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Current Economic Challenges

and possible resolutions

• Tougher regulatory framework aimed at preventing future state bail outs, stalled economic growth in developed markets, scarce levels of integration among people of different countries and cultures, and continued uncertainty over the future of the Eurozone, have all weighted heavily on the financial sector recently, although not so drastically on Investment Management firms.

• In the following slides, I would like to illustrate my views and to explain in some details the challenges that the financial sector and many individuals are currently facing, and how these can be solved by both institutions, like governments and central banks, and individuals, like me or any other person.

Introduction…

Introductory Map

How institutions /governments should intervene with respect to

such problems

How individuals, and me in particular, should contribute to

resolving such problems

Current Economic & Social Challenges

Result: Shift towards a better financial world and a better economic and

social time

(i) Uncertainty

• Lack of confidence among investors and throughout markets worldwide, with a subsequent contraction in liquidity

(ii) Stalled Economic Growth

• Eurozone recession , US fragile recovery and BRICS slowing economies are all heavily impacting the financial sector

(iii) New Regulatory Framework

• Tougher regulatory requirements for financial companies are affecting and reshaping the financial service industry

(iv) Lack of integration in Europe• People divided by different

cultures, languages and habits; politicians still not considering this topic in their to-do list. This causes inefficiencies

“Result”:Eurozone

and World Crisis

Challenges overview

(i) Uncertainty (i) Uncertainty• The lack of coordination among the

governments of EU countries is not helping to build the level of confidence that is essential to reactivate Europe’s finance markets.

• This crisis will hardly begin to show signs of easing until investors regain their confidence in banks and financial institutions. In other words, people need to see that banks are run by professional and reliable individuals, with a plan of action to make them profitable, in a transparent and crystal way.

• Part of the reasons behind the financial crisis lie in the poor and flawed ethic of some professionals (who caused the credit crunch in 2007), whose principles and core values have been in some cases forgotten or even lost, with a resulting loss of trust among investors.

• The US economy is showing alarming signs of fragility. A big threat for the country is on sight: the so-called “fiscal cliff” could produce in January 2013 one of the largest fiscal contractions in the country’s history (approx. -3% of GDP).



• The Eurozone is experiencing one of the worst recession in history; debt levels are particularly high in many nations, liquidity is scarce and confidence is low.

• Politicians have so far laid down some ideas and

guidelines that would help to reform and reshape Europe, and the ECB has intervened heavily into the economy to reassure markets and buy time; but without further commitment by every single citizen and government, there is no way to get out of this tough economic turnaround.

(iii) New Regulatory framework

• After the financial crisis began, there has been an increasing focus on banks and other financial institutions to provide some guarantees and safety to governments, investors and the general public.

• This includes tying up some capital and liquid assets in order to meet the higher demands of regulators, hence proving to external parties that these financial institutions are solid, reliable and in good health.

• On their parts, banks and other entities have been forced to increase their reserves and write off bad debts, especially in the US. The result has been less credit given to citizens and enterprises, with a consequent reduction in spending and investments.

(iv) Lack of Integration

• There is no cohesion among countries around the world, especially in Europe, and there is no sight of social responsibility yet.

• In Europe, even after years of common market and direction, cultural, historical and ideological differences still exist. Diversity, an important feature that is eradicated in Europe, should be seen as a gift, not a weakness. Unfortunately, governments and other institutions push forwards mainly national interests, with the result of not improving anything.

• Important choices and reflections should be made, not only to improve the present situation, but also to give future generations a better economic and social prosperity.

(i) Restoring of confidence level

(ii) Promotion of higher growth through wise economics policy and

responsible behavior by citizens

(iv) Stronger fiscal and political union; consistency of

choices and central supervision on governments’

finances

(iii) Increase in capital and liquid resources to meet new requirements and avoid future

meltdowns

Possible Resolutions: “Institutions’ Suggested approach”

Eurozone and World

Crisis: “Solutions

”

(i) Restoring of confidence level

• To improve confidence levels it will be necessary to establish supervision mechanisms that would prevent the same situation from arising again, or at least make it less likely to happen.

• Central Banks can also help in this process of reaching a mechanism by which banks will provide more liquidity to companies and individuals, thus stimulating investment and spending.

• To increase confidence further and faster, people should be taught about corporate responsibility, a concept which essentially means looking beyond traditional rules and creating new opportunities by communicating with other parties.

(ii) Promotion of higher growth through wise economics policy and

responsible behavior by citizens

• A first step would be to use the European stability mechanism to calm the markets and push down the spreads of some European countries.

• Each government should try to reduce its own debt, a big task for some, including the US, and promote growth internally.

• This should be backed up by loose monetary policy by central banks, particularly in Europe, at least in the first place.

• Higher growth rates in Europe will also boost growth elsewhere, for example in the US or emerging countries.

(iii) Increase capital and liquid resources to meet new requirements and avoid future

meltdowns

• As mentioned earlier, tougher capital requirements imposed on financial firms have been a direct response to wrong behaviors of industry professionals in the past decade.

• These new financial restrictions, synthetized in Europe by Basel III, have been made up and will be applied to banks and some other financial institutions, the main responsible for the credit crunch of 2007.

• These new requirements, apart from being difficult targets to be met by most investment banks and other financial firms, may be actually useful in order to restore the pre crisis level of credibility in the financial markets within the developed world. They will provide a more stable future for the financial sector, once put in place, and will also increase confidence levels.

(iv) Stronger fiscal and political union; consistency of

choices and central supervision on governments’

finances

• Politicians in Europe should primarily start and implement a process of greater integration; the first step would be to push forward to a common European Authority/Government, or at least some governing entity that could give directions to all member states and could conduct fiscal policy, independently from national interests.

• After this fiscal unification, a proper monetary policy should be followed by the ECB in order to solidify and complete economic and social integration. Ideally, the result should a sort of “United States of Europe” .

Core values: redefinition

Responsible corporate and social behavior

Successful Asset Manager Contributing to reshaping the

industryWork Experience as Investment Analyst

MSc in Finance at IE …Ethic…

…Forces at Work

Possible Resolutions: “Individuals’ Suggested Approach”

Forward looking thinking:

Innovation and creativity

Concept of Diversity and

Entrepreneurship

Pillar One:

• Values, such as those highlighted in the picture, are deeply rooted in me. I have been able to develop them during my past experiences, but I am sure I will have further chances in the future, and IE can be a first step to develop and solidify my ethic and core values even more.

Core values: redefinition

Redefinition of Core Values: Ethic Redefinition of Core Values: Ethic

Building up Key Values…

Pillar Two:

• I want to be at least as innovative and forward thinking as those who are currently reshaping the financial service industry, and investment management with it; no organization other than IE can better drive me towards that.

• I want to learn how to “think outside the box” and how I can a significant impact in the financial industry.

Redefinition of Core Values: Ethic Redefinition of Core Values: Ethic

Innovative and Creative thinkers Innovative and Creative thinkers

Forward looking thinking:

Innovation and creativity

Responsible corporate and social behavior

Pillar Three:

• Both social and corporate responsibility are needed to create value in today’s environment and improve current economic situation.

• These two key principles, which characterize IE’s philosophy, are of vital importance for any individual, particularly for the leaders of tomorrow.

• Particularly in the financial industry, there is a need of responsible and value-trained people, whose behavior can remodel corporate management and social interactions.

Redefinition of Core Values: Ethic



Corporate and Social Responsibility




Diversity and Entrepreneurship

Diversity and Entrepreneurship




Key Values built… job done!!

Concept of Diversity and

Entrepreneurship

Pillar Four:

• Entrepreneurship skills are based on team building, open student minds, active approach to things and encouragement of risk taking: this is what I wish to learn and improve at IE.

• Diversity is an extremely important concept. It is not just about people coming from different locations, it is a lot more; it’s learning from people with different cultures, background, work and experiences, languages and age. Diversity is an added value of which I could benefit only by being part of a truly international and diverse community, such the IE master class and IE Alumni network.

• Although politicians and central bankers mainly control the destiny of the world economy, everybody can and should contribute to reshaping the financial service industry and the world economy with it. Hopefully then, the same sector that started the deep crisis we are all facing, might eventually be the one that will head the recovery.

• In particular, there are immense opportunities for the EU. Europe can get out of this tough situation stronger than ever; more integrated and compact, with a common view and direction building up on its “diversity” feature. For this purpose, there is a need of creative and astute thinkers, with eradicated ethical principles and a sufficient spirit of entrepreneurship.

…Result

…Conclusion• IE Professor Francisco López Lubián reports in one of its latest articles an old famous

but very relevant citation made by a former US president; “Ronald Reagan in 1980 said when he was running against Jimmy Carter for president: A recession is when your neighborough loses his job. A depression is when you lose yours. And recovery is when Jimmy Carter loses his. It may be necessary for many ‘Carters’ to lose their jobs before the things start to get back to normal.”

• This words are actually very true and they basically reflects part of what I tried to convey in the previous slides.

• I am confident that if everybody does its “bit”, as outlined in the preceding slides, in few years time, the world economy, and even the financial service industry, could experience a solid recovery.

• Actions already taken by the ECB to restore confidence in the economy, reforms in the US and some developing countries (BRICS), are all signs of hope.

• These actions, combined with more emphasis placed on the development of strong core values in individuals, will clearly help to reshape the financial sector, including Investment Management, and more in general the world economy.

Economy & Finance

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