Academics and professionals from the financial world met at IESE’s Madrid campus for the symposium “The Governance and Regulation of Financial Institutions: Lessons from the Crisis,” organized by the European Corporate Governance Institute (ECGI), the Centre for Economic Policy Research (CEPR), the Spanish Presidency of the EU and IESE represented by the International Center for Financial Research (CIIF). The experts shared their knowledge on corporate governance and financial institutions.

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The use of capital to mitigate the crisis, and the role and regulation of business angels were the main themes of the symposium “Private Equity: Providing value in times of crisis.” At the symposium, three specific cases were presented of venture capital firms that have gone into capital and private company management.

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By Gonzalo Gómez Bengoechea, Research Assistant

Over the first half of 2010, Spain found it increasingly difficult to sell its debt. In January of this year, the Spanish Treasury was paying 0.85% interest on 12-month treasury bills. By June, the interest rate had climbed to 2.65%. Likewise, the yield on one-year bonds was then 1.60%. A month ago, this rate was up to 2.70%. In recent weeks, however, this upward trend has leveled off and even begun to decline. This is a good sign, but we must not be lulled into thinking the problem has been solved: the markets still perceive a significant level of uncertainty in the Spanish economy.

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Saffi, P.; Vergara, C.

This case presents two of the most basic and commonly used valuation techniques: the Dividend Discount Model (DDM) and valuation using Multiples. Students must value Volkswagen AG in the context of its merger agreement with Porsche and a deep economic crisis that has had a strong impact on the automobile industry. It provides enough data to discuss different versions of DDM, such as the constant growth model, the two-stage growth model, and a model with a terminal value. It also makes it possible to compare several multiples, such as the PER and EV/EBITDA, used in company valuations.

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Fernández, P.

The scarce average return on investment funds in Spain over the last 3, 5 and 10 years (0.51%, 2.23% and 0.85%) was lower than both investments in government bonds of all maturities, and inflation. Only 14 of the 368 funds with a 15-year history and 16 of the 1117 in existence for 10 years had a higher return than 10-year government bonds. Of the latter, only four offered their investors a return above 10%. A total of 263 funds with a 10-year history (7 were guaranteed) gave stakeholders a negative return(!), and their assets in December 2009 totaled €5.816 billion.

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Vives, X.

Many blame the deregulation of recent decades—and the unfettered competition it triggered—for the collapse of the banking sector. But it has been demonstrated that the price to pay for overly tight regulation of the sector is a dictatorship of the strongest players in the market. IESE Prof. Xavier Vives discusses the pros and cons of regulating banking activities.

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By José Luis Suárez and Jorge Soley, Professors at IESE

In 2007, as the first signs of the real estate and financial crisis began to appear, we all started ruminating over what had happened and what we could do about it.
Hoping to find answers to these questions, many of us turned to references from similar situations in the past, such as the crisis of 1991-92, only to discover that the related literature and studies were scant. That was when we decided to embark on this new research addressing what is perhaps the most important issue of this crisis: the relationship between the real-estate industry and the financial sector (credit institutions, commercial banks and savings banks).

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By Pedro Saffi, Professor at IESE

A year and a half ago, when we commented in this section on the consequences of restricting short selling, no one suspected the impact this issue would soon have on financial markets. Today, short selling is in the news more than ever as a result of the current economic situation and the restrictions that the US, UK and Spain have imposed on this type of operations. Prof. Pedro Saffi takes a new look at short selling to reveal what is behind these transactions, what is happening now in financial markets and the particular case of Spain.

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Madrid, November 4, 2010

This coming November, IESE hosts the 10th Madrid Finance Workshop, an event organized by the departments of Financial Management of IESE Business School, the Instituto de Empresa, Universidad Carlos III and the Centro de Estudios Monetarios y Financieros (CEMFI). These sessions, held every six months, feature four guest researchers from a particular area who present their research, which is discussed by other scholars with a knowledge of the issue. The focus of this workshop is short selling.

Madrid, November 25, 2010

The international banking industry is overcoming the crisis with unprecedented interventions. The Spanish banking sector, increasingly internationalized, started from a strong position but now faces difficult circumstances, such as numerous savings banks merging in order to return to credit and mediation between savings and investment.
This scenario poses new challenges for international financial regulation and oversight. These challenges will be discussed at this meeting sponsored by Ernst & Young, under the direction of IESE Prof. Juan José Toribio.