Investment Committee Update short version George Wellde

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Investment Committee Updateshort version
George Wellde

• Originally Presented at
• GAVI Alliance Board meeting
• Geneva, 29 30 October 2008

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Credit Crisis Calendar shown at June Board Meeting
2008
2007
Bank of America (US) buys Countrywide
Merrill (US) announces 7.9 B writedown
ECB announces it will lend 95 B in one-day funds
(9/11 attack)
UBS (Switzerland) announces 3.4 B writedown
Bear Stearns Hedge Funds (US) Collapse
Lehman (US) announces 3.7 B writedown
Northern Rock (UK) bailout
Coordinated injection of 100 B by US Federal
Reserve, BOE, ECB, National Banks of Canada and
Switzerland
Countrywide (largest US mortgage lender) draws
down on 11.5 B credit facility
US Federal Reserve cuts rate 50bps, the first of
seven cuts
JPMorgan (US) announces acquisition of Bear
Stearns for 2/share
IKB Deutsche Industriebank (Germany) bailout
Citigroup (US) announces 2.2 B writedown
22 June
30 July
7 Aug
13 Sept
18 Sept
1 Oct
15 Oct
24 Oct
12 Dec
11 Jan
16 Mar
9 June
16 Aug
GAVI Alliance Board meeting 29 30 October 2008
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Credit Crisis Calendar Now
Fortis NV (Netherlands) Nationalization
Fannie Mae (US) Nationalization
BNP Paribas (Belgium/Luxem) Buys Fortis
Alpha Bank and Trust (US) 16th US Bank Failure
in 2008
Freddie Mac (US) Nationalization
Washington Mutual (US) Govt Brokered Sale
AIG (US) Government Bailout
Hypo Real Estate Holding (Germany) Government
Bailout
Indy Mac Bancorp (US) Government Seizure
15 Sept
17 Sept
29 Sept
20 Oct
7 Aug
7 Sept
26 Sept
5 Oct
16 Sept
24 Oct
11 July
HBOS PLC (UK) Govt Brokered Sale
Bradford Bingley (UK) Nationalization
ING Groep (Netherlands) Government Injection
Lehman Brothers (US) Bankruptcy
American Home Mortgage Investment
Corp. (US) Bankruptcy
Hypo Real Estate Holding (Germany) Emergency
Funding
Dexia (Belgium/France/Luxem) Emergency Funding
Wachovia Bank (US) Govt Brokered Sale
GAVI Alliance Board meeting 29 30 October 2008
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Comparison of Global Bank Losses/Capital Raised
Source Bloomberg
GAVI Alliance Board meeting 29 30 October 2008
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Huge Wealth Destruction since December 2007
World Exchange Market Capitalization
Source Bloomberg
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Range of Government Policy Responses

• Normal (June) Current Crisis
• Monetary policy X X
• Liquidity and lending guarantees X
• Bank recapitalization X
• Bank deposit guarantees X
• Outright purchase of toxic assets X
• Ban on short selling X

Source Financial Times
GAVI Alliance Board meeting 29 30 October 2008
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Monetary Policy
Source Bloomberg
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Policy Responses to Credit Crisis in the Americas

• United States
• Government guarantees all senior debt issued by
  banks over next 3 years
• Government passes HR 14224 (TARP) providing 700
  billion to quell financial crisis
• 250 billion of TARP allocated to purchase
  preferred stock in banks
• Federal Housing Authority becomes the conservator
  of government sponsored entities Fannie Mae and
  Freddie Mac
• Federal Reserve provides Money Market Mutual Fund
  (MMMF) Guarantee of up to 540 billion to
  finance purchase of certain money market
  instruments.
• Federal Reserve provides Asset Backed MMMF
  Commercial Paper Liquidity Facility
• Federal Reserve establishes Commercial Paper
  Funding Facility to enhance liquidity of
  commercial paper market
• Federal Reserve increases supply of term funds to
  Banks. Conducted Term Auctions of 150 billion
  during month of October.
• Federal Deposit Insurance Corporation (FDIC)
  implements Temporary Liquidity Guarantee Program
  to guarantee newly issued senior unsecured debt
  of participating organizations and provide full
  coverage for non-interest bearing transaction
  deposit accounts.
• Canada
• Bank of Canada provides liquidity for private
  money market sector by entering into 14-day term
  purchase and resale agreement facility
• Mexico
• Central bank spends 11 billion in defending the
  value of the Mexican peso
• Argentina
• Government proposes nationalization of private
  pensions to meet sovereign debt payments
• Brazil
• Central bank injects liquidity into financial
  system by reducing bank reserve requirements

GAVI Alliance Board meeting 29 30 October 2008
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Policy Responses to Credit Crisis in Europe

• France
• Government provides 320 billion to guarantee
  bank lending
• Germany
• Government provides 400 billion in credit
  guarantees for inter-bank lending
• Iceland
• Requests 4 billion loan from Russian finance
  ministry
• Ireland
• Government provides 400 billion to guarantee
  liabilities of banks
• Italy
• Allocates 40 billion in treasury bills for use
  as refinancing against inferior assets
• Emergency measure passed to buy non-voting stakes
  in banks
• Netherlands
• Government provides 20 billion to recapitalize
  banks
• Norway
• 55.4 billion offer extended to 4 commercial bank
  for government to exchange government bonds for
  mortgage debt
• Spain
• Government approves measure to purchase bank
  shares
• Provides 100 billion to guarantee bank debt in
  2008, and unspecified amount in 2009

GAVI Alliance Board meeting 29 30 October 2008
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Policy Responses to Credit Crisis in Asia

• Australia
• Government posts A8 billion to purchase
  residential mortgage backed securities
• Entire deposit base of up to A700 billion
  guaranteed for three years
• China
• Peoples Bank of China lowers one-year lending
  rate by 0.27 to 7.2, the first cut in more than
  6 years
• Also reduces reserve requirements for smaller
  domestic banks by 1.0, the first drop in the
  reserve requirement since 1999
• India
• Reserve Bank of India cuts repo rate by 1.0 to
  8.0
• Arranges to provide liquidity to Indias second
  largest bank ICICI bank to prevent a bank run
• Indonesia
• Deposit guarantees raised from 10,000 to
  200,000
• Banks reserve requirements reduced from 9.08 of
  assets to 7.5
• Japan
• Bank of Japan injects 14 billion into money
  markets
• Malaysia
• Government announces injection of 1.4 billion
  into stock market
• Russia
• Government pledges 100 billion extra liquidity
  to banking sector

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Market Turmoils Impact
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Asset Allocation
Large Endowments vs. GAVI
Sector Returns
Source Commonfund 2007 Endowment
Benchmarks Study
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(No Transcript)