1. Asset Management and SalesIPABs experience Institute for the Protection of Banking Savings DICJ, Tokyo, Japan, February 2008

2.

1994-1995 financial crisis overview

• Origins

• Key variables

• Consequences

Mexicos Government response to the 1994-1995 financial crisis

• Policies adopted in response to the crisis

• Original Policies Responses

• IPABs establishment as a Deposit Insurance Agency with extended powers

• IPABs Contribution to Financial Stability

• IPABs Main Functions

• IPABs Assets Recovery Organizational Structure (1999, 2002 and 2007)

• CONDUSEF

Index 3.

Regulatory Framework

• Law Banking Savings Protections (LPAB)

• Assets Regulatory Provisions within LPAB

Assets Origin

• Programs

• Origin of de Assets by Program

• Assets Classification

• Initial Inventory

IPABs Assets

• Assets Categories

Strategies and Procedures for Assets Recovery

• Assets Management

• Sale Process

• Loan Assets

• Corporate Assets

• Real State and Moveable Assets

Closing Remarks

Index 4.

Bank Nationalization followed by a privatizing process

Inadequate supervisory / regulatory framework

Macro-economic imbalances1994 peso devaluation

1994-1995 financial crisis overview Origins Severe fiscal cost: 17% GDP (as of 2004) 5. 1990=100. Increase denotes depreciation. Source: Bank of Mexico. 1994-1995 financial crisis overview Key variables 6. 1993=100. Source: INEGI. 1994-1995 financial crisis overview Key variables 7.

Threatened financial system

Need to support debtors affected by severe income and price effects

Undercapitalized banks

Threat of bank runs

1994-1995 financial crisis overview Consequences 8.

Retention of the blanket guarantee (transition plan)

Immediate and long term actions were deployed:

• Debtor relief programs

• Depositors support programs

Permission to foreign capital to invest in the banking system

Modernization of the supervisory / regulatory framework

Bank collateral adjudication reforms to promote lending

Mexicos Government response Policies adopted in response to the crisis 9.

Originally, two entities (FOGADE, Deposit Guarantee Fund and COREBI, Asset Recovery Commission) would replace FOBAPROA, but legislative passage failed

These entities would be separately in charge of deposit insurance and assets recovery

An eventual legislative compromise assigned both responsibilities to a single new entity, IPAB

Mexicos Government response Original Policy Responses 10.

The 1995 economic crisis and its effects made clear the need for a new deposit insurance system

In January 1999, a new deposit insurance law came into effect

• IPAB began operating in May 1999 as a decentralized agency of the Federal Government

• • Own Law

• • Own Budget

• • Governing Board with independent members

• Clear, explicit regulatory framework

• Limited and explicit protection aimed at small and medium-size depositors

Mexicos Government response IPABs establishment as a Deposit Insurance Agency with extended powers 11. Gradual Transition toLimited Coverage Creation of Incentivesfor Financial SystemConsolidation Flexibility in theInstitutes DebtManagement Orderly & Efficient Asset Alienation System Financial Stability IPAB contributes to the stability of the financial system Proactive Risk Monitoring Mexicos Government response IPAB contribution to Financial Stability 12. Resolves Banks in distress and manages the Deposit Insurance System Designs and implements assets sale programs Liability management Mexicos Government response IPAB Main Functions 13. Middle management head count: 82 DIRECTION OF LOANS SUPERVISION DIRECTION OF LOANS RECOVERY DIRECTION OF CORPORATE ASSETS DIRECTION OF MOVEABLE AND REAL ESTATE ASSETS RECOVERY RECOVERY UNIT EXECUTIVE SECRETARY GOVERNING BOARD Mexicos Government response IPABs Assets Recovery Organizational Structure 1999 14. DIRECTION OF SUPERVISION AND EVALUATION ADJUNCT SECRETARIAT OF ASSETS RECOVERY DIRECTION OF LOAN PORTFOLIOS DIRECTION OF MOVEABLE AND REAL ESTATE ASSETS RECOVERY DIRECTION OF CORPORATE ASSETS DIVESTMENT Middle management head count: xx EXECUTIVE SECRETARY Mexicos Government response GOVERNING BOARD IPABs Assets Recovery Organizational Structure 2002 15. DIRECTION OF ASSETS MANAGEMENT AND RECOVERY DIRECTION OF TRUSTS AND ASSETS MANAGEMNET COMPANIES SUPERVISION INTERNATIONAL AFFAIRS OFFICE ADJUNCT SECRETARIAT OF ASSETS RECOVERY AND INTERNATIONAL AFFAIRS EXECUTIVE SECRETARY GOVERNING BOARD Middle management head count: 38 Mexicos Government response IPABs Assets Recovery Organizational Structure 2007 16.

Mexicos Financial Ombudsman main objects:

• Promote, give advice to, protect and defend the interests of financial services users;

• arbiter differences between consumers and providers; and

• supply financial educational content in coordination with other authorities

Mexicos Government response CONDUSEF 17.

IPABmust administer, recover and sell assets , which it does mostly through the rehabilitated institutions and/or via specialized third parties.

According to IPABs law, IPAB must aim atobtaining the highest possible recovery valueof theassetsin the shortest possible timeframe, taking into account prevailing economic and financial conditions.

Regulatory Framework Law of Banking Savings Protection (LPAB) 18.

Article 5, fraction VI: Assets are credits, rights, securities, and other assets of any kind held or owned by institutions and other corporations in whose capital, in terms of LPAB, IPAB participates, as well as any other assets and rights that IPAB may acquire to fulfill its purpose and exercise its functions, except those directly related to its administrative operation.

Regulatory Framework Law of Banking Savings Protection (LPAB) 19.

Transitory Article 5 : This article establishes an option for institutions which participated in theCapitalization and Loan Purchase Programto decide between:

• Keep operations with FOBAPROA in its original terms, or

• Cancel them and establish new operations with IPAB

Transitory Article 7: This article foresees two events :

• Theassumption , by IPAB, of thefinancial assistance operationsundertook by Fobaproa and Fameval

• Theassumptionof the operationsof institutionsunder intervention by the supervisor, CNBV; subject to certain exceptions and conditions

Transitory Article 13 : Establishes thelength of time devoted to assets recoveriesand orders IPAB to produce an Assets Sale Program

Regulatory Framework Law of Banking Savings Protection (LPAB) 20.

Articles governing Assets management and sales:

Art. 61:IPAB must manage and sell assets seeking to obtain the highest possible recovery value,

Art. 62:IPAB may opt to entrust asset recovery, sale and management processes to the banks supported or to third parties when it proves advantageous,

Art. 64:Assets will be sold by public auction, unless the Governing Board considers that due to the nature of specific assets or prevailing sale conditions, such process would not obtain the best economic terms

Regulatory Framework Assets Regulatory Provisions within LPAB 21.

• Capitalization and Loan Purchase

• Financial Assistance

• Liquidations

Assets Origin Programs 22. IPAB operations - Serfin - BanCrecer FOBAPROA operations - BBV - Santander - Inverlat - Confia - Atlntico - Promex - Banpas - Bancen Financial assistance for subsequent sale programs

Banamex

BBVA Bancomer

BITAL (HSBC)

Banorte

(Program concluded)

Intermediaries in liquidation Programs Capitalization and loan purchase program

Brokerage houses:

Bursamex - Arka

IPAB operations

Quadrum

Anahuac

Industrial

Sureste

FOBAPROA operations

In liquidation:

Capital

Pronorte

In bankruptcycourt:

Unin

Obrero

Cremi

Interestatal

Oriente

Brokerage houses: - Mexival Estrategia - Valburmex Assets Origin Origin of the Assets by Program 23. In exchange for the financial assistance that has been extended to Institutions or as a result of liquidation or bankruptcy processes, the assets that must be managed and/or sold by IPAB* can be classified in: 1.Loan portfolios 2.Corporate assets3.Real and moveable assets * Directly or through the proprietary banks of the assets. Most of these assets are property of the Financial Institutions that originated them, even though IPAB is the beneficiary of their cash flows. Assets Origin Assets Classification 24. The recovery value of the initial inventory of assets assumed by the Institute since the date when they were originally registered in IPABs financial statements totals MXN107,251million (approx. USD9.75billion 1/ ). The following graph shows the composition of the initial inventory by type of program assumed by IPAB. To December 31, 2007. Assets Origin Initial Inventory 25.

56percent of the assets assumed by the Institute have been managed indirectly through the supported institutions. As shown in the previous graph, Fobaproa financial assistance programs constituted the largest source of assets to be recovered.

The composition of the initial inventory by type of assets can be observed in the following graph. Loan portfolios represented53percent of the initial inventory:

Assets Origin Initial Inventory 26. Assets Origin Initial Inventory 27. IPABs Assets

Assets subject to management and sale by IPAB, under LPAB terms may be grouped as follows:

• Rights

• Loan portfolios (commercial, mortgage, credit card and consumer)

• Real estate and moveable assets (foreclosed properties, payments in kind and others)

• Stocks and other securities

Assets Categories 28.

Mandatory requirements for third parties in relation to loan portfolio management

• • Assets valuation

• • Clear goals and objectives

• • Loan portfolio sales versus other assets

• • Execution Framework and Timeline

Strategies and Procedures for Assets Recovery Assets Management 29.

Loan Portfolio Sales

• • Transfer of rights and management (including loans, guarantees, rights, etc)

• • Assignment to a third party of loans management for subsequent sale and collection

Strategies and Procedures for Assets Recovery Assets Sale Process 30. The divestment of loans was carried out through 51 processes executed from 1999 to 2007 Strategies and Procedures for Assets Recovery Assets Sale Process 31. *Conversion made using yearly average exchange rateStrategies and Procedures for Assets Recovery Assets Sale Process 32. Definition 1 Preparation of the portfolio Hiring third parties Publication Definition of the Legal Package Filtering process of interested partiesAcceptance or rejection of interested parties Due Diligence Receipt and review of economic offers Payment and loan portfolio transfer 2 3 4 5 6 7 8 9 10 Strategies and Procedures for Assets Recovery Assets Sale Process 33.

Corporate Assets

Loans with a value exceeding 200 million pesos (currently equivalent to approximately USD 18.2 million)

• • Financial restructurings

• • Payments in cash and in lieu of cash through

• • Capitalization

• • Public auction

Strategies and Procedures for Assets Recovery Assets Sale Process 34.

Corporate Stock recovery works through the following means:

• • Public auction

• • Capital withdrawal

• • Capital reduction

• • Sale through the stock market

• • Liquidation of the corporations salvage equity value

Strategies and Procedures for Assets Recovery Assets Sale Process 35. Strategies and Procedures for Assets Recovery Assets Sale Process 36. Strategies and Procedures for Assets Recovery Assets Sale Process 37.

Real state and moveable assets

• • Individual Sales(Major / Minor real estate; Specialty Assets; Catalogued works of Art)

• • Package or batch auctions(Minor real estate in batch; Assets in warehouses; decorative items)

• • (Pools sorted by type of real estate and by geographical location)

Strategies and Procedures for Assets Recovery Assets Sale Process 38.

To January 31, 2008,23,376real estate assets have been sold (through608sales processes, in package or individually, via public auctions) as well as637,932moveable assets of a varied nature (through64auction processes)

Of the608processes,7involved sales of real estate packages including 13,463 goods from banks in liquidation and bankruptcy as well as from banks Serfin and Bancrecer

5other sales involving2,802moveable, real estate and rights assets from the New Program and7package sales comprising7,580moveable, real estate and rights assets from financial rehabilitation programs were carried out.

Strategies and Procedures for Assets Recovery Assets Sale Process 39. Closing remarks

Mexicos economic situation in the 90s led to asharp dropin thevalue of banks assets

1995 a drop of 6.22% of Mexicos real GDP.

Faced by solvency problems of the intermediaries, the authorities establishedmeasures to protect banking depositors and debtors

By law, IPAB must manage and divestAssetsto obtain thehighestpossiblerecovery value .

Salesmust be carried out underpublic auction , while sales values must reflect market condition appraisals

In 1999, there was no existing secondary market capable of liquidating such volume of assets.

The value of credit assets tends to deteriorate rapidly.

40. Institute for the Protection of Banking Savings www.ipab.org.mx February 2008