The German experience: Securitisation via KfW‘s synthetic platforms

1. The German experience: Securitisation via KfW‘s synthetic platforms IMN Mexican ABS conference 30 October 2007 Carolin Gassner KfW Bankengruppe

2. Agenda I. KfW Bankengruppe in brief II. True sale vs. synthetic securitisations III. KfW’s synthetic securitisation platforms

3. I. KfW Bankengruppe in brief • Promotional bank of the Federal Republic of Germany • Founded in 1948 • Shareholders: Federal Republic of Germany (80%), German federal states (20%) • Headquarters: Frankfurt am Main; branch offices: Berlin and Bonn • Representative offices: around 50 offices and representations worldwide • Balance sheet total at end-2006: EUR 360 billion • Average number of employees in 2006: 3,600 • Rating: AAA/Aaa/AAA.

4. II. True sale vs. synthetic securitisations

5. II. True sale vs. synthetic securitisationsDrivers & objectives for securitisations: Originator’s view  Many issues, but depend on type of securitisation: True sale or synthetic

6. II. True sale vs. synthetic securitisations True sale securitisation - stylised facts • Key characteristics: • Originator sells and transfers asset pool to insolvency-remote SPV • Sale reduces balance sheet (volume of total assets) of originator • SPV issues bonds (so called ABS) to refinance the purchase of the assets from originator • Investor receives interest and principal payments from the cash flows generated by the securitised asset pool – no recourse to SPV! • Once assets in the pool default the servicer initiates foreclosure – investor in ABS has to bear any remaining losses • Important: Analysis of legal issues and taxation aspects (e.g. transfer of receivables and collateral, tax on services etc.)

7. II. True sale vs. synthetic securitisations True sale securitisation - basic structure ABS investors Liquidity / funding Originator Senior Portfolioof assets CLN andDebt service Portfolio sale+ cash flows SPV Mezzanine Issuance proceeds Sale proceeds Junior Trustee capital market Transfer of assets /collateral: Risks & returns

8. II. True sale vs. synthetic securitisationsSynthetic securitisation - stylised facts • Key characteristics: • Originator transfers default risk to investors via credit derivates(e.g. CDS, credit linked note) • Receivables remain in the balance sheet of originator (no necessity to notify borrowers about securitisation) • SPV invests proceeds of (partial) notes issues in highly rated securities, which serve as collateral for the issued CLN • SPV covers the realised losses in the asset pool and makes payments to originator (i.e. SPV sells part of collateral which reduce the face value of the CLN, hence transferring the losses to investors) • Important: Analysis of regulatory aspects (e.g. does regulator recognise the risk transfer / relief of regulatory capital?)

9. II. True sale vs. synthetic securitisationsSynthetic securitisation - basic structure Purchase of default protection from market compensation for defaults but senior to risk of CLN investors OECD Bank(implies AAA) Super seniortranche (80%-90%) Originator Super senior default swap premium Referenceportfolio SPV (insolvency remote) compensation for defaults Issue of CLN AAA Credit default swap premium AA Issue proceeds ABS Investors A Purchase of AAA paper with issue proceeds Interestpayment BBB Collateral First loss First loss Transfer of default risk primary lending capital market

10. II. True sale vs. synthetic securitisationsComparison of main features  Specific motivations (risk transfer, economics, funding,regulatory constraints) determine choice of structure

11. II. True sale vs. synthetic securitisationsComparison from anoriginator’s perspective * not necessarily

12. II. True sale vs. synthetic securitisationsRespective strengths True sale: • Strong in getting funding, • Senior tranche achieves higher liquidity • Typical user: Banks with weaker rating or less diversified funding base Synthetic securitisation: • Strong in capital reduction, • flexible and less costs intensive • Typical User: Banks with strong access to liquidity (large deposit base, strong rating, cheap refinancing possibilities via covered bonds)

13. III. KfW’s synthetic securitisation platforms

14. III. KfW´s synthetic securitisation platformsOur focus Mission: Improvement of the credit supply for our target groups Liquid secondary markets / access to capital markets Regional Focus: European Union Emerging markets (in context of German development cooperation) Asset Classes: Corporate Loans (Small and Medium Enterprises) Leasing Microloans Housing / mortgage loans Infrastructure loans (Public Private Partnerhips)

15. III. KfW´s securitisation activitiesPROMISE / PROVIDE – structure Senior KfW OECD-Bank Onlending CDS bank “Super Senior“ Tranche of Credit Portfolio Reference Reference Default (80 - 90%) portfolio portfolio Swap AAA (CDS) Credit-linkedcertificates of indebtedness AA SPV Issue of CLN PROMISE/ A PROVIDE BBB BB FLP (Notes)

16. III. KfW´s securitisation activitiesPROMISE / PROVIDE - The role of KfW • KfW acts as competitively neutral intermediary • Equal access for large and small banks • Provision of a standardised infrastructure • Reinforcement of the secondary market • Capital market determines securitisation costs

17. III. KfW´s securitisation activitiesPROMISE / PROVIDE standardisation • Standard structure • Synthetic with funded mezzanine tranche • Uniform collateral • Uniform call features • Uniform loss allocation principles • Similar credit event definition • SPV in Germany

18. III. KfW´s securitisation activitiesKfW’s platforms – strengths • KfW platforms are highly visible. • Investors are familiar with KfW’s platforms. • The documentation is standardised to a very large extent. • The swap auction process for super-senior is standardised. • Costs are reduced due to existing template and investor familiarity. • KfW’s 0% risk weighting. • KfW acts as a neutral intermediary. • Flexibility to accommodate the needs and specific requirements of different asset classes and originators. • Accounting treatment of the transaction as CDS or financial guarantee.

19. III. KfW´s securitisation activitiesAchievements so far (2000-2007) KfW-Mittelstandsbank: Securitisation of SME risk (PROMISE) KfW-Förderbank: Securitisation of private housing finance (PROVIDE), commercial real estate finance and infrastructure finance risk 65 transactions • Notional amount: EUR 113.0 billion (18.10.2007)

20. III. KfW´s securitisation activitiesKfW’s platforms - achievements so far • KfW has kicked-off the development of secondary markets for asset classes which are relevant from a developmental perspective • KfW has expanded the scope of the platform according to market demand • Regional diversification of platform throughout Europe is under way • KfW`s platforms conform with banking regulation throughout the EU • KfW´s platforms are tested in several jurisdictions • KfW´s platforms are well known to a broad customer basis worldwide • KfW`s platforms are very helpful for smaller banks and/or first time originators

21. III. KfW´s securitisation activitiesEuropean platform activities Germany 46 transactions (€ 72.4 bn) Denmark 3 transctions (€ 11.5 bn) Great Britain 9 transactions (€ 14.34 bn) Netherlands 2 transactions (€ 2.0 bn) France 1 transaction (€ 3.33 bn) Poland/Czech Republic 1 transaction (€ 0.45 bn) Portugal 1 transaction (€ 3.5 bn) Austria 1 transaction (€ 1.0 bn) Germany/Austria 1 transaction (€ 4.5 bn) (18.10.2007)

22. Thank you very much

23. ANNEX

24. KfW brand structure

25. Markus Schmidtchen Vice President Markus.Schmidtchen@kfw.de 069 7431-4783 Quantitative Structuring and Modeling • Andreas Rahe • Vice President • Andreas.Rahe@kfw.de • 069 7431-3687 • Securitisation of • SME Loans (PROMISE), • Investments in • Structured SME Risk Dr. Anja Krekel Vice President Anja.Krekel@kfw.de 069 7431-4101 Redemptions and SPVs Carolin Gassner Vice President Carolin.Gassner@kfw.de 069 7431-4299 Securitisation Eastern Europe and Emerging Markets (all asset classes) Dr. Omar Ranné Vice President Omar.Ranne@kfw.de 069 7431-4758 Structured Credit Investments and Credit Derivatives Jörg-Andreas Dürr Vice President Joerg-Andreas.Duerr@kfw.de 069 7431-4997 Securitisation of Mortgage (PROVIDE), Infrastructure and Environmental Loans Peter Samer Vice President Peter.Samer@kfw.de 069 7431-3291 Surveillance and Operations • Cornelia Lamers • Vice President • Cornelia.Lamers@kfw.de • 069 7431-3356 • Business Policy • and Public Relations • for Securitisation KfW´s securitisation activitiesOrganisation N.N. Secretary: Jasmin Hoffmann Jasmin.Hoffmann@kfw.de ¤ 069 7431-4877 Securitisation Cherifa Larabi First Vice President Cherifa.Larabi@kfw.de ¤ 069 7431-3242 Secretary: Christine Jordan-Büttner Christine.Jordan-Buettner@kfw.de ¤ 069 7431-1630 Securitisation, Modeling, Structured SME-Risks Rita Geyermann First Vice President Rita.Geyermann@kfw.de ¤ 069 7431-2905 Secretary: Georgia Komini Georgia.Komini@kfw.de ¤ 069 7431-2250 Securitisation, Structured Credit Investments, Credit Derivatives 25

26. Disclaimer This document is provided for information purposes only. This document may not be reproduced either in full or in part, nor may it be passed on to another party. It constitutes neither an offer nor an invitation to subscribe or to purchase securities, nor is this document or the information contained herein meant to serve as a basis for any kind of obligation, contractual or otherwise. In all legal systems this document may only be distributed in compliance with the respective applicable law, and persons obtaining possession of this document should familiarise themselves with and adhere to the relevant applicable legal provisions. A breach of these restrictions may constitute a violation of US securities law regulations or of the law applicable in other legal systems. The information contained in this document is historical and speaks only as of its date. KfW disclaims any intention or obligation to update or revise the information contained in this document. By accessing this document you acknowledge acceptance of these terms.