Duke Students who worked in New York on an investment project for Citigroup. Back row (left to right): Andrew Gaines, Casey Barrett, Jason Nassof and Ye Wang. Front row: Ken Ho, Shannon Nelson, Andrew Miller and Andrew Beatus.
In New York, Students Learn About Credit Crunch Up Close
One team of students tackled investments strategies in a volatile bond industry.
Tuesday, May 6, 2008
print
|
email
|
digg
|
del.icio.us
Durham, NC -- As financial markets lost value this year, a group of Duke University students found themselves in the midst of the turmoil, developing an investment strategy for a major Wall Street firm.
While living in New York City for the semester, a team of eight students wrote a report for a Citigroup executive on how to take advantage of low prices for companies operating in the specialized “monoline” insurance industry, which was effected by the decline in value of subprime mortgages.
“You really got to understand what was going on in the economy at this time,” said junior Andrew Miller in a phone interview from New York with five of the students on the project. “You would read the Wall Street Journal and say, ‘Oh my gosh, this is exactly what we are researching.’”
The project was part of the newly launched Duke in New York: Financial Markets and Institutions program, which brings students to the city to learn about finance through a combination of course work, tours, business projects and professional networking. Thirty one students participated in the inaugural semester this spring.
In addition to the team working with Citigroup, other teams of students conducted projects such as an analysis of Ralph Lauren products, an evaluation of the market for an IBM computer server and the development of a real estate proposal to the Abu Dhabi royal family.
The Citigroup team, comprising seven juniors and a sophomore, was guided by Kevin Bell, a Duke alumnus and a managing director in the firm’s Fixed Income, Currencies and Commodities unit. Bell challenged the team to learn about companies that insure payments on debts such as municipal bonds and securities backed by mortgages. At the time of the project in February and March, these monoline insurance companies -- so named because they are limited to one type of insurance, guaranteeing debt payments -- were caught up in the worldwide credit crunch because they had insured pools of residential mortgages, including prime and sub-prime mortgages, some of which were defaulting.
Most of the students had never heard of monoline insurance companies before this semester.
“We learned how the ‘monoline industry’ fits into the whole market,” said junior Ye Wang, an economics and math double major. “We learned how different players in the market -- including rating agencies, bonds, banks, lenders, borrowers -- play together.”
“The quality of the dialogue was such that it sparked some different thoughts in my mind about maybe taking an approach that I hadn’t otherwise thought about,” Bell said.
The result of the team’s work was a confidential 25-page report describing two investment strategies in the monoline insurance industry.
The organizers of the program from the Department of Economics and Markets & Management Studies said after a successful first semester Duke in New York will continue next year.
“The evaluations were overwhelming positive,” said Michelle Connolly, a program co-director and an associate professor of the practice in economics. “I wish I could have been up there.”
“We just couldn’t have fell in a better place in a better time with everything that was breaking news-wise,” said Sam Veraldi, a co-director of Duke in New York and a visiting associate professor of sociology and markets and management studies. “Literally, we’re walking into class and we’re learning about significant write downs across the financial services industry related to residential mortgages, and what the products were, and the students just happened to be working on that particular piece of the project.”
Being in New York helped dramatized the lessons they were learning, students said.
“Literally the first thing we had to do when we got here in New York was go to an info session at Bear Stearns,” said junior Casey Barrett, an economics major. “And then just a couple months later to see what happened with them [being saved from bankruptcy by an eleventh-hour buyout by JPMorgan Chase & Co. and the U.S. Treasury], it’s definitely very fast paced and it can change at a moment’s notice.”
