Dexia Holding SA · EURONEXT:DEXB
Dexia Holding SA — Corporate Update (August 2007)
32 slides from Dexia Holding SA's corporate update, Aug 6, 2007
Slide 1: Analysis and Overview of Dexia Group's Exposure
No achievement without commitment SUB-PRIME US RESIDENTIAL MORTGAGES Analysis and Overview of Dexia Group’s Exposure Conference Call Monday August 6, 2007
Slide 2: Agenda
Agenda Over the past months, many questions have been raised about « sub-prime mortgages » in the U.S. A review of all activities that might be concerned within the Dexia Group has been performed. 2
Slide 3: Key highlights
Key highlights Dexia’s exposure to US sub-prime residential mortgage assets, either directly or through FSA, remains very well protected and would not cause any losses, even in the case of further sub-prime market deterioration. FSA’s continuous strict credit discipline has resulted in FSA being in
Slide 4: What Are Sub-Prime Mortgages?
What Are Sub-Prime Mortgages? Residential mortgage loans which are eligible for securitization by the government sponsored agencies (Fannie Mae; Freddy Mac and Ginnie Mae) are classified as « prime » principally when: – there is a first lien; – when debt to income ratios (DTI) limits are less than 2
Slide 5: Sub-Prime MBS Crisis Overview
Sub-Prime MBS Crisis Overview Over the past few quarters the press has been reporting that 2006 vintage sub-prime mortgage loans have been performing poorly. Symptoms include: rising delinquencies and early payment defaults, causing a number of smaller sub-prime originators to close because of risin
Slide 6: ABX.HE Index: Series 2006-2 Pricing
ABX.HE Index: Series 2006-2 Pricing Through August 1, 2007 AAA AA A BBB BBB- 110 100 90 80 70 60 50 40 30 20 10 0 Oct-06 Mar-07 Nov-06 Dec-06 Jan-07 Feb-07 May-07 Jun-07 Jul-07 Sep-06 Apr-07 Aug-07 Source: www.morganmarkets.com 6
Slide 7: Type of instruments concerned
Type of instruments concerned RMBS (Residential Mortgage Backed Securities) are a type of ABS using Residential Mortgage loans as underlying assets. FSA insures (or credit-enhances) such RMBS. At 6/30/07, ABS backed by Global Residential Mortgages represented 6.1% (4.5% U.S.) of total net par outsta
Slide 8: Type of instruments concerned (cont'd)
Type of instruments concerned (cont’d) FSA also holds such instruments in its « Financial Products » portfolio Dexia holds similar instruments in its « Credit Spread » portfolio 8
Slide 9: RMBSs: a specific category of the ABS market
RMBSs: a specific category of the ABS market As with any other kind of asset-backed securities, RMBS are dedicated structures that pool together assets and allocate the corresponding income among investors who have different risk appetites, respectively: – Senior tranche holders – Junior (or mezzani
Slide 10: Sub-Prime MBS Overview at FSA (excluding NIMs)
Sub-Prime MBS Overview at FSA (excluding NIMs) FSA’s MBS portfolio is very well positioned against deterioration, particularly in 2006 vintage sub-prime loans. There has been a heightened market focus on sub-prime originations in 2006 because, in general, defaults have exceeded original projections.
Slide 11: FSA Insured Sub-Prime RMBS Net Outstanding Par By Origination Year
FSA Insured Sub-Prime RMBS (excluding NIMs) Net Outstanding Par By Origination Year • Originations prior to 2004 have amortized substantially as a result of 1.4 prepayments • Since 2005, FSA has reduced sub- $B AAA prime category originations 1.2 AA • During 2007, market illiquidity has created oppo
Slide 12: Insured Sub-Prime MBS (excluding NIMs) Net Outstanding Par
Insured Sub-Prime MBS (excluding NIMs) Net Outstanding Par, 6/30/07 $Millions Overall portfolio quality is very high Pre-’01 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 Total % of Total AAA 73 110 75 149 1,346 766 150 1,020 3,689 96.9% AA 19 0 0 0 0 0 0 0 19 0.5% A 23 0 0 0 0 0 0 0 23 0.6% BBB 9 0 0 0 0 0 0 0 9 0.2
Slide 13: Insured NIM MBS
Insured NIM MBS NIMs are securitizations of early excess cash flows and prepayment penalties of RMBS transactions NIMs perform differently from other RMBS because of the rapid paydown (average life of 0.6 – 1.5 years) Since inception of the NIM program in 2001, FSA has insured 66 transactions totali
Slide 14: Insured NIM MBS Net Outstanding Par
Insured NIM MBS Net Outstanding Par, 6/30/07 $Millions ‘04 ‘05 ‘06 ‘07 Total % of Total AAA 0 0 0 0 0 0.0% AA 29 6 0 0 35 8.9% A 0 3 26 0 29 7.2% BBB 0 16 50 267 333 83.9% NIG 0 0 0 0 0 0.0% Total 29 25 76 267 397 100.0% The performance of these transactions is regularly tested. At the present time,
Slide 15: ABS CDOs
ABS CDOs A collateralized debt obligation (CDO) is issued by a special purpose vehicle to raise money to purchase a pool of assets, which secure the CDO. ABS CDOs are securitizations of the junior classes (generally rated from Double-B to Double-A) of previously issued asset-backed securities (ABS),
Slide 16: FSA Financial Products Sub-Prime Mortgage Investment Portfolio
FSA Financial Products (“FP”) (excluding NIMs) Sub-Prime Mortgage Investment Portfolio As of June 30, 2007 FSA has a line of activity in «Financial Products» whereby excess liquidity from Muni customers is placed in Guaranteed Investment Contracts (GICs) issued by FSA FP. This funding is invested in
Slide 17: FSA Financial Products NIMs Investment Portfolio
FSA Financial Products (“FP”) NIMs Investment Portfolio (Cont’d) As of June 30, 2007 Portfolio of Financial Products composed of NIMs stands as follows at 6/30/2007: * Settlement Date Basis Current Number Mark-to-Market Gain / (Loss) Rating of Balance of % NIMs ($MM) Positions Insured $MM bps AAA $
Slide 18: Exposure at Dexia's Credit Spread Portfolio
Exposure at Dexia’s Credit Spread Portfolio CSP portfolio helps the bank manage its liquidity position and includes very good asset quality. Average Rating : AA- (and 99.9% Inv Grade - 99% A-AA-AAA) Outstanding as of June 30, 2007: EUR 78 Bn MtM evolution of portfolio: + 85 % in AFS through equity Å
Slide 19: Exposure at Dexia's Credit Spread Portfolio
Exposure at Dexia’s Credit Spread Portfolio 7/31/2007 U.S. Residential U.S. RMBS : € 800 millions Of which : Sub-prime wrapped AAA € 36 millions Sub-prime unwrapped € 170 millions 99% AAA/1% AA Alt-A € 53 millions 100% AAA Heloc wrapped AAA € 151 millions Prime € 390 millions 100% AAA 19
Slide 20: Exposure at Dexia's Credit Spread Portfolio
Exposure at Dexia’s Credit Spread Portfolio 7/31/2007 CDO CDO portfolio : € 11,413 millions Of which : Outright unwrapped € 1,994 millions of which 97% AAA Outright wrapped AAA € 82 millions And : Balance sheet lending € 9,337 millions perfectly credit risk hedged (*) of which ABS/CDO € 2,500 millio
Slide 21: Conclusions and outlook (1)
Conclusions and outlook (1) Strict credit discipline along with the search for adequate returns on capital are and remain the guiding criteria for underwriting risks and making investments. FSA and Dexia have long expected problematic developments to arise in the ABS sphere, and more particularly in
Slide 22: Conclusions and outlook (2)
Conclusions and outlook (2) Both at Dexia and FSA, we are satisfied to “have kept our powder dry” in anticipation that weak underwriting and aggressive growth would ultimately lead to a market crisis. Current conditions are causing a broad reorganisation of the sub- prime mortgage industry, with the
Slide 23: Appendix A: A Typical Triple-A Rated Sub-Prime Transaction from 2004
Appendix A: A Typical Triple-A Rated Sub-Prime Transaction from 2004 23
Slide 24: A Typical FSA-Insured AAA Sub-Prime Transaction is Protected by Overcollateralization
A Typical FSA-Insured AAA Sub-Prime Transaction is Protected by Overcollateralization… Example: Financing of a $1,300MM transaction at origination $1,300MM Senior Tranche (A Portion Insured by FSA) ($1,023MM) Junior Tranche ($248MM) Equity Tranche ($29MM) In this illustration (at Origination): The J
Slide 25: ...Which Grows Over Time as the Transaction Pays Down
…Which Grows Over Time as the Transaction Pays Down 36 months later Senior Tranche $308MM (A Portion Insured by FSA) ($34MM) Junior Tranche ($248MM) Equity Tranche ($26MM) In this illustration (at Current): The Junior and Equity tranches ($274MM) provide overcollateralization for the Senior Tranche
Slide 26: Protected by Future Spread
A Typical FSA-Insured AAA Sub-Prime Transaction is Also Protected by Future Spread… Example: Interest coverage at origination Interest Rate 7.1% Available to cover defaults and remunerate equity investors 2.4% Total annual interest required by the Senior Tranche = $24.1MM per year Par Amount Senior
Slide 27: ...Which Also Grows Over Time
…Which Also Grows Over Time Example: Interest coverage 36 months later Available to cover defaults and Interest remunerate equity investors Rate 8.0% 7.2% Total annual interest required by the Senior Tranche = $2.4MM per year Par Amount Senior Tranche $34MM $282MM $308MM ($34MM) Junior Equity Tranch
Slide 28: Appendix B: A Typical Triple-A Rated Sub-Prime Transaction from 2005
Appendix B: A Typical Triple-A Rated Sub-Prime Transaction from 2005 28
Slide 29: A Typical FSA-Insured AAA Sub-Prime Transaction is Protected by Overcollateralization
A Typical FSA-Insured AAA Sub-Prime Transaction is Protected by Overcollateralization… Example: Financing of a $875MM transaction at origination $875MM Senior Tranche (A Portion Insured by FSA) ($701MM) Junior Tranche ($147MM) Equity Tranche ($27MM) In this illustration (at Origination): The Junior
Slide 30: ...Which Grows Over Time as the Transaction Pays Down
…Which Grows Over Time as the Transaction Pays Down Example: 14 months later $635MM Senior Tranche (A Portion Insured by FSA) ($461MM) Junior Tranche ($147MM) Equity Tranche ($27MM) In this illustration (at Current): The Junior and Equity tranches ($174MM) provide overcollateralization for the Senio
Slide 31: Protected by Future Spread
A Typical FSA-Insured AAA Sub-Prime Transaction is Also Protected by Future Spread… Example: Interest coverage at origination Interest Rate 7.2% Available to cover defaults and remunerate equity investors 5.3% Total annual interest required by the Senior Tranche = $37.3MM per year Par Amount Senior
Slide 32: ...Which Also Grows Over Time
…Which Also Grows Over Time Example: Interest coverage 14 months later Interest Rate 7.9% Available to cover defaults and remunerate equity investors 5.7% Total annual interest required by the Senior Tranche = $26.0MM per year Par Amount Senior Tranche $461MM $608MM $635MM ($461MM) Junior Equity Tra