RECESSION

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

Worlds 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

Worlds 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

Worlds Exposure To Crisis

Iceland The government has nationalized three of Iceland's biggest banks Accounts in these banks stand frozen Spain Will spend 50 billion euros ($68 billion) to buy bank assets, almost a third of the proposed 2009 central government budget

Worlds 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
Dow Jones FTSE 100 Sao Paulo CAC 40 DAX Shanghai Composite Hang Seng Nikkei Kospi RTS Index Sensex

Aug-08
11543.55 5636.6 55680 4482.6 6422.3 2397.37 21261.89 13072.87 1474.24 1646.14 14564.53

Mar-09
6594.44 3529.86 37434 2569.63 3695.49 2221.08 12064.23 7215.09 1047.8 559.09 8197.92

Change in %
-42.87 -37.38 -32.77 -42.68 -42.46 -7.35 -43.26 -44.81 -28.93 -66.04 -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

Down But Not Out

Estimated GDP Growth Rate For 2009

Emerging Markets World Developed Countries 6.10% 2.50% 0.60%

Whats 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

Thank You
Have a great recessed year ahead