1 / 7

The credit crisis and current situation

The credit crisis and current situation. September 2008. FI Debt Capital Markets team. Timeline 27 July 2007 – Concerns about the US sub-prime crises hammer global stock markets August 2007 – ECB pumps over EUR 200 billion into money markets during the course of three days

vera
Download Presentation

The credit crisis and current situation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The credit crisis and current situation September 2008 FI Debt Capital Markets team

  2. Timeline 27 July 2007 – Concerns about the US sub-prime crises hammer global stock markets August 2007 – ECB pumps over EUR 200 billion into money markets during the course of three days Mid-September 2007 – run on British bank Northern Rock had begun November 2007 – Citigroup agrees to sell shares worth USD 7.5 billion to an investment fund owned by Abu Dhabi 31 January 2008 – Bond insurer MBIA announces a USD 2.3 billion loss sparking fears of downgrades to monolines and losses on the approximately USD 1,000 billion worth of bonds they insure 17 March 2008 – Bear Stearns acquired by JPMorgan chase for a fraction of its (then) share price 15 September 2008 – Bankruptcy of Lehman Brothers and acquisition of Merrill Lynch by Bank of America 16 September 2008 – Federal Reserve rescues AIG 18 September 2008 – UK lender HBOS acquired by Lloyds TSB 19 September 2008 – Announcement of US’s Trouble Asset Relief Programme (TARP) 3.0 87 crash Credit Contagion 2.5 2.0 Russia/LTCM S&L Crisis 1.5 1.0 0.5 0.0 -0.5 Jan 86 Jan 88 Jan 90 Jan 92 Jan 94 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 How the credit crises unfolded * As of July 2008

  3. The current situation • ABS Markets • Securitisation markets are closed in Europe for large scale public deals • Central Banks are providing an array of liquidity solutions, the Bank of England’s Special Liquidity Scheme (SLS) and ECB’s acquiescence to repo as a substitute for public markets appeared to be taking incremental steps in righting the market • Where we go from here • De-leveraging set to continue as banks less willing to lend • The market pricing a number of transactions to loss scenarios that appear to be outside the realm of possibility • Despite current negative sentiment, the very few new issues in the primary market that were sold publicly have received a promising reception, though no sale has proved easy, issues tended to be upsized rather than downsized Source: RBS

  4. Monoline update • Worst case scenario is playing out at the moment • Falling value of the underlying / wrapped assets at the same time as monolines are being downgraded • Moody’s still saying that monolines can pay over time • However there are unanswered questions regarding CDS if a monoline goes into rehabilitation and with the need to post cash collateral on some of their GIC business • Ratings downgrades have been hard and fast with many now in junk territory • Expect additional write- downs in H2

  5. Economic Outlook • Economist are becoming increasingly bearish • We need to listen as the economy is now firmly in driving seat • Current economy benchmarks are OK but forward indicators negative • Fuelled by inflation concerns • Inflation • The only way to squeeze it out is to crush growth • Unemployment (and delinquencies) on the rise • Yield Curves • No longer steepening • Very volatile swap spreads • Rate hikes now may mean bigger rate cuts in 2009 • Provided inflation comes under control • Grim news for banks • They are operating with larger capital bases and will see lower revenues • That mean lower RoE which banks will seek to compensate via higher pricing / margins • That intensifies the credit crunch

  6. Trouble Asset Relief Programme • The Proposal • US Treasury announced details to buy up to USD 700 bln of troubles mortgage related assets • The fund can purchase RMBS, CMBS and whole loans originated before 17 September 2008 • Other ABS under discussion, such as credit card and auto loan backed deals • Second order instruments such as CDS, CDOs and ABX not eligible • Who can participate • Financial institutions with significant operations in the US, including insurance companies • UK banks RBS and Barclays expected to be able to participate • How it works • Asset sales priced through a reverse auction - at lowest price acceptable to banks • Impact • Statutory ceiling on US public debt raised to USD 11.3 trillion • Asset selling prices could force banks into further writedowns

  7. This material is issued by The Royal Bank of Scotland plc (“RBS”) and is intended to provide the recipient (the “Recipient”) with a summary of potential transaction structures and terms and conditions that may or may not lead to transactions being entered into between RBS and the Recipient. Unless and until both RBS and the Recipient agree to, and sign formal written contracts, it is not intended that either RBS or the Recipient are, or will be, bound by any of these proposed terms and conditions. This material is confidential and is intended for use only by the Recipient and its professional advisers and remains the property of RBS. It should not be reproduced or disclosed to any other person without the consent of RBS and must be returned on request to RBS and any copies thereof destroyed. Nothing in this document should be construed as legal, tax, regulatory, accounting or investment advice or as a recommendation or an offer by RBS to purchase securities from or sell securities to the Recipient, or to underwrite securities of the Recipient, or to extend any credit or like facilities to the Recipient, or to conduct any such activity on behalf of the Recipient. RBS makes no representations or warranties with respect to the material, and disclaims all liability for any use the Recipient or its advisers make of the contents of the material. However this shall not restrict, exclude, or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not lawfully be disclaimed. Any views or opinions expressed in the material (including statements or forecasts) constitute the judgement of RBS as of the date indicated and are subject to change without notice. RBS does not undertake to update this document. The Recipient should not rely on any representations or undertakings inconsistent with the above paragraphs. RBS is authorised and regulated in the UK by the Financial Services Authority. The Royal Bank of Scotland plc acts in certain jurisdictions as the authorised agent of ABN AMRO Bank N.V. The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. The daisy device logo, RBS, The Royal Bank of Scotland and Make it happen are trade marks of The Royal Bank of Scotland Group plc.

More Related