RECESRECESSIONSION

The Status Of The World Now…

Recession – Defined

“A significant decline in the economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment, industrial production and wholesale-retail sales”

The current crisis is an outcome of the huge liquidity crunch

Curse of advanced financial concepts

What Are Sub-Prime Loans?

In the US, borrowers are rated either as ‘Prime’ or as ‘Sub-Prime’

Prime - Borrower with good credit rating based on their track record.

Sub-Prime – Sub-prime borrowers are the set of borrowers whose ability to repay is in doubt.

Sub-Prime borrowers are charged with high level of interest rates

Right of ‘Foreclosure’

What Went Wrong?

Till 2006 US Economy was rich with huge cash flows and interest rates were very cheap

Same time the real estate sector was in boom Banks encouraged Sub-Prime borrowers by lending

more money despite their bad credit history Mid 2006 real estate slumped badly due to increasing

interest rates & excessive supply Borrowers were neither able to combat the increases in

payment nor sell their homes as the prices were depreciating leading to default & foreclosure

Mortgage Backed Securities - MBS

An asset-backed security whose cash flows are backed by the principal and interest payments of a set of mortgage loans

Transform relatively illiquid, individual financial assets into liquid and tradable capital market instruments.

Allow mortgage originators to replenish their funds, which can then be used for additional origination activities.

Securitization - MBS

World’s Exposure To Crisis

The financial crisis has spread way beyond its epicenter in the US and has engulfed most of Western Europe

United Kingdom Has lined up a $850-billion rescue plan - May

nationalize Royal Bank of Scotland Bank of England will infuse liquidity of $351 billion

through loans The government will guarantee $439 billion worth of

short-and-medium term debt The total liabilities of Barclays of £1,300 billion

(leverage ratio of over 60), surpass Britain's GDP

World’s Exposure To Crisis

Belgium The government took partial control of the struggling

Fortis Bank - Fortis Bank's liabilities are several times larger than the GDP of Belgium

France, Belgium and Luxembourg stumped up $93 billion to recapitalize Dexia, a French-Belgian lender that ran up huge losses in its US operations

Ireland Has guaranteed all bank deposits

World’s Exposure To Crisis

IcelandThe government has nationalized three of

Iceland's biggest banksAccounts in these banks stand frozen

SpainWill spend 50 billion euros ($68 billion) to buy

bank assets, almost a third of the proposed 2009 central government budget

World’s Exposure To Crisis

Germany Has guaranteed all bank deposits The total liabilities of Deutsche Bank (leveraging ratio

of over 50) amount to 2,000-billion euro, which is more than 80 per cent of the GDP of Germany

Italy Unicredit Bank has announced plans to raise its capital

ratio by spinning of property assets The International Monetary Fund (IMF) revised upwards

its projection of the losses of the US banking system to $1.4 trillion.

Poor Show Of Indices

Index Aug-08 Mar-09 Change in %Dow Jones 11543.55 6594.44 -42.87

FTSE 100 5636.6 3529.86 -37.38

Sao Paulo 55680 37434 -32.77CAC 40 4482.6 2569.63 -42.68DAX 6422.3 3695.49 -42.46

Shanghai Composite 2397.37 2221.08 -7.35Hang Seng 21261.89 12064.23 -43.26Nikkei 13072.87 7215.09 -44.81Kospi 1474.24 1047.8 -28.93

RTS Index 1646.14 559.09 -66.04Sensex 14564.53 8197.92 -43.71

More Woes..

4,89,047 – Jobs been laid off since Nov 2008 $300 Billion shelled out as bail-out packages

Pink Slips Galore – “If America catches cold India sneezes” Various stimulus packages across the globe

Estimated GDP Growth Rate For 2009

Down But

Not Out

Estimated GDP Growth

What’s in store for us?

Hope, Optimism & Change Sustainability – hang in there We are down but not out – World economies will

shrink Lower inflation / Lower interest rates will support

the broader economy 2003-2007 ‘Go-Go’ years are over 2009-????? ‘Go-Slow’ years begin

Liquidity Life Cycle

Have a great recessed year ahead…

Thank You