“The New U.S. Financial Industry” presentation for Jamaica Stock Exchange Oct 3, 2012 Albert G. Lowenthal Chairman & CEO Oppenheimer & Co. Inc.
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 2
Regulatory Changes � Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) Ends “Too Big To Fail” – Advance Warning – Transparency on Derivatives – Executive Compensation – Securitization Reform – Ratings Agency Oversight – � Investor Protection (SEC Rule 206(4) New Custody requirements – Disclosures – 3
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” 4
Who will be impacted? � Directly Banks – Credit Providers – Broker-Dealers – Insurance Companies – Exchanges (Old & New) – Others – • American Express • Visa, Master Card • Mortgage Brokers, • Non Bank Lenders & Servicers 5
Who will be impacted? (continued) � Indirectly Issuers – Financial Market Participants – Consumers – Tax Collectors – Taxpayers – Financial Service Professionals – 6
Market Issues � European Sovereign Debt Overhang � Economic Slowdown Europe – Asia – U.S. – not yet – � Excess Liquidity created by Central Banks � Interest Rates & Market Risk � Risk Transparency � Inflation- when? 7
Emerging Market Fallout (Jamaica) � Bifurcated Risk Tolerance Reduced Demand for Higher Risk Issues – Excess Demand for Higher ratings – � Difficulty in finding risk capital for new projects Infrastructure – Growth – � Impact on Tourism European Uncertainty – U.S. Consumers – 8
U.S. Markets & Market Players � Volcker Rule will drain liquidity � Risk Tolerance will be less JP Morgan $5.7 bn loss – Barclays & LIBOR Issues – European Banks may depart due to capital constraints – � Talent will leave more regulated players and migrate to less regulated (inability & unwillingness to pay) Major Banks will be less impactful – Hedge Funds, Financial Sponsors, Private Equity will benefit – 9
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 of talent � Lack of profitability will raise Cost of Capital � AML will continue to impact less developed markets and citizens 10
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 11
Regulation & Trading Markets � Volcker Rule & Basel III will: Reduce willingness to carry inventory – Issuers will have shorter windows – • Risk-On/Risk-Off will continue to affect markets and receptivity to new issue Agency markets are likely to be permanent – • “Leave your order with me” • “I’ll get back to you” Smaller players are likely to have better information and markets – • More dedicated • Fewer distractions • Better relationships 12
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: Money Management ($21 billion) – Capital Markets – • Equities -160 professionals • Fixed Income -140 professionals (emerging markets experienced professionals) 13
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 14
Oppenheimer Appendix
Oppenheimer Highlights � 1,435 registered representatives Top 10 Private Client Business � National footprint with 94 offices in 26 states and 5 foreign jurisdictions � Entrepreneurial culture that continues to attract experienced new financial advisors � Conservative risk position Conservative Risk Philosophy � Limited risk in proprietary positions (primarily a transaction and Balance Sheet flow business) � Level III assets (illiquid and/or hard to price) of $88MM � 5.7x gross leverage (assets/capital) � Generated strong cash flows even in difficult environment Strong Cash Flows � $510MM in shareholders’ equity Liquid Balance Sheet � Committed bank lines � No significant write-downs during financial crisis � Regulatory net capital of $142.3MM at June 30, 2012 � Extensive securities industry experience and significant Experienced Management Team tenure at the Company � Top 12 senior managers have an average 14+ years at Oppenheimer and 25+ years of overall industry experience 16
“The New U.S. Financial Industry” Jamaica Stock Exchange Oct 3, 2012
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