The way out ...

1. Patrick Hines
Principal
FSX – DALLAS
JANUARY 25, 2012

2. WHAT HAPPENED?
WHERE ARE WE ?
MOVING FORWARD…

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GROWTH OF ECONOMY
FUELED BY BANK LOANS

4. LENDING STANDARDS TAKEN OFF
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5. LENDING TOOK OFF !
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6. BANKS LENT
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UNTIL WE RAN OUT OF CASH

9. THE GREAT
RECESSION
No liquidity
Inability to repay debt

10. BANKING
DISAPEARED
BECAME PAPER MILLS

11. AND…
YOUR FRIENDLY
BANK ?

13. Banks Brokerages
Relationship Driven Transaction Driven
Separated by Glass Steagall

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GOBBLED UP

15. Number of Banks Fall !

17. Old” Bank Balance Sheet
CASH
DEPOSITS
Loans
DEBT
Other Assets Capital

18. “SECURITZATION”
BANKS SELL LOANS
CREATE OFF BOOK

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20. OFF BOOK…
• CDO – collateralized debt obligation
• CMO - collateralized mortgage obligation
• Synthetic CDO – (see above)
• CBO – collateralized bond obligation
• CIO - collateralized insurance obligation
• Structured Finance
– asset backed securities

21. “New” Bank Balance Sheet
CASH DEPOSITS
Loans
DEBT
OFF BOOK
Capital (Net Worth)

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CASH
MORTGAGE PAPER
$

23. THE NEW
BANKERS

24. YOUNG - ATTRACTIVE
TRANSACTION DRIVEN

26. CREATE PAPER

28. THAT THEY SELL
•
TO WALL STREET

29. TRULY A PONZI

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31. Banks combine with brokers
Become transaction or fee driven
Relationship banking dies

33. THE BANKARAGES

34. Institution Weiss Rating Weiss Rating S&P Rating
Name Definition
Bank of D Weak A-
America
Bank of New C Fair AA-
York Mellon
BNY Mellon NA B- Good AA-
Citibank NA C Fair A-
HSBC Bank C Fair AA-
USA NA
JPMorgan D Weak A+
Chase Bank NA
Wells Fargo D Weak AA-
Bank NA

35. THE
RESULT ?

36. Access to bank
Capital limited

37. HOW CAN WE MOVE FORWARD ?

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Lessons from history

39. The Great
Depression
DEPTH IN „32

40. NATIONAL INTEREST
WAS
UNIFIED

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SAVINGS GREW 300%

45. INCREASED ECONOMY’S
CASH
CAPITAL
LIQUIDITY

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47. LENDING AND INVESTMENT
INCREASED

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US ECONOMY TOOK OFF

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TAKE
CONTROL

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52. BOTTOM LINE
THE MANY GREAT IDEAS IN THIS ROOM
LACK ACCESS TO BANK CAPITAL

53. THE OPPORTUNITY IS IN THIS ROOM
TO GENERATE RETURN
CREATE VALUE

55. FED COMPRESSINIG INTEREST RATES
TRYING TO MANAGE THE ECONOMY

56. IT IS A NEW WORLD
U.S. Treasury Yields
1 Year 0.02%
2 Year 0.11%
5 Year 0.84%
10 Year 1.96%
30 Year 3.03%

57. THE BANK ENVIORNMENT
• Standard CD Rates if you Open Online
• Minimum Deposit $2,500
• 3months 0.05%
• 6months 0.05%
• 1year 0.05%
• So $100,000 x 0.05% = $5,000 pre tax…

58. S&P FOR 2011
VOLITILTY

59. MUNICIPAL BOND RATES
Maturity Yield Yesterday Last Week Last Month
2yr AA 0.61 0.64 0.67 0.69
2yr AAA 0.53 0.57 0.73 0.54
2yr A 0.94 0.94 1.12 1.10
5yr AAA 0.87 0.97 0.96 1.06
5yr AA 1.05 1.08 1.07 1.23
5yr A 1.68 1.40 1.66 1.74
10yr AAA 1.87 1.68 1.87 2.06
10yr AA 2.07 2.10 1.81 2.03
10yr A 2.18 2.40 2.17 2.63
20yr AAA 2.89 3.11 4.30 3.24
20yr AA 4.60 3.78 4.84 4.12
20yr A 4.03 3.87 4.41 4.48

60. Data pro
CORPORATE BOND RATES
Maturity Yield Yesterday Last Week Last Month
2yr AA 0.96 0.97 0.82 1.06
2yr A 1.73 1.69 1.23 1.47
5yr AAA 1.69 1.76 1.55 1.62
5yr AA 2.17 2.06 2.01 2.16
5yr A 2.16 2.23 2.26 2.90
10yr AAA 2.29 2.14 2.10 2.36
10yr AA 3.67 3.59 3.58 3.53
10yr A 3.36 3.21 3.17 3.44
20yr AAA 4.86 4.89 4.34 4.50
20yr AA 5.31 5.34 5.15 3.84
20yr A 5.03 5.05 4.51 4.67

61. Compressed rates create
opportunity for capital

62. WHERE ARE WE NOW ?
Clawing back

68. YOU MUST
CREATE A PLAN

69. To take advantage you must plan
Personal & Business Financial Security Analysis
Tax Management
Investment Strategy Formulation
Estate Tax Reduction and Control
Retirement Planning

71. We did it before
We are doing it again

73. PAT HINES