Summit 2009: Summary Of Keynote Presentations

Summit 2009: Summary Of Keynote Presentations
May 6, 2009

Following are highlights from the keynote speakers at FEI’s Summit Conference held May 3-5, 2009 at the Gaylord Texan Hotel in Grapevine, Texas.

Building Investor Confidence and the New Financial Landscape

Duncan L. Neiderauer, Chief Executive Officer, NYSE Euronext 

In a sign of the times, Duncan Neiderauer opened Financial Executives International’s Summit conference on May 4, 2009 commenting on “Investor Confidence and the New Financial Landscape.” Noting he’s not an economist, he described an economic crisis that to him, in contrast to what many are characterizing as “unprecedented,” is “not unprecedented.”

In the United States – with its free-market philosophy – we get bubbles every eight-to-10 years, he said. What he believes is unprecedented, however, is the stimulus the U.S. (and global governments) are “throwing at the problem.”

What governments are doing collectively, he said, indicates “we’re on the road to recovery.”

However, patience is needed – “something the U.S. is not known for,” he said.

Did he see this coming? A resounding “No!”

But, he insists, he’s optimistic for a recovery within one year. The March and April equities markets uptick, he said, felt more like a “trader’s market than an investor’s market,” and that he’s “looking for an investor’s market.

History tells us, continued Neiderauer, that “crises all give rise to opportunities.

He negated as “myth,” the perception that Wall Street and Main Street are “disconnected,” saying that Main Street business cannot run without fully functional markets.

Initial public offerings with NYSE Euronext in 2008, as expected, were down significantly, but two recent IPOs in April – Rosetta Stone and Bridgepoint Education – are doing fine. He noted pricing as possible issues for unsuccessful IPOs. “The last thing you want to do [when you go public] is to miss quarters one, two and three.”

And some advice to those companies considering going public in the near future: Ready your documents, “be poised and ready, as the market may give an opportunity to go.”

He also advised the U.S. to guard against protectionism, or what he’s termed “localization,” In lieu of globalization and to thus not let globalization become the new casualty.

He sprinkled his presentation with macro and micro solutions for solving the current problems and restoring investor confidence, noting that transparency and accountability are key. One micro reform: Cognizant that regulation is coming – and changing – he’s keen on regulating by activity (for example, AIG is in five businesses so the insurance industry should not be its only regulator).

On a single set of global accounting standards, Neidermauer expects the U.S. will move in that direction and is determined that such a move to International Financial Reporting Standards “doesn’t become the next Sarbanes-Oxley.”

Themes on the Economy

Diane Swonk, Chief Economist and Senior Managing Director, Mesirow Financial

Diane Swonk described the U.S. economy in the fourth quarter of 2008 as “in freefall and technically in [a] recession.”

Now in May 2009, we’re not in freefall any longer. In fact, the parachute is open, she said; but she doesn’t know when – or where – we’re going to land. For certain, however, she expects on landing we’ll find an economy that is fundamentally different from what we’ve become accustomed to.

Economist Swonk rattled off numbers associated with consumers, among which included three categories of spending that are currently strong: alcohol, condoms and guns, and that the savings rate has risen to 4 percent. The housing market, she said, which has been a drag on the U.S. economy for four years, has now fallen so low it “almost has nowhere to go.”

However, she expects the rate to stabilize by next year, and noted sales of foreclosures were up – perhaps due to the federal government’s $8,000 credit for home purchases.

For those who insist on comparing the present economy to the Great Depression, Swonk noted 25 percent unemployment – in contrast to today’s 8.5 percent – and said that while it may now be “depressing, it’s not the Depression.”

Separately, on employment, she noted that her firm just hired 50 people – from the ashes of Bear Stearns and Lehman, and advised firms needing to find good people: “It’s an extraordinary time to grab talent.”

She expects technology and the next generation to be different, and she’s optimistic that we’ll ultimately cross 10,000. “if not this year, then in 2010.”

Indeed Swonk said of Monday’s significant upward-market close: “Who’d of thought we’d cheer 8,400?”

The End of the World as We Know It, and What Finance Can Do About It

Chris Ballinger, Chief Financial Officer, Toyota Financial Services

Chris Ballinger admitted that the title of his speech was dramatic, but then noted he began his CFO post at Toyota Financial Services last year – on a day when the Dow Jones Industrial Average was below 6,600 and big U.S. banks were having “shotgun” marriages.

There have been some changes since then, and he said he sees some recent signs of recovery, but warns of some rough waters ahead nonetheless. This could come from results of bank stress tests (where getting capital is still an issue) and liquidity remains an issue for many.

In his compelling presentation, economist Ballinger drew upon history and former great economists and some colleagues and peers to pepper his comments on key economic terms – as applied to today’s issues – such as “principal agent” and “asysemetric Information.”

Referring to principal agent, he said Warren Buffet described it best in saying, “Nobody ever washed a rental car!” In other words, much of the financial crisis was based on those involved having ”too little skin in the game.”

Among his comments on the role of Finance in governance and improving governance in a broad sense, he said to include: risk assessment, incentives and rewards, transfer pricing, incentives and rewards, solving principal agent problems, decentralizing centralized information using robust networks, transparent expectation and more.

He also described how some of the famed Toyota’s pricing models are responding to the financial crisis.

Ballinger noted that lending has become better recently and that Toyota is “flush” with cash – having borrowed $16 billion in the last few months.

In response to a question, he said his biggest problem as a CFO is that while he can access capital now, it’s expensive. But it’s not that expensive for competitors in government programs. Thus, according to Ballinger, “we compete against bank lenders and securitization programs and everyone [else] has access to those programs.”

Toyota has gone from a Triple-A rating to Double-AA, but even that is not as good as a government guarantee. But, he did stress significant improvement in the last month overall.