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Citicorp 1985
Citicorp 1985
CITICORP 1985
Submitted To:
Presented By:
Dr. Gajavelli V. S
GROUP 1 & 7
Citicorp.
Individual
Bank
Investment
Bank
Earning
Proportion
66%
19%
14%
Return on Avg.
Assets (as on
1984)
0.88%
0.49%
1.25%
The Problem
Equity or Debt?
Objectives
Evaluate
1.
2.
3.
Subordination
Euro-Dollar Market
Fixed Coupon
Semi-annual coupons
Domestic T-Bill based FRN- Coupon rate (1/8)% over 3 month T-Bills
Cheaper than domestic and Euro-Dollar LIBOR based FRN
Domestic LIBOR based FRN- Coupon rate (1/8)% over three month
LIBOR
Capital in $
maturity
Upfront
fee(2%)
10.875
500,000,000
10
10,000,000
IRR Calculation:
Annual Coupon amount = 10.875*500 Million=54.375 Million
* Using present value of future cash flows to find the IRR
490= (54.375/x)(1-(1/(1+x)^10))+ 500/(1+x)^10
x = 11.22%
Capital in
maturity
$
11.1%
500,000,000
Upfront
fee(0.75%)
10
IRR Calculation:
Annual Coupon amount = 11.1*500 Million=55.85 Million
* Using present value of future cash flows to find the IRR
496.25 = (55.85/x)(1-(1/(1+x)^10))+ 500/(1+x)^10
x = 11.29%
* Mr. Ancona target of 70-80 bp over T-bill (10.1%)
3,750,000
Subordination
Conclusion
relatively
THANK YOU