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

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Footnote Exhibits - Page 0926Strictly private & confidentialDisclaimerThe 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 sourcesbelieved to be reliable. With the exception of information about Deutsche Bank, Deutsche Bank makes no representation as to theaccuracy or completeness of such information. This presentation may be considered by Deutsche Bank when Deutsche Bank isdeciding to buy or sell proprietary positions in the securities mentioned in this presentation. Deutsche Bank may trade for its ownaccount as a result of any trading suggestions in this presentation and may also engage in securities transactions in a mannerinconsistent with this presentation and with respect to securities covered by this presentation, will sell to or buy from customers ona principal basis.Opinions, estimates and projections in this presentation constitute the current judgment of the author as of the date of thispresentation. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. DeutscheBank has no obligation to update, modify or amend this presentation or to otherwise notify a reader thereof in the event that anymatter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomesinaccurate. Prices and availability of financial instruments also are subject to change without notice. This presentation is providedfor 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 anyfinancial instruments or to participate in any particular trading strategy in any jurisdiction. The financial instruments discussed inthis presentation may not be suitable for all investors and investors must make their own investment decisions using their ownindependent advisors as they believe necessary and based upon their specific financial situations and investment objectives. If afinancial instrument is denominated in a currency other than an investors currency, a change in exchange rates may adverselyaffect the price or value of, or the income derived from, the financial instrument, and such investor effectively assumes currencyrisk. In addition, income from an investment may fluctuate and the price or value of financial instruments described in thispresentation, either directly or indirectly, may rise or fall. Furthermore, past performance is not necessarily indicative of futureresults.Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investorshome jurisdiction. In the U.S. this presentation is approved and/or distributed by Deutsche Bank Securities Inc., a member of theNYSE, the NASD, NFA and SIPC. In the United Kingdom this presentation is approved and/or communicated by Deutsche BankAG London, a member of the London Stock Exchange, authorised by Bundesanstalt for Finanzdienstleistungsaufsicht (BaFin) andby 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 KoreaCo. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this presentation is approved and/or distributed byDeutsche Securities Limited, Tokyo Branch. Additional information relative to securities, other financial products or issuersdiscussed in this presentation is available upon request. This presentation may not be reproduced, distributed or published by anyperson for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting.Deutsche BankDeu h B All numbers shown in this presentation are indicative and are based on a sample portfolio. Actual numbers will bedifferent and will depend on the actual portfolios selected.2
Footnote Exhibits - Page 0927Strictly private & confidentialSummary* Investor expresses a bearish view on the subprime US RMBS market (or the US Consumer orUS 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 thanshorting stocks of homebuilders, REITs, the S&P 500, etc. We are interested in hearing of otherideas* Since 2003, spreads for Baa3 and Baa2 have compressed. But if anything, risk of a housingbubble / defaults has only increased with the continued proliferation of alternative mortgageproducts such as IOs, silent seconds, stated-income loans and option ARMs. These productshave become quite popular as home price increases until very recently outstripped wagegrowth. The percentage of subprime mortgages originated that were 10 mortgages grew fromvirtually zero in 2002 to around 30% in 2005 and 2006. The percentage of subprime mortgagesoriginated that were stated-income mortgages grew from around 25% in 2000 and 2001 to over40% in 2005 and 2006. Mortgages with 40 or even 50-year terms were recently introduced, andhave quickly become popular in subprime lending.* After a brief widening near the end of 2005, spreads for Baa2 and Baa3 home equity bondstightened for most of the first half of 2006, reflecting strong demand from CDOs. Demand fromCDOs is a result of worldwide excess capital chasing yieldy products. Such demand, mayprove 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 toAugust. As the housing data has become increasingly bearish, this widening trend acceleratedin September with Baa3 spreads nearly 100 bp wider than the April tights. After a brief reboundin October, spreads resumed widening again in November and December.Deutsche BanikAll numbers shown in this presentation are indicative and are based on a sample portfolio. Actual numbers will bedifferent and will depend on the actual portfolios selected.3
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