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See Table of Contents for Tiburon's Current Events Research Report
New Tiburon Research Report - Current Events: Making Sense of the Impacts of Today's Market Events

Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to announce the release of its newly updated research report on Current Events. This research release summarizes some of the report's key findings.

The purpose of this report is to provide readers with an initial understanding of current events and their impact on the financial services industry, various products & channels, and specific financial services firms. The report addresses world political events, world disasters, the economy & stock market, corporate scandals, financial services industry stumbles, presidential & congressional elections, and the regulatory environment. This is the second draft of Tiburon’s research on this topic.

Tiburon’s first draft of this report was published in 2008; that draft consolidated prior Tiburon research into one report. Because of the timing, that draft also included substantial details about the credit crisis and the 2008 presidential & congressional elections.

This is Tiburon's second draft of this report; this draft includes more detail on the economic stimulus bill, the bank bailouts, other recent financial services industry stumbles (e.g., Madoff), and the new regulatory environment under President Obama. This draft also includes refined predictions and an initial appendix profiling the various federal & state governmental agencies that regulate the financial services industry.

Key Findings
This report has a long list of interesting facts to share:

The Evolution of Current Events
This is chapter outlines the evolution of current events.

Current Events History

  • The Dow Jones Industrial Average rallied 16% in 1939 to 1940 in the eighteen months following the start of World War II
  • The 9/11 World Trade Center terrorist attack occurred in 2001
  • The stock market plummeted and lost $8.0 trillion in value between 2000 and 2003
  • The sub-prime mortgage crisis swept the nation in 2008
  • The US Government approved the Economic Stabilization Act on October 3, 2008 allowing it to purchase and manage up to $700 billion of mortgages, with the objective of stimulating the economy
  • Madoff blew up in 2008

Current Events Definition

  • There has been $290 billion consumer investing behavior impact from current events
  • There have been 13,050 financial institutions impacted by current events

Current Events Categories
This chapter explains the categories of current events.

World Political Events

  • The Dow Jones Industrial Average has always rallied eighteen months following a world crisis; the biggest rally occurred after the Persian Gulf War in 1991
  • Prior to the 9/11 World Trade Center terrorist attack the stock market’s performance was the primary financial concern of the affluent

World Disasters

  • The Yellow River flooded in China in 1887 and killed 1.5 million people
  • A large earthquake occurred in the Indian Ocean in 2004 and the subsequent tsunami killed 230,000 people in twelve countries

Economy & Markets

  • The stock market lost 86% during the 1929 to 1932 depression
  • The stock market has declined sharply in 2008, with the indices being down 30% to 38%
  • Three-quarters of consumers believe that the credit crisis is just as serious or more serious than the dot com bubble burst
  • The Dow Jones Industrial Average had its largest single day point drop on September 29,2008 of 778 points
  • Over the past few years, volatility has also become the norm; in 2002 the Standard & Poor's 500 reached its highest volatility levels since 1938
  • The total assets of public companies that declared bankruptcy was $1.1 trillion, up 150% since its previous peak in 2002
  • Lehman Brothers & Washington Mutual were the largest public companies to file for bankruptcy, with more assets than the next five companies combined
  • The CEOs of American International Group, The Bear Stearns Companies, & Lehman Brothers saw the collective value of their stock ownership drop from $3.1 billion to $113 million

Corporate Scandals

  • The Enron scandal occurred from 2001 to 2005 when the company moved debt off of their books and inflated profits frequently with accounting irregularities
  • The World Com scandal occurred from 2002 to 2004 when CEO Bernard Ebbers was accused of inflating the company’s value to help cover margin calls and avoid defaulting loans in 2004
  • Over $600 million in fines have been levied against financial services companies in regards to their Enron Involvement; Lehman Brothers, JP Morgan Chase, and Citigroup were the hardest hit
  • Former CEO Joseph Nacchio sold $230 million in Qwest Communications stock before the company’s share price collapsed from $65 to $3
  • The defense of World Com CEO Bernie Ebbers saw him plead ignorant to the complexities of the $11.0 billion accounting fraud in 2005
  • Nortel executives inflated revenues by $3.1 billion in order to meet bonus targets

Financial Services Industry Stumbles

  • Consumer wealth concentration peaked just prior to the 1929 stock market crash
  • The Mutual Fund late trading scandal is the largest ever financial services industry stumble in terms of financial services company settlements paid at $2.9 billion
  • The $193 million Dick Grasso received is well in excess of the $68 million that industry experts say was merited as chairman of the NYSE
  • Consumer households’ residential mortgage debt is $12.1 trillion, up over 100% since 2000
  • Subprime mortgages grew to almost half of the market in 2007, up from 8% to 19% in 2003 to 2006
  • Over one-quarter of subprime adjustable rate mortgages are now 90 days or more past due, up from 5% to 10% in 2002 to 2006
  • Merrill Lynch, Citigroup, & UBS account for almost half of all write-offs since the beginning of 2007
  • Fannie Mae and Freddie Mac purchased almost two-thirds of mortgage originations, up from a low of 33% in 2006
  • There will be a peak of 11,900 Alt-A adjustable rate mortgages resetting in December 2009
  • Bank of America’s acquisition of Merrill Lynch formed the largest brokerage firm in the world with 20,000 financial advisors
  • Washington Mutual is the largest bank failure with $327.9 billion assets
  • The Economic Stabilization Act aims to reduce the amount of home defaults by 2010 to 1.5 million, down from 2.7 million expected in both 2008 & 2009
  • There is $2.6 trillion of non-insured bank deposits, up over 100% since 2000
  • Wells Fargo Corporation’s acquisition of Wachovia makes it the largest retail bank in terms of branches with 6,600 branches

Presidential & Congressional Elections

  • Barack Obama was elected president in 2008
  • There have been $10 billion consumer investing behavior impact from presidential & congressional election events
  • Roth IRAs and traditional IRAs are likely to be converted into retirement savings accounts with higher annual contribution limits
  • The Democratic party spent $23.5 million contending for house seats during the 2008 congressional election
  • Almost two-thirds of financial advisors approve of President Obama’s performance since taking office
  • Almost all financial advisors believe that the economy should be President Obama’s top domestic priority during his first 100 days in office

Regulatory Environment

  • Over three-quarters of investors indicated they would seek services from an investment advisor if they knew the advisor was required to act in their best interest in all aspects of the financial relationship
  • Nearly all investors believe financial professionals offering fee-based advice should always have a responsibility to act in the client’s best interest

Making Sense of the Impacts of Today’s Market Events
This chapter outlines the impacts of today’s market events.

Significant Consumer Impacts in Terms of Loss of Retirement Funds, Decline in Confidence, Increase in Bankruptcies, & Delayed Retirements

  • American workers lost an average of 27% of their 401k retirement savings in 2008
  • The Conference Board’s Consumer Confidence Index is 39, down from its 1999 peak at 142 and at its historic low since its tracking began in 1973
  • There were 1.1 million personal bankruptcy filings in 2008, up over 100% since 2006 but down from its peak in 2005 with 2.1 million
  • Over half of affluent consumers have changed their retirement plans due to the recent economy, up from one-quarter in 2008

Huge Number of Financial Services Company Failures & Dozens of Related Industry Impacts

  • Some analysts predict there will be 1,000 bank failures
  • Almost all consumers believe companies who were bailed out should be forced to cap top executive pay, bonuses, & perks
  • JP Morgan Chase is the largest retail bank in terms of deposits with $911.2 billion
  • The office vacancy rates in downtown New York and Manhattan are 6.9% & 5.7% respectively and are projected to reach 9.5% by the end of 2009

More Imminent Crises Credit Cards, Commercial Real Estate, Etc.

  • There is $964 billion of outstanding credit card debt, up 20% since 2004
  • JP Morgan Chase, Bank of America Corporation, & Citigroup are the largest issuers of credit cards, each with more than $150 billion in credit card debt
  • Some predict that credit card issuers will lose $41 billion in 2008 and $96 billion in 2009, up more than 400% since 2001
  • Commercial banks are likely to lose $300-$400 billion on commercial loans

New Regulatory Regime & Slow Righting of the Economy & Markets

  • There were 2.6 million jobs lost in 2008, the biggest loss since 1945
  • The United States unemployment rate is 7.2%, down from its 1982 peak of 9.7%, but at its highest since 1992
  • The United States misery index is over 10% for the first time since 1992
  • The US Personal savings rate has been decreasing in recent years, but increased to 2.9% at the end of 2008

Consumer Skepticism of Financial Services Industry, Decline in Complicated Investment Products & Channels, & the Return to Client Communications & Segment Marketing

  • Over half of baby boomers believe that the stock market is too risky for people their age
  • Over one-third of CPAs believe their revenues will increase 5% to 10% in the next year
  • Almost three-quarters of financial advisors expect to maintain their customer’s allocation in equities
  • Over three-quarters of investors with more than $1 million investable assets plan to take money away from their current financial advisor

Abundant Financial Services Industry Investment Opportunities & the Return of Financial Services Industry Private Equity Investments

  • The market capitalization of the four largest us banks has fallen from $1.1 trillion to $229 billion
  • The largest financial company has a market capitalization of $136 billion, down over 40% since the peak of the Dow Jones Wilshire 5000 one year ago
  • The number of US banks may fall below 8,000 banks, with those who have assets between $5 billion and $20 billion being the most likely to be acquired

To better understand the developments for Current Events, executives can purchase Tiburon's Current Events: Making Sense of the Impacts of Today's Market Events research report where the key findings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com or 415-789-2540.

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