Download - Peregrine Presentation Final
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PEREGRI
NE
Team:
Isakova Nataliya
Sagaidak MaximSokolova Tatiana
Shtrahov Arseniy
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Structure
Introduction (problem, brief history)
Company Structure
Peregrine in 1997 Asian Financial Crisis
Factors behind Peregrine's downfall
How they could avoid it Conclusions
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Peregrine
The largest investment bank in Asia outside of Japan
The highest profile corporate failure in the AsianFinancial Crisis
Was founded in 1988 by Frances Leung and PhilipTose
Great reputation in the beginning of 90s (the fatherof red chips)
Expanding into other markets in form of joint
ventures One of the top 5 players in Asian Market: Goldman
Sachs, ABN AMRO, China International Capital Corp.,Morgan Stanley DW, Peregrine
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PFIL Peregrine Fixed IncomeLimited
Conditions:
Fast economic growth of Asian economies
Threat of competitors entering this market
PFIL:
Started in April 1994
Planned to enter the bond market of Asia
Specialized in origination , distribution and trading of fixed-income securities
for Asian issues in local currencies and US dollars. (mainly Hong Kong,
Indonesia, Malaysia, Thailand).
Willingness to undertake large transactions in relation to Peregrines own size
Growth of inventory of debt holdings and derivatives
PFILs performance exceeded expectations. It soon accounted for a
predominant part of the Groups turnover, and led to even more dramatic
growth
Expansion
strategy
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Companys structure
12%
85%
0%0% 0% 3%
6 month ended 30 june 1997
15%
83%
0%
0%0% 2%
1996
15%
80%
0%0% 0%
5%
1995equity products
fixed-income products
direct investments
asset management
property investment anddevelopment
invesment trading
17%
80%
0%0% 0%
3%
10 month ended 31 october1997
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Peregrine before crisis
Asias most dynamic investment house (1700 staff, 33 offices, 15 countries)
Reputation of aggressive and fast growing firm
27132
2586
31731
1906
28571
68
Revenues Net income
Revenues & NI, 1996
Morgan stanley Merrill Lynch Peregrine
302287 298057
3101
Morgan stanley Merrill Lynch Peregrine
Total assets, 1996
Total assets
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0.00
20,000,000.00
40,000,000.00
60,000,000.00
80,000,000.00
100,000,000.00
120,000,000.00
140,000,000.00
160,000,000.00
180,000,000.00
200,000,000.00
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
HK$,
thousands
Year
Peregrine's turnover
0.00
200,000.00
400,000.00
600,000.00
800,000.00
1,000,000.00
1,200,000.00
1988 1990 1992 1994 1996 1998
HK$,
thousands
Year
Profit before taxation
Peregrines dinamics
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Asian financial crisis
Started in mid-May 1997
Indonesia, South Korea and Thailand
were the countries most affected bythe crisis
Indonesian Rupiah to USD
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Effect of financial crisis onPeregrine
38%
20%
15%
27%
Turnover (%)
Indonesia
Thailand
HongKong/MainlandChina
Others
No demand on most of
Peregrines debt paper portfolio
Share price fell by 60% (august
october 1997) - that reduced
Peregrines ability to fund itself
by stock lending
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0.00
50,000,000.00
100,000,000.00
150,000,000.00
200,000,000.00
250,000,000.00
10 month ended 31 october1997
6 month ended 30 june1997
Turnover
0.00
200,000.00
400,000.00
600,000.00
800,000.00
1,000,000.00
1,200,000.00
10 month ended 31 october1997
6 month ended 30 june 1997
Operating profit
Effect of financial crisis onPeregrine
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0
10
20
30
40
50
60
70
7/20/1995 10/28/1995 2/5/1996 5/15/1996 8/23/1996 12/1/1996 3/11/1997 6/19/1997 9/27/1997 1/5/1998 4/15/1998
91-180 days % >180 % Total
Effect of financial crisis onPeregrine
% of bad debt of total assets
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Steady safe deal 1997
Indonesian taxi-cab company
Income in Indonesian rupees
Short-term bridge financing provided in US$350 (one-third of Peregrines
capital)
Analysts say such confidence was misplaced. Any lender entrusting the
equivalent of one-third of its capital to any borrower, much less a little-
known company in a country notorious for corruption, shows poor financial
judgment
Events in Indonesia tumbled out of control, and its currency collapsed.
Steady Safe, with its earnings in rupiah, could no longer pay meet payments
on its dollar loans, particularly the huge loan from Peregrine. The taxi
company's stock sank to a sliver over one penny and, last week, it locked itsdoors
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How Peregrine mighthave avoided thedebacle?
Question
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Factors behind Peregrine'sdownfall
Culture of the company(arrogant, headlong rush todo deals). That arrogance ledthe company to lend toomuch money for questionable
projects and to exercise toolittle high-level supervisionover managers.
Risk management policy wasnever applied in PFIL.Internal audits of PHILs
business were never
completed .Low level ofcontrol form Peregrinesparent company.
Fixed income businessaccounted for 85% of alloperations, and its the mostrisky.
Providing credits in currencydifferent from companys
income currency. Steady Safedeal was complete mess.
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Conclusions
Asian Financial Crisis shows the riskiness of
running business in emerging financial markets
Never provide credits in currency different from
companys income currency (because of default
risk)