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Joey Bermudez from the Management Association of the Philippines delivers his keynote address on how the global financial crisis has the Philippines. (Jan 29, PACAP Community Development Forum: …

Joey Bermudez from the Management Association of the Philippines delivers his keynote address on how the global financial crisis has the Philippines. (Jan 29, PACAP Community Development Forum: Microfinance Amidst the Global Financial Crisis"

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  • 1. THE GLOBAL ECONOMIC CRISIS www.maybridgeasia.com
  • 2. Genesis Not too long ago ..... A decade of robust economic growth producing huge surpluses of capital ..... plus easy credit that produced liquidity exceeding the demands of the real economy ..... .....created tremendous wealth that insanely chased assets, producing asset bubbles in the process .....
  • 3. ..... Housing, financial assets, commodities ..... the bubbles were all over the place ..... Then the housing bubble burst ..... and all hell broke loose!
  • 4. LIQUIDITY HOW EXCESSIVE LIQUIDITY CREATES ASSET BUBBLES REAL ECONOMY’S NEEDS GROWTH IN REAL ECONOMY’S NEEDS ASSET PRICE INFLATION NORMAL LIQUIDITY GROWTH EXCESSIVE LIQUIDTY GROWTH
  • 5. LIQUIDITY HOW DISAPPEARING LIQUIDITY SHRINKS THE ECONOMY REAL ECONOMY DEMAND DESTRUCTION; RECESSION ASSET PRICE DEFLATION CONTRACTING LIQUIDITY EXAGGERATED CONTRACTION
  • 6. Bursting asset bubbles: Housing, financial assets, commodities Financial losses Shattered confidence Systemic wealth destruction Net outflow of FDI and hot money, lower Fil-Am demand for property, weaker global demand External events Domestic events Constricted liquidity, lower purchasing and investing power Falling asset prices, full-blown economic crisis Full economic crisis
  • 7. Fortunately for the Philippines . . . .
    • Asset bubbles outside the equity market were far smaller.
    • Corporate balance sheets were not as over-leveraged as in 1997.
    • So far, OFW and immigrant remittances have held up
    • Privatization proceeds and windfall VAT gave the fiscal position a momentary boost.
  • 8. Just the same, financial institutions have to brace themselves . . . . . Weak business climate Volatile and jittery markets Inflation and rising interest rates Elevated risks Market risks: trading losses; decline in asset values Credit risks: defaults, deterioration in asset quality Operational risks: customer and employee fraud, lapses Margin squeeze: as liquidity disappears, funding costs rise faster than asset yields Overhead drag persists despite declining revenues Shrinking revenue base and declining revenue stream Capital flight; panic withdrawals
  • 9. THANK YOU FOR LISTENING. For any clarifications, email us at [email_address]
  • 10. Firm                                 Losses   Capital Raised Wachovia Corporation*                       96.5          11.0 Citigroup Inc.*                             68.1          74.0 Merrill Lynch & Co.*                         55.9          29.9 Washington Mutual Inc.*                     45.6          12.1 UBS AG                                       44.2          31.1 HSBC Holdings Plc*                           32.8           5.0 Bank of America Corp.                       27.4          55.7 National City Corp.*                         26.2           8.9 JPMorgan Chase & Co.                         20.5          44.7 Wells Fargo & Company*                       17.7          41.8 Royal Bank of Scotland Group Plc*           16.0          51.3 Morgan Stanley                               15.7          24.6 Lehman Brothers Holdings Inc.*               13.8          13.9 Credit Suisse Group AG                       13.5          11.5 IKB Deutsche Industriebank AG               13.1          10.8 Deutsche Bank AG*                           11.8           5.8 Fortis                                       8.4          20.5 ING Groep N.V.                               8.0          17.1 Credit Agricole S.A.                         7.8          11.4 INJURY LIST
  • 11. Firm                                 Losses   Capital Raised Societe Generale*                             7.6           10.5 Mizuho Financial Group Inc.                   6.9           0.0 Barclays Plc                                 6.8           27.5 Canadian Imperial Bank of Commerce           6.3           2.5 Bayerische Landesbank                         6.2           8.2 HBOS Plc*                                     5.9           24.2 BNP Paribas*                                 5.4           3.3 Indymac Bancorp Inc*                         4.9           0.0 Goldman Sachs Group Inc.*                     4.9           20.5 Dresdner Bank AG*                             4.6           0.0 Landesbank Baden-Wurttemberg                 4.2           0.0 E*TRADE Financial Corp.                       4.1           2.2 Lloyds TSB Group Plc*                         3.9           13.6 Bank of China Ltd                             3.7           0.0 Nomura Holdings Inc.                         3.7           1.3 Natixis                                       3.6           7.4 KBC Groep NV*                                 3.5           4.5 Bear Stearns Companies Inc.*                 3.2           0.0 HSH Nordbank AG                               3.1           1.6 Rabobank                                     3.1           0.0
  • 12. WestLB AG*                                   2.8           6.4 Fifth Third Bancorp                           2.7           2.6 Sovereign Bancorp Inc.*                       2.4           1.9 DZ Bank AG                                   2.3           0.0 Landesbank Sachsen AG                       2.2           0.0 U.S. Bancorp*                                 2.2           6.6 Commerzbank AG*                               2.1          10.5 ABN AMRO Holding NV                         2.0           0.0 Royal Bank of Canada                         1.9           0.0 Mitsubishi UFJ Financial Group           1.7          11.8 Industrial and Commercial Bank of China       1.7           0.0 KeyCorp                                       1.6           4.2 Bank Hapoalim B.M.                           1.5           2.3 Marshall & Ilsley Corp.                       1.5           1.7 Dexia SA                                     1.5           8.2 UniCredit SpA                                 1.3           9.2 Alliance & Leicester Plc                     1.1           0.0 Bank of Montreal                             1.1           0.0 Sumitomo Mitsui Financial Group               1.0           4.9 Groupe Caisse d'Epargne                       1.0           0.0 Firm                                 Losses   Capital Raised
  • 13. Hypo Real Estate Holding AG               1.0           0.0 Gulf International Bank                       1.0           1.0 Sumitomo Trust and Banking Co.               0.8           1.1 National Bank of Canada                       0.6           0.8 DBS Group Holdings Limited*                   0.2           1.0 Other European Banks                         8.2           3.8  (not listed above) Other Asian Banks*                           5.0          11.2  (not listed above) Other US Banks                               3.6          17.5  (not listed above) Other Canadian Banks                         0.3           0.0  (not listed above)                                         TOTAL                             695.0       714.9 Firm                                 Losses   Capital Raised
  • 14. Total Subprime Losses of Banks Total Capital Raised by Banks Total Number of Banks with Losses US$695.0 Billion US$714.9 Billion Over 66
  • 15. Review of the tragic domino
    • January: Countrywide Financial was taken over by Bank of America
    • February: Northern Rock was nationalized
    • April 1: Bear Stearns was taken over by JP Morgan
    • July 11: Indymac Bank collapsed
    • September 7: Fannie Mae and Freddie Mac were taken over
    • September 14: Merrill Lynch was taken over by Bank of America
    • September 14: Lehman Brothers declared bankruptcy
    • September 16: AIG was rescued
  • 16. Review of tragic domino (cont’d)
    • September 18: HBOS was taken over
    • September 26: Washington Mutual went bankrupt, was partially taken over by JP Morgan
    • September 28: Bradford and Bingley was nationalized
    • September 28: Fortis was nationalized
    • October 3: Wachovia was taken over by Wells Fargo
    • October 7, 8 and 9: Landsbanki, Glitnir, and Kaupthing Bank were nationalized
    • October 13: Royal Bank of Scotland, Halifax Bank of Scotland (HBOS) and Lloyds TSB received major capital infusions (43-63%) from the British government
  • 17. Financial institutions that ran into trouble in 2007-2008
    • Acquired by other institutions: 29
      • United Kingdom (11)
      • United States (11)
      • Iceland (3)
      • Benelux (2)
      • Australia (1)
      • Denmark (1)
    • Declared bankruptcy or were shut down by regulators
      • United States (40) including 15 credit unions
  • 18. Debt Capital Liquidity Spending and Investing Power The Anatomy of Liquidity Leveraging De-leveraging Panic! Panic! More! More! Loss! Loss!
  • 19. Sept 2007 Jan 2008 Mar 2008 June 2008 Sept 2008 Nov 7 2008 Dow Jones Industrial Average
  • 20. Market Capitalization (Free Float Only) Jan 2008 April 2008 July 2008 Sept 2008 Global U.S. Philippines Source: World Federation of Exchanges US$55.2T US$56.4T US$50.7T US$42.7T US$93.6B US$78.0B US$73.2B US$70.3B US$18.3T US$18.6T US$17.0T US$16.1T
  • 21. Economies in Trouble
    • Economies that have entered recession
      • Q1: Denmark and Iceland (rebounded in Q2)
      • Q2: Estonia, Latvia, Ireland, New Zealand
      • Q3: Japan, Hong Kong, Singapore, Germany, Italy, European Union as a whole
    • Economies that have contracted
      • Q1: Canada, Mexico, Portugal, Sweden
      • Q2: France, Turkey
      • Q3: Hungay, United Kingdom, United States
  • 22. Sept 2007 Jan 2008 Mar 2008 June 2008 Sept 2008 Nov 7 2008 Philippine Stock Exchange Index
  • 23. Sept 2007 Jan 2008 March 2008 June 2008 Sept 2008 PRICES OF ROP 32
  • 24. A Major Local Bank Peso Funds Short-Term Fund Premium Bond Fund Equity Fund Balanced Fund Institutional Fund YOY YTD 3.39 2.77 4.57 2.95 -43.87 -41.06 -28.62 -25.84 3.91 2.08 YIELDS
  • 25. A Major Local Bank Foreign Currency Funds YIELDS YOY YTD 1.57 1.17 -33.48 -31.15 0.14 1.22 -6.82 -8.61