Wed, 10 Dec 2008|
Good morning everyone I -- first up. Thank -- well and the -- oil and gas financial journal. This is our second year as host to the -- -- energy financial -- pleased to. So be part of this partnership and look forward to our partnership in the future I want to thank all the staff at -- well I know what it takes to put a conference like this together so it's -- challenge. Look seamless but it never is behind the scenes and thank -- CIT. Let me give you a quick commercial. CIT is a hundred year old finance and investment banking company. We're headquartered in New York we have a large presence here in Houston and a significant presence union. The energy market. I'm president of CIT energy. We cover what we like to say from the drill bit. To the light switch as far as our coverage -- clients in the energy space. We focus on the middle market and middle market oriented companies and companies -- looking for growth capital. We like to play throughout the capital structure -- from equity. To mezzanine subordinated debt to senior debt. We like to -- company's cost -- -- We have about three and a half billion of commitments currently an energy space and we're looking forward to growing as we go forward. As -- said we've been around for a hundred years. Though first hundred years were easy. The last 101 year was really tough. And I think that's pretty much -- characterization. The financial world -- I -- -- focus primarily on my comments on the financial crisis. But I want to put it in the context of energy. This has been an amazing year for energy. You know we had our high. For prices. And now we're hitting -- -- for prices. I said -- somebody were very strange upside down world today. You know a day is a week the week is a month the month this year it seems this is an acceleration of time. For our industries and and we can see that in the crisis that surrounds us. We've seen a 60% over 60% drop in oil prices since July. In a similar drop in natural gas -- things this year there's such as two hurricanes come to the golf and natural gas prices drop -- book but both of those hurricanes. Something that I think most of -- is wrong couldn't imagine happening. And the pressure continues. I also think that the energy world. Felt it was somewhat. Immune or bulletproof to what was going on financial world. We certainly didn't see the slow down some of the other sectors of the economy saw. Because what was clearly a stress in July of the financial world even April the financial world. That changed dramatically in September change dramatically for the energy industry as a whole. I've been in energy banking. For 2.5 years and I've never seen a market like this. We've seen downturns we've seen sectors dissolved. We all lived through the crisis of the early 2000 when the trading companies and energy trading company's. Disappeared but I don't think we've seen -- contagion. To the level. In the financial services sector. As we're seeing today. It reminds me of the movie the good the bad and the ugly. With Hank Paulson playing the character of Clint Eastwood. Problem is we haven't seen a lot of good. In the last few months and unfortunately. My remarks are not going to be one filled with optimism. -- I'll find something at the end. To be used to be optimistic gone. Think we -- know how we got here. You know obviously -- starter with the housing crisis and the mortgage. The sub prime mortgage situation that was exacerbated by the fact that the financial community. Then created instruments. And derivatives off of those structures. That clearly went through various firewalls. Or what we felt or firewalls. And the impact has that market dissolved. Was. Significant obviously. And September I thought April was higher it was -- -- marker high water -- and look at it. We were in the market for a number of energy deals and April and those deals struggled. What I would call center of the fairway deal struggled mightily in the syndication process we could see them. -- market in the shrink on us even back in April and when we were trying to do deals in September. April look like sunshine. Because there were no -- Let me tell you what the state of the market is right now. Most of the major banks and most of the regional banks are closed down. They're not providing capital. I think everybody's put -- cheery face as much they can in the marketplace. But the reality is there's a lock down financial markets and you can see it across all spectrums. Of the financial community. There was a recent fed survey done. That with this is in the last month and the Fed survey talked to chief risk officers and all the major financial institutions. And the survey was are you tightening. Your credit structure. 85%. Of the chief risk officer yes. The other 15%. Didn't answer the phone thing. Credit structures. If there are credit structures out there they've certainly gotten more restrictive. Pricing is through the roof. We have a number of deals and by the way CIT is still active in the marketplace but capital scarce. And there's a competitiveness to capital that is gonna continue as we go into 2009. But as we look at transactions -- looking -- transactions -- with our clients are our best clients clients who have been with us a long time we -- -- continues support. Were also looking at where the yield us. And to give -- this just a sense of how dramatically. Changing this market it is. We're looking at deals today that have spreads. Over Libor -- 950. With five points -- -- case. Users rates that are all in 15%. To a bar and that's not all cases. But I think it gives you a sense of how inflated -- markets become because of the scarcity of capital. And now it's really impacting your businesses. Again energies not immune to this. Because I don't have a free call on capitol just because for the most part are sectors more healthy than let's say the auto sector or some other -- The scarcity. Is that intense. The so far -- the -- my companies would character Hank Paulson. -- provided about 300 billion into the financial markets. And I think the surprise of some people is and why hasn't that -- The liquidity in the market place why aren't we seeing more auto loans and housing loans in general loans. 22 businesses. And I think you have to look at it from the bank of banks' perspective. I think the banks really right now are shell shocked. They're dealing with a fundamental. Change in their business model. It's not like the calendars gonna turn on January 1 2009. And things are gonna be back to the way they were they're never going to be back to the ways that war we're gonna see probably. Close to. To -- 50000 jobs on Wall Street and and in the financial community. Disappear. Forever. So the sector is really making -- shift that's gonna impact capital availability. So as banks receive. Liquidity from the Fed they're shoring up their businesses. They're looking at consolidation within the banking market so there's going to be fewer choices. For likes of yourself amongst banks. And banks are gonna take a different look at their overall business models as they come go into 2009. So. Obviously the situation isn't very positive right now but I told you -- trying to find some positive element as -- as well as I conclude. What's 2009. Look at -- because 2008 it's done. I think for the most part. 2009. Could it for the first six months. Be worse than 2008. And what I mean by that is the reality of the energy market in my business -- I had a very good first nine months. We were doing transaction I have a pipeline of transactions right now -- thirty deals. I have thirty -- -- close before yet you're and I don't have the capital do that I -- I have to be very selective how much capital on the -- for the rest of this year. But at least in 2008 we had the nine months. -- 2009 with a much tighter market the reality also is that. The business and energy is contracting we're seeing -- significant reduction in capital expenditures across the board. And I think when we go into the first quarter and banks start doing re determination and borrowing base is accuracy of further contraction. Of capital into the sector just because the reduction in prices. But the first six months are going to be clean -- months. Thanks again get there their financial houses in order they're gonna shed their staff -- -- streamline their businesses. To in order to come back in the market in the second half I think the second half a look better. It won't be robust. I think they'll be capital provided into the sectors. I think huge is as values shift in in the energy industry and other industries you're seeing activity -- the emanate front. Which is gonna require capital to finance various acquisitions. I think that will materialize as we move into the second half of 2009. The long term impact of this is going to be significant. One I think you're gonna have fewer choices -- you had before just because going to be fewer financial institutions in this is not limited to banks. This contagion is insurance companies. It's in hedge funds. It's even in some private equity firms. So I think the impact of this is is we're gonna be felt for very long time I think you're gonna lose a lot of gray matter. In this sector meaning that some of the investment banks that you went to boutiques and otherwise. May not survive this cut this crisis -- some haven't survive this crisis. As a result you're not -- get the same attention level. -- you won't get the same my idea generation that you didn't pass. So I think there are some fundamental changes that you're in your business -- have to look at. Going forward. But overall we're in the soup. I think the financial crisis is kinda transcends a lot of aspects of what industries are doing. We will work her way out of this we'll work our way out of slowly through 2009. I can tell you one thing. CIT is pretty resilient company we continue and will continue to support our clients. As we going to 2009. And we are looking forward to better times for the financial sector and hopefully more capital. In the energy sector. I think you.