Wizards: About Joe Troccolo"

Market Wizards: About Joe Troccolo

2010-01-24T13:54:00.000-08:00

To learn more about Joe Troccolo, click here

Posted using ShareThis

SPREADSHEET TIPS & TRICKS: Text to Columns…

2010-01-24T04:41:00.000-08:00

THE PROBLEM: You are given a list of email addresses and you wish to extract the First Name, Surname and Company Name from the list. The majority of the emails come in the format firstname.surname@company.com. Separating the information manually will be time consuming; you need a quick solution.
THE SOLUTION: Use the Text to Columns function as per the screenshots below…

>> Highlight the column of emails
>> Click Data from the Menu Bar, then Text to Columns (or keyboard shortcut Alt > d > e)
>> On the dialogue box that appears, select the “delimited” option and click Next
>> Click the “Other” box and enter a full stop into the space provided. This tells Excel to create a new column each time it encounters a full stop in the data field
>> On the next dialogue box, select the cell where you would like Excel to start entering the segregated columns and click Finish
>> Excel separates the data as per your instructions. There were two full stops in each email address, therefore Excel has created 3 new columns of data.
>> To finally separate the Final Column (Column C) between the surname and company name, repeat the process, only this time on the second dialogue box replace the full stop with the @ symbol and on the third dialogue box, select a new destination cell, in this example, cell E1
>> You have now created First Name, Surname and Company Name fields for each email address.

MARKET UPDATE: Optimism Dissipates for Global Recovery

2010-01-23T23:05:00.000-08:00

 Optimism about strong recovery led by China – recall the fact that disappointment from the surprisingly weak US non-farm payrolls report in December was outweighed by strong Chinese trade data – has dissipated
 Instead of rejoicing at China’s robust GDP report last week, which revealed a 10.7% rise in the fourth quarter of 2009, worries over whether China would have to move more aggressively to tighten monetary policy dominated investor’s thoughts
 Further to this, US President Obama’s plan to limit the size and trading activities of financial institutions dealt another blow to financial stocks
 Meanwhile, rumblings about Greece continue to weigh on markets and Greek debt spreads continued to widen even as global bond markets rallied
 Obama’s announcement helped EUR/USD to avoid a break below 1.40, as there was a pullback in USD
 The AUD was also hit by news that Australia’s Henry Tax Review would look to tax miners in the country. As a result AUD/USD dropped below 0.90 though this level is likely to provide good buying levels for those wanted to take medium term AUD long positions
 The other G3 central bank to meet this week is the Bank of Japan but unless the Bank is seen to be serious about fighting deflation, USD/JPY may remain under downward pressure. USD/JPY, however, will find strong support around 88.84

These are the salient points kindly contributed by Mitul Kotecha, MD & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website The Econometer

SPREADHSEET SHORTCUTS: Select an entire row or column using just the keyboard...

2010-01-23T14:00:00.000-08:00

Shift & Space Bar; to select an entire row, whilst in Excel, press shift first, and while depressed, press the space bar. This will highlight the whole row for the current cursor location. If a few cells are highlighted vertically before the keys are depressed, then all the rows highlighted in the selected range will be highlighted.

Control & Space Bar; to select an entire column, whilst in Excel, press the control key first, and while depressed, press the space bar. This will highlight the whole column for the current cursor location. If a few cells are highlighted horizontally before the keys are depressed, then all columns highlighted in the selected range will be highlighted.

SPREADHSEET TIPS & TRICKS: Left & Right...

2010-01-23T13:54:00.000-08:00

The left and right functions allow you to extract a specified number of characters from a data field in Excel. For example, the below screenshot shows a time series data dump of currency rates, dates and times from Reuters. The date field has come in the format DD/MM/YY HH:MM:SS. You may wish to separate the date from the time in this field. One way to do so is to use the Left and Right Functions, as per the screenshots below…

As shown, the “left” function was used in column G to extract the date from column A and the “right” function was used in column H to extract the time.

SPREADHSEET TIPS & TRICKS: Upper, Lower, Proper...

2010-01-23T13:43:00.000-08:00

Here are some useful functions to help tidy a spreadsheet that contains non-numeric data. If, for example, you are given a list of names and addresses, in all lower or all uppercase, but you really need them to be in the proper format, with the first character in uppercase only, then the “proper” function can be used. Screenshot A shows an example. It’s a quick and easy way to convert a list of incorrectly formatted non-numeric data that would otherwise be timely and manual process...

Screenshot A

Incidentally, it is possible to convert data into upper and lowercase formats using the upper and lower functions in the same manner, as screenshots B and C show.

Screenshot B

Screenshot C

MARKET UPDATE: The Euro comes under pressure

2010-01-20T23:55:00.000-08:00

 The EUR continues to struggle both due to the direct and indirect impact of Greece’s fiscal problems
 Indirectly, the EUR dropped sharply following the release of the below consensus German ZEW survey
 Directly, concerns about the seriousness and/or ability of Greece to solve its problems are also weighing on the currency
 Officials at the Ecofin meeting of European finance ministers noted that Greece would not receive help from its neighbours but said its problems are a concern for all of the Eurozone
 The strength of the EUR was also discussed at the Ecofin meeting, with the EU’s Juncker stating that it should better represent European interests
 EUR/USD looks especially vulnerable below its 200-day moving average around 1.4298, the first time it has traded below the 200 day moving average since May 2009

These are the salient points kindly contributed by Mitul Kotecha, MD & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website The Econometer

MARKET UPDATE: Q4 earnings and Chinese data

2010-01-18T23:47:00.000-08:00

 On balance the overall tone since the start of the year has been just about positive, with firmer economic data, most notably in China outweighing sovereign debt concerns in Greece and elsewhere
 With the markets gyrating between a “Risk on” and “Risk off” tone from the turn of the year, “Risk off” may be the tone at the start of this week, as US equities ended the week on a negative note ahead of the Martin Luther King holidays
 Bank earnings will be a key focus, with Citigroup, Morgan Stanley, BoA, Wells Fargo and Goldman Sachs set to report this week
 Given the growing influence of Chinese data on markets the monthly data pack from China will capture more attention than usual on Thursday
 Chinese GDP data is likely to reveal an acceleration in growth in Q4 YoY to above 10%
 In the Eurozone the main event is the German ZEW survey tomorrow, which is likely to show further signs of flagging, due to Greek concerns
 UK data kicked off on a positive note this week, with house prices rising 0.4% MoM in January and 4.1% YoY according to UK property website Rightmove, the biggest annual gain in over a year
 The data as well as expectations that Kraft will raise its bid for Cadbury will likely help GBP in addition to other GBP positive M&A news

These are the salient points kindly contributed by Mitul Kotecha, MD & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website The Econometer

SPREADSHEET TIPS & TRICKS: Consolidating Data Lists...

2010-01-16T10:01:00.000-08:00

Do you work in sales & trading? Have you ever had the head of your desk approach you and say, "Could you just run me a quick report to find out how many clients have dealt with us during 2009?"... Have you said "Yes" but thought to yourself, "Do I look like a spreadsheet jockey? Why is he getting me to do that? And more importantly; How on earth do I do that...?"

First, the excel tip, then the career advice...
First, get a data dump of all trades dealt with your desk during the calendar year 2009. (You might have an internal trade reporting system that can give you this, or if you have an effective business management team, they should be able to give you the data.) There will be a column here called "counterparty name" or something similar. In isolation, this column can be viewed as a list of 39,564 names with duplicates. For example, if Counterparty A traded 651 times with your desk throughout 2009, then their name will be listed 651 times. Your task is to consolidate that list into a list of unique names, so that Counterparty A's name appears only once, alongside single entries of all other names.

>> Copy and paste the "Counterparty" column to a fresh part of your spreadsheet (a new tab or to the right of the original table).
>> Fill the column to the right of the list with the number 1
>> Select the cell to the top right of the list (in the screenshot, cell J1)
>> Select Data > Consolidate... from the Menu Bar (or use keyboard shortcut Alt > d > n)
>> Highlight the list of counterparties and the column to the right of that (filled with "1s")
>> Select "Sum" from the drop down list and click "Left Column" from the check boxes
>> Click the OK button to generate a list of unique entries. Excel will Sum the number "1s" beside each name and tell you how many of each entry there were in the original list too, i.e. how many trades each counterparty dealt with your desk
>> Use the Count function to count how many clients had dealt with your desk over 2009
Now, the career advice... although you want to show your boss that you are capable of doing more intellectually taxing tasks, the way to do this is not to shun the more mundane tasks he or she may throw at you. They know that you are smart, that is why they hired you in the first place. Do the simple things well and it will send them the message that you are not only smart but have the right attitude too.

SPREADSHEET TIPS & TRICKS: The F5 Key (Part 2 of 2)

2010-01-16T07:54:00.000-08:00

Hit the F5 Key on your Keyboard within an Excel Spreadsheet and click the Special... button to show the tool in the below screenshots.

The Special... key is a powerful search and identification tool within Excel. To set the scene, when building a financial model, one must know which cells contain formulas and which cells contain hard coded data (numbers punched in manually). The creator of the model will not want new users to overtype the cells that contain formulas with hard coded numbers, otherwise formulas will be lost. To avoid this, the financial modeller will use a colour coding system, whereby all "entry" cells are filled in yellow and have blue coloured text, and all cells that contain formulas, and therefore are not to be overtyped, are left with a black font and clear cell colouring.

The screenshot shows an example of a completed DCF model. However, there lies one problem for the creator of this model, in that he or she cannot quickly remember which cells contain formulas and which are hard coded.

To swiftly overcome this, the financial modeller hits the F5 Key, then clicks the Special... button (or uses the Alt+S keyboard shortcut). They configure the dialogue box as below, which tells Excel to highlight all cells that contain constant values that are numerical.

Once the user clicks the OK button, Excel goes ahead and highlights the relevant cells. The financial modeller can then easily change the formatting of these cells so that future users know which cells to leave untouched and which cells are safe to enter data into.

SPREADSHEET TIPS & TRICKS: The F5 Key (Part 1 of 2)

2010-01-16T07:23:00.000-08:00

What does the F5 key do?

The F5 key brings up the Go To... dialogue box. This is useful for financial modellers who like to use named cells or cell ranges. It is a quick way to bring up a list of all named cells or cell ranges within Excel files. Equally if one is auditing another's spreadsheet and would like to check what named cells or cell ranges the original modeller has used, if any, then the F5 key offers a quick way to do so.

In the pictoral example, below, the modeller has many cell ranges and the F5 key is an easy way to view which names have been allocated to which cells or cell ranges. If the modeller has forgotten which cells each range refers to, they can simply double click an item on the list and Excel will highlight the relevant cell on the relevant tab within the Excel file.

Try it. See if any of the Excel models or spreadsheets used in your team use named cell ranges. Open the file and hit the F5 key. Double click an item on the list that appears (if any) and watch how Excel navigates you to the relevant tab and highlights the cell(s). In Part 2, we explore the useful functions hidden under the Special... button...

MARKET UPDATE: A Greek Tradgedy

2010-01-15T21:49:00.000-08:00

Greece announces a three-year plan to reduce rising fiscal deficit. However this failed to convince the markets, as Greece’s 5-year CDS widened to 333bps whilst 10-year sovereign spreads widened further.
The plan proposes to reduce the budget deficit from 12.7% to 2.8% of GDP by the end of 2012, which many view as unrealistic.
Greece’s deficit is planned to be cut by 4% this year alone; a tall order given the likelihood that the economy will contract this year.
Greece needs to convince the European Commission but if the negative market reaction is anything to go by it may need further revisions including more drastic spending cuts as well as concrete plans for structural reforms.
EUR will be hit in the FX markets as a result of the instability in Greece and other Eurozone members Spain, Ireland and Italy. GBP seems to be a beneficiary.
Rumours of a Eurozone break-up are likely to intensify, but ECB President Trichet dampened speculation that Greece could exit the euro while, on the other hand, confirming that they would receive no special treatment.

Original atricle can be found in full at The Econometer

MARKET UPDATE: G3 Economies Show Modest Growth

2010-01-14T23:24:00.000-08:00

 A few themes are already becoming evident into 2010. Firstly, the dominance of China and any news on the Chinese economy is becoming increasingly apparent, as reflected in the market reaction to trade data and hike in reserve requirements this week (see our post, China Tightens Monetary Policy)
 The second theme that is developing this year is the “risk on” environment for asset markets
 Another theme is the problems and concerns about sovereign debt and ratings, which will likely intensify further
 A final theme that could be added is the underperformance of the Eurozone economy, a theme that is likely to become more apparent as the year progresses
 Not to forget the US, their economy is showing more signs of life but even so, the improvements are “modest” as reflected in the Fed’s Beige Book

To view the full discussion, please click here to visit the original post on The Econometer website

MARKET UPDATE: China Tightens Monetary Policy

2010-01-13T23:59:00.000-08:00

Before we discuss the changes in China’s Monetary policy, summarised in the latest blog by Mitul Kotecha, Head of Global Currency Strategy at Calyon, we thought it valuable to outline the differences in the way the People’s Bank of China (PBoC) operate monetary policy relative to major central banks in the West...

 Western central banks set a benchmark “prime rate”, which is a reference interest rate at which banks can borrow, usually with an applied margin. Consumer mortgage rates are usually expressed as some formula of this rate. In the UK this is termed the Base Rate, in the US it is the Federal Funds Rate and in the Eurozone this rate is referred to as the Refinancing Rate. In China, there is no “prime rate” because China’s currency is pegged against a basket of other currencies. As a result, there must be flexibility in their short term “prime rate” in order to allow for the peg to be effective. Therefore the PBoC do not set a benchmark “prime rate”
 Instead, the PBoC have a number of other monetary policy instruments, including a Reserve Requirement Ratio that commercial banks must adhere to. On Tuesday of this week, the PBoC increased this ratio by 0.5% which is seen as a move to manage inflationary expectations and avoid a recurrence of the lending boom. The Reserve Ratio is the percentage of cash commercial banks must keep on their balance sheet in relation to the amount of deposits they take from their customers. By increasing this ratio, the PBoC are reducing the amount of capital available to commercial banks in China for lending to consumers and businesses
 This is also seen as the first of many moves to be made by the PBoC to tighten monetary policy

The effects on the markets have been summarised by Mitul Kotecha’s article;

 Risk appetite has soured due to a combination of the rise in China’s reserve requirements, disappointing earnings including Alcoa and a profit warning by Chevron, setting the scene for a day in the red for Asian markets
 All eyes are on China and markets will now look to the implications for CNY policy
 Increasingly it seems that data and policy in China is driving global markets and aside from the hike in reserve requirements this was also evident in the fact that stronger trade data over the weekend helped to counter the impact of the soft US December payrolls report

To view the full article, please click here to visit The Econometer website

Demystifying The Global Equity Markets; An Institutional & Technology Driven Market

2010-01-10T13:01:00.001-08:00

For those of us on the outside, the Global Equity Markets can appear to be a myriad of confusing acronyms and technological jargon. Part of the reason is that it is one of the most technologically advanced asset classes, which has given rise to terminology and acronyms that could be considered baffling to say the least to the uninitiated; from "Dark Pool Crossing" to "DMA" and "ECNs". We, at the Banker's Blog, have attempted to demystify the Global Equity Markets, and provide an overview to the market, products, main players and technology involved.

PRODUCTS:
Cash Equities; Traded on regulated exchanges worldwide, such as the London Stock Exchange, New York Stock Exchange and Nikkei 225. In order to trade these equity products (buy or sell), one must be a member of the relevant exchange upon which it is traded or go through a broker. Investment Banks and Stockbrokers pay one off and annual fees to Stock Exchanges for the privilege of placing orders directly with them on behalf of their clients.

Equity Derivatives; Can be split between OTC and Exchange Traded products.
OTC Equity derivatives are always traded directly between two established institutional investors/market counterparties (e.g. a Hedge Fund and an Investment Bank). Each investor in this instance assumes the credit risk that the other counterparty in the trade will fail. OTC derivatives include equity options and swaps. Their characteristics, such as notional amounts, are non-standardised in nature; therefore can be customised to suit the investor's needs in a way Exchange Traded Equity Derivatives cannot.
With Exchange Traded Equity Derivatives, the investors/market participants (e.g. the Hedge Fund and Investment Bank in our example above) would trade the derivative between them via a 3rd party Regulated Exchange. The Exchange acts as an intermediary and assumes the counterparty credit risk between the two investors. In return, each investor (the Hedge Fund and Investment Bank) must pay Initial Margin to enter the trade. Should either or both counterparty default on their obligation to the other, as dictated by the terms of their derivative trade, then the exchange will use the Initial Margin to fulfil the failing counterparty’s obligation to the non-failing counterparty. Exchange Traded Equity Derivatives include futures, options and swaps on single stocks and stock market indices. Contracts are standardised in nature; for example, there will be a standard notional amount for each derivative contract.

CLIENTS:
The global equity markets are characterised by a client set constituted almost exclusively by institutional investors, rather than corporate clients, whom form a large part of the global currency markets, for instance.
Hedge Funds; investment funds that are typically open to only a limited range of professional or wealthy investors, providing exemption from regulations governing short-selling, derivatives, leverage, fee structure and liquidity provision to their investors. Each fund has its own investment strategy. Those funds whose strategies involve taking long or short positions in cash equities or equity derivatives are considered investors in the global equity markets. In turn, the investors in hedge funds themselves expect returns over and above the wider market. They seek these Alpha Returns, returns that exceed the return expected for the risk borne by investments, and pay a premium for it; in the form of an upfront management fee, usually 2% of assets pledged and an ongoing performance fee, anything between 20% and 50% of the returns generated by the fund.
Pension Funds; institutional investors who invest a portion of their funds in the global equity markets in search of long term capital appreciation, in order to grow their assets in line with expected future liabilities. Typically, restricted to taking long only positions in cash equities. In January 2008, the economist estimated that pension funds worldwide hold over US$20 trillion in assets, the largest for any category of investor; ahead of Hedge Funds, Mutual Funds, Insurance Funds, SWFs, Currency Reserves and Private Equity.
Mutual Funds; collective investment schemes, who pools funds from many investors and invests them in bonds, equities, short term money market instruments and potentially other securities too. Mutual Fund investors benefit from the expertise of the fund manager and reduced transaction costs, relative to investing directly in single stock equities themselves. Typically, limited to taking long only positions in cash equities.
Insurance Funds; invests premiums collected from policy holders (the insured entities buying insurance) in a range of asset classes in order to provide an income stream that matches the profile of their continually evolving liabilities. Typically, limited to taking long only positions in cash equities. Sovereign Wealth Fund; a state owned investment fund, which invests in a range of asset classes including bonds, equities, property and commodities. The are two types of SWF; firstly a SWF can be managed by the central bank of a country, who had accumulated the funds through the management of the nation's banking system. These funds are typically of major economic and fiscal importance. Alternatively, SWFs can emerge through state savings, which are invested by various entities solely for the purpose of generating investment returns, similar to a hedge fund. The largest SWF's, at the time of writing, originated from the Middle East (Abhu Dhabi), Far East (China) and Eastern Europe (Russia), mostly due to oil, but in the case of China, due to prosperous growth and a large trade surplus.

PRIME BROKERAGE:
The hedge fund community are typically served by investment banks through a bundled package of services referred to as Prime Brokerage. Financial services within prime broking include Global Custody, Securities Lending, and Financing. Other services include Technology for portfolio reporting and operational support. Added value services include Capital Introduction, office space leasing and servicing, risk management services and consulting services to start up funds.
Historically, Morgan Stanley and Goldman Sachs held the lion’s share of the Prime Brokerage Market, but the 2007-09 financial crisis has led many hedge funds to move away from the traditional sole or dual prime brokerage relationship and diversify their counterparty risk into firms perceived to be most creditworthy, such as JP Morgan, Credit Suisse and Deutsche Bank.

TECHNOLOGY:
Due to the sophistication of hedge funds, each prime broker will typically have their own in-house electronic trading platform that will offer clients market access and trading strategies. These trading platforms offer clients pools of liquidity to open and close trading positions across a range of asset classes and financial instruments.

NB: The following list is not exhaustive. Bank of America Merrill Lynch offers a full suite of liquidity seeking, benchmark oriented and schedule driven algorithms for electronic equities execution. Barclays Capital offers BARX, its award winning electronic services platform and leading global provider of electronic transaction solutions, offering electronic execution and a complete set of services across foreign exchange, fixed income, futures, commodities, equities, money markets, emerging markets and structured products. BARX also provides sophisticated algorithmic trading solutions, FIX and DMA connectivity, STP and other leading Barclays Capital services like Prime Brokerage, Research and Analytics. Credit Suisse’s Advanced Execution Services (AES) is a suite of automated, algorithmic trading strategies based on thorough execution research and continuous live experimentation, performed by a team of Credit Suisse quantitative analysts and traders. Over 400Credit Suisse customers leverage these strategies to reduce market impact and improve trading performance vs. benchmarks in North American, European, and Asian markets, allowing traders to focus on the big picture. AES integrates seamlessly within traders’ electronic workflow; no “box” to install, no software to install, no additional front end, just improved trading performance. Nomura’s global equity offering is client focused and includes program and electronic trading platforms that provide clients with access to venues in over 35 countries. Platforms are supported by ModelEx, Nomura’s suite of market-leading algorithmic trading strategies, TradeSpex, Nomura’s portfolio and trading analytics applications, and NX, Nomura’s dark crossing platform. Nomura also provides consultative services and integration assistance.

Further to the banks, broker dealers provide their own proprietary technology. BIDS Trading L.P. is a registered broker-dealer and the operator of the BIDS Alternative Trading System (ATS), which was designed to bring counterparties together to anonymously trade large blocks of shares. Developed by a consortium of leading financial services firms, the BIDS ATS resolves the classic paradox of the block trader – the need to find legitimate trading counterparties without prematurely revealing trading intentions. BIDS Trading is a joint venture of: Bank of America Merrill Lynch, Citi, Credit Suisse Group, Deutsche Bank, Goldman Sachs, JPMorgan, Knight Capital Group, Morgan Stanley, NYSE Euronext, and UBS. BlockCross is an independent (large block) dark pool designed to deliver significant liquidity opportunities while buyside traders remain in an uncommitted posture. Leveraging blotter integration with an open platform, BlockCross strives to provide the broadest spectrum of block liquidity possible. The system includes a unique confirmation process that provides a level playing field for all types of traders looking to maximize print sizes and minimize information leakage. BlockCross has been live for over a year and already represents over 2 billion shares of available block opportunities >5k a day. BlockCross is also referred to as the “Enlightened Dark Pool” because it combines both displayed and non-displayed functionality. Institutional traders now have the ability post actionable indications as an ATS (BLKX). This new concept allows all traders to leverage the industry standard IOI networks and say “Meet me in BlockCross”. Fox River Execution’s suite of execution products was developed to address the unique needs of the institutional trader. Its legacy system, Fox Trader, blends the human logic of a professional trader with the precise mathematical formulas imbedded in Fox River’s proprietary models. For exchange traded funds, Fox Spotlight is a new trading platform that provides a comprehensive system for competitive, real-time price and size discovery in the ETF market. Fox River was ranked #1 execution broker in 2007 and 2008 by Institutional Investor (conducted by independent research firm Elkins/McSherry). Headquartered in suburban Chicago with offices in New York and San Francisco, Fox River Execution is a FINRA registered broker/dealer and a member of the SIPC. For more information, visit http://www.foxriver.com/. Instinet is an electronic trading pioneer, having established the world’s first significant electronic trading venue in 1969, one of the first recognized U.S. ECNs in 1997 and the first pan-European MTF in 2007. Through its subsidiaries and affiliates, Instinet operates two distinct business lines: a global network of agency-only brokers that seek to help institutions lower overall trading costs and improve investment performance through the use of innovative electronic trading products, including smart-routing, algorithms, DMA, dark pools and EMS platforms, and also provide sales trading, commission management services and independent research; and the Chi-X® trading systems, which aim to improve the efficiency of capital markets globally by providing high-performance, low-cost alternative execution venues. Instinet is a wholly-owned subsidiary of Nomura Holdings, Inc. For more information, please visit http://www.instinet.com/. Investment Technology Group, Inc., is a specialized agency brokerage and financial technology firm that partners with asset managers globally to provide innovative solutions spanning the investment continuum. A leader in electronic trading since launching POSIT in 1987, ITG’s integrated approach now includes a range of products from portfolio management and pre-trade analysis to trade execution and post-trade evaluation. Asset managers rely on ITG’s independence, experience, and agility to help mitigate risk, improve performance and navigate increasingly complex markets. The firm is headquartered in New York with offices in North America, Europe and the Asia Pacific region. For more information on ITG, please visit http://www.itg.com/.

ACRONYMS & TERMINOLOGY:
ECN – Electronic Communication Network. A software system that allows members to communicate and trade financial instruments directly with each other. Examples include Bloomberg Tradebook and any of the above listed examples. Orders and quotes are displayed publicly on the network.
Crossing Network – an electronic Alternate Trading System (ATS) that matches buy and sell orders electronically for execution in an anonymous fashion; orders are not first routed to an exchange or other publicly displayed market, like an ECN.
DMA – Direct Market Access refers to an ECN’s ability to place buy and sell orders for equities, from an investor, directly on an order book of a stock exchange, such as the London Stock Exchange. Without DMA, investors must rely on placing orders with their stockbroker who is trusted with the task of best execution with the exchange.
Dark Pools of Liquidity – the liquidity found on crossing networks. These orders are found outside ECN public orders and those orders held on the books of a stock exchange. Orders are anonymous.

SOURCES:
AdvancedTrading
Wikipedia

CLIENT ENTERTAINMENT; Milk & Honey, Private Members Club, London & New York

2010-01-10T12:18:00.000-08:00

The Bankers Blog Editor, a banker by day, was entertained on Friday evening at Milk & Honey, a private member’s club with a presence in Manhattan's Lower East Side, New York, and on Poland Street, in Soho, London. The London bar is discretely located and you need to know what you are looking for in order to find it, as it resides behind a locked, unmarked black door.

Having opened in 2002, Milk & Honey remains, in their own words, “dedicated to bringing unrivalled drinks quality and service to a discerning crowd of grown-ups.” It houses bars on three floors; offering a range of intimate booths, counter drinking, lounge drinking and eating options.

Access to non-members is by reservation only until 11pm (and in practice restricted to the early part of the week). For members and their guests the bar is open until 3am six nights a week. No reservation is required for members, but they advise to call ahead.

It is unique for its set of house rules. Which include;
“No fighting, play fighting, no talking about fighting”
“Gentlemen will remove their hats. Hooks are provided”
And the most entertaining and precious of them all;
“Gentlemen will not introduce themselves to ladies. Ladies, feel free to start a conversation or ask the bartender to introduce you. If a man you don't know speaks to you, please lift your chin slightly and ignore him.”

The Banker’s Blog Editor was invited by a long time and close friend, who he met on the graduate programme of the investment bank at which he started his career. His friend’s fiancé was holding her birthday on the lower floor, which she had reserved.

It was not the largest bar, and as a result, was slightly too crowded, hot and stuffy to begin with, when we arrived at 9pm. Conveniently, we found a booth at the very back of the lower bar which was empty and blissfully cool. Having housed ourselves there, we proceeded to enjoy a comfortable and private evening of drinking and joking, with friends popping in and out until about 3am. The bar staff were very knowledgeable about their cocktails, well presented and charismatic.

We would recommend for entertaining clients; the unique house rules and intimacy of the booths ensure a discreet and comfortable environment where you and your clients can hold private conversations; or simply enjoy an undisturbed evening of dinner and drinks to enhance the relationship.

MARKET INSIGHT: Currency Markets; High yield / commodity currencies take the lead

2010-01-07T14:54:00.000-08:00

The following is a summary of a recent article written by Hong Kong based Mitul Kotecha, Managing Director and Head of Global Currency Strategy at Calyon. Mitul has kindly agreed to share his expert currency market views with The Banker's Blog.

The article can be viewed in full on Mitul's website, The Econometer, by clicking here.

Even though equity markets have fallen in recent sessions, the trading community continue to show an appetite to take risk onto their books
As a result, high yielding and commodity currencies have emerged as winners in recent trading sessions, particularly AUD, CAD, NZD and NOK. Emerging market currencies have also risen
Mitul backs a continuation of this trend and is in favour of backing long positions in the above currencies, particularly against JPY, which he expects to come under pressure as the year progresses
Expect the Reserve Bank of Australia (RBA) to hike rates 25bps for a fourth consecutive time to 4%, at their next meeting on 2nd February 2010. Recent economic data releases from Australia are supportive of this view, while technical resistance awaits at 0.9326 on the upside
In an interesting piece of analysis, the AUD/USD currency pair is currently showing a high correlation with interest rate differentials between the two underlying countries. The correlation resides at 0.85. Should this continue, AUD/USD would be highly sensitive to forthcoming economic data releases in Australia and the US
Mitul expects rates in Australia to rise to 6%, which is more than what is currently priced in, leaving upside potential
Turning to the US, the minutes of the last FOMC meeting on 15 December 2009 were interpreted as "slightly dovish" due to discussions over expansion of the size and length of the asset purchase programme

Source: The Econometer