Global Capital Finance: Who Will Finance the Future?

Raymond McGuire

Head of Global Banking, Citi

Dino Patti Djalal

Indonesian Ambassador to the U.S.

Seth Merrin Founder and CEO

Liquidnet

Mike Milken Chairman

Milken Institute

Pierre Beaudoin President and CEO Bombardier, Inc.

A few countries account for more than a half of world’s financial assets

2 Sources: World Bank, IMF.

Western Europe,

33%

U.S., 26%

Japan, 12%

Rest of the

world, 29%

World financial assets (2010): $250 trillion

Western Europe,

6%

U.S., 4%

Japan, 2%

Rest of the world,

88%

World population: 6.8 billion

Importance of global capital to economic growth Singapore vs. Jamaica

3 Sources: World Bank; UNCTAD.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1960 1970 1980 1990 2000 2010

Singapore

Jamaica

Real GDP per capita

0102030405060708090

100

Singapore

Jamaica

Inward FDI stock per capita (thousand US$)

Importance of global capital to economic growth South Korea vs. Colombia

4 Sources: World Bank; UNCTAD.

0

3,000

6,000

9,000

12,000

15,000

18,000

1960 1970 1980 1990 2000 2010

South Korea

Colombia

Real GDP per capita

0

500

1,000

1,500

2,000

2,500

3,000

South Korea

Colombia

Inward FDI stock per capita (US$)

Different growth paths for selected African countries

5 Source: World Bank.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Botswana

KenyaRwanda

Real GDP per capita (constant 2000 US$)

P = Prosperity Ft = Financial Technology HC = Human Capital SC = Social Capital RA = Real Assets

P=ΣFti*(ΣHCi+ΣSCi+ΣRAi)

“The most important financial innovation that I have seen the past 20 years is the automatic teller machine…I wish someone would give me one shred of neutral evidence that financial innovation leads to economic growth. One shred of evidence.”

Paul Volcker Former Chairman, Federal Reserve

7

America Goes to Work U.S. and Fortune 500 Employment

00 95 90 85 80 75 70

200

180

160

140

120

100

80

60

U.S. = +62 million jobs

Fortune 500 = minus 4 million

New financial technologies are fully implemented

Index 1970 = 100

Modern capital markets begin

Dispersion is at the core of the problem in Europe.

2.0

1.0

0

-1.0

-2.0

Standard Deviation

GREECE

PORTUGAL

IRELAND

ITALY

FRANCE

HUNGARY

ICELAND

US

BELGIUM

SPAIN

AUSTRIA

POLAND

CANADA U

K

JAPAN

GERMANY

SLOVAKIA

NEW ZEALAND

AUSTRALIA

CZECH REP

NETHERLANDS

DENMAKR

FINLAND

KOREA

SWEDEN

LUXEMBOURG

SWITZERLAND

NORWAY

Unit Labor Costs in Europe

100

Spain Greece Portugal Ireland Italy Germany

Index

110

120

130

140

EU Unemployment Rate

5%

9%

13%

17%

21%

Spain Greece Portugal France Italy U.K. Germany

6% 8% 8%

10% 12%

17%

21%

Pensions for Greece’s Most Dangerous Jobs

• High-risk workers are eligible for early retirement:

• Full government pension benefits

• Age 50 for women, 55 for men

• Who qualifies?

• 580 job categories

• 700,000 workers (14% of workforce)

Source: NY Times, 3/11/10.

High-Risk Occupations in Greece

Coal Mining Bomb Disposal

Source: NY Times, 3/11/10.

High-Risk Occupations in Greece

Source: NY Times, 3/11/10.

Radio Hosts? (“Bacteria on microphones”)

Hairdressers? (“Exposure to hair dyes”)

Computer Storage: $2 million per megabyte

1957 America

IBM System 370/168 in 1976

• 8 megabytes for $8 million

• Cost per megabyte: $1 million

Apple iPad 3

• 64 gigabytes for $699

• Cost per megabyte: $0.01

There are more than 6 billion mobile phones in the world!

Overview of Banked and Un-Banked Consumers & Businesses There are over 2.3 billion people who are under-banked or un-banked across the globe.

Est. Working Age Population With Out a Bank

Account

India 52%

Mexico 75%

Philippines 74%

Brazil 57%

South Africa 54%

China 58%

US 9%

Unbanked –Require More than Financial Access

Unbanked – Bankable

Underbanked

Banked

Rural/UrbanPoor

Micro Entrepreneurs

Informal Sector

Small Business Owners

Salaried

Affluent

HNWI

800 million people under $5

a day

2.5 BillionPeople

Top Countries by Number of Financially Excluded Adults, 2010

US #21 - 19mm

Mexico #8 – 19mm

Brazil #5 – 75mm

Argentina #20 – 19mm

Nigeria #6 – 72mm

Tanzania #16 – 22mm

Kenya #18 – 20mm

Ethiopia #11 – 39mm

Russia #12 – 32mm

China #1 – 562mm

India #2 – 393mm

Pakistan #4 – 92mm

Ukraine #15 – 25mm

Turkey #14 – 25mm

Indonesia #3 – 97mm

Philippians #10 – 42mm

Egypt #13 – 30mm

Sudan #17 – 21mm

Thailand #19 – 20mm

Vietnam #9 – 43mm

Bangladesh #7 – 65mm

Global population of 7 billion people with 4.2 billion people of working age (15 – 65 yrs old) 1.9 billion people have a bank account in a formal financial institution, thus are considered “Banked” or “Financially Included” That leaves ~2.3 billion “unbanked” who do not have an account and are considered “Financially Excluded” China and India make up 950 million excluded working age adults or 41 % of the world’s total of “Financially Excluded”

– Inclusion as a % of total population vary greatly: China, India, Indonesia, Brazil, Egypt, and Turkey all range from 40 to 49% Bangladesh, Mexico, Vietnam, Philippines, Ukraine and Argentina range from 25% to 35% Sub-Saharan African countries (plus Pakistan), fewer than 15% of adults have accounts

U.S. (23.6%) China (8.7%) Japan (8.6%) Germany (5.2%) France (4.4%) U.K. (3.6%) Italy (3.4%) Brazil (3.1%) Canada (2.6%) Russia (2.4%)

Today

The World’s Top 10 Economies (Percent of World GDP)

China (18.7%) U.S. (16.5%) India (11.8%) Brazil (4.8%) Indonesia (3.5%) Japan (3.1%) Mexico (3.0%) Russia (2.7%) Germany (2.4%) U.K. (2.2%)

2050

Sources: World Bank/Angus Maddison, “The World Economy: Historical Statistics” (OECD)/ PricewaterhouseCoopers/Milken Institute/Goldman Sachs (9/09)

The World’s Economic Clout Moves East Leading Cities Ranked by GDP

• More than 20 of the world’s Top 50 cities will be

located in Asia by 2025, up from 8 in 2007.

• More than half of Europe’s Top 50 cities will drop off the list, as will three in North America.

• Shanghai and Beijing will outrank Los Angeles and London … Mumbai and Doha will surpass Munich and Denver.

Source: McKinsey Global Institute (March 2011)

Importance & Opportunity of Mobile Money In Countries that have low bank account penetration, often have very high cell phone penetration. In Latin America, on average only 30% of the population have bank accounts, whereas 90% have cell phones.

Global Mobile Transactions ($B)

CAGR 95%

$60B

$1.13T

200

400

600

800

1,000

1,200

2010 2011 2012 2013 2014

Mobile Phones : Bank Accounts

Cash Payments : Electronic Payments

5Bn

1.8Bn

~15%~85%

Cell Phone Penetration vs. Bank Penetration