MERCHANT BANKERS MELTDOWN A GLOBAL FINANCIAL TSUNAMI ORIGINATED FROM MANHATTAN

A GLOBAL FINANCIAL TSUNAMI

ORIGINATED FROM MANHATTAN

Starring Merchant Bankers Uncle Sam’s Federal Reserve Lehman Bros. Merrill Lynch AIG, FM & FM Morgan Stanley

Merchant Bankers

Uncle Sam’s Federal Reserve

Lehman Bros.

Merrill Lynch

AIG, FM & FM

Morgan Stanley

Story written by SUB PRIME MORTAGES IN UNITED STATES OF AMERICA

SUB PRIME MORTAGES IN

UNITED STATES OF AMERICA

Directed by WALL STREET

WALL STREET

Merchant Bankers “ Masters of the Universe” ( to quote best selling author ‘Tom Wolfe’ ) Don’t like our PSBs or private banks Assess different financial proposals for investments worldwide International portfolio investments Global & corporate strategies formulation Measure & manage political risks involved

“ Masters of the Universe” ( to quote best selling author ‘Tom Wolfe’ )

Don’t like our PSBs or private banks

Assess different financial proposals for investments worldwide

International portfolio investments

Global & corporate strategies formulation

Measure & manage political risks involved

The Devil Behind the Scene US Mortgage Crisis A Sub primer

What is it? Two Types of US Borrowers Prime & Subprime Loans by subsidiaries in 2002-07 to SP Borrowers Due to Real Estate boom Rising of home price to more than double since 1997 Encouragement by Govt. to lend SPB to help poor & young

Two Types of US Borrowers

Prime & Subprime

Loans by subsidiaries in 2002-07 to SP Borrowers

Due to Real Estate boom

Rising of home price to more than double since 1997

Encouragement by Govt. to lend SPB to help poor & young

With stock mkt. booming & system flush with liquidity, big fund investors like Hedge funds & MFs saw SP loan portfolios as attractive investment Bought such portfolios from original lenders Lenders had fresh funds to lend

With stock mkt. booming & system flush with liquidity, big fund investors like Hedge funds & MFs saw SP loan portfolios as attractive investment

Bought such portfolios from original lenders

Lenders had fresh funds to lend

Typically 2% higher interest rate than Prime because of higher default risk, resulting in higher EMIs Only added to risk of SPB defaulting rate Lenders compromised with prudential norms & devise new instruments

Typically 2% higher interest rate than Prime because of higher default risk, resulting in higher EMIs

Only added to risk of SPB defaulting rate

Lenders compromised with prudential norms & devise new instruments

Turning into a Crisis US Housing boom bubble busted in 2007 Boom had led to a massive housing supply Prices fell down Default rate shoot up SPB no longer ready to pay through their nose Collateral was typically the home being bought, again this vicious cycle started

US Housing boom bubble busted in 2007

Boom had led to a massive housing supply

Prices fell down

Default rate shoot up

SPB no longer ready to pay through their nose

Collateral was typically the home being bought, again this vicious cycle started

Coincidence with US Economy slowdown made the matter worse Price dropped to 50% of their peak in 2006 Lenders left with less the value of their loans to book hefty losses

Coincidence with US Economy slowdown made the matter worse

Price dropped to 50% of their peak in 2006

Lenders left with less the value of their loans to book hefty losses

Turning into a systematic crisis Original lenders had further sold their portfolios to other players Some complex derivatives were also developed based on the loan portfolios which sold further, one after another As a result, nobody is quite sure about the exact sizes of losses & who had taken how much hit

Original lenders had further sold their portfolios to other players

Some complex derivatives were also developed based on the loan portfolios which sold further, one after another

As a result, nobody is quite sure about the exact sizes of losses & who had taken how much hit

Fannie Mae & Freddi Mac owned half of roughly $12 trillion outstanding in home mortgage Suffered $14bn in last 4 Qs Forced retreat of these two giants from market created ripples of fear across the players

Fannie Mae & Freddi Mac owned half of roughly $12 trillion outstanding in home mortgage

Suffered $14bn in last 4 Qs

Forced retreat of these two giants from market created ripples of fear across the players

Impact of crisis: on USA Global banks & brokerages had to write off an estimated $512 bn Heaviest punch on CITI group ($55.1bn) & Merrill Lynch ($52.2bn) More than half of total losses are suffered by US based firms ($260bn) European firms tanks $227bn Relatively modest $24bn hit on Asian firms

Global banks & brokerages had to write off an estimated $512 bn

Heaviest punch on CITI group ($55.1bn) & Merrill Lynch ($52.2bn)

More than half of total losses are suffered by US based firms ($260bn)

European firms tanks $227bn

Relatively modest $24bn hit on Asian firms

Bear Sterns, one of the largest investment bank & securities traders collapsed Bought up by JP Morgan Chase with help of Federal Reserve Lehman went bankrupt ML bought by Bank of America Nationalization of FM & FM

Bear Sterns, one of the largest investment bank & securities traders collapsed

Bought up by JP Morgan Chase with help of Federal Reserve

Lehman went bankrupt

ML bought by Bank of America

Nationalization of FM & FM

On global front US being the biggest borrower in the world since most countries hold their foreign exchange reserve in dollars & invest them in US Securities, any crisis in US has a direct bearing on them Countries with large reserves like Japan China and India are at high risk Global interconnectivity of financial markets makes the situation worse

US being the biggest borrower in the world since most countries hold their foreign exchange reserve in dollars & invest them in US Securities, any crisis in US has a direct bearing on them

Countries with large reserves like Japan China and India are at high risk

Global interconnectivity of financial markets makes the situation worse

NOW WE COME TO THE POINT

NOW WE COME

TO THE POINT

Lehman Brothers 158 years old HQ in Manhattan CEO Richard Fuld 4 th largest investment bank 26,000 employees worldwide Market value in Feb. 2007 was $45.5bn Posted $4bn losses in Q4 File for Bankruptcy under chapter 11 Barclays to buy its core capital mkt. business for $1.75bn, a paltry Could save 10,000 jobs of Lehmannites

158 years old

HQ in Manhattan

CEO Richard Fuld

4 th largest investment bank

26,000 employees worldwide

Market value in Feb. 2007 was $45.5bn

Posted $4bn losses in Q4

File for Bankruptcy under chapter 11

Barclays to buy its core capital mkt. business for $1.75bn, a paltry

Could save 10,000 jobs of Lehmannites

Merrill Lynch 94 years old 60,000 employees HQ in Manhattan Market value in Feb.2007 was $86bn Bought by Bank of America for $50bn in a all stock transaction

94 years old

60,000 employees

HQ in Manhattan

Market value in Feb.2007 was $86bn

Bought by Bank of America for $50bn in a all stock transaction

Other banks on sale Morgan Stanley, 2 nd largest investment bank across the globe Mutual Washington Some others are also in the pipeline

Morgan Stanley, 2 nd largest investment bank across the globe

Mutual Washington

Some others are also in the pipeline

Rescue Measures by Central banks SEC Securities & Exchange Commission, a US Regulator banned short selling in 799 financial companies stocks $800 bn pumped in worldwide US Federal Reserve $180bn Russian Govt. $130bn Bank of Japan $108bn US Federal guarantors $50bn Bank of England $40bn ECB $40bn RBI $18bn

SEC Securities & Exchange Commission, a US Regulator banned short selling in 799 financial companies stocks

$800 bn pumped in worldwide

AIG’s Adoption by Uncle SAM World’s largest Insurer Lost $13.2bn in first 6 months of 2008 Sought to raise $40bn to avoid crippling credit rating downgrade Was also in talks with Warren Buffets US take it over for $86bn, ½ of India’s Annual Budget

World’s largest Insurer

Lost $13.2bn in first 6 months of 2008

Sought to raise $40bn to avoid crippling credit rating downgrade

Was also in talks with Warren Buffets

US take it over for $86bn, ½ of India’s Annual Budget

Other Bailouts by USA So far $900bn bailed out by US in 2008 Federal’s housing administrator $300bn Federal’s term auction facility $200bn FM & FM $200bn JP Morgan Chase $87bn AIG $85bn Bear Stern $29bn Grant to local gov. $4bn

So far $900bn bailed out by US in 2008

International Stampede Race against time to prevent global financial collapse Domino’s effect Bank to sit on cash Interbanking relations and faith touched a new low Several commit suicide across the world

Race against time to prevent global financial collapse

Domino’s effect

Bank to sit on cash

Interbanking relations and faith touched a new low

Several commit suicide across the world

RTS (Russia), Hangseng (Singapore), Shanghai comp, FTSE 100 (UK), Sensex, DAX 30 (Germany), S&P 500, Nikkei (Japan), Dow Jones (USA), NASDAQ comp, CAC40 (France), KOSPI (S.Korea) all crashed like a plane Dow Jones tanks 500 pts within 10 min of opening on Monday 10 major banks in US to create $70bn emergency crisis fund

RTS (Russia), Hangseng (Singapore), Shanghai comp, FTSE 100 (UK), Sensex, DAX 30 (Germany), S&P 500, Nikkei (Japan), Dow Jones (USA), NASDAQ comp, CAC40 (France), KOSPI (S.Korea) all crashed like a plane

Dow Jones tanks 500 pts within 10 min of opening on Monday

10 major banks in US to create $70bn emergency crisis fund

Ripples in India Rupee hit a 10 year low to Rs.47 A dollar FIIs withdraw $800 million on Monday, the biggest withdrawal on a single day after 9/11 RBI not to increase CRR in its Oct. Monetary Review RBI to cut SLR (statutory liquidity ratio) by 1% to 24% RBI to go for 2 LAF (liquidity adjustment facility) in a single day

Rupee hit a 10 year low to Rs.47 A dollar

FIIs withdraw $800 million on Monday, the biggest withdrawal on a single day after 9/11

RBI not to increase CRR in its Oct. Monetary Review

RBI to cut SLR (statutory liquidity ratio) by 1% to 24%

RBI to go for 2 LAF (liquidity adjustment facility) in a single day

Call money rates up to 15-17% from 6-8% of one week ago ICICI worst hit as its London subsidiary Had purchased Lehman bonds to the tune of Rs. 375 crore IRDA asks TATA-AIG to submit reports on solvency Real estate sector, Hardest hit Could loose 26,000 jobs across the sectors

Call money rates up to 15-17% from 6-8% of one week ago

ICICI worst hit as its London subsidiary Had purchased Lehman bonds to the tune of Rs. 375 crore

IRDA asks TATA-AIG to submit reports on solvency

Real estate sector, Hardest hit

Could loose 26,000 jobs across the sectors

Blessings in Disguise Every tunnels has a ray of hope at its end Crude price dipping Service sector growing at double digit Comparatively insulated Indian mkt. as 2/3 of Indian economy is domestically driven More local investors in equity as a replacement of global one Talent crunched A- Indians can now seek to hire A+ talent

Every tunnels has a ray of hope at its end

Crude price dipping

Service sector growing at double digit

Comparatively insulated Indian mkt. as 2/3 of Indian economy is domestically driven

More local investors in equity as a replacement of global one

Talent crunched A- Indians can now seek to hire A+ talent

My Question Is it good to dwell out taxpayers hard earned money for the losses of those who were playing ROULETTE for long? Is it not the “ privatisation of profits and civilisation of losses? ”

Is it good to dwell out taxpayers hard earned money for the losses of those who were playing ROULETTE for long?

Is it not the “ privatisation of profits and civilisation of losses? ”

Presented By: GUNADITYA SHARMA

GUNADITYA SHARMA