The New U.S. Financial Industry presentation for Jamaica Stock - - PowerPoint PPT Presentation

“The New U.S. Financial Industry” presentation for Jamaica Stock Exchange Oct 3, 2012

Albert G. Lowenthal

Chairman & CEO Oppenheimer & Co. Inc.

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Effects of the Financial Crisis

• Erosion of Confidence
• Restrictive Lending
• New Capital Requirements
• Concentration of Assets
• Recognition of Sovereign Risk
• Ratings May not Matter
• Lower Returns
• Financial Services in Disrepute
• Opportunities for Non Traditional Players

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Regulatory Changes

• Wall Street Reform and Consumer Protection Act (“Dodd-Frank”)

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Ends “Too Big To Fail”

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Advance Warning

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Transparency on Derivatives

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Executive Compensation

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Securitization Reform

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Ratings Agency Oversight

• Investor Protection (SEC Rule 206(4)

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New Custody requirements

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Disclosures

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Regulatory Changes (cont’d)

• International Regulatory Framework for Banks (“Basel III”)

– Increased Capital Requirements (4.5%+) – Increased Regulation & Oversight

• Prohibition on Proprietary Trading & Permitted Investments

(“Volcker Rule”)

– Limits Activities of Commercial Banks – Depository Institutions separated from “Risk”

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Who will be impacted?

• Directly

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Banks

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Credit Providers

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Broker-Dealers

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Insurance Companies

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Exchanges (Old & New)

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Others

• American Express
• Visa, Master Card
• Mortgage Brokers,
• Non Bank Lenders & Servicers

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Who will be impacted? (continued)

• Indirectly

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Issuers

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Financial Market Participants

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Consumers

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Tax Collectors

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Taxpayers

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Financial Service Professionals

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Market Issues

• European Sovereign Debt Overhang
• Economic Slowdown

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Europe

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Asia

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U.S. – not yet

• Excess Liquidity created by Central Banks
• Interest Rates & Market Risk
• Risk Transparency
• Inflation- when?

8

Emerging Market Fallout (Jamaica)

• Bifurcated Risk Tolerance

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Reduced Demand for Higher Risk Issues

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Excess Demand for Higher ratings

• Difficulty in finding risk capital for new projects

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Infrastructure

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Growth

• Impact on Tourism

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European Uncertainty

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U.S. Consumers

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U.S. Markets & Market Players

• Volcker Rule will drain liquidity
• Risk Tolerance will be less

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JP Morgan $5.7 bn loss

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Barclays & LIBOR Issues

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European Banks may depart due to capital constraints

• Talent will leave more regulated players and migrate to less regulated

(inability & unwillingness to pay)

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Major Banks will be less impactful

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Hedge Funds, Financial Sponsors, Private Equity will benefit

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Temporary or Permanent Changes

• Higher Capital requirements are permanent
• Volcker Rule will permanently eliminate certain risks from Commercial

Banks (alternative investment sponsors, trading of high risk investments)

• Centralization of Derivatives will reduce profitability and thus liquidity of

more exotic forms

• Inability or unwillingness to pay employees competitively will see migration
• f talent
• Lack of profitability will raise Cost of Capital
• AML will continue to impact less developed markets and citizens

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Temporary or Permanent Changes (continued)

• Risk to Euro is temporary
• New market players will emerge and gravitate to less traveled markets
• Markets are likely to remain fragmented and uncertain for another

36 months

• Higher interest rates (when?) will actually return normality to markets and

more normal allocation of risk

• U.S. will continue to overreact to issues that brought on the Financial Crisis
• Consumers will continue to see higher cost of credit and lower availability
• Spending will be limited to those with jobs, savings, ability to re-pay debt

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Regulation & Trading Markets

• Volcker Rule & Basel III will:

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Reduce willingness to carry inventory

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Issuers will have shorter windows

• Risk-On/Risk-Off will continue to affect markets and receptivity to

new issue

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Agency markets are likely to be permanent

• “Leave your order with me”
• “I’ll get back to you”

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Smaller players are likely to have better information and markets

• More dedicated
• Fewer distractions
• Better relationships

13

Oppenheimer & Co. Inc.

• Independent & Broker-Dealer (non-bank)
• Not impacted by Volcker Rule or Dodd Frank
• Has always been an agency player
• Depends on local knowledge & local relationships
• Invested in the Caribbean
• Broad Capabilities in:

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Money Management ($21 billion)

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Capital Markets

• Equities -160 professionals
• Fixed Income -140 professionals (emerging markets experienced

professionals)

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How do we address the market as we see it?

• Hold on to talent
• Take advantage of market opportunities as they emerge due to

“Too big to Fail” abandonment

• Attract available experienced personnel with relationships & knowledge
• Be a reliable partner to our clients and play for the long term
• Data is in over supply, information is not
• Pick areas of expertise where we can be relevant

Oppenheimer Appendix

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Oppenheimer Highlights

Top 10 Private Client Business

1,435 registered representatives National footprint with 94 offices in 26 states and

5 foreign jurisdictions

Entrepreneurial culture that continues to attract

experienced new financial advisors Conservative Risk Philosophy and Balance Sheet

Conservative risk position Limited risk in proprietary positions (primarily a transaction

flow business)

Level III assets (illiquid and/or hard to price) of $88MM 5.7x gross leverage (assets/capital)

Strong Cash Flows

Generated strong cash flows even in difficult environment

Liquid Balance Sheet

$510MM in shareholders’ equity Committed bank lines No significant write-downs during financial crisis Regulatory net capital of $142.3MM at June 30, 2012

Experienced Management Team

Extensive securities industry experience and significant

tenure at the Company

Top 12 senior managers have an average 14+ years at

Oppenheimer and 25+ years of overall industry experience

“The New U.S. Financial Industry” Jamaica Stock Exchange Oct 3, 2012