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Portrait of the Crisis: Risks and Opportunities for Investors

Portrait of the Crisis: Risks and Opportunities for Investors. Hung Tran IIF, Counsellor and Senior Director of Capital Markets and Emerging Markets Policy Garanti Masters Private Banking Conference Istanbul, Turkey April 17, 2009. Main Themes.

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Portrait of the Crisis: Risks and Opportunities for Investors

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  1. Portrait of the Crisis: Risks and Opportunities for Investors Hung Tran IIF, Counsellor and Senior Director of Capital Markets and Emerging Markets Policy Garanti Masters Private Banking Conference Istanbul, Turkey April 17, 2009

  2. Main Themes • Perceived tail risk of economic and financial meltdown has diminished • Risk appetite has revived: risk assets have outperformed YTD • Most EMs and HG corporates could provide stabilization • Weaknesses in key sectors: • HY corporates: sharply rising default rates, collapsing recovery rates • Households: becoming more leveraged, more pressure to reduce debt • Life insurance companies: facing solvency problems • Pension funds: seriously underfunded • Banks: funding situation and pre-tax/pre-provision earnings improved, but troubled assets/capital adequacy remain serious challenges • Key risks: threats to senior bank debt could trigger another spike in risk aversion

  3. Outperformance of Risk Assets Year-to-date * Returns in US$ terms.

  4. Equity Market Volatility* percent * VIX index of implied volatility of S&P 500 index options.

  5. Mature and Emerging Market Equities* index, end-2007=100 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 * MSCI indices (US$ returns).

  6. Emerging Market Sovereign and Corporate Bonds spread over U.S. Treasuries, basis points

  7. Emerging Market Currency Index index, Jan 2, 2007=100

  8. Central & Eastern Europe Currency Peg CountriesCurrent Account Balances percent of GDP e = estimate; f = forecast. * IIF estimates and forecasts (where available); otherwise IMF or European Commission estimates and forecasts.

  9. Selected Central & Eastern Europe Currencies percent change since end May 2008* * Change vis-à-vis euro.

  10. Global Corporate Bond Issuance US$ billions US$ billions Source: Thomson Financial; IIF calculations.

  11. U.S. Nonfarm Nonfinancial Corporate Cash Holdings* US$ billions percent * Cash defined as foreign deposits, checkable deposits and currency, time and savings deposits, and money market fund shares. Tangible assets at market value or replacement cost.

  12. U.S. Household Debt percent of net worth

  13. U.S. Household Debt percent of GDP

  14. High-yield Bond Annual Recovery Rates percent

  15. Global High-yield Bond Default Rates and Spreads percent basis points * 12-month issue-weighted, history and forecast (dashed line).

  16. Solvency Ratios of U.S. Insurance Companies percent percent

  17. Global Pension Assets US$ trillions e = estimate.

  18. Term Interbank and Expected Overnight Interest Rates* basis points * Spread between 3-month Libor/euribor and 3-month overnight index swaps (OIS).

  19. Fed’s Central Bank U.S. Dollar Liquidity Swap Lines US$ billions

  20. Losses and Capital Raised by Financial Institutions Losses* Capital Raised** US$ billions US$ billions * Since beginning of 2007; includes writedowns and credit losses. ** Since July 2007.

  21. U.S. and European Debt Outstandingand Estimated Losses US$ trillions * Includes ABS, ABS CDOs, prime MBS, CMBS, corporate debt and CLOs. ** Includes subprime and prime mortgages, and consumer, corporate and leveraged loans.

  22. U.S. Fixed-rate Credit Card ABS Spreads* basis points * 5-year bonds; spread to swaps.

  23. U.S. AAA-rated Student Loan ABS Spreads* basis points * Spread to Libor.

  24. U.S. AAA-rated Fixed-rate Auto ABS Spreads* basis points * 3-year bonds; spread to swaps.

  25. U.S. Mortgage Delinquencies* percent of loans outstanding * Includes only non-agency mortgages; 30+ days delinquent, bank owned, or in foreclosure.

  26. Cost of Protection Against Default onU.S. Home Equity ABS* percentage of par * ABX.HE 2007-01 indices.

  27. Commercial Real Estate Lending and Core Capitalat U.S. Banks and Thrifts US$ trillions

  28. Cost of Protection Against Default on U.S. CMBS* basis points * CMBX.NA.3 index spreads.

  29. Capital Ratios of U.S. Commercial Banks* Tier 1 Capital Ratio Common Equity to Assets percent percent * Asset-weighted average for sample of 12 U.S. commercial banks.

  30. Capital Ratios of U.K. and European Banks* Tier 1 Capital Ratio Common Equity to Assets percent percent * Asset-weighted average for sample of 12 U.K. and European commercial banks.

  31. Cost of Protection Against Default on Large Banks* basis points basis points * Asset-weighted average of 5-year CDS spreads for a selection of 14 U.S., U.K., European and Japanese banks. ** Subordinated debt less senior debt.

  32. Portrait of the Crisis: Risks and Opportunities for Investors Hung Tran IIF, Counsellor and Senior Director of Capital Markets and Emerging Markets Policy Garanti Masters Private Banking Conference Istanbul, Turkey April 17, 2009

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