Update: World Financial Update: World Financial Crisis and GDP projection Crisis and GDP projection

20092009

Drs. A.G. RomeroDrs. A.G. Romero

Presentation CBS, KvK, and BNAPresentation CBS, KvK, and BNA

June 9, 2009June 9, 2009

Length of recession in the U.S. (Source: National Bureau of Economic Research)

43

138

11 10 8 10 1116

6

16

8 8

17

0

10

20

30

40

50

60

70

Aug-29

May-37

Feb-45

Nov-48

Jul-53

Aug-57

Apr-60

Dec-69

Nov-73

Jan-80

Jul-81

Jul-90

Mar-01

Dec-07

In m

on

ths

Returns, volatility, and Returns, volatility, and length of crises in monthslength of crises in months

Length Length of crisis of crisis (Months)(Months)

ReturnReturns (%)s (%)

U.S.U.S.

VolatilitVolatility (%)y (%)

U.S.U.S.

ReturnReturns (%)s (%)

U.K.U.K.

Volatility Volatility (%)(%)

U.K.U.K.

Returns Returns (%)(%)

The The Neth.Neth.

Volatility Volatility (%)(%)

The The Neth.Neth.

Credit crisis Credit crisis (2008)(2008) 17+17+ -44.7-44.7 31.131.1 -29.8-29.8 26.126.1 -47.9-47.9 32.932.9

Dot.com (2000)Dot.com (2000) 3030 -44.7-44.7 24.324.3 -41.7-41.7 23.723.7 -57.3-57.3 32.932.9

Black Monday Black Monday (1987)(1987) 22 -28.0-28.0 36.036.0 -28.2-28.2 39.839.8 -33.1-33.1 32.932.9

Oil crisis (1973)Oil crisis (1973) 1111 -39.0-39.0 30.730.7 -61.1-61.1 61.661.6 -32.0-32.0 27.127.1

Second WW Second WW (1939)(1939) 3131 -30.2-30.2 40.640.6 -24.9-24.9 35.635.6

Great Great Depression Depression (1929)(1929)

3434 -83.7-83.7 71.571.5 -43.3-43.3 22.422.4

First WW (1914)First WW (1914) 44 -17.0-17.0 17.017.0 -9.4-9.4 13.213.2

Crisis (1873)Crisis (1873) 66 -17.2-17.2 19.819.8 3.43.4 6.66.6

American Civil American Civil War (1862)War (1862) 33 -19.5-19.5 36.036.0 -2.1-2.1 5.45.4

Interagency Supervisory Interagency Supervisory Capital Assessment Capital Assessment

ProgramProgram ““Stress testing” coordinated by the Stress testing” coordinated by the

IMF for the IMF for the 19 largest banks in the U.S. 19 largest banks in the U.S. (May 2009)(May 2009)

These 19 banks hold These 19 banks hold two third (2/3) of two third (2/3) of all assets of the US banking systemall assets of the US banking system

Stress test focused on 3 major areas:Stress test focused on 3 major areas:A. A. Capital adequacyCapital adequacy

B. B. Effective liquidity managementEffective liquidity management

C. C. Effective risk managementEffective risk management

A. Capital AdequacyA. Capital Adequacy

Results stress tests IMFResults stress tests IMF (May 2009)(May 2009)

All US banks need $All US banks need $75 billion75 billion

1.1. Bank of America: Bank of America: 33.9 billion33.9 billion

2.2. Wells Fargo:Wells Fargo: 13.7 billion13.7 billion

3.3. GMAC:GMAC: 11.5 billion11.5 billion

4.4. Citigroup:Citigroup: 5.5 billion 5.5 billion

5.5. Regional Financial:Regional Financial: 2.5 billion 2.5 billion

6.6. Sun Trust:Sun Trust: 2.2 billion 2.2 billion

7.7. Key Corp:Key Corp: 1.8 billion 1.8 billion

A. Capital Adequacy A. Capital Adequacy (cont’d)(cont’d)

Results stress tests IMFResults stress tests IMF (May 2009)(May 2009)8.8. Morgan Stanley: Morgan Stanley: 1.8 billion 1.8 billion9.9. Fifth Third:Fifth Third: 1.1 billion 1.1 billion10.10. PNC:PNC: 0.6 billion 0.6 billion

1111. American Express, . American Express, 1212. BB&T, . BB&T, 1313. Bank of. Bank of New York Mellon, New York Mellon, 1414. Capital One, . Capital One, 1515. Goldman. Goldman Sachs, Sachs, 16. 16. JP Morgan Chase, JP Morgan Chase, 1717. Metlife, . Metlife, 1818. .

StateState Street, and Street, and 1919. US Bancorp . US Bancorp are sufficientlyare sufficiently capitalized.capitalized.

B. Effective liquidity B. Effective liquidity managementmanagement

Key question: Can the liquidity of Key question: Can the liquidity of the banking sector fare under the the banking sector fare under the stressed market conditions?stressed market conditions?

Result: Daily monitoringResult: Daily monitoring of the of the liquidity management of U.S. liquidity management of U.S. banksbanks

C. Effective risk C. Effective risk managementmanagement

Adequacy of risk management system; Adequacy of risk management system; Counterparty risk;Counterparty risk; Credit risk (structured credit products Credit risk (structured credit products

and mortgage lending on and mortgage lending on HIGH alertHIGH alert);); Monitor the link between risk-taking Monitor the link between risk-taking

and compensation; (bonus of top and compensation; (bonus of top managers); andmanagers); and

Effective internal communication of Effective internal communication of risks.risks.

Lessons from George Lessons from George SorosSoros

Loan To Value ratio (LTV)Loan To Value ratio (LTV) is important; is important; Past experience: Outstanding loans as % GDP Past experience: Outstanding loans as % GDP

was lower than today e.g., was lower than today e.g., 150% in 1955,150% in 1955, as as opposed to opposed to 300% + today300% + today (HIGHLY (HIGHLY LEVERAGED market);LEVERAGED market);

Mortgage loans was limited to 80%Mortgage loans was limited to 80% of the of the value of the properties (in 1950’s);value of the properties (in 1950’s);

Loans linked to an investment portfolio was Loans linked to an investment portfolio was limited to limited to 50% (legal margin)50% (legal margin) of the value of of the value of the portfolio (in 1950’s); andthe portfolio (in 1950’s); and

Concentration riskConcentration risk: Government loans in many : Government loans in many countries is the multiplication factor of GDP countries is the multiplication factor of GDP (Latin-American banking crisis of the 1980’s) (Latin-American banking crisis of the 1980’s)

Developments housing Developments housing prices in the Netherlands prices in the Netherlands

Bankruptcies in the Bankruptcies in the NetherlandsNetherlands

Unemployed personsUnemployed personsin the Netherlands in the Netherlands

(3 months average: 2001-2009)(3 months average: 2001-2009)

Dutch security exchange Dutch security exchange market (AEX-index)market (AEX-index)

Main developments Netherlands Main developments Netherlands Antilles Antilles

(real % changes)(real % changes)

20072007 20082008

Domestic expenditureDomestic expenditure 10.710.7 6.46.4

Private sectorPrivate sector 10.310.3 6.86.8

- Investment- Investment 5.35.3 4.84.8

- Consumption- Consumption 5.05.0 2.02.0

Public sectorPublic sector 0.40.4 -0.4-0.4

- Investment- Investment 0.10.1 -0.3-0.3

- Consumption- Consumption 0.30.3 0.10.1

Foreign net expenditureForeign net expenditure -7.9-7.9 -3.8-3.8- Export of goods & services- Export of goods & services 0.60.6 5.75.7- Import of goods & services- Import of goods & services 8.48.4 9.59.5GDP GDP 3.83.8 2.02.0

Expected developments in Expected developments in 20092009

Slower economic growth of 1.0% due to Slower economic growth of 1.0% due to fewer domestic activities caused by a fewer domestic activities caused by a further slowdown of the world economy.further slowdown of the world economy.

Lower inflation of 2.1% stemming from Lower inflation of 2.1% stemming from decelerating global commodity prices.decelerating global commodity prices.

Debt relief started in February 2009 (For Debt relief started in February 2009 (For Curaçao: May 2009).Curaçao: May 2009).

Lower surplus on the balance of Lower surplus on the balance of payments due to higher current account payments due to higher current account deficit combined with lower external deficit combined with lower external financing.financing.

THANK YOU!THANK YOU!