Mexican Covered Bonds November 2007

1. Mexican Covered BondsNovember 2007 NY:2918745.1

2. Fundamentals of covered bonds generally • The merits to the Issuer of covered bonds • Domestic markets vs. International markets • Expected Ratings for covered bonds in Mexico • Relevant Mexican regulatory issues • Monolines • Other special considerations • Transitioning into new jurisdictions from the traditional European model (examples of the US and Canada and lessons to be learned) • Market values • Currency issues (traditional Euro market for covered bonds vs. US Dollar market vs. MxPeso market)

3. STRUCTURE DIAGRAM Assignment of mortgage loans and related security Assignment of mortgage loans and related security Other Sellers Mexican Financial Institution Seller Mexican Trust [Financial Institution] Interest Rate Swap Provider Consideration Repayment of Intercompany Loan Intercompany Loan Monoline [Third Party/Bank]CB CurrencySwap Provider [Third Party/Bank]CB CurrencySwap Provider Financial Institution Issuer Swap Guarantee Covered Bond proceeds Covered bonds Monoline Covered Bondholders/Bond Trustee Covered Bond Guarantee Interest as first beneficiary under the Mexican Trust and pledge under Deed of Change Note Policy

4. What is a Covered Bond? • A full recourse debt instrument that is secured by a segregated pool of assets. • Recourse both to the issuing entity (the “Issuer”) and a substituting pool of collateral • Typically high-quality, over-collateralised mortgage assets • Other assets currently used are municipal loans, shipping leases (Germany only) and social housing loans (UK only) • Bullet Payments • Fixed Rate • Cash flow from the assets is used to purchase other assets if needed • Ratings are usually AAA/Aaa • Currency – EUR / GBP / USD / Other • No covered bond has ever defaulted The 4 Key Features of Covered Bonds (CB) The issuance is regulated by a specific legal framework or on a contractual basis. CBs are issued by a bank with a dynamic pool of earmarked assets on the balance sheet of the issuer collateralizing the bonds. The bonds are bankruptcy-segregated and excluded from the bankruptcy procedure of the Issuer. CB holders have a preferential claim on the segregated collateral assets should the Issuer default.

5. Decisions to take • Currency – MXP or EUR/USD? • Which investors to target and why – onshore or offshore? • Choosing the right benchmark • The right number and type of ratings • Volume of individual transactions and liquidity of overall MCB market • Correct blend of jumbos versus private placement/other currencies • Coordination of funding activities amongst Mexican issuers • The frequency of roadshows

6. Legal Framework De-linked Rating Approach? Yes No Asset Quality Analysis Notching up Adequacy of Cashflows or Overcollateralization/ Self committments Issuer Credit Rating Surveillance / Full Review of Issuing Bank Covered Bonds – How – Linked or delinked ratings

7. Covered Bonds - How 1Analysis of the legal and regulatory framework 2Analysis of the issuing bank 3Specific information requirements for the issuing bank 5Cash flow analysisunder stressed assumptions 4Determination of the asset quality of the cover pool 6Rating committee considerations 7Regular surveillance * Arrows in both directions visualize that this is an interactive and iterative process

8. Covered Bonds in Mexico • Covered bond legislation has yet to be established in Mexico. • Credit Institutions’ Law has to be modified for Banks issuing Covered Bonds. • Banco de Mexico’s Circular 4/2006 do not allow Credit Institutions to pledge assets to guaranty the issuance of Certificados Bursatiles backed by mortgage loans. • IPAB (Mexico’s Deposit Insurance Corporation) considers all assets in a failed bank as collateral for its insurance payments. • We think Structured Covered Bonds are viable for the issuance of covered bonds for non-banks in Mexico. • Structures may be designed to achieve dual-recourse, a defining characteristic of covered bonds, which protects investors from loss and acceleration in the event of an issuer insolvency.

9. Covered Bond Issues. • Covered bond legislation needs to be established in Mexico. • Issuer: Minimum Net Worth. CB issuance size limits. • Eligible Assets: Maximum LTV in Mortgages and other types of assets. • Asset/Liability Caps and other risk mitigants: • Minimum ratio of nominal value of the assets to CB nominal. • Average life of the CB vs. average life of assets. • Interest expense on the CB vs. interest income from assets. • Market value vs. Par value of the asset pool. • Independent verification of market value of the cover pool backing CB. • Responsibility of the Common representative of the notes issued, and the availability of a substitute common representative. • Mortgage Insurance or Full wrap from a monoliner insurance company (assumes global AAA rated) • A substitute servicer must be designated.