Cantor Debt Capital Markets by sofiaie


									 The Hong Kong Polytechnic
   The University of Texas

Risk Management for Globally-
  Interconnected 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

   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
     • 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
                                       •   Complex        •   US Housing
                                           products           Market drops
•   Housing        •   Loans
    Market                                 underwritten
                       securitised –       by banks and
    booming                                               •   Loan
                       sold to             sold to:
    with prices                                               defaults
    skyrocketing       Fannie Mae
                       and Freddie                            increase
                       Mac              Hedge Funds
•   Independent                         Other
    Agents used                                           •   Complex
                                         Financial            products,
                   •   Investment
                                         Institutions         CDOs,
•   Banks              banks and
                       other            Investors            Securitised
    make loans –       financial                              Loans
    subprime           institutions    •   Money              plummet in
    loans in           repackage,          making             value
    particular         issue               products –
                       complex debt,       highly         •   Investors flee
•   Banks doing        CDOs linked         successful-        from these
    great              to mortgages        very popular       products…
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
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
 With so many CEOs/Chairman throwing
  themselves on their swords…Succession
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

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