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

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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

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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

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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

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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