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					The Hong Kong Polytechnic University & The University of Texas
Risk Management for GloballyInterconnected Enterprises
Angelina Kwan Chief Operating Officer Asia Pacific Region
15th March 2008

• • • • • Current Affairs Groundhog Day Risk Management -Lessons Learned Summary Questions?

Current Affairs
 Losses on all subprime mortgage assets may reach US$300 Billion to US$400 Billion worldwide – Deutsche Bank Analysts One of the benefits of securitization is the offloading and global distribution of risk. Ironically, this is now a capital markets hazard, since no one is sure where subprime losses lie- JP Morgan Analysts Consumer sentiment down and Credit Crisis worsening “I've been in this market for 30 years, I'm one of the senior citizens of the bond market, and I have never, ever seen such a confluence of negative events,'' said Marilyn Cohen, President of Envision Capital Management in Los Angeles. ``Clearly the Fed has been rendered impotent on doing anything to end this credit crisis.''



Current Affairs
 Numbers and impact still being revised…  Late disclosures, lack of disclosures, blindsiding investors, risk of more losses to come…  Surprises at every turn
• New announcements and CEO firings every day – Bear Stearns • Bank losses on Credit Default Options (CDO) forecast US$77 Billion (JPM) • Overall losses even more…

 World Markets fluctuating and volatile - flight to cover losses…  Uncertain Economic Outlook and its World-Wide effect – RECESSION

Groundhog Day
 2007 Subprime Credit Crisis – Leading into a crisis of confidence
• What has been happening? • Impact in the US • The Difference 20 years later • Impact on the Global Markets • How long to clean up?

 Where was risk management – with the very thing we were trying to do – being the main cause of another even bigger problem??

Groundhog Day-The Subprime Crisis
• • Housing Market booming with prices skyrocketing Independent Agents used Banks aggressively make loans – subprime loans in particular Banks doing great • Loans securitised – sold to Fannie Mae and Freddie Mac Investment banks and other financial institutions repackage, issue complex debt, CDOs linked to mortgages Complex products underwritten by banks and sold to: • US Housing Market drops Loan defaults increase Complex products, CDOs, Securitised Loans plummet in value Investors flee from these products…





 Hedge Funds  Other Financial Institutions  Investors • Money making products – highly successfulvery popular




Risk Management - Lessons Learned
 Learn from the mistakes of the past  Subprime Crisis
• Loose credit policies • Use of Loan Agents • No monitoring of defaults? • Hedging? • Why didn’t this get flagged?

 Concentration risk
• Too much subprime • Too much underwritten

 Relooking and reevaluating models – stress testing  Emperor with no clothes – who is going to be the messenger?

Risk Management - Lessons Learned
 Late Disclosures
• Should have been earlier??

 Lack of Disclosure
• Underwritten and on the books • Off the books? What should be disclosed? • How much more out there?

 Where were the Credit Agencies and why didn’t this get flagged? How good is their opinion?  Where were the auditors? Accounting standards for disclosure?  With so many CEOs/Chairman throwing themselves on their swords…Succession planning…

Risk Management - Lessons Learned
 Assessing: Legal and Regulatory Risk Counterparty and Liquidity Risk – funds drying up – how will it affect businesses  Thinking ahead - what are the Regulators going to do when this has settled? Securities and Futures Regulators Central Banks and Banking Regulators Insurance and other product Regulators

 Learning from the past as the same mistakes have and are being repeated…  Reevaluating Risk Models, Stress Testing, Concentration Risk evaluation, as there is still more to come…  Have the systems in place to identify weaknesses – escalation system  Be ready for what Governments, Central Banks and Regulators will be doing…


Angelina Kwan Chief Operating Officer, Asia Pacific Cantor Fitzgerald Suites 6707 - 6712, The Center, 99 Queen’s Road, Central, Hong Kong Tel: +852 3477 7851 Fax: +852 3477 7995 Email: