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Diapositive 1


Questions about the global economy in 2008 ... Source: ECB Lending Survey, October 2007. Rapid transformation of Europe's financial markets ... – PowerPoint PPT presentation

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Title: Diapositive 1

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Morning Programme
  • Welcome address François DAVID - Chairman of
  • Morning 9.20am 10.40am Are global economic
    trends threatened by bubbles?
  • 10.40am 11.10am Break
  • 11.10am 12.45pm Crisis in the financial
    markets are companies threatened?
  • 12.45pm 2.50pm Lunch

Afternoon Programme
  • Afternoon 3.00pm 3.40pm China opportunity or
    threat to emerging countries?
  • 3.40pm 4.55pm Is there an escalation of
    geopolitical tensions?
  • 5.00pm Conclusion Jérôme CAZES CEO of Coface

Conference Moderator
Adrian DEARNELL Financial Journalist,
EuroBusiness Media
François DAVID Chairman of Coface
Table Ronde 9.20am 10.40am Are global economic
trends threatened by bubbles?
  • Nouriel ROUBINI Chairman of RGE Monitor,
    Professor of Economics and International
    Business, New York Universitys Stern School of
  • Michala MARCUSSEN Head of Strategy and Economic
    Research, Société Générale Asset Management
  • Manu BHASKARAN Partner and Head, Economic
    Research, Centennial Group. Senior Fellow,
    Institute of Policy Studies, Singapore

United States recovery or decline? Prospects
for the Global Economy in 2008 and Implications
for Financial Markets
Nouriel ROUBINI Chairman of RGE Monitor,
Professor of Economics and International
Business, New York Universitys Stern School of
Questions about the global economy in 2008
  • Will the U.S. experience a soft landing or a hard
    landing (recession)?
  • Will the current financial markets crisis
    (liquidity and credit crunch) get worse or
  • Will the US Fed ease, how much and will this
    easing prevent a recession?
  • Will the rest of the world decouple from the U.S.
    slowdown/hard landing?
  • What are the implications for the various asset

Summary Answers
  • The US will experience a hard landing (recession)
    that will be severe rather than mild
  • The liquidity and credit crunch will get worse
    and we now risk a systemic financial crisis
  • The Fed easing will be too little too late and
    it will not prevent a recession
  • The rest of the world will not decouple it will
    rather recouple with the US hard landing
  • Risky assets (equities, credit spreads, housing,
    commodities, emerging market assets, the US
    dollar) will get hurt. Cash is king in 2008

Vicious Circle between US Recession a Systemic
Financial Crisis
  • The US will experience a severe recession
  • This recession will increase financial losses and
    lead to an even more severe liquidity and credit
  • We cannot rule out a systemic financial crisis
  • The liquidity and credit crunch will in turn make
    the economic downturn more severe
  • So vicious circle of economic downturn and
    financial turmoil/stress

Why a U.S. recession?
  • A U.S. housing crisis/recession that is the worst
    housing bust in US history and getting worse
  • Financial losses spreading from sub-prime to near
    prime and prime mortgage, to commercial real
    estate, to auto loans and credit cards, to
    leveraged loans and to corporate bonds
  • A severe liquidity and credit crunch that is
    getting worse
  • Oil at 100 a barrel
  • Falling real investment (capital) spending by the
    corporate sector and in commercial real estate
  • A growing weakness in the labor market
  • A shopped out consumer that is faltering

Biggest boom/bubble in housing in US history
  • 1997-2006 housing boom and bubble (real home
    prices up 100) driven by
  • Low Fed Funds rate after 2001
  • Low long term interest rates given global excess
    of savings relative to investment
  • Traditional US policy of subsidization/favorable
    treatment of housing
  • Lack of regulation/supervision leading to
    reckless lending, not just in subprime
  • Financial innovation/securitization leading to
    reckless lending practices
  • Expectations of continued home price appreciation

Massive bust of housing bubble since 2006
  • Housing starts have fallen sharply (more than
  • But new home sales have fallen even more (over
  • Thus rising glut of unsold new and existing
    homes. Glut will worsen in the year ahead
  • Thus, downward pressure on prices already down 6
    nominal or 10 real from peak
  • Home prices need to fall 20 to 30 before they
    bottom out
  • Housing starts need to fall another 25 to 900K
    or below before they bottom out

Worst housing recession in US history
  • Sharply rising delinquencies, defaults and
  • 20 (30) fall in home prices leads to a fall of
    4 (6) trillion in housing wealth/equity
  • Subprime along will cause 2.2 million
  • But 30 fall in home prices means that 10 million
    households will have negative home equity, thus
    providing a large incentive to default on homes
  • This will be the worst housing recession in US

A US consumer-led recession
  • Private consumption is 70 of GDP
  • Until 2006 US consumers used their homes as their
    ATM machine as home prices were rising
  • But now US consumers/households are shopped-out,
    saving-less, debt-burdened and a tipping point
    while home prices are falling
  • Private consumption faltering will trigger an
    economy wide recession
  • Holiday retail sales were mediocre and falling in
    real terms relative to 2006

Negative shocks buffeting the US consumer
  • Fall in housing wealth as home prices are falling
    (20 fall will lead to 4 trillion home value
    losses 30 fall will lead to 6 trillion
  • Falling home equity withdrawal (HEW)
  • High debt ratios and rise in debt servicing costs
    as ARM mortgages are sharply resetting
  • Credit crunch in mortgages now spreading to
    consumer credit (auto loans, credit cards,
  • Oil at 100

Negative shocks buffeting the US consumer
  • Fall in consumer confidence
  • Recent fall in stock markets (10 correction)
    leading to negative wealth effect
  • Weakening of the labor market
  • Mediocre real income growth with rising income
    and wealth inequality (Middle Class economic

Can the Fed rescue the economy from a hard
landing? No as…
  • The Fed has been behind the curve for a year now
    in its assessment of the risks
  • Whatever the Fed does now is too little too
  • The economy suffers of problems of insolvency,
    not just illiquidity, that monetary policy
    cannot resolve
  • After 2001 the Fed slashed rates from 6.5 to 1
    and long rates fell 200bps
  • We still got a recession as we had then a glut of
    tech capital goods

Can the Fed rescue the economy from a hard
landing? No as…
  • Today we have a glut of housing, consumer
    durables, autos/motor-vehicles
  • When you have a glut capital spending becomes
    interest rate insensitive. Easing money is like
    pushing on a string
  • There are limits to how much the Fed can ease
    rates now inflation concerns, risk of free fall
    of the dollar, risk that foreigners will pull the
    plug on the external financing of the huge US
    current account deficit
  • Fed easing will only put a floor on the depth and
    length of the recession. It will not prevent it

A severe liquidity and credit crunch will get
  • This is a severe financial crisis
  • A crisis of the Anglo-Saxon financial system
    (Martin Wolf)
  • First crisis of financial globalization and
    securitization (Roubini)
  • The crunch will get worse over time
  • The financial losses spreading from sub-prime to
    near prime and prime mortgage, to commercial real
    estate, to auto loans and credit cards, to
    leveraged loans and to corporate bonds
  • This is not just a subprime mortgage problem. We
    have a subprime financial system
  • Risk of a systemic financial crisis

What went wrong and why systemic risk?
  • In the old times (1960s-1980s) banks held the
    credit risk. Originate and hold model
  • When many bad loans were made defaults would
    rise, a credit crunch would ensue and then a
    recession (SL crisis in late 1980s/early 1990s)
  • New model since 1980s securitization (originate
    and distribute model). Banks not holding the
    credit risk but transferring
  • Systemic risk should be lower as credit risk
    spread to capital markets and investors,
    domestic and abroad as you slice and dice the
  • Problem systemic risk turned out to be now as
    high as in the past risk of hard landing. What
    went wrong?

What went wrong?
  • It was not just a sub-prime mortgage mess
  • Same reckless practices as in sub-prime occurred
    in near prime, prime, Alt-A, home equity loans,
    piggyback loans
  • Reckless practices
  • No down payment
  • No verification of income/assets/jobs
  • Interest rate only mortgages
  • Negative amortization
  • Teaser rates
  • Hybrid ARMs
  • 60 of all mortgage origination in 2005-2007 had
    these toxic reckless characteristics

Why reckless lending?
  • Why reckless lending?
  • 1. Regulators/supervisors were literally asleep
    at the wheel cheerleading every form of
    financial innovation. Laissez-faire ideology of
    free market fundamentalism
  • 2. Securitization food chain.
  • Securitization food chain everyone now gets a
    fee (not investment income) and does not hold
    the credit risk (wrong set of incentives)
  • Mortgage broker
  • Mortgage appraiser
  • Mortgage originator bank creating RMBS
  • I-Bank turning RMBS into CDO tranches
  • Credit Rating Agency rating or misrating RMBS and
  • No market discipline as final investors are
    greedy and clueless about complex/exotic
    instruments that were illiquid and priced to
    model rather than to market and mis-rated by
    rating agencies
  • Problems in the securitization chain info
    asymmetries, adverse selection, moral hazard

Similar problems/excesses outside of mortgages
  • Similar problems and excesses in credit/lending
    did occur outside of mortgages in broader credit
  • excessive credit/leverage,
  • reckless lending at wrong terms/conditions
  • poor risk management and wrong incentives to
    search for yield and take excessive risk
  • underestimation of liquidity risk (for non-banks)
    in many other money/credit markets

Problems in broader credit markets
  • PE and LBOs/leveraged loans/CLOs
  • SIVs and ABCP
  • Hedge funds and HLIs
  • Money market funds
  • Investment banks/broker dealers
  • Banks and run on banks (Northern Rock)
  • Uncertainty about size of the losses and who is
    holding the toxic waste led to panic and risk
    aversion and liquidity hoarding
  • Thus seizure of liquidity and credit in many
    markets subprime, near-prime, RMBS, CDOs, CLOs,
    LBOs, SIVs, ABCP, money/interbank markets, etc

Why monetary policy is relatively ineffective
  • Monetary injections by central banks to address
    the liquidity/credit crunch are relatively
    ineffective (see persistently high Libor spreads)
  • Existence of non-bank financial institutions (a
    shadow banking system)
  • Insolvency rather than illiquidity alone
  • Uncertainty rather than risk

A large shadow banking system that does not
have access to LOLR
  • Growth of a large shadow financial system
  • PE and LBOs/leveraged loans/CLOs
  • SIVs, conduits and ABCP
  • Hedge funds and HLIs
  • Money market funds including state funds
  • Investment banks/broker dealers
  • Monoliner bond insurers
  • This shadow banking system does not have direct
    access to the lender of last resort (LOLR)
    support of central banks

Insolvency rather than just illiquidity
  • Liquidity problems versus credit problems
  • 1998 LTCM crisis liquidity problems alone.
    Monetary easing was effective
  • 2007 we credit/insolvency problems that monetary
    policy cannot address
  • Millions of defaulting households
  • 200 mortgage lenders gone bankrupt
  • Many homebuilders gone bust
  • Many highly leveraged institutions have gone
    belly up
  • Even corporate defaults rates will sharply rise
    now that the slosh of liquidity is gone and junk
    bond spreads are high again

Risk versus Uncertainty
  • Risk is priceable while generalized Uncertainty
    cannot be measured
  • Greater opacity, lack of info and lack
    transparency in modern financial system
  • Two types of uncertainty
  • Size of the losses is unknown. 200b, 300b on
    subprime alone? Or more? It depends on how much
    home prices will fall. Creation of illiquid,
    exotic, complex instruments that are priced to
    model rather than to markets
  • Uncertainty on who is holding the toxic waste
    (the Where is Waldo? problem)
  • This uncertainty leads to lack of trust,
    confidence, and large counterparty risk everyone
    is hoarding liquidity and unwilling to lend

Risk of a systemic and contagious financial crisis
  • Contagion from subprime to near prime and prime.
    Subprime RMBS and CDO market semi-dead and
    expected defaults (see ABX) massive
  • Contagion to consumer credit (auto loans, credit
    cards, student loans)
  • Contagion to commercial real estate (CMBX
  • Contagion to failed/postponed/restructured LBOs
    with problems for leveraged loans and CLOs
  • Meltdown of SIVs, conduits and ABCP paper market
  • Massive losses for banks and other financial
  • Soon contagion to corporate bonds and rising
    default rates
  • Risk of massive losses (250b according to Bill
    Gross) on credit derivative swaps (CDS)
  • End of a credit cycle/bubble
  • Minsky Moment and bust of a Minskian credit cycle

Why re-coupling rather than decoupling?
  • If the US had a soft landing the rest or the
    world (ROW) would decouple
  • But conditional on a hard landing the real
    economies of ROW will not decouple
  • 2007 year of decoupling
  • 2008 year of recoupling (Goldman Sachs, Morgan
  • When the US sneezes the ROW gets the cold
  • And here the US will experience a severe case of
    pneumonia not just a mild cold

Channels of recoupling/interdependence
  • Direct trade channels
  • Indirect trade channels
  • Effects on commodity prices
  • Effects of a weaker on other countries is
    extremely important
  • Transmission of financial contagion and crunch
    across the globe
  • Impact on consumer/business/investors confidence
  • Rise in investors risk aversion
  • Common shocks such as high oil prices
  • Other common shock beginning of deflation of
    housing bubbles across the world
  • Less room for macro (monetary/fiscal) policy

Inflation (stagflation) or deflation?
  • High oil, energy and commodity prices
  • Rising headline and core inflation
  • Concerns about rising inflation and stagflation
    (low growth and rising inflation)
  • But stagflation requires negative supply side
  • While a US recession and global economic slowdown
    is a negative demand side shock that will lead to
    lower not higher inflationary pressures

Why lowering inflationary pressures in a global
economic slowdown?
  • US recession leads to a fall in aggregate demand
    and lower pricing power of firms
  • Slack in labor markets reduces growth of wages
    and labor costs
  • Fall in global demand reduces commodity prices
    (oil, energy, metals, food, etc.)
  • Global economic slowdown driven by lower demand
    reduces inflationary pressures around the world
  • To get stagflation you need a large negative
    supply side shock (for example a war with Iran
    that spikes the price of oil)

Implications for major asset classes/prices
  • In US recessions SP500 index falls by about 28
    as earnings sharply fall
  • Stock market is now pricing a Bernanke put hope
    that Fed ease may prevent a hard landing
  • Credit spreads (and CDS spreads) to widen much
  • Higher corporate junk bond spreads
  • Lower home prices in the US and across other
    bubbly housing markets
  • More losses on RMBS, CDOs and related securitized

Implications for major asset classes/prices
  • Lower long term government bond rates
  • Steepening of yield curves as policy rates are
  • Further dollar weakness
  • Fall in commodity prices as global demand falls
  • Contagion to emerging market stocks, currencies
    and bonds for countries with weaker economic and
    financial fundamentals

  • US recession and global economic slowdown
  • Central banks are behind the curve
  • Severe financial losses and systemic risk
  • Recoupling of the rest of the world growth
  • Cash is king avoid risky assets
  • Serious persistent re-pricing of risk. The party
    is over!

Is Europe doomed to disappoint?
Michala MARCUSSEN Head of Strategy and Economic
Research Société Générale Asset Management
European macro decoupling hopes dashed
Tighter credit conditions ahead in Europe
Rapid transformation of Europes financial markets
The construction sector has passed the peak
The Eurozone economy has passed its peak …
…but the labour market remains resilient, for
Changing places on reform appetite
  • Is Germany reform appetite waning…
  • Voters worries…
  • With elections approaching in 2009, the SPD is
    turning back to the left
  • initiative to extend the period of unemployment
    relief for elderly workers
  • increasing support for minimum wages
  • limits to temporary employment,…
  • And the CDU could take the centre
  • Extension of minimum wages to specific groups of
  • Decrease of the corporate tax rate
  • Gradual increase of the retirement age (to 67)
  • …are good news for consumers (wage increases)…
  • …but not for external competitiveness (risks of
    higher costs for German companies).
  • …as that of France is picking up?
  • Labour market…
  • The end of the 35 hours working week, working on
  • Simplifying labour contracts
  • Pensions - extending the contribution period to
    42 years in 2012?
  • University - More autonomy in recruiting
    professor and receiving private funds
  • Product Market reforms - retail sales, banking

Building more flexible markets
Europeans need to work more
A new Single Market for 21st Century Europe
  • Focus on consumers and SMEs
  • Help consumers to exercise their contractual
    rights and get redressed across borders
  • Provide better information for consumers and
    small businesses
  • Respond to weaknesses in sectors where the Single
    Market should deliver more
  • Propose a Small Business Act
  • Introduce a 'researcher passport
  • Clarify how EU rules apply to services and social
    services of general interest
  • Promote the quality of social services across the

The global challenge of the widening gap
The firm euro will dampen exports
Watch the links to the new dynamic markets
National, European or Global champions ?
How will the ECB steer through the challenges?
Conclusion The secret to macro decoupling
lies with reform…
  • Macroeconomic decoupling hopes for Europe have
    been dashed
  • Structural reform outlook for 2008
  • France and Germany may be trading places
  • A new impetus at the EU level
  • The conventional wisdom on Europe …
  • The US is main recipient and recycler of world
  • Old Continental Europe suffers from slow growth -
    satellite currency and capital markets
  • The UK is well-positioned in the middle with
    strong ties to both the US and Europe
  • Emerging market economies main providers of
    world labour and savings
  • …may nonetheless be wrong
  • European companies have pursued restructuring
    efforts and looked to new dynamic markets
  • …micro decoupling has already occurred!

China and India the changing dynamic
  • Manu BHASKARAN Partner and Head, Economic
    Research, Centennial Group. Senior Fellow,
    Institute of Policy Studies, Singapore

Outline of key points
Asian landscape is changing
  • China shift to a new growth model
  • Short term risks are high
  • India next phase of rising growth
  • After a brief slowdown in 2008-09
  • Inter-play between China and India
  • Geo-strategic implications
  • Economic implications

China at cross-roads
Major changes brewing in short term
  • Stepped up policy tightening
  • Risk is use of blunt administrative tools
  • Exchange rate change
  • Reversal in negative interest rates

Risk bubbles could burst disruptively
Overheating concerns
China exchange rate
RMB regime change within year
  • Current situation untenable
  • Speculative inflows, inflation, …
  • Preconditions for change more in place
  • Deeper FX markets, hedging available
  • RMB will shift to more flexible regime
  • Timing not clear
  • More active reserve management
  • To promote outflows

Global currency pressures
China real rates reversing
China at cross-roads (2)
Long term huge growth lies ahead but
  • Demographic challenge grows
  • Cost-based competitive advantage
  • Environmental damage forcing change
  • Social unrest

So Economic model must change
China population dynamics
  • Economically active growing 0.57 p.a.
  • Lowest growth in gt 40 years, falling after 2011
  • Ratio of urban/rural population
  • Highest at 78 (2006)
  • Median age up
  • 1975 20.6 yrs to 2005 32.5 yrs to 2025 40 yrs
  • Fertility rate plunging
  • From 4.6 in the 1970s to 1.70 in the 2000s
  • Below replacement level

Labour shortages appearing
  • Shortages felt in industrialized regions
  • Guangdong 2.5 million unfilled job vacancies
  • Jiangsu, Shandong, Zhejiang labour shortages
  • Wages have also increased across sectors
  • More pronounced for high skilled workers
  • Lower skilled wages rising but more slowly

Productivity vs Wages
  • Before - productivity growth gt rising costs
  • But difficult for unit cost gains to accelerate
  • Wage share of GDP vs profit share backlash
  • Best FDI, trade, infrastructure gains - over
  • Impact
  • Profitability of firms pressured
  • Competitiveness under pressure too

Environment more pressing
OECD Report says that pollution by 2020 ?
  • 600,000 premature urban deaths
  • 9m person-years of work lost
  • 20m cases of respiratory illness p.a.
  • 5.5m cases of chronic bronchitis
  • China worlds largest producer of SO2

Total projected cost to GDP 13
Social unrest rising
  • Past most unrest contained
  • Fragmented, localised
  • Repression appeasement worked
  • Now signs of coordination
  • Shandong ex-soldiers organised
  • Northern provinces farmers protested
  • Root causes
  • Widening income gaps, neglect of poorest

Implications growth model
  • Cost-based ? value-based
  • Labour costs and currency rising
  • More balanced growth
  • Distribution of benefits of growth
  • Social safety nets more government spending
  • Greater priority on environment
  • Means higher costs

Result lower but higher quality growth
Impact on world changes
  • Moving up value chain
  • Producing more of its inputs
  • Threat to East Asian component exporters
  • But vacates other low-value segments
  • Further rise in current account surplus
  • So, raising protectionist threats to all Asia
  • Huge rise in capital outflows
  • FDI, portfolio flows to affect others

India new growth phase
First, a slowdown
  • Political uncertainty
  • Tighter money
  • Stronger Rupee
  • Bottlenecks
  • Skilled labour, rising wages, infrastructure
  • Some risks possible with slowdown

Then new growth phase
India new growth phase (2)
Longer term key drivers of acceleration
  • Demographic advantage
  • Investment ratio rises even more
  • Rural revolution
  • Infrastructure revolution
  • Manufacturing surge
  • Structural fall in inflation

Demographic advantage
Labour force participation rate a low 61, will
Investment ratio to rise
Rural revolution
Rural India is a source of growth
  • Political economy differs
  • No taxation, subsidies, Green Revolution
  • Rural household incomes soaring
  • Doubled in recent decade
  • Mainly because of non-agricultural activities
  • Positive for growth
  • Untapped consumption, poverty rates

Rural revolution
Infrastructure to boom
Spending on it set to surge India's
Infrastructure Capex
Manufacturing growth high
GDP Growth by Industry
Source Collated by Centennial Group from Indian
Central Statistical Office
Indian manufacturing (2)
Competitiveness will rise as
  • FDI inflows raise technical etc. prowess
  • Local companies enhance position
  • Foreign acquisitions
  • Sourcing components from best sources
  • Infrastructure constraints/costs ease
  • SEZs dilute restrictive labour etc. laws

Indias impact on world
Indian impact on Asia / world to expand
  • More FDI from India
  • Already in Singapore, Philippines
  • Supply chains into SE Asia
  • Component exports to India to rise
  • Outbound tourism to rise, already up
  • More competition in manufacturing
  • Capital account liberalisation
  • Portfolio flows to rise

China-India interplay
Simultaneous rise of two giants
  • Adjustments forced on others
  • Share of trade, investment flows diverted
  • Huge increase in resource demand
  • Upward pressure on commodity prices
  • More diverse sources of world growth
  • A more resilient world economy

China-India interplay (2)
How will they interact?
  • Political tensions will rise
  • Recent worsening in relations
  • India-US deal, Tibet
  • Nepal, Myanmar interests differ
  • Tibet succession to Dalai Lama
  • Both see SE Asia as their turf

But both keen to avoid conflict
China-India interplay (3)
How will they interact?
  • Economic interaction now limited
  • Increasing trade, investment flows
  • Differing areas of competitiveness
  • Cooperation likely in some areas
  • Secure more voice in IMF, World Bank etc.
  • Avoid conflict over resource grab

Changing dynamic of impact
  • China New growth model
  • Lower growth, higher quality
  • India New phase of acceleration
  • Expanding impact on global economy
  • Inter-play Some tensions likely

? New Rules of the Game
Questions Answers
We invite you to proceed to the Espace
Brillat-Savarin for a 30 minute break Make sure
to be back by 11.05 am
Table Ronde 11.10am 12.45pm Crisis in the
financial markets are companies threatened?
Alexandre ADLER Management Adviser, Le Figaro,
Paris Patrick ARTUS Chief Economist,
Natixis Jean-Hervé LORENZI Professor, Paris
Dauphine University, Chairman of Cercle des
économistes Christian LABEYRIE Executive Vice
President - Chief Financial Officer,
VINCI Emmanuel BABEAU Deputy Managing Director in
charge of Finance, Pernod Ricard Yves
ZLOTOWSKI Chief Economist, Coface
Alexandre ADLER Management Adviser, Le Figaro,
Are financial markets uncontrollable?
Patrick ARTUS Chief Economist NATIXIS
1. Global liquidity management and its uses
World foreign exchange reserves and monetary base
(per year, in Billions )
World monetary base (in and domestic currency)
Contribution to growth of world monetary base in
of total
Foreign exchange reserves (Billions of )
Gold spot price (/Ounce)
Stock market index emerging countries (1995
Spot price of Brent crude oil (in US/bbl)
2. Securitization and credits where are the
risks ?
Bank loans to the private sector (YoY as )
Household debt / disposable income (ratio in )
Bank loans to corporates (YoY as )
Mortgage credit to households (YoY as )
Credit to households (YoY,)
United States Credits (in GDP)
Euro Zone credits (in of GDP)
United States ABS index (spread OAS, bp)
United States Outstanding of subprime loans (bns
United States mortgage delinquency (in )
3. Less leverage, more capital financing?
Where capital can come from?
Net issuance of corporate equities (non
financial business, as of GDP)
United States insurance companies (life and
other) pension funds (private and public) - net
purchases of financial assets (as of GDP)
Euro zone insurance companies and pension funds
net acquisition of assets (as of GDP)
Japan insurance companies pension funds net
acquisition of assets (as of GDP)
4. Risk re-pricing towards a more reasonable
valorisation? Expected returns also more
reasonable now?
Euro zone credit spreads vs swaps
Spreads of covered bonds ( swap)
Hedge funds return (YoY in )
Should businesses be afraid of undergoing changes
in the financial markets?
  • Patrick ARTUS Chief Economist, Natixis
  • Jean-Hervé LORENZI Professor, Paris Dauphine
    University, Chairman of Cercle des économistes
  • Christian LABEYRIE Executive Vice President -
    Chief Financial Officer, VINCI
  • Emmanuel BABEAU Deputy Managing Director in
    charge of Finance, Pernod Ricard

Should businesses be afraid of undergoing
changes in the financial markets?
  • Patrick ARTUS Chief Economist, Natixis
  • Jean-Hervé LORENZI Professor, Paris Dauphine
    University, Chairman of Cercle des économistes
  • Christian LABEYRIE Executive Vice President -
    Chief Financial Officer, VINCI
  • Emmanuel BABEAU Deputy Managing Director in
    charge of Finance, Pernod Ricard

Coface risk assessment
  • Yves ZLOTOWSKI Economic Research and Country Risk
    Department Coface

Country and sector Risk _at_rating
  • Country Risk
  • The country risk _at_rating assesses the average
    risk of payment default by companies in a given
  • It combines economic, financial and political
    perspectives, Coface payment experience and
    business climate assessment
  • There are seven different rating grades A1 to
    A4, B, C, D
  • The ratings are regularly updated for over 155
  • Sector Risk
  • The sector risk _at_rating assesses the average
    risk of payment default by companies in a given
  • To calculate sector _at_rating, Coface combines
    three types of measurements
  • economic prospects of the sector
  • companies financial situation
  • Coface payment experience
  • There are ten different rating grades ranging
    from A for the lowest risks to D for the
    highest risks
  • The ratings are regularly updated for 15
    economics sectors

Ratings, payment incident index and sectorial
risk assessment are available on
www.cofacerating.com and www.cofacerating.fr
A  credit crisis  every ten years?
United States (A1, negative watch) Companies
facing an economic slowdown
Three Western European Countries seem vulnerable
in 2008
A relative stability is expected in the rest of
Western Europe
Despite disappointing growth, companies remain
solid in Japan (A1)
Industrialized Countries _at_country ratings
India and China, what impact from the US Slowdown?
India solid growth but no acceleration to be
An unbalanced growth in China leads to over
… that translates to credit risk of companies
A new Business Climate Rating
India and China _at_ Country Rating in A3
Questions Answers
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