Ten ways the financial crisis affects youManaging in the Post-Crisis World

CFA Québec

Huston Loke, CFA

Co-President

DBRS

MARCH 30, 2010

TED Spread

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Benchmark Returns, U.S. Pension Funds

July 2008-June 2009

Public equities (28.5)%

Private equities (23.9)

Absolute return (13.2)

Real assets (38.5)

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Real assets (38.5)

Fixed income (3.4)

Source: Harvard Endowment Fund.

The “Scoreboard”

Positive Negative

x Investment losses

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Rating Changes by Industry - 2009

Upgrades Downgrades Total

Autos & Auto Suppliers 2 11 13

Telecom/Media/Technology 5 6 11

Consumer Products and Retail 2 2 4

Energy 5 1 6

Financial Services 1 57 58

Industrial and Transportation 1 5 6

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Infrastructure and Public Finance 3 2 5

Natural Resources 0 13 13

Real Estate 0 0 0

Total 19 97 116

Note: Includes multiple rating actions to individual credits.Source: DBRS.

Quarter by Quarter Rating Activity, 2009

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The “Scoreboard”

Positive Negative

x Investment losses

x Corporate downgrades

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GDP

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The “Scoreboard”

Positive Negative

x Investment losses

x Corporate downgrades

x Weakened economy

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What does $10,000 look like?

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$1 million

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$1 billion

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$1 trillion (pallets stacked two high!)

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Assuming this is not an option

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Total Spending as % of GDP and Per Capita, by

Province

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Source: DBRS

The “Scoreboard”

Positive Negative

x Investment losses

x Corporate downgrades

x Weakened economy

x Higher taxes

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Prime Residential Mortgage Default Rates

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Fed Overnight Lending Rating versus BOC

Overnight Target Rate

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What can a Homeowner Afford to Pay?

A Comparison of Mortgage Options

House price $337,410 House price $526,298

Rate 5.50% Rate 2.25%

Down payment 25% $84,353

Down payment 15.7% $82,629

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Years 25 Years 35

Mortgage balance $253,058 Mortgage balance (including insurance premium of 1.75%)

$451,434

Monthly payment $1,554 Monthly payment $1,554

The buyer can “afford” to cover the mortgage on a home that is 56% more expensive.

The “Scoreboard”

Positive Negative

√ Canadian housing x Investment losses

x Corporate downgrades

x Weakened economy

x Higher taxes

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U.S. Home Price / Income Ratio

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Canadian Home Price / Net Income Ratio

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Source: People Patterns Consulting based on Statistics Canada, Vanier Institute of the Family

Bond Outstandings – Canada Mortgage Bond

Program

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CMHC Insurance in Force & Units Approved

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CMHC’s Investment Portfolio

Investment Securities

$ millions December 31 2008

FIXED INCOME SECURITIES

Issued or Guaranteed by:

Corporate/Other Entities $5,080

Government of Canada $1,610

Provinces/Municipalities $3,521

Sovereign and Related Entities $1,054

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Sovereign and Related Entities $1,054

Total Fixed Income $11,265

EQUITIES

Canadian Equities $1,203

U.S. Equities $532

Foreign Equities $555

Total Equities $2,290

Total Investments $13,555

Source: CMHC Annual Report 08.

Insured Mortgage Purchase Program

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The “Scoreboard”

Positive Negative

√ Canadian housing x Investment losses

√ CMHC x Corporate downgrades

x Weakened economy

x Higher taxes

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Average Capital Ratios, DBRS-rated Canadian

Banks

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Tier 1 Capital and Tangible Common Equity

Ratio (January 31, 2010)

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The “Scoreboard”

Positive Negative

√ Canadian housing x Investment losses

√ CMHC x Corporate downgrades

√ Canadian banks x Weakened economy

x Higher taxes

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The “Scoreboard”

Positive Negative

√ Canadian housing x Investment losses

√ CMHC x Corporate downgrades

√ Canadian banks x Weakened economy

x Higher taxes

x Models have limits

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x Models have limits

The “Scoreboard”

Positive Negative

√ Canadian housing x Investment losses

√ CMHC x Corporate downgrades

√ Canadian banks x Weakened economy

x Higher taxes

x Models have limits

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x Models have limits

Consider

(1) The long term

The “Scoreboard”

Positive Negative

√ Canadian housing x Investment losses

√ CMHC x Corporate downgrades

√ Canadian banks x Weakened economy

x Higher taxes

x Models have limits

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x Models have limits

Consider

(1) The long term

(2) The effects of optimization

Contact Information

Huston Loke, CFACo-President

+1 416 597 7533hloke@dbrs.com

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www.dbrs.com

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