UFS Fixed Income John Rosenthal Senior Managing Director MetLife
Safe Harbor Statement These materials contain statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to trends in the operations and financial results and the business and the products of MetLife, Inc. and its subsidiaries (collectively, the Company ), as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend" and other similar expressions. Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those included in the forward-looking statements as a result of risks and uncertainties including, but not limited to, the following: (i) changes in general economic conditions, including the performance of financial markets and interest rates, which may affect the Company's ability to raise capital; (ii) heightened competition, including with respect to pricing, entry of new competitors, the development of new products by new and existing competitors and for personnel; (iii) investment losses and defaults, and changes to investment valuations; (iv) unanticipated changes in industry trends; (v) catastrophe losses; (vi) ineffectiveness of risk management policies and procedures; (vii) changes in accounting standards, practices and/or policies; (viii) changes in assumptions related to deferred policy acquisition costs, value of business acquired or goodwill; (ix) discrepancies between actual claims experience and assumptions used in setting prices for the Company s products and establishing the liabilities for the Company s obligations for future policy benefits and claims; (x) discrepancies between actual experience and assumptions used in establishing liabilities related to other contingencies or obligations; (xi) adverse results or other consequences from litigation, arbitration or regulatory investigations; (xii) downgrades in the Company s and its affiliates claims paying ability, financial strength or credit ratings; (xiii) regulatory, legislative or tax changes that may affect the cost of, or demand for, the Company s products or services; (xiv) MetLife, Inc. s primary reliance, as a holding company, on dividends from its subsidiaries to meet debt payment obligations and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends; (xv) deterioration in the experience of the closed block established in connection with the reorganization of Metropolitan Life Insurance Company; (xvi) economic, political, currency and other risks relating to the Company s international operations; (xvii) the effects of business disruption or economic contraction due to terrorism or other hostilities; (xviii) the Company s ability to identify and consummate on successful terms any future acquisitions, and to successfully integrate acquired businesses with minimal disruption; and (xix) other risks and uncertainties described from time to time in MetLife, Inc. s filings with the U.S. Securities and Exchange Commission. The Company specifically disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. 2
Hot Topics in the Market Today Securities Valuation Alternative Investments Subprime / Alt-A / CDOs Credit Markets Overall Consumer ABS CMBS / Commercial Real Estate RMBS Wrapper Exposure Risky Assets Counterparty Exposure Auction Rate Securities 3
Markets Have Been Volatile 800 Lehman High Yield Spreads 300 Lehman A-BBB A Spreads 700 600 500 250 200 A' Corporates BBB' Corporates 400 150 300 100 200 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 50 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 400 350 300 250 200 150 100 50 0 Lehman AAA CMBS Spreads Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 450 400 350 300 250 200 150 100 50 0 Lehman AAA Subprime RMBS Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 4
Alt-A and Subprime RMBS Market Outlook for 2008 Underlying Fundamentals Industry research estimates additional decline in HPA of 10-30% for some major MSAs Industry uncertainty remains high Alt-A and Subprime mortgage businesses are shut-down Market Outlook Significant secondary supply with limited bids has caused spreads to remain at wide levels Market Estimated Losses: Alt-A: 2-4% for fixed rate loans and 4-6% for hybrid ARM loans Subprime: 20-25% 5
Alt-A and Subprime RMBS Strategy Focus on: Fundamental analysis Underlying collateral and structure Know what you are buying 6
CMBS Market Outlook for 2008 Underlying Fundamentals Property valuations are expected to decline 15% to 25% (10% decline already has occurred) $44 billion of mortgage loans maturing in 2008 Refinance risk is relatively high due to the lack of new CMBS issuance Market Outlook Spreads will remain wide Market Estimated Losses 2006 and 2007 vintages: 7-10% 2005 and prior vintages: ~3% 7
CMBS Strategy Focus On: Earlier vintages Limit refinance risk Concentrate on deal surveillance 8
Auto Loan Market Outlook for 2008 Underlying Fundamentals Auto manufacturers / servicers remain under stress Consumers face economic stress Market Outlook Significant ABS supply as the securitization market remains a major source of funding Market Estimated Losses Prime Auto may exceed the historical high of 2.2% Overall losses will increase from weakening macro economic environment 9
Credit Card Market Outlook for 2008 Underlying Fundamentals Delinquencies and charge-offs are rising Lenders are tightening underwriting standards Nonetheless revolving credit has grown by ~8% YOY Market Outlook Market generally expects charge-offs to normalize at 6-7% under a base case Banks have a lot of levers 10
Auto Loan and Credit Card Strategy Focus On: Major institutions and established servicers Higher rated securities Stressing structures 11
Investment Grade 2008 Market Outlook Underlying Fundamentals Relatively healthy balance sheets and earnings Financial sector under stress Federal Reserve lowering interest rates Market Outlook $800 Billion of issuance expected in Investment Grade, 50% from the Financial sectors Spreads are quite wide in A-rated credit BBB spreads did not widen as much as would have been expected given historical relationships Recession would affect BBB rated credits more in 2008 given their relatively tight spreads versus higher rated credits 12
High Yield 2008 Market Outlook Underlying Fundamentals LBO related debt weakness will continue due to aggressive deals done in 2006 and 2007 Defaults are heading higher, albeit from a very low base Recovery rates on defaulted debt will be lower than historical averages Market Outlook $220 Billion overhang of issuance in High Yield and Bank Loan markets Spreads are quite wide but would go wider in a recession Leveraged Loans trading below $90 average prices unlikely to continue 13
Credit Strategy Focus On: Defensive positioning Recession resistant sectors Private assets with covenants 14
Summary Extent of market dislocation depends on economy and market confidence Fundamental analysis is key Defensive positioning Don t try to time the bottom 15
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