Slide 0November 13, 2007
PRELIMINARY | SUBJECT TO FURTHER REVIEW AND EVALUATION
THESE MATERIALS MAY NOT BE USED OR RELIED UPON FOR ANY PURPOSE OTHER THAN AS SPECIFICALLY CONTEMPLATED BY A WRITTEN AGREEMENT WITH CREDIT SUISSE.
CONFIDENTIAL
DRAFT
Global GDP & IP Growth
Global growth should average 5.2% in 2007 and 5.1% in 2008.
Sources: Datastream, Credit Suisse.
Notes: IP = Industrial Production.
2001 – 2006 Peak at 8% yoy
CONFIDENTIAL
DRAFT
Global Imbalances
Global Imbalances
Worry as Chinese reserves poised to touch historic US$1 trillion level
January 17, 2006
“BEIJING - China's foreign-exchange reserves rose to a record last year, almost matching Japan's as the world's largest, as a swelling trade surplus and money inflows betting on a currency revaluation boosted holdings.
China's foreign exchange reserves hit US$818.9 billion at the end of December. It is almost level-pegging Japan's US$824 billion.”
Bloomberg
August 20, 2006
“WASHINGTON - The size of Sovereign Wealth Funds is approximately $2.5 trillion in assets, which exceeds the sum invested by the world's hedge funds. Morgan Stanley projected that these investment funds could grow to a staggering $17.5 trillion in 10 years.
At a time of global financial instability, the Bush administration has started to worry and has started is pressing the International Monetary Fund and the World Bank to examine the behavior of these funds.”
Herald Tribune
Asset Price Bubbles
US House Prices up 215% from 1996 – 2005.
Source: Credit Suisse, Bloomberg.
US House prices peak in 2005
Marked acceleration in house price declines in 2007
Sub Prime Mortgage default rate almost double to a record of ~13.4% in June from a year earlier
Excesses & over exuberance of the housing boom were laid bare once they could not be clothed with the confident expectation of ever increasing house prices.
Loan offered at a rate above prime
Provided to individuals who usually do not qualify for prime rate loans
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Housing Crisis Over? Not By A Long Shot!
As with every previous correction, the pendulum will over swing before steadying…
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DRAFT
Sources: Census, National Association of Realtors, Credit Suisse.
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DRAFT
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New 1-Family Houses For Sale: Months Supply (SA, Ratio)
NAR Months’ Supply of Total Existing Homes, United States (Units)
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DRAFT
Sources: National Association of Realtors, OFHEO, Credit Suisse.
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DRAFT
Massive Amounts of Mortgage Resets Coming Due In Short Term
LIBOR has surged above fed funds rate
Disquieting since big chunk of ARMS, especially Sub Prime, pegged to LIBOR
Sources: Research and Factset.
US Fed Fund
More Contagion
Recently, contagion spread to jumbo mortgage markets and portions of the prime mortgage market putting further pressure on the housing sector adjustment
Sources: Credit Suisse.
No Bottom Yet!
Therefore, Credit Suisse’s economics research has sharply lowered its residential investment forecast, and foresees no “zeroing out” in real residential investment through the end of 2008
Peak-to-trough decline of 33%. Larger than the 24% correction of the late ‘80s/early ‘90s; however, not as severe as the 45% decline of the early ‘80s.
Sources: BEA, Credit Suisse.
Banks use models to price CDOs and Mortgage Backed Securities
Accountants, fearing Enron precedent force banks to mark to market
Markets a bottomless pit for these securities – serial write downs
Merrill + Bear + Citi massive write downs
Guillotine for Stan O’Neil, Chuck Prince: James Cayne?
Major banks need to shore up balance sheets merge; sell assets
CONFIDENTIAL
DRAFT
Predictions
Economics the Dismal Science
Later clarification: “U.S. recession is possible, though not probable”
Actual Concerns…
CONFIDENTIAL
DRAFT
Decoupling
Rising EM contribution to global growth should help cushion the negative impact of the financial turmoil centered in the developed world.
Sources: Datastream, Credit Suisse.
We know enough to predict consequences in the Caribbean
North American and possibly European tourist arrivals down
More difficult access, wider spreads and shorter tenors for sovereign and corporate sub investment grade borrowers in International Capital Markets
Slower growth for most Caribbean countries, corporations and banks
CONFIDENTIAL
Banking in the Single Space: Making the Vision a Reality
CONFIDENTIAL
DRAFT
Competitive Environment in the Region
The Caribbean and Central America are composed of 28 countries with a combined population of more than 60 million and a combined GDP of more than US$300BN
75% of the regional GDP is concentrated in seven countries:
Puerto Rico (29%)
Commercial banks are the dominant financial institutions in the region, with finance companies, mortgage banks, national pension schemes, development banks, insurance companies, and credit unions having small shares
Financial penetration (loans / GDP) is relatively high in the Caribbean and Central America (average slightly above 40% compared to 26% for Latin America countries), except for Haiti (~15%)
Trinidad & Tobago’s financial penetration (loans/GDP) is 39%
Financial penetration is an important measure of the level of development of the financial sector of an economy
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DRAFT
Competitive Environment in the Region (Cont’d )
Some countries in the Caribbean have significant presence of offshore banks, offering financial services exclusively to non-residents. The major ones are the Bahamas, Bermuda, Cayman, the Netherlands Antilles, Barbados and the British Virgin Islands
The volume of assets in offshore financial institutions is of an order of magnitude greater than in the domestic financial system
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DRAFT
Competitive Environment in the Region (Cont’d)
The banking sectors of most Caribbean countries are highly concentrated, with a small number of institutions and the majority of assets held by each country’s three or four largest banks
Only Haiti and the Dominican Republic have a dozen banks or more
Financial liberalization throughout the Caribbean in the 1990s was followed by a reduction in the number of banks
Locally owned banks were consolidated in the process of reform in some countries
U.K. and Canadian banks established in the Caribbean in the 1950s or earlier maintain a dominant position
U.S. and other international banking firms that established branches in the Caribbean in the past three decades have found themselves unable to attract high quality customers away from already established banks
Foreign banks account for the majority of assets in the Bahamas, Barbados, Belize and the Organization of Eastern Caribbean States, which includes St. Lucia, Antigua and Grenada
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DRAFT
Competitive Environment in the Region (Cont’d)
Over the last decade there has been significant M&A activity in the region with more than 90 transactions:
In October 2007, RBC and RBTT announced a merger
41 transactions where Caribbean institutions acquired other Caribbean institutions
22 transactions where Non-Caribbean institutions acquired Caribbean institutions
29 transactions where Caribbean institutions acquired Non-Caribbean institutions
The most acquisitive Caribbean institutions have been RBTT, Bank of Butterfield and Republic
In Central America there have been 30 acquisitions / mergers since 2000
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DRAFT
Source: Company financials, FDIC and SNL.
Note: All information as of year end 2006, except for market capitalization that is as of October 29, 2007.
($ in millions)
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Data
Bank
Country
Equity
1
10NCBJamaica 387
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Data
Bank
Country
6W. HoldingPuerto Rico 101
7First BanCorpPuerto Rico 44
9SantanderPuerto Rico 37
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Data
Bank
Country
Assets
1
7SantanderPuerto Rico 8,231
9RBTTT&T / Regional 7,404
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Data
Bank
Country
10W. HoldingPuerto Rico 354
Relative Rankings (Con’t)
By every measure, Puerto Rico’s Banco Popular is the largest bank
First Caribbean is consistently the largest non Puerto Rican Caribbean Bank
Measured by assets, Popular is almost 4x size of First Caribbean
Even by regional standards, far less international standards, Caribbean banks, especially outside Puerto Rico, are tiny
CONFIDENTIAL
DRAFT
Banco Popular is the leading financial institution in Puerto Rico
189 local branches
23% in loans
34% in deposits
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Capital
Deposits
Borrowings
Capital 8.0%
Deposits 55.0%
Borrowings 37.0%
Construction 4.9%
Leasing 3.6%
Consumer 16.5%
Mortgage 33.6%
Commercial 41.3%
Brokered CDs 2.0%
Demand Deposits 19.6%
MM & Savings 37.4%
Jumbo CDs 23.0%
Retail CDs 18.0%
Banco Popular (Cont’d)
Among the top 4 lenders under the Small Business Administration (SBA) Program
$20.6BN in assets
Banco Popular North America
144 branches in NY, CA, TX, NJ, FL and IL
Non Banking Subsidiaries (6/30/07)
932 employees
76 employees
44 offices, 7 mortgage centers and 1 credit sales center
330 employees
Popular Insurance
Source: Company reports and website as of 6/30/07.
Significant U.S. presence with associated growth therefrom.
Source: Company reports and website as of 6/30/07.
CONFIDENTIAL
DRAFT
FirstCaribbean
This Caribbean bank is shut out from booming Trinidad market.
Total US$5,660MM
Headquartered in Barbados, FirstCaribbean was created on October 11, 2002 through the merger of the Caribbean operations of CIBC and Barclays
FirstCaribbean was owned 45% by Barclays, 45% by CIBC with the remainder public, but a rights issue diluted Barclays and CIBC to 43.6% each
FirstCaribbean has 800,000 active accounts, 3,500 employees, 100 branches and 100 ABMs and operates in 17 regional markets, making it one of the largest financial institutions in the region
It has an "A minus/stable" credit rating by Standard and Poor’s
FirstCaribbean is structured into four key lines of business:
Retail Banking and Cards
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Chart
Bahamas
Bahamas 42.4%
Bahamas 35.5%
Republic Bank
Balance Sheet
Income Statement
Republic is engaged in a wide range of banking, financial, and related activities in Trinidad & Tobago and in the Caribbean
The bank's predominant activities are retail and corporate banking services
Operations in Trinidad & Tobago are, by far, the most important, and account for~ 65.6% of total assets. Operations in Barbados are the second most important and account for 23.1% of total assets. Other operations include Guyana, Grenada, Dominican Republic, Cayman Islands, and St. Lucia. Offshore banking services are also offered through units in Cayman Islands and Barbados.
FINCOR is Republic’s most important subsidiary
Operates as a merchant bank, mortgage institution, finance house, and leasing corporation
Provides medium- and long-term financing and accepts medium- and long-term fixed deposits from the public, as well as call deposits from institutional investors
FINCOR also acts as an issuing house by managing, arranging, and underwriting issues of marketable securities (stocks, shares, and bonds)
Overview
(US$ in millions)
A Caribbean bank, highly dependent on volatile T&T market. Shut out of Jamaica, Bahamas.
(US$ in millions)
Bank of Butterfield
A Caribbean bank, like Popular, diversified outside Caribbean. Shut out of Jamaica and T&T.
Distribution of Revenues By Location
Composition of Loan Portfolio
Based in Bermuda, Bank of Butterfield is a full-service banking company with banking and related operations in five foreign locations
Chartered in 1858, Butterfield is the oldest and second-largest bank (after Bank of Bermuda) on the island
The bank is listed on The Bermuda stock exchange and the Cayman Islands stock exchange
It has 3,900 shareholders, the majority of which are Bermudian
Overview
Distribution of Revenues
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Banking Services 10.0%
Asset Management 8.0%
Financial Institutions & Government 12.0%
Other Consumer Loans 16.0%
The Bahamas 1.7%
A Caribbean bank, almost entirely dependent on vulnerable Jamaican economy.
Headquartered in Kingston, NCB is one of the two largest commercial banks in Jamaica (along with Bank of Nova Scotia Jamaica Ltd)
Only bank to offer full range of products to corporate and retail customers, also providing ancillary financial services such as capital markets, pension fund management, insurance and remittances
The Bank operates through a 47-branch network that has outlets island-wide and 154 ABM terminals, including 3 drive-throughs
Strong market position with 35.5% market share in deposits and 29.6% in loans
Its “root and branch” transformation aimed at enhancing and developing service delivery channels to optimize efficiency and improve customer service is substantially complete
Overview
Segment Operating Profit(1)
Segment Operating Revenue(1)
(1) Percentage breakdown excludes inter-company eliminations.
(1) Percentage breakdown excludes inter-company eliminations.
LTM 3/31/2007 Operating Revenue: US$490MM
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Retail Banking 19.8%
Corporate Banking 18.6%
Retail Banking 33.6%
Corporate Banking 11.1%
Caribbean Banks – Strategic Direction
Banks operate in small over banked markets as judged by financial penetration
Banks operate in a low growth region except for T&T
Organic growth is difficult
CONFIDENTIAL
DRAFT
Acquisition opportunities in Central America, Dominican Republic and Puerto Rico
However they come with high risk premia:
Language and cultural barriers
CONFIDENTIAL
DRAFT
Royal Bank of Canada / RBTT Financial Holdings
On October 2nd, 2007, RBTT Financial Holdings Ltd. (“RBTT”) and Royal Bank of Canada (“RBC”) jointly announced an agreement to combine RBC’s Caribbean operations with RBTT through the acquisition of all the outstanding shares of RBTT for TT$40.00 per share and a total purchase price of US$2.2 billion payable in cash (60%) and RBC common shares (40%), subject to a collar (±10%) on the common share component
The TT$40.00 per share offer price represents:
18% premium to the closing price prior to announcement
27% premium to the average share price for the last twelve months
67% premium to the price prior to speculation of a sale in the press
Transaction multiples:
P/BV: 3.05x
With total assets of US$7.5 billion and shareholders’ equity of US$714 million, RBTT is the leading indigenous Caribbean bank, with branches located throughout the English-speaking Caribbean, Suriname, the Netherlands Antilles and Aruba
The transaction will create the largest banking footprint in the Caribbean and RBC’s expanded Caribbean operations will be headquartered in Trinidad and Tobago
Credit Suisse acted as exclusive financial advisor to RBTT and provided a fairness opinion
RBTT Financial Holdings Ltd.
US$2.2 billion
RBTT unsuccessful bid for Interfin in Costa Rica
Acquired by Scotia for $294 million
Benefits
Shareholders
T&T
Facilitates T&T ambitions re financial center Energy market financings
CONFIDENTIAL
DRAFT
Republic
Butterfield
CONFIDENTIAL
DRAFT
CS does not provide any tax advice. Any tax statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any penalties. Any such statement herein was written to support the marketing or promotion of the transaction(s) or matter(s) to which the statement relates. Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
These materials have been provided to you by Credit Suisse ("CS") in connection with an actual or potential mandate or engagement and may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with CS. In addition, these materials may not be disclosed, in whole or in part, or summarized or otherwise referred to except as agreed in writing by CS. The information used in preparing these materials was obtained from or through you or your representatives or from public sources. CS assumes no responsibility for independent verification of such information and has relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance (including estimates of potential cost savings and synergies) prepared by or reviewed or discussed with the managements of your company and/or other potential transaction participants or obtained from public sources, we have assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of such managements (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). These materials were designed for use by specific persons familiar with the business and the affairs of your company and CS assumes no obligation to update or otherwise revise these materials. Nothing contained herein should be construed as tax, accounting or legal advice. You (and each of your employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by these materials and all materials of any kind (including opinions or other tax analyses) that are provided to you relating to such tax treatment and structure. For this purpose, the tax treatment of a transaction is the purported or claimed U.S. federal income tax treatment of the transaction and the tax structure of a transaction is any fact that may be relevant to understanding the purported or claimed U.S. federal income tax treatment of the transaction.
CS has adopted policies and guidelines designed to preserve the independence of its research analysts. CS’s policies prohibit employees from directly or indirectly offering a favorable research rating or specific price target, or offering to change a research rating or price target, as consideration for or an inducement to obtain business or other compensation. CS’s policies prohibit research analysts from being compensated for their involvement in investment banking transactions.
NYDOCS1 - #805168v7 /*
Retail Banking
10NCBJamaica 387
New 1-Family Houses Sold NAR Total Existing Home Sales, rhs
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05Jan-06Jul-06Jan-07Jul-07
6W. HoldingPuerto Rico 101
7First BanCorpPuerto Rico 44
9SantanderPuerto Rico 37
NAR Months' Supply of Total Existing Homes, United States (Units)
BankCountry Assets
7SantanderPuerto Rico 8,231
9RBTTT&T / Regional 7,404
10W. HoldingPuerto Rico 354
Brokered CDs
Nicaragua
Panama
1,770100%
1,770
13.83.43
07/10/06
Panama
96100%
968.11.45
06/13/06
Costa Rica
13772%
19045.53.16
10/21/05
NA50%NA NA NA
03/21/05Banpro / Caley Dagnall Nicaragua
NA100% NA NA NA
NA100% NA NA NA
180100%18010.21.39
NA94% NA NA NA
81100%81 NA NA
NA100% NA NA NA
NA100% NA NA NA
29100% NA NA NA
NA100% NA NA NA
NA100% NA NA NA
04/08/02Primer Banco del Istmo SA/Banco De Latinoamerica SA Panama 100 NA100% NA10058.825.00
03/25/02Grupo Financiero Continental/Banco Aleman Platina SA Panama NA NA100% NA NA NA NA
07/19/01Banco Credito Hipotecario/Banco del Ejercito Guatemala NA NA
NA
NA NA NA NA
06/26/01Primer Banco del Istmo SA/ABN Amro Bank de Panama Panama NA NA
NA
10/10/00Banpro/Banco Intercontinental SA Nicaragua NA NA100% NA NA NA NA
05/02/00HSBC Holdings PLC{HSBC}/Chase Manhattan Bank-Panama Panama NA NA100% NA NA NA NA
02/28/00Banco Agricola Comercial /Banco de Desarrollo El Salvador NA NA100% NA NA NA NA
12/01/99Banco de Comercio de El Sal/Banco Atlacatl El Salvador NA NA100% NA NA NA NA
11/16/99Banco del Agro/Banco Agricola Mercantil Guatemala NA NA100% NA NA NA NA
08/18/99Banco General SA/Banco del Comercio (Panama) Panama NA NA100% NA NA NA NA
06/23/99Banco de Credito Centroamerica/Banco del Sur Nicaragua 9 NA100% NA9 NA NA
06/09/99Global Bank/Colabanco(Colac RL) Panama NA NA100% NA NA NA NA NA
01/14/99Inversiones Iberoamericanas/Banic Nicaragua 11 NA51% NA22 NA NA
08/27/98MM Warburg und Co/Banco Aleman Platina SA Panama NA NA
NA
10/10/97Credicorp Ltd/Banco Capital El Salvador 5 NA97% NA5 NA NA
07/16/97Bank of Nova Scotia/Banco Ahorromet El Salvador 24 NA53% NA45 NA NA
Low 8.1x1.39x
High 58.825.0
Mean 23.55.5
Median 13.82.7
25.00x
(1) Financials data as of September 2006. Net income is annualized.
(2) Financialsa data as of December 2005.
Price/
Banking
Services
10.0%
Foreign
Exchange
Revenue
8.0%
Operating Revenues 247307353385
2003200420052006
Assets
Securities 1,0321,1941,3481,243
OFHEO Home Price Index
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
95
96
97
98
99
00
01
02
03
04
05
06
weightted by GDP valued at market exchange rates
'98 LTCM/Russia crisis
Source: DATASTREAM
Source: DATASTREAM