Jens Schmidt-Bürgel Managing Director Fitch Deutschland

1. IR Magazine Continental Europe ConferenceThe growing importance of Credit Ratings and the Impact of IFRSVienna, 30 November 2005 Jens Schmidt-Bürgel Managing Director Fitch Deutschland

2. 1 2 3 4 Introduction The Rating Process Impact of IFRS on Ratings Useful Tips Agenda

3. Fitch Ratings • Only one of the three international Rating Agencies with an European owner • Owned by FIMALAC, S.A. • Head offices in London and New York • Staff of over 1,750 (over 850 Analysts) in 49 offices world-wide • Strong Presence in Europe • European head office in London with staff of over 450 • Offices in Barcelona, Milan, Moscow, Paris und Warsaw • Frankfurt Office since 1999 (currently staff of 28)

4. Global Coverage • 2.000 Financial Institutions • 1.800 Insurance Companies • 1.700 Corporates • 9.150 Structured Finance Transactions • 78.000 Municipalities Transactions • 117 Sub-Sovereigns • 93 Sovereigns

5. Market Share in Bond Issuance in Europe * Up to 30 September 2005

6. 1 Introduction

7. What is a Credit Ratings? • An opinion about the ability of an issuer to meet its financial commitments on a timely basis • Across sectors • Across countries • Opinion only on the default probability • In case of high yield issuers also opinion on Recovery Rates • Does not take into account other risks (fraud etc.) • External Support is generally not taken into account • Exceptions maybe for subsidiaries and in the case of guarantees • Different for financial institutions - Fitch Support Rating

8. Increased Importance of Credit Ratings • Diversification of corporate funding • Increased ‘capital market’ funding • Innovative capital market transactions • Increased disintermediation • Banks face continued consolidation and profitability pressures • Continued trend to move ‘assets’ off-balance sheet • Introduction of Basle lI • ‚Risk adjusted pricing‘ and improved portfolio management • Bank and capital market prices should converge

9. Merrill Lynch Indices Fitch Ratings included since January 2005 Dominant in global High Yield Segment, strong in GBP & Euro Modifications: Averaging across 3 agencies puts a line of best fit through ratings (new algorithm) Lehman Brothers Indices Fitch Ratings included sinceJuly 2005 Dominant in US High Grade Segment and eminent in Euro Modifications: In case of 3 different ratings highest and lowest will be ignored, the medial will be used In case of 2 different ratings the usage of the lowest will be preserved. Fitch integrated in the leading Bond Indices

10. 2 The Rating Process

11. Rating Meeting Information Preparation Rating Mandate Questionnaire Rating Publication Rating Report Rating Report Comments Rating Committee Standard Rating Process Issuer/Rating Agency Issuer Rating Agency

12. Corporate Rating Methodology Qualitative Factors • Industry Risk • Industry Risk Profile • ‘Sector-Ceiling‘ • Operating Environment • Market Position • Diversification • Management • Strategy / Track Record • Risk Appetite Quantitative Factors • Cash-Flow Focus • Stability of Earnings • Operating Cash-Flow • Capital Structure • Company Leverage • Off Balance Sheet Items • Financial Flexibility • Capitalisation • Financing Sources Credit Rating

13. Comparison of Ratings

14. 3 Impact of IFRS on Ratings

15. Where We are Coming From • Lack of consistency • Different accounting in each country, need to adjust before start to analyse, UK/US GAAP used as basis by analysts • Lack of transparency • Profit smoothing • Hidden reserves, general reserves, “estimated” reservesfor future costs • Hidden gains and losses on securities and other investments • Off-balance sheet exposures e.g. derivatives, guarantees, embedded options, pension deficits • Accounting volatility pre-IFRS rarely reflects economic volatility

16. Where We are Going • IFRS will bring improved financial reporting in terms of • Disclosure • Consistency • Discipline • Transition phase 2005-2007 brings new challenges • Transition maybe an excuse to hide mistakes of the past • Many unconsolidated accounts and some consolidated will remain under local GAAPs • Transparency and disclosure are key to getting the right message across • Expect gradual blending of local GAAPs and IFRS

17. Accounting Standards - Rated Banks in EMEA Source: Fitch Survey

18. Accounting Standards - Rated Corporates in EMEA Source: Fitch Survey

19. Rating Implications of IFRS • Changing accounting standards do not have a direct impact on economic reality and therefore should not affect ratings • New information on transition may reveal new aspects of a company’s business or financial profile • Could lead to some rating actions, but expected to be rare • The new standards may have real economic effects • Changes to business operations • Changes to the cost of funding (e.g. penalty for greater volatility) • Change in taxation and change in dividend pay-out • Increased transparency and disclosure should provide an improved perception of risk

20. What is Fitch Doing? • Implementation of IFRS is a catalyst for stepping up analytical tools • Enhanced and rejuvenated focus on real cash flow for rated corporates • More balance sheet focussed analysis means more to do for banks and insurance companies: • Blending raw data collection for IFRS banks and introducing new analytical ratios • Improving capital model for insurance • Fitch has published a number of special comments on IFRS,of which most are available on: www.fitchratings.com

21. 4 Useful Tips

22. Number of Ratings No Rating - bonds are increasingly difficult to place 1 Rating - generally sufficient for domestic bonds issues 2 Ratings - common for EMTN- und CP-Programs 3 Ratings - standard for large frequent borrowers Rating Advisor Helpful by … preparing of ratinginformation pack preparing of management meetings Should never … write the „Credit Story“for the company actively participate in the management meeting Number of Ratings and Rating Advisor

23. Time Length of the entire rating process depends on Availability of information Preparation of company Complexity of company Completion of rating Generally within 4-6 weeksafter the management meeting Depends on open questions from management meeting Cost Standard Rating Fee: from € 50,000 p.a. Plus issuance fees Relationship Fee: from € 140,000 p.a. Incl. issuance fees Credit Assessment: from € 37,500 Non-public Time and Cost of Obtaining a Rating

24. Banks, Insurance Jens Schmidt-Bürgel Geschäfstführer Fitch Deutschland T: 0049 69 7680 76110 F: 0049 69 7680 76250 E: jens.schmidtburgel@fitchratings.com Corporates Andreas Roderburg Director Capital Markets Fitch Deutschland T: 069 7680 76246 F: 069 7680 7620 E: andreas.roderburg@fitchratings.com Contacts