Credit Suisse Bear Stearns

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Credit Suisse Bear Stearns

  1. 1. The Bear Stearns Companies Inc. Samuel L. Molinaro Jr. ChiefOperating Officer & Chief Financial Officer Credit Suisse Financial Services Forum February 8, 2008
  2. 2. 2 Fundamental strength and revenue generating capacity of the franchise remains intact Reduced risk and balance sheet Enhanced liquidity profile Expense discipline remains intact Continue to invest to optimize growth potential and diversification Strategic Focus: Continue to Grow and Diversify the Franchise Strategic Focus: Continue to Grow and Diversify the Franchise
  3. 3. 3 International net revenues were over 25% of firm-wide net revenues versus less than 15% in 2006 Equity oriented businesses reported record revenues −Institutional Equities, Global Clearing Services, and Private Client Services net revenues up > 10% −Full year records in International Equities, Equity Derivatives and Prime Brokerage Weakness largely confined to Fixed Income −Mortgages / complex structured securities were very high profile areas of stress −Credit Trading was off from a record year in 2006 −Rates and FX had a strong year Fourth quarter loss is disappointing ─Only loss quarter in the Firm’s history as a public company (22 years) Significant expense rationalization in progress Fiscal Year 2007 Performance PointsFiscal Year 2007 Performance Points
  4. 4. 4 Bear Stearns Has a Record of Delivering Long Term Performance Growth Bear Stearns Has a Record of Delivering Long Term Performance Growth $143 $295 $362 $387 $241 $491 $613 $660 $673 $773 $619 $878 $1,156 $1,345 $1,462 $2,054 $233 $1,239 $1,844 $2,143 $2,417 $2,075 $2,983 $3,526 $4,341 $4,502 $5,476 $4,907 $5,994 $6,813 $7,411 $8,690 $0 $2,500 $5,000 $7,500 $10,000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Net Income Net Revenue (1) Net Revenues and Net Income Millions Note: 1990-1998 yearsended June 30. [1] Excludes $2.3billion in net inventory write-downs on mortgage-relatedassets, valuationadjustments of $260 million related to leverage finance activity and investment and fee write- downs related to the BSAMhigh-grade funds of $170 million. $5,945 CAGR 1996 - 2006 2001 - 2006 Net Revenues 11% 13% Net Income 15% 27% $5,128 $9,227
  5. 5. 5 Tale of Two HalvesTale of Two Halves Second Half 2007 – Very Difficult Operating Environment Two Key Performance Issues – CDOs & Mortgage Hedges Bear Stearns franchise remains solid 1H07 2H07 % Net Revenues ($M) 4,994 952 -81% Pre-Tax Income ($M) 1,606 (1,196) -174% Net Income ($M) 1,040 (683) -166% EPS 7.22 (4.81) -167% Pre-tax Margin 32.2% n/m n/m Income statement data presented on an operating basis, which excludes the effect of the $227.5MM pre-tax non-cash charge related to the writedown of goodwill in relation to Bear Wagner Specialists in 2Q07.
  6. 6. 6 $0 $1 $2 $3 $4 $5 International Global Equities Inv Banking Wealth Mgmt Fixed Income 2005 2006 2007 Strong Performance Across the Franchise Away from Fixed Income Strong Performance Across the Franchise Away from Fixed Income Net Revenue Trends (2005-2007) Billions [1] International net revenues shown on a location basis, [2] excludes merchant banking related revenues, [3] excludes investment and fee write-downs related to the BSAMhigh-grade funds, [4] excludes net inventory write-downs on mortgage-related assets, and valuation adjustments related to leverage finance activity. [1] [3] [4] 60% 36% 27% 47% -1% [2]
  7. 7. 7 Prudent Balance Sheet ManagementPrudent Balance Sheet Management Balance sheet reduced to $395 billion at 4Q07 from $423 billion at 2Q07 Capital position is strong Balance sheet liquidity substantially improved Reduction in higher risk asset categories such as leveraged finance and subprime / CDOs Retained interests declined 17% to $8.0 billion at year end from $9.6 billion at 3Q07 −Non-Investment Grade retained interests decreased to $1.3 billion
  8. 8. 8 $6.9 $8.0 $9.0 $10.8 $12.1 $11.8 $0 $25 $50 $75 $100 2002 2003 2004 2005 2006 2007 Equity Long-term Debt Billions Long-termDebt and Equity A Strong and Growing Capital BaseA Strong and Growing Capital Base CAGR 21% [1] Includesannounced $1 billion CITIC investment in trust preferred securities $81.3 $30.6 [1] $66.7
  9. 9. 9 Represents funding for assets away from traditional Fixed Income repo activity Funding Mix Shifts to SecuredFunding Mix Shifts to Secured Current Mix is 84% Secured / 16% Unsecured ($ in millions) November 30, 2007 May 31, 2007 November 30, 2006 y-o-y % Domestic Repo (1) 24,916 16,650 3,300 655% Foreign Repo (1) 2,974 2,802 816 264% Bank Loans - Secured 5,104 1,934 1,386 268% Subtotal Secured 32,994 21,386 5,502 500% Bank Loans - Unsecured 3,126 331 1,664 88% CP & Short MTNs 5,774 12,846 21,028 -73% Other Unsecured 1,311 1,243 1,535 -15% Subtotal Unsecured (2) 10,211 14,420 24,227 -58% Total Secured & Unsecured 43,205 35,806 29,729 45% Secured 76% 60% 19% Unsecured 24% 40% 81% (1) Consisting primarily of Equity and Corporate Securities (2) Excludes unsecured letters of credit
  10. 10. 10 Initiated change in funding framework in September 2006 Goal to fund virtually all inventory either in secured markets or with cash capital Reduced reliance on unsecured short-term funding − Commercial paper outstanding was $3.9B at 2007 year end Significantly increased use of secured term funding Materially increased Parent Company Liquidity Pool (PCLP) − $17.4B at 2007 year end Liquidity Profile is EnhancedLiquidity Profile is Enhanced - 5,000 10,000 15,000 20,000 25,000 4Q06 1Q07 2Q07 3Q07 4Q07 $inmillions CP & Unsecured Bank Loans PCO Cash Liquidity Pool
  11. 11. 11 $2,072$755Total ABS CDO-Related Exposures $944$0Total CDO Warehouse $1,128$755Total ABS CDO Exposure $165-$10TOTAL Below-AAA Exposure $963$765TOTAL AAA - Super Senior Exposure $19$1CDO^2 Collateral $778$597Mezz Collateral $166$167High - Grade Collateral AUG 31 2007NOV 30 2007 ($ millions) AAA - Super Senior Exposure: $1,119-$582Total US Subprime Mortgage Exposure -$1,711-$2,351ABS CDS $313$211Non-IG Subprime Securities $1,245$1,062IG Subprime Securities $1,272$496 US Subprime Mortgage Exposure Subprime Whole Loans Note: May not add due to rounding. CDO and Sub-prime Risk Exposures have been Significantly Reduced CDO and Sub-prime Risk Exposures have been Significantly Reduced
  12. 12. 12 Level III AssetsLevel III Assets August 31, 2007 $20.3 billion November 30, 2007 $28.2 billion Residential $5.8 Distressed $2.5 Lev. Loans $3.1 Commercial $4.5 Alt. Inv. $2.4 Derivatives $2.0 CDOs, $1.7 Residential $7.5 Commercial $9.5 Distressed $2.1 Lev. Loans $2.7 Derivatives $2.3 Alt. Inv. $2.4
  13. 13. 13 $0.5 $7.6 $20.8 2Q07 3Q 07 4Q 07 Billions Contingent Commitments Leveraged Finance Pipeline has been Significantly Reduced Leveraged Finance Pipeline has been Significantly Reduced
  14. 14. 14 Commercial MortgagesCommercial Mortgages Year-end 2007 commercial whole loan inventory was approximately $15 billion − $12 billion in floating rate − $3 billion in fixed rate Hospitality 57% Office 20% Retail 6% Other 17% US 69% Europe 17% Asia 14% Location2Property Type1 Note: Property Type, Location and WALTV all as of January 16, 2008 [1] Property type excludes credit facilities [2] Locationanalysis excludes Hilton transaction WA LTV = 70%
  15. 15. 15 Risk Policy Committee Executive Committee Principal Activities Committee Credit Policy Committee Bear Energy Committee Trading Risk Committee Division-level Risk Committees Enhanced Risk Management StructureEnhanced Risk Management Structure Senior level risk committee, headed by Chief Risk Officer governs all credit and market risks including risk appetite, policies, setting limits and strategic risk assessment Maintains active dialog with all businesses throughout the firm Reports directly to CFO CEO is intimately engaged in the risk management process Maintain traditional risk culture, enhance risk management oversight
  16. 16. 16 Strategic ObjectivesStrategic Objectives Improve geographic diversification − Europe − Asia − Latin America Expand global client base Increase wallet share with key client segments Diversify product capabilities and revenues Expand high Return-on-Equity businesses
  17. 17. 17 Global Equities DivisionGlobal Equities Division Record net revenues in 2007 Merger of cash, derivative and clearance businesses Leverage a larger and highly regarded sales force International expansion of prime brokerage services Leading research provider Record International institutional equities net revenues, 36% of firm institutional equity revenues Record Global Clearing Services net revenues $0 $1,000 $2,000 $3,000 $4,000 2003 2004 2005 2006 2007 Global Clearing Services Instutional Equities Capitalizing on the strength of existing businesses and the scale of a global platform CAGR = 19% Net Revenues Millions
  18. 18. 18 Global Equity Division – Industry Recognition Global Equity Division – Industry Recognition 722StarMine Analyst Award 321*Alpha - All America Research Team (Hedge Funds onl y) --1Greenwich Qualit yIndex - Best Sales Professional Support --1Greenwich Qualit yIndex - Most Intensive Service 442Institutional Investor - All America Research Team 200520062007Equity Research 3Global Custodian - Prime Brokerage Survey- Overall 1Global Custodian - Prime Brokerage Survey- Financing 3Global Custodian - Prime Brokerage Survey- Reporting 3Global Custodian - Prime Brokerage Survey- Technology 1Lipper HedgeW orld - Prime Broker by Assets of US Funds 2Lipper HedgeW orld - Prime Broker for all Funds 2007Prime Broker / Clearing 1Alpha - Trading Expertise - Hedge Funds (AUM>$5B) 1Alpha - Traditional Execution - Hedge Funds (AUM>$5B) 2Alpha - Trading Expertise and Market Knowledge 2007Trading 1Alpha - Algorithmic Trading - Hedge Funds (AUM $500M-$1B) 3Alpha - Electronic Trading/DMA - HF(AUM $1B-$5B) 2007Electronic/Algorithmic Trading 121Institutional Investor - All America Best Sales Force 200520062007Sales * - reflects r ank through day 2 of voting
  19. 19. 19 Building a Multi-faceted Energy FranchiseBuilding a Multi-faceted Energy Franchise Merchant Business − Transacting in natural gas, electricity, coal, emissions and derivatives − North America and Europe − Clients include natural players, hedge funds and financial sponsors Principal Business − Arroyo Energy Investors • Since inception has generated over $150 million in net revenues Trading natural gas and power in every U.S. market Williams transaction benefits every area of our energy franchise − Approximately $500 million purchase price − Purchased portfolio of 6 physical power plant tolls and power contracts covering 7,500 Mw of gas fired capacity
  20. 20. 20 Fixed Income Net RevenuesFixed Income Net Revenues $1.91 $2.91 $3.15 $3.29 $0.69 $4.19 $3.25 $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 2002 2003 2004 2005 2006 2007 [1] Billions $3.1 billion average net revenues from 2002 to 2007 1 (1) Excludes $2.3billion in net inventory write-downs on mortgage-relatedassets and valuation adjustments of $260 million related to leverage finance activity
  21. 21. 21 Core Fixed Income Earnings Capacity Remains Strong and Diversified Core Fixed Income Earnings Capacity Remains Strong and Diversified Mortgage − Diversified mortgage platform − Significant distressed franchise − Secondary trading opportunities Credit − Capitalizing on secular growth of credit products − Strong distressed debt business − Leveraged finance commitments contained, capabilities intact Interest Rates − Development of global interest rate, foreign exchange and futures businesses − Emerging markets effort restructured and expanded International − Building sales capabilities and product development E M C / M A X 14% M B S 14% O the r 11% R a te s 19% F I S ales 2 0% C redit 2 2% Net Revenues 2007 [1] Excludes net inventory write-downs of $2.35billion on mortgage-related assets [2] excludes valuation adjustments of $260 million related to leverage finance activity. [1] [2]
  22. 22. 22 Investment Banking - Strategic Investments Plant Seeds that Continue to Grow Investment Banking - Strategic Investments Plant Seeds that Continue to Grow Core investment banking net revenues have grown at a 10% compounded annual rate since 2003 Balanced portfolio of large- and mid-cap corporate clients as well as financial sponsors − Strategic dialogueincreasing − Financial Sponsor wallet share increased and better positioned Adding local coverage to extend industry expertise internationally Merchant banking delivers significant fees and principal gains across cycles $0 $500 $1,000 $1,500 2003 2004 2005 2006 2007 Merchant Banking Underwriting & Advisory Net Revenues Millions
  23. 23. 23 Wealth ManagementWealth Management Private Client Services − Record net revenues in 2007 − Among the highest producing brokers in the industry − Increasing share of revenues fromfee based assets Asset Management − Reshaping the franchise • Identifying successful products and strategies • Exiting non-core funds • Focus on new product development • Expanding geographically − Risk Management • Integrated with firm $0 $250 $500 $750 $1,000 $1,250 2003 2004 2005 2006 2007 Asset Management Private Client Services CAGR = 18% Net Revenues Millions [1] includes $170 million in write-downs related to the BSAMhigh-grade funds $392
  24. 24. 24 $50 $79 $101 $169 $219 $379 $442 $453 $522 $602 $0 $100 $200 $300 $400 $500 $600 $700 2003 2004 2005 2006 2007 Fee Revenue Private Client Results Reflect Increased Efficiency and Higher Recurring Revenues Private Client Results Reflect Increased Efficiency and Higher Recurring Revenues Millions Net Revenues # of Brokers: 499 473 505 501 498
  25. 25. 25 Asset Management Building on Successful Products for Profitability and Growth Asset Management Building on Successful Products for Profitability and Growth $0 $10 $20 $30 $40 $50 $60 2003 2004 2005 2006 2007 Traditional Equity Fixed Income/Cash Hedge Funds Private Equity Merchant Banking Stratis PCS Broker Managed Assets Under Management Billions $133 $398 $0 $125 $250 $375 $500 2003 2004 2005 2006 2007 (1) Net Revenues Millions (1) Includes$170 million in write-downs related to the BSAM high-grade funds. $44.6
  26. 26. 26 Significant International Growth Opportunity Significant International Growth Opportunity Four consecutive years of record revenues Expanding global equity franchise − Derivatives − Research − Sales & Trading − Prime Brokerage Expanding global fixed income franchise − Credit − Rates − Mortgages New offices in 2007 − Paris and Frankfurt International Net Revenues1 $0 $250 $500 $750 $1,000 $1,250 $1,500 $1,750 2002 2003 2004 2005 2006 2007 Millions CAGR = 34% [1] International net revenues shown on a location basis
  27. 27. 27 Bear Stearns and CITIC SecuritiesBear Stearns and CITIC Securities Three Components to the transaction −Close collaboration in China for new capital markets businesses −Exclusive ex-China, Hong Kong-based, joint venture −$1 billion cross-investments Benefits to Bear Stearns: −Touches every business −Transformational for Asia business, accelerates our already rapid growth −Clients gain access to China and pan-Asian investment opportunities −Development of capital markets business −People, systems and relationships
  28. 28. 28 Continue to Manage with Long-term FocusContinue to Manage with Long-term Focus Market environment likely to remain challenging in the near term Global Equities Division continues to see favorable opportunities Diversification of fixed income benefits rates and credits Distressed MBS opportunity will be available Continue to focus on strategic priorities Manage costs aggressively − Cost right-sized to revenue environment Manage balance sheet prudently
  29. 29. 29 Certain statements contained in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those forward-looking statements. Numerous factors may affect our business, including but not limited to interest rates, market conditions, transactions included in our backlog failing to close, general economic conditions in the US or other geographic regions that may suffer economic downturns. For a fuller discussion of these risks see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Management” in the Company’s Annual Report to Stockholders, which has been filed with the Securities and Exchange Commission. The information in this document is provided by Bear Stearns for informational purposes only, and should be considered current only as of the date of its initial publication, without regard to the date on which you may actually review the information.
  30. 30. The Bear Stearns Companies Inc. Samuel L. Molinaro Jr. ChiefOperating Officer & Chief Financial Officer Credit Suisse Financial Services Forum February 8, 2008

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