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VIEWS: 4 PAGES: 10

									     The I tit t f I t      ti l Fi
     Th Institute of International Finance



International Insurance Foundation
I t    ti l I           F   d ti
        Annual Symposium

             Hung Q. Tran
            Washington, DC
                   g ,
            October 12, 2007
Capital Markets                                                                             IIF
       Loans/Credits                                                   Investors
                                    Structured
  Mortgages
                                     Products               HF/AM/Pension funds
    • Subprime
    • HEL                               ABS                 SIV/Conduits
  C         fi
  Consumer finance                      CDO                                             Prime
    • Auto loans                                                                      brokerage
    • Credit cards
                                        CLO
                                                         ABCP Investors                and repo
  Corporate credit                                    (
                                                      (money market MFs,
                                                                  k t MF               markets
    • High yield                                        municipalities, etc.)
    • LBO leveraged loans

                                           – Package and
                                             distribute, retaining a
                                             portion/warehousing
                                             financingg                  ABCP backup   p
          – Origination and servicing                                    liquidity lines
          – Buy loans to securitize
                                        Banks
                      g
          – LBO bridge loans
          – Credit to originators

                                                                                                  2
Capital Markets                                             IIF
                  Revealed Weaknesses
 •   Credit quality: relaxation of underwriting standards
 •   Structured d t       l illi id diffi lt t
     St t d products: complex, illiquid, difficult to
     value
 •   Rating of structured products: faulty
 •   Weak players: leveraged and dependent on money
     markets for funding
 •   Exposure of banks: to LBO bridge loans, CDO/CLO
     warehousing loans, backup liquidity lines to
     SIV/conduit, own HFs

     Uncertainty about valuation
     and where risk/losses reside
                                                              3
Capital Markets                                                                                                                 IIF
                               1998 and Now:
                         Similarities and Differences
                                                                                          Spread on 30yr mortgage over UST (bps)
                     S&P 500
 130                                                                                    250
          end-1997=100
          end-2006=100                                                                           1998
 120                                                                                             2007
                                                                                        200
 110

                                                                                        150
 100


  90
                                                                                        100
                                                                                           Dec   Feb    Apr   Jun   Aug   Oct   Dec
                                ug
           b
    c




                           n




                                            ec
                pr




                                      ct
 De




                         Ju
        Fe




                                     O
               A




                                           D
                               A




                                                 US corporate Baa spread over UST (bps)
                                             300
                                                           1998
                                                           2007
                                             250


                                             200


                                              50
                                             150

                                             100
                                                                             g
                                                       b




                                                                      n
                                                c




                                                                                            c
                                                               r




                                                                                    t
                                                             Ap




                                                                                 Oc
                                             De




                                                                                         De
                                                                          Au
                                                                   Ju
                                                    Fe




                                                                                                                                      4
Capital Markets                                                                                                                      IIF
                      1998 and Now:
           Similarities and Differences, cont’d
                                                                                                         EMBIG Spreads (bps)
               MSCI-EM (US$ Returns)
 150                                                                                  1,800
                                                                                      1,600        1998
 130                                                                                  1,400        2007

                                                                                      1,200
 110
                                                                                       ,
                                                                                      1,000
  90                                                                                     800
                                                                                         600
  70      end-1997=100                                                                   400
          end-2006=100                                                                   200
  50
                                                                                           0
                                                                                            Dec    Feb     Apr   Jun   Aug     Oct   Dec
                                ug
           b
    c




                           n




                                            ec
                  pr




                                      ct
 De




                         Ju
        Fe




                                     O
                 A




                                           D
                               A




                                                         10yr U.S. Treasury Yields (bps)
                                             6.0
                                                                                      1998
                                                                                      2007
                                             5.5


                                             5.0


                                             4.5
                                             45


                                             4.0
                                                                             Aug
                                                          Feb


                                                                Apr


                                                                       Jun
                                                   Dec




                                                                                    Oct


                                                                                             Dec


                                                                                                                                           5
Capital Markets                                                                      IIF
                p            g g
          Principles for Emerging Markets
 Key pillars
 • Transparency and investor relations as best practices for crisis prevention
   Early di l      d li        ti to      t i financial diffi lti
 • E l dialogue and policy action t contain fi        i l difficulties
 • Guidance for debt restructuring where needed

 Principles Consultative Group (PCG)
 • Collaboration between senior market participants and issuers
 • Facilitate continued efforts of issuers and investors to keep each other abreast of
   developments in EMs while encouraging sound policies and investor support
 • Offer guidance for the restructuring process in appropriate cases

 Group of Trustees
 • Blue ribbon group of top officials and senior executives
 • Review the evolution of the international financial system as it relates to EMs
 • Review development and implementation of the Principles; proposing
   modifications, if needed
                                                                                         6
Capital Markets                                                        IIF

                  Transparency in EMs

   The di    i ti     fd t     d li i f       ti i k
 • Th dissemination of data and policy information is a key
   component of investor relations
 • Investors want:
    – Timely data (i.e., released with standard lag)
    – Data to be well organized, reliable and easy to locate and use
           y                                 g          y
    – Policy information to be forward-looking and easily understood




                                                                         7
Capital Markets                                           IIF

                              (cont’d)
          Transparency in EMs (cont d)
 • 10 EMs have institutionalized investor relations programs
     – 3 additional EMs are planning to launch investor
       relations programs
          ti        EMs) b ib to the IMF’s S i l
 • 64 countries (43 EM ) subscribe t th IMF’ Special
   Data Dissemination Standard (SDDS)
 • Adopting IMF Data Standards is a welcome step;
   however, investors need more (SDDS plus):
     – Forward looking information:
           Debt management programs
           Amortization schedule for external debt

                                                               8
Capital Markets                                                                                                                           IIF

   Investor Relations and Data Transparency
                                       45
                                                                                                             Chile
                                       40                                                                         S th Africa
                                                                                                                  South Af i
                                                                     Uruguay
                                                                       Croatia       Thailand                            Mexico   Brazil*
                                                                                                Poland         Peru
                             Mar-07)




                                       35                             Egypt                              Hungary     Turkey
                                                                                   Colombia                                   Korea
                 ency Score (M




                                       30                            Venezuela
                                                   Ecuador                         Pakistan                               Philippines
                                                       Tunisia
                                       25           Russia              Malaysia
                                                                       Ukraine                                           Indonesia
                                                        Costa Rica
                                       20                                         o a a
                                                                                 Romania
                                                 M
                                                 Morocco
     Dat Transpare




                                                            Belize                   Lebanon
                                       15
                                                Dominican Republic
                                       10
                                                  China
       ta




                                        5
                                                                Vietnam

                                        0
                                            0       5           10           15           20        25        30        35           40
                                                                        Investor Rela tions Score (Mar-07)

* Reflects a combined score of the Gerin office at the Banco Central do Brasil and the IRU office at the National Treasury.
                                                                                                                                            9
     The I tit t f I t      ti l Fi
     Th Institute of International Finance



International Insurance Foundation
I t    ti l I           F   d ti
        Annual Symposium

             Hung Q. Tran
            Washington, DC
                   g ,
            October 12, 2007

								
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