CDOs in the Heartland

1
CDOs in the Heartland

• Thursday, March 20, 2003

2
CDOs in the Heartland

• 2002 Review
• CDOs in the Crosshairs?

3
CDOs in the Heartland

• 2002 Review
• Total CDO issuance ? 208Billion (38 YoY)
• Cash CDO issuance ? 61Billion
• Synthetic CDOs ? 147Billion (74 YoY)

4
CDOs in the Heartland

• 2002 Cash CDOs
• MS CDOs 35 (21 YoY)
• HY CLOs 31 (30 YoY)
• Other 12
• BS CDOs 9
• IG CDOs 8
• HY CBOs 5

5
CDOs in the Heartland

• 2002 Synthetic CDOs
• Static Arbitrage 51
• Balance Sheet 38
• Managed Arbitrage 11

6
CDOs in the Heartland

• Defaults/downgrades continued (although default
  rates abated slightly)
• CDO spread widening on all tranches
• FASBs SPE consolidation/FIN46
• 2003 Flat YoY?

7
CDOs in the Heartland

• CDOs in the Crosshairs
• Effective risk dispersion reducing systemic risk
  (Alan Greenspan) OR
• Financial weapons of mass destruction (Warren
  Buffett)

8
CDOs in the Heartland

• 2003 Challenges
• Resolve CDO accounting uncertainty
• Restore CDO investor confidence
• Continue to improve/refine CDO structures
• Transparency/comparability is necessary for
  liquidity