Presentation Presentation
Equity MarketsEquity Markets
Remco Lenterman Remco Lenterman
Goldman Sachs InternationalGoldman Sachs International
May 2002May 2002
Slide Slide 2219/04/2319/04/23 16:1316:13
AgendaAgenda
The concept of EquityThe concept of Equity1111
Why do companies issue shares?Why do companies issue shares?2222
Why invest in Equity?Why invest in Equity?3333
Maturity of the Equity MarketsMaturity of the Equity Markets4444
The Role of the IntermediaryThe Role of the Intermediary5555
The Role of the RegulatorThe Role of the Regulator6666
Slide Slide 3319/04/2319/04/23 16:1316:13
A Tale of Tulips…A Tale of Tulips…
1630 in Holland: Tulips are considered an investment by the population1630 in Holland: Tulips are considered an investment by the population
1636: “1636: “TulipomaniaTulipomania””
Tulips are traded with a rage that spreads to all classes of the societyTulips are traded with a rage that spreads to all classes of the society
1637: Speculation begins…1637: Speculation begins…
Bulbs are sold faster than they can grow Bulbs are sold faster than they can grow
In March, Francois Koster pays DFL 6650 for a few dozen In March, Francois Koster pays DFL 6650 for a few dozen tulips tulips Fortunes are made all over the countryFortunes are made all over the country
Market collapses on the rumour that the tulips are worthless…Market collapses on the rumour that the tulips are worthless…
Panic seizes the market Panic seizes the market
In May 1637, Tulip prices collapse by 99% of the price they traded at In May 1637, Tulip prices collapse by 99% of the price they traded at two months earliertwo months earlier
Slide Slide 4419/04/2319/04/23 16:1316:13
AgendaAgenda
The concept of EquityThe concept of Equity1111
Why do companies issue shares?Why do companies issue shares?2222
Why invest in Equity?Why invest in Equity?3333
Maturity of the Equity MarketsMaturity of the Equity Markets4444
The Role of the IntermediaryThe Role of the Intermediary5555
The Role of the RegulatorThe Role of the Regulator6666
Slide Slide 5519/04/2319/04/23 16:1316:13
The concept of EquityThe concept of Equity
Bank loansBank loansBank loansBank loans
Long-term debtLong-term debtLong-term debtLong-term debt
Subordinated debtSubordinated debtSubordinated debtSubordinated debt
EquityEquityEquityEquity Being a salesperson
Pitching for new business
Advising clients on solving equity-related problems
Ongoing client relationships
Claim on profitsClaim on profits
Slide Slide 6619/04/2319/04/23 16:1316:13
AgendaAgenda
The concept of EquityThe concept of Equity1111
Why do companies issue shares?Why do companies issue shares?2222
Why invest in Equity?Why invest in Equity?3333
Maturity of the Equity MarketsMaturity of the Equity Markets4444
The Role of the IntermediaryThe Role of the Intermediary5555
The Role of the RegulatorThe Role of the Regulator6666
Slide Slide 7719/04/2319/04/23 16:1316:13
Why do companies issue shares?Why do companies issue shares?
To Improve the Profile and Visibility of the CompanyTo Improve the Profile and Visibility of the CompanyTo Improve the Profile and Visibility of the CompanyTo Improve the Profile and Visibility of the Company
To Raise CapitalTo Raise CapitalTo Raise CapitalTo Raise Capital
To Create Currency for Strategic Growth via AcquisitionTo Create Currency for Strategic Growth via AcquisitionTo Create Currency for Strategic Growth via AcquisitionTo Create Currency for Strategic Growth via Acquisition
Employee IncentivesEmployee IncentivesEmployee IncentivesEmployee Incentives
To Create Long-Term Exit Strategy for Shareholders if they wish to sellTo Create Long-Term Exit Strategy for Shareholders if they wish to sellTo Create Long-Term Exit Strategy for Shareholders if they wish to sellTo Create Long-Term Exit Strategy for Shareholders if they wish to sell
Slide Slide 8819/04/2319/04/23 16:1316:13
Equity Market EnvironmentEquity Market EnvironmentEquity issuance volumes in Europe (in E mn)Equity issuance volumes in Europe (in E mn)
YearYearYearYear
AmountAmount
E mnE mn
AmountAmount
E mnE mn
2,460 6,778 7,301
41,196
65,857 54,375
88,975
128,834 131,325
192,364
253,661
115,002
30,758
0
50,000
100,000
150,000
200,000
250,000
300,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Privatisation Corporate
19% 17% 44% 35% 31% 33% 36% 32% 26% 18%
9% 14% 81% 83%
56%
65% 69%
67%
64% 68%
74%
82%
91%
86%
Source: Dealogic Bondware.Source: Dealogic Bondware. Excluding preference shares, units, rights and funds. Including domestic shares. Amount for 2002 is YTD. Excluding preference shares, units, rights and funds. Including domestic shares. Amount for 2002 is YTD.
Slide Slide 9919/04/2319/04/23 16:1316:13
Equity Market Environment Equity Market Environment Global Equity Issuance ($bn) by regionGlobal Equity Issuance ($bn) by region
Source: Euromoney Bondware, SDCSource: Euromoney Bondware, SDC
$149 $156 $131$179 $208 $189
$92$124 $138
$194
$230
$110$25$39
$16
$46
$52
$21
1996 1997 1998 1999 2000 2001
US Europe Asia
$320
$490
$419
$285$319
$266
Slide Slide 101019/04/2319/04/23 16:1316:13
AgendaAgenda
The concept of EquityThe concept of Equity1111
Why do companies issue shares?Why do companies issue shares?2222
Why invest in Equity?Why invest in Equity?3333
Maturity of the Equity MarketsMaturity of the Equity Markets4444
The Role of the IntermediaryThe Role of the Intermediary5555
The Role of the RegulatorThe Role of the Regulator6666
Slide Slide 111119/04/2319/04/23 16:1316:13
Why invest in Equity?Why invest in Equity?
Long-term and short-term return Equity/Fixed Income ratios Long-term and short-term return Equity/Fixed Income ratios
A hypothetical $100 invested in the Dow Jones in 1928 would have A hypothetical $100 invested in the Dow Jones in 1928 would have been worth over a $1mn in 2001been worth over a $1mn in 2001
A hypothetical $100 invested in the Dow Jones in 1999 would have A hypothetical $100 invested in the Dow Jones in 1999 would have been worth $91 in 2001been worth $91 in 2001
A hypothetical $100 invested in the US Treasury Bonds in 1928 would A hypothetical $100 invested in the US Treasury Bonds in 1928 would have been worth $4,170 in 2001have been worth $4,170 in 2001
A hypothetical $100 invested in the US Treasury Bonds in 1999 would A hypothetical $100 invested in the US Treasury Bonds in 1999 would have been worth $142 in 2001have been worth $142 in 2001
Slide Slide 121219/04/2319/04/23 16:1316:13
AgendaAgenda
The concept of EquityThe concept of Equity1111
Why do companies issue shares?Why do companies issue shares?2222
Why invest in Equity?Why invest in Equity?3333
Maturity of the Equity MarketsMaturity of the Equity Markets4444
The Role of the IntermediaryThe Role of the Intermediary5555
The Role of the RegulatorThe Role of the Regulator6666
Slide Slide 131319/04/2319/04/23 16:1316:13
Maturity of the Equity MarketsMaturity of the Equity Markets
countriescountriescountriescountries
Market cap (E trn)Market cap (E trn)Market cap (E trn)Market cap (E trn)
16.4
2.7 2.4
1.2 1.0 0.3
0
2
4
6
8
10
12
14
16
18
US Japan UK France Germany China
Market Cap (€trn)
1.5
0.6
1.5
0.8
0.5
0.0 0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
US Japan UK France Germany China
Mcap/GDP
Market cap / GDPMarket cap / GDPMarket cap / GDPMarket cap / GDP
countriescountriescountriescountries
Absolute Size (Market Cap of broadest Index in Euro trn)Absolute Size (Market Cap of broadest Index in Euro trn) Relative Size as Multiple of GDPRelative Size as Multiple of GDP
Slide Slide 141419/04/2319/04/23 16:1316:13
Maturity of the Equity MarketsMaturity of the Equity Markets
%%%%
Notes: Pension figures as of June 2000, Insurance figures as of December 1999Notes: Pension figures as of June 2000, Insurance figures as of December 1999 Notes: Datas as of June 2000Notes: Datas as of June 2000Notes: Pension figures as of June 2000, Insurance figures as of December 1999Notes: Pension figures as of June 2000, Insurance figures as of December 1999 Notes: Datas as of June 2000Notes: Datas as of June 2000
Size of pension and insurance markets in Europe as a % of GDPSize of pension and insurance markets in Europe as a % of GDP Allocation to equities by pension funds in EuropeAllocation to equities by pension funds in Europe
0
20
40
60
80
100
120
140
160
180 Pension
Insurance
0
20
40
60
80
100
120
140
160
1801993
2000
Slide Slide 151519/04/2319/04/23 16:1316:13
AgendaAgenda
The concept of EquityThe concept of Equity1111
Why do companies issue shares?Why do companies issue shares?2222
Why invest in Equity?Why invest in Equity?3333
Maturity of the Equity MarketsMaturity of the Equity Markets4444
The Role of the IntermediaryThe Role of the Intermediary5555
The Role of the RegulatorThe Role of the Regulator6666
Slide Slide 161619/04/2319/04/23 16:1316:13
The Role of the IntermediaryThe Role of the Intermediary
CORPORATE ADVISORYCORPORATE ADVISORYCORPORATE ADVISORYCORPORATE ADVISORY
INVESTMENT ADVISORYINVESTMENT ADVISORYINVESTMENT ADVISORYINVESTMENT ADVISORY
CAPITAL / LIQUIDITY / EXECUTION ADVISORYCAPITAL / LIQUIDITY / EXECUTION ADVISORYCAPITAL / LIQUIDITY / EXECUTION ADVISORYCAPITAL / LIQUIDITY / EXECUTION ADVISORY
Slide Slide 171719/04/2319/04/23 16:1316:13
Typical Investor / Intermediary Typical Investor / Intermediary relationshiprelationship
In-house In-house researchresearchIn-house In-house researchresearch
Portfolio ManagementPortfolio ManagementPortfolio ManagementPortfolio Management Trading DeskTrading DeskTrading DeskTrading Desk- - Investor - -- - Investor - -
ResearchResearchResearchResearch SalesSalesSalesSales- - Intermediary - -- - Intermediary - -
Investment Investment advisoryadvisory
Investment Investment advisoryadvisory
Sales-TradersSales-TradersSales-TradersSales-Traders TradersTradersTradersTraders
Execution advisory Execution advisory & Liquidity& Liquidity
Execution advisory Execution advisory & Liquidity& Liquidity
Execution Execution AdviceAdvice
Execution Execution AdviceAdvice LiquidityLiquidityLiquidityLiquidity
Slide Slide 181819/04/2319/04/23 16:1316:13
Why Liquidity is importantWhy Liquidity is important
Immediacy provided to clientsImmediacy provided to clients
TOP 10TOP 10 BIDBID OFFEROFFER Typical institution Typical institution order sizeorder size
VodafoneVodafone 1,500,0001,500,000 800,000 800,000 E 20mnE 20mn
NokiaNokia 400,000400,000 400,000400,000 E 20mnE 20mn
SiemensSiemens 300,000300,000 300,000300,000 E 15 mnE 15 mn
BPBP 480,000480,000 400,000400,000 E 15 mnE 15 mn
TelefonicaTelefonica 350,000350,000 350,000350,000 E 15 mnE 15 mn
TotalFinaElfTotalFinaElf 400,000400,000 150,000150,000 E 15 mnE 15 mn
EricssonEricsson 600,000600,000 600,000600,000 E 15 mnE 15 mn
GlaxosmithklineGlaxosmithkline 800,000800,000 400,000400,000 E 15 mnE 15 mn
Royal Dutch Royal Dutch PetroleumPetroleum
1,500,0001,500,000 250,000250,000 E 15 mnE 15 mn
Deutsche Deutsche TelekomTelekom
350,000350,000 52,00052,000 E 15 mnE 15 mn
Depth of the order book in TOP 10 stocks (in Euro):Depth of the order book in TOP 10 stocks (in Euro):
Slide Slide 191919/04/2319/04/23 16:1316:13
AgendaAgenda
The concept of EquityThe concept of Equity1111
Why do companies issue shares?Why do companies issue shares?2222
Why invest in Equity?Why invest in Equity?3333
Maturity of the Equity MarketsMaturity of the Equity Markets4444
The Role of the IntermediaryThe Role of the Intermediary5555
The Role of the RegulatorThe Role of the Regulator6666
Slide Slide 202019/04/2319/04/23 16:1316:13
The Role of the RegulatorThe Role of the Regulator
To Ensure TransparencyTo Ensure TransparencyTo Ensure TransparencyTo Ensure Transparency
To Preserve Integrity of the marketTo Preserve Integrity of the marketTo Preserve Integrity of the marketTo Preserve Integrity of the market
To Protect InvestorsTo Protect InvestorsTo Protect InvestorsTo Protect Investors
To Maintain Confidence in the Financial SystemTo Maintain Confidence in the Financial SystemTo Maintain Confidence in the Financial SystemTo Maintain Confidence in the Financial System