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Malaysia Capital Market Summit Dec2008 Ts Low
The document discusses regaining foreign investor confidence in the aftermath of the global financial crisis. It notes that confidence has evaporated in the banking and financial sector where the crisis began. Market capitalization of major banks has decreased significantly from 30 June 2007 to 2 December 2008, with declines ranging from 21% to 86%. As an example, it shows the dramatic fall in market capitalization of Citigroup from a peak of over $300 billion to less than $20 billion, raising questions about the costs to taxpayers of bailing out banks that are "too big to fail." Rebuilding trust in the financial system will require efforts from markets, governments, regulators, and individuals.
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Malaysia Capital Market Summit Dec2008 Ts Low
- 1. Regaining Foreign InvestorConfidence The Next Steps The 13th Malaysian Capital Market Summit Kuala Lumpur, 4 December 2008 Presentation by: Low Tuck Seng Frey Capital AG 0
- 2. Introduction We focus on the banking and financial sector as this is where it began but most fundamentally because of the global impact, the systemic risks inherent in our financial system and the extreme shocks to-date – are we through the worst or is there more to come? Confidence is fragile and trust has evaporated. Who or what will rebuild this – the markets, Governments, regulators, you, me? IMPORTANT NOTICE This presentation has been prepared by Frey Capital AG (“Frey Capital”) for informational purposes only, and is neither an offer to buy or sell, nor a solicitation of an offer to buy or sell, any security, instrument, or investment, nor solicitation of an offer of any service . The information and opinions expressed in this presentation are based on publicly available information and the information Frey Capital have legally obtained, which Frey Capital believe to be reliable, accurate, and complete. Frey Capital, however, does not guarantee its accuracy and completeness. Furthermore, the information and opinions contained in this presentation may change without prior notice, and may be affected by changes in the initial premises due to, including but not limited to, shifts in the market environment, and/or amendments in accounting and taxation rules and regulations. Copyright of this presentation solely and exclusively belongs to Frey Capital and regardless of the purpose, any reproduction and/or use of this presentation in any shape or form without the prior written consent of Frey Capital is strictly prohibited 1
- 3. Market Capitalisation: MajorBanks (1) Confidence in our banks has evaporated 300,000 USD m 250,000 30/06/2007 200,000 02/12/2008 150,000 100,000 50,000 0 Source: Bloomberg 2
- 4. Market Capitalisation: MajorBanks (2) Market values have decreased by 21% to 86% from 30/06/2007 to 02/12/2008 -21% -41% -44% -56% -56% -64% -64% -68% -67% -67% -71% -71% -75% -75% -80% -86% -86% Source: Bloomberg 3
- 5. A Tale ofTwo Banks Citigroup - M arket Capitalisation USD mio The fall of the Citi ... source: Bl oomberg 300,000 … too big to fail but at what price to the US 250,000 taxpayer and to you and me 200,000 USD mio 150,000 100,000 50,000 0 Sep-2007 Sep-2008 Feb-2007 Feb-2008 Aug-2007 Aug-2008 Dec-2007 Jan-2007 Jun-2007 Jan-2008 Jun-2008 Nov-2007 Nov-2008 Jul-2007 Jul-2008 Apr-2007 Oct-2007 Apr-2008 Oct-2008 May-2007 May-2008 Mar-2007 Mar-2008 St andard Chart ered Bank - M arket Capit alisat ion GBP mio StanChart ... sour ce: Bl oomber g 30,000 ... down 50% even with relatively low 25,000 exposure to structured credit 20,000 GBP mio 15,000 10,000 5,000 0 Sep-2007 Sep-2008 Feb-2007 Feb-2008 Aug-2007 Aug-2008 Dec-2007 Jan-2007 Jun-2007 Jan-2008 Jun-2008 Nov-2007 Nov-2008 Jul-2007 Jul-2008 Apr-2007 Apr-2008 Oct-2007 Oct-2008 May-2007 May-2008 Mar-2007 Mar-2008 4
- 6. Credit USD 3-month Libor vs. Fed Funds Target & OIS - Spread % Very tight credit markets will persist 3.75 source: Bl oomberg 3.5 3.25 US 3-mth Libor vs Fed Funds Target - S D pread 3 US 3-mth Libor vs OIS - S D pread % • Inter-bank market: some easing 2.75 2.5 following extraordinary spikes 2.25 2 • Decimation of securitisation 1.75 1.5 1.25 • Credit rating agencies discredited 1 0.75 • Capital structure and adequacy: shoring 0.5 0.25 up of balance sheets before the 0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 -0.25 recession -0.5 -0.75 • Monoline incapacitation 5
- 7. Risk (1) U SD 3 -m o n t h Lib o r , 3 -m o n t h T-Bills & TED Sp r e a d % (i n v er s ed f o r i l l u s t r a t i o n ) s o u r ce : B l o o m b e r g Risk appetite has been drastically 7 6 reduced 5 4 3 • Flight to quality: what is quality from a 2 1 credit market and equity standpoint 0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 today -1 -2 • Impact on emerging market securities -3 USD 3- m t h Li b o r USD 3- m t h T- Bi l l s (different from Asian crisis) -4 TED Sp r e ad ( i n v e r se d f o r i l l u st r at i o n ) -5 • Financial crisis preceding recession CBOE VIX (SPX Volatility Index) • Debt complexity 90 source: Bl oomberg 85 • Counterparty risk 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 6
- 8. Risk (2) Thepricing of risk today 5yr Credit Default Swap (Senior) Source: Bloomberg 500 450 MALAYS CDSUS S 5Y IA D R CITI CDSUS S 5Y D R 400 GERMAN CDSUS S 5Y D R 350 CHINA CDSUS S 5Y D R 300 UKT CDSUS S 5Y D R 250 200 150 100 50 0 Sep-07 Sep-08 Feb-08 Aug-07 Dec-07 Aug-08 Jun-07 Jan-08 Jun-08 Nov-07 Nov-08 Jul-07 Jul-08 Apr-08 Oct-07 Oct-08 May-07 May-08 Mar-08 7
- 9. Risk (3) UBSin 2004 8
- 10. Cross-border Investment Cross-borderstrategic and SWF interest Round 1: Summer/Autumn 2007 – HoldCo investment, eg GIC into UBS, Merrill Lynch • Round 2: Meaningful well-priced transactions involving subsidiaries and operations GIC buys 9
- 11. Policy and Regulation Knee-jerk reactions generally • Total nationalisation: Northern Rock • Partial nationalization: RBS • Financial support: ING • Acquisition of structured credit portfolios: Fortis, UBS • No action: Lehman (the market shall decide) Regulators remain behind the curve IMF role: Hungary and Iceland to-date BIS: Nothing new. Theoretical framework questioned 10
- 12. Restoring Confidence (1) Investor and public relations • Poor initial delivery from US Treasury. Firm commitments and guarantees, forget economic and financial management theory – the condition is too complex to unravel immediately • Scope for back-tracking Swift, decisive action to stabilise – advanced scenario planning but understand the causes Engage neutral parties Beware the acquisition of structured credit 11
- 13. Restoring Confidence (2) Addressing systemic risk • Immediate measures to release liquidity — Liquidity guarantee (temporary measure) — Injecting equity — CP facility • Short – Medium term — Asset purchases but beware • Medium term — Transparency and valuation — Tightening regulation in certain areas and new regulation — Risk monitoring and management 12
- 14. Contact Details Mr. Tuck Seng Low Managing Director Frey Capital AG Othmarstrasse 8, Address: 8008 Zurich, Switzerland Direct: (41) 44 253 71 88 Mobile: (41) 79 817 46 43 Fax: (41) 44 253 71 89 Email: tslow@freycapital.com 13