The New Spectrum for Financial Markets and Management

1. The New Spectrum for Financial Markets and Management Alamgir Morshed Head of Global Markets 22 December 2009

2. Scope of Presentation • Part 1: What Went Wrong? • Part 2: The New Order / Changed Priorities • Part 3: Role of financial experts & leaders

3. What went wrong? Financial Crisis • Subprime Crisis Problems

4. What went wrong? Financial Crisis • Subprime Crisis Problems

5. What went wrong? Financial Crisis • Subprime Crisis Problems • Global Effect

6. What went wrong? Financial Crisis • Subprime Crisis Problems • Global Effect • Liquidity Crisis

7. What went wrong? Financial Crisis • Subprime Crisis Problems • Global Effect • Liquidity Crisis

8. What went wrong? Financial Crisis Real Economic Crisis • Stock Markets Crash • Subprime Crisis Problems • Global Effect • Liquidity Crisis

9. What went wrong? Financial Crisis Real Economic Crisis • Stock Markets Crash • Collapse of Big Banks • Subprime Crisis Problems • Global Effect • Liquidity Crisis

10. What went wrong? Financial Crisis Real Economic Crisis • Stock Markets Crash • Collapse of Big Banks • Gloomy Outlook • Subprime Crisis Problems • Global Effect • Liquidity Crisis

11. Chronology of Events The roots of the crisis 2001-2004 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 • Long term impact of credit expansion • Globalization of financial markets • Progressive financial deregulation & innovations

12. Chronology of Events The roots of the crisis 2001-2004 Credit Crunch 2004-2008 • Long term impact of credit expansion • Globalization of financial markets • Progressive financial deregulation & innovations • 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

13. Chronology of Events The roots of the crisis 2001-2004 Credit Crunch 2004-2008 Bailouts 2008 • Central Banks step into bailout major institutions • Massive Stimulus measures announced • Long term impact of credit expansion • Globalization of financial markets • Progressive financial deregulation & innovations • 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

14. 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

15. Green Shoots • Global Stock Markets are rebounding

16. Green Shoots • Global Stock Markets are rebounding • Commodity Prices are rising

17. Green Shoots • Global Stock Markets are rebounding • Commodity Prices are rising • Credit Spread has reduced

18. Green Shoots • Global Stock Markets are rebounding • Commodity Prices are rising • Credit Spread has reduced • Positive Forecasts

19. New World Order FINANCIAL CRISIS: HOW IT HAPPENED "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

20. New World Order Economic Social/Political FINANCIAL CRISIS: HOW IT HAPPENED BACK TO BASICS

21. 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).

22. 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

23. THANK YOU