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MF Global's "break the glass" document

MF Global's "break the glass" document

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Stress Scenario Analysis ÷ Downgrade

Potential Impact on MF Global
‡ Evaluated and developed a "break-the-glass¨ plan through discussions
with key global business leadership:
! Downgrade to sub-investment grade by at least 2 rating agencies
! Analysis performed on key operating entities (MF Inc and MF UK Limited)
! Scenarios considered significant disruption to funding capabilities
! Operational plans for each functional area, including preparation and immediate reactions,
have been considered and continue to develop
! Dialogue continues, including maintaining/updating these analyses


‡ Key message:
! We remain solvent ÷ are able to manage liquidity through stress period as we
reposition our business and stabilize our financing lines
1
Summary
Treasury, Finance and Risk teams developed a downgrade stress scenario:
Potential Scenarios
2
Second Quarter
Results
Rating Agencies: No action taken
Equity markets: No reaction
Financing: Funding continues
Rating Agencies: No action taken
Equity markets: Negative reaction
Financing: Funding challenged
Rating Agencies: Downgrade
Equity markets: Minimal reaction
Financing: Funding continues
Rating Agencies: Downgrade
Equity markets: Negative reaction
Financing: Funding challenged

Activate
Contingency
Funding Plan
Business
As Usual;
Monitor
Liquidity
Business
As Usual
3
Key Takeaways
Based on the review of the business, capital and liquidity position as well as
several stressed risk scenarios, including a downgrade below investment grade,
several conclusions emerged:
· Expectations from the business are an approximate 30
percent decline in revenues+ potential equity impairment
· Balance sheet would be significantly reduced
· Revolver and external liabilities would need to be repaid
Significant P&L and B/S
implications
· Current levels of liquidity provides management a relatively
short amount of time to assess and execute tactical and
strategic business alternatives
Buys time to re-evaluate
Liquidity sufficient
· Credit rating may necessitate a review and reshaping of
current business model and strategic direction
Reshaping of the business
· Based on the analysis, we believe there is sufficient
liquidity to manage through one month under a severe
stress event
Impact of a Downgrade ÷ What happens?
4
Main Stressed Uses of Cash

Main Mitigants of Cash

1. Financing of corporate paper becomes stressed = $1.0 to $1.5 billion
2. Financing haircuts are increased by MF to maintain liquidity on other asset classes = $100 - $150mm
3. Clearing houses increase margin requirements = $200 - $250mm
4. Reduction in un-committed boxes at BONY Mellon = $100mm
5. Excess client balances are withdrawn (mainly institutional clients) = $100mm
1. Revolver draw = $0.9 billion
2. Liquidation of corporate paper / recover higher haircuts from clients where possible = $0.75 - $1.0 billion
3. Liquidation of other hard-to-finance inventory positions while minimizing P&L impact = $100mm


5
Liquidity Stress Impact (Risk Assumptions)
6
Downgrade Impact By Business
7
Quick Decisions to be made
If a ratings downgrade is imminent, a number of critical decisions will need to
be made:



· Repos - What are the maturities? Do we extend maturities? Do we start now?
What is the P&L impact?
· RTMs - Biggest draw on cash today ÷ how do we respond and what are our
options? Can we novate? Hedge fully? Tenor of hedge (unwind after the
storm)? Need a clear strategy for this.

Repos / RTM
· How do we optimize liquidity while minimizing impact to P&L? Liquidity
Draw on Revolver
· Reshaping the business model: Who do we want to be? What business
do we want to keep? What can be sold? What do we need to keep the
company solvent?
Business Model
· When to draw? How much? How long? What message are we
sending to the banks? To the investors? Drawing too much, too soon
could pre-signal distress.
Internal and External Communications Plan Developed ÷ Employees, Regulators, Banks, etc.

Functional Department Work-Streams Being Developed.
*See appendix for details
- Continue to develop workstreams/action plans within and across
functions

- Additional dialogue on reshaping the business plan to prepare and
respond to such an event

- Ensure communication plans are complete and ready to be executed

- Meetings with the rating agencies Thursday/Friday October 20/21


8
Next Steps





Appendix ÷

I. Downgrade Timeline & Immediate Decisions Required (Details) p.10-11

II. Operational Considerations p.12

III. Key Functional areas and Initial workstreams by function p.13-15

IV. Liquidity Stress Impact (Details of Assumptions) p.16-17

V. Balance Sheet Sources & Uses / Stress Scenario (US & UK) p.18-20

VI. Business Line Impact Details p.21-22


9
Ì. Timeline.Ìmpact of a Downgrade ÷ What happens?
10
Cash Inflows

Objective:
Optimize Immediate Liquidity
with Minimal P&L Impact
Cash Outflows

Objective:
Meet contractual liabilities +
staunch discretionary outflows
+
prevent off-balance sheet
drains
Downgrade to BB+
or below
T+0
T+1 to T+7
T+ 8 to T+ 30
Beyond T+30
9 Prepare to draw on $0.9billion Revolver (banks may
enforce MAC / MAE clause) *
9 Sale of most liquid corporate inventory positions*
9 Sale of MF boxed positions*
9 Sale of Commercial Paper investments*
9 Unwind European RTM book to release margin*
9 Liquidate Investment Portfolios if
funding from client balances and/or
bi-lateral repo counterparties are lost*
9 Unwind UN-matched book if repo lines are lost*
9 Cancel all uncommitted liquidity extensions
9 Inform traders to pause from using B/S
9 Communicate to key clients about safety of their
excess and margin balances
9Move repo positions to CCPs where possible (higher
haircut + financing cost)*
9 Unwind UN-matched book if bi-lateral and tri-
party lines are lost (loss of liquidity and income)*
9 Meet increased clearing house margin
requirements including European RTM portfolio *
9Meet ad hoc regulatory calls for more capital +
liquidity buffer infusions *
9 Prepare to meet panicked client redemption
notices (especially from institutional clients) *
9 Communicate to banks, equity investors,
employees, issue press release
9 Treasury and Operations groups working at
capacity
9 Continue unwinding reverse
repos

9 Continue sale of inventory

9 Continue selling less liquid
assets and investments

9 Release of regulatory capital
as balance sheet contracts

9 Orderly client redemptions of mid-
market and retail clients

9Increased demand from unsecured
vendors for payment ahead of
schedule

9 Worse financing terms across all
borrowing contracts

9 Erosion of business franchise as
key employees leave with their
clients to rival firms

9Banks attempt to recover drawn
Revolver funds

9 Possible risk further downgrades
by rating agencies


9 Re-evaluate business
model and re-build
franchise

9 Possible sale of
strategic assets

9 Excess cash situation
due to release of
regulatory capital


9 Revolver re-payment
due to MAC trigger

9 Possible debt
acceleration due to MAC
trigger

9 Possible loss of
primary dealer
designation

9 Provisions for
possible legal
liabilities/investor lawsuits


Note: All * indicators refer to
the resulting scenarios on the
Risk Liquidity Stress Analysis
I. Immediate Decision Making Required
‡ Business Impact (Earnings depletion, Balance Sheet shrinkage due to lower leverage, etc.) Æ
! Once the downgrade is imminent (per communication from the credit agencies, etc.) there are a number of critical decisions to make with
significant implications.

‡ Drawing on the revolver: When to draw (immediately or after announcement); how much of the revolver should be drawn (all or
partial) ÷ a thoughtful, sophisticated analysis needs to be performed on each of these decisions and a need to consider the message
that goes out to the public, relationships with banks; rumors could have significant impact.
‡ Liquidity - How do we optimize immediate liquidity with the least amount of P&L Impact; sale/unwinding/liquidate inventory and MF
boxed positions.
‡ Repos ÷ how to respond ÷ extend maturities? Do we start now or wait until downgrade, what is P&L loss, how much liquidity is being
generated, what is the message to the street if we start to do this?
‡ RTMs ÷ biggest draw on cash today; loss today less the margins posted; generate liquidity with large P&L loss ÷ decisions: hedge
fully, hedge for a short term (2-3 months and then unwind after the storm), novate? How will LCH respond, how much in excess of
margin will be required, time period, can/will they force us out? Legal restrictions, terms of agreements? Need a clear strategy and
plan for RTM portfolio.
‡ Communication to the regulators, banks, investors, employees ÷ Who communications, what is the message, etc.
! There are restrictions on the credit quality of assets that institutional investors can invest in (most are restricted from holding "non-
investment grade¨ or "high yield¨ securities or taking unsecured credit exposure to such Firms). This has both positive and negative
implications.
‡ Business Model - It is necessary to determine how much is held by institutional investors and to estimate the potential loss; what is
needed to run the business, which businesses do we potentially want to lose and concentrate on the areas we want/need to save;
who do we want to be after the storm? How quickly do we want to send cash back to clients, what is the message if we do not send
immediately, what is the strategy if we want to keep the customer and wait until the storm passes. Do we revert back to agency-type
business.


‡ Ultimately, clients might not want to do business with us immediately after a downgrade, but it is how we handle ourselves during the
downgrade that will determine if they want to do business with us in the future.



11
II. Operational Considerations and Responses
‡ Operational Considerations Æ
! How will the multiple lines of business (BO/MO/FO/Static Data/Account Management/IT) co-exist to handle the vast increase in client requests?
‡ Expected vast increase in redemptions that will put tremendous pressure on all lines of business to handle the excess.
! Each function should have an "Emergency Plan¨ that would outline roles and responsibilities in a downgrade situation to help prevent disorder and
chaos.
! Investor relations and corporate communications need plans specifically for a credit downgrade and addressing the media and clients alike
! Front Office and IR should plan together on what should be said and what needs to be said. One trader saying something that a client perceives as
negative could spread very quickly across Wall Street and beyond.
! "Weathering the storm¨ is critical to the plan if the firm is to survive. Senior Management should be briefed on what a potential downgrade could mean to
their roles (i.e., the middle office should understand that they are going to be buried with all kinds of requests coming from both back and front offices
due to redemptions, people cancelling business, etc) and plan to properly communicate to all of their employees the messaging from corporate
communications;

‡ Operational Response Æ
! Most normal business operations will cease and the firm should focus on "disaster recovery¨
! Investor Relations and Corporate Communications ready to respond and handle the situation with a unified, consistent message that is communicated
throughout the organization and externally to all counterparties; Everything from being respectful when answering questions, to being able to properly
transfer them to the account management department to help close their account. Excess manpower should be provided to this group to handle the
rush of calls.
! Directly contact all regulators and start the communication/address concerns;
! Allocate manpower efficiently to handle all of the excess issues resulting from a downgrade;
! Legal/Compliance/Investor Relations/Executive Management/Front Office proactively fielding questions/calls from clients, exchanges and regulators
! All support functions maintaining 'all hands on deck' with all relevant team members for the foreseeable future


12
13
III. Key Functional Areas
The inner circle represents functional areas that will be most affected; the outer
circle are areas that will provide direction, support or be responsible for
communicating with external stakeholders
Finance
Legal
Technology
Compliance
Investor
Relations
Businesses
Regional
Management
Global
Management
TREASURY
OPERATIONS
RISK
FINANCE
DESK
III. Initial Workstreams by Function

Treasury:
Concerns/Plan - concerns for Treasury are reflected throughout this presentation; response to the plan of action are included below:
! Prepare for Revolver draw
! Monitor secured financing stress
! Monitor inventory positions
! Monitor client funds withdrawals
! Monitor funding requirements from clearing houses and regulators
! Monitor off-balance sheet liquidity events (RTMs, customer financing lines, etc.)
Finance:
! All hands on deck from an accounting and analysis perspective;
! Ensure seg calcs are done daily
! Ensure the completeness and accuracy of daily p&l calculations
! Meet all reporting needs (i.e. internal management reporting/external regulatory reporting)
Compliance:
Concerns:
‡ Messaging to the street: key business decisions (i.e. terming repos) made on reducing exposures could send the wrong message if not handled
appropriately; rumors could significantly impact our ability to survive;
Plan:
‡ No specific responsibilities but all hands on deck, on the floor, helping respond to queries and actioning, as well as helping to contact regulators as
requested.
Operations: Concerns are addressed throughout the document; response to the plan of action are included below:
‡ No specific responsibilities above daily and beyond normal business other than handling the sheer volume of client redemptions in a rational and
orderly manner, ensuring customer accounts are handled appropriately; concentration on transactions with external counterparties, sec
lending/borrowing/tri-party trades; but all hands on deck.
IT: Concerns are addressed throughout the document; response to the plan of action are included below:
‡ No specific responsibilities above daily and beyond normal business other than increased scruitiny around our trading platforms and ensuring they
are stable as more activity on part of some of our traders, pricing of trades and pricing glitches; need to be have appropriate resources to monitor
security on the systems, turning off access as appropriate and providing access where necessary. All hands on deck
14
III. Initial Workstreams by Function (continued)
Investor Relations:
Concerns:
‡ Significant pressure on equity creating broader client implications
‡ Analyst downgrades, earnings and price target revisions
‡ Prominent and broad based negative media coverage
‡ Client withdrawals
‡ Liquidity rumors
Plan:
‡ Investor Relations, Corporate Communications, and Marketing are responsible for communication and messaging both internally and
externally; teams already have detailed plans in place on how to respond to this situation; need to ensure these plans are known by
executive and senior management and that the messaging both internally and external are consistent and executed appropriately.

Legal:
Plans:
- Reviewed (1) all material (non-customer) contracts, including revolver, long term debt, Series A & B, non-committed bank facilities,
etc. and (2) sample customer and other trading agreements (e.g., electronic trading agreements) for any contractual provisions
implicated in the event of a downgrade, liquidity crisis and/or as a result of other trigger events post downgrade (including demands
for adequate assurances);
- Updating information re all regulators, exchanges and clearinghouses and anyone else we are legally obligated to notify (or
otherwise should notify) in immediate response to downgrade (or other triggers); compiled all triggers for notification and/or other
reasons we would reach out, contact points and best relationship people to make contacts; messaging to be coordinated with IR;
- Updating customer document re security of customer funds and improving detail as necessary or helpful;
- Make sure using right assumptions based on where ratings action effective if only by one rating agency vs majority;
- Consider options to current structure of trading relationships (between US & UK) and the regulatory and accounting implications on
any change to this structure;
- Consider whether any limits to the requirements FSA can impose and develop contingency plan to approach Federal Reserve Bank
(NY and Washington) and possibly Treasury for support if FSA requests might threaten firm.

15
IV. Liquidity Stress Impact (Details of Assumptions) - US
16
Driving Scenario 1: MFGdowngrade or extreme drop in stock price
Analysis for MFGInc. (US) Starting Non-Seg Liquidity Pool 992
Starting Seg Liquidity Pool 2,000
Resulting Scenarios Outflow Pool Day 0 Day 1 Day 2 Day 3 Day 4 Day 5 Week 2 Month 1Month 2 Comment
O1
Repo lines gets pulled back, haircut increased, and excess
pulled back; mostly impacting the un-matched part of the repo
book
Haircuts increases for un-matched repo book, and the
treasury inventory financed externally (Trsy, MBS, Agn)
NSL -25 -25 -25 -10 -10 -10 -25 Combined we would require $130mm based on increased hair cuts.
Certain Corp paper returned; part of it put into the box, and
part funded internally.
NSL -50 -50 -50 -50 -50 -50 -100 -100 -100
Approx 60% of 1.7bn & 300/300mm of IG, or $1000mm of
counterparties such as State Street and AIG returned; approx $500
put into committed and uncomitted boxes; rest financed internally.
Repos are staggered.
Client pull back excess or unwind of un-matched book
causes drop in B/D excess
NSL -15 -15 -15 -15 -15 -15 Approximately 1/3 of B/D excess generated from customers
O2
SLB increased margin or lines get pulled back by
counterparties
Haircut widening; for matched book and for the customer
inventory financed by SLB.
NSL -5 -5 Book is small and perfectly matched; 10mm is conservative
O3 BNYreduces the size of the box, or returns part of the collateral BNYcloses a portion of the uncommitted box. NSL -83
Our BNYMbox is uncommitted, so they can shrink it at any time. We
assumed approx 1/3rd reduction.
O4 Increased haircuts at CCPs for Repo (EUREXand LCH) LCH NSL -7 Outflow is 90% add-on - As per rulebook; BB+ 200%
LCH.SA NSL -158 Outflow is 90% add-on - As per rulebook; BB+ 200%
EUREX NSL -49 Assuming outflow is 50% add-on
O5 Customers decide to pull back their excess in FCM
1B of client excess is sent back to customers; requiring
Treasury to finance more of their corp book externally and
paying haircuts.
SL -50 -50 -50 -100 -100 -250 -300 -100 $1bn of client access gets pulled back.
In case of client excess pull back ($1bn), more of corporate
bond book needs external financing.
NSL -25 -25 -25 -50 -50 -125 -150 -50
only 50% of additional corporate bonds could be funded uses
external lines, rest funded internally using resources including the
secured boxes. Customer don't pull at the same time.
NSL -3 -3 -3 -5 -5 -13 -15 -5
10% of the remaining 50% as haircut required by external
counterparties
O6 Certain large FCMcustomers decide to leave MFG
Customers xpit out 1B in IM; pulling their excess; reducing
the internal financing of Treasury exchange eligible
portfolio; requiring external financing including FICC
NSL -1 -1 -1 -2 -2 -5 -6 -2
Affects Seg / Margin Excess only (Day 1 -250, Day 2 -250, Day 3 -250,
Day 4 -100, Day 5 -100, Week 2 -50
O7
ISDAThresholds gets triggered, requiring MFG to keep post
more liquidity
FXand others NSL -3 -3 -3 -3 -3 Conservative approximation based on FAS161 history
(FX, OTC Comm, others) OTC Commodities NSL -5 -5 -5 -5 -5 Conservative approximation based on FAS161 history
O8 Increased collateral at clearance banks CLS (fx) NSL -25 Currently 50Mhas been as high as 100M
Non-Seg Liquidity Daily Outflows 0 0 0 0 0 0 0 0 0
Cumulative Outflows 0 0 0 0 0 0 0 0 0
Net Liquidity w/o Mitigants (SoD) 992 992 992 992 992 992 992 992 992
Net Liquidity w/o Mitigants (EoD) 992 992 992 992 992 992 992 992 992
Seg Liquidity Daily Outflows 0 0 0 0 0 0 0 0 0
Cumulative Outflows 0 0 0 0 0 0 0 0
Resulting Scenarios Mitigant Comment
M1
Repo Haircut increases or lines get pulled back by
counterparties
Haircut increase passed onto clients 4 4 2 2 2 4 0 0 15% of increase passed to customer
Liquidation of part of the corp paper 38 38 38 38 38 38 75 75 75 75% of portfolio liquidated
M2
SLB increased margin or lines get pulled back by
counterparties
Wind down of the SLB business; keeping only the
minimum client facitation position
1 1 1 2 5 Assume orderly liquidation based on current portfolio
M3
Reduction in appetite for certain collateral, requiring MFG to
fund mismatch
Liquidate part of the returned assets 21 10 0 Liquidate 1/2 of the returned assets
M4 Increased haircuts at CCPs for Repo (EUREXand LCH) Move to counterparties with favourable terms 21
Novate some positions to OTC counterparties; benefit is 10% of
exchange increase)
M5 Customers decide to pull back their excess in FCM Unwind positions - smaller liability at exchanges No mitigation
Liquidation of the corp paper portfolio, previously funded
internally
19 19 19 38 38 94 113 38 75% of internally funded portfolio liquidated
Losses on Liquidation of Corp Portfolio -1 -1 -1 -2 -2 -4 -5 -3
Approximated at 1/4 point; only for liquidation purposes. Actual can
vary a lot.
M6 Certain large FCMcustomers decide to leave MFG
Potential margin netting benefit; and reduction in reg cap
requirements.
No mitigation
M7
ISDAThresholds gets triggered, requiring MFG to keep post
more liquidity
Some counterparties will be paying us for forward loses 10
Novate positions to favorable OTC counterparties to reduce impact by
25%
(FX, OTC Comm)
M8 Increased collateral at clearance banks Find alternative relationships We recently negotiated down with BofAfrom 100 to 50
Non-Seg Liquidity Daily Mitigants 38 59 80 68 76 77 195 193 110
Cumulative Mitigants 96 177 244 320 397 591 784 894
Cumulative Outflows net of Mitigants 0 96 177 244 320 397 591 784 894
Net Liquidity with Mitigants (SoD) 992 1,030 1,088 1,169 1,236 1,312 1,389 1,583 1,776
Net Liquidity with Mitigants (EoD) 1,030 1,088 1,169 1,236 1,312 1,389 1,583 1,776 1,886
IV. Liquidity Stress Impact (Details of Assumptions) - UK
17
Driving Scenario 1: MFGdowngrade or extreme drop in stock price
MFG UKL Starting Liquidity Pool 1,297
Resulting Scenarios Outflow Day 0 Day 1 Day 2 Day 3 Day 4 Day 5 Week 2 Mth 1 Mth 2 Comment
O1
Repo lines get pulled back by counterparties, haircut
increased, and excess pulled back mostly impacting
the un-matched part of the repo book
Haircuts double for the o/n rolls -4 -4 -4 -4 -4 -3
Increased haircut of 200% now paid to counterparties based on current
O/N Repo
Counterparties no longer pay us haircut -4 -4 -4 -4 -2 We no longer receive haircut from counterparties
Certain counterparties pull back their lines, and can
be replaced only at higher haircuts
-2 -2 -2 -2 -2
We are no longer able to use lines and are liable to higher haircuts to
finance positions
Customers pull back some excess they leave in the
repo book
-2 -2 -2 -2 -2
Customers no longer keep excess over requirements with us reducing
the non seg liq pool
O2
SLB increased margin or lines get pulled back by
counterparties
Haircuts double -8 -8 -8 -8 -8 -8 -4 Increased haircut paid to counterparties based on current O/N SLB
Counterparties no longer pay us haircut -6 -6 -6 -6 -6 -3 We no longer receive haircut from counterparties
CFD Book -41 -40
Top quality stocks charged 15% haircut by PB (271M)
Lower quality become SiB and fully financed by MFG (41M)
O3
Increased haircuts at CCPs for Repo (EUREXand
LCH)
LCH -7
LCH.SA -158
EUREX -49 Assuming outflow is 50% add-on
O4
Some customers pull back their excess and others
leave MFG
Client non seg free equity -10 -10 -10 -10 -15 -20 -40 -50 -20
Historical data for client withdrawals during 2008
40% reduction in Non Seg Free Cash (464M) over 4 days
O5
Reduction in appetite for certain collateral, requiring
MFG to fund mismatch
-5 -5 -5 -5 -5 -15 -10 Assume 10% haircut increase for Corporates in Treasury portfolio (499M)
O6
As a result of customer leaving, MFG loose some of the
netting benefits at the exchanges
Unwind of margin netting benefit -2 -2 -2 -2 -2 -3 -6 -8 -3 Loss of netting benefit is 15% of drawdown.
O7
ISDAThresholds gets triggered, requiring MFG to keep
post more liquidity
OTC Commodities -1 -1 -1 -1 -1
(FX, OTC Comm) FX -1 -1 -1 -1 -1
Daily Outflows -24 -258 -45 -86 -50 -53 -108 -68 -23
Cumulative Outflows -24 -281 -326 -411 -461 -514 -622 -690 -713
Net Liquidity w/o Mitigants (SoD) 1,297 1,273 1,015 971 885 835 782 674 607
Net Liquidity w/o Mitigants (EoD) 1,273 1,015 971 885 835 782 674 607 584
Resulting Scenarios Mitigant Comment
M1
Repo Haircut increases or lines get pulled back by
counterparties
Move to counterparties with favourable terms 6 6 Assume re-finance 50% with favourable counterparties
Wind down trading book
M2
SLB increased margin or lines get pulled back by
counterparties
Move to counterparties with favourable terms 13 13 Assume re-finance 50% with favourable counterparties
M3
Increased haircuts at CCPs for Repo (EUREXand
LCH)
Pass haircut increase to client 213 MFGUK passes any margin increase to MFGI
M5
MF Sells the Corporate bond book at the prevailing
market
38 MFG sells 75% of the corporate holdings
Daily Mitigants 0 0 213 0 0 0 19 56 0
Cumulative Mitigants 0 0 213 213 213 213 232 288 288
Cumulative Outflows net of Mitigants -24 -281 -113 -198 -248 -301 -391 -402 -425
Net Liquidity with Mitigants (SoD) 1,297 1,273 1,015 1,184 1,099 1,048 995 906 895
Net Liquidity with Mitigants (EoD) 1,273 1,015 1,184 1,099 1,048 995 906 895 872
Outflow is 90% add-on - As per rulebook; BB+ 200%
Conservative approximation based on FAS161 history
18
V. Current Regulated Entity Sources & Uses (Summary)
SOURCES (in millions):















USES (in millions):













NET CASH: $6,189
SOURCES (in millions):















USES (in millions):













NET CASH: $ 292


1) Take undrawn portion of credit revolver ($1.26b)
2) Increase maturities of Repos before stress scenario (thru
CCP) in an amount close to $2.4bn
1) Move Non-CCP Repos to CCP
3) Sell boxed collateral; Sell Investments (HTM)
4) Cancel any uncommitted lines extended to clients
5) Shut-down Contract for Difference "CFD¨ business and raise
margin levels to 30% (similar to 2007).
6) Increase LCH Margin requirements to $300 million
MFG INC
MFG UKL
.
1) Currently $583m of available funds to aid in a stress scenario:
· UKL has LAB excess: $320mm
· UKL has non-seg deposits: $199mm
· UKL has non seg cash at bank $63mm
· Total Liquidity: $588mm

Note: this does not include the required LAB of $469mm which
should not be used and is not taken into account for general
use purposes
Note 1: Data is from Aug 31
balance sheet

Note 2: Assuming APAC is
net liquid after stress
scenario

** MFG Inc Repo/Reverse
Repo information is from the
9/30 Gross Tenor Report

***MF UKL Repo/Reverse
Repo data was obtained from
the 10/4 Gross Tenor Report

Cash Inflows: (Green)
Cash Outflows: (Red)

Cash 40
Restricted Cash/Securities 7,400
Reverse Repo & SB 58,227**
Sec. Owned 4,500
Customer Receivables 276
Affiliate (HTM) Rec. 7,375
B/D & Clearing Orgs 565
Other Rec. 1
Total 78,384
Customer Payables (8,780)
B/D & Clearing Orgs Payable (266)
Repos & SL (58,563)**
Secs sold, not yet purchased (3,312)
Affiliate Payable (621)
Accrued Exp & Other Liabs (653)
Total (72,195)
Cash 374
Restricted Cash/Securities 393
Reverse Repo & SB 7,632***
Sec. Owned 1,348
Sec Rec as Collateral 49
Customer Receivables 240
Affiliate (HTM) Rec. 89
B/D & Clearing Orgs 2,021
Other Rec. 84
Total 12,230
Customer Payables (2,623)
B/D & Clearing Orgs Payable (263)
Repos & SL (8,118)***
Secs sold, not yet purchased (107)
Affiliate Payable (456)
Accrued Exp & Other Liabs (322)
Oblig. to return Sec Borrowed (49)
Total (11,938)
Liquidity Impact due to Stress (worst-case scenario) Liquidity Impact due to Stress (worst-case scenario)

V. Stress Scenario Impact on MFG Inc. ÷ with Mitigants



19
V. Stress Scenario Impact on MF UKL ÷ with Mitigants



20
VI. Business Line Impact (based on Product Head feedback)

‡ Fixed Income
! Overall ± significant impact on business (greater than 50% likely); higher haircut and higher expense
! Ratings Downgrade: Æ Junk Status Æ (50%) estimated change lose of counterparties and their funding;
! (A) $4b in Treasury/Agencies (customer cash providers, lose all in terms of bi-lateral business (6 counterparties); funding can be made up with FICC
counterparties (higher haircut/expense); (B) $3b in Agency/MBS, lose 10-12 counterparts ($275m down to 100m in liquidity); (C) Investment grade
Corporates (lose more than half of the 10 counterparts) & lose funding ($2b down to $1b in funding which is a direct drain, no CCP offset; of the
customers that stay, will mean required higher haircuts, cannot fund but can sell out of portfolio and take a p&l hit; (D) match-book income lost ÷ both
sides of balance sheet ($200m funding) ÷ excess liquidity lost; GCF higher haircuts (another $50m loss)
! Financing: impacted immediately, additional margin support required
! Clearing: negative impact on revenues and volume, clients would have to set up new clearing arrangements
‡ Increased collateral requirements, revised settlement funding lines, increase clearing/settlement charges
! Given current Fixed Income dynamics globally, the profits on the Fixed Income business are already lagging, but any trigger event could reduce the
profits to "razor-thin¨ levels.
‡ Foreign Exchange
! Overall ± significant impact on business, especially in the US where currently building the business (40% likely)
! Ratings Downgrade: Æ Junk Status Æ (40%) estimated change
! CLS Bank Settlement Impact: - An additional factor following a significant "trigger event" would be the potential reluctance of our CLS settlement bank
to continue to provide FX settlement services. This is something that MFG has experienced historically, and there are a limited number of banks that
offer these services.- Following a downgrade or "trigger event", liquidity providers would be even less inclined to settle trades bilaterally with MFG
outside of CLS (other than in the instances where MFG had "winning" trades which they may wish to delay settlement on if it appeared that we were in
distress), so this would have significant impacts and would mean that we would not be able to execute business.
‡ Retail
! Overall ± potentially less material impact on business (less than 25% likely)
! Ratings Downgrade: Æ Junk Status Æ (25%) estimated change
! General Brokerage (UK/Welch): $1.6b held, benefits from very strong long-standing customer relationships., which with management of the news
flow and reassurance of the Desk Head should limit the flight of customers, and this was the case historically.
! Electronic Direct / Online Trading: (US/Sachs): $1.0b
! CFD + FO (APAC): $200-250 million, we have a greater exposure to white label F/O than we do to CFDs (which are manufactured by DB).

21
VI. Business Line Impact continued.

‡ Commodities
! Overall ± significant impact on business (potentially greater than 40% if junk status)
! Ratings Downgrade: Æ Junk Status Æ greater than (40%) estimated change
! Metals: Less significantly impacted than other 2 ÷ from historical figures and customer relationships in UK, believe it would be hit (20-25%)
! Agriculture: Significantly impacted, upwards of 50% decline in revenues;
! Energy: Significantly impacted (already currently impacted due to market cap and stock price); upwards of 50% decline in revenues;
! Regulatory capital for commodities is $300 million; margin requirements $2 to $3 billion, it would cause $800 million in balances to be pulled out (30-
40%).
! Expect Metals (mostly non-seg customers in UK) cash surplus would likely reduce from $200 million to $100 million.
‡ Equities
‡ Overall ± potentially less material impact to business (approx 10%, maybe 15% if junk status and/or multiple events occurred )
‡ Ratings Downgrade: Æ not significant impacted due to the nature of the business (85% DVP).
! Cash Equity: makes up 46% of US Equities, mostly DVP and as such, a trigger event will not have a vast impact;
! Equity Derivs: makes up 37%, largely consists of listed derivatives and are largely DVP, a trigger event will not have a vast impact (looking to build up
OTC Equity Derivs, but not applicable at this time);
! Electric Trading: DMA makes up 11% (of which 30% is flat @ EOD) and the rest is 6%, this business is largely DVP, a trigger event will have a
minimum impact;
‡ Interest Rate Products
! Overall ± non-material impact on business between(10%-15%) likely
! Ratings Downgrade: Æ Junk status Æ Lose clearing accounts
! Execution: accounts for close to 85% of the business, given past considerations the phone lines were back up to normal business in a few days.
! Clearing: would not be affected greatly but when the split between execution and clearing trends towards 60/40 in the future the impact will be greater.
‡ Prime Services
! Overall ± non-material impact on business (less than 10% likely)
! Ratings Downgrade: Æ not significantly impacted due to the nature of the business and client relationships;
! Client Solutions: across these lines of business there is $4.6 billion in capitalization in what are considered "Middle Markets¨.
! 90% of this is deemed to be safe considering the nature of the client relationships
! The 10% lost will be due to the largest CTA's and hedge funds

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