Movies and documentaries

Analysis of “The Madoff Affair” documentary

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Analysis of “The Madoff Affair” documentary

Raphael TRAEN

In this article, Raphael TRAEN (ESSEC Business School, Global BBA, 2023-2024) analyzes “The Madoff Affair” documentary and explains the key financial concepts related to this documentary.

Key characters in the documentary

  • Bernard Madoff: key person, the admitted mastermind of the Ponzi scheme
  • Avellino: partner in Avellino and Bienes, advising its clients to invest with Madoff
  • Bienes: accountant for Madoff’s father-in-law, later partner in Avellino and Bienes, advising its clients to invest with Madoff

Summary of the documentary

Bernard Lawrence Madoff (“Bernie”) was an American stockbroker, market maker and an unofficial investment advisor (because he did not have the necessary license to do so) who operated what has been considered the largest Ponzi scheme in history. He defrauded investors out of billions over a long period.

The Madoff Affair

How did the scheme work?

Madoff’s Ponzi scheme was a classic example of a “pyramid scheme,” in which money from new investors is used to pay returns to earlier investors, creating the illusion of strong returns. Madoff claimed to be investing in a “secret” arbitrage strategy that generated consistent returns, even during periods of market downturn.

In reality, Madoff was simply lying to investors and using the money to pay returns to existing investors and to enrich himself. He kept his scheme going by attracting new investors, who were lured by the promise of high returns and the reputation of Madoff, who was a well-respected figure on Wall Street.


Bernard Madoff was able to maintain his Ponzi scheme for so long in part because he had help from two of his closest associates: Avellino and Bienes. Avellino and Bienes were investment advisors who were responsible for soliciting investments from Madoff’s funds. They were also responsible for creating false account statements that showed investors were making consistently high returns.

Avellino and Bienes first met Madoff and were impressed by his reputation and his consistent track record of high returns. They even approached Madoff about managing their own investments. Madoff agreed, and Avellino and Bienes began to introduce Madoff to their own clients.

Avellino and Bienes were instrumental in helping Madoff build his Ponzi scheme. They were able to attract new investors to Madoff’s funds by touting his track record and his reputation for integrity.

Technical details about the Madoff investment strategy

Bernie Madoff told his investors he was using a legitimate investing strategy called split-strike conversion. This strategy involves buying a stock index and simultaneously purchasing put options to limit the downside potential and selling call options to generate additional income.

Evolution of the Fairfield Sentry fund of Madoff Evolution of the Fairfield Sentry fund of Madoff Source: Madoff

Statistical measures of the Fairfield Sentry fund of Madoff Statistical measures of the Fairfield Sentry fund of Madoff Source: Bernard and Boyle (2009)

Should you be more interested in this strategy I definitely recommend watching the following video explaining the strategy with an example:

Bernie Madoff’s infamous split-strike conversion strategy

Theoretically, this strategy aims to provide a steady stream of income while protecting against significant losses. However, Madoff’s claims about his split-strike conversion strategy were entirely fabricated. He was not actually making these trades or generating the reported returns. Instead, he was using money from new investors to pay off existing investors, replicating a classic Ponzi scheme. This is also further confirmed by the picture I added above comparing the different strategies. The Fairfield Sentry fund was one controlled by Madoff. You can immediately see that the return is higher than what it would be according to the strategy and also that the standard deviation is much lower.

The downfall of the scheme

The Madoff Ponzi scheme began to unravel in the fall of 2008, as the global financial crisis took hold. As investors grew increasingly nervous about their investments, they began to withdraw their money from Madoff’s funds. Madoff was unable to meet these withdrawals, and the scheme collapsed.

In December 2008, Madoff’s sons, Mark and Andrew, confronted him about the scheme. Madoff confessed to his sons, and they immediately contacted the FBI.

One important person we should certainly not forget to mention is Markopolos, an American investor who accused Bernard Madoff of running a Ponzi scheme. He warned the SEC multiple times about Madoff’s suspicious investment returns and opaque investment strategy, but the SEC did not take action until after the collapse of Madoff’s Ponzi scheme in 2008. Markopolos was subsequently hailed as a hero for his efforts to expose the fraud.

Markopolos also believed that Madoff was using his position as a market maker to front-run his clients’ trades. This means that Madoff was using his knowledge of his clients’ impending trades to make profitable trades for himself before his clients’ trades were executed. This would allow Madoff to profit from the difference in price between the time his clients’ trades were executed and the time he made his trades.

Financial concepts related to the documentary

Investment returns

Madoff’s scheme relied on the promise of consistent, high returns even during periods of market downturn. This was a red flag for many investors, as it is unrealistic for any investment strategy to guarantee such consistent performance.

Greed

Madoff’s scheme was fueled by the greed of both investors and Madoff himself. Investors were willing to overlook red flags because they were attracted to the promise of high returns. Madoff was motivated by his own insatiable desire for wealth and power.

Regulatory oversight

The Securities and Exchange Commission (SEC) failed to detect Madoff’s scheme for many years. This failure allowed Madoff to operate his scheme for many years and highlights the need for stronger enforcement of financial regulations.

What lessons can be learned?

Beware of “too good to be true” opportunities

If an investment opportunity sounds too good to be true, it probably is. Investors should be wary of any investment that promises consistently high returns no matter which market conditions, especially if there is no clear explanation of how those returns are being generated.

Do your own research

Before investing in any fund or product, investors should thoroughly research the company or individual running the investment and understand the risks involved. The Madoff Ponzi scheme is a reminder that even seemingly respectable individuals can commit fraud on a massive scale. It is important for investors to be vigilant and to do their homework before investing their hard-earned money.

Madoff’s cynicism

« In an era of faceless organization owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: the owner’s name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing and high ethical standards that has always been the firm’s hallmark. »

Why should I be interested in this post?

As a student pursuing a business or  finance degree at ESSEC, I think you will be very fascinated by the Madoff Ponzi scheme for its multifaceted lessons in ethics, financial practices, and regulatory oversight. The scale of the fraud, its longevity, and the involvement of high-profile individuals make it a very interesting case study in the financial world. It is one of the largest financial frauds ever. There are many lessons to be learned.

Related posts on the SimTrade blog

   ▶ All posts about Movies and documentaries

   ▶ Louis DETALLE Quick review of the most famous investments frauds ever

   ▶ Louis VIALLARD Ponzi scheme

   ▶ William LONGIN Netflix ‘Billions’ Analysis of characters through CFA Code and Standards

Useful resources

Academic articles

Bernard C. and P.P. Boyle (2009) “Mr. Madoff’s Amazing Returns: An Analysis of the Split-Strike Conversion Strategy” The Journal of Derivatives, 17(1): 62-76.

Monroe H., A. Carvajal and C. Pattillo (2010) “Perils of Ponzis” Finance & development, 47(1).

Videos

FRONTLINE PBS The Madoff Affair (full documentary on YouTube)

TPM TV Roundtable Discussion With Bernard Madoff (YouTube video about regulation by Madoff)

Associated Press Executive: SEC Ignored Warnings About Madoff (YouTube video about the testimony of Harry Markopolos)

TPM TV Roundtable Discussion With Bernard Madoff (YouTube video about the testimony of Harry Markopolos)

About the author

The article was written in December 2023 by Raphael TRAEN (ESSEC Business School, Global BBA, 2023-2024).

Netflix 'Billions' Analysis of characters through CFA Code and Standards

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Netflix ‘Billions’ Analysis of characters through CFA Code of Ethics and Standards of Professional Conduct

William LONGIN

In this article, William LONGIN (EDHEC Business School, Global BBA 2020-2024) analyzes the show “Billions” through the lens of the Code of Ethics and Standards of Professional Conduct developed by the CFA Institute. I wrote this post while I prepared for the Level 1 of the CFA exam.

Overview of ‘Billions’ and ethics

The Netflix show “Billions,” set in New York City, portrays the intense story between three individuals: Bobby Axelrod, CEO of hedge fund ‘Axe Capital’, Chuck Rhoades, a tenacious US Attorney, and Wendy Rhoades, the wife of Chuck Rhoades and a talented performance coach working at Axe Capital. Bobby Axelrod and Chuck Rhoades fight for their honor and survival throughout the series with sometimes questionnable actions. Wendy Rhoades often plays the role of a middle person to find compromise and communication between Bobby Axelrod and Chuck Rhoades. The main characters insatiable greed has led them to indulge in misconduct, disregarding the ethical rules that govern investment and legal professionals in the real world.

Billions
Source: Showtime / Netflix.

CFA Institute’s Code of Ethics and Standards of Professional Conduct

The CFA Institute’s Code of Ethics and Professional Standards defines a comprehensive canvas for ethical and professional behavior. It states that it is for “investment professionals globally, regardless of job function, cultural differences, or local laws and regulations.” The Code places a strong emphasis on honesty to ensure that investment professionals operate in clients’ best interests. In “Billions”, the characters’ choices and actions often cross paths with these moral guidelines. In this article we will explore the three main characters Bobby Axelrod, Chuck and Wendy Rhoades through the lens of the CFA Code of Ethics and Standards of Professional Conduct.

“Billions” main characters: Bobby Axelrod, Chuck and Wendy Rhoades
Billions main characters: Bobby Axelrod, Chuck and Wendy Rhoades
Source: Netflix.

Bobby Axelrod: the hedge fund manager

Bobby Axelrod is the main character of the series “Billions”. He is the CEO of the hedge fund Axe Capital. Bobby Axelrod possesses exceptional financial acumen (the ability to make good judgements and take quick decisions) but his actions often push the boundaries of ethical behavior. These actions are driven by the drive to always beat the market at whatever cost.

Insider trading

By definition, insider trading is the illegal practice of trading on the stock exchange to one’s own advantage using material non-public information (confidential information).

One important ethical concern surrounding Bobby is his open willingness to engage in insider trading for himself and his firm. Despite having a legal department at Axe Capital, insider trading has been normalized throughout the series and undetected in most cases by the Securities and Exchange Commission (SEC) – the US authority in charge of regulating the financial markets. Bobby Axelrod gets his information through his extensive professional network and from his spies. Insider trading is forbidden by CFA standards of professional conduct as it violates point II.A. of CFA standards of professional conduct.

II.A. Material Nonpublic Information. Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

Insider trading is also forbidden by law in the United States. According to Cornell Law School “Courts impose liability for insider trading with Rule 10b-5 under the classical theory of insider trading and, since U.S. v. O’Hagan, 521 U.S. 642 (1997), under the misappropriation theory of insider trading”.

An example of insider trading is in the Episode 1 Season 1: “Pilot”. Bobby Axelrod approves a short-sell on Superior Automotive based on insider information. In this scene, Bobby Axelrod listens to two points of view: a deduction based on public information from one of his employees and another point of view based on confidential information from the character Dollar-Bill. When Axe asks Dollar-Bill “his level of certainty” about the excess supply that wasn’t disclosed by the company, there is a cut scene that shows the bribing with cash & watches of an employee of Superior Automotive and Dollar-Bill directly looking at the physical inventories of the company. To which Dollar-Bills answers famously “I am not uncertain”. When in possession of insider information, professionals cannot share, or influence action based on that information according to CFA Code of Professional Standards. Although Dollar-Bill is the one that actively tried to act on insider information, Axelrod is also in fault because of his lack of due diligence and supervision of his employee.

Independence and Objectivity

Bobby Axelrod has been found to use financial incentives to influence other people’s decisions in his favor. For example, Axelrod tipped the policeman that was going to arrest his employee. This tip avoided legal charges for his employee and bad image for the firm. Axelrod is found to disregard point I.B of the CFA standards of professional conduct.

I.B. Independence and Objectivity. (…) Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another’s independence and objectivity.

In season 1 episode 7 “The Punch”, Bobby Axelrod pays a police officer named Lonnie Watley to prevent the arrest of one of his employees, Donnie Caan. Donnie Caan is a key member of Axe Capital, and Bobby Axelrod takes measures to protect him from legal troubles related to an insider trading investigation. In a later episode this incident was discovered by Raul Gomez, New York City Police and Fire Department Pension Fund Manager that asks him to not “greed” his colleagues in the future.

Unethical behavior

Axelrod frequently engages in aggressive tactics to push his personal agenda. A major example of unethical behavior is the Ice Juice Scheme from Season 2. In this case Bobby Axelrod sabotaged the initial public offering (IPO) of a company called “Ice Juice.” He used insider information to short the stock and profit immensely when the stock price immediate crash due to his scheme. His plan was to have some people get instantly sick after drinking Ice Juice and profit from media coverage. His scheme tampered with the public opinion and destabilised the fair consideration of Ice Juice on its IPO day. This also impacted his colleagues in the investment profession and their clients. According to point 1 of the CFA Code of Ethics this behaviour is unethical.

Act with integrity, competence, diligence, respect and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.

Chuck Rhoades: the US Attorney for Southern district of New York

Chuck Rhoades is the United States Attorney for the Southern district of New York. During the first season Chuck attempts to take down Bobby Axelrod to protect fair competition in the markets. Bobby and Chuck both used their network to try and destabilize the other but ended in a stalemate in the 1rst season. It is important to note that Chuck Rhoades is not an investment professional, but the Code and Standards promotes ethical guidelines that can be interpreted in various professions.

Fraud

Chuck’s methods and ethical choices also raise concern. Chuck often bends the rules, manipulates evidence, and employs coercion to secure convictions and survive in his industry. Manipulating evidence goes against point II.D of the Code of standards of professional conduct regarding misconduct.

II.D. Misconduct. Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

Conflicts of interests

Additionally, Chuck’s relationship with Wendy Rhoades, who works as a performance coach for Axe Capital, raises ethical concerns regarding conflicts of interest and the appropriate boundaries between personal and professional relationships. While Chuck initially recuses himself from the Axe Capital case, he continued to work on the case behind the scene. This goes against the interest of the American people because he is biased in his work. Point VI.A. of CFA standards of professional conduct on conflicts of interests states the following.

VI.A. Disclosure of Conflicts. Members and Candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.

Wendy Rhoades: the middle woman

Wendy Rhoades is a performance coach at Axe Capital. She plays a key role in the series and is a powerful woman that often plays a role in resolving the fights between Axe and Chuck. Wendy tries to balance her professional responsibilities at Axe Capital while managing her personal relationship with Chuck Rhoades. Since Wendy Rhoades works in the finance industry she is therefore directly concerned by the Code of Ethics and Standards.

Whistleblowing

Wendy Rhoades is entrusted with confidential information, serving as a confidante to many within the organization. This fiduciary (involving trust) duty requires her to prioritize the interests and welfare of these individuals, acting with integrity and avoiding any conflicts that could compromise their trust. Across Season 2 we see that the information that Wendy has on the company is compromising and therefore we may ask ourselves if under national law she would be required to play a role of whistleblower. Indeed, Wendy has had knowledge of criminal activity and refused to whistle blow mostly due to her friendship with Bobby. This goes against point I.A of CFA standards of professional conduct.

I.A. Knowledge of the Law. Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. (…) Members and Candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.

Wendy’s loyalty to Bobby Axelrod adds another layer of complexity. Bobby relies heavily on Wendy’s expertise and guidance, seeking her advice on critical business decisions and relying on her insight into the minds of Axe Capital employees.

Wendy’s dual loyalties place her in a delicate position, as her duty to uphold the best interests of Axe Capital and with her personal relationship with her husband Chuck Rhoades.

Importance of ethics in the investment industry and popular media’s influence

Ethics play an important role in the investment industry as it gives it reputation and trust. A Code of Ethics and Professional Standards as proposed by the CFA Institute helps to work towards a stable financial system while reducing the likelihood of wrongdoings.

The Netflix series “Billions” that started in 2016, almost 10 years after the financial crisis of 2007 portrays traders as greedy and unethical in many cases. “Billions” stays nonetheless a fictional representation of the financial industry. However, this portrayal could badly influence and create false impressions, especially for future analysts and viewers who aspire to these positions.

Television shows and movies have the power to shape public opinion. “Billions” contributes to the overall perception of the financial sector along with other films like the Wolf of Wall Street and The Big Short. The financial sector is often a sector that is unknown or known very little by the average person. The portrayal of ethical dilemmas in popular media could raise awareness and generate important discussions about the role of ethics in finance. It encourages critical thinking and prompts viewers to question the ethical boundaries they would be willing to cross in pursuit of success.

Related posts on the SimTrade blog

▶ All posts about Movies and documentaries

▶ Louis DETALLE Ethics in finance

▶ Akshit GUPTA Market manipulation

▶ Akshit GUPTA Securities and Exchange Commission

▶ Akshit GUPTA Short selling

▶ Akshit GUPTA Price fixing

▶ Akshit GUPTA Corner

Useful resources

U.S Securities Exchange Commission (SEC)

Cornell Law School Insider trading

CFA Code of Ethics and Professional Standards

About the author

Article written in July 2023 by William LONGIN (EDHEC Business School, Global BBA, 2020-2024).

Analysis of the movie Wall Street: Money Never Sleeps

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Analysis of the movie Wall Street: Money Never Sleeps

Akshit Gupta

This article written by Akshit Gupta (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) analyzes the movie Wall Street: Money Never Sleeps (2010) and explains the key financial concepts related to this movie.

The Wall Street: Money Never Sleeps movie released in 2010 is an American financial drama film and a sequel of the famous Wall Street movie (released in 1987). The story of the movie is set around the 2008 financial crisis and depicts the financial markets prevalent in the USA.

Key characters in the movie

  • Gordon Gekko: a famous Wall Street investor
  • Winnie Gekko: the daughter of Gordon Gekko and the owner of a non-profit news website
  • Jacob Moore: a famous trader at Keller Zebel Investments
  • Louis Zabel: Managing Director at Keller Zabel Investments
  • Bretton James: Head of Churchill Schwartz
  • Bud fox: a former investor at Bluestar Airlines

Summary of the movie

The movie starts by showing the release of Gordon Gekko, in 2001, from the Otis Federal Prison where he has been serving his 8-year long prison sentence owing to his involvement in insider trading and securities fraud in late 1980s. During his time in the jail, Gordon Gekko had been working on a book named “Is Greed Good?” which he started promoting in 2008, signaling the market about a possible economic downturn. The television promotion done by Gordon was seen by her daughter, Winnie Gekko, who is running a small non-profit news website and is dating a famous trader working at Keller Zabel Investments, named Jacob Moore.

Picture 1

Jacob, an idealist stock trader, is helping Dr. Master, in-charge of a fusion research project at United Fusion Corporation, to raise money and help the world move towards a cleaner source of energy.

As predicted by Gordon Gekko, the US financial markets starts dwindling and Keller Zabel Investments loses 52% of their market capitalization within one week and is forced to seek a bailout package from other banks on the Wall street. But to his dismay, his efforts are proved worthless when Bretton James, the head of a rival firm named Churchill Schwartz, blocks his efforts by stopping other banks to provide a bailout package stating moral hazards. Bretton had a long ongoing rivalry with Louis which dated back to the early days of the DotCom Bubble when Bretton’s firm had a significant exposure to the tech companies. His bank approached Keller Zabel Investments for a bailout, which was rejected by Louis James. Following the fall of Keller Zabel Investments, Louis commits suicide by jumping in front of a train at the station. Everyone in the industry is shocked by the sudden demise of the managing director of Keller Zabel Investments.

Hearing the news about Gordon Gekko’s lecture at Jacob’s alma-mater, Jacob decides to give it a visit. He gets inspired by the speech given by Gordon Gekko and tries to meet him. Soon, Gekko tells Jacob about the involvement of Bretton James in the fall of Keller Zabel Investments (KZI) and the death of his mentor, Louis James. Learning about this, Jacob and Gordon enter into an agreement where Jacob agrees to arrange for a meeting between Gordon and her daughter, and Gordon agrees to dig in for more information about Bretton’s involvement in the fall of the KZI.

Motivated to seek revenge, Jacob spreads false information and rumors to manipulate the market for the stocks of Churchill Schwartz which leads to Bretton losing over $120 million. Impressed by Jacob’s confidence, Bretton offers him a job in his company. Soon, Jacob wins the trust of Bretton when he pulls in a huge amount of investments from Chinese Investors for his Fusion Research Project.

The financial markets start to bleed globally when the subprime mortgages market crashes. Bretton’s company asks for a bailout package from the US Government. Soon Jacob comes to know that Bretton is diverting the funding received from the Chinese Investors to some other solar project and he decides to leave the firm. He visits Gordon who informs him about the profits Bretton has made by betting against the subprime mortgages market by using credit default swaps (CDS) before the crash and at the same time received a bailout package from the US Government.

As said ‘Money Never Sleeps’, Gordon soon deceits his future son-in-law Jacob by wrongfully diverting the funds held in her daughter’s bank account in a Swiss Bank by misleading Jacob. Hearing this news, Winnie breaks up with Jacob and moves on.

Gordon utilizes the $100 million that he received by deceiving Jacob and starts an investment firm in London. He becomes a famous person again with his firm generating $1.1 billion returns on the initial investments.

With the motive to seek revenge, Jacob gathers all evidence against Bretton for his involvement in different frauds and asks Winnie to publish the news on her website. Once the news comes out, Bretton is convicted of several charges and gets fired from his company, Churchill Schwartz.

Following the removal of Bretton, Gordon’s firm enters into a partnership agreement with Churchill Schwartz. The tables turned and Gordon becomes a famous player in the market. In the end, Gordon apologizes to her daughter and Jacob, and is shown to be living a happy life.

The relevance of the Wall Street: Money Never Sleeps movie for the SimTrade course

The Wall Street: Money Never Sleeps movie relates to the SimTrade certificate in many ways:

About theory

    • By taking the Trade orders course, you will know more about the different type of orders that you can use to buy and sell assets in financial markets.
  • By taking the Market information course, you will understand how information is incorporated into market prices and the associated concept of market efficiency.

Take SimTrade courses

About practice

    • By launching the Sending an Order simulation, you will practice how financial markets really work and how to act in the market by sending orders.
  • By launching the Efficient market simulation, you will practice how information is incorporated into market prices through the trading of market participants, and grasp the concept of market efficiency.

Take SimTrade courses

Famous quote from the Wall Street: Money Never Sleeps movie

“Bulls make money. Bears make money. Pigs? They get slaughtered.” – Gordon Gekko

Trailer of the Wall Street: Money Never Sleeps movie

Related posts on the SimTrade blog

▶ All posts about Movies and documentaries

▶ Kunal SAREEN Analysis of the Wall Street movie

▶ Marie POFF Film analysis: The Wolf of Wall Street

About the author

Article written by Akshit Gupta (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Film analysis: Too Big To Fail

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Film analysis: Too Big To Fail

Foreward

A pervasive moral stigma follows the financial sector, which has a dogged reputation for unethical and illegal behaviour. However, the ethical lapses often associated with finance are not always intentional. Instead, a contributing factor is that the teaching of finance and other business disciplines presents the challenge of linking theories and conceptual models to the “real world”. Entertainment media – such as films or books – are useful in this aspect as case studies; they provide students with an organisational frame of reference to better understand both situational contexts, and importantly, the human dimension behind financial numbers.

Marie Poff

This article written by Marie POFF (ESSEC Business School, Global Bachelor of Business Administration, 2020) analyzes the Too Big To Fail film and explains the related financial concepts.

“Too Big to Fail” is a dramatic retelling of the near collapse of the US banking system during the 2008 financial crisis. No-one saw the financial crisis coming, nor knew how to deal with the disaster when it arrived. This film follows financial leaders US Treasury Secretary Henry Paulson and Ben Bernanke as they try to protect a faltering U.S. economy, and eventually offer a no strings bailout, but leaves Paulson wondering if banks will lend. The issue of moral hazard is explored and begs the question, should banks really be too big to fail?

Film summary

“Too Big to Fail” gives a behind the scenes look at the conversations between major players during the 2008 financial crisis from March to mid-October. In 2008, Lehman Brothers were on the verge of collapse and its CEO Richard S. Fuld Jr. blamed the declining share price on short sellers, refusing to recognize his bank’s weaknesses. Instead, he sought a cash fill from Warren Buffett, and even pursued mergers with Bank of America (BOA) and Barclays. Treasury Secretary Henry Hank Paulson rejected the use of public money to save Lehman, and so in September 2008, Lehman filed for bankruptcy. However, shortly afterwards, Paulson announced AIG’s $85bn bailout, confusing investors with this message. Lehman could fail, but AIG couldn’t? In response to a deteriorating economy, Paulson pushed forward a plan where the US government purchased $500bn worth of toxic assets. After failing to pass congress, he redrafted the plan to assume direct ownership of stocks in banks. The Troubled Asset Relief Program (TARP) was hence created to normalise banks and increase investor confidence, putting the market back on the path to recovery.

The Wolf of Wall Street movie

Financial concepts from the Too Big To Fail film

Too Big to Fail (TBTF)

The name of this film is a financial term referring to institutions which are so large and essential to the functioning of the economy that they cannot be allowed to collapse, no matter the cost to the taxpayer. This was the logic behind the $182 billion bailout the US government provided to AIG, for example, along with the relief funds directed to titans like JPMorgan Chase, Citigroup, and the Big Three automotive companies.

Moral hazard

Moral hazard is a term used to describe how if a party is protected from risk, they will increase their risk tolerance and act less cautiously. In the context of banking, if the leaders of major banks feel confident that they are too big to fail – that is, that the government will bail them out – they will make increasingly risky decisions with the confidence that taxpayer dollars will rescue them if their bets go bust.

Bear Stearns

One of the first banks to fail, Bear Sterns’ hedge funds had accumulated over $20 billion in collateralised debt obligations (CDOs) and exposure to other toxic assets. In March 2008, due to the subprime mortgage crisis, Moody’s downgraded Bear’s MBS to Grades B and C (junk bond levels) and triggered a bank run leaving Bear with only $3.5 billion in cash. As Bear relied on repurchase agreements (short-term loans) – meaning it traded its securities to other banks for cash – Bear imploded when other banks called in their repos and refused to lend more. Bear’s insolvency forced a rescue organised by the Federal Reserve, where JPMorgan Chase bought out the bank for $2 a share (one month prior to this share price was $48). Bear’s demise triggered a panic on Wall Street and caused a banking liquidity crisis, where banks became unwilling to lend to each other. This is often used as a marker for the beginning of the 2008 financial collapse.

Lehman Brothers

On September 15th, 2008, the investment bank Lehman Brothers filed for bankruptcy. It was the biggest filing in U.S. history, with Lehman’s holding $691 billion in assets at the time. By the end of trading that day, $700bn had been wiped off the global stock markets. The Dow Jones had plummeted 500 points, its biggest drop since the terrorist attacks of 9/11. Lehman then sold its IB and capital markets operations to Barclays, kickstarting a global liquidity crisis.

Government Bailout (TARP)

A $700 billion bank bailout bill was signed on October 3, 2008 and was used to establish the Troubled Assets Relief Program (TARP). The fund was used to launch the Capital Purchase Program, which included buying $105 billion in preferred shares in Chase, Wells-Fargo, Goldman and five other leading banks. The insurance giant AIG had also become a major seller of credit default swaps to boost its profit margin, which insured the assets that supported corporate debt and mortgages. If AIG went bankrupt, it would trigger the bankruptcy of many of the financial institutions that had bought these swaps. TARP funds contributed $67.8 billion to the $182 billion AIG bailout, and also used $80.7 billion to bailout the Big Three auto companies.

Homeowner Affordability and Stability Plan

In addition to the TARP, $75 billion was put aside to help homeowners refinance or restructure their mortgages. HOPE NOW required the Treasury Department to both guarantee home loans and assist homeowners in adjusting mortgage terms.

Great Financial Crisis (GFC)

Although TBTF banks were not the sole cause of the recent financial crisis and Great Recession, given the scale of job losses, home foreclosures, lost savings and costs to taxpayers, there is no question that their presence at the centre of the financial system contributed significantly to the magnitude of the crisis and to the extensive damage it inflicted across the economy.

Key insights for investors

Banking reform

Major changes were made to prevent another financial crisis, including introducing stricter capital requirements and ensuring banks are less interconnected or vulnerable to contagion. However, some familiar risks are creeping back, and new ones have emerged as global debt continues to grow – for many countries, the combination of large debts in foreign currencies and weakening local currencies is becoming harder to sustain.

Significance of politics

A key takeaway is the intertwined relationship between politics and finance. Moral hazard asserts that ties between bankers and politicians create dangerous incentives for both parties and indicates the importance of observing not just numbers in our market research, but also non-quantifiable factors which influence expectations.

Learn from the Past

Note that “too big to fail” is a phrase still used today in finance and big business. For example, “Is Facebook too big to fail?” As well, while significant progress has been made to strengthen financial systems internationally, the biggest banks are most likely still too big to fail. It’s useful to be aware of this potential risk to an economy when considering the roles that massive companies and institutions play in our society. Economists will always speculate that we may be “overdue” for another crisis and learning from the past is the best way to prepare for the next crisis.

Relevance to the SimTrade certificate

SimTrade is your introduction to the global financial market; through a combination of theory and simulations, you learn to develop your confidence in your decision making and critical thinking skills. The course teaches you how to analyse the impact of events on expectations and stock prices, eventually teaching you how to build a position and make the market work for you.

Famous quote from the Too Big To Fail film

Paul Giamatti: “I spent my entire academic career studying the Great Depression. The depression may have started because of a stock market crash, but what hit the general economy was a disruption of credit. Average citizens unable to borrow money, to do anything. To buy a home, start a business, stock their shelves.”

Trailer of the Too Big To Fail film

Related posts on the SimTrade blog

▶ All posts about Movies and documentaries

▶ Akshit GUPTA The bankruptcy of Lehman Brothers (2008)

▶ Akshit GUPTA Analysis of the Margin Call movie

▶ Marie POFF Film analysis: The Big Short

About the author

Article written in November 2020 by Marie POFF (ESSEC Business School, Global Bachelor of Business Administration, 2020).

Film analysis: The Wolf of Wall Street

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Film analysis: The Wolf of Wall Street

Foreward

A pervasive moral stigma follows the financial sector, which has a dogged reputation for unethical and illegal behaviour. However, the ethical lapses often associated with finance are not always intentional. Instead, a contributing factor is that the teaching of finance and other business disciplines presents the challenge of linking theories and conceptual models to the “real world”. Entertainment media – such as films or books – are useful in this aspect as case studies; they provide students with an organisational frame of reference to better understand both situational contexts, and importantly, the human dimension behind financial numbers.

Marie Poff

This article written by Marie POFF (ESSEC Business School, Global Bachelor of Business Administration, 2020) analyzes the The Wolf of Wall Street film.

The movie The Wolf of Wall Street is the true story of how rags-to-riches trader Jordan Belfort started with an OTC brokerage firm using pump and dump schemes, but eventually became a main player on Wall Street, where he launched the IPOs of several large companies. This black comedy shows Belfort’s rise to the high-life and excess of Wall Street, followed by a sharp fall involving crime and corruption – all while being seriously entertaining.

Film summary

The movie The Wolf of Wall Street follows one of Wall Street’s most infamous brokers, Jordan Belfort, who makes a fortune by defrauding investors out of millions. Directed by Martin Scorsese, the film starts with Belfort as an entry-level stockbroker at a Wall Street brokerage firm, where he is schooled on their cut-throat selling techniques. After a major market decline, he loses his job and goes to work for a small business selling penny stocks. After discovering the higher commission on penny stocks, he establishes his own firm, Stratton Oakmont, where he sells penny and IPO stocks with speculative returns. Jordan builds a business empire by presenting himself as a polished entrepreneur and training his employees on effective selling techniques. He is soon living the high life and becoming one of the major players on Wall Street, but soon discovers the dark side of success when he blurs ethical boundaries, quickly falling into a world of crime and corruption.

The Wolf of Wall Street movie

Financial concepts from the The Wolf of Wall Street film

Penny stocks

Penny stocks are low-priced stocks that do not trade on major stock exchanges and are issued by companies that typically do not publish financial statements. These trade anywhere from a fraction of a cent to a few dollars, and because the market capitalization, stock price, and the daily volume of these stocks are quite low, they are highly vulnerable to manipulation. For example, a sudden large volume of purchase or sale could cause the price to drop by triple-digits in a single day.

‘Pump and Dump’ schemes

‘Pump and Dump’ penny stock schemes are explained as the manipulation of the market through the accumulation of shares from penny stock or other companies, which are then stored in secret accounts. Investors are then ‘cold called’ to convince them that these companies are potential stocks for investments. The influx of purchasing orders would rapidly inflate the price, assuring investors that the shares are showing bullish behaviour. Belfort’s firm was a type of boiler room, with a team that pressured investors to place their money into highly speculative securities. At its peak, the firm is said to have employed about 1,000 stockbrokers overseeing more than $1 billion worth of investments.

Sales vs financial advisors

While working at L.F. Rothschild in the 1980s, Belfort is quickly taught that a stockbroker’s only goal is to make money for himself. Brokers seemed to focus on selling stocks and generating sales commissions, instead of advising clients on the financial risk of an investment or suitability for their portfolio. Belfort and his team are depicted as sales professionals, not financial ones, who are trained to sell investments at the expense of the client. Today, it’s still debatable whether financial professionals should be held to a fiduciary standard, requiring them to act in the best interest of a client, rather than simply providing a product.

Key insights for investors

Too good to be true: be your own investment expert

As the saying goes; if it sounds too good to be true, it probably is. Especially for beginners to the stock market, it’s important to remain clear-headed about your investment decisions and do your own research. Many of Belfort’s victims trusted him and invested all their life savings in ‘guaranteed’ stocks. Even with an advisor, it’s useful to understand financial markets and strategies, perhaps by at first investing small and diversifying your portfolio.

Legal vs ethical behaviour

Legal standards are the rules which govern the financial sector; but while something can be legal, it may not always be ethical. Belfort’s company was within the law when selling penny stocks, but not fully disclosing the speculative nature of the stocks was completely unethical. While he started by simply blurring this line, Belfort soon crossed the line and was convicted for not following securities regulations. Ethical business practices are the foundation of trust and goodwill; it’s important to take responsibility for your actions.

The road to success

While perhaps not the best role model, Belfort shows that long-term success is not a straight road. He experienced both failures and successes before reaching the height of his career on Wall Street. Losing his job lead to him starting as a stockbroker, and even after going bankrupt and serving time in prison, Belfort finished his sentence and turned his strength in sales and communications into a career as a motivational speaker. Financial mistakes can be rectified and instead become lessons for success. The most important step a person can take, is the next one.

Relevance to the SimTrade certificate

SimTrade allows you to make mistakes in a simulated setting, without suffering the financial consequences of trading with your personal funds. This course teaches you how to analyse the impact of events on stock prices and understand important concepts like market efficiency. As well as theory, you practice building a position, liquidating a position, and how to make the market. SimTrade is the best way for you to take risks, make mistakes, and learn how to make the best decisions for your portfolio.

Famous quote from the The Wolf of Wall Street film

Jordan Belfort: “Sell me this pen.”

Trailer of the The Wolf of Wall Street film

Related posts on the SimTrade blog

▶ All posts about Movies and documentaries

▶ Akshit GUPTA Analysis of The Wolf of Wall Street movie (another analysis)

▶ Alexandre VERLET Working in finance: trading

▶ Akshit GUPTA Market manipulation

About the author

Article written in November 2020 by Marie POFF (ESSEC Business School, Global Bachelor of Business Administration, 2020).

Film analysis: The Big Short

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Film analysis: The Big Short

Foreward

A pervasive moral stigma follows the financial sector, which has a dogged reputation for unethical and illegal behaviour. However, the ethical lapses often associated with finance are not always intentional. Instead, a contributing factor is that the teaching of finance and other business disciplines presents the challenge of linking theories and conceptual models to the “real world”. Entertainment media – such as films or books – are useful in this aspect as case studies; they provide students with an organisational frame of reference to better understand both situational contexts, and importantly, the human dimension behind financial numbers.

Marie Poff

This article written by Marie POFF (ESSEC Business School, Global Bachelor of Business Administration, 2020) analyzes the The Big Short film and explains the related financial concepts.

The film “The Big Short” recounts the subprime housing bubble which lead to the financial crisis in 2008. Through a compelling storyline, the complexities of the financial market – including CDOs, mortgage backed bonds, and the reckless trading of complex derivative instruments – lead to the subsequent financial collapse of the US housing market.

Film summary

“The Big Short” directed by Adam McKay and based on the best-selling book by Michael Lewis, explains how the subprime housing bubble, caused by increasingly risky subprime mortgage bonds, lead to the 2008 financial crisis. The danger was hidden such that only a few players predicted the collapse and used it to “short” the market. Once the bonds failed, the value of billion-dollar securities dropped to nothing, which bankrupted major investment banks and forced a government bailout to prevent economic collapse.

The film is presented as three concurrent stories about the investors who realised the risk of the subprime housing bubble and predicted the 2007 housing market crash. Wall Street investor Michael Burry realised that many subprime home loans packaged in the bonds were in danger of defaulting, and bets against the market with one billion dollars in credit default swaps. We also follow the stories of banker Jared Vennett, hedge-fund specialist Mark Baum, and two younger investors – Charlie Geller and Jamie Shipley – who work with retired banker Ben Rickert. After reading Burry’s findings, they also make a series of successful bets and profit off the downfall of the economy.

The subprime housing bubble caused worldwide chaos as banks entered a liquidity crisis, stock markets crashed, reputable companies collapsed, and millions suffered in the wake of the disaster. The crisis was felt worldwide, irrespective of your position and whether you benefited, survived or lost everything you’d worked towards. This movie helps those who aren’t in the financial sector, understand exactly what happened.

The Big Short film

Financial concepts from the The Big Short film

Financial derivatives

Leverage

Financial leverage can be used to increase (expected) profits but also increases risk by accentuating the gains and losses of a market position. When the largest banks and financial institutions in the world leveraged using derivatives, CDOs and other highly complex securities – the exacerbated losses can lead to collapse.

CDO

A Collateralised Debt Obligation (CDO) is essentially the repackaging “old” products as new, by the securitisation of loans into a product sold to investors on the secondary market. Another example are synthetic CDOs, which essentially bets on the direction the market is going to take and amplifies the monetary gain of a bullish market, but heavily exacerbates the losses from a bearish one.

Subprime Mortgage Backed Securities

Subprime mortgages are a loan to borrowers with a low credit rating, which increases the risk that they will default. Tranches in subprime mortgage-backed bonds are when subprime mortgages are mixed with top-rated mortgages, which effectively hides their risky nature from unsuspecting customers. These top-rated securities could not stand when the subprime mortgages failed, but the danger was looked over even by the banks who sold them.

‘Shorting’ the market

By predicting the danger of mortgage-backed securities and expecting defaults on subprime mortgages, some investors profited from the crisis through credit default swaps. However, this does not mean shorting the market is a good idea. As said by J.M. Keynes; the market can stay irrational much longer than you can stay solvent. Due to unpredictable factors such as politics, going short is a bet that can run out of time – even with a simple options strategy, your options will eventually expire. Sticking with a long term, value-based approach eliminates that problem. Keep short investments on the side to meet short term cash flow needs, but also know that a quality company will generate profits, dividends, and market returns over the long term, without ever expiring.

High Risk vs High Reward

Why did the banks making the loans expose themselves to subprime borrowers at such high levels? Because high-risk borrowers also offered high rewards. Before home prices imploded and the labour market tanked, banks were able to charge sufficiently high interest rates on loans to subprime borrowers which more than overcame the costs of their higher default rates. This combined with the banks’ ability to securitize loans and sell them meant that banks thought their risks were mitigated. Instead they focused on how higher subprime interest rates could boost their margins and profits. However, those default rates eventually grew too high for any interest rate to justify the risk, and the entire system collapsed.

Impartial assessors

Impartial regulators and assessors are critical to the safe functioning of the financial sector. A contributing factor to the crash was years of financial malfeasance and incompetence among the top salesmen and executives among Wall Street’s largest banks. Conflicts of interest and abuse of power by the banks meant credit rating agencies as well as professionals supposedly managing CDOs for the benefit of the customer, were in fact working in the bank’s interest. This fraudulent system meant the credit rating agencies were rating housing debt securities highly, right up until the crash.

Counter-party risk

This simply means the risk of the other party, if their investments are not able to pay out when the time comes. An example is how Baum and Geller bet against the banks, but when the crisis hit the banks eventually went bankrupt – these two investors had to be careful about receiving payment before the banks became insolvent.

Key insights for investors

Trust your instincts

It’s important to do your own homework and trust your instincts. Despite external pressure, the investors shorting the market held their ground, ensuring their investments paid off in the long-term. When the numbers go up and down, it’s important to be patient and study the reasons behind any change. While investment advice is useful, the incentives of others may conflict with yours. It’s your money, and just because an opinion is popular, doesn’t mean its correct.

See the reality

When buying securities, it’s vital to understand the reality of what the numbers represent – real people, real companies. In the film, we see workers paying off loans for three properties at varying rates, and how the incentive system cushioned bank managers’ salaries, helping the mortgage market expand. “No-one can see a bubble; that’s what makes it a bubble” – people lost their ability to see the forest for the trees. They were the weak link in the chain, which once broken, caused the crisis. Your finances are only as strong as their weakest link, so it’s important to diversify your risk.

Mentors

In the film, Geller and Shipley asked their mentor and retired trader Rickert for his support to meet the ISDA threshold. More than that, he taught them that greed is not good, and that their win was at the expense of millions of Americans who would lose their jobs. Have a mentor to guide you both morally and financially.

Opportunity in adversity

A final lesson from this movie, albeit a dark example, is that you can find the good in adversity. By shifting your mindset when facing failures or disasters, you can learn to find opportunity in anything.

Relevance to the SimTrade certificate

Through the SimTrade course, as well as a strong understanding about trading platforms and orders, you are taught about information in financial markets and how to use this to make successful trades. Several case studies teach you how to analyse market information to make valuations, and correctly assess how market activities will affect your own trades. The simulation and contest allow you to compete against others in the course and deepen your understanding of how a market reacts to different players.

Famous quote from the The Big Short film

An investor: “No one can see a bubble. That’s what makes it a bubble.”

Trailer of the The Big Short film

Related posts on the SimTrade blog

▶ All posts about Movies and documentaries

▶ Akshit GUPTA The bankruptcy of Lehman Brothers (2008)

▶ Akshit GUPTA Analysis of the Margin Call movie

▶ Marie POFF Film analysis: Too Big To Fail

About the author

Article written in November 2020 by Marie POFF (ESSEC Business School, Global Bachelor of Business Administration, 2020).

Film analysis: Rogue Trader

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Film analysis: Rogue Trader

Marie Poff

This article written by Marie POFF (ESSEC Business School, Global Bachelor of Business Administration, 2020) analyzes the Rogue trader film and explains the related financial concepts.

Based on a true story, ‘Rogue Trader’ details how risky trades made by Nick Leeson, an employee of investment banking firm Barings Bank, lead to its insolvency. This film explores how financial oversight and a lack of risk management from Leeson’s supervisors, lead to irrecoverable losses and the eventual fall of the banking giant.

Film summary

‘Rogue Trader’ recounts the exploits of Nick Leeson and his role in the downfall of Barings Bank, one of the single largest financial disasters of the nineties. Directed by James Dearden, this film encapsulates the economic and social changes of a tumultuous period. Leeson is a young derivatives trader sent to work in Singapore for Barings Bank, a major investment bank at the time. After opening a Future and Options office in Singapore, Leeson is placed in a position of authority where he takes advantage of the thriving Asian market by arbitraging between the Singapore International Monetary Exchange (SIMEX) and the Nikkei in Japan. He begins making unauthorised trades, which initially do make large profits for Barings – however he soon begins using the bank’s money to make bets on the market to recoup his own trading losses. At first, he tries to hide his losses in accounts, but eventually loses over $1 billion of Barings capital as its head of operations on the Singapore Exchange. He eventually flees the country with his wife, but inevitably, he must face how his actions lead to the bankruptcy of Barings Bank.

The Rogue Trader film

Financial concepts from the Rogue Trader film

Financial derivatives

For any new investors, financial derivatives describe a broad class of trading instruments that have no tangible worth of their own, but “derive” their value from a claim to some other financial asset or security. A few examples include futures contracts, forward contracts, put and call options, warrants, and swaps. Derivative trading started from the practice of fixing contracts ahead of time, as a way for market players to insure against fluctuations in the price of agricultural goods. Eventually the practice was extended to cover currencies and other commodities. As exchange rates became increasingly unstable, the derivatives trade facilitated huge profits for those estimating the future relative value of various commodities and currencies, through the buying and selling complex products.

Barings Bank

Founded in 1762, Barings Bank was the second oldest merchant bank in the world before its collapse in 1995. Barings grew from being a conservative merchant bank to becoming heavily reliant on speculation in the global stock markets to accumulate its profits. The derivatives market was somewhere this could be done in a very short space of time. Following the stock market crash of 1987, derivatives became central to the banks’ operations as they sought to offset their declining profits. The volume of their derivative trading soared from less than $2 trillion in 1987, to $12 trillion in 1993. As finance capital became increasingly globalised, Barings branched out to exploit these new markets in Latin America and the Far East.

Tiger Economies

The term “tiger economies” is used to describe the booming Southeast Asian economies of South Korea, Taiwan, Hong Kong, and Singapore. Following export-led growth and especially the development of sophisticated financial and trading hubs, Western interest spiked for these untapped markets in the 1990s.

Arbitrage

Profitable arbitrage opportunities are the result of simultaneously buying and selling in different markets, or by using derivatives, to take advantage of differing prices for the same asset. In the film, Leeson makes a profit by exploiting the small price fluctuations between SIMEX in Singapore and the Nikkei 225 in Japan.

Cash neutral business

A cash neutral business means managing an investment portfolio without adding any capital. For Leeson, any money made or lost on the trades should have belonged to the clients, and only a small proportion of the trades were meant to be proprietary. However, Leeson used Baring Bank’s money to make bets on the market to recoup his trading losses.

Short straddle position

A short straddle is an options strategy which takes advantage of a lack of volatility in an asset’s price, by selling both a call and a put option with the same strike price and expiration date, to create a narrow trading range for the underlying stock. Lesson used this strategy but sold disproportionate amounts of short straddles for each long futures position he took, because he needed to pay the new trades, the initial margin deposits, and meet the mounting margin calls on his existing positions.

Errors account

An errors account is a temporary account used to store and compensate for transactions related to errors in trading activity, such as routing numbers to an incorrect or wrong account. This practice allows for the separation of a transaction so that a claim can be made and resolved quickly. Leeson used this accounting to conceal the losses to Barings Bank which eventually amounted to over £800 million, though the account was supposedly activated to cover-up the loss made by an inexperienced trader working under Leeson’s supervision.

Key insights for investors

Don’t Lose Sight of Reality

An important insight is noticing how Leeson forgot to consider the real-world impact of his trades. He reflects on seeing trading as just artificial numbers flashing across screens, “it was all paid by telegraphic transfer, and since we lived off expense accounts, the numbers in our bank balances just rolled up. The real, real money was the $100 I bet Danny each day about where the market would close, or the cash we spent buying chocolate Kinder eggs to muck around with the plastic toys we found inside them.” Leeson saw the Kobe earthquake as nothing more than an opportunity and conducted more trading in one day than he ever had before as the market was butchered. Investors can avoid Leeson’s mistake by keeping a firm grasp on reality, and remembering the real companies and people represented by the stock exchange.

Destructive Practices

Other employees at Barings Bank most likely relied on internal auditors to discern wrongdoings or mistakes made by others, but as can be seen from Leeson’s case, regulators can be slow to catch on to any wrongdoing – especially when there are large profits involved. The lesson here is that an investor must be aware and proactive in helping to prevent other investors from engaging in destructive trading practices. This is especially true when it comes to newer markets or products, where regulators are unsure what entails best practice.

Tacit Agreement

While Leeson is assumed to be the villain, consider how Barings was able to contravene laws forbidding the transfer of more than 25 percent of the bank’s share capital out of the country for nearly every quarter during 1993 and 1994? Ignorance is not an excuse – tacit agreement is as effective as active engagement. A lesson here is that investors should remain informed on all their business engagements regardless of how much profit it being made.

Relevance to the SimTrade certificate

Through the SimTrade course, as well as a strong understanding about trading platforms and orders, you are taught about information in financial markets and how to use this to make successful trades. Several case studies teach you how to analyse market information to make valuations, and correctly assess how market activities will affect your own trades. The simulation and contest allow you to compete against others in the course and deepen your understanding of how a market reacts to different players.

Famous quote from the Rogue trader film

Nick Lesson: “Despite rumours of secret bank accounts and hidden millions, I did not profit personally from my unlawful trading. To be absolutely honest, sometimes I wish I had.”

Trailer of the Rogue trader film

Related posts on the SimTrade blog

All posts about financial movies and documentaries

▶ Akshit GUPTA Analysis of The Rogue Trader movie (another analysis)

▶ Akshit GUPTA The bankruptcy of the Barings Bank (1996)

▶ Jayati WALIA Value at Risk

About the author

Article written in November 2020 by Marie POFF (ESSEC Business School, Global Bachelor of Business Administration, 2020).

Film analysis: Other People's Money

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Film analysis: Other People’s Money

Marie Poff

This article written by Marie POFF (ESSEC Business School, Global Bachelor of Business Administration, 2020) analyzes the Other People’s Money film.

“Other People’s Money” is a film about a near obsolete publicly traded company, the New England Wire and Cable Company, interwoven with romance and community spirit. Issues arise because the original wire and cable division has become an obsolete parent firm of an otherwise profitable group of subsidiaries, but it employs much of the town’s population. While exploring the world of hostile corporate takeovers and the market for corporate control, this film shows the human impact of shareholder decisions. Good capitalism and greed clash in this fight to keep shareholders satisfied and save the factory from a dying industry.

Film summary

“Other People’s Money” directed by Norman Jewison, delves into the hostile takeover of New England Wire and Cable Company (NEWC) by Garfield Industries, where corporate raider Lawrence “Larry the Liquidator” Garfield is president. New England Wire is a publicly traded, debt-free company founded and managed by the Jorgenson family. Garfield arrives offering a peaceful takeover, explaining that the wire and cable division is in a dying industry, and is harming the profitable subsidiaries by depressing the share price. He believes that liquidating the harmful wire division is necessary to act in the best interest of the shareholders. However, Jorgenson denounces this offer as a death sentence for the employees and their town, arguing that companies should protect their community and have social responsibility. However, the market value of the company’s common stock decreases to equal less than the underlying value of its assets. Garfield then makes a takeover attempt, which culminates at the company’s annual shareholders’ meeting with Garfield succeeding in closing the wire and cable division of NEWC. The film ends with Kate Jorgensen calling with good news from a Japanese automobile company, who are interested in hiring the NEWC to product stainless steel wire cloth instead of wire.

Otehr peoples's money film

Financial concepts from the Other People’s Money film

Other People’s Money

Other people’s money (OPM) is a slang term referring to financial leverage, whereby using borrowed capital it’s possible to increase the potential returns, but also increase the risk, of an investment. In the film, the NEWC had an inefficient capital structure with no debt to leverage the company. Instead the company had a high amount of cash and liquid assets, as well as a fully funded pension plan for its employees, but had a debt-to-equity ratio of zero. There are trade-offs to having a higher debt-to-equity ratio, but in this case, leveraging OPM would have allowed the NEWC to remain in business by transitioning into a more profitable industry.

Corporate restructuring

Corporate restructuring is a process where the structure or operation of a company is significantly modified, usually in periods of significant distress and financial jeopardy. This could involve for example, mergers, takeovers, or divestiture. In this film, Garfield persuades the shareholders to divest of the failing division by selling the division and its remaining assets. Kate Jorgensen offers a better solution – a Japanese automobile company which will hire the NEWC to produce stainless steel wire cloth, allowing the company’s assets to be repurposed instead of liquidated.

Corporate takeovers

A corporate takeover refers to when one company makes a bid to acquire or take control of another, without necessarily obtaining the actual title. A takeover is usually done by purchasing a majority stake in the shares of the target company. In the film the NEWC is debt-free, making it attractive to corporate raiders or ‘takeover artists’, who aim to provide shareholders with a better return for their money.

Market for corporate control

The market for corporate control is the role of equity markets in facilitating corporate takeovers, and mainly refers to the market for acquisitions and mergers where there is competition for control rights. In this film, takeover artist Garfinkle is blocked from purchasing more shares in the NEWC by a judge’s injunction. He fights this as he believes that a free market for corporate control is needed to enable restructuring essential for the company to remain competitive. As a value-focused individual, Garfinkle believes in market dynamism as an effective tool for poor management, where market forces put pressure on managers to perform or risk sale of the company.

Creative destruction

Creative destruction is the union of evolutionary natural selection and economics. Resources are necessarily scarce, so the world advances only when outdated industries are encouraged to die quickly, allowing capital to be reallocated to more efficient and innovative industries. In this film, cable and wire is a dying industry due to the widespread adoption of fibre optics, so Garfield encourages shareholders to sell to him and reallocate their money towards a more productive venture. The underlying assumption is that though a transitioning industry will cause disruption, there is more to gain than lose when capital is put to best use and assets are used in an economically rational manner.

Key insights for investors

Wealth maximisation vs Social responsibility

As investors, the main goal is often to maximise wealth, and the game of making money can make it all too easy to value a business solely on its share price. However, this film shows that behind the numbers are the people who keep the business afloat, and who in turn rely on employment at the NEWC to support themselves. Jorgensen’s focus is on his social responsibility to the employees whose livelihoods depend on the wire plant, while Garfield believes in free enterprise and shareholder wealth maximisation. It’s clear that a balance between the two is required to create ‘good capitalism’, where all parties involved are treated fairly and humanely.

Many sides to every story

A meaningful insight from this film is that both players had valid reasons for their actions. While Garfield is painted as profit-focused at the expense of the employees, he’s also acting in the best interests of the shareholders – he refuses to take a “greenmail” bribe because he believes it would be immoral to sell out and victimise the shareholders whose funds are not being put to best use. Conversely, while Jorgensen is painted as the town’s hero, he is also neglecting his obligation to the shareholders by failing to recognize that his company was in a shrinking market, and would become obsolete if he did not accept innovations in the industry. This dual perspective is an introduction to business ethics, showing how utilitarian thinking can clash with other ideals pushing social responsibility and awareness. As investors, this is a reminder that there are always many perspectives to an issue, and real life is never black and white.

Relevance to the SimTrade certificate

SimTrade is a course designed to teach investors how the market works, including how to make orders and build a market position, while also teaching investors how to interpret and understand what these numbers represent in the real world. A combination of theory and practice helps you to understand the complexities of the stock market – including firm valuations, the impact of events on stock prices, and how to appreciate the degree of market efficiency.

The Other people’s money concept is introduced in Period 3 of the SimTrade certificate:

  • The Financial leverage course
  • The series of simulations about market making

Famous quote from the Other people’s money film

About leverage: “I love money. I love money more than the things it can buy. There’s only one thing I love more than money. You know what that is? Other people’s money.”

Watch Garfield making his point about wealth maximisation at the shareholders’ Annual Meeting of their company.

This could be compared to Gordon Gekko explaining “Greed, for the lack of a better word, is good” to the shareholders during the General Meeting of their company (in the Wall Street movie).

Trailer of the Other People’s Money film

Related posts on the SimTrade blog

▶ Shruti CHAND Financial leverage

▶ Akshit GUPTA Wall Street: Money Never Sleeps

▶ Kunal SAREEN Analysis of the Wall Street movie

About the author

Article written in November 2020 by Marie POFF (ESSEC Business School, Global Bachelor of Business Administration, 2020).

Analysis of Other People's Money movie

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Analysis of Other People’s Money movie

Akshit Gupta

This article written by Akshit Gupta (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) analyzes Other People’s Money movie.

Other People’s Money is an American comedy-drama film launched in 1991 based on a play written by Mr. Jerry Sterner. The story replicates the existence of a corporate takeover and presents arguments both in favour of and against such moves. There have been stories of many selfish people existing in the financial system, stealing jobs and leaving lives tarnished using hostile takeovers. But the arguments presented in this movie will make you think twice about the actions of corporate takeover and the rationale behind them.

Summary of the movie

opm

The movie starts by introducing a corporate raider named Lawrence Garfield, or commonly known as ‘Larry the Liquidator’, who is well known for buying over companies and selling off their assets. He uses a computerized stock analysis program named Carmen to select targets for his next takeover. With the stocks of New England Wire and Cables rising, the algorithm presents this company as a new target for Larry. The company is a second-generation firm run by Mr. Andrew Jorgenson (called Jorgy) and has three major divisions with wire and cable division under losses for many years. The hard work put in by Jorgy has made his company perform reasonably well with no debts and ample cash reserves. Impressed by the company’s financials and its stock price being undervalued, Larry poaches the chairman, Jorgy, with a takeover offer which he denies. However, determined to purchase the company, Larry starts purchasing shares from the open market driving up the stock price from $10 to $14 and filing Statement 13-D which states the purchase of a minimum of 5% of common stock ownership in a company. Becoming aware of the filing, Jorgy reaches out to her daughter named Katy Sullivan, a corporate lawyer, to protect the interest of his company from such a hostile takeover attempt.

Kate, taking immediate action, brings in an injunction to stop Larry from any further purchase of shares, based on a technicality, till the matter gets settled. Larry complains about such moves hampering the spirit of a free society and capitalism by preventing speculators like him to purchase shares.

To provide for an out of the court settlement, Kate proposes a greenmail offer to Larry which will be a win-win for both the parties, but it eventually gets declined.

Unable to reach a settlement, Larry and Jorgy decide to leave the judgment upon the shareholders by calling for an Annual general meeting and having a proxy fight.

During the AGM, Jorgy appeals and tries to sway the shareholders with his heartfelt speech where he claims of caring more for the employees and their loyalties to his company rather than money. He ridicules the concepts of maximizing shareholder wealth and says that a company is far more than its stock price. But, Larry becomes successful in convincing the shareholders about the benefits of a takeover and how he can provide them with a very good price for their shares. In the end, the proxy voting is won by Larry, giving him the controlling interest in the company and leaving Jorgy feeling betrayed.

The movie concludes with Kate bringing up a business contract to Larry for manufacturing airbags, offered to New England Wire and Cable company by a Japanese company. She proposes to buy back the company from Larry at a mutually negotiated price.

Relevance to the SimTrade course

The topics introduced in this movie correlates with the courses taught on SimTrade platform. The SimTrade course teaches us the concept of market information and the movie exhibits how such information is put to use to make decisions about buying or selling of stock. The movie also portrays how demand and supply play a primary role in bringing momentum in a market.

A new concept introduced in the movie deals with the use of greenmail, which is a defense mechanism adopted by companies to prevent takeover attempts. Under this mechanism, the target company repurchases the shares at a higher price, to retain the control. Also, the movie shows the importance of value investing by using the fundamentals of a company to determine whether the company is under or overvalued compared to the market price.

Most famous quotes from the movie

“Someday, we’ll smarten up, change some laws, and put you out of business.” – Kate Sullivan

“They can pass all the laws they want. All they can do is change the rules. They can never stop the game. I don’t go away. I adapt.” – Lawrence Garfield

Trailer of the movie

Related posts on the SimTrade blog

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   ▶ Akshit GUPTA Analysis of Barbarians at the Gate movie

About the author

Article written by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Analysis of the Barbarians at the Gate movie

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Analysis of Barbarians at the Gate movie

Akshit GUPTA

This article written by Akshit GUPTA (ESSEC Business School, Master in Management, 2022) analyzes Barbarians at the Gate movie.

Analysis of the movie

Barbarians at the Gate (1993) is a television movie based on a best-selling book by Bryan Burrough and John Helyar. The movie focuses on the leveraged buyout of RJR Nabisco that took place in 1988, making it the largest buyout till that date. It is a classic example of the takeover spree occurring in the financial system at that point in time and how the battle for taking control of a company ended up with a whopping deal value of $25 billion. The movie teaches us some really important lessons on corporate greed and the execution of multi-billion dollar deals.

Summary of the movie

Picture 1

The movie starts by introducing F. Ross Johnson, the presiding president and CEO of RJR Nabisco, a tobacco and food company headquartered in New York City. The tobacco division of the company has been working busily on the development of a smokeless cigarette named ‘ Premier’, the introduction of which is believed to drive up the stock prices of the company which have rather been sluggish for a long time.

Ross’s friend Don Kelly introduces him to a banker named Henry Kravis, who has helped Don carry out a leveraged buyout for his company and is an expert in LBOs.

Due to negative feedback received during market sampling of Premier, Ross decides to take the company private in order to save it from further stock dips and public embarrassment. He considers leveraged buyout as a potential way to pay his shareholders, by keeping the business of his company as collateral. To carry out the buyout, he hires Shearson Lehman Hutton (a division of American Express) as his primary banker, with Peter Cohen leading the charge. Ross initially bids $75 per share (amounting to $17.6 billion in total payables) to the Board of Directors, much higher than the current market price of $53, to attract the shareholders.

Since the idea of a leveraged buyout was introduced to Ross by Henry Kravis, he doesn’t like the act Ross carried by going behind his back and hiring another firm to look after the takeover. Although Kravis didn’t have substantial financial information regarding the company, he gives an offer of $90 per share amounting to a total cost of $20 billion, giving rise to a bidding war. A series of negotiations start with many major wall street bankers and lawyers swamping Ross with their offers. Meanwhile, the confidential offer details presented by Ross gets leaked in the media, bringing negative publicity for him.

With Ross and Kravis unable to come up to a settlement, final offers are asked for by the Board of Directors to be presented in the general meeting. Although Ross submits an offer of $112 per share, Kravis’s offer of $109 per share is taken into consideration and gets accepted by the Board. The Board justifies their move by showing a leaked article in the New York times stating $2.5 billion in profits Ross’s management company would have made by taking a 20% stake in RJR Nabisco. Ross wanted to own the company to continue enjoying the lucrative benefits and not for increasing its shareholder value. The Board became aware of his intentions and decided to go with the private equity firm, which is referred to as ‘Barbarian’ in the movie title.

Relevance to the SimTrade course

The concepts shown in the movie correlates to the courses taught on the SimTrade platform. The movie portrays the importance that company-specific news plays in deciding the stock price movements. The courses taught on SimTrade also teaches us to focus essentially on the current financial news to benefit from it. The movie showcases the typical acquisition of a company by the use of leverage buyout and how the buyout wave started in the early 1980s. In a financial context, a leverage buyout refers to an acquisition of a company, division, or business using a large portion of borrowed funds or debts to finance the transaction. They are often considered to be good for acquiring a company but in certain circumstances, LBOs can also leave a company with a great pile of debt to repay. The movie is also a perfect example of things that money can’t buy which includes trust, loyalty, and respect.

Most famous quote from the movie

“It’s not the company. It’s the credibility. My credibility. I can’t just sit on the bench and let other people play the game. Not my game. Not with their rules.” – Henry Kravis

Trailer of the movie

Related posts on the SimTrade blog

   ▶ All posts about movies and documentaries

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Useful resources

SimTrade course Financial leverage

About the author

Article written in December 2021 by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Analysis of The Rogue Trader movie

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Analysis of The Rogue Trader movie

Akshit Gupta

This article written by Akshit Gupta (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) analyzes The Rogue Trader movie and explains the related financial concepts.

Rogue Trader (1999) is a British drama film depicting the life of Nick Leeson, a former derivate broker based out in Singapore. The story is inspired by real-life events that shook the global financial system and led to the collapse of the world’s second-oldest merchant bank named Barings Bank based out in England. The movie is based on a book by Nick Leeson named Rogue Trader: How I brought down Barings Bank and shook the financial world and is one of the greatest examples of why a trader shouldn’t try to fight the market.

Summary of the movie

The Rogue Trader movie

The movie starts by introducing Nick Leeson, a person who starts his career by working for Barings Bank in Indonesia and is later promoted to work as a derivatives trader at the trading seat of the bank at Singapore International Monetary Exchange (SIMEX), Singapore. He was made to look after the trades as well as the back office work of and entering and settling those trades by the end of the day. His job is to trade futures contracts based on Nikkei 225, a stock index at Japan Stock Exchange, on behalf of Baring’s clients, and generate profits by arbitraging the small price difference between SIMEX and Japan Stock Exchange. He hires a team of people to be the floor traders for him and imparts them requisite training for executing the orders. Everything seemed fine until, owing to a trader’s error, Nick accrues a small loss. To cover the losses made by the trader, Nick starts trading futures under a newly formed account numbered 88888, an unauthorized account, which is prohibited under the bank laws. Soon, his trades start falling apart and he starts incurring losses amounting to millions of pounds. To conceal the facts from his seniors, Nick lands up a big client and makes enough commission on his trades to make up for the losses. But since he wanted to play big, instead of making profits by arbitraging his positions, Nick starts to hold on to his positions in expectations of higher future prices.

However, his unhedged positions start pouring in heavy losses when a major earthquake hits Japan in 1995 and the stock market starts dwindling. Still determined to cover his losses, Nick starts buying Nikkei futures in large quantities and tries to move the market in his favor. To meet the margin calls, Nick asks the head office in London to wire him more money to enter bigger deals.  But as the market keeps on falling, the losses start amounting to hundreds of millions of pounds. The management of the bank remains oblivious of the losses that are accumulating in the account number 88888, which is an account operated under a client’s name. Barings back had a poor compliance system and regular audits weren’t carried out in a proper manner giving rise to losses amounting to 800 million pounds, almost double the amount of capital Barings had.

As the market keeps going against him, Nick realizes that his game is coming to an end. Nick and his wife plan to leave Singapore to save him from judicial actions. But eventually, Nick is caught at Frankfurt airport and deported to Singapore where he is sentenced to 6 years’ imprisonment.

Relevance to the SimTrade course

The lessons learnt from the movie Rogue Trader are correlated to courses taught in the SimTrade course. The importance of market news has correctly been reflected in the movie by the amount Nick had to pay, trying to fight the trend. The strategy used by Nick to cover his losses known as Martingale’s strategy, or doubling the bets, is a very common mistake traders make in order to cover their past losses, but most of the time it results in even higher losses. A trader should never try to fight the market since it is rightly said that markets are always right, even when they are wrong.

The courses taught on SimTrade teach traders to cover their positions by using different types of orders to protect them from any unexpected market movements. If a stop loss/stop limit strategy would have been entered in by Nick, the losses could have been cut down. A proper investment plan with adequate use of margins and a stop-loss strategy should be put in place by every trader before entering trades. Also, a good trader should never let emotions, such as fear or greed, dictate her judgment.

Most famous quotes from the movie

“I just have to keep buying futures to support the market. If it sticks at 18,000 my options are still in the money. I could get the position back. I may even out ahead.” – Nick Leeson

“Listen to me now. You don’t fight the market!” – Another trader

“The way the market’s going, your losses could be catastrophic.” – Another trader

Trailer of the movie

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About the author

Article written in October 2020 by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Analysis of the Margin Call movie

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Analysis of Margin Call movie

Akshit Gupta

This article written by Akshit Gupta (ESSEC Business School, Master in Management, 2022) analyzes Margin Call movie and explains the related financial concepts.

Margin Call (2011) is an entangling American drama movie based on the events that took place within an investment bank during the financial crisis of 2008. The movie mirrors the impact of high exposure to Mortgaged Back Securities (MBS) that prevailed across big banks and depicts the events that lead to a near fall of an unnamed investment bank based out in New York City. It provides a very good analysis of the present financial system and throws light on the working of some large financial institutions.

Key characters in the Movie

  • Eric Dale- Head, Risk Management Department
  • Peter Sullivan – Junior Analyst, Risk Management Department
  • John Tuld – CEO of the Bank
  • Sarah Robertson- Chief Risk Management Officer
  • Jared Cohen- Divisional Head
  • Sam Rogers- Floor Head

Summary of the movie

Bolier room movie

The movie begins by introducing an unnamed investment bank where, owing to decreasing profits, 80% of the staff is getting laid off. Eric Dale, director of the risk management team, is one of the victims of this layoff. Before leaving the office Eric hands over a USB, which contains important analysis that he has been carrying out, to his junior named Peter Sullivan and asks him to complete the model with proper care. During the night, Peter finishes the model and discovers information that has the potential to bankrupt the entire firm. As per the model, the firm was over-leveraged and has even crossed historical volatility patterns many times in the past couple of weeks. If the market value of the firm’s risky assets drops by 25%, the losses would be greater than the entire market capitalization of the firm.

Alarmed by the findings of the model, Peter calls upon his supervisor Will Emerson to check the numbers. An emergency meeting is called up in the middle of the night where all the members of the senior executive committee are present including the CEO of the bank, John Tuld.

Running through the numbers and finding no other optimal way, John orders for an immediate sale of all the toxic financial assets firm holds, before the market could react.

The decision taken by Tuld is demurred by many top executives since they knew that it would destroy the firm’s relationship with all its customers and cause a major blow to the entire financial system. The value of the product they were selling to their customers in the name of MBS was plunging, just as the real estate market in the USA back in 2008.

Initially reluctant, Sam agrees to the sale of the toxic assets in exchange for huge compensation from Tuld. Sam orders all the traders on his floor to unwind their positions in the toxic asset purely in cash deals and offered them huge bonuses and commissions once they achieve a set target. Information about the company’s misdemeanor is spilled out and the traders are forced to sell at significant discounts.

Once the target sale is achieved and all assets are cleared, another round of laying off starts and most of the employees are let go with hefty compensations and bonuses. Sarah Robertson, the chief of risk management, is used as a scapegoat and also dismissed from her duties. Dismayed, Sam reaches out to Tuld to explain to him about his longing to leave the firm.  Tuld reminds him how the current crisis is no different from the previous crises and how the proportion of winners and losers always remains the same. Entwined between the dubious system and the need for financial resources, Sam decides to continue with the firm for another 2 years in anticipation of earning more money.

Relevance to the SimTrade course

The concepts shown in the movie correlates to the concepts of ‘Demand & Supply’ and ‘Financial Leverage’ taught in the SimTrade course. During the first decade of the 21st century, low-interest rates prevailed in the US economy giving rise to debt-financed consumption. The easy availability of sub-prime housing loans lured people from the lower strata of the society to avail the benefits of it. Subsequently, the increase in loan availability raised the demand for customized securities which came in the form of MBS, which became a trending asset in the market. The financial bubble kept on building up as the intrinsic value of MBS started dwindling. The falling asset value affected the investment bank as their business model was built on high exposure to these assets.

Also, this high exposure to subprime mortgages and toxic assets subsequently led to high level of leverages at the firm and statistical models of VaR (Value at Risk) and historical volatility failed to show a potential downside which could result in losses greater than the entire value of the firm. The risk models used by the firm considered the positions of other firms in the same assets and were not effective enough to take into account the risk magnitude of black swan events such as the default rates on subprime mortgages, the root cause behind the financial crisis of 2008. The financial damages and moral hazards associated with such an event are justified by the discount rates traders had to offer to unwind their position and also the client trust the firm lost as collateral damage. The movie shows the rationale of firms, referred to as too big to fail, in dealing with situations created as a by-product of their own actions.

Most famous quotes from the movie

“Sometimes in an acute situation such as this (referring to the sale of all toxic assets), often, what is right can take on multiple interpretations.” – Jared Cohen

“You know, the feeling that people experience when they stand on the edge like, this isn’t the fear of falling; it’s the fear that they might jump.” – Will Emerson

Trailer of the movie

Related Posts

   ▶ All posts about financial movies and documentaries

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   ▶ Shruti CHAND Financial leverage

Useful resources

SimTrade course Financial leverage

About the author

Article in October 2020 written by Akshit GUPTA (ESSEC Business School, Master in Management, 2019-2022).

Analysis of the Boiler Room movie

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Analysis of Boiler Room movie

Akshit Gupta

This article written by Akshit Gupta (ESSEC Business School, Master in Management, 2022) analyzes Boiler Room movie.

Boiler Room (2000) is an American drama movie based on financial crimes that take place through various stock brokerage houses across the globe. As defined by U.S. Securities and Exchange Commission (SEC), “the name Boiler Room refers to large-scale operations designed to lure in as many investors to an investment scam as possible, often using high-pressure sales tactics. Boiler room scheme operators may cold-call investors or solicit investors through emails, text messages, social media, and other means.” The movie gives a very good perspective of how greed clouds the thought processing ability in many investors and gives rise to such schemes.

Summary of the movie

Boiler Room movie

The movie starts by introducing Seth Davis, a young college dropout from Queen’s College, who makes a handsome income by running an illegal casino in his home for college students. When his dad, Marty Davis, a federal judge, finds out about his son’s misdeed, he expresses his disappointment to him. In order to get things right with his father, Seth takes the job of a daytime broker at a stock brokerage firm named J.T. Marlin, situated on the expressway outside the New York City. The firm uses high-pressure telephonic sale tactics by cold calling people to convince them to invest their money. On the day of his interview, Seth is introduced to Jim Young, a co-founder at the firm. Jim explains the work Seth is expected to do and, recruits him as a stockbroker trainee. Seth starts making a good living from the firm and also wins his family’s support. Within 3 months of joining the firm, Seth clears his series 7 Exam and closes 40 new clients, becoming a well-recognized broker in the firm.

But, Seth senses the illicit nature of the business J.T. Marlin has been carrying out when he finds out the commission the brokerage firm has been earning is twice the legal limit as per SEC. When he asks his co-workers for the same, no one is able to provide him with a legitimate answer.

However, Seth continues to land new clients using his successful telephone tactics. He ends up with a new client named Harry Reynard, a purchasing manager working at a gourmet food company, and asks him to buy 100 shares at $8 per share of Farrow Tech, just to gain his trust. When the market starts plummeting, Seth convinces Harry to buy more shares as the company’s stock value is guaranteed to go up. Clouded by greed, Harry decides to invest his savings worth $50,000 in the company and ends up losing his entire wealth and his family.

Seth’s dad, Marty, finds out about the fraudulent business J.T. Marlin has been carrying out and how his son has been involved with a ‘chop-shop’ company. Showing his discontent, Marty disowns his son and asks him to never show up in front of him again. Driven by guilt, Seth decides to repay the money that Harry Reynard lost and also expose the scam done by J.T. Marlin. Seth loops in his father, Marty, to seek his help to invest in an IPO scheme the firm is looking for. Amidst fear of losing his judgeship, Marty decides to reconcile with his son by going for the IPO scheme. However, the FBI tapes all the telephonic conversation and arrests Seth under charges of violation of Section 26 of SEC and NASD regulations. Seth, in return for full immunity, decides to help the FBI by providing them with all the relevant key information about the firm.

Returning to the office, Seth convinces Michael Brantley, the founder of J.T. Marlin, to allot 10,000 shares of the new IPO to Harry Reynard by falsely portraying Harry as a very big client for the brokerage. He gets the sale ticket signed from Chris, a senior broker at the firm, to authorise Harry to sell the shares of the IPO in open market. Meanwhile, he also loads all the confidential data of the company in a floppy disk for the FBI. The movie ends with the FBI surrounding the office building of J.T. Marlin and Seth leaving the office with full immunity.

Relevance to the SimTrade course

The concepts shown in the movie blends with the practical learnings imparted on the SimTrade platform.  J.T. Marlin, trading in chop-stocks, is a fraudulent company involved in pump and dump, a scheme where artificial demand is created to inflate prices for stocks of microcap and shell companies. Such companies claim to have sensitive information about the stock, unavailable in the public domain. When the stock prices rise substantially, these companies dump huge piles of stock in the market thereby crashing the stock prices and leaving investors bankrupt.

The movie aptly portrays the importance demand & supply play in the open market and how artificial demand can be created to generate high profits. Here, the concept of market news plays a key role in determining the authenticity of the hyped-up stock prices and investors should focus on them to take correct positions. Emotions such as fear, greed, and euphoria should be kept at bay while investing in the markets to take effective decisions.

Most famous quote from the movie

“And there is no such thing as a no sale call. A sale is made on every call you make. Either you sell the client some stock or he sells you a reason he can’t. Either way a sale is made, the only question is who’s gonna close? You or him.” – Jim Young

Trailer of the movie

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About the author

Article written in October 2020 by Akshit GUPTA (ESSEC Business School, Master in Management, 2019-2022).

The bankruptcy of the Barings Bank (1996)

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The bankruptcy of the Barings Bank (1996)

Akshit GUPTA

This article written by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2022) analyzes the Big Short movie.

Founded in 1762 by a British born man named Francis Baring, Barings Bank was the second oldest merchant banks in the entire world with some of the most popular names on their client list. Baring futures was incorporated in Singapore in the year 1986 to trade in the futures market at SIMEX (Singapore International Monetary Exchange) under the parent company, Barings group. The arm trading in futures generated reasonable profits until 1992 when Nicolas William Leeson joined as the head derivative trader at the trading floor of the bank at SIMEX.

The bankruptcy

Barings Bank

Nick Leeson, as the new in-charge of derivatives trading at Baring Futures, was assigned to generate profits by arbitraging the price difference of Nikkei 225 future contracts between SIMEX and Japan Stock Exchange. He was also made to look after both the trading floor and the back office to enter and settle trades. A persistent worker, Nick started generating good returns by entering unauthorized trades on behalf of the bank. His trades were working well until a floor trader undertook a wrong trade and resulted in small losses to the bank. To cover the losses for the trader, Nick opens a new account numbered 88888 to hide those losses. But as the losses kept on accumulating, Nick started pursuing his unauthorized trading from the shell account to make up for the losses by doubling his bet. He also started holding on to his position for longer periods than he was permitted in order to generate higher profits. However, the audit system at the bank failed to investigate the accounts due to its inefficiency.

Nick was able to cover up for these losses until a major earthquake struck Japan in 1995 and his unhedged positions started pouring in millions of pounds of losses in the shell account. In order to cover for it, Nick started taking even bigger positions in the futures in the attempt of moving the markets in his favor.

However, the markets didn’t spring back to his side and Nick accumulated losses of more than 800 million pounds. Knowing his game was coming to an end, Nicholas Leeson fled to Germany in order to avoid judicial actions,  but was caught at Frankfurt airport in March 1995 and sentenced to 6 years of jail in Singapore.

Nick Leeson

Lacking sufficient funds to cover for the settlement of the futures contracts, Barings Bank was liquidated on 26 February 1995. In March 1995, the Dutch banking group, ING, purchased Barings bank at a very nominal price resulting in the formation of ING Barings.

In order to prevent such debacles in the future, amendments were made in the Futures Trading Act on 1st April 1995, giving the monetary authority of Singapore the right to oversee the activities at SIMEX more closely. The fall of Baring Bank is a traditional example of how a lack of proper compliance and checks can lead to catastrophic events that even the biggest of all can’t survive.

Relevance to the SimTrade course

The fall of the Barings Bank teaches us some important lessons that every trader and company should follow in order to prevent such events from happening again in the future. Nick Leeson used a martingale strategy in order to double his bets on the loss generating trades. The confidence of covering up for the losses clouded Nick’s judgment and resulted in even bigger losses for the bank. A good trader should never let fear or greed dictate his of her actions. The unhedged trades Nick entered produced catastrophic results when the entire market collapsed due to a natural calamity. The results of such actions were well seen by the increase in losses in the 88888 account.  The excessive use of leverage, speculation, and unplanned trades led to the collapse of this mighty institution. The SimTrade courses teach us to execute trades in a well-planned form in order to handle any unfavorable circumstances. The use of different types of orders is very essential to cover open positions and protect against such events. The fall could have been controlled if stop-loss strategies would have been adopted by the trader. The incidence teaches us the very essence of not trying to fight the financial markets as they are always right.

Related posts on the SimTrade blog

Movies

▶ All posts about Movies and Documentaries

▶ Kunal SAREEN Analysis of the Wall Street movie

▶ Raphael TRAEN Film analysis: The Wolf of Wall Street

▶ Marie POFF Film analysis: The Wolf of Wall Street

Financial concepts

▶ Akshit GUPTA Regulations in financial markets

▶ Akshit GUPTA Market manipulation

▶ Akshit GUPTA Securities and Exchange Commission

About the author

Article written by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2022)

Analysis of the Big Short movie

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Analysis of The Big Short movie

Akshit Gupta

This article written by Akshit Gupta (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) analyzes The Big Short movie.

The Big Short (2015) is an American financial drama film based on the famous book “The Big Short: Inside the Doomsday Machine by Michael Lewis” portraying how few financial industry professionals predicted the buildup of the real estate bubble before the crisis of 2008. It shows how professionals working at large hedge funds and investment banks made fortunes after the collapse of the housing bubble. The movie gives a very good insight into the functioning of the biggest investment banks and events that led to a huge financial crisis in 2008 affecting the entire world economy and leaving millions of people homeless.

Key characters in the movie

  • Michael Burry, Hedge fund manager at Scion Capital
  • Jared Vennett, Executive at Deutsche Bank
  • Mark Baum, Hedge fund Manager at FrontPoint Partners
  • Charlie Geller & Jamie Shipley, Founders at Brownfield Capital
  • Ben Rickert, a retired trader

Summary of the movie

The Big Short movie

The movie starts by introducing Lewis Ranieri, an executive working at Solomon Brother, a person responsible for the popularisation of Mortgage-Backed Securities (MBS) in the late 1970s. The demand for these MBS spread like wildfire with every investor running to own a couple of them. The investment banks started buying several home mortgages from commercial banks and packaged them into single bond-like security which came to be known as Mortgage-Backed Securities. The demand for these securities soared and commercial banks started issuing fresh subprime level mortgages to fulfill the demand for these products.  During 2005, a hedge fund manager named Dr. Michael Burry, working at Scion Capital studies the mortgages that are been bundled into these securities to check upon their credibility. As per his findings, a housing bubble was being formed and the adjustable-rate mortgages that have been used to build these securities would eventually start defaulting. He sensed an underlying crisis in the second quarter of 2007 as the interest rates were supposed to rise by then which would affect the adjustable-rate mortgage payments.

He sees a great opportunity in short selling these instruments to make huge profits for the fund. He buys credit default swaps against these securities from different investment banks with a cumulative position of $1.3 billion. The structure of these swaps was set as pay-as-you-go which meant Dr. Burry had to pay regular premiums as the value for these bonds moved in an unfavorable direction. The premiums amounted to around $80 million each year, which upsets many of his large investors, who start demanding the withdrawal of their investments.

Jared Vennett, a salesman at Deutsche Bank, gets to know about Dr. Burry’s deal with large banks from one of his colleagues and starts to look into the real estate market eyeing a huge commission on the sale of these swaps. In the next scene Mark Baum, a lead fund manager at FrontPoint Partners, is introduced, who thinks the entire system is full of fraudulent people and low business ethics. Jared Vennett wrongly calls Mark Baum’s office, but they eventually end up meeting for a discussion over the credit default swaps that Dr. Burry has bought. Vnnett explains the concept of Collateralised Debt Obligations (CDO) to Mark and tells him about the AAA rating these bonds have despite their high-risk exposure. Seeing an opportunity, Mark, along with his team, starts their investigation into the real estate industry and visits several residential sites to know about the mortgage default risks. As per their finding, a bubble was being built up and they decide to buy credit default swaps from Vennett.

The third scene introduced Charlie Geller & Jamie Shipley, Founders at Brownfield Capital, who finds a copy of a presentation about credit default swaps by Jared Vennett at the reception of JPMorgan Chase. They become increasingly interested in this opportunity and call their friend Ben Rickert, a former trader at Deutsche Bank, to help them with buying these swaps.

In early 2007, the mortgage default rates started rising significantly but the ratings on these bonds remain unchanged and their value rises. Confused by the market movements, Mark Baum visits an acquaintance working at Standard & Poor’s to enquire about the unchanged ratings. He discovers the conflict of interest existing in these rating agencies and gets frustrated at the same.

Mark is introduced to Mr. Chau, a business, who has created synthetic CDOs, a structured product used to double the bets on the housing markets. Mark senses the downfall of the entire US economy and increases his short position the bonds by buying more credit default swaps.

Charlie Geller & Jamie Shipley plan to buy credit default swaps against AA rated securities, which are considered to be the safest investments, and get offers with really low premiums and high payouts. Ben grows increasingly concerned about the impending fall of the US economy and lashes out at Charlie for placing a bet against the entire financial sector of the economy.

During 2008, the market finally starts coming down with big banks defaulting on their payments and going bankrupt. All the professional holding credit default swaps make fortunes out of the market but none of them seems to be happy about the current health of the financial system and the immoral business practices followed within it. As predicted by Mark Baum, big banks are rescued using public bailouts and the entire blame is put upon the suffering lower strata of the society including immigrants, poor people, and teachers.

Relevance to the SimTrade course

The concepts shown in the movie perfectly correlates to the learnings taken from the SimTrade course. The imbalance between the ‘Demand & Supply’ function is what led to the creation of this big housing bubble wherein the banks issued sub-prime category loans to fulfill the increasing need for mortgage-backed securities. To have an efficient financial system, a proper balance and check are required for the smooth functioning.

The concept of ‘Short Selling’ is depicted in the movie which correlates to Period 3 of the SimTrade course. The bankers short MBS using credit default swaps to benefit from the negative movement in market prices of the bonds. Short selling is a famous trading strategy used to benefit from the predicted fall in the market prices of securities and is widely used across derivatives and equity stock markets. It is necessary to bring liquidity to the market.

Also, the movie shows complex structured financial products like collateralized debt obligations, synthetic CDOs, and credit default swaps which play a pivotal role in driving the revenues for big investment banks. These structured products are very well explained in the movie using small cameo appearances by guest speakers. The demand for these products led banks to have high financial leverages which later proved to be a bane for them. An effective risk management system is required to sustain such complex products and the dearth of these led to the collapse of some biggest investment banks. The lack of business ethics and excessive greed are also well represented in the movie where the bankers resort to creating more complex securities which come tumbling down like a domino effect when the foundation of these instruments, mortgages default.

A famous quote from the movie

“While the whole world was having a big old party, a few outsiders and weirdos saw the giant lie at the heart of the economy, and they saw it by doing something the rest of the people never thought to do: They looked.” Jared Vennett

Financial terminology

  • Mortgage-Backed Securities (MBS)- These are asset-based securities that are secured by a collection of mortgages. The mortgages held by commercial banks are sold to investors, which are mostly institutions, who combine them into MBS which can be further sold to individual investors. The MBS can be mainly divided into two types namely pass-through certificates and collateral debt obligations.
  • Collateral Debt Obligations (CDO)- Mortgages belonging to different risk categories, also called tranches, are combined into bundles based on their credit ratings, time to maturity, and payment terms. These securities have quite complex structures, making it difficult to regulate them.
  • Synthetic CDO- A modern form of traditional collateralized debt obligations, a synthetic CDO is based on non-cash income-generating assets that propose high yields, rather than bonds, mortgages, etc. These synthetic securities are based on instruments such as credit default swaps and their values are derived from the premiums paid on such swaps.

Trailer for the movie

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Useful resources

SimTrade course Financial leverage

About the author

Article written in September 2020 by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Analyse du film « Money Monster »

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Analyse du film « Money Monster »

Mohamed Dhia KHAIROUNI KHAIROUNI

Cet article écrit par Mohamed Dhia KHAIROUNI (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) analyse le film « Money Monster ».

Money Monster est un film américain réalisé par Jodie Foster en 2016.

Résumé

La majeure partie de Money Monster se déroule en huis-clos sur le plateau de tournage de l’émission éponyme présentée par Lee Gates (George Clooney), présentateur de télé vedette suivi pour ses conseils avisés en matière de boursicotage.

Le programme diffuse pernicieusement l’idée selon laquelle placer son argent en bourse et jouer avec les marchés pour s’enrichir est aussi banal que de se faire livrer une pizza.

Un beau jour, en plein direct de l’émission, Lee Gates se retrouve pris en otage par un homme ayant perdu toutes ses économies après avoir appliqué ses recommandations de placements. La réalisatrice de l’émission, Patty Fenn (Julia Roberts), choisit de conserver l’antenne comme le lui incombe le jeune homme armé. Débute alors une sorte de téléréalité-réquisitoire populaire contre le capitalisme, menée tambour battant par le preneur d’otage. Protestation qui se mue peu à peu en enquête de fond en direct, permettant ainsi à des millions de téléspectateurs de comprendre comment la société Ibis Clear Capital a pu faire perdre 800 millions de dollars à ses petits actionnaires.

Money Monster

Lien avec le cours Gestion financière

Le film “Money Monster” nous rappelle les concepts de la bourse vus en cours. La valeur de l’action de Ibis Clear Capital a chuté, ce qui explique la prise en otage de Lee Gates par Kyle qui semble ne pas comprendre les mécanismes régissant la bourse. Gates, à un moment, fait appel aux gens regardant son émission à acheter les actions de cette entreprise afin de relever le prix. Cette scène nous met en évidence l’influence de l’offre et la demande dans la bourse.

Lien avec les métiers de la finance

Ibis Clear Capital est un fonds d’investissement.

Gestionnaire de fonds

Fonds d’investissement : Un fonds d’investissement est une société publique ou privée qui investit du capital dans des projets d’entreprises correspondant à ses spécialités. Les fonds d’investissement peuvent faire partie de banques, d’organismes de financement, mais aussi appartenir à des personnes individuelles. Ils sont souvent spécialisés dans un secteur. Les capitaux peuvent être versés au démarrage de la vie de l’entreprise : il s’agit alors de capital risque. Si la société fait appel au fonds d’investissement pour financer son développement, l’activité de financement est appelée capital-développement.

Bande-annonce du film « Money monster »

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A propos de l’auteur

Article écrit en juin 2020 par Mohamed Dhia KHAIROUNI (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022).

Analyse du film « Le Grand Retournement »

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Analyse du film « Le Grand Retournement »

Mohamed Dhia KHAIROUNI KHAIROUNI

Cet article écrit par Mohamed Dhia KHAIROUNI (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) analyse le film « Le Grand Retournement ».

Le Grand Retournement est un film français réalisé par Gérard Mordillat en 2013.

Résumé

Le Grand Retournement est une comédie qui repeint la crise économique et financière de 2008. Les banques sont au bord de la faillite. Afin de sauver leurs mises, les banquiers font appel à l’Etat. Le film dresse un contexte où l’Etat est sauveur. C’est l’Etat “Providence” qui finit par payer les pertes et redonner le souffle aux banques. Le cadre du film annonçant la fin du monde et les dialogues subtils et captivants font de ce film une critique du monde de la finance. La cupidité, la convoitise et la bêtise humaine sont soulignées. Le film se conclut par des images de révolte du peuple, poussant le public à se poser des questions sur l’avenir de ce monde. C’est un long-métrage à voir étant donné qu’il combine finance et humour. Les critiques des intervenants financiers nous poussent à méditer. Quel sera l’avenir de la finance mondiale ?

Le Grand Retournement

Lien avec le cours Gestion financière

Le vocabulaire de la finance est omniprésent dans le film « Le Grand Retournement ». Les banquiers et les conseillers financiers font allusion à beaucoup de concepts financiers tels que les swaps, les credit default obligations (CDO), etc. En outre, dans ce film, la dette est un élément clé. C’est en lien avec ce qui a été vu en cours concernant les besoins de financement des entreprises. La trésorerie (la nécessité de « maîtriser sa trésorerie » comme dit dans le film) est aussi évoquée sans beaucoup de détails. Cela nous rappelle les tableaux de flux de trésorerie. Le film fait donc référence aux tableaux de flux et à comment les interpréter.

Lien avec les métiers de la finance

Trésorier

La Trésorerie est un concept largement évoqué dans cette comédie française. On détaille ici les métiers de gestion des flux de trésorerie. La gestion des flux de trésorerie regroupe toutes les stratégies mises en place pour analyser et exploiter les flux financiers d’une entreprise. L’évaluation du montant du cash entrant et sortant est décisive pour une gestion efficace au sein d’une trésorerie.

La gestion des flux de trésorerie définit avec précision la quantité de fonds disponibles à tout moment dans l’évolution d’un groupe, ceci afin d’estimer les pertes potentielles qui peuvent l’affecter. Ces changements de flux constituent la vie quotidienne de tout business, et la gestion du cash flow assure la sécurité financière de l’entreprise dans le temps.

La gestion de trésorerie (ou cash management) se situe un niveau au-dessus de la gestion de flux de trésorerie, et doit donc comprendre à la fois les dépenses et flux de trésorerie passés. Elle doit aussi permettre de prévoir les flux de trésorerie à venir afin d’adapter la stratégie de l’entreprise et de déterminer si des fonds sont disponibles pour investir.

Bande-annonce du film « Le Grand Retournement »

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A propos de l’auteur

Article écrit en juin 2020 par Mohamed Dhia KHAIROUNI (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022).

Analyse du documentaire « Inside Job »

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Analyse du documentaire « Inside Job »

Mohamed Dhia KHAIROUNI KHAIROUNI

Cet article écrit par Mohamed Dhia KHAIROUNI (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022) analyse le documentaire « Inside Job ».

Inside Job est un film documentaire américain produit, écrit et réalisé par Charles H. Ferguson sorti en 2010. Ce film a remporté l’Oscar du meilleur film documentaire en 2011.

Résumé

Inside Job est un documentaire très utile et enrichissant pour comprendre la crise qui a secoué le monde en 2007-2008. Ferguson était exhaustif dans ses recherches et avait recueilli les avis de plusieurs intervenants financiers (Nouriel Roubini, Christine Lagarde, etc.). On trouve aussi des personnes qui défendent les banques. Le film documentaire vise ainsi à identifier un large panel d’acteurs de la finance pour montrer que cette crise aurait pu être évitable en dévoilant les relations nocives qui avaient corrompu le monde politique, les autorités de régulation et même le monde universitaire (on trouve Glenn Hibbard, Doyen de la Columbia Business School qui a été corrompu pour sortir des garanties, faussant par conséquent la réalité économique et financière).

Documentaire Inside job

Lien avec le cours Gestion financière

Comme le film « The Big Short : La Casse du Siècle », Inside Job nous replonge dans la crise économique et financière de 2008. Le documentaire aborde la finance des marchés qu’on aborde dans le cours de gestion financière. Il met le point sur les actifs toxiques et l’opacité de financement des banques. S’agissant d’un documentaire, les preuves données permettent de mieux cerner le fonctionnement des grandes banques d’investissement (Lehman Brothers, Goldman Sachs …) ainsi que le rôle que ces banques ont joué dans la crise.

Lien avec les métiers de la finance

Ce documentaire traite principalement les banques d’investissement.

On détaille ci-dessous trois filières dans les banques d’investissement : Mergers and Acquisitions (M&A), Equity Capital Market (ECM) et Debt Capital Market (DCM).

Mergers and Acquisitions (M&A)

Le M&A : Mergers and Acquisitions, soit en français Fusions et Acquisitions. Les équipes de M&A sont chargées de conseiller leurs clients sur des opérations de fusions, d’acquisitions, ou de cessions. C’est un métier de conseil financier avec une forte dimension stratégique: le banquier en M&A est force de proposition sur les opérations de croissance externe de son client. Le banquier en fusions-acquisitions partagera son temps entre l’exécution des transactions pour lesquelles il détient un mandat et les propositions de nouvelles opportunités d’acquisitions (pitch) auprès de ses clients.

Equity Capital Market (ECM)

L’ECM : Equity Capital Market. Les équipes d’ECM sont chargées de conseiller leurs clients sur des opérations d’introduction en bourse ou d’augmentation de capital. C’est un métier de conseil financier lié au financement par émission d’actions. De manière logique ce métier est davantage lié au marché financier que celui de M&A, ce qui se traduit par moins de travaux de valorisation et davantage de travail d’analyse du marché et de marketing auprès des investisseurs.

Debt Capital Market (DCM)

Le DCM : Les équipes de Debt Capital Market, ou DCM, sont chargées de conseiller leurs clients sur des opérations d’émission de dette. C’est un métier de conseil financier lié au financement par émission d’obligations. Également lié au marché, ce métier requiert une veille constante du marché obligataire afin de déterminer pour son client le moment opportun pour une émission obligataire au meilleur taux

Bande-annonce du documentaire Inside job



Autres posts sur le blog SimTrade

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   ▶ Mohamed Dhia KHAIROUNI Analyse du film « Margin call »

   ▶ Marie POFF Film analysis: Too Big To Fail

A propos de l’auteur

Article écrit en juin 2020 par Mohamed Dhia KHAIROUNI (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022).

Analyse du film « Glengarry »

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Analyse du film « Glengarry »

Mohamed Dhia KHAIROUNI KHAIROUNI

Cet article écrit par Mohamed Dhia KHAIROUNI (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) analyse le film « Glengarry ».

Glengarry (Glengarry Glen Ross) est un film américain réalisé par James Foley sorti en 1992.

Résumé

Mitch & Murray, une importante société immobilière, connaît un tournant quand un cadre supérieur anonyme et insultant annonce aux salesmen des mesures radicales concernant une restructuration des effectifs. Les meilleurs vendeurs resteront et gagneront des cadeaux et les autres seront renvoyés. Ainsi, les quatre vendeurs essayent de tout faire afin de ne pas perdre leur travail. Cependant, les fiches leur permettant de cibler des clients facilement sont toutes vieilles. Ils ne réussiront pas à vendre une seule propriété. Le cadre supérieur (Blake) remet des fiches Glengarry à John Williamson, le superviseur des quatre vendeurs. Ces nouvelles fiches leurs permettront de gagner de nouveaux clients. Le lendemain matin, alors que tout le monde retourne au bureau, une surprise les attend : il y a eu un vol et les fiches Glengarry ont été dérobées. Un détective intervient pour résoudre le problème et trouver le coupable.

Film Glengarry Glenn Ross

Lien avec le cours Gestion financière

Le film n’est pas technique et la finance est effacée. Foley montre la perception du monde des vendeurs. Il s’agit d’une critique du capitalisme moderne. Il décrit la pression exercée sur les commerciaux afin de réaliser des chiffres d’affaires exorbitants.

Lien avec les métiers de la finance

Salesman

Le salesman, également désigné comme « sales » ou sale », exerce en tant que technico-commercial dans les salles de marchés. Son rôle est de prospecter et d’entretenir un portefeuille de clients pour le compte d’une banque d’investissement. Le salesman analyse les fluctuations de marché et conseille ses interlocuteurs sur leurs stratégies financières.
A la différence du trader avec lequel il est souvent confondu, le salesman est en contact direct avec les clients de la banque d’investissement. Son profil de technico-commercial lui permet d’informer les prestataires issus de différents types d’entreprises (assurances, caisses de retraite, sociétés…) des transactions des titres financiers. Le salesman analyse les fluctuations du marché et a un rôle de conseiller auprès des clients qui souhaitent affiner leur stratégie boursière.

Une des fameuses citations du film est “It takes brass balls to sell real-estate” (voir l’extrait du film ci-dessous).

Bande-annonce du film Glengarry

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A propos de l’auteur

Article écrit en juin 2020 par Mohamed Dhia KHAIROUNI (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Analyse du film « La Banquière »

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Analyse du film « La Banquière »

Mohamed Dhia KHAIROUNI KHAIROUNI

Cet article écrit par Mohamed Dhia KHAIROUNI (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) analyse le film « La Banquière ».

Le film « La Banquière » est un film français réalisé par Francis Girod, sorti en 1980, inspiré de la vie de Marthe Hanau.

Résumé

Ce film raconte l’ascension d’une jeune femme, Emma Eckhert, fille d’un chapelier juif. Dans les années 20, entre les deux guerres mondiales et grâce à un réseau développé et une intelligence hors-norme, Emma parvient à prendre une place dans le cercle te fermé de la haute finance. Le banquier Vannister, réticent face à cette montée en puissance et les taux d’intérêt avantageux proposés par Eckhert, mène un combat contre “la banquière”. Entre le caractère de la femme présentée par Romy Schneider juive, homosexuelle et à qui tout réussit, et le boursicotage, ce film nous met dans un cadre historique très sensible qui précède la crise des années 1930. Vannister réussit grâce à ses connaissances à interdire les activités d’Emme Eckhert. En dépit de l’intelligence de cette dernière qui lui a permis de sortir de la prison, sa fin est tragique. Elle finit par être assassinée au cours d’un meeting où elle expliquait aux épargnants qui lui avaient fait confiance, comment elle allait les rembourser.

Film La Banquière

Lien avec le cours Gestion financière

Un des thèmes financiers traités dans ce film est les taux d’intérêt.

En effet, Emma Eckher propose des taux avantageux pour les épargnants de 8% face à un taux de 1,5% proposé par les concurrents. Elle avait fondé une feuille financière, La Gazette du franc, qui s’était rapidement imposée par la qualité de ses collaborateurs et par celle des personnalités du monde économique et politique dont elle publiait les interviews. Les conseils qu’elle prodiguait aux épargnants en matière de placements boursiers concernaient le plus souvent des actions et obligations de ses propres relations d’affaires. Le film évoque également la bataille qu’Eckhert a mené pour le franc, voulant que tout le monde tire profit du progrès général.

Lien avec les métiers de la finance

« La banquière » nous plonge dans les métiers de gestion d’actifs.

On traite plus précisément ici la banque de gestion d’actifs. Une banque de gestion d’actifs est un établissement financier spécialisé dans les services liés aux placements (SICAV, fonds communs de placement, assurance-vie, immobilier). Elle travaille aussi bien avec des particuliers, plus ou moins fortunés, qu’avec des clients institutionnels. Ses services sont assez proches de ceux proposés par les banques privées. Elle peut également interagir avec les clients d’une banque de détail pour collecter des fonds ou avec des banques d’investissement pour ses stratégies de couverture.

Bande-annonce du film Arbitrage

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   ▶ Mohamed Dhia KHAIROUNI Analyse du documentaire « Betting on Zero »

A propos de l’auteur

Article écrit en juin 2020 par Mohamed Dhia KHAIROUNI (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).