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The New Spectrum for
Financial Markets and
Management
Alamgir Morshed
Head of Global Markets
22 December 2009
Scope of Presentation
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Part 1: What Went Wrong?
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Part 2: The New Order / Changed Priorities
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Part 3: Role of financial experts & leaders
What went wrong?
Financial Crisis
 Subprime Crisis Problems
What went wrong?
Financial Crisis
 Subprime Crisis Problems
What went wrong?
Financial Crisis
 Subprime Crisis Problems
 Global Effect
What went wrong?
Financial Crisis
 Subprime Crisis Problems
 Global Effect
 Liquidity Crisis
What went wrong?
Financial Crisis
 Subprime Crisis Problems
 Global Effect
 Liquidity Crisis
What went wrong?
Financial Crisis
 Subprime Crisis Problems
 Global Effect
 Liquidity Crisis
Real Economic Crisis
 Stock Markets Crash
What went wrong?
Financial Crisis
Real Economic Crisis
 Subprime Crisis Problems
 Stock Markets Crash
 Global Effect
 Collapse of Big Banks
 Liquidity Crisis
What went wrong?
Financial Crisis
Real Economic Crisis
 Subprime Crisis Problems
 Stock Markets Crash
 Global Effect
 Collapse of Big Banks
 Liquidity Crisis
 Gloomy Outlook
Chronology of Events
The roots of the crisis
2001-2004
 Long term impact of credit expansion
 Globalization of financial markets
 Progressive financial deregulation &
innovations
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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
Chronology of Events
The roots of the crisis
2001-2004
Credit Crunch
2004-2008
 Long term impact of credit expansion
 Subprime Crisis
 Globalization of financial markets
 Liquidity Dries Up
 Progressive financial deregulation &
innovations
 Stock Markets Plunge, Major financial
institutions fail/bailed out.
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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
Chronology of Events
The roots of the crisis
2001-2004
Credit Crunch
2004-2008
 Long term impact of credit expansion
 Subprime Crisis
 Globalization of financial markets
 Liquidity Dries Up
 Progressive financial deregulation &
innovations
 Stock Markets Plunge, Major financial
institutions fail/bailed out.
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Bailouts
2008
 Central Banks step
into bailout major
institutions
 Massive Stimulus
measures announced
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
Total Cost of the Crisis
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“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
0%
-10%
SNP 500
Hang Seng
FTSE 100
Nikie 225
-20%
-30%
-40%
-50%
-60%
DGEN
5/22/2009
5/8/2009
4/24/2009
4/10/2009
3/27/2009
3/13/2009
2/27/2009
2/13/2009
1/30/2009
1/16/2009
1/2/2009
12/19/2008
12/5/2008
11/21/2008
11/7/2008
10/24/2008
10/10/2008
9/26/2008
9/12/2008
8/29/2008
8/15/2008
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8/1/2008
Green Shoots
Global Stock Markets are rebounding
DGEN in comparison to Major World Indices
20%
10%
Green Shoots
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Global Stock Markets are rebounding
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Commodity Prices are rising
Green Shoots
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Global Stock Markets are rebounding
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Commodity Prices are rising
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Credit Spread has reduced
Green Shoots
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Global Stock Markets are rebounding
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Commodity Prices are rising
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Credit Spread has reduced
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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
Economic
Social/Political
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New Reserve Currency
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Savings vs Spending
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New Economic Powerhouses to emerge
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Credit Ratings questioned
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Emergence of Islamic Banking
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Vigilance, Risk Management, Governance
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Financial Assitance for G10 countries ?
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From liberal to more protectionist, populist politics
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Deleverage, De- Globalize, Re-Regulation
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Preparedness : Proactive than being reactive
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Stronger leadership required
 Anglo-Saxon
model of free reign to FI questioned
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Liquidity & Sustainability vs Profitability
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Business education needs to be revamped
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Basel II
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Watching out for the Black Swan
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
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New Role of Financial Managers:
Vigilance: Being Proactive rather than Reactive
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Governance : Guardians of the corporate conscience
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Risk Management : Mitigation and Transfer
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Investor relations and reputation management
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Standardized and Fair Value Accounting
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Migration of best practices
THANK YOU