Equity Capital Markets Overview

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Equity Capital Markets Overview

• April 3, 2001

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Equity Capital Markets Overview
Market Commentary - Equity Market
The major equity indices experienced substantial
volatility and declines in 2000...
Performance of Major Indices in 2000

• Substantial Volatility and Declines for Major
  Indices in 2000
• Nasdaq plunged 39.3 - worst year since its
  inception in 1971
• Nasdaq peak-to-trough 53.8 plunge represented
  3.3 trillion paper loss
• SP 500 down 10.1 - worst year since 1977
• SP 500 down approximately 0.3 excluding Tech
  and MT sectors
• Stock selection critical - median appreciation of
  SP 1500 stock was 17.7

and 2001 has continued to be volatile as
Greenspan indicates economic growth at present is
close to zero
Performance of Major Indices 2001 YTD

• Earnings and Multiples are Key Drivers for
  Equities in 2001
• Almost all tech market bellwethers (Cisco, Sun,
  Nortel, Dell, Oracle, EMC, Yahoo!, etc.) have
  missed earnings and/or issued cautious comments
• Consumer spending and business investment have
  faded due to slumping consumer confidence and
  near-term revenue uncertainties
• Profits recession - SP 500 2001E EPS of
  (8.5) in Q1 (7.0) in Q2 (5.0) in Q3 and
  12.0 in Q4(1) economic recession possible
• SP P/E ratio increased from 14x in 1990 to 31x
  in 1999 and is currently 21x
• All major indices negative in 2001 despite three
  cuts in the Fed Funds rate

(1) Banc of America Securities estimates for SP
500 earnings growth in 2001. SP 500 earnings
growth for calendar year 2001 is (2.7).
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Equity Capital Markets Overview
Market Commentary - New Issue Market
New equity issuance in 2000 was a record for
total equity capital raised as 864 transactions
raised 272.2 billion in net proceeds...

• Record Year for Capital Raising in 2000
• New issue volume of 272.2 billion through 864
  transactions driven by Technology,
  Telecommunications and Health Care sectors
• 431 IPOs raising 112.6 billion
• 433 Follow-ons raising 159.6 billion
• 339 withdrawn deals anticipated to raise 41.6
  billion, representing a failure rate of
  approximately 27
• Average of 22.7 billion of equity capital raised
  per month

New Equity Issuance 2000 by Month ( Billions)
however, the new issue market has recently been
characterized by extreme narrowness and limited
windows of opportunity
Recent New Equity Issuance ( Billions)

• Limited Number of New Issues given Current
  Market Volatility
• 96 transactions raising over 27.3 billion
  completed thus far in 2001
• New issue volume down 68 () and 72 () in Q1
  2001
• 92 transactions expected to raise over 9.4
  billion postponed in 2001
• Increasing focus on traditional valuation
  benchmarks (e.g. earnings)
• Modest backlog - 21 billion in 97 transactions,
  including 79 IPOs

Source CommScan as of 4/1/01. Excludes all
offerings less than 20mm and includes ADRs.
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Equity Capital Markets Overview
Market Commentary - Technology Equity Market
Major technology indices experienced substantial
volatility and declines in 2000...
Performance of Technology Indices in 2000

• Substantial Volatility and Declines for
  Technology Indices in 2000
• Nasdaq plunged 39.3 - worst year since its
  inception in 1971
• Nasdaq peak-to-trough 53.8 plunge represented
  3.3 trillion paper loss
• S P Technology Index off 40.1
• S P Technology Index off 32.5 in Q4
• S P Technology peak-to-trough plunge of 52.2

and 2001 has continued to be volatile as
investors brace for what appears to be another
difficult year
Performance of Technology Indices in 2001

• Technology Earnings Continue to Plummet
• Disappointing earnings in Q4 00, Q1 01 and lower
  guidance for Q2 - Q4 01
• Almost all market bellwethers (Cisco, Sun,
  Nortel, Dell, Oracle, EMC, Yahoo!, etc.) have
  missed earnings and/or issued cautious comments
• Estimated tech earnings of -31, -29 and -17
  for Q1 - Q3 01 Q4 01 forecasted recovery of 8
  earnings vs. 15 one week ago
• Limited visibility created by capital expenditure
  deceleration, excess inventories and slowing
  end-market demand
• The S P Technology sector is trading at 1.21x
  its earning growth rate (EGR) of 21.9 while
  non-techs trade at 1.35x their EGR of 13.5

Source BAS research estimates, FirstCall and
Factset as of 4/1/01.
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Equity Capital Markets Overview
Market Commentary - Technology New Issue Market
Technology equity issuance in 2000 represented
about 1/3 of this record-year in terms of total
equity capital raised...
New Tech Equity Issuance in 2000 ( Bns)

• Record Year for Capital Raising in 2000
• New issue volume of 85.2 billion through 345
  transactions representing 31.3 and 39.9,
  respectively, of the total equity market
• 183 IPOs raising 28.1 billion - 25.0 of all IPO
  dollars
• 162 Follow-ons raising 57.1 billion - 35.8 of
  all follow-on dollars
• 143 withdrawn deals anticipated to raise over 10
  billion, representing a failure rate of
  approximately 29
• Average of 7.1 billion of equity capital raised
  per month but only 4.4 billion if Q1 2000 is
  excluded

however, the tech new issue market has recently
been characterized by extreme narrowness and
minimal windows of opportunity

• Limited Number of New Issues given Current
  Market Volatility
• New issue volume in Q1 2001 down 87 () and 79
  () vs. Q1 2000
• New issue volume of 9.5 billion through 18
  transactions in 2001
• Median price change from f/o (22.2) IPOs
  (19.1) SECs
• Median price change from o/c (4.7) IPOs
  (26.6) SECs
• Virtually no appetite for smaller, non-bellwether
  issues
• Backlog of 33 transactions expected to raise 3
  billion
• 20 transactions expected to raise over 4.4
  billion filed in 2001
• 49 transactions expected to raise over 3.9
  billion postponed in 2001

New Tech Equity Issuance in 2001 ( Bns)
Source CommScan as of 4/1/01. Includes ADRs,
excludes offerings less than 20mm.
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Equity Capital Markets Overview
Historical Market Drivers and Performance of
Major Indices and Sectors in 2001
The equity market has been driven by strong
corporate earnings, expanding P/E multiples and
positive fund flows
SP 500 Forward P/E vs Forward EPS Growth(1)
Expanding Domestic Net Equity Flows (Billions)
Following a difficult 2000, all major indices
and sectors in BAS universe are in negative
territory in 2001
2001 Returns of Major Indices
2001 Performance by Sector (BAS Universe)
(1) Forward P/E multiples and forward EPS growth
based on average IBES estimates. (2) Includes
Strong Buy and Buy rated stocks. Source
CommScan, Factset 4/1/01.
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Equity Capital Markets Overview
Increasing Market Volatility and Decreasing
Breadth for Nasdaq Stocks
Increasing market volatility and a decrease in
breadth has had an impact on the new issue
market...
Very Selective Markets
Increasing Nasdaq Volatility(1) (Monthly Analysis)
however, the Nasdaq has historically increased
during rate cuts by the Federal Reserve despite
negative movement since the three cuts thus far
in 2001
Fed Easings Typically Catalyze Nasdaq Gains(2)
of Nasdaq Stocks Above 150-day Moving Avg.
No. of cuts 24 Total decrease 680 bp from
9.8 Duration 39 months
No. of cuts 3 Total decrease 75 bp from
6 Duration 7 months
No. of cuts 3 Total decrease 75 bp from
5.5 Duration 2 months
No. of cuts gt3 Total decrease 150 bp from
6.5 Duration ???
1996
1997
1998
1999
2000
2001
(1) Defined as greater than a 3 change. (2)
Source Factset, Reuters, Ned Davis Research,
Datastream, Wall Street Journal 1/4/01.
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Equity Capital Markets Overview
Market Overview for Initial Public Offerings
The market for initial public offerings in 2000
was dominated by Technology and Telecommunica-
tions companies
2000 IPO Volume Driven by Tech/Telecom Sectors
Historical IPO Activity Summary
Market volatility and poor performance of many
prior IPOs has contributed to a difficult pricing
environment and a decline in IPO volume
IPO Pricing Relative to Original Filing Range
Percent Change (Offer to Current) for Recent
IPOs(1)

(1) Based on median performance. Source
CommScan 4/1/01, excludes all offerings less than
20mm and includes ADRs.
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Equity Capital Markets Overview
Market Overview for Follow-On Offerings
Dollar volume of equity capital raised through
follow-on offerings realized record levels in
2000, though aftermarket performance suffered
2001 Follow-On Market (Vol)
Historical Follow-On Activity Summary
Follow-On Pricing Relative to Original Filing
Price
Percent Change (Offer to Current) for Recent
Follow-Ons(1)
Market volatility and price declines have created
a difficult pricing environment for follow-ons
(1) Based on median performance. Source
CommScan 4/1/01, excludes all offerings less than
20mm and includes ADRs.
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Equity Capital Markets Overview

• The New Issue Environment - Current Backlog

New issue backlog of 21 billion is moderate
given recent investor demand
Dollar Volume (Billions)
Number of Deals
IPO Backlog by Sector (by Volume)
Follow-On Backlog by Sector (by Volume)
The majority of equity backlog is from
Technology, Health Care, Energy and Consumer
companies
Source CommScan 4/1/01, completed transactions
exclude offerings less than 20mm and includes
ADRs.
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Equity Capital Markets Overview

• The Technology New Issue Environment - Current
  Backlog by Sector

The technology backlog (by dollar volume)
represents less than 15 of the total equity
backlog
Dollar Volume (Billions)
Number of Deals
Currently, the technology backlog is dominated by
Telecom/ Optical companies
Total Backlog by Sector based on of Deals
Total Backlog by Sector based on Volume
Source CommScan 4/1/01, completed transactions
exclude offerings less than 20mm and includes
ADRs.
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Equity Capital Markets Overview
Summary of Mutual Fund Flows
Domestic Equity Fund Flows
Domestic equity fund flows for the last five
months have seen smaller net inflows than those
in comparable prior periods
Technology fund flows have been relatively weak
since April 2000
Technology Fund Flows
Source AMG Data Services.