Baker Boyer Bank Guiding You Through Turbulent Times

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Baker Boyer BankGuiding You Through Turbulent
Times

• October 2008
• Megan F. Clubb
• President and CEO
• Mark Kajita
• Vice President, Sr. Portfolio Manager, CPA

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(No Transcript)
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What Caused the Problems?
Harvard loses 350M in one day
Investors
AAA Subprime Went to DD Junk Overnight and added
questions to all other subprime holdings
Contract to buy back defaulting loans Making AAA
Subprime
Original Cash to lend to borrowers
Brokers start to fold
Brokers go to Banks and ask to borrow money to
buy back bad loans are told NO!
Hedge Funds demand Brokers buy back loan pools
Wall Street packages loans into pools
Homeowners started notifying Hedge Funds that
they couldnt make payments
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What is the Gray Market?
Investments
Gray market
Ethical Boundaries
Legal Boundaries
Fiduciary Investing

• Cutting Edge
• Loophole
• High rate of return

• Unregulated
• Senate hearings
• Ponzi

Denoted through words like

• Illiquid/Inefficient

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How Does Fear Impact the Financial Markets?
AVOID FEARSESSION
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How Does Fear Impact the Banks?

• What is Long Term ability to run a business?
• What is Insolvency?
• What is Unrestricted Cash?

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What is Leverage?

• Leverage is the ability to purchase an asset for
  less than the stated price.
• Leverage is typically 20 times but can be as high
  as 40 times.

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What is Illiquidity?

• Illiquidity is when both buyer and seller cant
  agree on a price for a longer period of time.
• Typically there are FEW IF NO buyers when Sellers
  want to sell.
• This is especially troublesome when the seller is
  in a hurry to sell
• This can lead to a plummet in asset price

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Price Evaporation
100.00
Seller Price
Buyer Price
Mark to Market
Because of Illiquidity this price will be the FMV
price on all assets in this category throughout
the World
18.00
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Why are Financial Institutions losing so much
money in this crisis?

• As Asset Values plummeted, assets held on the
  books of companies suffered, requiring companies
  to Mark Down, their investments
• This has led to them writing off massive paper
  losses and real losses on these investments

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How Mark to Market runs amok
Lehman Brothers
Merrill Lynch
GMAC / Banks
A
A
B
C
D
E
F
B
C
D
E
F
A
B
C
D
E
F
Money Markets
AIG Credit Default Swaps
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The Credit and Liquidity Turbulence
Subprime Alternative Investments CDOs Structur
ed Cash Management Emerging Markets CMOs
LBOs International Equity Domestic
Stocks Real Estate Bonds ARCs Money
Markets Treasury Bills Cash
High Risk
All markets are affected by the Credit
Turbulence, no matter how much risk was
associated with the investment.
Low Risk
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The Plan TARP

• 700 billion relief plan to purchase troubled
  assets from the balance sheets of US banks
• US Treasury will temporarily guarantee the assets
  held in US money markets
• Increased FDIC Insurance is being proposed
• Possible reform in Mark to Market pricing

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How Mark to Market runs amok
Lehman Brothers
Merrill Lynch
GMAC / Banks
A
A
B
C
D
E
F
B
C
D
E
F
A
B
C
D
E
F
TARP
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Its all in the fundamentals
Liquidity Turbulence Is at this level, not the
relatively stable economic level
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Declaration of Bank Holiday
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70s versus Present Day
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The Northwest
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Opportunities for the future
At Baker Boyer we look to the future

• Worldwide demand for commodities will increase
  into the future
• Demand by China for environmental cleanup
  technology will be high
• Increased technology will be needed for higher
  productivity

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The US Economy The road ahead

• Sectors of importance
• Environmental Cleanup Companies
• Commodity companies
• Energy efficiency sectors
• Heavy industrial sector
• Companies that will prosper with continued trade

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Changing Paradigms

• The future of the US is inextricably tied to the
  Emerging Markets
• The US and other nations will become more
  susceptible to needs of EM demands
• Virtual Water

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What effects on the Economy?

• Year over Year
• Sector Op. Earn Growth
• Energy 32.3
• Telecom 16.1
• Technology 13.4
• Financials -76.6
• Consumer Disc. -14.2
• SP 500 ex
• Financials and GM/F 11.0

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206 years of asset class returns
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• Baker Boyer has taken pro-active steps to protect
  your deposits
• What pro-active steps can you take to protect
  your other personal and business assets?

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Get the Right Help
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Sit Down with Your Banker
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Think Long Term
AVOID FEARSESSION
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Baker Boyer BankGuiding You Through Turbulent
Times

• October 2008
• Megan F. Clubb
• President and CEO
• Mark Kajita
• Vice President, Chief Investment Officer, CPA