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Greenwich Ateb Presentation 21 Oct 2008 Final

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Greenwich Ateb Presentation 21 Oct 2008 Final

  1. 1. 2 0 0 8 The Credit Crunch and its impact on Banking Relationships 21 October, 2008
  2. 2. AGENDA <ul><ul><ul><li>Liquidity Crunch and the Corporate Treasurer </li></ul></ul></ul><ul><ul><ul><li>Liquidity Crunch and the Investor </li></ul></ul></ul><ul><ul><ul><li>Thinking Forward </li></ul></ul></ul><ul><ul><ul><li>Appendix: Greenwich Associates </li></ul></ul></ul>
  3. 3. May you live in interesting times: the curse came true <ul><li>Commodity prices up, or down again? </li></ul><ul><li>Inflation spiking, or moderating again? </li></ul><ul><li>Bear Stearns, Lehman, ML, Fortis, Dexia </li></ul><ul><li>Banking Sector “Bailout” </li></ul><ul><li>Recession or Depression? </li></ul><ul><li>? </li></ul>
  4. 4. Corporate Bond Spreads only match those of 2002/2003 while FI spreads exceed them, highlighting how difficulties in the Financial System will extend the current difficult environment
  5. 5. Responsible for Current Market Turmoil in the United States Government Institutions and Regulators* (471) The U.S. Federal Reserve/Central Bank (341) * U.S. Congress, U.S. Securities and Exchange Commission and U.S. Treasury Department Note: Based off responses from 900 respondents globally Consumers (303) Accounting Regulations (266) The Housing Construction Industry (100) Investment Banks (555) Mortgage Underwriters (533) Rating Agencies (533) Hedge Funds (226) Sellers of Credit Default Industry (203) Nobody is Responsible (5) Other (103)
  6. 6. Responsible for Current Market Turmoil in the United States <ul><li>Other Mentions: </li></ul><ul><li>“ All of the parties that bought poorly written securities or changed their underwriting/risk taking standards.” – Asset Manager, North America </li></ul><ul><li>“ Bush's economic policies.” – Asset Manager, North America </li></ul><ul><li>“ Government policy encouraging lending to low income people and lax lending standards overall.” – Asset Manager, North America </li></ul><ul><li>“ Greed of homebuilders, banks and consumers.” – Asset Manager, Europe </li></ul><ul><li>“ Lack of understanding of underlying risk.” – Asset Manager, Europe </li></ul><ul><li>“ Loose credit policy across the board; free money thanks to Alan and cheap lending by banks based more on asset valuation then credit scoring. Also, consumer desire for goods that led them to borrow to spend so lets blame advertising at the same time.” – Asset Manager, Europe </li></ul><ul><li>“ Many are responsible. We have had low interest rates and low spread for too long. We ended up with all the same positions which were too leveraged.” – Corporate, Europe </li></ul><ul><li>“ Mr. Greenspan, due to his period of easy money and low interest rates.” – Corporate, Europe </li></ul><ul><li>“ Real estate speculators.” - Asset Manager, North America </li></ul><ul><li>“ The cheap money over the last 15years and clearly a misunderstanding in modeling risk this was compounded by rates being keep extremely low and a housing market worldwide that contributed too large a percentage to everyone's GDP.” – Asset Manager, North America </li></ul><ul><li>“ Wrong Compensation Incentives of IB [Investment Banks].” – Asset Manager, Europe </li></ul>
  7. 7. Entity that Inspires Most Confidence in Addressing Current Market Turmoil Note: Based off responses from 882 respondents globally
  8. 8. Level of confidence in the U.S. Federal Reserve’s $700 Billion Bailout Plan Note: Based off responses from 901 respondents globally Europe Asia Pacific North America Latin America
  9. 9. Short Selling of Financial Services Firms Note: Based off responses from 868 respondents globally Do you think short selling of financial services firms should be allowed? Asset Managers Corporates Pensions
  10. 10. A clear majority of companies expect their economies to deteriorate over the next six months, with a positive turn not until 12-18 months out. Expected Length of Time Before Positive Economic Turn 6 Months 2 Years 18 Months 12 Months Note: Based on interviews with 100 U.S. companies in February, and 291 U.S. companies in September of 2008. Longer than 2 years U.S. Companies – September 2008
  11. 11. Expected Length of Time Before Positive Economic Turn Latin America (13) North America (492) Note: Based off responses from 889 respondents globally Global (889) Asia Pacific (84) Europe (310)
  12. 12. Amount of Time Before Equity Markets Hit Bottom Latin America (13) North America (490) Note: Based off responses from 897 respondents globally Global (887) Asia Pacific (84) Europe (310)
  13. 13. Note: Based on interviews with 291 companies in the United States in September 2008. The strongest increase in demand for financial products is for hedging products and funding products . Companies’ expected change in need for funding shows only relatively modest shifts, with expected increases and decreases nearly netting to zero. Need for funding for ongoing operations is up, while need for funding capital expenditures or acquisition finance is flat to down slightly. Expected Change in Need for Funding (% of Companies) Funding for Ongoing Operations Funding for Capital Expenditures Acquisition Finance Structured Finance Hedging Products Increase/Increase Significantly Decrease/Decrease Significantly
  14. 14. The need to find funding for operations increased considerably in the past 6 months…… Feb. 2008 Sept. 2008
  15. 15. …… .but the ability to access sources of funding in the last 6 months has declined dramatically……..
  16. 16. Note: Based on interviews with 242 companies in the United States in September 2008. … ..and funding costs are increasing across the product spectrum
  17. 17. Half of all companies see the merging of Investment Banks into Corporate Bank parents as a positive development Do you have a positive or negative view of the impact of large mergers/acquisitions between commercial and investment banks (i.e. Bank of America / Merrill Lynch and JPMorgan / Bear Stearns) on the final markets?
  18. 18. More than half of all companies expected another major bank to fail before the dramatic government interventions of the past 2 weeks
  19. 19. In judging your banks, solidity, consistency and management skill trump relationship management and “basic banking” skills – for now
  20. 20. The Short View: Credit squeeze outlook Lending officers  said they were continuing to tighten standards, whether on credit cards, prime mortgages, consumer or business loans, even though a strong majority of banks had done this in the second quarter. That implies a squeeze on consumption, and lower investment, as the year goes on. Polling lenders in the eurozone, seemed a little less gloomy, but only on the surface. There were slight decreases in the proportion of banks planning to tighten standards for corporate loans. Furthermore, lending officers said demand for company loans was decreasing and economic risks were putting pressure on them to tighten. In Europe and the US, the cost of insuring against default for investment-grade companies has risen but stayed well below recent highs, while the default risk for high-yield or lower-quality credits has shot up, almost regaining its highs. Spreads payable on speculative-grade credits are at their highest in four months. Financial Times PUBLISHED: AUGUST 14 2008
  21. 21. Tightening of Credit Standards is expected to continue in the USA and Europe Note: Third quarter values are expected Source: ECB and FRB Quarterly Lending Conditions surveys
  22. 22. Both in Europe and the US banks expect loan demand to weaken, but in the US more than before and in Europe less than before Note: Third quarter values are expected Source: ECB and FRB Quarterly Lending Conditions surveys
  23. 23. AGENDA <ul><ul><ul><li>Liquidity Crunch and the Corporate Treasurer </li></ul></ul></ul><ul><ul><ul><li>Liquidity Crunch and the Investor/Markets </li></ul></ul></ul><ul><ul><ul><li>Thinking Forward </li></ul></ul></ul><ul><ul><ul><li>Appendix: Greenwich Associates </li></ul></ul></ul>
  24. 24. 70% of Investors Expect a Recession in the United States February 2008 Limited borrowing capacity for corporates Recession in the United States Global economic downturn Note: Based on responses from 234 global institutions. Total Institutions Asia (ex Japan) Europe North America None of the above
  25. 25. Performance of CDOs and Structured Credit Products has Made more than One Half of Investors Reluctant to Invest in them February 2008 Note: Based on responses from 221 global institutions. Asia (ex Japan) Europe North America Has the performance of CDOs/ structured products made you less likely to invest in these products in the future?
  26. 26. But a Meaningful Minority Plan to Invest in Illiquid Instruments February 2008 Asset-backed commercial paper Agency securities High-yield credit bonds Mortgage-backed securities Note: Based on responses from 128 global institutions. Asset-backed securities Commercial mortgage-backed securities High-yield CDS Distressed debt Leveraged loans Emerging markets bonds Covered bonds Collateralized debt obligations Which illiquid instruments did you or do you plan to invest in? Did you or do you plan to invest in illiquid instruments due to the turmoil in the credit markets?
  27. 27. Systemic and Counterparty Risk Have Become Bigger Concerns February 2008 United States (Q1 2007) Europe (Q2 2007) Global (Q3 2007) Note: Asked of 1,007 U.S. investors from 2/12 – 4/12/07; asked of 1,106 European investors from 5/21 – 7/27/07; asked globally of 251 fixed-income and equity derivative investors from 8/30 – 9/7/07 and 214 from 1/22-2/6/08. Systemic/market risk Credit/default risk Liquidity Counterparty risk Global (Q1 2008) Proportion of Investors Citing Each Factor as a Top Risk
  28. 28. Return expectations for cash investment have declined in the United States following declining interest rates and more conservative portfolio allocations. Note: Based on responses from 95 companies in the United States, 99 in Europe, and 66 in Asia from February 2008 and 678 in the United States from April through June 2007, 100 in Europe and 174 in Asia from August through November 2007. United States Europe Asia February 2008 February 2008 February 2008 October 2007 October 2007 May 2007 Target Annual Return on Cash Investments
  29. 29. U.S. companies are shifting more cash investment into higher-rated securities. Note: Based on responses from 65 companies the United States from February 2008 and 617 from April through June 2007. AAA/Aaa AA/Aa No Ratings/Other February 2008 May 2007 A/A BBB/Baa BB/BA or below Cash Portfolio Allocation US companies
  30. 30. European companies have shifted cash investments toward lower-rated/higher-yielding securities. Note: Based on responses from 53 companies in Europe from February 2008 and 110 from August through November 2006. AAA/Aaa AA/Aa No Ratings/Other February 2008 October 2007 A/A BBB/Baa BB/BA or below Cash Portfolio Allocation European companies
  31. 31. Similar to U.S. companies, Asian firms have moved toward higher-rated securities for cash investments. Note: Based on responses from 36 companies in Asia from February 2008 and 247 from August through November 2006. AAA/Aaa AA/Aa No Ratings/Other A/A BBB/Baa BB/BA or below February 2008 October 2007 Cash Portfolio Allocation Asian companies
  32. 32. AGENDA <ul><ul><ul><li>Liquidity Crunch and the Corporate Treasurer </li></ul></ul></ul><ul><ul><ul><li>Liquidity Crunch and the Investor/Markets </li></ul></ul></ul><ul><ul><ul><li>Thinking Forward </li></ul></ul></ul><ul><ul><ul><li>Appendix: Greenwich Associates </li></ul></ul></ul>
  33. 33. Changes in availability and cost of external funding will trigger fundamental changes in companies’ funding strategies <ul><ul><li>Funding costs have soared and access is getting harder </li></ul></ul><ul><ul><li>Banks are revisiting client lists and rethinking who they make commitments to </li></ul></ul><ul><ul><li>Companies will need to change the way in which they manage their bank relationships </li></ul></ul><ul><ul><li>More consistent access to capital markets requires a different approach to debt capital markets providers and investors </li></ul></ul><ul><ul><li>New tools and payments options coming on-stream </li></ul></ul><ul><ul><li>What you should think about next…… </li></ul></ul>
  34. 34. Thinking Forward: Are You Prepared? <ul><li>Questions to ask oneself: </li></ul><ul><ul><li>How to demonstrate credit quality to banks </li></ul></ul><ul><ul><li>Fund with Equity rather than debt? </li></ul></ul><ul><ul><li>How do I need to adapt my communication with bond holders to improve access to public markets? </li></ul></ul><ul><ul><li>Has the ability of our business to generate funds internally deteriorated relative to the competition. Do we have better or worse access to funding than competitors? </li></ul></ul><ul><li>Factors to consider </li></ul><ul><ul><li>More limited funding options (sources and structures of capital) </li></ul></ul><ul><ul><li>Nervous intermediaries </li></ul></ul><ul><ul><li>Which banks demonstrate a consistent and ongoing commitment to corporate clients despite the credit crisis? </li></ul></ul><ul><ul><li>Are there unexamined exposures in the asset side of my balance sheet from bank counterparty risk? </li></ul></ul>
  35. 35. AGENDA <ul><ul><ul><li>Liquidity Crunch and the Corporate Treasurer </li></ul></ul></ul><ul><ul><ul><li>Liquidity Crunch and the Investor </li></ul></ul></ul><ul><ul><ul><li>Thinking Forward </li></ul></ul></ul><ul><ul><ul><li>Appendix: Greenwich Associates </li></ul></ul></ul>
  36. 36. Provide decision-makers in institutional financial markets with market intelligence and expert advice - based on proprietary, comprehensive market research and in-depth analysis Provide consistent quantitative and qualitative metrics to improve customer/provider relationship management and promote greater efficiency in the markets Corporate Banking, Investment Banking, Cash Management, Foreign Exchange, Derivatives, Fixed Income, Brokerage, Asset Management Offices in Stamford (USA), Tokyo, Singapore, London and Toronto Standardized ongoing programs as well as tailored studies The Greenwich Associates Mission
  37. 37. Buy-Side Services Sell-Side Services Our Business Model Greenwich Associates’ principal focus is monitoring and analyzing the relationship dynamics between buyers and sellers of financial services. <ul><li>Peer-Based Compensation </li></ul><ul><li>Greenwich Rankings </li></ul><ul><li>Market Trends Analysis </li></ul><ul><li>Peer Benchmarks/Best Practices </li></ul><ul><li>“ Hot Topic” Research </li></ul><ul><li>Customized Research </li></ul><ul><li>Consulting Services </li></ul><ul><li>Consulting Services </li></ul><ul><li>Competitive Positioning </li></ul><ul><li>Customer Behavior </li></ul><ul><li>Customer Satisfaction </li></ul><ul><li>Best Practices </li></ul><ul><li>Market Trends Analysis </li></ul><ul><li>Account-level Reporting </li></ul><ul><li>Custom Research </li></ul>Greenwich Associates <ul><li>Over 30 years of experience </li></ul><ul><li>40,000 Research Partner relationships in over 70 countries </li></ul><ul><li>Provide consulting advisory solutions to over 250 clients globally </li></ul><ul><li>Over 100 research programs underwritten by Greenwich annually </li></ul>
  38. 38. Value Exchange Greenwich produces high quality, relevant, and actionable financial industry intelligence. Market-driven feedback results in confident business decision-making based on objective information. Professional Interviews Value Delivered <ul><li>Greenwich Report </li></ul><ul><li>Online access to extensive research library </li></ul><ul><li>Customized research </li></ul><ul><li>Direct feedback to service providers </li></ul><ul><li>Relevant questions </li></ul><ul><li>Experienced Executive Interviewers </li></ul><ul><li>Flexible interviewing methods </li></ul><ul><ul><li>In-person </li></ul></ul><ul><ul><li>Telephone </li></ul></ul><ul><ul><li>Internet </li></ul></ul><ul><li>Institutional and individual focus </li></ul><ul><li>Continuous market feedback sets research agenda </li></ul><ul><li>Research Partner support: </li></ul><ul><ul><li>Executive Interviewer </li></ul></ul><ul><ul><li>Customer Service </li></ul></ul><ul><ul><li>Community Manager </li></ul></ul><ul><ul><li>Lead Consultant </li></ul></ul>Relevant Actionable Timely Relationship Management

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