Meteor Asset Management

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1 Meteor Asset Management Counterparty Credit Default Swap Rates 27 th January 2012 This information is for professional investors only and should not be presented to, or relied upon by, private investors.

2 Credit Default Swaps Historically credit ratings have been used as the principal measure of the financial strength of an underlying issuer. However, over recent years Credit Default Swap ( CDS ) rates have become an additional measure of the financial security of a company and are now often utilised alongside ratings produced by credit rating agencies. CDS rate levels are determined by the supply and demand of market participants and therefore do not rely on one single agency to determine a company s credit worthiness. A CDS is basically an insurance contract - the buyer makes periodic payments to the seller to effectively insuring against a debt default and in return receives a payoff, if the underlying financial instrument/institution does default. CDS spreads allow investors to analyse how risky an institution s debt is perceived to be by the market, a relevant factor when considering the credit strength of a counterparty. The CDS rates on the next page detail the % above London Interbank Offered Rate ( LIBOR ) that buyers are willing to pay a seller in order to insure themselves against the likelihood of a credit default event of the underlying issuer. Companies with higher CDS spreads are considered riskier by the market, as they are considered more likely to default than those with a lower CDS spread, all other things being equal. Capital ratios are another measure of a bank's strength. These are used by regulatory authorities, with the most widely known being tier one capital ratio, which consists largely of shareholders' equity. It is the amount paid originally to purchase permanent capital (such as ordinary shares) of the bank and retained earnings (minus losses). It is the core measure of a bank's financial strength from a regulator's point of view. This ratio has been the subject of much review over recent years resulting in the Basel III Accord, requiring banks to maintain a minimum tier one capital ratio of 6%. 2

3 Overview 27 January Y CDS % Increase in rates Long Term Credit Rating Tier 1 Capital 1Y CDS 2Y CDS 3Y CDS 4Y CDS 5Y CDS Weekly Monthly Yearly S&P Fitch Moody's Ratio UK Government 0.34% 0.41% 0.49% 0.67% 0.78% -6.28% % 14.73% AAAu AAA Aaa N/A Rabobank 0.59% 0.73% 0.88% 1.01% 1.12% -1.03% -8.36% 50.54% AA AA Aaa 15.70% HSBC Holdings plc 0.76% 0.89% 1.01% 1.11% 1.20% -0.10% % 55.74% A+ AA Aa % JPMorgan Chase & Co 0.54% 0.77% 0.95% 1.11% 1.24% -2.20% % 55.82% A AA- Aa % Credit Suisse Group AG 0.75% 0.89% 1.03% 1.17% 1.28% 3.71% % 34.13% A A (P)Aa % Deutsche Bank AG 0.77% 1.02% 1.20% 1.32% 1.43% 0.66% % 50.85% A+ A+ Aa % UBS AG 0.91% 1.06% 1.22% 1.37% 1.49% -4.56% % 60.31% A A Aa % Barclays Bank plc 0.90% 1.08% 1.29% 1.41% 1.53% -2.49% % 20.39% A+ A Aa3 N/A ING Groep N.V. 1.02% 1.19% 1.37% 1.50% 1.63% -9.42% % 10.68% A A A % Standard Chartered plc 0.93% 1.08% 1.22% 1.43% 1.63% 3.83% % 95.78% A+ AA- A % BNP Paribas 1.30% 1.53% 1.74% 1.85% 1.95% -8.42% % 69.27% AA- A+ Aa % Commerzbank AG 1.42% 1.63% 1.77% 1.88% 1.97% -1.99% % 6.51% A A+ A % Credit Agricole S.A. 1.51% 1.74% 1.91% 2.04% 2.14% -5.37% % 28.94% A A+ Aa % Citigroup Inc. 1.30% 1.58% 1.88% 2.04% 2.20% -2.62% % 54.83% A- A A % The Goldman Sachs Group Inc. 2.13% 2.20% 2.26% 2.32% 2.35% -9.26% % 94.48% A- A A % Lloyds Banking Group plc 1.72% 2.06% 2.10% 2.31% 2.40% -6.12% % 16.03% A- A A % Santander UK plc 1.58% 1.82% 2.09% 2.28% 2.42% -8.20% % 26.64% AA- *- A+ A % Banco Santander S.A. 1.77% 2.07% 2.14% 2.34% 2.45% -8.94% % -4.68% AA- *- AA- *- Aa % Royal Bank of Scotland Group plc 1.82% 2.00% 2.23% 2.32% 2.50% -3.47% % 11.12% A- A A % Banco Bilbao Vizcaya Argentaria 1.87% 2.15% 2.17% 2.43% 2.54% -7.31% % -3.81% A+ *- A+ *- Aa % Societe Generale 2.09% 2.26% 2.43% 2.55% 2.65% -9.89% % 67.34% A A+ A % Macquarie Group Ltd 1.93% 1.98% 2.44% 2.46% 2.73% -6.63% % 42.08% BBB A A % Bank of America Corporation 2.53% 2.60% 2.69% 2.75% 2.77% -9.21% % 72.03% A- A Baa % Morgan Stanley 2.67% 2.74% 2.87% 2.92% 2.95% -9.10% % 82.28% A- A A % Nomura Bank International plc 1.66% 1.91% 2.27% 2.64% 2.97% -8.18% % % A- N/A N/A 16.40% ^ Merrill Lynch & Co 2.92% 2.98% 3.06% 3.10% 3.11% -8.90% % 80.03% A- A Baa1 N/A Source: Bloomberg. Data sorted according to 5 Year CDS, in ascending order. The percentage increase shows the weekly, monthly and yearly change in 5 Year CDS rates. * indicates that the credit rating agency has that company on watch. *+ indicates a possible upgrade, and *- a possible downgrade. The u in the UK Government rating of AAAu indicates it is an unsolicited rating (assigned at the initiative of credit rating agency not the issuer. (P) indicates a provisional rating (highly likely to become final after all relevant documents received by Moody s). ^ This Tier 1 Capital Ratio is for Nomura Holdings Inc. as it was not available for Nomura Bank International plc. 3 N/A indicates that this data is not available for that company.

4 Credit Ratings Agencies Credit rating agencies are independent organisations, which monitor the probability of default of financial institutions. The three main credit rating agencies are Moody s, Fitch and Standard & Poor s. The scales and definitions of these three credit rating agencies can be found on the next page. Standard & Poor s highest possible rating is AAA, followed by AA and A. These three ratings along with their BBB rating are generally regarded as investment grade. All of these ratings except the AAA rating can also modified by a plus or a minus. The + and - markings indicate relative standing within the grade category; for example, A+, A, A- for the A rating. Ratings from BB downwards are provided in respect of other securities. Other ratings agencies, including Fitch and Moody s, who issue ratings along lines very similar to Standard & Poor s, although Moody s ratings are expressed slightly differently. Moody s ratings symbols range from Aaa to C, and numerical modifiers 1, 2, and 3 are added to each generic rating classification from Aa through to Caa to indicate relative standing within the grade category. A credit rating is the opinion of the credit ratings agency. A high rating from one or more of the credit rating agencies is not a guarantee that the counterparty will meet its obligation to pay the amounts due from the Plan. A rating outlook assesses the potential direction of a long-term credit rating over the intermediate term. Moody s definition of long term is a financial obligations with an original maturity of one year or more, Fitch s definition is a period of one to two years, and Standard & Poor s definition is typically for a period of six months to two years. 4

5 Credit Ratings Agencies - Definitions 5 S&P Ratings Scale AAA: Extremely strong capacity to meet financial commitments. Highest Rating. AA+, AA, AA-: Very strong capacity to meet financial commitments. A+, A, A-: Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances. BBB+, BBB, BBB-: Adequate capacity to meet financial commitments, but more subject to adverse economic conditions. BB+, BB, BB-: Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions. B+, B, B-: More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments. CCC+, CCC, CCC-: Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments. CC: Currently highly vulnerable. C: Currently highly vulnerable obligations and other defined circumstances. CI: Past due on interest R: Under regulatory supervision due to its financial situation SD: Has selectively defaulted on some obligations D: Payment default on financial commitments. Fitch Ratings Scale AAA: Exceptionally strong capacity for payment of financial commitments. Highly unlikely to be adversely affected by foreseeable events. AA+, AA, AA-: Very strong capacity for payment of financial commitments. Not significantly vulnerable to foreseeable events. A+, A, A-: Strong capacity for payment of financial commitments, but may be more vulnerable to adverse business or economic conditions. BBB+, BBB, BBB-: Adequate capacity for payment of financial commitments, but adverse business or economic conditions are more likely to impair this capacity. BB+, BB, BB-: Elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions. But business or financial flexibility exists which supports the servicing of financial commitments. B+, B, B-: Financial commitments currently being met. Capacity for continued payment vulnerable to deterioration in business and economic environment. CCC+, CCC, CCC-: Substantial credit risk. Default is a real possibility. CC: Very high levels of credit risk. Default of some kind appears probable. C: Exceptionally high levels of credit risk. Default is imminent or inevitable, or the issuer is in standstill. D: Has defaulted on obligations and Fitch believes that it will generally default on most or all obligations Moody's Rating Scale Aaa Judged to be of the highest quality, with minimal credit risk. Aa1, Aa2, Aa3 Judged to be of high quality and are subject to very low credit risk. A1, A2, A3 Considered upper-medium grade and are subject to low credit risk. Baa1, Baa2, Baa3 Subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics. Ba1, Ba2, Ba3 Judged to have speculative elements and are subject to substantial credit risk. B1, B2, B3 Considered speculative and are subject to high credit risk. Caa1, Caa2, Caa3 Judged to be of poor standing and are subject to very high credit risk. Ca Highly speculative and are likely in, or very near, default, but with some prospect of recovery of principal and interest. C Lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest. Special WR Withdrawn Rating P Provisional

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