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Taiwan Begins to Taiwan Begins to Clean Up its NPLsClean Up its NPLs

MMayay 24, 200 24, 20022

YAMATO SERVICING K.K.

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Table of Table of Contents

Introduction to Yamato Servicing K.K. Outline of Cerberus Group Comparison of NPLs Precedent in USA and in Japan Necessity for Taiwan to Quick Resolve NPLs How to Liquidate NPLs? Benefit of 3rd Party Servicer Role of Servicer Work Flow of Servicer Resolution Method of Servicer Market Volume of Servicing in Japan Comparison of Japanese Servicer Rating Outline of Yamato Servicing K.K.

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Leading special servicer in Japan Servicing portfolio

UPB JPY2.3 trillion (US$18 billion) Clients

Cerberus, overseas private equity funds and Japanese mega financial institutions.

Staffs/Offices 50 staffs, with 10 to 25 years’ servicing experience.

Servicer Rating CSS2-

Yamato Servicing K.K. is at the top of the rated servicers in Japan.

History Incorporated in April 1999.

Shareholder Yamato is one of the Cerberus Group companies.

Introduction to Yamato Servicing K.K.Introduction to Yamato Servicing K.K.

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The leading long-term fund in the world in the niche market of corporate restructuring and distressed asset management.

It has approximately $8 billion under management and has invested over US$ 25 billion during the last 10 years

Cerberus is one of the largest managers of NPLs in Japan and Korea (approximately $30 billion of NPLs in Asia alone)

In Taiwan, Cerberus acquired the first pool of distressed debt sold through public auction.

Cerberus is in active discussion with the Government about how Cerberus can further contribute to financial sector recovery.

Outline of Cerberus GroupOutline of Cerberus Group

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Consig

nInvestment

＾^

Capita

l

Cerberus Fund

Banks

Insurance Companies

Pension Funds

Fund of Funds

Banks

Insurance Companies

Pension Funds

Fund of Funds

Institutional Investors

Wealthy Individuals

Institutional Investors

Wealthy Individuals

Recovery FundRecovery Fund

Financing CompanyFinancing Company

Property FundProperty Fund

Financing FundFinancing Fund

Asia FundAsia Fund

Cerberus Capital Management L.P.

Cerberus Asia Capital Management LLC, etc.

【 Investment in Taiwan, Japan and in Asia 】

Cerberus Capital Management L.P.

Cerberus Asia Capital Management LLC, etc.

【 Investment in Taiwan, Japan and in Asia 】

Fund Investors

Amount;USD 8 Billion

InvestmentIn Asia

Performing LoansPerforming LoansEquityEquityPropertyProperty

ＭＢＯＭＢＯ ＭＢＩＭＢＩ

Corporate RecoveryCorporate Recovery Corporate Corporate ReorganizationReorganization

FinancingFinancing Bad LoansBad Loans

Cerberus GroupCerberus GroupCerberus, established in USA in

1992, is one of the largest private

equity fund in the world specializing in

corporate restructuring.Cerberus family of funds currently

consists of 11 different funds and

separate accounts.Funds under its management is USD

8 bill, of which USD 3 billion is for Asia

including Taiwan.

Outline of Cerberus Group 2Outline of Cerberus Group 2

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Taiwan (as of Sept 2001)Taiwan (as of Sept 2001) Total Bank Lending : NT$14 trillion (US$412 billion ) Bad Assets : NT$ 1.1trillion (US$32 billion) Bad Assets Ratio : 7.8% (MOF base)

Japan (as of Sept 2001)Japan (as of Sept 2001) Total Bank Lending : JPY485 trillion (US$3.7 trillion) Risk Control Assets : JPY35.7 trillion (US$275 billion) Risk Control Asset Ratio : 7.4% Some source estimates that real bad asset ratio is 10

times higher than the ratio stated above.

vs

Comparison of NPLs (Taiwan vs Japan)Comparison of NPLs (Taiwan vs Japan)

NPLs: Non performing loans

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What happened in USA?What happened in USA? By 1989, 750 S&Ls were bankrupted due to high NPL

ratios. In 1990, RTC was incorporated to purchase S&L’s

NPLs. RTC was dissolved in 1995 when its mission was

over by selling NPLs to investors (who then consigned servicing to servicers).

It is widely believed, that major reason of quick resolution of S&L problem was utilization of private equity funds and servicers who are specialists of investment and collection.

Precedent in USA and in JapanPrecedent in USA and in Japan

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What happened in Japan?What happened in Japan? 12 years since bubble economy burst. In the past 8 years, JPY68 trillion yen (US$523

billion) bad assets were resolved, according to Japanese Government’s statistics.

Bulk sale of "Category 4" loans (bankrupted borrowers) started in 1997, then proceeded to bulk sale of "Category 3“.

Resolution of "Watch list" borrowers has just started. Since 1998, series of new legislations were

promulgated to resolve NPLs, of which Servicer Law is one of the most important.

Even today, as much as JPY35.7 trillion (US$275 billion: it is believed to be understated) bad assets are still booked at Japanese banks’ balance sheets.

Precedent in USA and in JapanPrecedent in USA and in Japan

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What if resolution on NPLs will be postponed?What if resolution on NPLs will be postponed? Banks’ unable to extend new loans High bankruptcy rate More bad assets Higher unemployment rate Economic downturn Weaker currency Lose creditworthiness to foreign investors

Advantage of Taiwan in resolving NPLsAdvantage of Taiwan in resolving NPLs Low public sector debt – 30% of GDP (2000.12)

(Japan’s ratio is 125%), strong fundamentals. Injecting public money is not a heavy burden for

Taiwan Beneficial to taxpayers in the long term.

Necessity for Taiwan to Quick Resolve NPLsNecessity for Taiwan to Quick Resolve NPLs

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MethodMethod Nationalization followed by Government’s

Sale of banks, bulk sale of loans, and sale of individual loans

Private sector’s conducting the same as above

ProcessProcess Due Diligence

Evaluation of loans and collaterals Income approach, cost approach, sales

comparison approach Discounted cash flow method

Submission of pricing Documentation Closing (assignment of loans and collaterals) Servicing by assignee’s servicer starts

How to Liquidate NPLs?How to Liquidate NPLs?

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Independence No inter-creditor conflicts No long standing client

relationship

Specific experience Knowledge on cash flow

lending, etc.

Modern IT systems Capital availability

Benefit of 3Benefit of 3rdrd Party Servicer Party Servicer

Licensed Servicers in JapanLicensed Servicers in Japan Specialized in Asset Management an

d Loan Collection. Incorporated in accordance with

“Servicer Law” (1998, No.126) -Servicer Law v.s. Lawyers Law

One of the directors must be a lawyer.

Limited Liability Companies with paid in capital not less than JPY 500 million (US$3.8 million)

Regulatory Audit by Ministry of Justice under Servicer Law.

As of May 2002, 65 Servicers have obtained permission from Minister of Justice.

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Due diligence Closing procedures Collection Cash management Property management for REO (credit bid) properties Monitor asset portfolios Reporting

Role of ServicerRole of Servicer

Expertise of ServicerExpertise of Servicer Collection Legal execution procedure Finance Property management Information technology M&A Accounting

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DueDiligence

DueDiligence

Cash Flow Management

Cash Flow Management

Performance Monitoring

Performance Monitoring

Finance & IT TeamFinance & IT Team

CollectionActivities

Collection Team Collection Team InvestorsInvestors

From Entrance to Exit of Investment

Work Flow of ServicerWork Flow of Servicer

Legal Team Legal Team Property TeamProperty Team

REO PropertyManagement

REO PropertyManagement

Cash &

Information

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Private auction

Legal proceedingsAttachmentForeclosureArbitration

Seek Best Solution for Investors and BorrowersSeek Best Solution for Investors and Borrowers

Voluntary sale

Refinancing

Corporate restructuringDebt equity swapFresh debt and/or equityDip financing

Discounted pay-off

Resolution Method of ServicerResolution Method of Servicer

Loan restructuring

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27

3642

51

61

0

10

20

30

40

50

60

70

Dec- 99 J un- 00 Dec- 00 J un- 01 Dec- 01

Number of Licensed Servicing Company Number of Loan Served

1.46

2.46

4.00

0.160.150

0.5

11.5

22.5

33.5

44.5

Dec- 99 J un- 00 Dec- 00 J un- 01 Dec- 01

UPB

7

13.619

51

36

0

10

20

30

40

50

60

Dec- 99 J un- 00 Dec- 00 J un- 01 Dec- 01

(in trillion yen)Collected Amount

139

2,127

810

1,388

348

0

500

1000

1500

2000

2500

Dec- 99 J un- 00 Dec- 00 J un- 01 Dec- 01

(in billion yen)

Market Volume of Servicing in JapanMarket Volume of Servicing in Japan

Source: Ministry of Justice

(in million)

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Fitch/ IBCA

Full Approval with OverallSuperior Performance

Yamato Servicing K.K.(2001/ 10/ 19) [2-]

Minato Saiken Kaishu (2001/ 10) [2+]Premier Servicing (2001/ 12) [2-]

IR Loan Servicing(2002/ 03 [3+]）Global Servicing (2002/ 01 [3） +]Capital Servicing (2001/ 12) [3+]Lend Lease Servicing 2001/ 07 [3]（ ）Tokyo Saiken Servicing 2001/ 05 [3]（ ）

Tokyo Saiken Servicing2001/ 05 [3]（ ）

Sanyo Shinpan Servicing(2001/ 09 [3） +]IR Loan Servicing(2002/ 03 [3]）

Qualified Approval

Conditional Approval

No Rating

※ Number between parentheses [ ] represents level of rating

Asset Backed Loan Special Servicer

Type

Rating

Full Approval withNoted Strength

Full Approval

Commercial Special Sevicer Residential Special Servicer

S & P

Strong(Extremely High

Capability)

Below Average(Capability with Some

Insufficiency)

Weak(Insufficient Capability)

No Rating

Above Average(High Capability)

ORIX Asset Management &Loan ServicesSMBC Loan ServicingSumitomo B/ K（ ）

Type

RatingSpecial Servicer

Sanyo ShinpanServicing

Commercial FinanceSpecial Sevicer Others

Average(Sufficient Capability)

SMBC BusinessServicing

Sakura B/ K（ ）

As of 2002/5/1

Comparison of Japanese Servicer RatingComparison of Japanese Servicer Rating

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Outline of Yamato Servicing K.K.Outline of Yamato Servicing K.K.

Leading special servicer in Japan Servicing portfolio

UPB JPY2.3 trillion (US$18 billion) Clients

Cerberus, overseas private equity funds and Japanese mega financial institutions.

Staffs/Offices 50 staffs, with 10 to 25 years’ servicing experience.

Servicer Rating CSS2-

Yamato Servicing K.K. is at the top of the rated servicers in Japan.

History Incorporated in April 1999, immediately after Servicer Law

was promulgated. Shareholder

Yamato is one of the Cerberus Group companies.

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Incorporation

Yamato Servicing K.K. (“Yamato”) was incorporated in 12th April 1999 by Mr. Stephen A. Feinberg, for the purpose of acting as a servicing company for collecting loans, entrusted by non-Japanese investors investing in distressed assets in Japan

Capital and Shareholding

500 million yen （ Stephen A. Feinberg 100 ％）

Permission by Government

Yamato has obtained Permission under the Servicing Company Act 1998 (Effective 1st February 1999) from Minister of Justice on 1st July 1999. Permission Number is No. 14

Servicer Rating

Yamato obtained servicer rating, CSS2- from Fitch Ratings Limited in October 2001. Only few servicers are assigned CSS2- or above among more than 60 servicers in Japan.

Yamato is capable to provide professional/unified services on behalf of investors from the commencement to the exit of investment. The following are the characteristics of such services.

The first characteristic is to fully support due diligence upon investment made by investors. Yamato will enable investors to conduct an appropriate pricing, supported with our advice in accordance with our servicing experiences and the collection strategies based on our database. We believe that investors’ correct judgment at the time of investment is the first step for successful collection

1.COLLECTION EXPERIENCE AND NETWORK WITH EXTERNAL PROFESSIONALS Yamato has a network with external professionals concerning collection strategy development and conducting collection thereby. In addition to our internal professional staffs who have been engaging in collection services for 10 to 25 years, Yamato has a strong network with Shoichiro Niwayama Esq., our director and a senior partner of Asahi Law Offices and other legal professionals. Yamato, therefore, is capable of carrying out effective and appropriate collections 2. OUTSTANDING PERFORMANCE Since the commencement of its servicing business, Yamato has taken only 12 months to 18 months to recoup investors’ investment. This proves how capable Yamato is in developing collection strategy, in conducting collection, and how conscious Yamato is about time value for investors. 3. CONSIDERABLE SERVICING PORTFOLIO Yamato has a considerable servicing portfolio. Its servicing portfolio is approximately 2.3 trillion yen on an unpaid principal balance base, 5,000 borrowers and 10,000 loans, 130 investment pools. Such servicing portfolio is at the top level among the servicing companies in Japan. This shows that the investors have strong confidence in Yamato in all aspects of servicing, including due diligence support, collection, cash management, portfolio monitoring and reporting

Yamato’s Servicing Capabilities

1. Due diligence support

2.Servicing

Outline of Yamato

Yamato Servicing Yamato Servicing K.K.K.K.

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Identification and problem solving with borrowers Negotiate consensual resolution / restructuring

Maximizing Collection

Yamato Servicing K.K.’s Resolution PolicyYamato Servicing K.K.’s Resolution Policy

Try to let borrowers to survive More effective than letting borrowers to go bankrupt

and starting from scratch

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Yamato Servicing K.K. Tokyo Head OfficeYusen Building 7th Floor2-3-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005Telephone: 81-3-3287-2100Facsimile: 81-3-3287-2101

Yamato Servicing K.K. Osaka Branch NM Plaza Midousuji 12th Floor3-6-3 Awajimachi, Chuo-ku, Osaka-shi, Osaka 541-0047Telephone: 81-6-6232-0606Facsimile: 81-6-6232-0607

Yamato Servicing K.K. Tokyo Head OfficeYusen Building 7th Floor2-3-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005Telephone: 81-3-3287-2100Facsimile: 81-3-3287-2101

Yamato Servicing K.K. Osaka Branch NM Plaza Midousuji 12th Floor3-6-3 Awajimachi, Chuo-ku, Osaka-shi, Osaka 541-0047Telephone: 81-6-6232-0606Facsimile: 81-6-6232-0607

YYAMATOAMATO SSERVICINGERVICING K.K.K.K.

Toshikiyo ShimizuPresident of Yamato Servicing K.K.Telephone: 81-3-3287-2100 (ex 6411)Facsimile: 81-3-3287-2101E-mail: tshimizu@yamatoservicing.co.jp

Toshikiyo ShimizuPresident of Yamato Servicing K.K.Telephone: 81-3-3287-2100 (ex 6411)Facsimile: 81-3-3287-2101E-mail: tshimizu@yamatoservicing.co.jp