Chapter 3

Bank of Montreal to raise up to $1.1 billion in common share issue

http://ca.news.yahoo.com/s/capress/081215/business/bmo_shares_1

Summary:
This article mainly about that Bank of Montreal decide to raise up to $1.1 billion in a common share offering, which means they will offer 33.3 million common shares at $30 per share. The capital will qualify as Tier 1 capital, and will be used for general corporate purposes. During the economic recession, all banks are affected and most of them are running out of cash because people withdraw their money to maintain their daily needs. In order to strengthen their capital ratio, banks will try different way to keep it up, and issuing more shares is one of the best ways. However, shares in the Toronto-based bank announced the equity issue was down $1.01 at $32.57.

Connection:
The connection to Chapter 3 is how issuing shares affect a company’s financial position and cash flow. This chapter is mainly about how the accounting cycle works. One of the most important step is the preparation of financial statements, and it includes balance sheet, income statement, cash flow statement and statement of retained earning. It is important that a company should be capable to earn money, but more significantly, a company should have enough cash for operating and investing. Bank of Montreal decided to issue more shares to exchange for more cash because it is a bank’s credit to give people back their money as long as they need, especially during the economic recession. For this reason, Bank of Montreal issued shares.

Reflection:
After reading this article, I realize the importance of cash flow for a company. In the accounting cycle, most of the steps is for the purpose of preparing the financial statement so that a company can operate properly accounting to it’s financial position, earnings and cash flow. For cash flow statement, there are three sections. The operating activities are one of the main cash inflow, and mostly investing activities cause cash outflow. When a company needs extra cash inflow, it is best through financing activities, and that is issuing shares or borrowing money. For a company as large as Bank of Montreal, money plays an extremely important role. For this reason, it is the best choice for it to issue more shares in case of need.

Financial Accounting 12 Chapter 2

Spanish banks face income hit, restructuring

link: http://ca.news.yahoo.com/s/reuters/081019/business/cbusiness_us_financial_spain_ordonez_1

Summary:

This article mainly about the income hit of the Spanish banks due to rising loan defaults, slowing business and higher financing costs. These important factors are likely to hurt Spanish bank income and lead to restructuring. In addition, with the global financial crisis, Spain’s banks face falling business and must accept credit growth will not return to past levels. Besides, smaller institutions and savings banks have higher real estate exposure and liquidity problems which have raised expectations of mergers. With prices growing up generally, the banks are not only facing problems of credit growth levels, but the challenge of higher financing costs.

Connection:

In the text book, we learned about business a transaction has inflow and outflow of money or goods. If the inflow or revenue is worth more than the outflow or expense in the exchange, the company has generated a profit or income from the transaction. On the other hand, if the inflow is less than the outflow, the company has experienced a loss. The major income for a bank is from credit growth. However, the finance problems from all over the world cause the decrease of people’s average income, and bands are also affected. For this reason, the inflow of a bank is decreasing. Moreover, as different financing costs are getting higher and higher, the expense of a bank increases, so the outflow of a bank is increasing. As a result, the difference between inflow and outflow is decreasing, so the profit is decreasing too.

Reflection:

After reading this article, I realize how global finance is connected. As the finance crisis occurs in the US, the whole world’s finance is affected negatively. Most companies are facing the problems that incomes decrease while expenses increase. Some companies even have to confront net loss. As a company, there should be preparation for different financial problems which may occur so that a company can overcome difficulties as quick as possible. Also, a company should be able to deal with different problems by well-organizing financial statements and preparing tactics for different situations.

Financial Accounting 12 Chapter 1

World shares dive after Lehman Brothers collapse, banks shore up markets
Link: http://afp.google.com/article/ALeqM5hC6o2mty-SrA4ILQ8wMZGjIjLEDw

Summary:
This article I read mainly about world shares price plummeted as Lehman Brother (the giant Wall Street investment bank) filed for bankruptcy. Investors were in near-panic mode because of the collapse at Lehman and the recent purchase of Merrill Lynch by the Bank of America. This effect gave rise to the consequence that shareholders kept selling their shares because they afraid a similar situation may happen in other corporation too. Besides, some people concerned about other banks’ exposure to Lehman Brothers in Europe. Most countries were trying to rescue their markets. After the purchase of Merrill Lynch, Merrill shares rose 0.006 percent while Bank of America fell 21 percent.


Connection:
The connection for me is that in a corporation such as Lehman Brother, the shares of it can be easily transferred to another investor; one investor can sell and another can buy the shares in a given company, usually without affecting the company itself significantly. For this reason, when there is some situation like the one happens to Lehman Brother, shareholders will be getting panicky and busy selling the shares even in a lower price. This causes the share prices drop tremendously. Also, finance is not a personal issue, because it connects the whole world and people from different areas. A financial decision may affect a lot of things around it.


Reflection:
I was shock when I read this news because I didn’t notice that a corporation can affect the world that much. Besides, i realize that before making any decision about buying shares and getting involved in a company, we should not only take the company’s financial statements into account, but also the ability of that company of solving financial problems in emergency. Also, I realize that financial problems concern to a lot of aspects in the world, and it is not a local issue. When making financial decision, we also have to be considering the whole world’s situation.