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 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:

Evolution of Current Events
This chapter outlines the evolution of current events:

Current Events History

  • The stock market plummeted and lost $8.0 trillion in value between 2000 and 2003
  • The mutual fund scandals began in 2001 when Noreen Harrington notified Stern Management of late trading activity in is Canary Capital unit
  • The Sarbanes-Oxley act was passed in 2002
  • The sub-prime mortgage crisis swept the nation in 2008
  • The US Congress passed the Economic Stimulus Program in 2008
  • Madoff blew up in 2008

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

World Political Events

  • Over three-quarters of affluent investors are concerned that terrorism will hurt the US economy
  • The Democratic Party won almost two-thirds of the Electoral College votes

World Disasters

  • A large earthquake struck San Francisco, California in 1906 and killed 3,000 people
  • Hurricane Katrina hit New Orleans in 2005 and killed 1,600 people

Economy & Markets

  • The United States Government was bailed out by JP Morgan after gold reserves plunged to $9 million in 1895
  • Technology was in a bubble from 2000 to 2002
  • The United States lost 760,000 jobs in 2008
  • The stock market declined sharply in 2008, with the indices being down 31% to 41%.
  • The Standard & Poor’s 500 lost $5.1 trillion market capitalization in 2008, nearly as much as the Shanghai SX, NASDAQ, & FTSE 100 lost combined
  • The Chicago Board Options Exchange volatility index hit an unprecedented high of 80 in 2009

Corporate Scandals

  • The Enron scandal occurred from 2001 to 2005 when the company moved debt off of its books and inflated profits frequently with accounting irregularities
  • 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, and Citigroup were the hardest hit

Financial Services Industry Stumbles

  • 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
  • Three mutual funds not implicated in the mutual funds scandal, American Funds, Fidelity, & Vanguard, have benefited
  • Smith Barney paid the biggest fine in the stock analyst scandal at $400 million, followed by Merrill Lynch & Credit Suisse each at $200 Million
  • After the burst of the technology bubble in 2001, the Federal Reserve lowered its benchmark interest rate to 1.0% from 6.5% over two years
  • Consumer households borrowed $2.7 trillion for mortgages, down from the peak of $3.9 trillion in 2003
  • Consumer households’ residential mortgage debt is $12.1 trillion, up over 100% since 2000
  • Bank of America’s Countrywide Financial is the largest subprime servicing company with $98.9 billion in the second quarter of 2008
  • The sovereign wealth funds stepped in to solve many capital issues, with Singapore leading the way, taking stakes in UBS, Citigroup, Merrill Lynch, & Barclays
  • There is $964 billion of outstanding credit card debt, up 20% since 2004
  • Nearly two-thirds of consumers carry a credit card balance each month

Presidential & Congressional Elections

  • The Democratic Party spent $23.5 million contending for house seats during the 2008 congressional election
  • The Republican Party spent $1.5 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

Regulatory Environment

  • Allianz Global Investors (Pimco) and Black Rock are the two largest firms in the domestic fixed income segment with $424 billion and $423 billion respectively
  • 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
  • Citigroup and Bank of America received the largest amount of TARP government investments with $50 billion and $45 billion respectively
  • Almost all large companies believe that banks should be required to disclose how TARP funds are being used
  • Nearly two-thirds of investors incorrectly believe that brokers and investment advisors offering fee-based advice are required to disclose all conflicts of interest prior to providing advice

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

Significant Consumer Impacts & Accelerating Product Shifts

  • Consumer household net worth fell $11.0 trillion in 2008 to $51.5 trillion before recovering partially to $54.2 trillion in 2009
  • The number of consumer households with over $1.0 million net worth dropped 27% in 2008 but recovered to 7.8 million in 2009
  • The number of consumer households with over $500,000 net worth declined 28% in 2008 to 11.3 million but recovered 12% to 12.7 million in 2009
  • Two-thirds of bankruptcy filings are the result of forced unemployment
  • Over half of affluent consumers have delayed their retirement plans due to the recent economy, up from one-quarter in 2008
  • The US personal savings rate has been decreasing in recent years, but increased to 2.9% in 2008, 4.3% in 2009, and 6.0% in 2010
  • Exchange traded fund assets declined from $608 billion to $578 billion in 2008 but rebounded in 2009 to $782 billion
  • Hedge fund assets ended 2008 at $1.3 trillion but recovered to surpass its 2007 high at $1.9 trillion in 2009
  • The price of fine wines is up 30% after a huge drop of 15% between 2007 and 2008

New Regulatory Regime

  • One-half of consumers believe the health care law should be repealed
  • The core issue behind the broker & RIA regulations is whether to base such on suitability or fiduciary standards

Accelerating Channel Shifts

  • Markets & distribution channel flows will come from high ethical channels with client focus
  • Almost all full-service brokerage firm clients say that they intend to take money away from their brokers
  • The break-away broker movement really just goes in circles, with brokers moving from one firm to the next for upfront payments

A Return to Tactical Basics

  • Over three-quarters of high net worth individuals say that they plan to take money away from their current financial advisors
  • Only 2% of high net worth investors say that they plan to recommend their financial advisor to other investors

Abundant Financial Services Industry Investment Opportunities

  • New York Stock exchange registered securities firms revenues were off 50% in 2008, returning to 1998 levels
  • FINRA registered securities firms revenues were off less than 10% in 2008, still nearly 100% above 1998 levels
  • The market capitalization of the four largest US banks has fallen from $1.1 trillion to $229 billion but increased in 2009
  • Five financial services institutions raised collectively $22 billion for their IPO, showing that the IPO market is opening
  • Retail banks will be the most aggressive acquirers because they are the largest institutions

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