1 / 16

Navigating Sub-prime Crisis Fallout: Caribbean Financial Sector Outlook

Reviewing the sub-prime crisis fallout post-2008 and its impact on the global financial sector with a focus on the Caribbean. The presentation by Eric Guichard at the 35th Annual CAIB Conference in Barbados elucidates the challenges faced by major financial institutions and the subsequent ripple effects. The analysis delves into the intricacies of the sub-prime mortgage market, securitization processes, and the eventual collapse of securities. The presenter outlines the immediate regional implications, G20 reform initiatives, and the evolving market dynamics in the Caribbean. Recommendations for regulators, opportunities for innovation, and strategies for sustainable growth in the face of economic adversity are also discussed. Insights are provided on seeking alternative sources of finance, SME support, product diversification, and fostering community-based financial services. The narrative emphasizes collaborative efforts, transparency, and proactive governance to effectively navigate through the turbulent waters of financial instability.

kylia
Download Presentation

Navigating Sub-prime Crisis Fallout: Caribbean Financial Sector Outlook

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 Advantage of Innovative Thinking

  2. Review of Sub-prime CrisisEmerging Opportunities for the Caribbean Financial Sector 35th Annual CAIB Conference Barbados – November 2008 Presenter: Eric Guichard GRAVITAS Capital

  3. Let’s Recap… • Let’s review the damage to date: • Citigroup has declared billions in value wiped out from its balance sheet (about to cut 50,000 jobs) • Merrill Lynch, Lehman, AIG, Bear Stearns no longer exist as independent going concerns • In total to date about US$1+Trillion lost (corporates, hedge funds, insurance companies, pension funds, endowments…) • Foreclosure rates are at historical highs (+70% in Sept) • Global impact…recessions in US, Japan, Germany,…

  4. What is sub-prime?“A picture is worth a 1000 words…”

  5. Housing pulls Economy Hardware Jobs $ Home Purchase Electronics $ Jobs $ Utilities Jobs

  6. Old days of Relationship Banking “Joe” The Banker (owns mortgage) “Bob” the homeowner Mortgage Loan NB: Bank owns loan and knows client – is part of community

  7. The Mortgage Market Today (A) DISINTERMEDIATION HH Loan Steady Cashflows + Valuable Collateral Lender Packager (Securitization) Rating Agencies HH Loan Pensions Insurances Endowments Investment Guidelines

  8. Securitization Process (A) Detroit Bank Low Yield Bonds Exotic Loans Pool A: 30%D 30%H 40%F Insurance Pensions Banks Wall Street Investment Bank (Packager) Hollywood Bank Exotic Structures Pool B: 70%D 10%H 20%F Insurance Pensions Banks Florida Bank High Yield Bonds (Sub-prime) Selling/Buying Mortgages

  9. Securitization Process (B) Pool A Investors AAA Banks High Credit AA Pensions Mid Credit Insurance BB Sub-Credit Exotic Structures CCC Hedge Funds Hi Risk Credit Default Swaps Rating Agencies

  10. CRISIS!! HOME PRICES PLUMMET Result: All Securities/Collateral are valueless Credit freezes/consumption collapses Corporate layoffs rise Dramatic shrinking of consumption Recession…Depression looms

  11. Who’s Fault?? (Credit Worthiness?) (Due Diligence?) HH Loan (Pressures?) (Due Diligence?) Lender/Broker Inv. Bkr (Securitization) Rating Agencies HH Loan Pensions Insurances Banks Collateral (Value?) (Due Diligence?)

  12. Now what does this all mean forCaribbean Financial Services?

  13. Immediate Regional Implications? • Capital Calls from HQ • Freezing of major projects • Higher cost of financing (corp. and sovereign) • Slowing of Remittances • Mexico vs. Jamaica • Fear of Contagion • Regulatory Clamp Down (innovation and cross-border) • Delays in regionalization (securitization initiatives) • Late Effects • 2009 and beyond: Tourism

  14. Evolving Regional Market(What needs to be done?) • G20 Initiatives for Reform (cf. Article) • Disparate application due to local politics • Macro vs. Micro Response • The Fear of Contagion (cf. Article) • Is the dream of regionalization dead? • Takeaway for the Caribbean Regulator: • Coordinated oversight (Regional SEC?) • Balance in Risk Taking (Boards - Incentives) • Cooperation with Private Sector (not adversarial) • Transparency • Consistency across jurisdictions (Easier here)

  15. Opportunities? • As normal sources dry up – seek alternative sources of finance: • Small Enterprise Assistance Fund (SME finance) • New product development • Remittances based products • Building on counter-cyclicality and dependence • Community based financial services • Global Education Savings Fund

  16. In Closing • Difficult times ahead, but: • Regulators need seek balance NOT restrict • Boards should be more accountable (micro) • Regional market should stay alive • CAIB members should seek value in responsible innovation • New G20 Regulatory Framework bound to create new inefficiencies • Watch for unintended consequences.

More Related