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Will Taylor - Vining Sparks

Will Taylor - Vining Sparks. 2. Will Taylor - Vining Sparks. A Full Plate of Issues. Bank Capital under pressure as losses mountGrowing list of banks in troubleFHLB suspends payment of stock dividendsBank Preferred Stocks may suspend dividendsNationalization of large banksLiquidity concernsFed Funds target 0 to 25 basis pointsLegislators, accountants, the FED intervening in the MBS and possibly treasury markets resulting in low yields on security purchasesAgency preferred stocks trading 30127

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Will Taylor - Vining Sparks

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    1. Will Taylor - Vining Sparks

    2. Will Taylor - Vining Sparks

    3. Will Taylor - Vining Sparks A Full Plate of Issues Bank Capital under pressure as losses mount Growing list of banks in trouble FHLB suspends payment of stock dividends Bank Preferred Stocks may suspend dividends Nationalization of large banks Liquidity concerns Fed Funds target 0 to 25 basis points Legislators, accountants, the FED intervening in the MBS and possibly treasury markets resulting in low yields on security purchases Agency preferred stocks trading near zero Other credit risk products, CDO, Whole Loans Municipal Security Insurer downgrades Other-than-temporary impairment Issues Not sure what’s next

    4. Will Taylor - Vining Sparks Capital considerations Capital is scarce outside TARP Trust preferred pools are non-existent Options: Insiders and friends (including institutions) Public Markets Evaluate Importance Specific need (Tier 1, Tier 2) Alternatives

    5. Will Taylor - Vining Sparks Current Liquidity Options FHLB Increasing Margin Collateral Required Purchase Stock

    6. Will Taylor - Vining Sparks Brokered Deposits In order to accept or roll over brokered deposits, Institutions must be “well capitalized” OR Obtain prior written permission from FDIC Many deposit brokers will only deal with “well capitalized” banks Institutions fearful of falling to adequately capitalized are locking in liquidity NOW

    7. Will Taylor - Vining Sparks The 16 FDIC guaranteed TLGP Issuers American Express Bank of America Citigroup General Electric Goldman Sachs HSBC John Deere JP Morgan Key Bank Morgan Stanley New York Community Bank PNC Funding Regions Bank Sovereign Bank Suntrust Bank Wells Fargo

    8. Will Taylor - Vining Sparks Senior Unsecured Debt Ratings of the TLGP 16

    9. Will Taylor - Vining Sparks Corporate Issues – Two Tracks of Debt Track 1 FDIC Guarantee Wells Fargo FDIC Guaranteed Floater Due 12/2011 Yield 1.41% (3 Month LIBOR DM +18) Yield if Libor Drops to zero 0.18% 20% risk weight US Gov. Guarantee Track 2 Corp. Guarantee Wells Fargo Sr. Unsecured Debt Due 3/1/2012 Yield 5.24% (3 Month LIBOR DM +401) Yield if Libor Drops to zero 4.01% 100% risk weight Corp. Guarantee Aa3/AA/AA Neg. Outlook

    10. Will Taylor - Vining Sparks Intervention in the MBS Market title

    11. Will Taylor - Vining Sparks Intervention in the MBS Market title

    12. Will Taylor - Vining Sparks The MBS Refinance Application Index

    13. Will Taylor - Vining Sparks Intervention in the MBS Market Senator McConnell has made proposals for 30 year 4% government backed mortgages. Plans such as the Hubbard Meyer Plan calls for the Government to subsidize the refinance of loans where a borrower has negative equity are being considered. Proposals have been seriously discussed which would allow bankruptcy judges or even servicers to modify loans to Lower principal balances Extend maturities Lower the interest rate The bottom line – there are many forces on the move that could result in a massive refinance wave.

    14. Will Taylor - Vining Sparks Comforts – Overall Credit Quality Comfort areas Agency MBS, CMO, ARM, and Senior Agency Debt UTGO Municipal Securities with “A” or better underlying credit Municipal Securities with insurance providers that remain AAA rated Assured Guaranty Texas Permanent School Fund FSA SBAs Pools, DCPC and SPIC offers Full Faith & Credit, Yield near 6%, 15 year final

    15. Will Taylor - Vining Sparks Munis Key to high performing portfolios Review credit quality of Insurance Provider Understand insurance role Understand credit considerations

    16. Will Taylor - Vining Sparks Muni’s Importance

    17. Will Taylor - Vining Sparks Moody's Cumulative Default Rates 10-yr Cumulative

    18. Will Taylor - Vining Sparks Municipal Insurer Ratings

    19. Will Taylor - Vining Sparks Private Label / Whole Loan CMOs Opportunities amid land mines Avoid loans originated prior to 2004 Review cross collateralization Prices can decline dramatically for a small uptick in delinquencies Extremely illiquid

    20. Will Taylor - Vining Sparks Private Label / Whole Loan CMOs Consider the: Collateral Be aware of cross collateralization Coverage Cash flow Front-end sequential benefits Locked-out cash flow risks

    21. Will Taylor - Vining Sparks Challenges in reviewing deals Cross collateralization is frequent Credit support comes from broader collateral than cash flow group Bloomberg defaults to cash flow group, not credit support group Determining estimated losses or even sizing up credit risk of collateral involves broad review of collateral statistics & performance

    22. Will Taylor - Vining Sparks Opportunities Abound Cash purchases Leverages Credit Swaps MBS for Sweet 16 Corporate Bonds Municipals Corporate issuers that are receiving government assistance

    23. Will Taylor - Vining Sparks Putting it all together

    24. Will Taylor - Vining Sparks Framework for Investment Decision Making Identify Asset / Liability Exposure to Rate Shifts Positive or Negative Gap What structure / performance do I Need in the investment portfolio Determine Objectives & Constraints Liquidity, Earnings, Deposit Maturity / Runoff Determine Rate Bias Prefer Bonds with Defensive or Offensive Characteristics Consider Investment Policy Risk Levels Market Price Volatility, Cash Flow Volatility, Liquidity Compare Alternatives Using Spread, Grade, Price Volatility, Total Return & Cash Flow Characteristics Focus on Bonds Addressing Risks, Policy Limits & Rate Bias

    25. Will Taylor - Vining Sparks William M. J. Taylor, Director, Senior Vice President Will has been involved in the banking and investment business sine 1986. His career began as an employee of Shelby County, TN working in the investment and distribution of public funds. Will later moved to the correspondent banking group of Union Planters Bank. Under his management, the group grew to over $3.5 billion in warehouse lending . In this capacity Will was appointed to a number of key committees and subcommittees of the Mortgage Bankers Association of America. In addition to working in the lending area, Will was active in the trading operation. During his tenure he oversaw the financing and securitization of Collateralized Mortgage Backed Obligations (CMOs), Fixed and Adjustable Mortgage Backed Securities ( with emphasis on Multifamily projects) and Small Business Administration Loan Securities. Will joined Vining Sparks as a result of a combination of Union Planters dealer operation with Vining Sparks in September 1990. Will received his B.A. in finance from the University of Mississippi in Oxford. During his career Will has lobbied and testified before congress and government agencies, as well as speaking to various groups at FDIC and OCC sponsored seminars. Will has been published in the following periodicals: Texas Banking; Technical Topics of the Municipal Treasurers of the Association of the United States & Canada; and Bankers Monthly. He has served on the faculty of the Mid-South School of Banking and holds the National Association of Securities Dealers' Series 7 and 63 General Securities Representative Licenses.

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