paul a. summerville, wellington management, united states.ppt

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Wellington Management Company,Wellington Management Company, LLPLLP

©2008 Wellington Management Company, ©2008 Wellington Management Company, LLPLLP. All rights reserved.. All rights reserved.

Paul SummervillePaul SummervilleGlobal Bond TeamGlobal Bond Team

A Sub-Prime Bump in the A Sub-Prime Bump in the Night:Night:Causes and ConsequencesCauses and Consequences

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The importance of asking the little, The importance of asking the little, small questionssmall questions

Sub-Prime CrisisSub-Prime Crisis

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CausesCauses

ConsequencesConsequences

ImplicationsImplications

Sub-Prime CrisisSub-Prime Crisis

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Defeat of CommunismDefeat of Communism

The Great Asia DeflationThe Great Asia Deflation

Sub-Prime Crisis: Sub-Prime Crisis: Two Defining EventsTwo Defining Events

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Loose Monetary PolicyLoose Monetary PolicyAnnual Change, %Annual Change, %

Nominal GDP Nominal GDP Central Bank Policy Rate Central Bank Policy Rate

55

44

33

22

11

66

Source: BCA Research Source: BCA Research 20072007

19981998 19991999 20002000 20012001 20022002 20032003 20042004 20052005 20062006 20072007 20082008

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To get from point A to point B…To get from point A to point B…

New Technology — The Car:New Technology — The Car:Intended ConsequenceIntended Consequence

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Car accidents and pollution…Car accidents and pollution…

New Technology — The Car:New Technology — The Car:Unintended ConsequenceUnintended Consequence

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The Virtuous CircleThe Virtuous Circle

Investors seekInvestors seekhigh yields andhigh yields andhigh credithigh creditratingsratings

Investment Investment banks sell banks sell CDOs and CDOs and CLOsCLOswhich which containcontainembedded embedded leverageleverage

AttractiveAttractivefinancing spursfinancing spursfurther loanfurther loanoriginationorigination

Demand forDemand forsecuritized assetssecuritized assets

increases andincreases andspreads tightenspreads tighten

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Virtuous Circle Turns ViciousVirtuous Circle Turns Vicious

Mark to Mark to

market market losseslosses

Margin Margin calls and calls and forced forced salessales

Liquidity, Liquidity, price price

dislocation dislocation and risk and risk aversion aversion decreasedecrease Increased Increased

hedging hedging activityactivity

Sub-Prime loan losses Sub-Prime loan losses

Rating agency downgradesRating agency downgrades

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Consumption/housing bustConsumption/housing bust


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Inflation boomInflation boom

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Inflation boomInflation boom

Decline in profitability of financial Decline in profitability of financial servicesservices


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Secular Decline in Profitability Secular Decline in Profitability of Financial Servicesof Financial Services

0%

1%

2%

3%

4%

5%

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Source: Wellington Management, Global BondsSource: Wellington Management, Global Bonds

% of % of GDPGDP

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0

5

10

15

20

25

77 81 85 90 94 98 03 07

Secular Decline in Profitability Secular Decline in Profitability of Financial Servicesof Financial Services

S&P 500 Constituents* Financials’ Share of S&P 500 Constituents* Financials’ Share of CapitalizationCapitalization

Source: Empirical Research Partners AnalysisSource: Empirical Research Partners Analysis*Data smoothed on a trailing six-month basis*Data smoothed on a trailing six-month basis

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The Visible Hand — A New Era?The Visible Hand — A New Era?

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Implications for the Insurance Implications for the Insurance IndustryIndustry

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-2.5-2.0-1.5-1.0-0.50.00.51.01.5

79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09

Risk of Declining Standard of Risk of Declining Standard of Living EverywhereLiving Everywhere

Source: Wellington Management, Global BondsSource: Wellington Management, Global Bonds

Global Consumer ConfidenceGlobal Consumer Confidence

DisclosureDisclosureWellington Management Company, Wellington Management Company, LLPLLP is an independently-owned, SEC-registered is an independently-owned, SEC-registered Investment Adviser which, along with its subsidiaries and affiliates Investment Adviser which, along with its subsidiaries and affiliates (collectively, Wellington Management) provides investment management and (collectively, Wellington Management) provides investment management and investment advisory services to institutions around the world. Located in investment advisory services to institutions around the world. Located in Boston, Massachusetts, Wellington Management also has offices in: Atlanta, Boston, Massachusetts, Wellington Management also has offices in: Atlanta, Georgia; Chicago, Illinois; Radnor, Pennsylvania; San Francisco, Georgia; Chicago, Illinois; Radnor, Pennsylvania; San Francisco, California; Beijing; Hong Kong; London; Singapore; Sydney; and Tokyo. California; Beijing; Hong Kong; London; Singapore; Sydney; and Tokyo.

This material is prepared for, and authorized for internal use by, This material is prepared for, and authorized for internal use by, designated institutional and professional investors and their consultants designated institutional and professional investors and their consultants or for such other use as may be authorized by Wellington Management or for such other use as may be authorized by Wellington Management Company, Company, LLPLLP or its affiliates.This material and/or its contents are current or its affiliates.This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or or an offer to sell, or the solicitation of an offer to purchase shares or other securities. Investors should always obtain and read an up-to-date other securities. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for may hold different views and may make different investment decisions for different clients.different clients. ®

As of 4/08As of 4/08

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In Hong Kong, this material is provided by Wellington Global Investment In Hong Kong, this material is provided by Wellington Global Investment Management Limited, a corporation licensed by the Securities and Futures Management Limited, a corporation licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities), Type 4 (advising on Commission to conduct Type 1 (dealing in securities), Type 4 (advising on securities), and Type 9 (asset management) regulated activities, on the securities), and Type 9 (asset management) regulated activities, on the basis that you are a Professional Investor as defined in the Securities and basis that you are a Professional Investor as defined in the Securities and Futures Ordinance. By accepting this material you acknowledge and agree Futures Ordinance. By accepting this material you acknowledge and agree that this material is provided for your use only and that you will not that this material is provided for your use only and that you will not distribute or otherwise make this material available to a person who is not distribute or otherwise make this material available to a person who is not a Professional Investor as defined in the Ordinance. a Professional Investor as defined in the Ordinance.

In Singapore, Wellington Management conducts its financial services In Singapore, Wellington Management conducts its financial services business through Wellington International Management Company Pte Ltd business through Wellington International Management Company Pte Ltd (Registration Number 199504987R).(Registration Number 199504987R).

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In Japan, Wellington International Management Company Pte Ltd has been In Japan, Wellington International Management Company Pte Ltd has been registered as a Financial Instruments Firm with registered number: Director registered as a Financial Instruments Firm with registered number: Director General of Kanto Local Finance Bureau (Kin-Sho) Number 428. Japan General of Kanto Local Finance Bureau (Kin-Sho) Number 428. Japan Securities Investment Advisers Association (JSIAA) Membership Number: 011-Securities Investment Advisers Association (JSIAA) Membership Number: 011-00751.00751.

©2008 Wellington Management Company, ©2008 Wellington Management Company, LLPLLP. All rights reserved.. All rights reserved.

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