1. GRAVITAS Capital Advisors, Inc. 1 The Advantage of Innovative Thinking

2. GRAVITAS Capital Advisors, Inc. 2 Review of Sub-prime Crisis Emerging Opportunities for the Caribbean Financial Sector 35 th Annual CAIB Conference Barbados – November 2008 Presenter: Eric Guichard GRAVITAS Capital

3. GRAVITAS Capital Advisors, Inc. 3 Let’s Recap… u Let’s review the damage to date: –Citigroup has declared billions in value wiped out from its balance sheet (about to cut 50,000 jobs) –Merrill Lynch, Lehman, AIG, Bear Stearns no longer exist as independent going concerns –In total to date about US$1+Trillion lost (corporates, hedge funds, insurance companies, pension funds, endowments…) –Foreclosure rates are at historical highs (+70% in Sept) –Global impact…recessions in US, Japan, Germany,…

4. GRAVITAS Capital Advisors, Inc. 4 What is sub-prime? “A picture is worth a 1000 words…”

5. GRAVITAS Capital Advisors, Inc. 5 Housing pulls Economy Home Purchase Hardware Electronics Utilities $ $ $ Jobs

6. GRAVITAS Capital Advisors, Inc. 6 Old days of Relationship Banking “Bob” the homeowner “Joe” The Banker (owns mortgage) Loan Mortgage NB: Bank owns loan and knows client – is part of community

7. GRAVITAS Capital Advisors, Inc. 7 HH Lender Packager (Securitization) PensionsInsurancesEndowments Rating Agencies Loan The Mortgage Market Today (A) Steady Cashflows + Valuable Collateral Investment Guidelines DISINTERMEDIATION

8. GRAVITAS Capital Advisors, Inc. 8 Securitization Process (A) Detroit Bank Hollywood Bank Florida Bank Wall Street Investment Bank (Packager) Selling/Buying Mortgages Pool A: 30%D 30%H 40%F Pool B: 70%D 10%H 20%F Insurance Pensions Banks Insurance Pensions Banks Low Yield Bonds High Yield Bonds (Sub-prime) Exotic Structures Exotic Loans

9. GRAVITAS Capital Advisors, Inc. 9 Securitization Process (B) Pool A High Credit Mid Credit Sub-Credit Hi Risk Rating Agencies AAA Banks Pensions Insurance Hedge Funds AA BB CCC Investors Exotic Structures Credit Default Swaps

10. GRAVITAS Capital Advisors, Inc. 10 CRISIS!! HOME PRICES PLUMMET Result: - All Securities/Collateral are valueless - Credit freezes/consumption collapses - Corporate layoffs rise - Dramatic shrinking of consumption - Recession…Depression looms

11. GRAVITAS Capital Advisors, Inc. 11 HH Lender/Broker Inv. Bkr (Securitization) PensionsInsurances Banks Rating Agencies Collateral (Value?) Loan Who’s Fault?? (Credit Worthiness?) (Due Diligence?) (Pressures?)

12. GRAVITAS Capital Advisors, Inc. 12 Now what does this all mean for Caribbean Financial Services?

13. GRAVITAS Capital Advisors, Inc. 13 Immediate Regional Implications? u Capital Calls from HQ –Freezing of major projects –Higher cost of financing (corp. and sovereign) u Slowing of Remittances –Mexico vs. Jamaica u Fear of Contagion –Regulatory Clamp Down (innovation and cross-border) –Delays in regionalization (securitization initiatives) u Late Effects –2009 and beyond: Tourism

14. GRAVITAS Capital Advisors, Inc. 14 Evolving Regional Market (What needs to be done?) u G20 Initiatives for Reform (cf. Article) –Disparate application due to local politics –Macro vs. Micro Response u The Fear of Contagion (cf. Article) –Is the dream of regionalization dead? u Takeaway for the Caribbean Regulator: –Coordinated oversight (Regional SEC?) –Balance in Risk Taking (Boards - Incentives) –Cooperation with Private Sector (not adversarial) –Transparency –Consistency across jurisdictions (Easier here)

15. GRAVITAS Capital Advisors, Inc. 15 Opportunities? u As normal sources dry up – seek alternative sources of finance: –Small Enterprise Assistance Fund (SME finance) u New product development –Remittances based products F Building on counter-cyclicality and dependence –Community based financial services F Global Education Savings Fund

16. GRAVITAS Capital Advisors, Inc. 16 In Closing u Difficult times ahead, but: –Regulators need seek balance NOT restrict –Boards should be more accountable (micro) –Regional market should stay alive –CAIB members should seek value in responsible innovation u New G20 Regulatory Framework bound to create new inefficiencies –Watch for unintended consequences.