FW: Notes from 9/17/01 RAC Meeting on Steel

FYI.

-----Original Message-----
From: Schneider, Chip
Sent: Tuesday, September 18, 2001 8:03 AM
To: Gorte, David; Rohauer, Tanya
Cc: Hagelmann, Bjorn
Subject: Notes from 9/17/01 RAC Meeting on Steel

Please add notes as appropriate. These are for RAC purposes only and will not be distributed.

Challenge

Appetite for credit capacity is much greater than what is justifiable given credit quality of industry and liquidity of transactions.

Issues

Dearth of liquidity in market (bearing in mind that EIM's purpose is to stimulate liquidity)
Poor credit quality
Highly structured nature of steel transactions (inventory management, illiquid options, etc.)
M-T-M Accounting and incentives related to achieving earnings targets

Short-term Solutions

Consider expanding "risk pool" (with concentration limits) to provide more flexibility to commercial teams (Pitfall: could be rapidly depleted to achieve short-term budget targets)
Reduce size of transactions and increase volume to achieve greater diversity and less concentration

Action Items

Plan more formal education for Steel Group centered around
M-T-M Accounting
Credit Analysis
Market Risk Analysis
Determination of Credit Lines
Calculating Credit Reserves
Link Budget Process to Credit and Market Risk
More clearly define view of liquidity with regard to different types of transactions/commodities