2008 10 03 Verhelle presentation at LeasEurope

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Headwinds of the credit market dislocation are unlikely to abate anytime soon Record wide spreads on the various derivative related indexes such as CMBX, ABX, and LCDX suggest liquidity will remain constrained Markets such as CMBS are basically closed This crisis is going to be longer Breadth of the issue is bigger than the Russian crisis Effect will be deeper and global

Implications for commercial finance: Over supply of capital and liquidity New entrants (CDO, SIV, Hedge funds) Margin compression Liberal credit structures Exceptionally strong credit quality

Spreading to other asset classes such as student loans, auto lending, and credit cards Monoline wraps decline in value

Globally, over $420 billion of writedowns and unusual charges. Writedowns and unusual charges include any credit related writedowns (CDOs, RMBS, CMBS, leveraged loans, excess provisions etc.) Globally, over $169 billion of additional sub-prime exposure in CDOs, Direct RMBS, and Direct sub-prime lending (excluding SIVs and Conduits) (Bill, the original numbers were $144B in write downs and $445B in additional exposure. Based on Reuters, $420B in writedowns have been taken. I adjusted the additional exposure number to reflect the approximate difference. FYI—the Reuters numbers are as of 9/11, and the graph is linked to the complete data if you want to see who the 19 Entities are or change the included institutions. Tracey

Globally, over $588 billion of writedowns and unusual charges but about $1.7 trillion in estimated reduced lending capacity Assumes 8:1 equity Bill—according the Reuters data on last slide (from 9/11/08), the new write-down number is $420 billion. According to Bloomberg (from 10/1/08) the new write-down number is $588 billion . Tracey

Banks hunker down and severely capital constrained A wave of bank failures expected, especially for the ones with residential mortgage exposure Lenders have been taking less reserves to enhance profitability Recent increase in delinquencies and charge-offs may force lenders to revisit this practice

Regulators pressure banks for tightening lending standards Appetite for risk has dropped Pricing increases, fee increases for credit facilities

Significant financing risk exists for commercial finance companies that rely on the capital markets including the securitization market to finance large portions of their assets (via CLO-collateralized loan obligations) In times of market stress, the securitization markets could become more expensive or not available With competition weakened, supply to the middle market is being constrained Subscale commercial finance businesses will go out of business Catalysts for recovery – The only real potential catalyst we see for a quick rebound in the stocks is a broad recovery in the credit markets, on the back of aggressive governmental action in the residential market. Should this happen, there could be material upside for the stocks

Old model doesn’t work The engineered finance era: These funding methods (SIVs, ABS, Conduits, Warehouse lines) are temporarily unavailable The return of the “Dinosaurs”: Developing funding strategies that are similar to those used prior to securitization Many investor classes are flush with excess capital; with uncertain debt and equity market conditions, those investors are still actively seeking private investment opportunities Need to access large amount of pent up liquidity that exists in today’s market. Winners are going to find new pools of liquidity Private capital Large industrials Pension funds Sovereign wealth funds