Risk 2012 Review & 2013 Outlook


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Risk 2012 Review & 2013 Outlook

  1. 1. risk 2012 Review2013 outlook January 2013
  2. 2. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 2Contents 2012 calendar2012 calendar money funds’ hold- MONTH ACTIONSKey risk-related ings of euro-area and Japanese banks U.K. pension fund gilt purchases hit record.events that shapedthe year. page 2 recovered in 2012. U.S. Money funds cut French bank holdings by 97 percent since 2010. page 8 European debt agencies in Sweden and Norway reap gains from interest JANCorporate rate swaps.Hedging cross asset ING begins hedging to reduce interest rate and currency effect on Basel IIIdisclosures correlations credit valuation adjustment charges.A breakdown of An interactive guidederivative posi- showing how gold Restaurant chain McDonalds said it may benefit as suppliers ramp up op-tions held by major and oil correlated tions hedging of grain used for rearing chickens.companies in 2012. with equities during Ford Motor Co increases bond investments to counteract a $3.4 billionpage 3 the year. increase in pension liabilities. FEB page 9 Deutsche Bank forced to take 1 billion euro capital charge on futurevolatility litigation risk.watch Corporate Axa, ING increase estimated liabilities of U.S. variable annuity portfolios afterHow company outlook policyholders held on to contracts.hedging strategies Executives look atwere affected by the prospects for risk Coca-Cola Co. opts to leave foreign cash in high-yielding emerging market in 2013. page 10 deposits and hedge FX risk.market volatility dur-ing 2012. page 5 MAR Italy paid Morgan Stanley $3.4 bnillion to unwind a losing derivative bet. POrtfolio Aviva, Delta Lloyd add out-of-the money put options and swaptions to hedge tail risk.Sovereign cds factor BMW adds 25.7 billion euros of currency hedges, as it ramps up Chinese hedges.performance rankingsWorld heat-map How investing style, Increasing interest rates and low guarantees leave Chinese insurers facingshowing how industry and country billions of renminbi in policyholder redemptions.government credit factors affected BT decides to use a June 2011 discount rate over planned December rate forswaps improved in returns in 2012. pension fund, reducing its deficit by billions of pounds.a rollercoaster year. page 12 APR Google Inc.’s foreign-exchange hedging costs rose above $100 million for thepage 7 second quarter in a row for the first time. KPMG casts doubt on Vestia, the Dutch housing associations’ derivativesU.S. MONEY accounting.FUNDSThe top ten U.S. MetLife, Prudential add equity options as falling volatility reduces hedging costs. Swiss Re, Scor among major European reinsurers that increased holdings Bloomberg Brief Risk MAY of financial debt, just before risk levels rose sharply amid euro-area breakup concerns. Newsletter Ted Merz Allianz updates its internal risk model with less conservative assumptions, Executive Editor tmerz@bloomberg.net boosting capital while Southern European bond prices fell. 212-617-2309 Taiwan life insurer hedigng costs rose even as new regulations create Risk Editor Nick Dunbar reserves against foreign currency fluctuations. ndunbar1@bloomberg.net JUN British defined benefit pensions deficits increase, after being the worst- +44-20-3216-4818 funded in Europe. Reporter Radi Khasawneh Three large U.K. banks put $17.2 billion of their pension fund assets into cash. rkhasawneh1@bloomberg.net China’s four largest banks turn to international firms for short-term borrowing. +44-20-7673-2763 JUL Delta Lloyd and ING reassess interest-rate hedging strategies after Dutch Technical Alberto Fuertes central bank changes discount rate calculation. Editor afuertes@bloomberg.net JPMorgan, UBS, Credit Suisse increase CDS hedges on Italian sovereign. +44-20-3525-8364 AUG Swiss Life sold $8.1 billion of bonds amid concern that euro-Swiss franc Newsletter Nick Ferris hedges wouldn’t work in the event of a euro break-up. Business Manager nferris2@bloomberg.net Italian bank Monte Dei Paschi made a bet on long-dated government bonds, 212-617-6975 before short-dated ECB bond buying caused a rally in the short-term debt. SEP Advertising bbrief@bloomberg.net Deutsche Bank’s plan to boost capital by using lower internal risk weightings 212-617-6975 questioned by analysts. Reprints & Lori Husted JPMorgan’s credit exposure to Southern Europe almost doubles to $11.7 billion. OCT Permissions lori.husted@theygsgroup.com Verizon pays to achieve $7.5 billion pension transfer. 717-505-9701 EADS increased currency hedges by $11.3 billion, betting that the euro would To subscribe via the Bloomberg Terminal type BRIEF strengthen. NOv <GO> or on the web at www.bloombergbriefs.com. Allianz and Generali reduced holding of Italian government bonds by a combined 4.9 billion euros. © 2013 Bloomberg LP. All rights reserved. Canadian Banks RBC and CIBC reduced VaR even as trading revenues This newsletter and its contents may not be forwarded increased. DEC or redistributed without the prior consent of Bloom- MetLife says low-rate hedges will add 45 percent to income for 2012, as ti berg. Please contact our reprints and permissions adds protection against higher rates. group listed above for more information.  1 2 3 4 5 6 7 8 9 10 11 12 
  3. 3. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 3Corporate hedging disclosuresMouse over the rows for asset classes and industry for corporate disclosuresThe amount of hedging done by companies is an important indicator of outlook by institutions in specific markets. Throughout the year,the Risk Brief compiles hedging data from filings. In the table below, selected disclosures in different markets are provided for 2012, forcompanies whose quarterly filings permit comparisons. Numbers are for notional amount of hedges reported at the beginning or duringthe quarter indicated, subject to filing date.Neivanda Aequo Inumquo Dit Voluptis Modin HEDGING q1 q2 q3 q4 INSTRUMENTS ENERGY Oil Oil producers (thousand barrels) 93,581 169,758 155,499 182,090 Cruise Companies (thousand 22,704 29,377 36,590 40,513 barrels) Airlines (thousand barrels) 113,957 132,626 184,418 150,102 Natural Gas Natural gas producers 3,530 3,252 2,906 2,398 (trillions of btu) currencies EUR USD Aeronautic European Companies 91,385 97,535 102,075 104,835 hedging $ revenues ($, millions) U.S. companies hedging euro 3,876.79 4,828.39 4,981.49 6,013.16 revenues ($, millions) GBP-USD U.S. companies hedging sterling 2,251.01 2,767.33 2,722.27 3,128.25 revenues ($, millions) INR-USD Indian Technology Companies 3,821.09 5,454.01 5,278.93 4,997.85 hedging $ revenues ($, millions) BRL-USD Brazilian companies hedging dollar-denominated costs ($, 787.65 1,122.03 459.10 461.95 millions) MXN-USD U.S. companies hedging peso- 79.81 64.44 80.70 64.50 denominated costs ($, millions) CAD-USD U.S. companies hedging canadian- 296.60 322.70 249.90 360.40 dollar revenues ($, million) JPY-USD U.S. companies hedging yen- 27.50 14.10 34.10 61.20 denomimated revenues ($, millions) VOLATILITY Variance Swaps U.S. insurers hedging variable 18,402.00 19,108.68 19,834.28 20,058.68 annuities ($, millions) METALS Silver Companies using silver in their 203,058 144,250 99,870 56,170 products (troy ounces) Nickel Companies using Nickel in their 1,395,177 1,581,530 1,454,782 products (pounds) Platinum Companies using platinum in their 82,117 72,774 74,410 67,799 products (troy ounces) Copper Companies using copper in their 47.82 39.62 49.64 42.75 products (million pounds)Source: Company notes  1 2 3 4 5 6 7 8 9 10 11 12 
  4. 4. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 4corporate hedging disclosures ....continued from previous pageClick on the rows for asset classes and industry for individual corporate disclosures HEDGING q1 q2 q3 q4 INSTRUMENTS Companies using aluminum in their 25,833.23 22,879.91 19,869.75 14,294.96 products (metric tons) Zinc Companies using zinc in their products (metric tons) AGRICULTURAL Coffee Companies that use coffee in their 30.54 111.42 107.88 72.35 products (million pounds) Soybean meal Companies using Soybean Meal in 24,600 81,300 53,800 their products (tons) Soybean oil Companies using Soybean Oil in 8.00 19.00 14.00 30.37 their products ($, million) Corn Companies using corn in their 26.7 18.2 24 36.9 products (million bushels) Sugar Companies hedging their sugar 1.39 1.70 3.25 3.88 sales (million tons) Meat Lean hog Companies that use lean hogs in 704 573 685 347 their products (million pounds) INTEREST RATES Insurer Interest Rate Derivative 315.74 311.946 328.979 341.586 Hedges ($ billions) Regional US Bank Freestanding 32.035 7.774 7.767 7.428 mortgage hedges ($, billions) REIT Interest Rate Hedging Against 80.75 103.94 109.985 115.7 Rising Rates ($, billions) U.S. Government Agency (Receive 492.94 520.478 574.768 616.165 Fixed) ($, billions) Government Agency (Pay Fixed) 466.785 429.2 400.2 372.984 ($, billions) EQUITIES Insurer equity derivative notionals 60.015 82.55 84.26 97.354 ($, billions) Euro area U.S. bank exposure to Portugal, Italy, Ireland, Spain, Greece (net) 44.113 38.966 30.774 40.834 ($, billions)Source: Company notes SUBScriBe tO BlOOMBerg BrieFS Market leading intelligence Bloomberg Briefs publishes 18 newsletters to help you stay ahead of the markets. Individual and group subscriptions available. Visit www.bloombergbriefs.com to subscribe or take a trial. GET THE WORLD. Or call Annie Gustavson at +1-212-617-0544. BRIEF BLOOMBERGBRIE  1 2 3 4 5 6 7 8 9 10 11 12 
  5. 5. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 5VOLATILITY WATCH Click on dotted lines for interactive captionsRebound In Natural Gas PromptsDecrease In HedgesAfter natural gas prices halved in 2011, option tradersexpected further declines in prices as negative skewreached a high for for 2012 on Jan. 9. Producers of thecommodity also began 2012 with substantial hedgepositions in place, with Range Resources reporting a 78percent increase in hedges against price declines in thelast quarter of 2011, while Dynegy Inc. said on May 10that it expected ‘negative settlements’ after selling naturalgas put options in 2011.By the second half of the year, as prices reboundedsharply, gas producers cut back on hedging. Of fiveproducers whose filings were analyzed by Bloomberg,notional hedges decreased by 32 percent between Janu-ary and September. The reversal was also reflected byoption traders, with skew turning positive in November.Weakening of Yen Leadsto Hedge IncreaseCentral bank intervention amid political pressure for aweaker yen prompted U.S. companies that export toJapan to increase their hedges during 2012. Since theyen strengthened to a record of 75 per dollar in 2011, apostwar high, the Bank of Japan and government haveenacted 44 trillion yen in asset purchases and inter-vention. Bloomberg surveyed three U.S. companiesthat export to Japan - Cadence Design Systems, En-ersys and Teledyne. Between them, these companiesincreased their notional amount of dollar-yen hedgesby 122 percent during 2012, according to quarterlyfilings. Option traders also became more bearish onthe yen, with skew increasing to minus 1.3 percentagepoints in December.Oil Hedgers Fight Fast-ChangingMarket Airlines reported the largest amount of hedges at the end of June, asWhipsawing prices proved a challenge for buyers and implied volatility reached a recordsellers of WTI crude oil in 2012, as companies sought high over 2012.to manage tail risk while avoiding getting caught withmoney-losing hedges. That was reflected in the price ofshort-term WTI options, where implied volatility brieflydoubled during the middle of the year. At the start of 2012,moves by oil producers such as Hess Inc. to increasehedges against falling prices seemed to backfire as WTIprices rose. By the end of the year, oil was showing a netdecline, and four oil-producing companies surveyed byBloomberg had increased their notional oil hedges by 100percent, according to filings. U.S. airlines also increasedhedges at the start of the year, only to decrease themagain once the decline in prices became apparent.  1 2 3 4 5 6 7 8 9 10 11 12 
  6. 6. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 6VOLATILITY WATCH ...continued from previous pageEuropean Defence Companies AddDollar HedgesThe three largest defence contractors in the euro area,European Aeronautic, Defence & Space Co., SafranSA and MTU Aero Engines Holding AG increasedtheir use of currency hedges to $104.8 billion from$91.4 billion at the end of the year, taking advantage oflow exchange rates and volatility, Bloomberg analysisof company filings shows. EADS bought $27 billionof derivatives to hedge dollar revenues in the firstnine months of the year, more than the $15.7 billionof hedges that matured, according to its third quarterfiling. The company has taken advantage of prevail-ing market rates to reduce the average euro/dollarexchange rate to $1.29 in the third quarter. The eurodeclined 5.3 percent in 2012 against the dollar, accord-ing to 100-day moving average prices.Equity Rally, Volatility Decline HurtsValue of Insurer Equity DerivativesEquity hedges used by U.S. insurers which sell vari-able annuity policies lost value in the second half ofthe year, filings showed. Prudential Financial Inc. andMetLife Inc. reported derivative hedge losses of $1.09billion and $1.45 billion respectively in the third quarter,led by declines in the market value of equity deriva-tives used, according to third quarter filings. The insur-ers’ hedges were dealt a double blow from an increasein equity prices and a reduction in volatility during thethird quarter. Equity historical volatility, as measuredby the Chicago Board Options Exchange VIX index,declined from 21.41 at the beginning of the year to athree-year low of 13.45 percent on Aug. 17, before end-ing the year at 14.56 percent.REITs Add Hedges on Interest RateDeclinesMortgage REITs reacted to declining interest rates andvolatility by adding new hedges. The companies, whichfinance their variable-rate mortgage assets throughshort-term debt and repurchase agreements, use de-rivatives that benefit from increases in interest rates.Two Harbors Investment Corp. more than doubledits use of interest rate swaps in the year to Sept. 30,to $12.1 billion from $5.8 billion. The company alsobought $5.2 billion of payer swaptions, with maturitiesover four years, as a way to protect against a suddenincrease in rates. The two largest REITs, Annaly Capi-tal Management Inc. and American Capital AgencyCorp. also increased their use of swaps.  1 2 3 4 5 6 7 8 9 10 11 12 
  7. 7. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 7SOVEREIGN CDS PERFORMANCE click on the noted countries for interactive featuresGovernment Credit Swaps Improved in Rollercoaster YearSovereign five-year credit default swaps posted overall improvement in 2012, with only four countries worsening in the year. Thisheatmap shows percentage change in price grouped into color bands for each country. The worst performer was Argentina, as courtwrangles with government bond holders weighed on its performance. The U.S. also lagged on fiscal and debt issues. European coun-tries, led by Austria, improved on the resolution of bailout concerns, while Middle Eastern governments lagged on political risk concerns. Annual Percentage Change in CDS PriceTen Best Performing Sovereigns in 2012 Ten Worst Performing Sovereigns in 2012 CDS Credit Rating Net CDS Notional CDS Credit Rating Net CDS Notional 5Y YoY % USD m YoY Chg 5Y YoY % USD m YoY Chg Sovereign Issuer: Best Performing Sovereign Issuer: Worst Performing Austria 45.85 -77.15 Aaa/AA+/AAA 4,613 -22% U.S. 40.67 -27.72 Aaa/AA+/AAA 3,496 40% Denmark 35.33 -76.65 Aaa/AAA/AAA 1,985 -33% Spain 281.37 -27.48 A3/BBB-/BBB 12,671 -20% Bulgaria 103.38 -76.40 Baa2/BBB/BBB- 583 -20% Ukraine 611.65 -26.64 Caa1/B/B 853 -6% Sweden 21.18 -75.23 Aaa/AAA/AAA 553 -5% Egypt 540.00 -18.60 B3/B-/B+ 481 -38% Belgium 85.18 -74.09 Aaa/AA/AA 4,034 -28% Morocco 225.00 -13.30 Ba2/BBB-/BBB- Lithuania 102.42 -71.70 Baa1/BBB/BBB 479 -24% Lebanon 447.93 -11.01 B1/B/B 506 8% Poland 78.81 -71.65 A2/A-/A- 1,545 -14% Costa Rica 310.38 1.00 Ba1/BB+/BB+ Ireland 224.44 -70.26 A3/BBB+/BBB+ 17,047 -3% Cyprus 1020.75 2.62 B1/CCC+/BB- 307 Latvia 117.73 -68.72 Baa3/BBB/BBB 524 -10% Tunisia 360.00 21.87 Baa3/BB/BB+ 266 -7% Slovakia 102.71 -67.36 Aa2/A/A+ 826 8% Argentina 1427.49 56.53 Caa1/B-/CC 1,495 -34%  1 2 3 4 5 6 7 8 9 10 11 12 
  8. 8. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 8u.s. money fund bank holdings click on tabs and buttons for interactive featuresTen Largest U.S. Money Funds Increased Euro-Area, Japanese Bank Holdings in 2012The ten largest U.S. money funds added holdings of European banks over 2012, according to a survey of portfolio updates by Bloom-berg: Risk. The funds added French banks over the period reversing a flight from the banks in the year before, data showed. Total French Banks 120,000 Total Dutch Banks 100,000 Total Swiss Banks 80,000 Total Swedish Banks$ millions 60,000 Total German Banks 40,000 Total Japanese Banks 20,000 Total British Banks 0 Total U.S. Banks EurozoneAggregated Holdings of 10 Largest U.S. Money Funds ($m) 1 Month 1 Month % 1 Year 1 Year % NOV. 30 OCT. 31 1 Year Ago Change Change Change Change Total French Banks 33,256 31,092 7,573 2,165 7% 25,683 339% Total Dutch Banks 16,255 15,626 28,793 630 4% -12,538 -44% Total Swiss Banks 33,825 39,071 36,042 -5,246 -13% -2,217 -6% Total Swedish Banks 43,215 34,015 40,732 9,201 27% 2,483 6% Total German Banks 23,659 19,149 19,707 4,510 24% 3,952 20% Total Canadian Banks 64,844 62,593 61,682 2,251 4% 3,161 5% Total Japanese Banks 80,328 75,140 51,270 5,188 7% 29,059 57% Total British Banks 40,588 42,170 52,481 -1,582 -4% -11,892 -23% Total American Banks 56,334 58,096 37,346 -1,761 -3% 18,989 51% Total Australian Banks 47,502 39,707 54,764 7,795 20% -7,262 -13%Source: BloombergMOUSE OVER THE ROWS FOR INTERACTIVE FEATURE Follow Nicholas Dunbar on Twitter for regular updates and additional insights @nicholasdunbar  1 2 3 4 5 6 7 8 9 10 11 12 
  9. 9. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 9Cross-Asset Correlations click on tabs and buttons for interactive featuresGold, Oil Showed Wide Range of Correlations With Equities in 2012Three-month rolling correlations between different asset classes varied significantly throughout 2012, with correlation between gold andthe S&P 500 index crossing into negative territory in the middle of the year. Correlation between oil and equities stayed about 50 percentthroughout the year. EUR-USD / Euro Stoxx 50 1 EUR-USD / S&P 500 0.8 EUR-USD / 3 Month Rolling Correlation Gold 0.6 EUR-USD / Oil 0.4 Euro Stoxx 50 / S&P 500 0.2 Euro Stoxx 50 / Gold 0 S&P 500 / Gold -0.2 S&P 500 / Oil Gold / Oil Download your FREE iPad® app today TRY ME REIMAGINED Type MKTS <GO> for download instructions FOR YOUR IPAD ® Available to all Bloomberg Professional® service users. iPad is a trademark of Apple Inc., Registered in the U.S. and other countries.  1 2 3 4 5 6 7 8 9 10 11 12 
  10. 10. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 10Corporate risk outlook Since November 2012, companies have been talking to investors about their risk management outlook and strategies for 2013. The Risk Brief has compiled a selection of comments.“Every day the business press is filled with a litany of risks “The first de-risking really had no negativefrom political instability and economic volatility to rapid chang- losses and to be honest, we continued fores in market dynamics. Both the opportunities and the risks we a long period. We have a little bit higherface are truly unprecedented.” losses right now, and continue to perform – Donald Blair, CFO, Nike Inc., Dec. 20 quite well. I’m just making a statement that, obviously, I cannot exclude that if we“I think our brands were very aggressive this year to get the sell one of these assets that we might befuel cost down and took some yield risk to do it, and I’m sure willing to take a larger loss at some giventhat’s baked into their forecast. We firmly supported those point in time. Our guidance, therefore, isdecisions and there is some additional risk to it on the yield unchanged” .side, but we believe that profitability-wise it’s the right decision. – Stefan Krause, CFO, Deutsche Bank AG, Dec. 13To go beyond - a lot of these discussions are longer than oneyear term, and so I believe that we will see significant fuel sav- “We intend to accelerate our shift away from capital-intensiveings in 2014 as well, but whether it’ll reach this kind of level or products to improve the risk profile and free cash flow genera-not, I don’t know.” tion of the company. For example, our U.S. variable annuity – Miky Arison, CEO, Carnival Corp, Dec. 20 sales target for the next year is approximately 40 percent below the level of sales we anticipate in 2012. Over time the“My perspective is there’s a great opportunity for us in the resilience of our earnings stream and our continuing actions tomortgage business. And as we get more comfortable with it reduce tail risk should improve the valuation of MetLife shares.”ourselves and make sure we understand the various levers and – Steve Kandarian, CEO, MetLife Inc., Dec. 13all the risks, you should look for it to become a more significantcontributor going forward” . “We have been willing to take a loss where – Mark Graf, CFO, Discover Financial Services, Dec. 20 the impact on regulatory capital is offset or sufficiently mitigated by a reduction in “Today, the reality is that the global mar- risk-weighted assets. It may also make ketplace is transitioning to a new normal economic sense to absorb a loss on a sale environment. As market operators, we if we could significantly reduce the tail risk have a firsthand view of this new normal. in a portfolio. As it relates to mortgages in And for different participants, it means today’s market we don’t believe we could different things. Whether it means reduced execute a sizeable sale without a signifi- capital levels or risk appetite or a shift in cant negative impact on our regulatory the balance of power of liquidity suppli- capital ratios. In a better environment, we ers or significant regulatory and operation may in fact have an opportunity to acceler- changes facing businesses, it’s clearly a ate mortgage sales.” – John Gerspach, CFO, Citigroup Inc., Dec. 5 new normal.” – Duncan Niederauer, CEO NYSE Euronext, Dec. 20 “As the regulators are finalizing the rules for the industry, one of“I think as you see some stability with the U.S. political and our greatest opportunities is to continue to differentiate ourselvesdeficit situation, some stability in Europe, the systemic risk off from the larger players, who are more complex and whosethe table, you’ll start to see eventually dollars flow into equity businesses rely on higher risk activities. We can also competesecurities versus fixed income securities. And then we’ve seen better than smaller banks in our markets, with a broader set offour years of everything going into fixed income and there will products aimed at serving traditional banking customers.” – Kevin Kabat, CEO, Fifth Third Bancorp, Dec. 5be a natural transition. When that happens you’ll see peoplestart to get rewarded for picking stocks again and willing to “We’ve seen an enormous amount of de-take risk and you’ll just see flows into the equity market and risking occur both at the financial institutionvolumes will come back” . level, as well as now at the sovereign level. – Richard Handler, CEO, Jefferies Group Inc. , Dec 18 And hopefully, eventually we’ll see some de-risking here in the United States and“Looking forward to 2013, we have modest fuel hedging protec- that’s core as well. However, with the risk-tion in place and that space in Brent crude and that primarily off mentality in place, investors are basi-provides catastrophic protection in a rising fuel environment. cally sitting on the side lines. We’re seeingBeyond the first quarter, we expect to pay market prices for the an enormous amount of cash being held byrest of the year as we’re no longer impacted from the locked-in corporations, institutions, and a lot of dif-losses from our legacy hedge position from 2008. We’re very ferent players who normally would put theirhappy to have that behind us.” cash to work in the investment lifecycle.” – Tammy Romo, CFO, Southwest Airlines Co., Dec. 14 – Gerald Hassell, CEO, Bank of New York Mellon Corp, Dec. 5 continued on next page  1 2 3 4 5 6 7 8 9 10 11 12 
  11. 11. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 11CORPORATE OUTLOOK...continued from previous page “While we don’t think we are out of the at the end of the day. It’s really just a function of trying to pro- woods in Europe, contagion risk has been tect the cash flow to have our development plan going ahead. reduced, major downside risk has been So we’re in a great position in terms of hedging, same thing on reduced by some of the liquidity efforts the liquid side of the equation as well. You’ll continue to see us of central banks, and prices have dislo- actively hedging going forward.” cated to present better risk rewards. So, – Alan Farquharson, Senior VP of Reservoir Engineering & Economics, we feel very, very good about the bottom- Range Resources, Dec. 4 up opportunity set. And 2013, there are some good things going on and there are “We think over time FX flows and credit flow – all of that stuff some challenges. We do have more of our globally is going to increase, it’s very good underlying funda- assets invested in the U.S. than what’s tra- mentals. You’re going to get some volatility, but we actually ditional. The U.S. relative to the rest of the view it as a really good opportunity to consolidate and build world has more stability. You know where market share, and we have a lot of things going for us that oth- the central bank’s going to be because ers don’t, and it’s why you see some people reacting in the waythey told you. You know where economic growth is right now, they are, because it’s just – it’s a competitive world out there.”-and it can vary, but you have a sense of where it is” . – Douglas Braunstein, CFO, JPMorgan Chase & Co., Dec. 4 – Daniel Och, CEO, Och-Ziff Capital Management, Dec. 5 “Even in a slow growth world, we have “If you look at just with where our flows more investment opportunities than we are in ETFs and that’s a great public ba- can possibly fund. And although our long- rometer that everybody should be tracking term growth and strategic plan remain every day, we are seeing more re-risking sound, this elongated period of volatile than we’ve had in the entire year. There and uncertain conditions challenges us to are more flows going into equities in all be even tougher prioritizers and portfo- areas of equity that we’re seeing in fixed lio managers and causes a reduction in income. So you’re beginning to see an resources and investments both in terms unlocking of risk. People are taking on of CapEx and expenses to support these more risk” . opportunities. Therefore, we are balancing – Larry Fink, CEO Blackrock Inc., Dec. 5 our plans to expand into new markets and technologies that are less risky and more near-term in their earnings delivery, “We’re always going to have in the back of especially those that are in high ROC businesses.” our minds that we’re in a commodity busi- – Andrew Liveris, CEO, The Dow Chemical Co., Dec. 3 ness in a world with risk and we will be prepared to adjust - if we have for periods “Insurance companies do a significant amount of underwrit- of time to deal with those risks as we did ing around the coast for hurricane exposure. You’re interested in 2008 and 2009, to preserve our liquidity, in concentration of risk. You’re interested in deductibles. And preserve our assets for what we are confi- what’s really changed now is those same strict coastal under- dent will be a long-term positive future” . writing requirements are now in states that are thousands of – Richard Adkerson, Co-Chairman, Freeport-Mc- miles away from any coast like Oklahoma, Missouri, Minnesota Moran Copper & Gold Inc., Dec. 5 because you really are then exposed through either hail, tor- nado or significant windstorms in those states that are almost“We’re active hedgers. We’ve always been active hedgers. As as significant as a hurricane. So we’ve taken those underwrit-you look into next year, we have almost 500 Mmcf a day of ing requirements and really moved them through the countrygas already hedged at a price of about $4.18. That’s very sig- with a few exceptions” .nificant. It’s not that we are trying to project commodity prices – Jeff Dailey, CEO Farmers Group, Zurich Insurance Group AG, Nov. 30 SUBScriBe tO BlOOMBerg BrieFS Market leading intelligence Bloomberg Briefs publishes 18 newsletters to help you stay ahead of the markets. Individual and group subscriptions available. Visit www.bloombergbriefs.com to subscribe or take a trial. GET THE WORLD. Or call Annie Gustavson at +1-212-617-0544. BRIEF BLOOMBERGBRIE  1 2 3 4 5 6 7 8 9 10 11 12 
  12. 12. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 12Portfolio factor rankingsStyle, Industry, Country Are Important Differentiators of Portfolio ReturnsInvestment managers assess performance and risk by looking at specific factors that drive returns. Bloomberg’s portfolio risk modellingteam analyzes a global portfolio every week for different factors, PORT <GO> and a selection of rankings for different categories arepresented in the tables below. For example, a country factor tracks the additional return over the global market average for stocks withina given country. Top 3/Bottom 3 Yield Curve Factors Top 5/Bottom 5 Risk-Adjusted Return Ranking by Sharpe Ratio name type cum. change Sharpe name type cum. change Sharpe JP 5 yr govt Yield -15.80 1.32 Value style 5.82 5.20 EU 5 yr govt Yield -44.60 0.71 Real Estate industry 12.19 4.10 AU 5 yr govt Yield -48.00 0.44 Diversified Financials industry 7.32 2.01 US 10 yr Infl breakeven yield Yield 49.87 -1.18 US 5 yr swap spread Yield -28.50 1.95 AU 10 yr Infl breakeven yield Yield 21.30 -0.47 Pharma Biotech & Life Sciences industry 10.67 1.85 CA 5 yr govt Yield 13.10 -0.24 Jamaican Dollar currency -6.72 -1.97 Frontier Europe country -16.14 -2.18 Top/Bottom Vol Factors Egyptian Pound currency -2.45 -2.35 name type cum. change Sharpe Pakistan Rupee currency -8.27 -3.26 VIX Price 2.79 0.03 Argentine Peso currency -13.23 -10.10 EURUSD 3m implied vol Price -58.80 -1.57 Top 3/Bottom 3 Country Factors name type cum. change Sharpe Greece country 23.89 0.78 Top 5/Bottom 5 Spread Factors Thailand country 18.38 1.77 name type cum. change Sharpe Turkey country 17.47 1.34 Muni US Investment Grade Yield -162.89 1.01 Chile country -12.10 -1.46 USD Cross-Over credits Yield -231.69 1.32 Korea country -14.69 -1.61 USD High Yield Yield -232.32 1.08 Frontier Europe country -16.14 -2.18 Sov Western Europe Yield -247.83 1.51 Europe Cross-Over Yield -312.85 1.16 Top 3/Bottom 3 Style Factors AU 10Y-2Y spread Yield 22.85 -0.51 name type cum. change Sharpe CA 5 yr swap spread Yield 15.75 -0.89 Value style 5.82 5.20 JP 5 yr swap spread Yield -4.45 0.51 Momentum style 1.62 0.48 UK 10Y-2Y spread Yield -12.18 0.22 Profitability style 1.52 1.43 US 10Y-2Y spread Yield -12.58 0.21 Earnings Variability style -0.46 -0.44 Dividend Yield style -0.54 -0.54 Growth style -0.86 -0.91 Top/Bottom Commod Factors name type cum. change Sharpe Top 3/Bottom 3 Industry Factors Wheat Price 26.00 0.84 name type cum. change Sharpe Nymex Oil WTI Price -8.03 -0.37 Real Estate industry 12.19 4.10 Pharma Biotech & Life Sciences industry 10.67 1.85 Diversified Financials industry 7.32 2.01 Weekly Returns For Best and Worst Portfolio Factors, 2012 Telecommunication Services industry -8.73 -1.56 20 Value Growth Real Estate Utilities industry -10.01 -1.59 Energy Greece Frontier Europe Energy industry -10.91 -1.66 15 Polish Zloty Argentine Peso Linear (Real Estate) 10 Factor Return 5 Top 3/Bottom 3 Currency Factors name type cum. change Sharpe 0 Polish Zloty currency 11.28 0.78 -5 Chilean Peso currency 10.01 1.16 Hungarian Forint currency 9.60 0.58 -10 Brazilian Real currency -10.51 -1.12 28/12/2011 28/02/2012 28/04/2012 28/06/2012 28/08/2012 28/10/2012 Sri Lankan Rupee currency -10.86 -1.05 Source: Bloomberg Argentine Peso currency -13.23 -10.10  1 2 3 4 5 6 7 8 9 10 11 12