Transcript What is Mortgage Banking? - June 2003

What is Mortgage
Banking?
June 18, 2003
Executive Summary
 The mortgage market in the United States is vast
 Marketplace characteristics are driven by borrower and investor
demands
 The mortgage banking business links the borrower to the
investor creating high market liquidity
 Servicers move the cash
 Accounting adds complexity
2
Table of contents
1 Overview of the mortgage market
Page 04
2 Mortgage marketplace
Page 09
3 Originators: the distribution channel
Page 19
4 The role of the Servicer
Page 31
5 Accounting considerations
Page 43
6 Hedge accounting
Page 52
7 Questions
Page 57
3
1
Overview of the
mortgage market
4
U.S. Mortgage Market
The mortgage market has
two primary sectors: retail
and commercial.
Single-family constitutes
the retail sector. Multifamily comprises part of
the commercial sector.
 Vast: in excess of $6 trillion of mortgage loans outstanding
 Demand for mortgage product high: over 6.4 million single-family
homes purchased in both 2002 and 2001
 Government sponsored entities (Agencies) facilitate highly liquid
securitization market
 Securities market deep: over $ 1 trillion in securities issued in both
2002 and 2001
 Mortgage products highly standardized with virtually no penalty for
prepayment
5
Market Demands Drive Product
Market liquidity also drives
innovation in product
development .
Borrowers / Home Buyers
 Lowest all-in rate
 Broadest selection of product
type
 Lowest out-of-pocket costs
 Efficient, reliable delivery of
product
 Ease of access
 Transparency
Investors
 Invest in mortgage product
without business infrastructure
 Large pools of standardized,
small dollar product
 Low, well-diversified credit risk
 Well-collateralized investment
 Additional credit enhancement
 Highly liquid investment
 Efficient delivery
 Managed prepayment volatility
6
U.S. Mortgage Banking Industry
Mortgage Banking
connects the needs of
borrowers with the
demands of investors to
provide a deep and liquid
mortgage marketplace in
the U.S.
Mortgage Banking
Originations
Borrowers /
Investors
Home Buyers
Servicing
7
Mortgage Banking Roles
Originations
Servicing

Source qualified borrowers

Collect payments from borrowers

Underwrite mortgages


Fund mortgages
Remit principal and interest to
investors

Pool mortgages by type

Remit taxes and insurance to
appropriate parties

Sell mortgages to investors

Pursue delinquent loans
–
through Agencies

Initiate foreclosure proceedings
–
through private
securitization vehicles

No credit exposure
8
2
Mortgage
marketplace
9
Key Differences: U.S. vs. Europe
Although the underlying
characteristics are similar
across the two regions,
fundamental differences
exist in the two markets.
U.S. Market
European Market
 Government-sponsored entities
create a liquid securitization
market:
– Credit risk sold
– Need not be self-funded
– Standardized product

Limited secondary market, assets
retained
– Credit risk retained
– Funded through bond
issuances
 Virtually no prepayment penalties
– Results in high refinance
market

Prepayment penalties
– Limits refinance market and
origination volume
 Capital requirements low

Capital requirements high
10
U.S. Borrowers’ View of Mortgage Product
ABN AMRO offers a variety
of product but does not
participate in interest-only
mortgages, reverse
mortgages or balloon
mortgages.
 1st liens on real property (e.g., collateral specific)
 Typically no penalty for prepayment
 Variety of basic terms:
– Fixed rate mortgages: predominantly 15 year or 30 year
– Adjustable rate mortgages: ARM and ARM hybrids
– Other hybrid products:
–
Interest only payments
–
Reverse mortgages
–
Balloon principal
11
Borrowers’ Decisions
The most prevalent are
fixed rate mortgages where
the payments are both
principal and interest.
30 year mortgages are
common although the
current low interest rate
environment has resulted
in an increase in shorter
tenors.
 Interest type:
– Fixed, floating or hybrid
 Payment type:
– Principal and interest or interest only
 Current interest rates (purchase or refinancing)
 Tenor (various including 15 year and 30 year)
 Cash contributed to property purchase (equity)
– Loan to property value (LTV) < 80% – standard
– LTV > 80% requires borrower to buy insurance
 Cash paid at closing (fees, points, etc.)
12
Growth in Mortgage Debt Outstanding
In the U.S., the retail
mortgage sector is singlefamily mortgages. Singlefamily is often defined as 14 units per property.
7,000
CAGR = 8.53%↑
6,000
Bilions of USD
5,000
4,000
1- 4 Family
3,000
2,000
1,000
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
Source: The Bond Market Association
13
Who are the Agencies?
 Primary roles:
– Attract investors to the mortgage marketplace to ensure adequate
funding and liquidity for mortgage market needs
– Increase home ownership by making home mortgages more
affordable
– Minimize regional disparities through high standardization
 The Agencies
– Ginnie Mae (GNMA)
–
US Government agency – fully guaranteed by the US Government
– Fannie Mae (FNMA) & Freddie Mac (FHLMC)
–
US Government-sponsored agency
–
Indirect guarantee by the US Government
14
Investors’ View of Mortgage Product
ABN AMRO targets
conforming mortgages
(GSE securitization).
Additionally, ABN AMRO
focuses on prime jumbo
mortgages for which it
maintains its own
securitization vehicle.
ABN AMRO does not
participate in sub-prime
lending.
Conforming (Agency)
 Highly standardized to facilitate securitization
– Agencies specify guidelines
– Loan to property value < 80% unless insured
– Prime loans to customers of high credit quality
– Size limitations on individual loans (< $322,000)
Non-conforming (includes many types)
 Private securitization vehicles (“private-label”)
– Jumbo mortgages (principal exceeds conforming limit)
– Sub-prime: borrowers ineligible for conforming loans
– Hybrid products
15
Investor Decisions
 Invest in mortgages without business infrastructure
 Low, well-diversified credit risk
 Highly liquid investment
 Investment well-collateralized
 Risk vs. return profile (Agency vs. non-conforming securities)
– Initial market development facilitated by Agencies
– Private-label market now well-developed
16
Outstanding Agency Securities
ABN AMRO securitizes
through all three Agencies.
The primary Agency
utilized by ABN AMRO is
FHLMC.
3,500
CAGR = 9.39 ↑
3,000
Bilions of USD
2,500
2,000
FHLMC
FNMA
1,500
GNMA
1,000
500
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003 E
Source: The Bond Market Association
17
Balance of Mortgage Banking Industry
Servicers – 2002
Originators – 2002
Volume
Market
share
%
1. Wells Fargo Home Mortgage
333.0
13.3
2. Washington Mutual
312.0
12.4
3. Countrywide Credit Industries
251.9
10.0
4. Chase Home Finance
155.7
6.2
5. ABN AMRO
119.4
4.8
6. Bank of America
88.0
3.5
7. National City
79.5
3.2
8. GMAC
71.6
2.9
9. Cendant Mortgage
59.3
2.4
52.8
2.1
Player
10. GMAC-RFC
Volume
Market
share
%
1. Washington Mutual
723.2
11.2
2. Wells Fargo Home Mortgage
570.3
8.8
3. Countrywide Credit Industries
452.4
7.0
4. Chase Home Finance
426.0
6.6
5. Bank of America
264.5
4.1
6. GMAC
198.6
3.1
7. ABN AMRO
184.5
2.9
8. National City
123.1
1.9
9. Cendant Mortgage
115.9
1.8
115.4
1.8
Player
10. CitiMortgage
Source: Inside Mortgage Finance
18
3
Originators: the
distribution channel
19
Market Drivers to Volume
 Home Purchases
– Real estate transaction-based
– Nearly all home purchases
 Mortgage Refinancings
– Lower interest rates
– Change other terms
– Leverage equity in property
– Underlying collateral remains unchanged
20
Cultural Influences on Market Drivers
America’s consumer
culture significantly
influences the mortgage
marketplace.
 Purchase business
– Labor market is less regulated
– High geographic mobility
– Relocation from region to region is not uncommon
– Homes are viewed as an investment or a commodity
 Refinancing business
– Highly liquid retail financial services marketplace
– Consumers are financially savvy
– Consumers expect variety of products for different circumstances
and needs
– Mortgage brokers serve as financial advisor to mortgage
consumers – monitoring market developments
21
Refinancing: An Interest Rate Relationship
2500
10%
9%
2000
8%
Bilions of USD
7%
1500
1000
6%
Refinancing
5%
30 yr mortgage rate
4%
Refinancing trendline
3%
500
2%
1%
0
2003 E
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0%
Source: Mortgage Bankers Association of America
22
Purchase Mortgages: Steady Growth
ABN AMRO is a low cost
producer in the
marketplace and wellpositioned to capture
future growth in purchase
mortgages.
1200
CAGR = 8.77% ↑
1000
Bilions of USD
800
Purchase
600
Trendline
400
200
2003 E
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
Source: Mortgage Bankers Association of America
23
Origination Channels
ABN AMRO’s efficient
origination network
delivers product nationally
through its extensive
broker network and
regionally through its retail
branches.
 Optimal price and efficiency achieved through standardized mortgage
products and processes
 Origination channels:
– Neighborhood stores (branches)
– Mortgage brokers (wholesale)
– Correspondent banks
– Internet access
24
Origination Channels
ABN AMRO is the leader in
its targeted channels of
distribution: broker
(nationwide) and retail
branches (within Michigan
and Illinois).
ABN AMRO Originations
100%
90%
80%
70%
60%
Correspondent
50%
Retail
Broker
40%
30%
20%
10%
0%
2000
2001
2002
Source: Inside Mortgage Finance
25
Margins Counterintuitive
Supply constrained
Supply slowly adjusts to demand
26
Origination Profitability: Gross Margin
 Gains comprised of:
 Cash proceeds from the sale of net coupon loans
 Net present value (NPV) of rights to service loans
– US GAAP requires recognition of NPV of net cash flows expected
from servicing
 Recognition of fees charged to borrower at origination, if any, net of
direct origination costs deferred
27
Origination Profitability: Channel Costs

Channels have different relative costs:
3,500
3,000
2,500
USD
ABN AMRO focuses on its
retail footprint and the lowcost broker channel.
Broker
Retail
Correspondent
2,000
1,500
1,000
500
0
Cost/Loan
Source: MBA/Stratmor Peer Group Survey

Additional/Ongoing benefits:
–
Retail footprint provide cross selling opportunities
–
Retail structure and employee base have other roles
28
Net Margin: Infrastructure Costs
 Primary infrastructure costs
– People resources
– Facilities
– Technology
– Processing costs
 Primary scalable cost: people resources
– Mortgage brokers – commission-based payments
– Temporary staff
– Overtime
29
Originations business
During this time period
ABN AMRO grew from 9th
with a 1.8 market share to
5th with a 4.8 market share.
 Economies of scale provide significant cost advantages
 As with well-developed markets, mortgages have relatively thin
margins, placing an emphasis on efficient processes
Industry consolidation
100%
90%
80%
70%
60%
All Others
Top 10
50%
40%
30%
20%
10%
0%
1997
2002
30
4
The role of the
Servicer
31
What is the role of the Servicer?
Ongoing connection between borrowers and investors
– Collect principal, interest, tax and insurance payments from
borrowers
– Remit principal and interest to investors
– Protect mortgage collateral, and investors, through:
–
Remitting tax payments to taxing authorities
–
Remitting insurance payments to insurers
–
Initiating foreclosure proceedings, if appropriate
–
No credit risk retained
32
Servicing Process Flow
Borrower

Pays Servicer
principal, interest
& escrow
Servicer
 Retains service fee to
cover costs to service
 Remits principal,
security interest and
guarantee fee to agent
 Remits taxes and
insurance to
appropriate authorities
Agency or Pass
Thru Vehicle
 Conforming: Agency
retains a guarantee
fee in exchange for
accepting default risk
 Non-conforming:
primary structures –
pari passu, senior
subordinated or seller
retains credit risk.
Investors
(Bond Holders)
 If securitized,
investors receive
principal and stated
security coupon
interest
33
What is the borrower’s mortgage payment?
Commonly borrowers
pay monthly. Some
servicers permit twice
monthly payments that
ultimately reduce interest
costs to the borrower.
Casualty insurance on the collateral
property to protect the investors in the
mortgage (some borrowers pay direct to
insurer).
Escrow
States tax property owners and
government liens are senior. To protect
investors, servicers often collect and remit
taxes due.
Principal
Virtually all consumer
mortgages require at least
monthly remittance of principal.
Interest
Interest remitted is based upon unpaid
principal balance outstanding.
34
Where does the Servicer remit the monies?
ABN AMRO services
approximately 1.5 million
loans aggregating more
than $180 billion of
unpaid mortgage
principal balances
making ABN the 7th
largest servicer in the
United States in 2002.
Escrow
The Servicer holds these funds as
a non-interest bearing deposit
(escrow) until payment to tax or
insurance entities.
Principal
Interest
The Servicer holds these funds
as non-interest bearing deposits
(float) until remitted to the agent
and investor (monthly).
35
Illustration of Remittance of Interest Spread
Interest paid by the
borrower is the source of
fee income to participants
in the securitization
process.
Primary variables are
mortgage coupon and
security coupon.
Guarantee fee and
servicing fee have less
variability.
Borrower’s
Interest
Payment
Guarantee Fee: Paid to the Agency
as the compensation for credit
enhancing the security issued.
.15 %
.35 %
Mortgage
Coupon
Interest
= 6.0%
Servicing Fee: Retained by the
Servicer as compensation for
collecting and remitting payments.
5.50 %
Security Coupon Interest: Remitted
to the investor in the mortgage-backed
security.
36
Servicing Process Flow – Example
Proceeds are invested to earn Float (interest) income between the collection of the
payment from the customer and remittance. Typically between 5 and 10 days.
Pays
Servicer
principal &
interest (6%)
Borrower
Remits
principal and
5.50% in
interest
Remits principal
and 5.65% in
interest
Servicer
 Retains 35 bps of 6%
coupon to cover costs
to service
 Holds Escrow
deposits at no cost
until remitted
Agency or Pass
Thru Vehicle
 Agent retains a
guarantee fee of 15
bps in exchange for
default risk
 Pass thru vehicle
retains portion of cash
flows to absorb default
risk
Investors
(Bond Holders)
 Investors receive
principal and 5.50% in
coupon payments for
initial investment
37
Key Components in the Servicing Income
 What are the cash components of servicing income?
– Servicing fee income: fixed spread of unpaid principal balance
(typically 30-35 bps)
– Float: interest earned on mortgage payments received (prior to
remittance)
– Escrow: low cost source of funds (prior to remittance)
– Ancillary income: account fees such as late charges
– Cross-selling: maintaining the account relationship provides
opportunities to cross-sell other products of the servicer
38
What comprises servicing revenue?
Mortgage servicing rights (MSRs) significantly impact servicing
revenue.
– MSRs represent the net present value of net cash flows expected
from servicing
– MSRs are created:
–
when loans are sold with the right to service the loans retained or
–
when servicing rights are separately purchased
– MSRs are amortized over the life of and in proportion to the cash
flows expected from the underlying loan
– MSRs must be assessed for impairment (fair value deficient to book
value)
39
MSR – Economic Valuation
The value of a Mortgage Servicing Right is based on the
present value of expected cash flows
Value of
MSR
Cashflow Assumptions
 Value of each payment - 25 to
50 basis point strip
 Expected average life of the
loan - this expectation is
based on anticipated
prepayment speeds
 Add benefit of float, escrow
and ancillary income
 Less: costs to service
Discount Rate
 The discount rate implies a
certain level of
profitability/return
 Expectations of return are
based on compensation for
the riskiness of the asset
and the cost of servicing
The value of this asset can change significantly (both
positively and negatively) because of both interest rate
and prepayment risk
40
Why is the earnings effect so volatile?
Servicing Income comparison
Full term
Typical life
Accelerated prepay
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Periods
41
Objectives in Hedging MSRs
Typically mortgage bankers
actively manage the risk of
the MSR asset utilizing a
variety of cash and
derivative instruments.
Values
Unhedged
Hedged - # 1
Hedged - # 2
-100 bps
-50 bps
Base
+50 bps
+100 bps
+150 bps
Rate shocks
42
Servicing business
During this time period
ABN AMRO grew from 18th
with a 1.0 market share to
7th with a 2.9 market share.
 Economies of scale provide significant cost advantages
 As with well-developed markets, servicing has relatively thin margins,
placing an emphasis on efficient processes
Industry consolidation
100%
90%
80%
70%
60%
50%
All Others
Top 10
40%
30%
20%
10%
0%
1997
2002
43
5
Accounting
considerations
(US GAAP)
44
The Mortgage Origination Timeline
Approval Process
0 to 14 days
Application
Pipeline
Warehouse
30 to 45 days
Lock Date
30 to 45 days
Funding Date
Sale Date
Lender pools
mortgages
Borrower
applies for
mortgage
Lender extends
irrevocable commitment
to fund mortgage
Borrower may decline
with no penalty
Lender funds
mortgage
Lender delivers
mortgage to
agent
Sale process
complete
Mortgage banks
typically “sell forward”
expected production
45
Accounting for Mortgage Originations (US)
Approval Process
Pipeline
Application
Lock Date
No entries –
no accounting
event has
occurred
Lender recognizes
commitment and
related hedges
(initial value typically
zero)
Warehouse
Funding Date
Sale Date
Lender funds
mortgage and
recognizes on
balance sheet
Lender marks
commitment and related
hedges to fair value
through earnings
Gain or loss
on sale
recognized
Any unhedged
declines in loan value
are recognized
immediately in
earnings
46
Components of Gain on Sale
 Cash proceeds
 Book value of loans sold
– Original par (funded amount)
– Fees received from borrower at closing less direct costs to
originate (deferred)
– Any impairment charges recognized during the hold period
 Retained interests
– Mortgage servicing rights:
–
Present value of net cash flows expected over the expected life of the
loan discounted at current market rates
– Recourse obligations, if any
47
Gain on Sale – an Illustration
 A 100,000 par mortgage is sold at 99,500
 Net deferred costs aggregate to 500
 Expected value of mortgage servicing rights aggregates 1,500
 No impairment charges were recognized while “held for sale”
 Typically, “A” paper single-family mortgages are sold without recourse
Par value
Net deferred costs
100,000
500
Net book value
100,500
Cash proceeds
99,500
MSR
Net gain on sale
1,500
500
48
The Accounting Process – Servicing
Borrower

Pays Servicer
principal, interest
& escrow
Servicer
 Retains service fee to
cover costs to service
 Remits principal,
security interest and
guarantee fee to agent
 Remits taxes and
insurance to
appropriate authorities
Agency or Pass
Thru Vehicle
 Conforming: Agency
retains a guarantee
fee in exchange for
accepting default risk
 Non-conforming:
primary structures –
pari passu, senior
subordinated or seller
retains credit risk.
Investors
(Bond Holders)
 If securitized,
investors receive
principal and stated
security coupon
interest
49
General Accounting Principles (U.S. GAAP)
 Loan Servicing Income: the servicer collects a spread on
outstanding mortgage loans every month
– Accounting: service fee income is accrued as earned. Similarly,
costs to service the loans are expensed as incurred
 MSR: the servicer estimates the net present value of servicing
income of the underlying mortgage, net of expected costs to service
– Amortization: the MSR is amortized in proportion to the expected
net cash flows of the asset. Prepayments significantly impact the
expected life
50
MSR Valuation: The “Perfect” World
The value of an MSR is
based upon expected cash
inflows (loan servicing
income, float, escrow and
ancillary income) net of
costs to service.
Loan servicing income (retained spread)
Float, escrow and ancillary income
500
60
Less: MSR amortization
360
Net servicing revenue
200
Less: Costs to service
75
Net income before tax
125
Income tax expense
50
Net income (time value of money)
75
51
General Accounting Principles (U.S. GAAP)
 MSR: other key accounting requirements
– Impairment: the MSR asset is carried at the lower of cost or
fair value with declines in value below amortized book value
reflected immediately and directly in earnings
– Hedge accounting under US GAAP is very similar to the
proposed IAS 39 accounting rules. See the following slides for
an illustration of the accounting for hedges under Dutch and
US GAAP
52
6
Hedge accounting
An illustration
53
Hedge accounting: MSR value declines
The bank holds an MSR asset aggregating 1,000 where fair value and book
value at the beginning of the period are equal. The bank hedges this asset with
derivative instruments.
During the period, the MSR asset declines in value while the derivatives gain in
value. At the end of the period, the bank closes all derivative instruments
hedging the MSR.
MSR book value:
MSR fair value:
MSR “hedged risk”:
Derivative fair value:
Beginning
1,000
1,000
0
0
Ending
1,000
500
(400)
600
All illustrations are hypothetical and do not consider other hedge accounting requirements such as proof of
effectiveness, adequate documentation, etc.
54
Hedge accounting: MSR value declines
(continued)
Dutch GAAP
Under Dutch GAAP out
performance of hedges is
not recognized in earnings,
but rather as a reduction of
the MSR.
Conversely, under US
GAAP, income is
recognized on the hedge
and an offsetting
Impairment is recognized
on the asset.
US GAAP
Derivatives are closed resulting in the
receipt of 600 in cash. The offsetting
entry reduces the MSR book basis as
follows:
Derivatives are marked to market each
period through earnings. The MSR also
is marked to market each period for the
risk hedged. Closing a derivative
position simply reduces the derivative
asset/liability, but does not affect the
asset. The accounting follows:
Balance Sheet
MSR
Derivative gain
Adjusted MSR Basis
MSR Fair Value
Impairment, if any
Net MSR Basis
Balance Sheet
MSR
FAS 133 basis adjust
Adjusted MSR Basis
MSR Fair Value
Impairment, if any
Net MSR Basis
1,000
(400)
600
500
(100)
500
Net Earnings Effect
Derivative Gain
MSR Basis Loss
Impairment
Net Earnings Benefit
600
(400)
(100)
100
Net Earnings Effect
Derivative Gain (deferred)
MSR Impairment
Net Earnings Impact
1,000
(600)
400
500
0
400
0
0
0
55
Hedge accounting: MSR value increases
The bank holds an MSR asset aggregating 1,000 where fair value and book value
at the beginning of the period are equal. The bank hedges this asset with
derivative instruments.
During the period, the MSR asset increases in value while the derivatives lose
value. At the end of the period, the bank closes all derivative instruments hedging
the MSR.
Beginning
1,000
Ending
1,000
1,000
1,500
MSR “hedged risk”:
0
600
Derivative fair value:
0
(400)
MSR book value:
MSR fair value:
All illustrations are hypothetical and do not consider other hedge accounting requirements such as proof of
effectiveness, adequate documentation, etc.
56
Hedge accounting: MSR value increases
(continued)
US GAAP
Dutch GAAP
Additionally, as the value of
the MSR asset increases,
existing impairment
reserves may be recovered.
Derivatives are closed resulting in the
payment of 400 in cash. The offsetting
entry increases the MSR book basis as
follows:
Derivatives are marked to market each
period through earnings. The MSR also
is marked to market each period for the
risk hedged. Closing a derivative
position reduces the derivative
asset/liability, but does not affect the
MSR. The accounting follows:
Balance Sheet
MSR
Derivative Loss
Adjusted MSR Basis
MSR Fair Value
Impairment, if any
Net MSR Basis
Balance Sheet
MSR
FAS 133 basis adjust
Adjusted MSR Basis
MSR Fair Value
Impairment, if any
Net MSR Basis
1,000
600
1,600
1,500
(100)
1,500
Net Earnings Effect
Derivative Loss
MSR Basis Gain
Impairment
Net Earnings Benefit
(400)
600
(100)
100
Net Earnings Effect
Derivative Loss (deferred)
MSR Impairment
Net Earnings Detriment
1,000
400
1,400
1,500
0
1,400
0
0
0
57
7
Questions and
Answers
58
Cautionary Statement regarding Forward-Looking Statements
This announcement contains forward-looking statements. Forward-looking statements are
statements that are not historical facts, including statements about our beliefs and expectations.
Any statement in this announcement that expresses or implies our intentions, beliefs,
expectations or predictions (and the assumptions underlying them) is a forward-looking
statement. These statements are based on plans, estimates and projections, as they are currently
available to the management of ABN AMRO. Forward-looking statements therefore speak only as
of the date they are made, and we take no obligation to update publicly any of them in light of
new information or future events.
Forward-looking statements involve inherent risks and uncertainties. A number of important
factors could therefore cause actual future results to differ materially from those expressed or
implied in any forward-looking statement. Such factors include, without limitation, the conditions in
the financial markets in Europe, the United States, Brazil and elsewhere from which we derive a
substantial portion of our trading revenues; potential defaults of borrowers or trading
counterparties; the implementation of our restructuring including the envisaged reduction in
headcount; the reliability of our risk management policies, procedures and methods; and other
risks referenced in our filings with the U.S. Securities and Exchange Commission. For more
information on these and other factors, please refer to our Annual Report on Form 20-F filed with
the U.S. Securities and Exchange Commission and to any subsequent reports furnished or filed
by us with the U.S. Securities and Exchange Commission.
The forward-looking statements contained in this announcement are made as of the date hereof,
and the companies assume no obligation to update any of the forward-looking statements
contained in this announcement.
59