Currency Chaos June 9 2010 T Bird Webcast Final Distribution

AGENDA
Introduction
Wolfgang Koester, CEO, FIREapps
The Euro Crisis: how did we get here?
Professor John Mathis, Thunderbird School of Global Management
FX Impact on Corporations
Wolfgang Koester
Your Corporation: how this impacts You
Corey Edens, Chief Product Officer, FiREapps
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CONGRATULATIONS!
Your company survived the biggest economic
downturn since the great depression.
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YOU MADE CUTS
… and are doing more with less
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THEN ALONG COMES
THE EURO CRISIS
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NOW WHAT?
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THE EURO CRISIS
How did we get here?
Dr. F. John Mathis, Thunderbird School of Global Management
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JANUARY 1, 1999: BIRTH OF THE EURO AND EMU
Fundamental structural issues with the euro set the stage for today’s crisis
Conflicts
Monetary vs. Fiscal Policy
European Central Bank (ECB) has responsibility for monetary policy;
individual central banks retained fiscal policy responsibilities
Problem
No authority to:
• Tax
• Spend
• Enforce actions/impose penalties for non-compliance
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ACTIONS SPEAK LOUDER THAN WORDS
Original Euro Zone Member Breaches
Source: 2009 CIA World Fact Book
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WHERE DID WE COME FROM?
A Bumpy ride… euro’s limitations are stressed, but the euro survived.
April 2009 Greek crisis pushes the euro to a breaking point.
7/15/08 - Euro sets record high of $1.6038 after U.S. government support for Fannie Mae & Freddie Mac fails to quell concerns about wider U.S. financial stability.
10/31/07 - Euro climbs above $1.45, for first time. U.S. Fed announces a 25 basis point cut in its key interest rate to 4.5%.
Oct 2009- US headlines discuss ‘demise of the US Dollar’ as a world currency
Dec 2008- ECB Expected to lower interest rates by 50 bhp
April 2009- Greek debt crisis turns speculation to Euro decline and break-up
Oct 2008- ‘Flight to safety:’ US dollar rallies as financial crisis goes global
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THE TURNING POINT:
SEPTEMBER, 2008
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2008 EUROPE STARTED FACING THE BIGGEST GDP DECLINE SINCE THE GREAT DEPRESSION
Source: Association for Finance Professionals, May 2009
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EURO GOVERNMENTS STEP IN TO STABILIZE THE FINANCIAL SECTOR, INCREASING DEBT
“Less than half of the total amounts committed [to stimulus] had been effectively used”
– ECB, April 2010
Source: European Central Bank, OCP N109, April 2010
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GREEK’S DEFICIT AND DEBT FORCE THE
EUROZONE TO TAKE ACTION
Source: Association for Finance Professionals, March-April 2009
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PIGS* IN DEBT:
A TANGLED WEB THAT TRAPS ALL OF EUROPE
* Portugal, Spain, Italy, Ireland, Greece
Source: New York Times, May 1, 2010
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FRANCE, GERMANY & THE UK CARRY THE LOAD
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RESULTING IN DEBT AND DEFICITS ACROSS THE EURO ZONE
Euro deficit limit: 3% ● Euro debt to GDP limit: 60%
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EVEN THE ECB SEES IT
GETTING WORSE
“The euro zone deficit will climb to 7%
in 2010”
“…by then, all euro countries will exceed the 3% deficit limit”
Source: European Central Bank, OCP N109, April 2010
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A VICIOUS CYCLE OF GROWING DEBT AND DECLINING GDP, EXACERBATED BY GROWING LIABILITIES
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KEY THEMES
ECB hasno authority
EU Membershavedifferent agendas
European? Yes. Union? No.
No commonPurpose/Identity/Language/Culture
Increasing debt becomes avicious cycle
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OUR TAKE
ECB lacks authority to solve the problemToo late toaddress structure when thehouse is on fire
Creating a federalized fiscal union in Sept 08 would have addressed this issue
Only thestrongest countries can address thestructural issues bypulling out of the euro
Lacking the ability to eject PIGS
Trigger Event forStructural Euro Change
Greek non-compliance in 12-18 months
Spain bailout deemed too expensive
…
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THE EUROPEAN PROBLEM IS
BECOMING GLOBAL
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GLOBAL EXAMPLES…
… May 2010 Thai Bhat falls to 8-month low
Debate over Chinese Yuan peg continues…
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INCREASED VOLATILITY & SUDDEN CURRENCY SHIFTS ARE THE NEW NORM
USD Volatility DEC 2007 – May 2010
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FX IMPACT ON CORPORATIONS
Where are we now?
Wolfgang Koester, CEO, FiREapps
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FX IMPACTS CORPORATE FINANCIAL
PERFORMANCE THROUGHTOUT
THE INCOME STATEMENT
- 26 -

MULTINATIONALS ARE INCREASINGLY SUSTAINING
EPS IMPACTS DUE TO FX VOLATILITY
Companies reporting unexpected FX gains or losses in Q1 are signaling
+ Lack of risk management expertise
+ Less predictable margins
+ Less predictable net income
= Lack of EPS predictability, resulting in decreased shareholder value
Q2 earnings releases report significant FX impacts
Corporate stocks already starting to devalue
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THE MARKET IS ALREADY REACTING
Stock down 14% on Q2 guidance due to declining euro despite strong Q1 revenue and profit growth
Other suspects
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MOST HAVE REPORTED MATERIAL FX IMPACTS
59% of companies surveyed experienced a material FX gain/loss in 2009* (45% increase)
*2010 FiREapps/SunGard FX Exposure Management Practices Survey
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THEY DON’T KNOW WHAT THEY DON’T KNOW
*2010 FiREapps/SunGard FX Exposure Management Practices Survey
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YOUR CORPORATION
How This Impacts You
Corey Edens, Chief Product Officer, FiREapps
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UPS & DOWNS ALWAYS OCCUR
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THIS IS DIFFERENT
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X
THERE IS NO LONGER A “FREE PASS” FOR
UNANTICIPATED FX IMPACTS
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FX WILL HAVE A SIGNIFICANTLY GREATER IMPACT ONCORPORATE FINANCIAL PERFORMANCE THAN IT HAS IN THE PAST
…meaning that corporate risk managers have to
work smarter and harder
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MAINTAINING CURRENT COURSE
…is ill-advised
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SOLUTION: UNDERSTAND YOUR TRUE ECONOMIC AND ACCOUNTING EXPOSURE
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MOTHERHOOD & APPLE PIE:
THE STANDARD EXPOSURE MANAGEMENT PROCESS
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KEYS TO SUCCESS:
WORKING SMARTER REQUIRES AN ENGINE (NOT A PADDLE)
Look at past results
Double your worst Quarterly FX lossin the last two years
Is that result acceptable?
If so, there’s no need for concern
Otherwise
Dig in to understand above-the-line and below-the-line exposures
Take definitive action to protect yourself
Structural
Operational
Financially (e.g. derivatives)
Process Automationenables companies to reduce the cost and risk of foreign exchange
Data
Process
Analytics
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KEY TAKEAWAYS
We’re entering a new era of FX unpredictability
Theold rules no longer apply
The old tools (systems and processes)aren’t good enough
Tosurvive, companies must understand their
FX exposure&manage their risk
Complete data, timely analysis & transparent processes
Takedefinitive action
Structural, operational and financial
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Currency Chaos June 9 2010 T Bird Webcast Final Distribution

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