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TRANSPARENCY Transparency of financial institutions during the Credit Crisis with two case studies. Project work: Beya Noureddine Coviello Sofia Filippini Cristina Montermini Sonia Spocci Antonio. Summary. Definition of transparency, and the concept of “lack of transparency”
Project work: Beya Noureddine
The extent to which investors have ready access to any required financial information about a company such as price levels, market depth and audited financial reports. Classically defined as when "much is known by many", transparency is one of the silent prerequisites of any free and efficient market.When transparency relates to information flow from the company to investors, it is also known as "full disclosure"
-conflicts of interest
-asymmetric information (A situation in which one party in a transaction has more or superior information compared to another).
Information Asymmetry can lead to two main problems:
1. Adverse selection- immoral behavior that takes advantage of asymmetric information before a transaction.
2. Moral Hazard- immoral behavior that takes advantage of asymmetric information after a transaction
1- Silence the problem to avoid an alarm to the public, media and investors
2- Be trasparent and accept the interference of Stakeholders, investors and Mass Media.
Accounting maneuver where one company transfers an asset to another company in exchange of short-term cash, borrower will pay back the cash and take back the asset at a specific date, usually within a week or so.
L.B. used repo 105 to get bad assets off books appearing to reduce its leverage and creating a misleading portrayal of its financial health.
In fact instead of categorizing these transactions as a loan they described them publicly as a sale never disclosing that they had to pay back the cash that they borrowed for those assets.
That’s not legal.
the effect was that LB had $50 b more in
cash on its book and $50 b less in toxic
«… Barclays has £36bn of committed equity capital and reserves; we are well funded, and we are profitable.»
In 2008, although Barclays has made asset writedowns related to credit for a total of £8 bn related to exposure in the credit market«… it will close with report a profitwell above » of the 5.3 billion pounds expected by analysts' consensus
«…these figures demonstrate that although we have been heavily impacted by the 2 credit crunch, our income generation was at a record level in 2008 and has enabled us to withstand this impact and still produce strong profits.»
«…we confirm in this letter that we are not seeking subscription for further capital - either from the private sector or from the UK Government. »
O.ROE = NOP/EC
Frederic S. Mishkin, Financial Market and institutions.