PEREGRI NE

Team: Isakova Nataliya Sagaidak Maxim Sokolova Tatiana Shtrahov Arseniy

Structure

Introduction (problem, brief history) Company Structure Peregrine in 1997 Asian Financial Crisis Factors behind Peregrine's downfall How they could avoid it Conclusions

Peregrine

The largest investment bank in Asia outside of Japan The highest profile corporate failure in the Asian Financial Crisis Was founded in 1988 by Frances Leung and Philip Tose Great reputation in the beginning of 90s (the father of red chips) Expanding into other markets in form of joint ventures One of the top 5 players in Asian Market: Goldman Sachs, ABN AMRO, China International Capital Corp., Morgan Stanley DW, Peregrine

PFIL Peregrine Fixed Income Limited

Conditions:

Fast economic growth of Asian economies Threat of competitors entering this market
Started in April 1994 Planned to enter the bond market of Asia

Expansion strategy

PFIL:

Specialized in origination , distribution and trading of fixed-income securities for Asian issues in local currencies and US dollars. (mainly Hong Kong, Indonesia, Malaysia, Thailand). Willingness to undertake large transactions in relation to Peregrines own size

Growth of inventory of debt holdings and derivatives

PFILs performance exceeded expectations. It soon accounted for a predominant part of the Groups turnover, and led to even more dramatic growth

Companys structure
1995
0% 0% 0% 5% 15% equity products fixed-income products 15% direct investments asset management property investment and development invesment trading 83% 0% 0%

1996
0%

2%

80%

6 month ended 30 june 1997

0% 0% 0% 3% 12%

10 month ended 31 october 1997

0% 0% 17% 0% 3%

85% 80%

Peregrine before crisis

Asias most dynamic investment house (1700 staff, 33 offices, 15 countries) Reputation of aggressive and fast growing firm
Revenues & NI, 1996
Morgan stanley
31731 302287 28571 27132 298057

Total assets, 1996

Total assets

Merrill Lynch

Peregrine

2586

1906 68 3101 Morgan stanley Merrill Lynch Peregrine

Revenues

Net income

Peregrines dinamics
Peregrine's turnover
200,000,000.00 180,000,000.00 160,000,000.00 140,000,000.00 HK$, thousands 120,000,000.00 100,000,000.00 1,000,000.00

Profit before taxation

1,200,000.00

HK$, thousands

800,000.00

600,000.00

80,000,000.00
60,000,000.00 40,000,000.00

400,000.00

200,000.00 20,000,000.00 0.00 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Year 0.00 1988

1990

1992 1994 Year

1996

1998

Asian financial crisis

Started in mid-May 1997 Indonesia, South Korea and Thailand were the countries most affected by the crisis

Indonesian Rupiah to USD

Effect of financial crisis on Peregrine

Turnover (%)

No demand on most of Peregrines debt paper portfolio

Indonesia

27% 38%

15%

Share price fell by 60% (august october 1997) - that reduced Peregrines ability to fund itself Hong Kong/Mainland China by stock lending
Thailand Others

20%

Effect of financial crisis on Peregrine

Turnover
250,000,000.00 1,200,000.00 1,000,000.00 800,000.00 150,000,000.00 600,000.00 100,000,000.00 400,000.00 50,000,000.00 200,000.00 0.00 10 month ended 31 october 1997 6 month ended 30 june 1997 10 month ended 31 october 6 month ended 30 june 1997 1997

Operating profit

200,000,000.00

0.00

Effect of financial crisis on Peregrine

70

% of bad debt of total assets

60

50

40

30

20

10

0 7/20/1995 10/28/1995 2/5/1996

5/15/1996 8/23/1996 12/1/1996 3/11/1997 6/19/1997 9/27/1997 91-180 days % >180 % Total

1/5/1998

4/15/1998

Steady safe deal 1997

Indonesian taxi-cab company Income in Indonesian rupees Short-term bridge financing provided in US$350 (one-third of Peregrines capital) Analysts say such confidence was misplaced. Any lender entrusting the equivalent of one-third of its capital to any borrower, much less a littleknown company in a country notorious for corruption, shows poor financial judgment Events in Indonesia tumbled out of control, and its currency collapsed. Steady Safe, with its earnings in rupiah, could no longer pay meet payments on its dollar loans, particularly the huge loan from Peregrine. The taxi company's stock sank to a sliver over one penny and, last week, it locked its doors

Question

How Peregrine might have avoided the debacle?

Factors behind Peregrine's downfall

Culture of the company (arrogant, headlong rush to do deals). That arrogance led the company to lend too much money for questionable projects and to exercise too little high-level supervision over managers. Risk management policy was never applied in PFIL. Internal audits of PHILs business were never completed . Low level of control form Peregrines parent company.

Providing credits in currency different from companys income currency. Steady Safe deal was complete mess.

Fixed income business accounted for 85% of all operations, and its the most risky.

Conclusions

Asian Financial Crisis shows the riskiness of running business in emerging financial markets Never provide credits in currency different from companys income currency (because of default risk)