See Table of Contents for Tiburon's Current Events Research Report

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 new 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, various markets & distribution 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 details on the economic stimulus bill, the bank bailouts, other recent financial services industry stumbles (e.g., Bernie Madoff, Stanford Financial Group), 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:

Current Events Definition

  • There have been 13,050 financial institutions impacted by current events

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

Economy & Markets

  • The S&P 500 declined 49% from March 24, 2000 to October 9, 2002
  • The S&P 500 had a return of -37% in 2008, its second worst year after only 1931
  • The Dow Jones Wilshire 5000 is valued at $11.7 trillion, down 40% from its peak of $19.1 trillion one year ago
  • 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
  • The Economic Stabilization Act exceeds the cost of the entire new deal by over 30%
  • First mortgage home defaults reached 2.7 million in 2008 & 2009, up 1,000% since 2007 and 300% since 2000 to 2006

Corporate Scandals

  • Income tax related corporate penalties reached $939 million, up almost 200% since 2002
  • Enron earned the dubious distinction of being the most widely publicized scandal of 2002
  • The Health South scandal occurred when Richard Scrushy and other Health South executives inflated earnings by $2.7 billion between 1996 and 2003 in order to meet Wall Street expectations
  • Global Crossing ultimately settled a class-action lawsuit for $325 million; three-quarters of the settlement was to be returned to investors
  • Enron executives paid $155 million in fines, including a $90 million lawsuit filed against former CEO Ken Lay
  • Over $600 million in fines have been levied against financial services companies in regards to their Enron Involvement; Lehman Brothers, JP Morgan Chase, & Citigroup were the hardest hit
  • Qwest Communications restated over $950 million in revenue generated from the swap transactions and narrowly avoided bankruptcy

Financial Services Industry Stumbles

  • Consumer households borrowed $2.7 trillion for mortgages, down from the peak of $3.9 trillion in 2003
  • First lien subprime mortgages without full documentation have been increasing, reaching 41% up from 22% in 1999
  • Second lien subprime mortgages without full documentation have increased dramatically to 58%, up from just 4% in 1999
  • Merrill Lynch and Deutsche Bank were the leading underwriters & dealers of structured products with $11.8 billion and $11.3 billion respectively
  • There will be a peak of $3.4 trillion outstanding credit default swaps in 2013
  • Consumers who purchased their homes in 2005 to 2007 are one-third to half likely to owe more than their home’s market value
  • Subprime mortgages account for nearly three-quarters of all mortgages that will reset in 2007 & 2008 and other non-prime loans account for most of the rest
  • 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
  • Wachovia & Citigroup were the leaders in write downs & losses, having written off $95 & $75 billion, respectively
  • Countrywide was the largest seller of loans to Fannie Mae with $124.6 billion, three times that of the next competitor
  • 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
  • Lehman Brothers is the largest US corporate bankruptcy with $639 billion assets
  • Washington Mutual is the largest bank failure with $327.9 billion assets
  • JP Morgan Chase’s acquisition of Washington Mutual expanded its branch network to 5,410 branches, up 70% since before the merger
  • There is $2.6 trillion of non-insured bank deposits, up over 100% since 2000
  • Financial services companies and corporate asset backed commercial paper account for 10% of US dollar commercial paper, compared to 40% of all unsecured commercial paper
  • General Electric and Citigroup insure $36.9 billion and $29.5 billion in credit card debt, exposing themselves to large risk as delinquencies rise

Presidential & Congressional Elections

  • There have been $10 billion consumer investing behavior impact from presidential & congressional election events
  • The Democratic Party accounted for nearly 95% of congressional election house spending in 2008
  • The Democratic Party spent $23.5 million contending for house seats during the 2008 congressional election

Regulatory Environment

  • Over three-quarters of investors are concerned about unequal fiduciary responsibilities for brokers and investment advisors
  • 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 financial relationship

Making Sense of the Impacts of Today’s Market Events
This section 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, and Consumer Skepticism & Risk Aversion

  • Consumer household assets fell to $70 billion in 2008, down almost 10% since 2007
  • The number of consumer households with over $5.0 million net worth is up 350% since 1997 but declined 28% in 2009 to 840,000
  • American workers lost an average of over one-quarter of their 401k retirement plan savings in 2008
  • Consumer households lost $2.0 trillion in real estate equity since 2006 to $8.9 trillion
  • There were 1.1 million personal bankruptcy filings in 2008, up over 100% since 2006 but down from the peak in 2005 with 2.1 million
  • Only one-third of consumers now believe that they can someday stop working altogether, down from 39% to 41% since 2007 & 2008
  • Nearly three-quarters of consumers stopped contributing to retirement accounts due to the economy
  • Over one-third of US employers reduced or eliminated matching contributions of their defined contribution plans in 2008

Depressed Assets & Revenues, Enormous Losses & Write-Downs, Incredible Market Capitalization Declines, Huge Capital Raises, Huge Number of Financial Services Company Failures, & Dozens of Related Industry Impacts

  • New York Stock exchange registered securities firms revenues were off 50% in 2008, returning to 1998 levels
  • Wachovia, Citigroup, & Merrill Lynch took the largest losses & write downs, having written off $95 billion, $75 billion, & $60 billion respectively
  • The market capitalization of the four largest US banks has fallen from $1.1 trillion to $229 billion

New Regulatory Regime, the Slow Righting of the Economy & Markets, and the Return to Simplicity

  • The Economic Stabilization Act was the largest government bail out ever, 250% larger than the Fannie Mae & Freddie Mac takeover
  • All five of largest US government bailouts have been of financial services companies, including the Economic Stabilization Act, the savings & loan crisis, Fannie Mae & Freddie Mac, American International Group, & The Bear Stearns Companies, with four happening in 2008
  • The US government’s troubled assets relief program investments have dropped in value by almost 50% to $110 billion
  • The United States inflation rate is 3.9%, down from its 1917 peak of 17.8% and a recent peak in 1980 of 13.6%
  • Financial institutions losses & write-offs may reach $1.0 trillion by 2013
  • Investment managers expect the largest flows to come from family offices, insurance sub-advised opportunities, & high net worth consumer channels
  • Of the top ten mutual fund companies, American Funds, Fidelity Investments & Vanguard saw the largest 2008 assets under management declines, losing $419 billion, $374 billion, & $261 billion respectively
  • Separately managed accounts were the hardest hit of all types of brokerage accounts in 2008, declining 39% to $460 billion
  • Hedge fund-of-hedge funds shrank nearly 30% in 2008, with most of those losses coming in the later part of the year as volatile markets, poor returns, & impact of the Madoff scandal took their toll
  • The Charles Schwab Corporation’s 5,500 fee-based financial advisors have brought in more assets than even Merrill Lynch’s 16,690 brokers since the beginning of 2007

Abundant Financial Services Industry Investment Opportunities, Increasing Financial Services Industry M&A Activity, and the Return of Financial Services Industry Private Equity Investments

  • The market decline provides for a once in a lifetime acquisition opportunity due to significant market declines and some financial services firms being forced or encouraged to sell their crown jewels
  • One-quarter of life insurance company chief financial officers say that they may seek to acquire group life businesses
  • Financial institutions buyouts accounted for 13% of all buyouts, up from just 6% in 2004 but still far below their share of all public companies

To better understand the developments for Current Events, executives can purchase Tiburon's Current Events: Making Sense of the Impacts of Today's Markets 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.