GSEs: Past, Present, and Future Focusing on the Farm Credit System March 26, 2009 Presented by: Mark...

GSEs: Past, Present, and FutureFocusing on the Farm Credit System

March 26, 2009

Presented by:Mark Evans, CFAExecutive Vice PresidentDirector of Investment Strategies

2009 Conference

Contents

GSE Overview & Background– Purpose & Importance of the GSEs– Implied Guarantee– Future– Options for the future

Federal Farm Credit System Opportunities and Portfolio Management Today

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Purpose & Importance of GSEs

Purpose– Improve efficiency of capital markets

Importance– Almost no mortgage financing is occurring outside the agencies

today.– FHLB has been a critical and nearly irreplaceable source of

funding for banks.– FFCB’s role in the farm & rural economy is equally important.

Concentration of agencies held by– Banks, thrifts, credit unions can buy GSE debt without limit (only

prudence)– GSE debt represents sizable percentage of municipalities

investments– GSE debt included in “government” bond funds

Need for GSE’s and their governmental support has been proven by this cycle

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Implied Guarantee

Historic expectations GSE’s nature & structures Fannie / Freddie Conservatorship

– Did not breach the implied guarantee

Future of implied guarantee is in question– Will investors accept that it is only implied?– Will the government accept the historic structure and

relationships?

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Future of the GSE’s and the Implied Guarantee

Significant issue for 2009-10 Paulson said guarantees should be “explicit or non-

existent” Possible models to look at

– SLMA privatization– Treasury support for Fannie/Freddie– Guarantee for fee– Greater regulatory control – utility model– Bring some GSEs under Federal Government completely– Separate out “guarantee” of mortgages from other functions

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Managing a GSE Portfolio

Understand, Educate, Develop Policies Diversification among GSEs Big Four

– Fannie Mae– Freddie Mac– Federal Home Loan Bank– Federal Farm Credit Bank

Diversifying among structures / portfolio optimization

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Overview of Federal Farm Credit System

Created by an Act of Congress (1916) Mission - to provide sound, dependable funding for

American agriculture Cooperative system owned by its borrowers Regulated and examined by the Farm Credit

Administration (FCA), an independent agency in the Executive Branch of the US Government

Jurisdiction of Senate and House Ag Committees (not Banking Committees)

Significantly less leverage than the other major GSEs Strong financial performance

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Source: Bloomberg and the companies

Federal Farm Credit Debt

Issued by the System Banks on a joint and several basis

Ratings for Systemwide Debt Securities:– Aaa/P-1 rating by Moody’s– AAA/A-1+ rating by S&P – AAA/F1+ by Fitch

Interest is generally exempt from state, local and municipal income taxes

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Loans

Source: Federal Farm Credit Bank10

Loan Portfolio Diversification


Net Income

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Capital Ratios

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Investments


Systemwide Debt Securities Outstanding


Designated Bonds


Additional Farm Credit Resources

Bloomberg FFCB<GO> Web Page www.farmcredit-ffcb.com Finance Desk 201-200-8030

[email protected] Glenn Doran, Managing Director 201-200-8083

[email protected] Regina Gill, VP, Investor Relations 201-200-8064

[email protected]

Webpage Investor Relationsincludes

– March 2009 Investor Presenation– 12/31/08 Annual Statement– more

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Additional GSE Resource

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5yr/2yr Callable Yields

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All Spreads Remain Historically Wide

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Holding Period Performance Comparison5yr/3mo vs 5yr Bullet

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Holding Period Performance Comparison5yr/3mo vs Fed Funds

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INTENDED FOR INSTITUTIONAL INVESTORS ONLY. The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. Interest rate swaps and derivatives are offered and sold via Vining Sparks Interest Rate Products, LLC. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.

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GSEs: Past, Present, and Future Focusing on the Farm Credit System March 26, 2009 Presented by: Mark...

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