FINS5530 HBS Case Assignment

S2, 2016
Dr Lixiong Guo
Case Materials:
HBS case Shenzhen Development Bank
Assignment:
Investing in any business entails an in-depth analysis of the performance and risk of the target before
the investment. When investing in FIs, investors have to overcome significant asymmetric
information problem because financial assets are intangible and their values depend crucially on
information. However, the FI usually knows more about the value of their assets than outside
investors. The FI also has some discretion over the recognition of the value of financial assets and
gains and losses under the current accounting rules, which makes it more difficult for outside
investors to determine the value of the FI.
In this assignment, you are required to help Newbridge to assess the financial condition of Shenzhen
Development Bank (SDB). This should include three aspects as shown in the outline on the next page.
The materials you need for writing the report are ALL included in the case. The exhibits at the back of
the case should be your main source of data. You should NOT get data or information from other
sources for the analysis.
Since most of you are not familiar with working on cases and are probably confused about what you
should analyse and write in the report, I have decided to make your life a little easier by providing you
with an outline of the important things that I expect you to address in your report on the next page.
However, you should not interpret these as the only questions you need to address. Rather, you should
feel free to add additional analysis or discussions that you see fit with the objective of the report. A
good report should show a students clear understanding of the relations between different parts of the
analysis and the ability to integrate them into a coherent report that accomplishes the objective of the
study. Simply answering each question on the list would not be enough to earn you a high mark for
the task.
Report Format:
The report should be typed using 11 point or larger font. Figures and tables should be attached to the
back of the report and referenced in the text. There is no page limit but I think 5 pages analysis would
be enough. The report should be saved in a PDF file.
Submission:
You are required to submit two files through Moodle: a PDF file of your report and an Excel file
showing your calculations. The Excel file should allow the marker to see how you calculated the
numbers in your tables and figures. Both files should be named using the following format:
LastName_FirstName_StudentID.
The deadline for submission is 9:00 am on 4 October, 2016. This deadline is already very generous
and is the FINAL deadline. You should not wait until the last minute to submit and claim technical
difficulties as reasons for your missing the deadline.

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An Outline of the Analysis

1. Asset quality
1) How does SDBs NPL ratio compare with that of the industry peers? Do you think the NPL
number SDB reported is likely to be too high or too low? Why?
2) How does SDBs actual LLR levels compare with the would-be LLR levels implied by the
industry average and by SDBs own reserve ratio guidelines? What are the implications of
this? How would this affect the capital adequacy of SDB?
2. Earnings capability
1) What are the time trends of SDBs key earnings measures? How do they compare with that of
its industry peers?
2) How does SDBs overall financial performance compare with that of its industry peers?
Which factors mainly drive these differences?
3. Capital adequacy
1) How has SDBs capital ratios changed over time? What explain these changes?
2) Is SDB well capitalized? What are the implications of this for the value of the stake
Newbridge will have in SDB? How would this affect the price Newbridge should pay for its
stake?
4. Conclusion
1) Based on your analysis above, what advice or guidance would you give Newbridge in their
negotiation with SDB about the price and conditions for the investment?

Important Notice about AOL Assessments and Marking:

This course has been selected by the business school for assessing the Program Learning Outcomes
3a (writing communications).
Criteria
1. Communicates clearly and concisely
2. Structures text logically and coherently
3. Presents text professionally and references sources accurately

As a result, the business school requires 5% of you course mark to be based on your written
communication skills as reflected in your report for this assignment. Hence, I hope you pay close
attention to your writing to try to meet the 3 criteria above. The writing quality will be assessed by the
markers hired by the business school not me.
I will only assess your analysis in the case report, which accounts for 7% of total mark. My
assessment will be mainly based on your creativity in extracting useful information from the given
data, the depth of your analysis, and your ability to reason using data and your professional
knowledge.

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