Tag Archives | bank

American Depositary Receipts (ADRs)

American Depositary Receipts (ADR) Definition

American Depositary Receipts (ADR) are intermediaries so that investors can invest in foreign markets and exchanges. ADRs hold a claim on the foreign stocks held by banks within the United States.

American Depositary Receipts (ADR) Explained

Often times it is difficult for Americans to invest in foreign stocks. In light of this difficulty U.S. banks have developed a way for investors to easily invest by offering ADRs. The bank acts as an intermediary into foreign markets by buying the foreign stocks and holding them in their vault. They then issue American depositary receipts into the market and these receipts can be more readily traded. This makes a normally illiquid investment much more liquid and worthwhile to investors. If these companies issue stock the bank can also exchange the foreign currency for U.S. dollars at bank rates making the investment in ADRs that much better. The current ADR market exceeds $2 trillion this day, and has been rapidly growing at a rate above 20% each year.

American Depositary Receipts (ADR) Example

Josh is looking to invest in some foreign stocks, but does not want to go directly to the foreign exchanges because it is difficult for him to buy and sell when he needs. Therefore, Josh has decided to invest in ADRs which are listed on the NASDAQ. This means that Josh can enjoy a foreign investment which is much more liquid. His dividends can also be exchanged at a more favorable rate because the issuing bank is performing the currency exchange.

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american depositary receipts

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american depositary receipts

See Also:
Financial Instruments
Term Deposit
Common Stock Definition
Return on Equity Analysis

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Working Capital from Real Estate

“Many companies own the land and buildings necessary to conduct the day-to-day operations of their business. Oftentimes this valuable asset is included in traditional bank financing packages as the cornerstone of the credit facility. As long as the business progresses as the bank deems appropriate, and all loan and debt service coverage covenants remain in compliance, the working capital from real estate will serve to anchor the lending relationship.

Working Capital from Real Estate

Companies and/or individuals may also own commercial real estate… [This] may provide an income stream or conversely, suffer from under-utilization and needed development. [The banking community typically finances] these transactions as a “onetime” advance which is conditioned for certain renewal requirements… Additional funding is triggered by developmental thresholds that have to be met. [In addition,] the investment opportunity associated with these properties may require balance sheet leverage beyond what the bank is willing to tolerate…”

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Working Capital from Real Estate

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FASB Chief to Propose Accounting Rule Change

In this blog, we look at how the FASB Chief to propose accounting rule change will impact your business.

FASB Chief to Propose Accounting Rule Change

The Chairman of FASB is set to propose that bank regulators be allowed to make adjustments to the financial statements of banks in order to determine whether those banks have met capital requirements, while requiring that those banks report to the investing public according to GAAP.

Naturally, the banks are in favor of this, yet investors should pay attention to the financial statements and not the pronouncement of regulators that a given bank has met its capital requirements through some “adjustments” to its loan portfolio.

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FASB Chief to Propose Accounting Rule Change

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FASB Chief to Propose Accounting Rule Change

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Bank Covenant Violations Sets Off Bank’s ‘Trip Wire’

The Houston Business Journal interviewed The Strategic CFO regarding bank covenant violations and what steps you should take to manage the process.

Bank Covenant Violations Sets Off Bank’s ‘Trip Wire’

“Setting Off a bank’s ‘trip wire’ doesn’t have to be the end of road.”


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bank covenant violations

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bank covenant violations

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FDIC Bank Failure Watch List: Leading or Lagging Indicator?

The FDIC produces the FDIC bank failure watch list every Friday at 7:00p.m. As of April 24th there were 29 failed banks in 2009. There were only 25 failed banks in 2008! If this trend holds true we should have 85 to 90 bank failures in 2009! A 350% increase in bank failures in 2009 over 2008.

Analysis on FDIC Bank Failure Watch List

I suppose that isn’t really a surprise given the turmoil in the banking system. My question is whether the bank failure watch list is a leading or lagging indicator of the economy. If you look further back into previous years you see that 2007 had only three failed banks; and 2005 through 2006 had no banks failing. Should we have seen a stock market top with so few failed banks insured by the FDIC? If the banks are doing so well does that indicate easy money? Should we have been reducing our exposure to the stock market?

Now the trends are going the other way. It is time to ask: Should we buy stocks when the bank failures peak? When we no longer have an increase in the number of banks failing does that indicate that the economy is bottoming out?

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FDIC Bank Failure Watch List

FDIC Bank Failure Watch List

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