the new spectrum for financial markets and management alamgir morshed head of global markets 22...

The New Spectrum for Financial Markets and

Management

Alamgir Morshed

Head of Global Markets

22 December 2009

Part 1: What Went Wrong?

Part 2: The New Order / Changed Priorities

Part 3: Role of financial experts & leaders

Scope of Presentation

What went wrong?

Financial Crisis

Subprime Crisis Problems

What went wrong?

Financial Crisis


Global Effect

What went wrong?

Financial Crisis


Global Effect

Liquidity Crisis

What went wrong?

Financial Crisis Real Economic Crisis


Global Effect

Liquidity Crisis

Stock Markets Crash

What went wrong?



Global Effect

Liquidity Crisis

Stock Markets Crash

Collapse of Big Banks

What went wrong?



Global Effect

Liquidity Crisis

Stock Markets Crash

Collapse of Big Banks

Gloomy Outlook

Chronology of Events

2001 - 2004 2001 : Fed cuts interest rates down to 1%, until 2004 on worries about severe recession Even after tech bubble crash , American consumers continue to spend freely, bouyed by rising

home prices. US Debt on rise, Worldwide asset bubbles building up

The roots of the crisis2001-2004

Long term impact of credit expansion

Globalization of financial markets

Progressive financial deregulation & innovations



Credit Crunch2004-2008




Subprime Crisis

Liquidity Dries Up

Stock Markets Plunge, Major financial institutions fail/bailed out.

2004 - 2008 2006: Subprime Crisis develops. Default rates spike February 2007 : HSBC Subprime write-offs June 2007 : Bears Stearns hedge funds blow up August 2007 : BNP Paribas freezes 3 investment funds. This marked the beginning of the credit

crisis. September 2007 : Interbank liquidity dries up. Northern Rock Bailed out October 2007 : Merrill reports loss of over 8 billion on mortgage related assets. Worldwide losses

so far crossed $500 billion one year into crisis Jan 2008 : BOA acquires Countrywide Financial, largest US mortgage lender. US Fed slashed

rate twice March 2008 : Sudden Collapse of Bear Stearns. Fed arranged takeover by JP Morgan. 90% loss

for Bear’s shareholders June 2008 : Lehman Brothers announces $3 billion loss. Fear grips financial markets



Credit Crunch2004-2008

Bailouts2008




Subprime Crisis

Liquidity Dries Up

Stock Markets Plunge, Major financial institutions fail/bailed out.

2008 July 2008 : Mortgage lender IndyMac collapses. Fed to guarantee debts of Fannie and Freddie.

Congress passes multi- billion dollar program to address mortgage and foreclosure crisis. September 7 : US government seizes control of Fannie and Freddie in $ 200 billion bailout September 15 : Lehman Brothers declares $ 600 billion bankruptcy. Merrill Lynch acquired by

BOA September 17 : Bailout of AIG for $85 billion, Llyods TBS bought HBOS, September 25 : WAMU with assets of $ 307 billion closed down and sold to JPMorgan Chase September 28 : Fed announces $ 700 billion bailout plan September 29 : Icleland takes control of country's third largest bank. US House of Rep rejects

rescue plan. Wall street shares plunge with the Dow plunging 7% , a record one day fall. October : Bailout package passed. Wells Fargo and Wachovia Corp announce merger US Fed continues to slash interest rates. Japan announces $ 276 billion stimulus package. November : Barack Obama elected US President. IMF Predicts Global Recession. Iceland bailed

out by IMF. Fed to inject further $ 800bn into economy December : US in recession from December 2007 is acknowledged

Central Banks step into bailout major institutions

Massive Stimulus measures announced

Total Cost of the Crisis

“U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies” - Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.

Global Credit Crunch has already cost more than $ 10 trillion – IMF Rich countries provided $9.2tn in government support , emerging economies spent $

1.6 trillion Bailout costs : Capital injections - $1.1tn , Purchase of assets - $1.9tn, Guarantees -

$ 4.6tn, Liquidity provision - $ 2.5tn Budget Deficit : G20 – 10.2% of GDP, US – 13.5%, UK – 11.6%, Japan 10.3 % Long Term damage : By 2014 govt debt will reach 239% of GDP in Japan, 132% in

Italy, 112% in the US, and 99.7% in the UK. UK’s debt was only 44% in 2007 Rating agencies have warned if UK debt crosses 100% of GDP they would consider

rating downgrade

Green Shoots

Global Stock Markets are rebounding

DGEN in comparison to Major World Indices

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

8/1/

2008

8/15

/200

8

8/29

/200

8

9/12

/200

8

9/26

/200

8

10/1

0/20

08

10/2

4/20

08

11/7

/200

8

11/2

1/20

08

12/5

/200

8

12/1

9/20

08

1/2/

2009

1/16

/200

9

1/30

/200

9

2/13

/200

9

2/27

/200

9

3/13

/200

9

3/27

/200

9

4/10

/200

9

4/24

/200

9

5/8/

2009

5/22

/200

9

SNP 500 Hang Seng FTSE 100 Nikie 225 DGEN

Green Shoots


Commodity Prices are rising

Green Shoots



Credit Spread has reduced

Green Shoots



Credit Spread has reduced

Positive Forecasts

New World Order

"This economic crisis suddenly awakens us to the fact that this system is not working. When the system is not working that is the best time to undo it and redo it in a new way," – Nobel Laureate Professor Yunus

New World Order

New Reserve Currency

New Economic Powerhouses to emerge

Emergence of Islamic Banking

Financial Assitance for G10 countries ?

Deleverage, De- Globalize, Re-Regulation

Anglo-Saxon model of free reign to FI questioned

Liquidity & Sustainability vs Profitability

Basel II

Savings vs Spending

Credit Ratings questioned

Vigilance, Risk Management, Governance

From liberal to more protectionist, populist politics

Preparedness : Proactive than being reactive

Stronger leadership required

Business education needs to be revamped

Watching out for the Black Swan

Economic Social/Political

BACK TO BASICS

New role of Financial Managers

"As a result of the demands placed on companies by shareholders, regulators and the public at large for increasing financial information, the CFO's role is shifting dramatically from one of transaction manager to communicator and strategist," - Bill Connell, Director of Risk Management for the BOC Group and chairman of IFAC's Financial and Management Accounting Committee (FMAC).

New role of Financial Managers

New Role of Financial Managers: Vigilance: Being Proactive rather than Reactive

Governance : Guardians of the corporate conscience

Risk Management : Mitigation and Transfer

Investor relations and reputation management

Standardized and Fair Value Accounting

Migration of best practices

THANK YOU

the new spectrum for financial markets and management alamgir morshed head of global markets 22...

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