2007_Subprime_Shorting-Home-Equity-Mezzanine-Tranches-1

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Footnote Exhibits - Page 0926 Strictly private & confidential Disclaimer The information and opinions in this presentation were prepared by Deutsche Bank AG or one of its affiliates (collectively 'Deutsche Bank"). The information herein is believed by Deutsche Bank to be reliable and has been obtained from public sources believed to be reliable. With the exception of information about Deutsche Bank, Deutsche Bank makes no representation as to the accuracy or completeness of such information. This presentation may be considered by Deutsche Bank when Deutsche Bank is deciding to buy or sell proprietary positions in the securities mentioned in this presentation. Deutsche Bank may trade for its own account as a result of any trading suggestions in this presentation and may also engage in securities transactions in a manner inconsistent with this presentation and with respect to securities covered by this presentation, will sell to or buy from customers on a principal basis. Opinions, estimates and projections in this presentation constitute the current judgment of the author as of the date of this presentation. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this presentation or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments also are subject to change without notice. This presentation is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The financial instruments discussed in this presentation may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. If a financial instrument is denominated in a currency other than an investors currency, a change in exchange rates may adversely affect the price or value of, or the income derived from, the financial instrument, and such investor effectively assumes currency risk. In addition, income from an investment may fluctuate and the price or value of financial instruments described in this presentation, either directly or indirectly, may rise or fall. Furthermore, past performance is not necessarily indicative of future results. Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investors home jurisdiction. In the U.S. this presentation is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In the United Kingdom this presentation is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange, authorised by Bundesanstalt for Finanzdienstleistungsaufsicht (BaFin) and by the Financial Services Authority; regulated by the Financial Services Authority for the conduct of investment business in the UK. This presentation is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this presentation is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. Additional information relative to securities, other financial products or issuers discussed in this presentation is available upon request. This presentation may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting. Deutsche Bank Deu h B All numbers shown in this presentation are indicative and are based on a sample portfolio. Actual numbers will be different and will depend on the actual portfolios selected. 2
Footnote Exhibits - Page 0927 Strictly private & confidential Summary * Investor expresses a bearish view on the subprime US RMBS market (or the US Consumer or US Home Prices) by shorting (or buying protection on) selected Home Equity ABS credits * We believe this product is the most efficient way to express these views; more efficient than shorting stocks of homebuilders, REITs, the S&P 500, etc. We are interested in hearing of other ideas * Since 2003, spreads for Baa3 and Baa2 have compressed. But if anything, risk of a housing bubble / defaults has only increased with the continued proliferation of alternative mortgage products such as IOs, silent seconds, stated-income loans and option ARMs. These products have become quite popular as home price increases until very recently outstripped wage growth. The percentage of subprime mortgages originated that were 10 mortgages grew from virtually zero in 2002 to around 30% in 2005 and 2006. The percentage of subprime mortgages originated that were stated-income mortgages grew from around 25% in 2000 and 2001 to over 40% in 2005 and 2006. Mortgages with 40 or even 50-year terms were recently introduced, and have quickly become popular in subprime lending. * After a brief widening near the end of 2005, spreads for Baa2 and Baa3 home equity bonds tightened for most of the first half of 2006, reflecting strong demand from CDOs. Demand from CDOs is a result of worldwide excess capital chasing yieldy products. Such demand, may prove elusive in an adverse market environment. Spread tightening lost its momentum in April, as the CDO's arbitrage has been squeezed. In fact, spreads gradually widened out from May to August. As the housing data has become increasingly bearish, this widening trend accelerated in September with Baa3 spreads nearly 100 bp wider than the April tights. After a brief rebound in October, spreads resumed widening again in November and December. Deutsche Banik All numbers shown in this presentation are indicative and are based on a sample portfolio. Actual numbers will be different and will depend on the actual portfolios selected. 3
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