Private Equity Desk
The private Equity desk is majorly concerned with selling and acquisition of shares. The shares owned by Samba are sold to individuals and institutions. In accordance with a resolution of the Extraordinary Shareholders Meeting, which was held in March 2008, Samba had an outstanding 900 million shares each with an equal nominal value of 10 Saudi Riyals. This confirms that Samba currently has a net capital of 9 billion. The shareholder’s equity, however, has been varying within the period of three years due to the sale of new shares provided in a year. For instance, in the year 2008, Samba had outstanding shareholder equity of 19,845,785,000, while in the year 2009, the shareholder’s equity rose to 22,310,078,000. In the year 2010, the bank recorded shareholders’ equity reached 25,429,682,000.
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Nevertheless, the firm has been maintaining its capital share of 9 billion for the last three years. In order to ensure that the firm expands its capital base without incurring costs associated with capital base expansion, Samba opted to retain a profit of 4,630,199,000 Riyal in the year 2008. This was followed by a reinvestment of 6,235,339,000 Riyals and 7,791,067,000 Riyals in the year 2009 and 2010 respectively.
With a Market capitalization of 38,250,000,000, Samba emerged as one of the largest banks in the Kingdom of Saudi Arabia, and the Middle East at large. The firm has sold a number of shares to various investors across the 66 branches it has throughout Saudi Arabia and abroad. Institutional investors are more appreciated as compared to individual investors due to their massive investment capital. However, the bank is more willing to sell its shares to investors with certain skills in given fields considering that they are able to assist Samba in making major decisions concerning the company’s operations. Out of the 9 billion authorized capitals, Samba had issued all shares to both individual and institutional investors. The company issued shares of 455,309,689. Samba was successful to collect the funds pertaining to the payment of the issued shares. Samba recorded a paid capital of 9 billion with each share having been sold at the nominal value of 10 Saudi Riyal. The shares are publicly traded at the Saudi Stock Exchange (Tandawul) Company.
The Capital Market Authority was founded in July 2003 with support of Capital Market Law. The CMA has largely ensured that efficiency and effectiveness exist in the financial market. This has been enabled by regulations that were put in place, which make sure that all companies participating in the Capital Market provide true information regarding their performance. This has greatly helped existing and prospective investors to access reliable information that will subsequently assist them in making sound decisions regarding investment.
In an attempt to expand its operations in different countries and regions, Samba will continue issuing shares to both local and foreign investors. This will remarkably help Samba in getting adequate capital to be invested in new areas with profit potential. In the recent past, Samba has managed to put a new branch in the United Kingdom where it has opened special branch designed to serve women. Samba is aware that the issue of a high number of shares of equity would dilute its capital and therefore in the last three years the company has seen using other modes of raising capital such as the issue of debts (Strachman and Bookbinder, 30).
The trading desk is associated with the execution of buying and selling a variety of financial products offered by Samba Group.
Foreign Exchange (Spot Transaction)
The foreign exchange market deals with buying and selling both foreign and domestic currency commonly referred to as exchange rates. An FX contract is a legal agreement to either buy or sell a given quantity of certain currency in exchange for another at an agreed exchange rate. The contract also indicates the delivery date of the given currency which normally takes place two days after the business agreement has been made. The trading desk ensures that Samba effectively deals with the exchange of international currencies. In this regard, it ensures foreign currencies are rightly quoted on an hourly basis in order to facilitate easy spot transactions (Strachman and Bookbinder, 35).
- While at this desk, I was able to exchange a total amount of 500,000 U.S. dollars for individuals and business entities in Saudi Riyals at an average spot market rate of 0.2666 U.S. dollars for every 1 Saudi Riyal.
- The total amount of 300,000 Sterling pounds was exchanged for Saudi riyals at a spot rate of 0.1445 Sterling pounds for every Saudi Riyal.
Foreign Exchange (Forward Transaction)
The forward transaction entails selling and purchasing of a given currency at an agreed date in the future, price and exchange rate during the trading day. Forward exchange rates are usually determined from the spot rate. However, delivery of the agreed amount is regularly delivered more than one month from the day of the agreement. Samba deals with forwarding transactions in anticipation of making a profit from such transactions. It also hedges its earnings through future contracts made with other companies/financial institutions.
- On behalf of Samba Group, we were able to contract Federal Reserve to purchase 400,000 U.S. dollars in 2 months from the date of contract at the rate of U.S. dollars 0.27119 for every Saudi Riyal.
- Commonwealth Bank from Australia contracted Samba Group to purchase 100,000 Saudi Riyals in 3 months from the date of contract at a forwarding rate of 0.2824 Australian dollars for every Saudi Riyal.
Samba Group enters into an agreement with diverse investors concerning sell and purchase of the right options. An options contract is an agreement where the holder or buyer is given the right, but not the obligation to buy or sell a given quantity of currency at a particular price before or on the specified date. Samba allows individuals to purchase a number of options availed by diverse branches spread in various countries.
While serving at the trading desk I managed to purchase a call option worth 50 Saudi riyals for every stock offered by Saudi British Bank at the equity market. The call option had an expiry period of 90 days. In total, I bought stock worth 100,000 Saudi riyals. I sold the call options after 60 days at a share value of 60 Saudi riyals. This resulted in a significant profit of 10 Saudi riyals for every stock purchased.
Money Market Deposit
A money market deposit has two faces, which means that it is a deposit placed with a bank from the perception of the account holder while it can be viewed as a loan by the bank. This market instrument is not negotiable and should be held by the bank until the maturity date, and therefore bank does not stand in a position to sell the security to a third party.
While training at this desk, I was able to record deposits worth 100,000,000 Saudi riyals for fixed deposit accounts, current accounts, and saving account holders.
Sell of Individual and Group Accounts
Samba trades its account across the trading desk, although the opening of accounts is charged with a little amount fee. However, the fee for accounts tends to vary across diverse countries. The bank offers both individual and group accounts.
I was able to open 300 savings accounts, 500 current accounts and 200 fixed deposit accounts for various individuals and business entities.
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Money Market Desk
Money Market Desk particularly deals with the short-term market for diverse marketable securities. The instruments issued in this market include shares and debt securities. The securities offered in this market have a maturity period of less than a year. The Samba Money Market Fund is a collective investment plan, which invests in money market instruments including government papers, cash accounts and fixed deposit accounts. The Samba Money Market Funds works in a manner that is in line with the needs of the investors. The funds for the individual investors are pooled jointly to form a kind of bulk investment. It enables individuals to benefit from the outsized rate of return available only to corporate and large institutions. The investment in the money market fund can be analyzed as shown below.
The Samba Money Market Fund is devised for individuals that have the availability to invest in the short-term and medium-term. However, cash is sometimes demanded within a comparatively short-notice period. This investment opportunity has attracted an array of investors ranging from the local level to the international level due to several advantages such as low levels of risks and a high level of security. The investment opportunity also ensures individual investors of high returns exceeding those of traditional banking financial products.
This Money Market Fund is specifically devised for institutional investors that conventionally hold large amounts of cash though they opt to maintain liquidity due to reasons of operations. These institutional investors benefit from the Money Market Fund provided by Samba at trivial fees. Samba Money Market Fund particularly focuses on institutional investors that have undivided participation especially in a portfolio of marketable securities that are well diversified.
Investing in the Money Market Funds provided by Samba, investors will benefit from a number of advantages including:
- High level of liquidity: Customers will have a chance to withdraw their funds in a short-notice period without the bank imposing penalty fees, or the customer will be allowed a period within which the amounts can be accessed.
- Security Guarantee: The funds are to be invested in the market securities that ensure a high level of security for the investor’s assets, such as liquid instruments and government papers.
- Competitive yields: The interest earned is distributed each month but computed on a daily basis. The collective investment opportunity plan incorporates all assets it holds on behalf of the investors and uses the funds to purchase both, local and foreign market securities at a wholesale price, therefore, securing attractive interest rates (Fredrick 118).
- Investment plan: Samba Money Market Fund involves investment in different market securities including fixed deposit accounts with a given fixed interest rate, call accounts and others, such as government papers, for example. Samba has the objective of ensuring that the previous three mentioned investments surpass the performance of rates offered by both current and call accounts.
- I was a part of the group that was chosen by Samba bank to make decisions regarding corporate bonds from Arabian Gulf Oil, which was to expire within a year, therefore making it qualify to be part of the money market. The bonds were issued at an interest rate of 6% earned semiannually.
- Under my guidance, I was able to pool about 50,000,000 Saudi riyals for diverse individuals and institutions to purchase the Arabian Gulf Oil’s corporate bond, which earned investors an attractive interest rate.
Sales and Distribution Desk
This desk is very crucial in ensuring the company’s financial products and services appear attractive to potential and existing customers. It is apparent that having the right distribution strategy would greatly assist a firm in a number of ways including the boosting of its revenues. In an attempt to ensure that Samba has the right distribution strategy, Samba’s management team has guaranteed optimization of its delivery channel mix. The desk ascertains every branch to ensure that it is in a position of designing its distribution channel. Having an effective and efficient distribution network would ensure that Samba Group competes effectively with other competing firms and well-established banks in the financial market.
Notably, having effective sales, culture has exclusively become an elusive objective and target for many banks. Samba is specifically focusing on leading in the financial institution market with well-established and effective sales culture. Majorly, sales management formed by Samba focuses on a number of issues that need to be critically analyzed to understand their significance in improving the profit level of Samba Group and its overall operations situated in different locations. These issues include setting goals and expectations for every employee and diverse branches the bank currently dominates.
The sales management also recognizes that for employees to continue putting more effort into their work, their best performance must be recognized through the provision of incentives such as offering promotions and awarding gifts to those perceived as having high performance. It is essential to get the results one truly needs by combining incentive compensation with revenues and objectives of sales. The sales management is also concerned with improving the level of revenue through effectual communication throughout the bank. Tracking sales of various financial products such as accounts and loans has been a key factor that Samba heavily relies on while measuring and determining the level of growth, as well as share market dominated by the bank. This furthermore assists the firm in making decisions in addition to proposing services that greatly improve the level of bank performance. Sales management also becomes a key aspect in evaluating job performance, which later on helps to direct and assess the success of employees and the general level of a firm’s performance. It also guarantees that the incentive compensation program provided by Samba assists in inspiring employees as well as rewarding excellent results. This will include the private equity desk, money market desk among others.
The bank barely sells long-term loans due to low levels of profits, as well as illiquidity reasons. However, currently, the bank is considering selling long-term loans with a maturity period of 2 to 5 years. This major step occurred after recognizing that other competitors in the market are offering long-term loans at attractive interest rates, which have attracted scores of investors in diverse businesses. Commonly, loans are given to major companies in the oil-exporting market. It is lent to businesspersons involved in the import market. The firm sells arrange of accounts that comply with Sharia Law, such as Al-Khair Current Account among others. The three types of accounts offered by Samba include deposit account, current account and savings account. Last year, the bank managed to sell a large number of accounts across its branches in Saudi Arabia and other foreign countries such as India and Singapore.
- I was able to design new accounts that are in line with Sharia principles, such as the Al-Khair account. It was through wide consultation with the management team at the sales and distribution desk.
Credit Risk Desk
The Credit risk desk is associated with diverse tasks pertaining to assessing the degree of credit risks, their level of impact on a firm and their respective control measures. As many denote, credit risks refer to the risk of an investor losing the specified amount of money resulting from the failure of the borrower making payment as agreed. In most financial institutions, different terms are used to refer to credit risk including counterparty risk and default risk. In particular, the loss suffered by the investor includes loss of principal, interest earnings, reduced cash flow, as well as increased levels of loss of confidence and trust by individual investors.
Samba had problems in the past concerning credit risk which has forced the credit risk desk to come up with specific measures to mitigate the risk arising from the default of paying principal and interest rates on time by diverse borrowers. Generally, Samba has been giving out a mortgage loan, credit card among other loans that most clients end up not paying or paying in lately. Samba has been purchasing corporate bonds from a number of corporations, which most of the time ended up not paying interest rates on time. This increases high chances of the default payment and therefore increases the level of illiquidity and loss of investors’ cash. Samba, however, makes sure its financial position is assessed frequently to determine its solvency and liquidity to continue attracting investors, as well guaranteeing shareholders of its financial viability.
Samba has divided its credit risk into several categories with an aim of managing them effectively. The forms of credit risk include:
Credit default risk: This risk tends to have a negative influence on credit transactions, which include derivatives, loans and marketable securities. It occurs when Samba considers that obligors have high chances of defaulting to either pay the credit obligation in full or fail to pay full obligations within 90 days (Frenkel and Bert 27).
Concentration risk: This pertains to large losses that solely threaten the main operation of the firm. It might be either a single exposure or a group of exposures that have a remarkable effect on the operation of any firm.
In order to remain effective and efficient in its entire operational activities, the credit risk desk has established various modes that help control and manage the credit of the Samba Group. The credit risk desk assesses the financial position of its prospective and existing customers and thereafter makes decisions of credit extension in accordance with the customer’s chance of paying or defaulting to pay the amount due. Samba frequently ranks both prospective and existing customers in accordance with their risks. Samba normally charges high-interest rates for risky assets such as unsecured loans, as well as mortgages. In its 66 branches, Samba always requires property as collateral to stand for the amount of money taken by the borrower. This has enabled the bank to compensate any loss through defaults by selling the property or holding it until the customer pays the entire due amount.
- With the help of other employees at the credit risk desk, we were to compute the probability of failing to pay debts by small-scale businesspersons (capital worth 10,000 Saudi riyals and below) to be 0.34.
- The probability for those operating businesses worth 10,000 Saudi riyals and above failing to pay their debt was estimated to be 0.14/14%
Hedge of Funds Desk
The hedge of funds desk is charged with the responsibility of investing finances associated with various investors in a broad range of trading and investment activities. This kind of investment is only meant for specific investors as specified by the regulating body. The investment normally targets pension funds, corporate and wealthy individuals. In many cases, hedge funds are invested in different assets. The major objective of Samba Group is to use a number of hedge fund strategies, which are summarized below:
Distressed securities: Samba has extensively purchased equities of private financial institutions facing solvency, liquidity, as well as reorganization problems at large discount rates. Samba afterward develops the firm hoping its firm’s value would be appreciated with time and thus it would be able to sell it to the public at high profits.
Aggressive growth: An investment is made to those equities that are anticipated to experience growth in terms of share value. Shares that do not pay dividends or their price-to-earnings ratio tends to be high, are always expected to increase in value and therefore enable Hedge fund managers to take advantage of such shares for future benefit. Samba helps a number of customers in investing in a range of institutional equities that tend to experience high growth in the future.
Funds for Funds: This strategy endeavors to mix hedge funds and other investments. In this situation, the return for the resulting mix tends to be much higher than that of the individual’s investment.
Emerging markets: Samba attempts to invest in equities and debt that are available in the markets, which are perceived to have high inflation rates, as well as volatile growth.
Market neutral/Arbitrage: In this situation, Samba tries to hedge market risk by taking offsetting positions for different securities issued by a specified issuer. For example, one may tend to long convertible bonds and conversely short the subsequent issues of shares. On the other hand, managers may hedge interest rate risk using futures. This kind of hedging has the objective of achieving returns with minimal correlations or completely no existing correlations between the equity markets and the bond markets (Ineichen, 126).
Market neutral/Securities Hedging: In this situation, investors attempt to invest equally in short and long portfolios particularly in the same market.
Hedging against foreign exchange rate risk: At times, Samba anticipates that Saudi Riyal currency might fall against a given foreign currency. In recognition that Samba has opened new branches in a number of foreign countries, Samba management ensures that its earnings from abroad are hedged against a fall in the value of the domestic currency by buying future options.
Short selling: This has proved to be one of the efficient ways in which investors sell securities short with the expectation of buying them back in the future at a lower price.
- On June 30, I managed to help the bank purchase depreciating Indian rupee worth 100,000,000 to protect the Indian branch from great losses arising from the fall in the value of the Indian rupee.
- Due to my efforts as well as the efforts of those working at the Hedge funds desk, we were able to purchase on 23 May 2011 the falling stock values of Carrier Saudi Arabia at a price of 20 Saudi riyals per stock and that of Hussein Al Ali Est. at 26 Saudi riyals per stock. Fortunately, we disposed of both stocks on 30 November 2011 at 30 and 40 Saudi riyals for the two companies respectively at the stock market.
Due to many activities and products currently offered by diverse banks ranging from commercial to investment banks, it has become significant for various banks to structure their activities, products and services so that consumers would optimally maximize their utility through the various products and services offered by banking sector (Walker 63). In this regard, Samba Group has opted to offer various financial products that appeal to the market, as well as suit the needs of existing and prospective customers. The structuring desk has enabled the bank to offer exclusive banking centers for women in Saudi Arabia.
Other products and services that are significant in assisting to meet the demands and needs of diverse clients include access to accounts on a 24-hour basis enabled by Samba phone, samba.com, Samba mobile in addition to ATMs that operate around the clock. Samba offers a variety of accounts including the following types:
Current Account: This account is available to investors including individual and institutional investors. The current account allows individual customers to withdraw any amount above 200 Riyals any time across all banks in the Kingdom.
Savings account: The savings account majorly targets businesspersons who prefer accounts that pay low charges. This type of account charges insignificant fees specifically known as saving fees.
Time deposit account: This kind of account allows customers to save their amount in the bank within a certain agreed time upon which the customer would come and withdraw his/her amount or enter into a new deal of depositing the subsequent amount for a newly agreed period.
Samba Stars: Samba Stars is a type of bank account offered by Samba Group and is specifically designed for children or teenagers who are below eighteen years old.
Apart from the above accounts, Samba as well offers Islamic financial products, which are designed in accordance with the Sharia Laws and Principles. The major objective was to satisfy fully the populace. Muslims heavily dominate Saudi where the majority of its branches are located and therefore it became imperative to devise products that are in line with culture and way of leaving practiced by Muslims. The financial products offered by Samba Group include Al-Khair Personal Finance, Bayt Al-Khair and Al-Khair Current Account.
Mergers and acquisitions advice: Samba has been offering services to various customers on issues pertaining to raising capital and expansion strategy for a long time. It particularly advises firms on how to expand into new potential markets using merging or acquisition strategy.
Corporate advisory services offered by Samba: Having served in the financial sector Samba has in-depth knowledge regarding the banking and investment sector and therefore stands a good chance to advise diverse firms in the market.
Samba Structuring desk ensures services and products offered by Samba Group are competitive as well as ensure they can solve contemporary problems. For instance, the introduction of electronic services is in line with the demands and needs of the contemporary world. The needs include the demand to inquire information pertaining to ones’ account on a 24-hour basis. The electronic system enables the real-time transfer of money from one account to another.
Conclusion and Recommendation
A co-op program is imperative for one to gain extensive organizational experience besides standing a great chance of interacting with pertinent stakeholders and experienced employees who may become supportive when seeking employment in the job market. It, therefore, enables one to get high chances of employment in his/her area of specialization. It equips one with negotiation skills, improves one’s self-confidence and independence. In addition, one gains an expansive view of the job market, therefore, enabling him/her to penetrate easily into the market after graduation. During training, I performed a number of transactions which have facilitated my individual skills and techniques learned in class. I have improved significantly my communication and analytical skills.
Fredrick, Benson. The Money Market. Montana: Kessinger Publishers, 2004. Print.
Frenkel, Karmann and Bert Scholtens. Sovereign Risk and Financial Crises. New York: Springer, 2004. Print.
Ineichen, Alexander. Absolute Returns: The Risks and Opportunities of Hedge Fund Investing. New York: John Wiley & Sons, 2002. Print.
Strachman, Daniel, and Richard Bookbinder. Fund of Funds Investing: A Roadmap to Portfolio Diversification. New York: John Wiley & Sons, 2009. Print.
Walker, Stephen. Wave Theory for Alternative Investments. New York: McGraw-Hill Companies, 2010. Print.