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LBEX-AM 067167 Agenda I + Overview Chris O'Meara

+Risk Madelyn Antoncic - Recent Market Stress Exposure to Key Products/Markets - Risk Appetite Usage and Counterparty Credit Exposure· ..

t-' Global Stress Tests F j ,• ~~ ~: ~· '.,.' + Liquidity ·Paolo Tonucci

,,.­ ' ,.·~ - Funding Framework ~ I - Funding Update - ·Contingent Liquidity Risk

+ Capital Management and Balance Sheet Paolo Tonucci - Equity and Balance Sheet Growth - Equity Adequacy rm m Credit Ratings >< )> - Share Repurchases s 0 ...... en ....Jo. en LEHMAN BROTHERS 1 co Overview I 2007 has seen a significant amount of risk, financing and capital activity, driven by business growth generally and high levels of activity in specific businesses

+ Risk appetite usage increased from $2.12 billion at the end of 2006 to $3.27 billion, but remains within the established risk limits. The Firm's credit portfolio remains very high quality, and 97.8% of our counterparty exposure is to investment grade names

+ Our risk management stress test results for both the Subprime Mortgage and the Leveraged Lending business showed that the losses we actually incurred were consistently within the range predicted by our management models

+ While the funding markets have become more difficult to access, this has had a limited impact on our liquidity. The liquidity pool has increased to $36 billion at the end of the 3rd quarter from $25.7 billion at the end of the 2nd quarter, and the cash capital surplus has increased to $8.1 billion from $2.5 billion

+ Common stockholders' equity growth has been significant with full year growth projected to be around $3.6 billion, up 20% vs. 2006. Adjusted (or Leverage) equity growth is projected to be around $5 billion, up 27% vs. 2006

+ The Firm's Net Leverage has increased to 16.2x, in line with peers. In 2007, we worked with regulatory and rating agencies to implement more sophisticated equity adequacy measures. As a result, we are comfortable with this level of leverage

+ Fitch Ratings has upgraded us to AA-, the same level as onr larger peers. Moody's and S&P affirmed our credit rating as A 1/0utlook Positive and A+/Outlook Stable respectively r + Our share buybacks have been lower than in previous years, due to significant slowdown in option exercises m m >< )> s 0 en ...... Jo. en LEHMAN BROTHERS 2 CD Cf) ~ 0 ~ 0 (1) ~ • ~ Q ~ 0 ~ ~ ~ ~ ~ 0 ~ .~ ~· ·o ~ 0 ~ ~

LBEX-AM 067170 Agenda I

+ Recent Market Stress +Securitized Products . ··£ +High Yield Exposures + The Commercial Paper Market + Hedge Funds

+Risk Appetite Usage and Counterp~rty Credit E,xposure + Global Stress Tests

r m m >< )> s 0 ...... en ...... Jo. LEHMAN BROTHERS 3 ....Jo. .... s::: (1) 0 (1) a:

LBEX-AM 067172 Recent Market Stress I The markets have experienced significant turmoil in 2007

· + The initial tremors were felt at the end of 2006, when the poor loan performance of sub-prime borrowers began to be a cause for concem in the market place. This was evidenced by a gradual spread widening in the asset backed index. + Through the 151 quarter of 2007, the spread widening was largely confined to the lower-rated tranches of sub-prime deals which by March 2007, had widened by from 250bps to 1,000bps in BBB- cash bonds while AAA bonds had only widened from 16bps to 23 bps. + After a brief pause in May, the market continued to widen as it became apparent that the performance problems in mortgage loans was not going to abate and was no longer limited to the sub-prime market but also affecting the Alt-A product. + By mid-June, Bear Steams Asset Management reported significant stress in two funds totaling $2 billion of capital with over 15 times levered exposure in sub-prime mortgages. Requests for redemptions were suspended and they subsequently ran out of liquidity to make margin calls and eventually shut down the funds. + By early July, after other high profile hedge fund failures with the backdrop of a large supply ofHYproduct coming· to market, we saw the fear of contagion to other markets causing a rout in all credit products, of every rating including all the way up to AAA bonds. + · By early August, we saw a· significant delivering of hedge funds across asset classes including long/short equity strategies adding additional stress to the market as paper was put up for bid. + Currently the CP market, particularly ABCP, is facing challenging conditions, with very little liquidity. Funding for almost any type of mortgage or ABS product dried up. This extended to the ABCP market which ultimately was forced to rely on backstop liquidity providers and extend maturities on extendible CP, as paper would not roll. + The total U.S. CP market has declined by almost $300bn or 13% in .outstandings in August to a seasonally adjusted total of $1.93 trillion. The ABCP ovemight rate has increased by more than 80bps last month to 6.15%. + The potential for ABCP conduits and SIVs to have to unwind and liquidate vast amounts of ABS paper continues to weigh on the market. r m + Currently, some liquidity is returning to the market as real money players are taking advantage of the historically wide spreads in m >< AAA product, and distressed debt funds are being raised to invest across the credit spectrum. )> s 0 ...... en ...... Jo. LEHMAN BROTHERS 4 w ....,tJ) 0 ::l "'C 0 a.~ "'C Q) ....,N ·-~ ::l 0 enQ)

LBEX-AM 06717 4 Securitized Products I The firm is engaged in a number of activities in the securitized products business, which covers a global, diversified range of asset c~asses and businesses which are vertically integrated from origination through securitization and distribution

+Origination - The Mortgage Capital Division has several origination entities spanning the US, Europe and Asia. Total origination year-to-date through August 31 was $45.1 billion. The primary products originated include: • Alt-A Mortgages- This represents 66% of our total originations. Borrowers are typically higher quality with an average 710 FICO score, with an average loan size of $240K and an 90% CLTV. Typically 20% of these borrowers have full documentation. • US Sub-prime Mortgages- Had represented 16% of our originations through July. We have discontinued originating sub-prime mortgages. Borrowers are typically lower quality with an average 620 FICO score, with an average size of $235K and an 80% LTV. Typically 65% of these borrowers have full documentation. • UK Non-Conforming Mortgages- Represents 12% of total origination (49% Near Prime, 51% Sub­ prime) • Small Balance Commercial Loans -Represents 4% of total origination. Borrowers are small businesses. Loans are secured by the borrowers and the operational property (real estate). Average loan size is $650K with an average 69% LTV against the property .. Borrowers average FICO score is 718. r m m >< )> :f s 0 ...... en ...... Jo. LEHMAN BROTHERS 5 0'1 Securitized Products (continued) I + Trading - We position mortgages through both new issue and secondary trading. In the new issue market, we take positions in loans purchased from our origination platforms as well as from other originators including both private labels and GSEs. We make markets in every product we create in the new issue market. The loans are typically securitized and then sold to the market: - US businesses use $43.7bn of balance sheet. Businesses include: • Prime Mortgage trading (uses $18.3bn of balance sheet). • Non Prime Mortgage trading (uses $8.1 bn of balance sheet). • Agency REMIC/Pass-Throughs/Options (uses $9bn of balance sheet). • US ABS Trading (uses $3.3bn of balance sheet). - International Businesses uses $9.7bn of balance sheet. European Mortgages, primarily UK non-confirming, accounts for the majority of the international exposure. Asia uses $1.9bn of the balance sheet. + Finance - In addition to funding clients positions through our Financing D~sk,-·we provide term financing alternatives for clients in both the mortgage and non-mortgage asset classes. • We provide mortgage warehouse lines for mortgage originators. These are secured, revolving lines of credit which can be drawn down to support origination flow. We have a security interest in the mortgages, and make margin calls if the collateral value drops below designated thresholds. We currently have $2.8bn in commitments, with $1. 6bn funded as of 8/31. • We provide financing for non-mortgage assets such as auto loans and small business loans. In addition, we finance Regulation XXX reinsurance reserve credit for term life insurance businesses. We currently have r $1.65bn in total commitments with $818rnm fun dec!. at 8/3 i. m m >< • We provide acquisition financing in transactions where a whole business securitization can be executed. We )> currently have $2.1 bn in commitments as of8/31. s 0 ...... en ...... Jo. LEHMAN BROTHERS 6 en Mortgage Originators I Counterparty Credit Losses to Mortgage Originator~ ·.

+ Since mid:_2006, nearly 150 mortgage originators have,filed for bankruptcy or have closed their doors - Most sub-prime originators have failed or have wound down the business, including New Century, Fremont, HSBC Finance, Ameriquest, Accredited, People's Choice, and BNC - Contagion into the prime space is occuning and has claimed several large Alt-A originators, including Greenpoint Mortgage, First Magnus, and American Home Mortgage. All of these were large clients of the Firm.

+ Lehman has reserved for expected losses associated with 29 of these failed clients as part of our normal reserve rev1ew process. - Our largest expected loss relates to representation and wanant (R& W) claims associated with whole loan purchases from First Magnus, formerly the largest Aurora conespondent which represented nearly a quarter of Aurora's purchased loan production.

+ Additional reserves have been set aside for all other R&W claims; both from failed originators and expected future claims against active conespondents.

r m m >< )> s 0 ...... en ...... Jo...... LEHMAN BROTHERS 7 Mortgage Warehouse Lines Exposure I Warehouse facilities to sub-prime and Alt-A originators total approximately $2.8bn of which $1.6bn is outstanding as of 8/31 + Our commitments are down from $5.7bn ($1.9bn funded) a year ago. - All warehouse lines are collateralized and margined.on a regular basis, with collateral having to satisfy specific requirements as to quality and aging. Pricing of the collateral is done by Lehman trading desk. - Total losses from defaulted borrowers is approximately $22mm. The bulk of this ($20mm) was associated with misrepresented loans from ResMae, a failed sub-prime originator purchased out of bankruptcy by Citadel. + Following summarizes the current mortgage warehouse lines of the Firm to all counterparties.

Counterparty Commitment Funded ResMae (Citadel) $ 800.0 $ 619.6 GMAC-RFC 600.0 234.5 Security National 260.0 207.4 C-Bass 240.2 144.6 Aegis (Servicing Advance Line) 16.0 5.0 Plaza Home Mtg 150.0 4.5 Central Pacific Mortgage 7.0 1.8 Ion Capital 15.0 0.5 r m NBGI 25.0 0.2 m >< CTX Mortgage 200.0 )> s Totals $ 2,813 $ 1,570 0 ...... en ...... Jo. LEHMAN BROTHERS 8 co Changes In Origination Guidelines I We have been tightening our lending criteria, particularly from 2nd half of 2006. As of September we have entirely eliminated the origination of sub-prime mortgages. As a result of the changes, we expect to see improvements in the performance of our originated loans

+ 100% financing (80% LTV 1st and 20% 2nd lien) + Non Full Documentation loans - Eliminated - Raised Minimum FICO by at least 20 points + Stated documentation loans (i.e., limited docs) .Reduced maximum Combined LTV by 5% to 95% - 100% combined LTV eliminated + Second Homes - Decreased maximum d.ebt-to~income ratio by 5% to 50% Raised minimum FICO requirements by at least 20 points depending on LTV - Increased minimum FICO requirements per LTV bucket 20 to 60 points, depending on other credit .. +. 95% LTV cashout Refinancing characteristics - Eliminated + First-time homebuyers - Decreased maximum Combined LTV by 10% to + First -time homebuyers 90% LTV - . Increased reserve requirements to at least twice Single family property only previous amounts r + Underwriting credit exceptions m + Total borrower exposure m >< - Eliminated for FICO and LTV - Limited to two loans with Lehman )> ., s 0 ...... en ...... Jo. LEHMAN BROTHERS 9 CD Comprehensive Risk Framework I Risks in the Securitized Products businesses are managed within the overall Lehman Risk Management framework

+ We monitor and actively manage the risk of the origination business. - Dedicated risk manager onsite for residential Americas origination platform . - Monthly risk review process covering production and origination trends and loan performance, both current inventory and previously securitized loans. - Extensive risk reporting, scorecards, and tools to evaluate actual performance of loan products vs expectations and also to monitor our correspondents and brokers to ensure they conform to our standards for performance. - The Firm has a process for monitoring exposure to Representations and Warranties (R&W) fraud along with Early Payment Defaults (EPD). - Our probability based EPD model is used in in the decision to underwrite loans and help determine what additional compensating factors are required to approve the loan. + Counterparty credit risk framework starts with client selection and screening where we perform background checks on all new accounts and perform rigorous due diligence to assess the credit quality of proposed counterparties. - All warehouse lines are collateralized and margined on a regular basis, with collateral having to satisfy requirements as to quality and aging. Pricing of the collateral is done by Lehman. + Risk appetite is measured daily, calculated at a 95% confidence level. The market risk component of risk appetite . employs a simulated P&L approach using 4 years of historical data, weighting the data more heavily for the most recent time period, taking both linear and non-linear components of risk into account. We incorporate event risk r into our risk appetite calculation measuring losses associated with increases in defaults and property value declines. m m + We conduct regular stress testing to see the impact on our P&L of dramatic spread widening. >< )> s 0 ...... en ....Jo. co LEHMAN BROTHERS 10 0 Sub-Prime Weekly Stress-Test

I Risk Ma'nagement produces a weekly stressteston the sub-prime whole loan and securities inventory and their associated hedge positions + Our results show our assumed stressed spread widening was consistently greater than actual spread widening. + As a result, we consistently predicted greater stressed losses than what actually occurred.

~--­ i · · o A Slress Wideoin£ Subprime AAA Spreads oAAASiress Widemng Subprime A Spreads 1 AAA Aclual Move 1 A l)clual MOle

150 .-- ~~------,

800+------~~---~ 100+------~------~~

~ i·k-----~ so , r, 1- ; e.c. nnnnnn"'"'-n.nnn.OnR..nnnmnnnnnnnn._n.fb~f:l~l:r !:m i i ~ :.': 200 I "'c. ' I @ i i "~ ' 050) ~-- I 11}Jan-07 6-Feb·07 6-Mar.Q7 3·Apr·07 1·May.Q7 29·May.Q7 26-Jun-()7 24.Jul·07 21·Aug.Q7 11}Jan.07 6-Feb-07 6-Mar-07 3-Apr-07 1-May-07 29-May-07 26-Jun-07 24.J~.Q7 21-Aug-07 Date Date

o BBB· Stress Widening Sub prime BBB· Spreads • _Actual Move Weekly Stress Losses vs. Actual Monthly P/L 888 1,400 .... ··-·--··-···-- ··-··-·------·-·--·------·····---··-·-····-·---··-·--·------200 ·---,------.------·----···l 1.200 100 I

c. .c ·: . ,~:m~~~ ~IIHHHI~~-l H-iH ~ · · i~ " " 400 E-3X) \ :~ ; : I V> B iG ~- r ::;; ·800 m (200) -~ m >< (400) --·-··------··• :700 I )> 10-Jan-07 6-Feb-07 &Mar-07 3·Apr.Q7 H1ay·07 29·May.07 2&Jun·07 24·Jui·07 21·Aug·07 10,/an·O'/ 6-Feb-07 &Mar-07 3Apr.Q7 1-May.Q7 29-May.Q7 26-Jun-()7 24.Jui.Q7 21·Aug.Q7 s Oa• om 0 ...... en ....Jo. co ....Jo. LEHMAN BROTHERS 11 Q) :s.. :::J tn c.0 w>< "C -Q) ·-> J: C) ·-J:

LBEX-AM 067182 High Yield Leveraged Loans I The Firm's High Yield exposure originates from several sources within the High Yield and Leveraged Finance Businesses

+ Trading - We actively trade a wide variety of High Yield asset classes including bonds, loans and default swaps. - We provide market making in the secondary market as well as take proprietary positions from time-to-time.

+ High Yield exposure also emanates from our M&A activities in connection with our advisory business for which clients rely on us to provide financing - Corporate Acquisitions- traditional M&A activity where one corporation buys another with a strategic fit to expand business. We will provide financing to the acquirer. - Sponsor related LBOs- M&A activity associated with a Private Equity fund's purchase of a corporation as one of its portfolio investments. We will provide financing to the sponsor. - Staple Financing - M&A activity were we are advising the seller company and offer to provide financing to the buyer for the purchase of the asset.

+ Underw1iting - We underwrite debt associated with M&A transactions as well as straight refinancing of existing debt. In the event we are unable to fully syndicate and sell-down the debt, we may be left with exposure.

+ Our investment in sponsor related advisory and financing business have resulted in increased market share with these Iii clients. The clients have also been the most active issuers of high yield debt. The net result are significant increases in ~ commitments and lending activities· . )> s 0 ...... en ....Jo. co 12 w LEHMAN BROTHERS Contingent & Mandated (but not closed) High Yield Bridge & Loan Commitment Growth I Consistent with the growth in market share in M&A_ ~ctivities and the resultant share in leveraged financing activities, our commitments ~ave _grown to $21.8Bn ($25.9Bn including Archstone)

$43.9

Archstone (I)

r m Nov-06 m Nov-05 Feb-06 l\1ay-06 Aug-06 Feb-07 May-07 Aug-07 >< )> s 0 (I) Archstone commitment totaled $11.1 B, of which $9. 7B was debt ($8.558 debt + $1.1 5B junior mezzanine), $1.158 was Bridge Equity and $0.258 is permanem equity ...... en ....Jo. co ~ LEHMAN BROTHERS 13 Closed High Yield Bridge and Loari Exposure Our disciplined approach to risk mitigation through syndication, outright sales, sales I through silent partner participation, single-name and macro portfolio hedging enabled us to keep our net exposure largely unchanged through July. Given the current market conditions, our exposure has materially increased over the past month

·~ Closed HY Bridge and Loan Inventory Exposure and Hedging

16,000 I 11 HY Loan Gross Exposure I 14,282 14,000 ~ I • HY Closed Loan Net Exposure with Macro Hedging J _,11,839 12,000

10,000 8,560 8,435 7,794 8,000 ~ 6,697 5,962 6,000 j- 4,000 I 2,000 ~ rm m

> s 04 06 01 07 02 07 6/30/2007 7/31/2007 8/30/2007 0 ...... en ....Jo. co 0'1 LEHMAN BROTHERS 14 Changes in the Leveraged Finance Market. I

+ Deal size increased dramatically - TXU ($44B) largest LBOs to date - Valuations reached record highs

+ More Publics-to-Privates requiring shareholder approval + Longer review period for transactions in regulated industries

+ Sponsors seeking equity from banks, rather than partnering in· club deals

+ Factors leading to recent sell -off: Subprime spillover into creditmarkets - Hedge Funds deleveraging CLO market shrinldng Huge anticipated new issue supply Worsening credit quality- increase in leverage multiples (from 6x-7x to 8x-9x), decrease in free cash·flows .. · Aggressive structures (covenant-lite and PIK toggle) r m Rising Treasury yields m >< )> s 0 ...... en ....Jo. co LEHMAN BROTHERS 15 en Comprehensive Market and Credit.Risk Framework Lehman has a comprehensive framework a·nd process for ensuring tight controls I around high yield risk + The Firm has numerous committees to oversee risk taking activities and to ensure that controls are appropriately administered and reviewed. No one person commits Firm capital in the primary markets. We screen transactions, employing several layers of committees, starting with business level transaction approval committees. Deliberation of transactions, moves up the management chain, for further·review at Firm-wide transaction approval committees, and then finally to management oversight committees, such as the Executive Committee. The committee structure ensures checks and balances and helps guard against the silo effect. +We have a unique and comprehensive risk framework for high yield exposure that takes into account risk as a deal flows through each stage starting with its being only a potential or conditional deal and evolving through a contingent, mandated or closed stage. We measure risk across the entire pipeline and incorporate that measurement in our risk appetite on a deal probability weighted basis to ensure we are picking up all risk associated with potential deals becoming actual deals so to avoid any surprises. - + We employ an additional risk analysis to calculate potential losses in a variety of market conditions including "closed," "difficult," and "friendly" markets. This analysis provides the Firm the tool to detect early warning signs based on deal and portfolio size, leverage, quality, capital structure, deal probability and syndication strategy. +Comprehensive scenario and stress analyses are performed regularly on all of our High Yield exposures including commitments. These stress analyses replicate previous credit market corrections such as those experienced in 1998 or 2002. + Risk management works with finance and treasury to ensure the Firm has adequate capital and liquidity to support the business. +Risk transfer and mitigation. · · ·· · "· --- - r -In addition to risk mitigation through syndications, sales ·and hedging, the business has established a risk transfer m m mechanism through non-traditional means such as silent participation partners such as Sumitomo, GECC and >< )> RBC. Our objective is to establish a progran1 to provide confidence that the Firm can regularly reduce our High s Yield commitment exposure. · · " 0 ...... en ....Jo. LEHMAN BROTHERS 16 ...... co .·.: Stress Testing I Risk Management Performs Monthly Stress Tests on Leveraged Loan Exposures . ' + Our stress tests consistently predicted greater stressed losses th.an achially occurred on both a monthly and

cumulative basis. ·.: ..

(500)

(1 ,000)

(1 ,500) 3Q Cumulative Stress Loss vs. Actual P&L (2,000) t1a'lt:\,.,--"1 rm 1!1 Stress Loss []Actual P&L m >< (2,500) ------~- )> s Dec-06 Jan-07 Feb-07 Mar-07 Apr~07 May-07 Jun-07 Jul-07 Aug-07 30 P&L 0 ...... en ....Jo. co co LEHMAN BROTHERS 17 Stress Analysis

In addition to our monthly stress tests, Risk Management performs comprehensive I scenarios analyses on all of our High Yield exposures including commitments. These stress analyses replicate previous credit market corrections such as those experienced in 1998 and 2002 · · · ·: •. ,.. •

~:7~i;~:-~;~::K~.':{~~::f~~:;:~($~:~>;~i;:_;:"Y~~~-s!~~n@)j~J US Loans 16.9 356 US Bridges 5.2 578 Europe Loans 3.1 61 Europe Mezz/2nd lien 1.5 102 Equity/PIK 1.7 514 Total Loss 28.4 1,611

~~: ~ i~{'~~~~£~~:~:i~~{zrt;~gx@~~~c;i~~t$e6i· 2~·~~~Jt9~~\t$$;}1-~ US Loans 16.9 571 US Bridges 5.2 1,798 Europe Loans 3.1 94 Europe Mezz/2nd lien 1.5 253 rm m Equity/PIK ·, · 1. 7 770 >< )> Total Loss ·· 28.4 3,487 . . - ~ ... - s *As of May 20,2007. Exposure includes mandated (not closed) loan and bridge-commitments. 0 ...... en ....Jo. co CD LEHMAN BROTHERS 18 ..... Q) ~ J... :a:ctS J... Q) 0.ca c. -ctS ·-0 J... Q) E E u0 . ' Q) .r, 1-

LBEX-AM 067190 Commercial Paper I The Firm is engaged in a number of activities involving Commercial Paper

+ We act as dealer/placement agent for secured and unsecured issuers globally. - The unsecured CP market stands at $941 billion and historically Lehman's market share has been 15%. - The asset-backed CP (ABCP) market currently stands at $974 billion and historically Lehman's market share has been approximately 15%.

+ Our trading desk makes a secondary market in CP and ABCP - Provides liquidity to clients in addition to normal issuance process.

+ We are a backstop liquidity provider to CP programs. - We have $12.1 bn of backstops to corporate CP issuers, of which -$760mm is drawn. Of those commitments, $7.5bn are for non-financial issuers and $4.6bn are financial companies. We have hedged approximately 50% of this credit exposure. - We have only $919mm of ABCP backstops, of which $160mm is funded for Landale Funding, a ABCP conduit financing ptime UK mortgages originated by HBOS.

r m m >< )> s 0 ...... en ....Jo. CD LEHMAN BROTHERS 19 ....Jo. LBEX-AM 067192 Hedge Funds l The Firm is engaged in a number of activities involving hedge funds

+ Institutional flow trading in both Fixed Income and Equities. - Cash and derivative products - Derivatives - Foreign exchange - Financing and securities lending Futures + Prime Brokerage - Lehman has a robust prime brokerage offering and receives consistent industry recognition for the quality of our product and the excellence of our service levels. + Principal Investments in hedge fund managers - Strategic majority stakes include: - Libertyview: 100% (multi-strategy hedge fund manager) - Lehman Brothers Alternative Investment Management ("LBAIM"): 100% (fund-of-funds) - Strategic minority stakes include: - GLG: 18% stake (European multi-strategy hedge fund complex with $17bn of AUM) - Ospraie: 20% stake (US-based multi strategy manager with $6.0bn of AUM) r - Marble Bar: 20% stake (European manager with $3.5bn of AUM) m m - Spinnaker: 20% stake (European manager with $6.0bn of AU}'Jl) >< )> s - DE Shaw: 20% stake (US-based multi-strategy manager with $34bn of AUM) 0 ...... en ....Jo. CD 20 w LEHMAN BROTHERS Comprehensive Credit Risk Fra.mework I Lehman has a comprehensive framework for ~nsuring tight controls around hedge fund risk. The main components of this framework are:

+ Client Selection and Screening: Background checks are performed on all new accounts. Salespersons have broad "Know Your Customer" responsibility and are accountable for ensuring suitability of the client's trading activity. + Credit Due Diligence: Within Credit Risk Management ("CRM"), we have dedicated teams of specialists organized by region and industry who perform due diligence and assess the credit quality of proposed counterparties. + Ratings: CRM employs a rigorous credit rating framework to assess the relative riskiness of our counterparties. + Limits: CRM sets credit limits to constrain aggregate exposure concentrations to any individual counterparty or group of related counterparties. + Documentation and Margin: We require master documentation ~it_h_all clients providing for, muong other protections, the ability to net exposure across transactions. We also require collateral and structure margin requirements to substantially mitigate our risk. Collateral is ourfirst line of defense. Virtually all of our activity with hedge funds is margined, with liquid collateral covering marked-to-market exposure and, to varying degrees, potential future exposure. + Exposure Monitoring: On a daily basis we calculate exposure against limits and aggregate exposure across all activity with each individual counterparty and across related counterparties using sophisticated modeling of portfolio

,,,lnt~l~t·o C~t.,...aC'£"1 taC"t "Y\""\oth~rlAlr.n-~aC'I ~C' n:u:::t.ll .-:lC" I"'Anf""ont...-nt~An I'Jinrll~rlll~rl~t..,, -::an-:ll'HC';C' V V.J.Ul.~.J..l.\.. J) ~l..J. V00-l.V0L. ~J..J.\,..Il.J..lVUV.J.VO..l.'-'0 UIJ Y't' V.J..l. U...:J '-"V.l.l'"-'\,..'.1. .1\...1. UL.l.Vll U.l.lU .1..1.'1 U..J.U.l'-) U.J..l\.. t..J.) IJ.&.0. + Credit Monitoring: We perform ongoing credit monitoring on active counterpmties, including monthly perfmmance r m tracking, meetings with the client and formal annual reviews. m >< )> s 0 ...... en ....Jo. CD LEHMAN BROTHERS 21 ~ Hedge Fund Credit Exposure I As of August 31, 2007, total Hedge Fund Current Credit Exposure (CCE), which is our mark-to-market exposure less collateral posted, was $354 million, or less than 1 °/o of total CCE across the Firm. This small expos~re reflects our conservative margin requirement policy which ensures we are well collateralized

USD Millions ilal~~~!Vf~~~~f::~~~r~~=J~~~i~:,.~c~~V-~~4;-:.,;;;~~~*~-!~~,._:l Goldman Sachs Asset Management 6.5 104.3 Citadel Investment Group 27.3 80.0 SAC Capital Advisors 29.8 78.0 Moore Capital Management 8.9 72.1 Bridgewater Associates 38.2 70.3 Ashmore Investment Management 4.1 57.2 Bluebay Asset Management 1.3 50.5 CQS Management 1.6 44.2 Ellington Management Group 5.6 32.7

r't- ·- --1- T ------L.--- - ·- .._ ~If-·- - -·------L /:{"\ '"){"\ {"\ Lapula 111 ve:suueuL lVlauagelHeHL J.V .JV.V r m (I) Current Credit Exposure (Mark-to-Market less collateral) m 2 >< ( ) Maximum Potential Exposure @ 99% )> s 0 ...... en ....Jo. CD LEHMAN BROTHERS 22 0'1 Hedge Fund Credit Exposure I Despit~ recent volatility and widely reported problems incurred by a number of funds, we have not experienced any recent credit losses from hedge funds. This is not to say that we don't take risk, but rather our controls are designed to ensure that the risk is substantially reduced through our tight controls, especially those relating to the taking and monitoring of collateral + Examples of recent hedge fund failures where Lehman had exposure but did not incur losses: - Bear Steams As_set Management (June 2007) Two funds totaling $2bn of capital with leveraged exposure to the sub-prime market suspended redemptions and subsequently defaulted on margin calls. We had financing and derivatives exposures with sufficient collateral across the positions to avoid a credit loss and successfully unwound our exposures. - Basis Capital Management (July 2007) Two funds totaling $1bn of capital with leveraged exposure to the sub-prime market suspended redemptions and failed on margin calls after liquidity drain from asset write-downs. Lehman had financing exposure with sufficient collateral protection to avoid a credit loss. We successfully unwound our exposure to the more troubled fund and have good collateral coverage on our financing of non-ABS bonds for a second fund. - Sowood Capital Management (July 2007) Multi-strategy fund with $3.5bn of capital incurred losses and narrowly avoided default by selling most of its portfolio to Citadel. The fund met all margin calls and did not default to Lehman .. Vve had financing and derivatives positions with Sowood that were either unwound or assigned to Citadel. · - Highland Financial (July 2007) $2bn AUM manager of mortgage-related hedge funds and CDOs. A Highland fund that was focused on lower rated tranches of ABS/MBS CDOs suffered heavy losses and nm out of liquidity, We had financing exposure with sufficient collateral and worked with Highland to liquidate positions without a loss to Lehman. - United Capital Asset Management/Hmizon Funds (August 2007) r m $450 million AUM hedge fund arm of broker-dealer specializing in less-liquid ABS securities. Funds failed to meet margin calls after m >< expe1iencing liquidity drain due to asset mark-downs and inability sell assets. We had financing exposure with sufficient collateral to )> avoid a loss. s 0 ...... en ....Jo. CD LEHMAN BROTHERS 23 en Hedge Fund Credit Concerns I In the current market environment, many hedge funds_ar_e incurring trading losses and having difficulty liquidating positions to reduce risk~ bolster liquidity and satisfy investor redemptions. Hedge fund counterpartie.s, having difficulties include:

+ Sailfish Multi-Strategy Fixed Income Master Fund $1.8bn NAV credit-focused hedge fund that incurred trading losses (Aug. -9.4%; YTD -3.7%) and is facing Q3 investor redemptions with diminishing liquidity. Lehman is active in financing and derivatives. CCE =0. + Carlyle Capital Corporation $630mm NA V listed permanent capital vehicle with leveraged exposure to agency CMOs. Fund incurred heavy losses (Aug -25%; YTD - 33%) on MBS portfolio and also on a subsequently-liquidated bank loan portfolio. Carlyle extended $100mm loan for 1 year and another $100mm on a short-term basis, but fund liquidity remains tight. Lehman is active in financing. CCE = 0.

~ Cheyne Capital This manager has $13bn AUM in hedge funds and a $35bn ABS business. Cheyne Finance, a $6.6bn SIV, has had liquidity problems and is winding down. We did not have any exposure to this entity, but we do have trading relationships with 7 Cheyne funds and are carefully monitoring their ABS funds, including: • Queens Walk Investment Ltd, a $284mn NA V listed permanent capital vehicle that invests in ABS residuals. It has posted poor results (-29% YTD) due to sub-prime exposure. Lehman has some activity in derivatives. CCE =0. • Cheyne Asset Backed Fund, aNAV $245mm hedge fund that invests across MBS capital structure with some exposure to ABS. YTD performance -7%. Lehman has some activity in financing. CCE = 0.

r m m >< )> s '.·. 0 ...... en ....Jo. LEHMAN BROTHERS 24 ...... CD Cl) :I.. :::s en 0 c. >< w ..... "'C Cl) :I.. (.) .....~ :I..ca c. :I...... Q) c :::s 0 (.) ~ .....Q) ..... ·-Q) c. c. <( ~en ·-a:

LBEX-AM 067198 Risk Appetite Usage - Firm I + Risk appetite usage is composed of market risk, event risk and counterparty credit risk and is calculated daily both on a global, consolidated basis, and at regional, divisional, and line-of-business levels. + Risk Appetite usage is monitored on a daily basis against the limits. · + Our franchise is highly diversified due to our product and business mix, as well as our international presence. + Given the growth in the Firm's revenue generating ability and capital base, in the Spring of 2006, at our strategic offsite the Firm made the decision to increase our risk profile and utilize more of our risk appetite capacity. Consistent with the increase in the limit, average Risk Appetite usage rose from $2.12 billion in November 2006, to $3.27 billion in August 2007. Risk Appetite increased in all regions as we have expanded our geographic presence.

3.5 1 .. -·. 3.5bn 3.5 Limit 3.3bn 3.0 ...... - 3.0

- - 2.5 -- '2 2.5 2 J:J .c I I ~ .:.;:: l- I I I I I I UI I I I "'' Jm II ······ ll ll . 11 I~ I11· ········ II • IIfl -----fl •····- a: 1.0 ...... t- ...... -· ... r m 0.5" - •· ... ···-· •.. 0.5 l ... ·-·. ... m k l ... >< 0.0 II h I I h I I h I I h I I h I I h I I h I I h I I h I I h I 0.0 .1L l l 1 l" l" :i> . Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Nov-O(). ,Dec-06 Jan·07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Lii!l!iil Market Risk Event Risk Counterparty Risk _.Risk Appetite s CJ CJ -America DEurope DAsia +Global 0 ...... en ....Jo. CD LEHMAN BROTHERS 25 CD Counterparty Credit Risk I + We continue to be prudent in our approach to counterparty credit risk., - We have a very low tolerance for delays on receiving collateral, where applicable. - We give very close scrutiny to the value of customer collateral·posted against margin loans. + We have a very high quality credit portfolio. + 97.8% of our counterparty exposure is in investment grade names.

(US$ million) Ratings Percentages

2Q '06 3Q '06 4Q '06 lQ '07 2Q '07 . 2Q '06 3Q '06 4Q '06 lQ '07 2Q '07 AAA 5,506 5,097. 5,312 6,771 6,967 . 20.5% 21.3% 20.6% 23.8% 21.7% ~:Dl!ltt~~ AA 11,930 10,469 10,487 10,506 14,464 . 44.5% 43.7% 40.8% 36.9% 45.1% A 6,987 6,140 6,873 8,063 7,443 26.1% 25.7% 26.7% 28.3% 23.2% • BBB 2,010 1,658 2,348 2,231 2,520 ·' 7.5% 6.9% 9.1% 7.8% 7.8% BB 308 421 559 690 461 1.1% 1.8% 2.2% 2.4% 1.4% -B or Lower 81 138 161 243 ·- 241 ~: 0.3% 0.6% 0.6% 0.8% 0.8% ~~~- ... Total 26,822 23,923 25,740 28,504 32,096 100.0% 100.0% 100.0% 100.0% 100.0%

------····------···-----···· -·~.--~- =-···=·····=---·=· ~-~---

2Q '06 3Q '06 4Q '06 lQ '07 2Q '07 r m Investment Grade 98.6% 97.6% 97.2% 96.8% 97.8% m Below Investment Grade 1.4% 2.4% 2.8% 3.2% 2.2% >< )> 100.0% 100.0% 100.0% 100.0% 100.0% s Note: Does not include money market deposits. 0 ...... en 1\) 0 LEHMAN BROTHERS 26 0 Non-Investment Grade Derivatives Exposure I Lehman Brothers has continually had the lowest non-investment grade derivative exposure in absolute terms and as a percentage of total tangible equity as it relates to peers

$ billion 7.6

~~-~-~~""':""':'~----~-~-7=-;=--· -· ().0 - ~= 8 ~ ~ 6.2 6.3 6.1 . 5.8 6~ ~-·~ ~

4

2~~,

0 ~----· 2002 2003 2004 2005 2006 2Q 2007

B Lehman Brothers ~GS rL1 MS BMER

2002 2003 2004 2005 2006 2Q 2007 ~<-~·o· ·-~"'" ~~=~~~~n:=nt'=-~~-- • -~---:::::-ro:ea== ~...,...., :a Lehman Brothers 4% 3% 5% 3% 4% 3% "'""'--~- ._.,.._-=~~ ~--- ~ GS 15% 23% 28% 25% 19% 15% ,~-=-----~~~~-~...,. rm MS 6% 5% 8% 12% 9% 10% m >< 1viE:i~--- 10% 7% 6% · ~'T 11% 17% 19% )> s 0 ...... en 1\) 0 ....Jo. LEHMAN BROTHERS 27 LBEX-AM 067202 Stress Testing I + Stress tests and scenario analyses are performed regularly to evaluate the potential P&L impact on the Firm's portfolio of abnormal yet plausible market conditions. · - Analyses of movements in interest rates, stock prices, FX, volatility, etc., are run over a wide range of possible scenarios to determine the impact on the current portfolio of these extreme instantaneous shocks. - These analyses are conservative because they do not allow for re-hedging or selling down a position either actively or through the automatic execution of existing stop-losses.

+ Our stress tests are run regularly on a suite of scenarios, including: - Re-runs of historical episodes of extreme market moves, for example: • 9111 terrorist attacks • Russia default contagion and L TCM • November 2001 volatile bond market · • October 1987 stock market crash - Hypothetical scenarios due to shocks that have some probability of occurrence and are driven by macro fundamental shifts, for example: • Liquidity Crunch due to central banks globally raising rates to reduce excess liquidity and investors reducing their riskier bets in high yielding assets. • Oil price jump due to a major supply disruption with uncertainty on when production will return to its pre-shock levels. This shock is <:~.ccompanied by deflation fears which result in significant rate reductions by major central banks. • Major shifts in the yield and spread curves such as steepening or flattening, or parallel shifts up or down. · r m Other ad-hoc hypothetical scenarios m >< )> + We subject both our trading and counterparty portfolio to stress tests. s 0 ...... en 1\) LEHMAN BROTHERS 2S 0w Stress Tests I Stress tests indicate a worst-case loss of $1.86bn on_ the trading portfolio. This is a reduction from $2.25bn in November 2006

Rating I HY I LBO/- Equity Bull Bull Bear Bear Parallel Parallel Black Oil Supply Liquidity Portfolio EMG Crisis Default & Default Crash Steepening Flattening Flattening Steepening Move Down Move Up Monday Crisis Crunch Date HF Ri$k Risk (1987)

Fixed Income (256) (379) 150 (136) (345) (482) (568) (327) (573) 191 (323) 81 (96) ----- Equities 36 40 221 (73) 218 (73) 54 200 50 149 279 4 (87)

---~.------Global Trading (474) 144 341 (193) (541) (220) (499) (1,187) (483) 340 (778) (536) (364) ---Strategies Investment (291) 64 186 (215) (275) (98) (304) (571) (292) 187 (388) (312) (239) Management ------~· ------Global Principal (70) 7 (22) (167) (161) (166) (125) 51 (62) (23) (4) (21) (150) Str'!t~gies ______Prime 2 13 (17) (11) 1 2 (1) (4) 4 (10) 6 (22) Services -----'------· Investment (7) 2 5 (3) (7) (1) (8) (20) (7) 5 (13) (9) (5) Banking -- Non-Core (1) 1 (1) (2) 0 (2) (4) (1) 1 (3) (2) (1)

n7f'21/n7 t:irrn Tnt~l \,,11 n<:1\ __ 'I /10R\\. __ , A<:<: (?99) (~. ~ ~ ~) (~.040) 11 4!'?\ 11 R&;?\ (1,365) 1!42 (1,?.30) (71!1!) ...... -·-· --- \"> ·--, ,-.---, (964)

11/30/06 Firm Total (1,099) 306 1,035 (515) (1,407) (1,061) (1,650) (2,248) (1,328) 951 (1,570) (1,218) (1,015) r m m Note: These represent revenue losses associated with instantaneous market moves that in actuality occurred over two-week periods. These > s automatic execution of existing stop-losses. 0 en ...... 1\) 0 LEHMAN BROTHERS 29 ~ rJJ. ~ 0 ~ 0 C) ~ ·~Q ~ 0 ""C) ~ ·~ ~ 0 ~ ~· ~

~ 0 ~ ~

-.~ t:: -§- :;:: t:: 0 t)

LBEX-AM 067205 Balance Sheet Assets Snapshot I Year to date, balance sheet has grown by over 30o/o. Inventory growth has been more significant in Mortgage and Corporate Loans and Corporate Securities

Inventory 2006 Q3 '07 Q3 '07 vs 2006 Mortgages and Mortgage-Backed positions: Securities 11.8 17.3 5.5 Loans 45.8 73.5 27.7 Govem~rent and Agencies 47.3 40.2 (7.1) Corporate Debt and Other: Bonds 28.6 31.7 3.1 Loans 15.2 26.0 10.8 Corporate Equities 43.1 59.3 16.2 Derivatives and,other Contractual Agree~rents 22.7 32.3 9:6 Real Estate held for sale 9.4 18.8 9.4 Cornrrercial Paper and Money Market instnurents 2.6 3.5 0.9 1 Other · 42.4 55.3 12.9 Net Balance Sheet Assets 268.9 357.9 89.0

Financing Govemirents 115.2 145.6 30.4 Corporates 32.7 28.9 (3.8) Equities 48.6 63.2 14.6 2 Other Inventory 22.6 10.6 (12.0)

3 ,.,,., 0 "" ~ A A '") Othet' Gross Assets -1J.J '"t:1.J JJ.o Gross Balance Sheet Assets 503.5 655.5 152.0 r m m Leverage EqUity 18,567 22,108 3,541 Net Leverage l4.5x 16.2x 1.7x >< 1. Primarily Cash & Cash Equivalents and Keceivabtes )> 2. Primarily Mortgage Backed Securities s 3. Segregated Cash & Securities, Securities Received as Collateral, Goodwill & Intangibles 0 ...... en 1\) 0 LEHMAN BROTHERS 30 en rJJ. ~ 0 ~u Q.) ~ ·~Q ~ 0 """d ~ ~ ~ ~ ~ 0 E-; ~ ~o· .~ ~

s c: ·-....0 .sc: (1) Cl) £ -.~.... c: :;:::~ c: 8

LBEX-AM 067207 Overview I + Our liquidity framework is based on a conservative approach to funding the balance sheet: - No reliance on short term unsecured funding, and reliance on secured funding only where we see a deep and liquid pool of lenders who understand the collateral - Long term funding is used for less liquid collateral - Long term funding is sourced from a wide variety of rp.arkets, and includes our internal banks sourcing insured deposits - Liquidity is tracked at a granular level which incorporates specific entity dynamics

+ Our long term debt had grown to $118 billion at the end of the 3rct quarter from $81.2 billion at the end of 2006. Year to date we have issued $67 billion at an average life of· 6.9 years. The average life of the portfolio has risen slightly to 6.6 years at the end of the 3rct quarter.

+ In the last two months liquidity has been considerably more challenging to source. The result has been higher credit spreads particularly for financial companies. Despite the fact that the markets have been more difficult to access, we have been able to limit the effect on our liquidity through alternative funding sources and our in house banks.

+ The yct quarter liquidity pool has increased to a record $36 billion (from $25.7 billion at the end of the 2nd quarter). This represents the strongest quarter end liquidity position for the Firm. The cash capital surplus has increased to $8.1 billion from $2.5 billion at the end of the 2nd quarter and against a $2 billion policy minimum. This level of surplus also represents an all time record.

+ The challenge in the 4th quarter will ~e to maintain strong surpluses against a significant pipeline of loans and real r m estate purchases. We currently do not project the need to tap the capital markets to raise additional long term debt, as m >< we currently have significant liquidity to fund these activities. :i> s 0 ...... en 1\) 0 LEHMAN BROTHERS 31 co Funding Framework I The Funding Framework represents the Firm's pol-ici_es and guidelines for financing. The guidelines establish the funding requirements at the asset level

Policy Application

Cash Capital Sources represent long term funding Tracking of cash capital sources and uses is produced at available. Long term debt (> 1 year) and equity are least weekly and daily over the recent liquidity squeeze. supplemented by internal bank sources and long term Forecasts for the medium and long term cash capital secured funding facilities. requirements are produced to determine the issuance plans. Cash Capital Uses are asset level requirements and include illiquid assets, pre funding for loan commitments, entity capital requirements and requirements for operational friction.

~Iaximum Cumulative Outflow provides a granular detail . Granular tracking of the potential outflows and of cash outflows over a one year period. This minors the sufficiency of the liquidity pool. cash capital model and determines the appropriate size of the liquidity pool.

Dnl~nhln C.n.n, .... n..-1 v ...... ,.,l~ ...... rr "YY'\O£lC''I'I"1""'0C' tho -rAl~'='h~11t,, nf n~ihr rPViPUN ()f c;;:prnrpn fnnrJ-ino r()Jlntf".rn::lrtV ::JrtlVltV .A.'-C.I..IU.U.l\:; U\:..-\....\..1..1.. ~ ...... &.' UI...I...... A.A..I.6 .1-..I.J.VU.0U.l.\,,.nJ \...l.lV .l.V.1..H.. 4.U.l..L.U•. J '-'.1. ~~~--.; ---~-~~ .. ~ -~ ----~-- ~-···-···o ---····--r----J ------J; haircut charges, and pricing changes. r secured funding for more liquid assets. It ensures there is m sufficient depth and diversity in our shorter term secured m >< sources. . ' ·: . ~ "•t :i> s 0 en ...... 1\) 0 CD LEHMAN BROTHERS 32 Liquidity Pool II Our liquidity pool has increased in 3rd quarter and remained sufficient to absorb all forecasted cash flows over a one year period. This is largely required to fund the maturity of debt, as well as other contingent cash requirements, such as loan funding. The increase in funding of contingent acquisition facilities has introduced additional volatility in our liquidity requirements, and is discussed in detail later

$Billions 36.0

35 31.4

30

25 I 18.2 17.2 20 I 15.3

Liquidity Surplus 1 Year 15 I Forward ~·~ 0.7 Other Cash Outflows Short-Term Debt 10 I I Current Portion of Long Term 5 I Debt rm m o I Debt & Equity Buybacks > s 2003 2004 2005 2006 Q3 07 0 ...... en 1\) ....Jo. LEHMAN BROTHERS 33 0 , ___ ,.._. Liquidity & Short Term Debt: Competitor Comparison I . Relative to our principal competitors, we maintain one of the most conservative liquidity pools in relation to the amount ~f short terQ1 debt and long term debt maturing Within the current year · :·'· ··

S Billions fill Liquidity

~Letters of credit 69.8 66.4 ...... £1 Cun·ent portion of long­ tetmdebt

Ill Short-term debt (issued with tenn of < one year) 29.0 ......

r m m >< )> LEH Q3 Est MER GS ·~:::5 :'( ~ MS BSC s *Merrill Lynch's disclosure includes liquidity at regulated entities 0 ...... en 1\) ....Jo. ....Jo. LEHMAN BROTHERS 34 Competitor Comparison: Rating Agencies View I Rating agencies have recognized the conservatism of our liquidity management

+ In August 2007, Fitch Ratings' liquidity analysis of the US. securities firms showed Lehman Brothers liquidity strength to be greater than the peer group

5.0 5 ··~

4.0 ---s:so 4 3.0 - 3 2.0 2

1.0 1

0.0 0 LEH BSC GS MER MS LEH BSC GS MER MS

II Liquid Asset Coverage of Short Term Debt • Short Term Debt Coverage from Balance Sheet

+ On August 20th, Standard & Poor's reaffirmed Lehman Brothers Holdings Inc's liquidity saying. "We consider Lehman's liquidity to be strong, and we expect it to remain more than sufficient to meet near-:-term funding requirements."

+ In May 2007, Moody's stated that "Moody's views the liquidity profile of Lehman Brothers Holdings Inc. as very strong ... Lehman maintains an ample liquidity cushion of high quality unencumbered assets capable uf being pledged or sold to repay all commercial paper, short and long term tlebt mitudng within a year and to meet other contingent r m liquidity needs" m >< )> Liquid asset coverage of short term debt: Net cash and securities minus short term debt and lellers of credit,over excess wzencumbered portfolios s Short term debt coverage from balance sheet: Net assets over total short term debt and /euers of credit 0 ...... en 1\) ....Jo. LEHMAN BROTHERS 35 1\) Liquidity Risk Mitigation: Refinancing Risk & Cash Capital Surpluses

Refinancing risk is kept to ·a minimum by limiting usage of short term debt and adhering to strict limits on the maturity profile of long term debt • Our short term debt remains low and lower than our peers • Our maturity profile is well distributed o No 3 month, 6 month or 12 month period is in breach of roll-off limits

$ in.~.~-i.!.l.!.~!?.~...... Q:~~~r.~.~r.~x..M.~.~~r.~.tr..!:~~~i.. g:§.r.t? .. ~r.T.~~~-~.P..~~.!..Q.~~~-~~~-~!?.g ...... 14.0

12.0

10.0

~.0

6.0

4.0

2.0

0.0

_!). ~ 1"1; ~ _!). ~ 1"1; "'~ ~"' "'~ ~ "; "'_!). ~_.r.,. ,~ ~_r>; ,~ ~ "; ,_!). u. ,_o; ,_o a..Q; a..u ... OJ ,..o ...o: ,..u. co..a; ~0 "Q; ~u .._OJ .._0:· .. o: .._u. ,OJ ,u: ,o: ,u. ,..,a: ,....u: ""Q; ,.u. .._a; .._OJ ..._0: .._u. ~(\ .._....,., ..,., ~., ~v .._-.;;1 ,f~' .._-.;;1 ,.;.{I ~" ~ ~" § ~.,. ~,. ~.,. ~.,. ~~ ~? ~;> ~:; ~- ~· ~-~ ~~ ~ ~ ~"' ~ ~~ ~:; #:; ·N ~ ~;o ~:; ~:; ~:; ~:; ~:; ~II ~;> ~:; ~;o ~:; ~v ~:; ~:; ~:; ~-:; ~:; ~;> ~;o ~:; ~~ ~:; ~:; ~:; • lAJng Term Debt_ (~x~l(•dir.g:~xtenililJles) a Extendiblcs $ in Billions Maturity Bucket Limits Actual Capacity Period with Largest Refinancing rm m 3 months 12.5% $14.6 9.4% ' $1):.~ ' .. $3.5 4Q08 >< ' )> 6 months 17.5% $20.5 14.0% -.- $16.4 $4.1 4Q 08 -1Q 09 s 12 months 30.0% $35.1 25.0% - .$29.2 $5.9 4Q 08- 3Q 09 ---- I 0 ...... en 1\) .....Jo. LEHMAN BROTHERS 36 w .~· ..:· ..- . .- ... Debt Issuance I In 2007, we have issued a record $67 billion :c;fion~i)~rm unsecured debt

$in Rillions 130 118.3 120

110 100 90

80 70 5lo/~ 60 9% 4R.1 50 ~

40 30 20 10

0 FY2004 FY2005 'l< 7.4 I s.5 I 5.5 I 6.9 )> s 0 ...... en 1\) ....Jo. ~ LEHMAN BROTHERS 37 Debt Issuance

... Ill The average cost has been decreasing. However, in 2007 the issuance cost increased as both very long term and subordinated issuance. increased. Despite this, debt issuance has been achieved at very attractive levels. Spreads on an absolute basis and versus our peers are much wider now, which will introduce some additional costs

Basis Points over LIBOR 1.00

80 -l 75

60

40

20

() FY2003 FY2004 FY2005 FV2006 Q3 2007 ll!ll Weighted Costs • Issuance Spread** **Spreads are inclusive of all issuances: vanilla, structured, hybrid, non-cash cap, sub debtO rm m ILEH 175 118 . 128 140 > ... ~. ~. s MS 137 78 93 110 0 ...... en 1\) ....Jo. LEHMAN BROTHERS 38 0'1 Diversification of the Debtholder Base We have continued to diversify our debtholder base by: I • Issuing in non-USD; 46°/o of issuance in 2007 has been non-USD; 51 °/o of issuance over the last 5 years has been non-USD. • Issuing structured notes where investors are less ·sensitive to Lehman's credit; 24°/o of 2007 issuance and 26°/o issuance over the last 5 years has been in structured notes. • We have also continue to issue in new markets: notably, GBP 6 years deal, largest Samurai multi-tranche transaction, and HKD private placement ?:~~~?:::: .,:E~,!r£~~:~,~~~lJ:t:, '···. ·;,·Mix by.Typ'€:~_}'~·;;E~{£~~~~;~:tt

Percentage Percentage

100% 100%

so·~ SOo/o

60% 60 o/o

;10% 40'7<,

20°/.o 20o/o

"70 V% 2003 '2007/08/3] 2003 '2007/08/31 • Non$ "' ll">D • Structur·ed "' Vanilla Total Outstanding($ in billions) Total Outstanding($ in billions) rm USD 24 64 Vanilla 28 89 m f.".- ".J. >< )> Non$ 12 54 Structured 8 29 s 36 118 36 118 0 ...... en '· '· :... '-- - ~ -: :-.: ~ 1\) ....Jo. LEHMAN BROTHERS 39 en Cash Capital I Cash Capital usage increases with Balance Sheet, but is affected by the composition of inventory between more liquid and less liquid asset classes. With growth in corporate and commercial real estate lending, cash capital usage has increased at a faster pace than Balance Sheet $Billions

Business Q3 YTD CC!1 $ Billions Fixed Income 400 ----== "-==-=YsT9~7==== Real Estate 17.5 High Yield 5.0 350 =-=-=- ,_...., ~- - Securitized Products 2.8 Global Rates 2.8 300 == 9'fi'RnQ-===• Other FID businesses 3.2

250 = ==~--"···"··=~-=~~===

Equity 200 ·='vn='1 l~/")7.b--= == ···= Volatility 2.6 150 1.0

100 IMD 3.3 50 IBD 2.4 GPS 1.6 0 GTS 1.0 "l£\{\..., "Ar\A r"''AAC l"'jf)f"\L ,.., r. "'"'.., L.VV.J L.ll\J't L.llll ,) L.VVV ,)\./.. £.\IV I CMPS 0.9 Cash Capital Non-Trading Assets 27% 31% 31% 35% 40% Intensity: Other r m m t1'A Cash Capital >< 1!1 Net Balance Sheet )> s 0 ...... en 1\) LEHMAN BROTHERS 40 ...... Jo. Liquidity and Cash Capital

+ Liquidity Pool as of August 31 was $36.0 billion. This compares to $25.7 billion at C(; J.:'r.oj~lj9.illf:~~fib.~·pt9nfflen~!ng'_!lt3((Q3)i~}:.~~,;~-:~;;,;,;~~;i~,'J~;:':'?E:ii1i'j:f~c_}::'i::{;i~:::- Change in Liabilities the end of Q2 and $29.8 billion at the end Projected Structured Issl!ance 3.3 ofQ1. Public Debt Issuance 1.5 Additional Facilities - Racers Cash Capital Facility LO - Dresdner Cash Capital Facility LO + Cash Capital estimated Q3 surplus is $8.1 - Metlife Cash Capital Facility LO Chase Cash Capital Facility Drawdown 2.0 billion. Roll into_Current-Portion (4.6) Equity 0. 5 ---:--::- 5.6 + Taking the most conservative assumption Change in Business Usage High Yield_ around loan financing we still expect our - Loan Funding (13.0) I liquidity pool to remain in surplus through - Syndication!Selldown ·· 2.4 Total HY/HG (10.6) the end of the year. High Grade - Loan Funding _ (0.4) 2 - Syndication!Selldow'n Total HY/HG (0.4)

Real Estate - Archstone Funding (2.4) -Loan Funding (7.9) - Securitization!Syndication!Selldown _____!2_:± Total Real Estate 0.1

r"''.._l.-.. /(\ "' VlliC::t \.V.7J

Total Change in Business Usage (11.8) r CC Projectiol_l:for.#i~'J!lODtQ en~iitg;-ll/3_1f(Q4£~~;:,~{ ;~i"f;_"i;~~;;~,., -f? ;~;:.~~::,~f;}";~'i'l:£~~~9~ m m >< )> 1. $13.0 billion of high yield loan funding excludes $5.9 billion which will be funded in the banks and conduits. s 2. $0.4 billion of high grade loan funding excludes $0.6 billion which will be funded in _t_h_e....::b_a_nk_;s;_a;_n.:..:d:_c.:....o:_n....::d....::u_;it.:....s.______0 ...... en 1\) ....Jo. LEHMAN BROTHERS 41 co Liquidity Risk Mitigation - Bank Entities

Lehman owns 3 banking entities: Lehman Brothers Bank (Delaware based thrift institution), I Lehman Brothers Commercial Bank (Utah based industrial loan corporation) and Lehman Brothers Bankhaus (German bank). These entities all benefit from depositor protection, meaning that financing can be raised very cost effectively and with very limited sensitivity to Lehman Brothers Holdings (making it a very reUable source of funding). Use of these entities has increased significantly: they are the primary· entities for loan funding

LBB : Funds all US residential mortgage origination. Additionally funds commercial $in Billions .. mortgages and investment grade 40 US loans. Cost of funds is Libor ~6ofoCp..GR + 15bps. 30 ~- LBCB : Funds commercial mortgages, 20 derivative receivables and ----- corporate & industrial loans. 10 Cost of funds is Libor + 14bps. 0 2001 2002 2003 2004 2005 2006 200703 1 nn t\ r:!.· l=<', ..... rJ., .,,.,..., ... ;t;,.., ....,...... ,.,..,.v ... "' ..... r1 ~...... ;.LJ..J..J,L .l.'-...1• ..1.. U..l.l.'-'"~ ~V""U.l...l.L.l.VIJ '-J..l.l .l.V.t-''-' f...l..l.l\....1. &ILBCB ILBB DLBBAG loans ( cmmnercial, residential r m and corporate). Cost of funds is , % of Firm's Net Assets m Libor + 17bps. 8% JO% 10% 12% 12% 12% 12% >< )> s 0 en ...... 1\) ....Jo. LEHMAN BROTHERS 42 CD Contingent Liquidity Risk Management Contingent liquidity risk arises where there is uncertainty around financing activity, and I predominantly relates to loan commitments and contingent loan com_mitments

+ $29.6 billion against 150+ counterparties diversified across several industry sectors. Average facility size per counterparty is approximately $180 million + $15.2 billion of these commitments have been originated at the three Lehman banks which are able to fund up to $625 million per name. + The three banks have a FHLB line ?f $11 billion, access to the Fed discount window, and the ECB, and are able to raise funding in the CD markets of over $1 billion per week. + We have $2.5 billion of prefunding established across Holdings and the banks + We have a $6 billion facility with a third party bank prefunded to $2.4 billion

+ $13.6 billion against 250+ counterparties with average exposure of less than $60 million + $1.5 billion are currently held at Lehman banks which are able to fund up to $400m per name + We have a $2 billion high yield loan funding facility through a third party bank + Historical analysis over the past two years has shown draws of high yield facilities to be a maximum 20% year on year. We have $2.7 billion of cash capital prefunding across Holdings and the banks

+ $3.8 billion against 4 counterparties + These commitments can all be placed at the Firm's banks which have a combined loan to one borrower limit of $625 million + We have a conduit structure backed by a third party bank that has $2.5 billion ofprefunding + Even in current market environment, there has been success at syndication of high grade credit

+ $25.9 billion against 27 counterparties + Our expected allocation is generally lower than the headline reported number: if the sponsor fails to complete, has muitipie commitments for iht: financing il nt:t:ds, deai is duwusiz.ed, de;. + Our banks can take up to $400 million of high yield counterparty loans r + We have a $7.5 billion funding facility for high yield contingent commitments m m + We have $5.3 billion of committed long term debt facilities and a cash capital surplus currently at $8.1 billion that we >< can use if necessary )> ''-'=~'"""""'"="'-·-~----"""' ... ~~=~--.. .._.,-Ill'--,--~-·--=·~--~.... ~...... ·~ ~ =-=-- ,~ ...... -=---=~~-~- """"' s ;\II jinancials above Q3 estimates ,~_.,;:-~~·.=~W».':-'mel:~~~ ~ •• -= ~ C"re ...... -,_-=-=--~~~ 0 ...... en 1\) 1\) LEHMAN BROTHERS 43 0 High Yield Contingent Acquisition Facilities I :f?~t~~;,·aig-ifviel

+ Contingent acquisition facilities are financial $ Billions commitments that Lehman makes to sponsors to enable them to acquire other companies or parts of companies 60 =--=------~~------~--·-----

+ High yield Contingent Acquisition Facilities reduced so ~------from $43.9bn at May 31,2007 to $25.9bn at August 31

+ The main drivers for the reduction were deal 40 completions ($11.5bn), reductions in Lehman's share of deals ($9 .Obn) and the sale of $4.1 bn of Archstone Smith debt. This was offset by $1 0.4bn of new commitments

20 + Of the $11.5bn deals complete, $7 .4bn was syndicated or sold and $4.1bn remains on Lehman's books

10

r m 0 m 2Q07 3rd Party Alloc Paired Deal Done Remaining New 3Q07 >< ·· Buyer to LLF Down Complete A way from Q2 Q3 :i> s 0 ...... en 1\) 1\) LEHMAN BROTHERS 44 ....Jo. t: 0 ·--.s t: Q) Cl) £ ,ct -.;:: t:

'4-,;~ t: 0 (.)

LBEX-AM 067222 Executive Summary SummaryJ + Equity capital is one of the most important resources ofthe film. We manage this resource to support the firrh's growth, maintain the appropriate risk profile, and ultimately create value to our shareholders

+ While the funding framework addresses the aggregate amounts of funding, equity capital management focuses on the mix of debt and equity

+ Our approach when developing the Capital Plan is to ensure: Assets are sufficient to support revenue targets Equity Capital is sufficient to support the mix of assets and the risk they generate ROE does not fall below acceptable levels

+ In 2007, we implemented several initiatives Further developed our equity adequacy metrics by introducing a new internal Equity Adequacy Framework (EAF). The model received a very positive reaction from the rating agencies Stepped up issuance of hybrid equity to optimize our equity mix Reestablished buyback acceleration triggers to take advantage of price dips

r + Our equity capital position is strong, with all key metrics within established boundaries m m >< :i> s 0 ...... en 1\) 1\) 45 w LEHMAN BROTHERS . . ! ~ ...... · ... The Equity Management Dashboarg . .. summary I Measures Description Target/Limit 2007 Projection

C;:'!:'":';::-::;:--~.,.-_...~~»::"~~~u::z h· ·ad - ~~~-~~~-_._...__..,.,_~_,:::&::a;:J.- ~-.-·~;;:_~.;~~- '£ "'.:;.. $ - ~ ~ "7 ..._~ • -..::.t:~;::,-::!'.. --.~~ Equity Adequacy -Net Leverage + Crude but common accounting measure .. · + In line/below peers + 15.9x

- CSE Capital Ratios + Regulatory measures + Tl ratio above 6% • 7.5% (3Q'07) "well-capitalized"

-Risk Equity + Internal risk equity model + Equity surplus + 1.7 B< 1)

-Equity Adequacy + Internal economic equity model + Equity Surplus of + $2.2 B $1.5B

~-~-,. =· ·- _. ..,.,__ ------· Share Dilution

-Book Value shares + Point-in-time share count; used in + Long-term stable or + 1% reduction<2) calculation of B VPS declining

-Diluted EPS shares + Time-averaged count inclusive of equity · •+ Long-term stable or + 3.2% reduction<2) awards; used in calculation of EP>S. declining

A ...1~.·~+~...1 ~ .. ~-t..~~~ A P.:>rl"'.:>nt r111nt1r.n 1f" >:>11 >:1\lT>:>rrlPrl -r>.UJU;:,LCU VYC.lllQ.llO T ~ V.l.VVJ..l.'- "-"".l..LUL.L'--'.I.J.' .L.L LA..L..I. LA. TT L.-1...1.'-'"~""" + Lo'.ver than 10% .. 8.7% RSUs/Options are instantly rm m delivered/exercised >< :i> s 1. As of June '07 period end 0 2. Relative to YE 2005 ...... en 1\) 1\) ~ LEHMAN BROTHERS 46 Equity Trend and Mix Equity, Balance Sheet, and Adequacy I By year-end we project Common Equity to grow by 20°/o reaching $21.7 billion or $1.0 billion over budget. The Firm's Adjusted Equity, which includes preferred stock and hybrids, is projected to grow by 27°/o to $23.6 billion, $1.5 billion higher than budget. As in 2006, our Adjusted Equity<1> exceeds commor1, providing extra leverage to support growth without causing dilution ')

25 -----~------21.7

20 ~ ~ ~ 20%

15 ~~·~

10

5

0 2004 2005 2006 Estimate Forecast % Growth 3Q 2007 2007 '07 vs. '06 r Adjusted Equity [ 12.6 15.6 18.6 22.5 23.6 I 27% m m >< II Tangible Common Equity ;_., ,__ -\ ·'-·'- EA Goodwill )> s ]_ Adjusted equity comists of Tangible Common equity plus Hybrid equity. Used in equity adequacy calculations 0 - ... ·...... en 1\) 1\) LEHMAN BROTHERS 47 0'1 -··:--:-:.' Sources and Uses of Equity -_,, _, Equity, Balance Sheet, and Adequacy I The primary source of equity growth is the Firm's Net Income, supplemented by issuance of hybrid securities. Most of the equity generated is reinvested in growth

•~--::,~s.,:m$~~~-J,:::l:,;c... ::~=t".. :;,;> •t~~~;~ ··r· ....E. _.--.t-,U- · ·.::<:;:;:;~~:;~'.,. .,.; ___ ,,~."''·'•·:. .:....::.-.:+.-'-'-QI,Ilp.os• J()D Q ___ qm y___.. .ses .. -.: ..,h~~--.:_,,.::_ b1 $ Billions _;I $6 ------100%

$5 $~2--$4.8-- 80% $4.4

$4

611%

40% $2

2-0'fo - $1

r $0 0% m m Net lncom: Net Cost of Dividends Adjustrrents Comron Goodwill Hybrid Adj:IS!txl 2006 2007F Buy backs (2) (3) Equity increase (4) lssuanc~ Equity >< ·--· IIINetCostOfBuybacks El Dhidends )> ~~------~---]_ Cost ofbuybacks net b}.ilL't credits and option proceeds increase increase 2. Includes Common and Preferred • Other Adjustments l!'l Equity for Growth s 3. Primarily Pension adjustment- $230mm 0 4. Primarily includes Eagle Energy, Capital Crossing, and Grange ...... en 1\) 1\) en LEHMAN BROTHERS 48 Growth and Diversity of Our Asset· Base Equity, Balance Sheet, and Adequacy I For the 3rd quarter we expect total assets to come in at $655 billion and net assets of $358 billion. Fixed lncom~ remains the largest balance sheet user, yet other

businesses have also grown rapidly a The combined non-Fixed Income businesses are roughly the size of the entire Firm just three years ago

~i.~P.i'Vi~I()ilat·--Componerit:ot1'ot~tiAssets;i$:bnnoits~~i.i~,.;, 700 655 606 II 600 ~t;,ag-~~-: 600 30%-

500 ---- 410 ---...--" 500

41)0 ~-·----- ·~ '- 400 -- ---t 33%. . JOO

200 II II II II II 11-1 $370 100

0 r m 2004 2005 2006 1Q07 2Q07 3Q 07E 2C04 2005 2006 1Q07 2Q 07 3Q 07E m >< • Net Assets 111 Other • Equities c Prime Senices llFID )> .· ,_ \ ... :. ·-~· . ..,,., .~. .;,. .. ':.. ~- ,'.•..•. : ! _, s /. Net assets is defined as total assets less segregated cash and securities, sewrities received as collateral, securities purchased under agreements to resell, securities borrowed, goodwill and intangibles. 0 ...... en 1\) 1\) 49 ...... LEHMAN BROTHERS Net Leverage ,, ._ . ., Equity, Balance Sheet, and Adequacy I In the past, leverage was the key measure of equity adequacy. Between 2003 and 2006 we significantly reduced leverage. Low leverage was positively viewed by rating agencies and contributed to our 2005 upgrades. In 2006 and 2007, we worked with the regulatory and rating agencies to implemenf.more accurate adequacy measures. As a result, we are comfortable with allowing our leverage to increase

Net Leverage

17.0x -·------

16.0x ~ 16.2x 14.0x 14.6x 14.5x ~---~ l.5.9x IS.Ox • - . ~ ------1·4,-2x ''A.. . - . . - .

4Q02 4Q03 4Q04 4QOS 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07

...,._Lehman _....Competitor Average Projected 4Q02 4Q03 4Q04 4QOS 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 ILEH 14.9x 14.9x 13.9x 13.6x 13.5x . !3.8x 13.5x 14.5x 15.4x 15.4x 16.2x 15.9xl GS 12.1x 12.8x 12.2x 14.7x 15.2x 14.8x 13.9x 13.7x 14.8x 14.4x MS 12.5x 12.0x 11.7x 13.4x 14.2x 13.8x 13.4x 14.9x 15.3x 15.9x MER 14.8x 13.1x 15.1x 12.2x 12.2x 13.4x 12.0x 12.6x 12.7x 13.lx BSC 12.2x 11.6x 14.3x 15.8x 15.3x 16.3x 16.7x 16.8x 18.5x 19.7x

jComp Avg. I 12.9x 12.4x 13-:-3-x ___ 14.0x 14.2x 14.6x . 14.0x 14.5~ 15.3x 15.8xl r m m >< )> 1. MER restated their financials d11e to the adoption of FAS 123. Data shown prior to 4Q03 is not restated. s 2. Net leverage ratio is defined as net assets divided by Leverage Equity. Leverage Equity includes an illlemallimit for equity credit given to hybrids at a maximum of25% of Total Tangible Equity. 0 ------~-- ..------en ...... 1\) 1\) LEHMAN BROTHERS 50 co Equity Adequacy Measures · Equity, Balance Sheet, and Adequacy ·1 To monitor equity adequacy, we use three measures: Risk Equity, CSE Capital Ratios and our internal Equity Adequacy Framework~ The Equity Adequacy Framework is based on externally available information and logically extends our liquidity and risk equity frameworks

+ Internal measure of equity + Measures by which regulators + Multi-factor model that capital required to protect the · determine whether a bank is determines the Gross Equity Firm against market, event, adequately capitalized requirement

··.• -~ . .. counterparty and operational - Tier 1 arid·TotarCapital·· "· - Additive charges for risks with 99.5% confidence Ratio Trading, Counterparty, level over 1 year time horizon Operational, and Less Accountfor-on=-and off-balance + · Liquid Assets sheet assets with different risk + Accounts for on- and off- + Accounts for off-balance sheet profiles balance sheet assets with assets with different risk different risk profiles + Complicated calculation profiles + Inputs are primarily from + Complicated calculation, I I reported 10-K/10-Q's requires large amount of data r m m 1 2 >< [Risk Equity Excess = ~B J Tier 1 Capital Ratio= 7.5% [ Equity Surplu:-=-$;~B; _;. J )> 1. As oflllne LUU/ s 2. As of Q3 2007 0 ...... en 1\) 1\) LEHMAN BROTHERS 51 CD Equity Adequacy Framework Mo·del Equity, Balance Sheet, and Adequacy I To protect our senior unsecured creditors - t~us enabling restructuring outside of bankruptcy- the Firm's available equity capital should be sufficient to absorb the losses caused by a crisis and to support refinancing or liquidation without support of unsecured cr.editors. To be conservative, we assume that the requirements are additive and include a substantial target surplus

Variables in $mm Eguitv Required 03' 07 -F Trading 3,035 Counterparty 639 Less Liquid Funding Haircuts 19,990 Operational 1,040 TotarGross Equity Required Before Target Surplus· 24;704" Target Surplus 1,500 TuHd·.Gi:oss Equity Required 26,204

Gross Equity Available Common Equity 20,646 Hybrids/Preferred 6,026 Total Gross Equity 26,673 Solvency ISurplus/(Deficit) Before Target Surplus 1,968

·Target Surplus (1,500) r Gross Equity Trading Counter­ Less-Liquid Operational Target !surplus in Excess of Target Surplus 468 m Capital party Surplus J m Insolvency >< )> s 0 ...... en 1\) LEI-IMAN BROTHERS 52 w 0 Credit Rating Actions Equity, Balance Sheet, and Adequacy I In 2007, Fitch has upgraded us to AA-, the same level as our larger peers. Moody's and S&P affirmed our credit as A1/0utlook Positive and A+/Outlook Stable respectively. Given a very difficult economic environment, .we see these actions as a vote of confidence in our fundamentals

- . . ..~ '1f"'~·:-. ~ .. ~:<:<::.·.. '· ... _.;_:~--:~ ... ~--:;-::"1.\_: .. .,_·' .• -~''"'":,,,,,,·;?iii<'. , : : ···L: :tbe::Firm~.s :c~edii:R.~iJitgs~;:&~L · <:,t.~l~~;tr·::;f."~.'~:· ;:"_,Rec~nt Ratbig; A.~bQ~ <~:;:: ": ·· LBlll LBI (Us ted Chronologically) Moody's Investor Ser~ce Moody's Investor Senice Short -term P-1 P-1 August 2007 -Ratings Affirmed Long-te1m (Senior) AI Aa3 June 2006- Outlook Changed to Positive Long-term (Subordinated) A2 AI October 2003- Ratings Upgraded _.·:~. Standard & Poor's Standard & Poor's Short -term A-1 A-1+ August 2007 -Ratings Affirmed Long-term (Senior) A+ AA- October 2005- Ratings Upgraded Long-term(Subordinated) A A+

Fitch Ratings . .!i~!!~Ji.~ Short -term F-1+ F-1+ August 2007 - Ratings Affirmed Long -term (Senior) AA- AA- June 2007- Ratings Upgraded Long-term (Subordinated) A+ A+ July 2005 - Ratings Upgraded

Dominion Bond Rating Senice Dominic:!~. Bond ~tin~ Senice Short-term R-1 R-1 August 2007 -Ratings Affirmed Long-te1m (Senior) A (high) AA (low) September 2006- Outlook Changed to Positive Long-term (Subordinated) A A (high)

+ Fitch (Credit Analysis -August 2007): "Lehman's capital adequacy estimate exceeds its CSE requirement. Fitch expects capital to remain higher than regulatory well capitalized levels. Lehman's capital adequacy sufficiently captures sensitivities to stress and liquidation following an extended crisis." r + Moody's (Credit Opinion- August2007): "Lehman has evolved into a firm that consistently follows a disciplined, pragmatic customer­ m m focused approach to alltisk and strategic decisions that it makes ... Lehn:al) has solid liquidity and a sound liquidity framework ... " >< :i> + S&P (Summary Analysis- August 2007): "Ratings ... reflect its strong franchise in institutional securities trading, investment banking s and investment management. .. also reflect growing product diversity and strengthened global platform" 0 ------~------~----~~------~···~.~-~--~-----=----~----- ...... en 1\) w LEHMAN BROTHERS 53 ....Jo. Share Repurchases Share Buybacks and Dilution ~ In 2007, as in previous years, the primary objective of our share repurchase program is to offset equity award dilution

··... ; ·.:···.·.. + In 2007, equity award dilution has been substantially lower than projected, primarily due to a slowdown in option exercises. To aceommodate the reduction, we reduced open market repurchases by 11 million shares

·:-· ··: . .. . . + The net cost of buybacks is also expected to be substantially lower than budgeted, driven by a reduction of repurchases and lower than expected share price + . The number of EPS shares, which is time-weighted, has decrdis~'Cfbecause of the front-loading of repurchases

Forecast (#of Shares in Millions) · ~WOS · -2006 2007B 2007 ~~=====---~-=~------=-====--~~~===-======~-=== Equity Award Dilution RSU Amortization 25 19 34 35 Option Exercises 51 22 30 14 ~ , =i~~ "="?':'=""=•=~=;,; ~~Wat;,...... ml!! Total Dilution 76 42 64 49

Repurchases Tenders 21 14 10 9 Open Market 60 39 45 35 ~;;;;;:;~;;;:::;:s;:~=::;~~~ - ~m -- ...... ~..~~~... :::::r: -~~=-~~ }otal Rep~rchase_:;; _ 81 _ . · 53· 55 44

~~-= -== .. :;:;.:;::;:; C::::e&4\0#i ~~=-"'~.a·~ Dilut~~m (4) _ (11) 9 5 r Average Purchase Price $51.59 $69.61 $84.65 $74.54 m m Net Cost of Buyback (in $mm) (852) . (1,285) (830) (326) >< )> ------s Basic EPS Shares 0 Diluted EPS Shares 587.2 574.8 ...... en Note: 2007 share buyback authorization is up to 100 million shares 1\) w 1\) LEHMAN BROTHERS 54 Stock Overhang Share Buybacks and Dilution I With lowered use of stock options since 2004, yet continued option exercises, our RSUs and options overhang has declined significantly versus the 2004 level. In 2007, due to lower than projected option exercises, the number of outstanding options has declined less than expected. As a result, equity overhang is likely to remain flat relative to 2006

Actual Actual Actual Forecast 2006 vs FY2004 FY 2005 FY 2006 FY 2007 2007F -· ,, :o=D

RSUs Outstanding 128.5 120.4 100.4 116.1 15.6 Options Outstanding 147 1 . 101.8 81.4 66.7 (14.7) ------=~=--==m--~w~··=~~ww~=== '"·=~~~:,:w..-...= Gross Shares in Overhang 275.6 222.2 181.8 182.8 0.9 Shares in RSU Trust (77.7) (~~].L (64.7) --~~,L~-=~w.J 1].12 Net Shares in Overhang 197.8 153.1 117.1 104.9 (12.2)

Option Proceeds (97 .6) (50.6) (36.8) (31.7) 5.1 Tax Benefit from Options (19.8) (20.4) (17.8) (14.0) 3.8

Tax Benefit from RSUs (13.5) ·-r . ,J!!!) • "'~' (16.5) =-1- (1?.02_~--~'.=:,. Total Adjustments (71.2) (57.7) 13.5

Adjusted Shares in Overhang 46.0 47.3 1.3

Basic EPS Shares Outstanding 543.0 540.3 (2.7)

Gross Overhang 33.5% 33.8% 0.3% r Net Overhang 21.6% 19.4% -2.1% m Adjusted Overhang 8.5% 8.7% 0.3% m >< :i> Note: Wavg Exercise Price of Options 0/S $27.79 $31.36 . $33.32 $34.23 s 0 ...... en 1\) w LEHMAN BROTHERS 55 w Confidential Presentation to:

of Board of Directors ·-~-···-fJ·. ::·h '. •.

_,.__ ,...._.._ ~--·.;;... __ __,. ~f7t~~;: ~;·T~f~t~r~~'.s;·_,~~~;··i::::~~~-~--··::~z ·". :. ;_.,r;·.· ·. .. .·i_•····}: ,:_{x:.·_~-.;~)n:~(:~~i-·"~:. :i1~(,~~ ~~-~,, ,: ~s;K; .. ~1}jg}~u.cd;r~~\ D;a:mr ~al, :an9: B alan~e ~8 Q§.~] .IQ'12 d~t.~{" ,,!

,·_,

·:.--"'.

·.·-· '· '·

... - ';'.· J '.-··.-:···_-.::.\·- '. _.::...·. :.: .. ':: ·t• "'·:·:.;..·;. 'J> ·-,,.:.:. .;.-·:::· ... ·., _.- -: .<-~· ~: .. ;.-" f '~-:- ...... , ' \ "'' ,_. >\ -~ .. -,_ -~- .... __ .... · i f -- .. . ~; : .[, ; c ;.·:.·_ .. : . ' _) [ .. ~-- ·: .- ., f . I ""·''· ~'- ; L--~ i ~ ..... ··- ,· .. -_. '- •' . ~~ .. ~ . •_..· . .:...·· '. : -·_:' i". . ---~- ·..... -·; .... .-·; :-.; :> .·' r .• .. · : -~. m .--.·r·· . .--~·: ~,;c:' '·\,''-;,. m .e ·•• >< )> s 0 ...... en LEHMAN BROTHERS 1\) w ~ .... (J) ,,_....+-' Q) c. a. <( .X t/) ·-0::: I >< ·-"'C c Q) , a. a. <( ~ (/) ·-0:::

LBEX-AM 067235 Risk Appetite Usage - Fixed Income Division I Fixed Income Risk Appetite usage increased from $1.48 billion in November 2006, to $2.34 billion in August 2007. The increase in Risk Appetite was driven primarily by increased risk in the Global Credit Products, Real Estate and Securitized Products businesses.

+ Global Credit Products risk usage increased from $691mm in November 2006, to $1.29bn in August 2007, due to increases in High Grade and High Yield Loans; Pipeline and Commitments.

+ Real Estate risk usage increased from $607mm in November 2006, to $1.24bn in August 2007, with Event Risk the primary driver as we increased our bridge equity and associated debt positions, including Archstone Smith.

+ Securitized Products risk increased from $268mm in November 2006, to $518mm in August 2007, as mortgage spreads widened and liquidity decreased.

2.5bn 2.5

2.ol 1 1.6~ . ::7-* ;:g 1.5 · · ~: . -II- ·- - - .ill - - - - ...... a. .•..I - - I ~ 1.0 0::"' rm 0.5 m >< 0.0 )> Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 s llli!llAmerica c:::J Europe c:::J Asia -cl-Giobal 0 ...... en 1\) w LEHMAN BROTHERS 1 en Risk Appetite Usage - Equities I Average monthly Equity risk appetite usage increased from $437mm in November 2006 to $505mm in August 2007.

+ Market risk accounted for most of the risk appetite increase. Our overall net long delta position was the primary driver ofrisk. · + The business had an overall bullish view on the markets for most of the year due to the unprecedented- LBO activity and strong economic growth in Asia and Europe. As a result, we maintained a long delta position peaking at $4.3bn in June, leading to an average risk appetite close to the $800mm divisional limit. + In late July, global markets began a downward trend due to market disruptions emanating from sub-prime mortgages, hedge fund deleveraging, and the drying up of funds for financing takeovers. Overall risk was reduced prior to this downturn. By late July, Equity risk appetite was below $600rmn, with our equity delta position in the $1.0bn-$1.7bn range.

900 -~ ~ --- ~ ------·~ ~· ~ ~ Limit BOOmm BOO

700

I 600 ~ .~ 500 Q;

i'i: 400 ·-~.; <1: . .)(. .!!! 300 0:: 200 r m 100 m >< ol .. '' .,,,.,.,.,,, .. ,, .,, ... ,,.,, .,, ..,,, )> Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 s ll!liiAmerica CJEurope CJAsia -IS-Global 0 ...... en 1\) w LEHMAN BROTHERS 2 ...... Risk Appetite Usage- GTS and GPS Review of Results Jl Global Trading Strategies (GTS) risk increased from Global Principal Strategies (GPS) risk increased from $354mm in Nov 2006, to $668mm in August 2007 and $189mm in November 2006 to $345mm in August 2007 increasingly in Equity & Merger-Arb strategies

+ Since Nov 2006, GTS net exposure grew from $2.4bn to + Primary drivers of risk include: $5bn net delta. Current risk is dominat~d by portfolio equity Private equity positions of $350mm risk and M&A risk: · The Capital Arbitrage portfolio of $1. 720bn where the The Risk Appetite usage of Portfolio Equity, with a trading strategy is going long corporate debt and short equity $1 bn net long delta in single names and a short in the same company. $850mm delta in indices, was $450mm in August Net equity exposure in M&A deals grew from $1.3bn long delta in November to $4bn in August and Risk Appetite grew from $110mm to $215mm Contributing to the risk usage is GTS' s long-standing exposure of $280mm notional in GMAC & GM debts r.::;~:Average .MontlitY:~Risk.Usage :~~Global~$rad!pg~$trategi~s~ ..,. -~<~~~~¥~iajg~~M~nJhly::ru~~;u~ag~~,~.G!9.1l~i;jrJ!i~il>aJi~(rat~gies:~·Ni•' 700 500 Limit 500mm

600 400 5oo E e 450mm E .,.E .,. -; 300 ;- 400 :<;::: a; ~ c. c. c. .;{ 300 ~ 200 ""en .'!l ~ 200 0:: r m 100 m 100 >< &__Ll_,•!l BII .!1 .11 liiii!! U!! iW;! •11 oJ•I WJI ., ., ., 81 ljjjDJ/ HI/ All 151/l, ollll! 1 1 1 1 1 :i> Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Nov-06 Oec-06 Jan-07 Feb-07 Mar-07 • Apr-07 May-07 Jun-07 Jul-07 Aug-07 s ll!lliAmerica CJEurope CJAsia 1!-Giobal I!DAmerica CJEurope DAsia -£!-Global 0 ...... en 1\) w LEHMAN BROTHERS 3 co Counterparty Credit Risk I + The bulk of our exposure is to banks and other financial institutions. + Hedge Fund exposure represents less than .5% of our total portfolio.

(US$ million) Sector Percentages

2Q '06 3Q '06 4Q '06 1Q '07 2Q '07 ;r~~=--:Q '06 4Q '06 1Q ~~--:~·o:l _ It ----·-----' Banks 11,977 9,926 8,855 8,898 9,521 !1 44.7% 41.5% 34.4% 31.2% 29.7% Ot.he.:.Y.ina-;}c~- ~~-~-- _ 5,2~ 5,152 --..2.2i"i_-· 7._;095 9,4~2_;t_~"f~% ~5% 21.4% . 2~_% .2-ill: Municipal Issuer 1,327 1,618 2,272 2,094 1,868 .f 4.9% 6.8% 8.8% 7.4% 5.8% --""·"'-~~-~~ .... oo.;:o.~ ... ~.. - ...-~ ....=~ - ·~-...... ~ ...... ,.,.,...... , s; ~=~"•""""""""' ...... -~~-.. -~=-*'"' - 4ll>o..__._ ..._,,..,~ ...... _,..-- Insurance 1,313 1,109 1,316 1,856 1,300 L_~.9% 4.6% 5.1% 6.5% 4.1% ~emment Entity 3,465 2,863 3,239 3,690 4,951 ~- 12.9% 12.0% 12.6% 13.0% 15.4% Broker/Dealer 1,248 1,061 1,148 1,402 1,396 '1 4.6% 4.4% 4.5% 4.9% 4.3% . ------~ ··-- Industria~ Services 1,034 1,060 1,415 1,247 1,890 ·j 3.9% 4.4% 5.5% 4.4% 5.9% . . PensionRetirementFund 1,057 823 1,577 1,834 1,533 ··....------L-2..9% _ 3.4% 6.1% 6.4% 4.8% Hedge Fund 163 298 389 378 172 [f . 0.6% 1.3% 1.5% 1.3% 0.5% "'ilighN"et Worth Individuals ~ 15 13 12 10 20 f"'=-=o:T"% 0.1% 0.1% 0.0% OJ% Tht-;l-= .. ==~==-26;822 23,923 25,740 28,504 32,096 .j 100-~0°/o lOO.O% 100.0% ""i"i5'o.o% 100~0%' r m m >< :i> s Note: Does not include money market deposits. 0 en ...... 1\) w LEHMAN BROTHERs 4 CD Counterparty Credit Risk I

+ 88.0% of our exposure is in the U.S., Canada and western Europe.

_, · :--;~~-"--r:P'~;.::. ;-~:~~~.:;~:·:-~~~;-;f~~· ·_: ":~··:;~lir;t-¢D.tere(jifExp,.os1n·e;~tr~a~-y~~'giO'il~-~~f?::;:~c, ··.·. ::; -- ·

(US$ million) Region Percentages I 2Q '0;- ::;-:6 4Q '06 IQ '07 2Q~Q '06 :Q '06 4Q; . IQ '07 2Q .;] Western Europe Region 15,205 14,024 14,154 16,234 -~-=t.L- 56.7% 58.6% 55.0% 57.0% 56.1% ~ Ca~~= ~~~-·~-~<- _ 9,~~~ 8,_136 9,166 9,293 10,225 JL---~~;i,% 34.0% 35.6_~ 32.6% 31.9% Japan 663 503 496 750 771 !~--- 2.5% 2.1% 1.9% 2.6% 2.4% LatinAmeric;Region -~ 654 730 869 1,241 1,"56lfr~% 3.1% 3.4% 4.4% 4.8-% Mid-East I Africa Region 213 90 230 252 452 _ 0.8% 0.4% 0.9% 0.9% 1.4% Central & Eastern Europe Central Asia 30 22 36 40 27 -~ 0.1% 0.1% · 0.1% 0.1% 0.1% ~Non-JapanAsiaRegion - - --··- ·--·- ···--~575 418 789 694 -·=~·]"~-1,049 L=2.1%.· ~---- 1.7% 3.1% 2.4% 3.3% Tot~I · =~s22:Z3,923 25,740 28,504 . 32:0961~-0~fo 100.0% 100.0_!o 100.0% 100.0%'

r m m >< )> s Note: Does not include money market deposits. 0 ...... en 1\) 5 ~ LEHMAN BROTHERS 0 ABCP and CP Exposures I + Commercial Paper Market Update - US CP market has now declined $298Bn or 13% to seasonally adjusted $1.93 trillion in the past month led by decline in ABCP. - ABCP overnight rate has jumped by more than 80bp to 6.15% in the past month. + ABCP Inventory - Inventory of $1.79bn, almost all is Lehman related consduit. $1.57bn to Aegis Finance (Total Aegis program size is $2.4bn), and $71mm to Hudson Castle. + Counterparty Exposure to ABCP conduit - Counterparty credit exposure to ABCP is approximately $130mm in MPE. The three largest exposures are to programs managed by Gordian Knot ($50mm), WestLB ($24mm) & AIG ($18mm). + ABCP liquidity Backstop - Funded $160mm out of a total $206mm backstop commitment to Landale Funding, an ABCP conduit funding prime UK mtgs originated by HBOS. In addition, we have unfunded ABCP backstops for NCAT ($325mm), FCAR ($238mm), TransAmerica Asset Funding ($100mm) and Axon ($50mm). + Corporate CP Backstop - In addition to ABCP backstops above, HG FRL I Loan book has $12.1 bn ofCP Backstop commitments, with $760mm drawn. Of that total, $4.6 bn ($360mm drawn) is for financial companies and $7.5 bn ($400mm drawn) is for non-financial corporates. The overall FRL book, including the CP backstops, is approximately 50% hedged. Countrywide (Baa31A- neg) $350mm fully funded ($350mm committed I $124mm exposure net of hedges). r m m >< )> s 0 ...... en 1\) ~ LEHMAN BROTHERS 6 ....Jo. tn 0 s... ·-co c: Q) (.) (/) CIJ tJ) C1) ....,L. en c 0 tJ)

·-C\l ..(]) c >< ""0·- s::: <» c. a.

LBEX-AM 067242 Bull Steepening I Modeled after post 9/11, Flight to Quality (Sep 11, 2001 - Sep 25, 2001)

···=-~~~-~~~~-·-··-·- ···-·--·--····- --~,-=,-==~·~~~ + USD: Treasury rates: 2Y -90bps, lOY -30bps (60bps steepening), Swap Spr: 2Y +20bps, lOY +5bps Cap vol +5%, Swaption vol +3% + EUR: Govt rates: 2Y -57bps, lOY -17bps (40bps steepening), Swap Spr: 1OY + 11 bp Cap vol +5%, Swaption vol + 3% + GBP: Govt rates: 2Y -72bp, lOy rates -32bp (40bps steepening), Swap Sprd :+20 bps, Cap vol +7%, Swaption vol +3.5%, + JPY: Govt rates: 2Y + 1bp, 1OY unch; cap vol +5%, Swaption vol 1% + Inflation: +35 bps (vol shocks are absolute)

~ ...... ,.,..,...... _,. ~'---·-,.6 ~- ~ -- =-. ~-=-"'-·-=~---- -~~~~---~-=-.~---= ..... ~==---~=-~-~-~-·~~~ .. =-~-... + JPY up 8%, CHF up 8%, EM ccys Clown 5%'='3'5% + Vols: JPY 40%, EMG 15%-30% (vol shocks are relative)

-~----·-..~------'~"""---"'-"'" ... ,. .... ~~--...... ,..-~-~~~~-- ""--~·· __ ..,....,.._,..,__,_ ... _...... -.,...... ,.. + FNCL (Fannie Mae 30yr) LOAS widened by 5 bp, FNCI LOAS by 4 bp. Trust IO by+ 36 bp and PO by -8 bp. + HEL AAA widens by 3 bp, and BBB- widens by 95 bp. OAS Drop widens by 5bp, subprime loan by 19 bp, MTA loan and hybrid loan widen by 12 bp and 10 bp respectively. CMBS AAA by 3 bp, BB by 85 bp. CMBS whole loan by+ 8 bp .

._._,..._="=-=·"'o;..;:::...==c=r~~=-.... =-~-..-...:.-....;; ... _.--.,.--_..__-=.,_-...,~=;=o.-•. .., ...... _,..,_,_~--'"'-=c-=--~""--"- ....._ •. ,.,"-- ::;--"'..,-.::;;<=-"-"------:c- .. .,_";..;:..~-...... ,...,.~.... ------•=-· '""o;_·.~----~,=---":. + HG spreads out 25% + HY market down 4.3% (Ba), 5.7% (B), 8.5% (Caa and below), HY Loans down 1.0% (Ba), 2.4% (B), 4.8% (Caa and below). CDS down 5.7% (Ba), 6.3% (B), 8.5% (Caa and below) Latin/East Europe EMG spreads widen 30%, Asia credit spreads widen 25% + Correlation: Equity tranches up-front prices down (5Y Maturity ITRAXX 0-3 tranche -5.54%, CDX 0-3 tranche -6.26%, CDX r HY 0-10 tranche -5%) m m + Developed Markets Countries (D)- Americas -12%, Asia -7%, EMEA -14; Emerging Markets I Countries (El)- Americas- >< 13%, Asia -14%, EMEA -14%; Emerging Markets II Countries (E2)- Americas -16%, Asia -14%, EMEA -17% :i> + 1M Vol +69.3%, 3M Vol +40%, 6M Vol +28.3%, 9M Vol +23.1%, lY Vol +20%,2Y Vol +14.1%, 3Y Vol +11.5%, 5Y Vol s +8.9% (vol shocks are relative) 0 ...... en 1\) LEHMAN BROTHERS 7 w~ Bull Flattening I Modeled after the period before the major rates backup in the summer of 2003. G~nerally strong market tone across all asset classes due to signs of economic recovery and low inflation expectations, but reduced demand for energy (May 1, 2003 .. May 15, 2003)

C".:...__~.,.~....:!!

"""-='=~~-·=c=... -.-,~,.,, ...... -...-.::.-.....- ...... =-~~~·~~-.>i:.."'::'"o;;::-••-=-""=~- ~n;..""l::=-=-~=---=-=~--==~"":~:;-.:::=_~~~ ===~~=~...,_....._,.,.;n...... -~.,....-.-;:..• ·-- ..=-"":--::-"..:...~-~,===ar...~1 + FNCL LOAS tightens by -5 bp, FNCl LOAS by -3 bp. Trust 10 by -54 bp and PO by +8 bp. + HEL AAA tightens by -2 bp, and BBB- tightens by -15 bp. OAS Drop tightens by 3 bp, subprime loan by -6 bp, MTA loan and hybrid loan widen by -5 bp and- 4 bp respectively. CMBS AAA by -2 bp, BB by -9 bp. CMBS whole loan by -3 bp. -~--~·--~-~"-"-•-"•~·-··=···---~~-· ~~--.o-~.-~-·=·r~ -=~- -~-=~-~-..~· -·--.,·-~----~-~~-~-~,-~ + HY market up 1.0% (Ba), 0.5% (B), 0.2% (Caa and below). HY Loans up 0.0% (Ba), 0.1% (B), 0.1% (Caa and below). CDS up 0.3% (Ba), 0.2% (B), 0.2% (Caa and below) + HG spreads tighten 10% + Latin/East Europe EMG, Asia credit spreads tighten 10% --==~~~--=~-~-~~ -~~=~-~ ····~---~~-~-=~~--~~~---.~--,-.-=~-~~~~~~-=~~-=~---·~_,.,,_. __ ,,__ ~-=·=~"-~ + Developed Markets Countries (D)- Americas +4%, Asia +3%, EMEA +1%; Emerging Markets I Countries (EI)- Americas +2%, Asia +4%, EMEA +2%; Emerging Markets II Countries (E2)- Americas +2%, Asia +4%, EMEA +3% + Vols: IM Vol-11%, 3M Vol-6.4%, 6M Vol-4.5%, 9M Vol-3.7%, lY Vol-3.2%,2Y Vol-2.2%, 3Y Vol-1.8%, 5Y Vol-1.4% (vol shocks are relative)

··-""""'"""...- ~--~~ ,.._.,.,....._._ ..... ~.,--~-:-~-- ~ ,_..,._.... -~.-- r ... _. ·. ·--,-~~~-~-== m + Crude oil front end prices fall 35%, back end prices fall 23% m + Oil products front end prices fall40%, back end prices fall26% >< + Oil vols down 50% :i> + US natural gas front end falls 40%, back end 26%, vols fall by 50% s + US power front end prices fall 35%, back end falls 23% (front end 0-6mo; back end 4Y and up; val shocks are multiplicative/relative) 0 ...... en 1\) ~ LEHMAN BROTHERS 8 ~ Bear Flattening m Treasury down trade caused by asset reallocation and yield searching. Spreads generally moderately tightened, and Equity and high yield asset classes outperformed others (modeled after the period Oct 30, 2001 - Nov 14, 2001) + USD: Treasury rates: 2Y +95bps, lOY +70bps (25bps flattening) Swap Spr: 2Y +12bps, lOY +8bps Cap vol +4%, Swaption vol +2% + EUR: Govt rates: 2Y +6lbps, lOY +4lbps Swap sprd + 11 bp Cap vol +5%, Swaption vol +3% + GBP: Govt rates: 2Y +70, lOY +50bps Swap sprd +20 bps Cap vol +7%, Swaption vol +3.5% + JPY: lOY rate +I bps, sprd -10 bps + Inflation: -35 bps (val shocks are absolute) =~.r ,.,._' ·- ·''"'"' _,- - ,_ ~~~~~ .. =·:~~~-~==="==~=== ~ .-~-· ·"··· ·-~· -~~~~- -. -~=~' ··-•-•"·~=~~ •. ==-~• + Major ccys down 3%, BRL and TRY up 4%, RUB and Eastern Europe down 1%, minor Asian up 1% + Vols: Latam 20%, RUB 140%, TRY 40%, Eastern Europe 30% + JPY 15%, Other majors -10% + Minor Asia 50% (vol shocks are relative) + FNCL LOAS widened by 5 bp, FNCI LOAS by 3 bp. Trust 10 by+ 54 bp and PO by -10 bp. + HEL AAA widens by 5 bp, and BBB- widens by 15 bp. OAS Drop widens by 3 bp, subprime loan by 9 bp, MTA loan and hybrid loan widen by 8 bp and 7 bp respectively. CMBS AAA by 3 bp, BB by 9 bp. CMBS whole loan by+ 3 bp. - ~.;t:!.y..::.--==::..~--.r.::~..;:. ~ --- =~..=--~=.,..=-~==--=~=--~-::=-.:_.::.r=~~="T=~-;;.r.;..:="""--..,_., + HY market up 1.4% (Ba), 0.2% (B), 2.9% (Caa and below). HY Loans up 0.5% (Ba), 0.3% (B), 1.5% (Caa and below). CDS up 3.2% (Ba), 0.9% (B), 2.9% (Caa and below) + HG spreads tighten 15% + Latin/East Europe EMG, Asia credit spreads tighten 15% •--=-::-...a..-o~·4t --~"-~'~"-"'-l~,n.•"'--"!.=-=< (vol shocks are relative) )> s 0 ...... en 1\) ~ LEHMAN BROTHERS 9 0'1 Bear Steepening I Modeled after post L TCM (Sep 28, 1998 - Oct 13, 1998)

c=~====~•,-=-~.><7--~"~~c~~~~-~-~==•-~~-~--·•.-~~-=~--=~- ======~-:.=-=~..,...=I-...<_•...;:·.-;...·~-~ ----;.-::..:;;:~~-.:;,;;:o...-"'-..-,.~::c~.:-==---- -~= + USD: Treasury rates: 2Y +45bps, lOY +75bps (30bps steepening) Swap Spr: 2Y + lObps, lOY +15bps Cap vol +4%, Swaption vol +2% + EUR: Govt rates: 2Y +49bps, lOY +51bps Swap sprd + 11 bp Cap vol +3%, Swaption vol +3% + GBP: Govt rates: 2Y +46, lOY +50bps Cap vol +7%, Swaption vol +3.5% ~ JPY: lOY rate -!!bps, sprd -45 bps + Inflation: +35 bps (vol shocks are absolute)

'"-~~====~ + JPYup 5%, Major Europe up 5%, TRYunch, Latam down 10%, RUB down 10%, Minor Asia down 5-10% + Vols: Latam 65%, RUR 65%, Eastern Europe 65%, TRY 65% (vo/ shocks are relative)

·~=·-~·~-=. + FNCL LOAS widened by 10 bp, FNCI LOAS by 6 bp. Trust IO by+ 109 bp and PO by -18 bp. + HEL AAA widens by 5 bp, and BBB- widens by 30 bp. OAS Drop widens by 6 bp, subprime loan by 9 bp, MT A loan and hybrid loan widen by 8 bp and 7 bp respectively. CMBS AAA by 2 bp, BB by 18 bp. CMBS whole loan by+ 3 bp.

--==·~~=·-~--~--~----~---~-==~=·--~- ~ ... --' - "'=··-·· -.. -~--~--,~-~--=·~~~~· + HY market down 9.5% (Ba), 10.0% (B), 11.2% (Caa and below). HY Loans down 1.4% (Ba), 3.1% (B), 5.7% (Caa and below). CDS down 8.3% (Ba), 9.5% (B), 11.2% (Caa and below) + HG spreads widen 25%, LatiniEast Europe EMG spreads widen 30%, Asia credit spreads widen 25% + Correlation: Equity tranches up-front prices down (5Y Maturity ITRAXX 0-3 tranche -5.54%, CDX 0-3 tranche -6.26%, CDX HY 0-10 tranche -5%) r - - ... =--~ ....-=--- =- . .,_ ...... -c.._:,;:"':;-.-- ---, ---~: -~ ~-- .. _=-:==~-·--:3'-=----·_:._=...,.:.~=-=--;>"--..:;;::o--=-~~~...=:i= m + Developed Markets Countries (D)- Americas -5%, Asia -5%, EMEA -5%; Emerging Markets I Countries (El)- Americas -5%, m Asia -2%, EMEA -8%; Emerging Markets II Countries (E2)- Americas -6%, Asia -4%, EMEA -13% >< :i> + 1M Vol +15%, 3M Vol +8.7%, 6M_Yol +6.1%, 9M Vol +5%, lY Vol +4.3%,2Y Vol +3.1%, 3Y Vol +2.5%, 5Y Vol +1.9% s (vol shocks are relative) 0 en ...... 1\) LEHMAN BROTHERS 10 en~ EMG Crisis Market meltdown driven by EMG (Russian default) with spiked idiosyncratic risk, higher I defaults, higher correlations, falling energy demand (modeled after the period Aug 17, 1998- Aug 30, 1998). ,:-e;-...:'=--"'""""""--'~'~"-~""U'!;"-"-::.'>""'...... ,..~":t::=--~...,.,_..:::;:r.~~~-· -::>"~...::·=-...>:::..=.=:-...===...::~·.:...-~"""""-~.>..·~--=""'_....._ _,.;:..,....-..=..;:-~~ ·r=" = ·==-:c..:.o.':·...:c,;.~.:t.""_:._.:o:_'"--;:::-~-.....-~=--= -- =-= -cn:-•==<-3,.o;.cu~ _.....:-_...~.,. ·•~~~.;..-.., + USD: Treasury rates: 2Y -65bps, 1OY -50bps (15bps steepening) Swap Spr: +20bps Cap vol +5%, Swaption vol +3% + EUR: Govt rates: 2Y -57bp, 1OY -17bp (40bps steepening) Swap spr: lOY -II bp Cap vol +5%, Swaption vol +3% + GBP: Govt rates: 2Y -72bps, lOY -32bp (40bps steepening) Swap sprd: +20 bps, Cap vol +7%, Swaption vol +3.5% + JPY: I OY rate +5bp, Swap sprd +I 0 bps + Inflation: +35 bps (vol shocks are absolute) + TRY down 50%, RUR down 50%, Latam down 20%-40%, minor Asia down 20%-40%, JPY up 10%, GBP up 4%, EUR up 5%, CHF up 6% + Vols: TRY 300%, RUR 100%, Latam 300%, CNY 300% + Minor Asia 100-300%, Majors 30% (vol shocks are relative)

~..___,,._,~_.•.._...... ,.,.._,.__~-:.:.:.~-;.....:;;,:;:.._~-"--- -= -- -.-e-=--- _=a.v...:.=~_,.,.~~-=::x-: -· ==,..-. """""--='---. '-- ..... · ~.,-~-.::.--:.-·;':'~~co=-=-=""""'- ;_~~·"--""-'=--=x - .. ~,_,.. ~ ... ,_ ....- .. •·~.:c.-=~ -~ :s~_.:~~-~it:· ~ <~~~::·. ·,~ -~~ + FNCL LOAS widened by 15 bp, FNCI LOAS by 9 bp. Tmst 10 by+ 163 bp and PO by -27 bp. Mortgage·>~.: .. , + HEL AAA widens by 5 bp, and BBB- widens by 67 bp. OAS Drop widens by 8 bp, subprime loan by 18 bp, MTA loan and hybrid loan widen by 16 and 14 bp ~:~1"::~1:~~-\:i~~·~' ~tl:r:r~~: ~~ respectively. CMBS AAA by 5 bp, BB by 54 bp. CMBS whole loan by+ 8 bp.

+ HG spreads widen 50-65%, EMG spreads widen 200% + HY market down 6.3% (Ba), 7.0% (B), 7.5% (Caa and below). HY Loans do\vn 1.3% (Ba), 2.5% (B), 3.8% (Caa and below). CDS down 7.6% (Ba), 7.5% (B), 7.5% (Caa and below) + Correlation: Equity tranches up-front prices down (SY Maturity ITRAXX 0-3 tranche -5.54%, CDX 0-3 tranche -6.26%, COX HY 0-10 tranche -5%) EMG default rate spike up to I 0% for one country default out of high beta countries :-~~-~,..,_, ..""""""""_'_""~""""=.....-,;,r-...... ,~~~-.:-.....,.~--.=·-,.~-=-=- ..,...,...,,,...,._ .... _=•-=_,--- ~,_-=-~-= -- == ... ~._.,.,_~,...,.,._,_,..,.-...._...... """-"· ~·"'- + Developed Markets Countries (D)- Americas -12%, Asia -5%, EMEA -8%; Emerging Markets I Countries (El)- Americas -32%, Asia -34%, EMEA -22%; Emerging Markets II Countries (E2)- Americas -32%, Asia -41%, EMEA -45% + IM Vol +86.6%, 3M Vol +50%, 6M Vol +35.4%, 9M Vol+28.9%, IY Vol +25%,2Y Vol +17.7%, 3Y Vol +14.4%, 5Y Vol +11.2% (vol shocks are relative) r + Crude front end prices fall 40%, back end prices fall 26% m + Oil products front end prices fall 45%, back end prices fall 29% m + Oil front end vols down 50% >< + US natural gas front end falls 40%, back end falls 26%, vols fall by 50% :i> + US power front end falls 35%, back end falls 23o/o. s !Ernnrend 0-6mo: back end 4vr and un: vo!s are_t·e!aliveJ 0 ...... en 1\) LEHMAN BROTHERS 11 ...... ~ Rating/Default and Hedge Fund Risk Significant rating risk (e.g. GM), one name default in CDX or HVOL coupled with hedge I fund blow-out on structured credit products causing panic selling, significant market widening with CDS basis gapping out (modeled after the period Jut 18, 2002 - Aug 2, 2002) ""'~~~--=..:=-~..,.=-~.-- "--='-"'-~---="'•~~--"w~.ec·---:_-""""'-=-="'--"•-~-=-=·~-.""""'-~c::.=~"'-~"-..;-.-...:..:....:oo.-...-.-._.__,_._ .. ::.<.~~-"--"'-=~-...._~-;cr.,:,;.=..;:M~-'-~~-....:.:::.=,.:;-_-.=--..__._~...:.0:..:0...~~-~=~-· •:· + USD: Treasury rates: 2Y -46bps, lOY -35bps (llbps steepening) Swap Spr: + 14bps Cap vol +5%, Swaption vol +3% + EUR: Govt rates: 2Y -57bps, 1OY -17bp (40bps steepening) Swap spr: lOY +11 bp · Cap vol +5%, Swaption vol + 3% + GBP: Govt rates: 2Y -72bps, lOY -32bp (40bps steepening) Swap Sprd: +20 bps, Cap vol +7%, Swaption vol + 3.5% + JPY: 1OY +4bp, Swap sprd + 10 bps + lnflation:+35.bps (vol shocks are absolute) ~~~-;."'"~=~,.,-=~.:.....,...,.-=="'==~~==~= ·=-.....-.=-~-- ....,- ..... -...... -~ ..... ==~===-- =-~=~~~=~~ , .. ~ .. "- + Major ccy in the range of+/- 4%, minor Asian +/-2%, La tam down 2%-5%, and TRY and Eastern Europe down 6% ~ Vols: Latam 10%, TRY 40%, RUR and Eastern Europe 40%, Major ccy 15%, minor Asia 50% (vol shocks are relative)

"'"'="''""'-·--~=--~~"',-.,.,..,.,.>'.U,....."-~•~=-~~-. -~~-=· ---~------==·•~..,,...._.,;u..~._,._ ...... ,...,..,.,._.,_..,...... _~~-==o;:-~""--._...,._t<.=r..''..t"•'<.,•.,.,•-"'"'-"'-""'~~~0------··._•r ... - • ••"• .. - •-·o."'""""~~~~O.•-,-·.OLr-,..,.-.~----'-=:lr-r-·---r"--r..; .. ,...._,_ ·.-~ =>-""·~~,.,.._~~-..:.,2ZO=~-~=--=-..,..__,-~ '- ...... ,_..,,, ~---~. --....- .•• --.-:..=""="--=..=.--~--,..,_-;:-,.· .• ~ ·• .r-,,.=~-~-=--~~.,..~-- .._ •-- ~ ~ _,._ .. _. --=--~,.....-,.-"'"""-"~-~ m + Developed Markets Countries (D)- Americas -5%, Asia -4%, EMEA -7%; Emerging Markets I Countries (El)- Americas- m 11%, Asia -6%, EMEA -8%; Emerging Markets II Countries (E2)- Americas -13%, Asia -7%, EMEA -10% >< + 1M Vol +18%, 3M Vol +10.4%, 6M Vol +7.3%, 9M Vol +6%, lY Vol +5.2%,2Y Vol +3.7%, 3Y Vol +3%, 5Y Vol +2.3% )> s (vol shocks are relative) 0 ...... en 1\) LEHMAN BROTHERS 12 co~ HY /LBO/Default Risk I Global default rate increase coupled with lower recovery. Investor demand dries up after "hot'· market, leading to a longer syndication time line or no syndication in large LBO or M&A loan deals (modeled after the period Sep 16, 2002 - Oct 17, 2002)

o.=...==..-.:..·=-~7'.-"-=-.-==..~...;_,_.::;.:.:::::,.T-. ~-;==--~~=-- ·--·-· ~ ·-· ·~--=--~ "''? _z:,:..,_-c::;.. ~u;- •• =----.=..•."""'"~-~.c ~--;:;=:._--,.::- + USD: Treasury rates: 2Y -46bps, lOY -35bps (11bps steepening) Swap Spr: + 14bps (widened) Cap vol +5%, Swaption vol + 3% + EUR: Govt rates: 2Y -57bp, 1OY -17bp ( 40bps steepening) Swap spr: 1OY + 11 bp Cap vol +5%, Swaption vol +3% + GBP: Govt rates: 2Y -72bps, lOY -32bp (40bps steepening) Cap vol +7%, Swaption vol +3.5% + JPY: lOY rate +2 bp, swap sprd +10 bps • Inflation:+35bps (vol shocks are absolute)

-="'~"l-=~""•"'=n':t:O"-...r.-...!--=---..:--=--==-~-=-..r_;o.'l!.:~,;:.;:;v- . ._ -·. ·._,., ~~~ =~.-==-=c=~:---r:-:-'"~~=~~~-,·.....:...... _=.._._..:..=<> -·=•·· • • p-~ + Major ccy in the range of+/- 4%, minor Asian +/-2%, Latam down 2%-5%, and TRY and Eastern Europe down 6%. + Vols: Latam 10%, TRY 40%, RUR and Eastern Europe 40%, Major ccy 15%, minor Asia 50% (vol shocks are relative)

+ FNCL LOAS widened by 8 bp, FNCI LOAS by 7 bp. Trust 10 by- 51 bp and PO by+30 bp. + HEL AAA widens by 5 bp, and BBB- widens by 350 bp. OAS Drop widens by 20 bp, subprime loan by 65 bp, MT A loan and hybrid loan widen by 25 and 20 bp respectively. CMBS AAA by 8 bp, BB by 117 bp. CMBS whole loan by+ 16 bp.

==~=--=...-:.-:---=·.:=:-..,-..-.:.-.··~---- ~--·-- ···-· =-·-=·-~_.;_...;r_,,.-= .... -==---~=-=~..,...---~-=..-=w:..· .. _,_..---=--==--"-=..===-~~--....-""'·"--- + HG spreads widen 80% for 0-2yr, 70% for 2-5yr, 55% for 5-lOyr, 50% for> 1Oyr + HY market down 4.6% (Ba), 9.8% (B), 7.8% (Caa and below). HY Loans down 0.9% (Ba), 3.9% (B), 4.4% (Caa and below). CDS down 5.7% (Ba), 10.3% (B), 10.5% (Caa and below). Default rate loss shocks of0.2% (Baa), 0.75% (Ba), 1% (B), 5% (Caa and below) + Latin/East Europe EMG spreads widen 30%, Asia Credit spreads widen 25% =.:=-~=-~.!'.:.·.:=~-=- -.-;.-.: - .. -- . -- =-======···o~., ~•·-·--,_ r + Developed Markets Countries (D)- Americas -13%, Asia -8%, EMEA -12%; Emerging Markets I Countries (E1)- Americas- m m 13%, Asia -10%, EMEA -12%; Emerging Markets II Countries (E2)- Americas -16%, Asia -11%, EMEA -12% >< + 1M Vol +15%, 3M Vol +8.7%, 6M Vol +6.1%, 9M Vol +5%, lY Vol +4.3%,2Y Vol +3.1%, 3Y Vol +2.5%, 5Y Vol +1.9% )> (vol shocks are relative) s 0 ...... en 1\) ~ LEHMAN BROTHERS 13 CD Equity Crash (1987) Weakening US dollar, deteriorating US current account deficit, escalating US I government debt, High PIE's low dividend yields (modeled after the period Oct 5, 1987 - Oct 19, 1987)

•=·· - ~~=c-.•~ -~~~~--~~v-~-~-=~~~=~~-·<=""·'·""-~-~~~-=-~-==--• + USD: Treasury rates: 2Y -80bps, I OY -30bps (50bps steepening) Swap Spr: 2yr +20bps, I Oyr +5bps Cap vol +5%, Swaption vol + 3%. + EUR: Govt rates: 2Y -57bps, JOY -17bps (40bps steepening), Swap spr: lOY -II bp Cap vol +5%, Swaption vol +3% + GBP: Govt rates: 2Y -72bps, lOY -32bp (40bps steepening) Swap spr: +20 bps Cap vol +7%, Swaption vol +3.5%

~~ + JPY: lOY rate -25 bp, Swap sprd +I 0 bps + Inflation: +35 ·bps + Fund Derivatives NA V: down 31.5% -····-·· (w!.{ sjl_ocf:!..:!re a~so_!u~e) -·---~~--~~~--~- __ ~----·-·-· -~-----~-·=·-~-~--~---~--.,~~~.,=-,.- + Major ccys up 5% except CHF up 8%, Emerging Europe down 5% + Latam down 10%, Asia down 5%, Minor Asia down 10% + Vols: 20% across (vol shocks are relative)

+ FNCL LOAS widened by I 0 bp, FNCI LOAS by 6 bp. Trust 10 by+ I 09 bp and PO by -18 bp. HEL AAA widens by 4 bp, and 888- widens by 75 bp. OAS Drop widens by 6 bp, subprime loan by 18 bp, MT A loan and hybrid loan widen by 16 and 14 bp respectively. CM8S AAA by 5 bp, 88 by 72 bp. CM8S whole loan by+ 9 bp.

+ HG spreads widen I 0% + HY market down 4.9% (Ba), 4.0% (8), 4.0% (Caa and below), HY Loans dow 1.1% (Ba), 1.5% (B), 2.0% (Caa and below). CDS down 6.2% (Ba), 4.5% (B), 4.0% (Caa'and below). ~ Latin/East Europe El\1G spreads widen I 0% Asia credit spreads ! 0% widening + Correlation: Equity tranchesup-front prices down (5Y Maturity ITRAXX 0-3 tranche -5.54%, CDX 0-3 tranche -6.26%, COX HY 0-10 tranche -5%) r + Developed Markets Countries (D)- Americas -32%, Asia -19%, EMEA -17%; Emerging Markets I Countries (El)- Americas -32%, Asia- m 34%, EMEA -30%; Emerging Markets II Countries (E2)- Americas -32%, Asia -41%, EMEA -40% m >< + 1M Vol +173.2%, 3M Vol +100%, 6M Vol +70.7%, 9M Vol +57.7%, lY Vol +50%,2Y Vol +35.4%, 3Y Vol +28.9%, 5Y Vol +22.4% :i> (vol shocks are relative) s 0 ...... en 1\) 0'1 LEHMAN BROTHERS 14 0 Black Monday (modeled after 10/16- 10/19 1987) I

-=-~~~"-'"''---""'-"->=-:t.-_,_....,._~- _,,-.:.... =,-~~·"'""·"-,...... _'"""'-"=-=~==~~~~--·· ·--.- .. ,.~.·~-·--'·-~=-~-r--,_•::;-·.·~==---·-=""=-·-··-===-=-'=-~·-.-:o:.:.~~-:- "'-"-~----~=-:-·.~&-,~,..-=~·""'-~...-=-~~~--..~-=<.'"!=-....,.~=o«;:~=~~~-~~-...... ~~nt...:::-..;;l::=-~r.~:o-...&-- + USD: Treasury rates: 2Y -80bps, lOY -30bps (50bps steepening) Swap Spr: 2yr +20bps, lOyr +5bps Cap vol +5%, Swaption vol +3% + EUR: Govt rates: 2Y -57bps, lOY -17bps (40bps steepening), Swap spr: lOY -11 bp Cap vol +5%, Swaption vol + 3% + GBP: Govt rates: 2Y -72bps, lOY -32bp (40bps steepening) Swap spr: +20 bps Cap vol +7%, Swaption vol +3.5% + JPY: 1OY rate -25 bp, Swap sprd + 10 bps + Inflation: +35 bps + Fund Derivatives NAV: down 20.5% (val shocks are absolute)

., - ,,.,_.,.·..::-=1o-::"'!<:r~--.:::~~"==----r---=·~·-, =~-~=-.:-- .,.,.... =-~~-::--""".::s.==-=....,.= ...-:::r"-~"'- ·---·-,~-:.~ .,.,_~:---~ •..,,,_ -;;:-:·--=~~--"L!:~-~-.:::=""-"'~''-=...c=..-r-.....:=;:=..-.::=·. .,...... ~.:~.-r..,.':-e'="""__,.'~"='·<--'~,..."-"""'~=,....:.··.=="-·...,..--.=--""',...,.,-=---"~"" ="'..,....-:--r.-~..,., + Major ccys up 5% except CHF up 8%, Emerging Europe down 5% + La tam down 10%, Asia down 5%, Minor Asia down 10% + Vols: 20% across (val shocks are relative)

~-~--- ..... ·-=-~ .. ~ ....~..c;,-;~ ...... ~~...... =- "'""""-:w-:.a:.~_....:,w;2,~~..:::...~~·~~....,..~.. =m.~o;o>',...... -,::u,;:o ... il.l + FNCL LOAS widened by 10 bp, FNCI LOAS by 6 bp. Trust IO by+ 109 bp and PO by -18 bp. HEL AAA widens by 4 bp, and BBB- widens by 75 bp. OAS Drop widens by 6 bp, subprime loan by 18 bp, MTA loan and hybrid loan widen by 16 and 14 bp respectively. CMBS AAA by 5 bp, BB by 72 bp. CMBS whole loan by+ 9 bp.

·--~~~-··~--~a~--~"~~• ~~=---~=-=~>=~~-=·=~~~=~·~- =~ + HG spreads widen 25%. Latin/Eastern Europe EMG spreads widen 30%, Asia credit spreads widen 25%. + HY market down 4.9% (Ba), 4.0% (B), 4.0% (Caa and below). HY Loans down 1.1% (Ba), 1.5% (B), 2.0% (Caa and below). CDS down 6.2% (Ba), 4.5% {B), 4.0% (Caa and below) + %; Correlation: Equity tranches up-front prices down (5Y Maturity ITRAXX 0-3 tranche -5.54%, CDX 0-3 tranche -6.26%, CDX HY 0-10 tranche -5%) ~~~-=-= J'...J>..=; ...... - .... ::c~...:..-=. •• ·.~- -"-~~--...=n---:..:..-~ -- ,;<.:;_ =-...... ~ ...._ ::~---" ---~------· :------:.--..:;..~ ...... -:.~---=-~_..,..,__,. _ _:_--.,~--:~..:-··- ··- "-'------=---~"'- -""'"--=--·~::::"-=-:.=r=.-:. • .-..-~ ··::-::....:- . .= -=-..... ~_.. + Developed Markets Countries (D)- Americas -20%, Asia -17%, EMEA -13%; Emerging Markets I Countries (El)- Americas- r m 25%, Asia -27%, EMEA -25%; Emerging Markets II Countries (E2) -Americas -30%, Asia -30%, EMEA -30% m ~ 1M Vol +173.2%, 3M Vol +100%, 6M Vol +70.7%, 9M Vol +57.7%, 1Y Vol +50%,2Y Vol +35.4%, 3Y Vol +28.9%, 5Y Vol >< +22.4% (val shocks are relative) :i> s 0 ...... en 1\) 0'1 LEHMAN BROTHERS 15 ....Jo. Parallel Move Down I Modeled after Post 9/11 Flight to Quality (Sep 11, 2001 - Sep 25, 2001)

...... _..~=~-~"'""='~.,_ .. __• ._~-=::x.=-.=-"'"'-""'--"'=-==:;;::_,.~A#-<.-:'-== ...... ,.-•• -...=~·""'-""""'•-~-_.,"""'".=oo="o~.-•~oe"'~=-:.=~-;:----=--~-=_.•·">="- '•..-..=.:c >~-~"'-"""' ·.·~-.... ~:.:..-_:._...... ,~~...._~"=-==~'""""'"---::'"-""'"-"<=-•=·==~= + USD: Treasury: -65bps Swap spr: +lObps Cap vol +4%, Swaption vol +3% + EUR: -50 bps + GBP: -55 bps + JPY: -5 bps (val shocks are absolute)

+ Major ccys up 4%, except CHF up 7% and GBP up 1%, EM ccys down 5% + Vols: Latam 20%, TRY and Eastern Europe 15% RUR 45% + Major ccys 30%, Minor Asia 35% (val shocks are relative)

+ FNCL LOAS widened by 5 bp, FNCI LOAS by 3 bp. Trust IO by +54 bp and PO by -10 bp. + HEL AAA widens by 5 bp, and BBB- widens by 30 bp. OAS Drop widens by 3 bp, subprime loan by 12 bp, MTA loan and hybrid loan widen by 11 and 10 bp respectively. CMBS AAA by 2 bp, BB by 27 bp. CMBS whole loan by+ 3 bp.

+ HG spreads out 25%; Latin/Eastern Europe EMG spreads widen 30%, Asia credit spreads widen 25%. + HY market down 4.3% (Ba), 5.7% (B), 8.5% (Caa and below). HY Loans down 1.0% (Ba), 2.1% (B), 4.3% (Caa and below). CDS down 5.7% (Ba), 6.3% (B), 8.5% (Caa and below) + %, Correlation: Equity tranches up-front prices down (5Y Maturity ITRAXX 0-3 tranche -5.54%, CDX 0-3 tranche -6.26%, CDX HY 0-10 tranche -5%) •~-...... ---'>'-=""'~---~·"':-:.o..-.,:o.<.·..,-ao"t-"'""·.,..··*"~"-a~"*"'"'"'~-'*-..,."""--""""".--.:.--•~"'--"--=""-~-."'"'-·"""'"-'=-~"'"",.. ___,.,.,_~.,...- .. :o=-"",..==-w:o::-..=oo=r==""'"'==""""""..-.~~-·-·-··.·-~-- --..·. .,_,_....,..,....,.::-=---=-->==4 -·--·=· ._,....,.,._-~-=-·:::-~~-=~.,"""""-=~·= + Developed Markets Countries (D)- Americas -12%, Asia -7%, EMEA -14%; Emerging Markets I Countries (El)- Americas- r 13%, Asia -14%, EMEA -14%; Emerging Markets II Countries (E2)- Americas -16%, Asia -14%, EMEA -17% m m + 1M Vol +34%, 3M Vol+ 19.6%, 6M Vol+ 13.9%, 9M Vol +11.3%, 1Y Vol +9.8%,2Y Vol +6.9%, 3Y Vol +5.7%, 5Y Vol >< +4.4% )> s (val shocks are relative) 0 ...... en 1\) 0'1 LEHMAN BROTHERS 16 1\) Parallel Move Up I Similar to Oct 30, 2001 - Nov 14, 2001 period

=- ____,.,~ .· ---~·: ~<::- ·-·- .,._- -;-; -~-...:o.-=--1.-- ______..,._ -~=-::::-:-==:-=_::,__-___ ·.:.:. ...,-_ ....:::.-::.::-•.-. ~--~-=-=-~::--- -':..--=7""""=: =---=--=-"""--...... + USD: Treasury: +75bps Swap spr: + 1Obps Cap vol +3%, Swaption vol +2% + EUR: +50 bps + GBP: +45 bps + JPY: +5 bps (vol shocks are absolute)

.... · -=:"-- --o=.:.·;...t.o<•<'''-~~... .::.O.'::":..:I'~~~------• ~-..::.----::.:..:...~=~-= .. -=...... ---- ....~-=-....-...... :.....: ..... -·.·..::.-.. ==·- .. ~~ =-·=-~..,.·-...:::-=-~"'-·""';:=.o,.;..:~~~~-~""--""~'-' + Major ccys down 3%, BRL and TRY up 4%, RUB and Eastern Europe down 1%, minor Asian up 1% + Vols: Latam 20%, RUB 140%, TRY 40%, Eastern Eur 30%, JPY 15% + Other majors -10%, Minor Asia 50% (vol shocks are relative)

..-~~=----=-_,.,.., -~-~~._... .. , ...... ~.-...... -~.._~-.---~ ~~~ __ .,.....,:.~,..:=r-·~--..... ,.··--··-· ~~-~-- -~-· + FNCL LOAS widened by 5 bp, FNCI LOAS by 3 bp. Trust 10 by 54 bp and PO by -10 bp. + HEL AAA widens by 3 bp, and BBB- widens by 15 bp. OAS Drop widens by 3 bp, subprime loan by 9 bp, MTA loan and hybrid loan widen by 8 and 7 bp respectively. CMBS AAA by 2 bp, BB by 9 bp. CMBS whole loan by+ 2 bp.

""'"""'" = -=""'--''''"""'~--="'""~-=~--= ... =, .. -_...._ ...... ==-·-. -~--=-~-~- '-='"""""'==-~---='< + · HG spreads tighten 15% + HY market up 1.4% (Ba), 0.2% (B), 2.9% (Caa and below). HY Loans up 0.5% (Ba), 0.3% (B), 1.5% (Caa and below). CDS up 3.2% (Ba), 0.9% (B), 2.9% (Caa and below) + Latin/Eastern Europe EMG spreads tighten 15%, Asia credit spreads tighten 15%. -·~~~;.>o'~~ ...... __.=--==~=---=-~"-=~=- .... -r..=r..S"'-=" + Developed Markets Countries (D)- Americas +8%, Asia +3%, EMEA +7%; Emerging Markets I Countries (El)- Americas + 10%, Asia +11 %, H.1EA + 7%; Emerging Markets II Countries (E2) - Americas + 12%, Asia + 10%, EMEA + 10% + 1M Vol-21%, 3M Vol-12.1%, 6M Vol-8.6%, 9M Vol-7%, 1Y Vol-6.1%,2Y Vol-4.3%, 3Y Vol-3.5%, 5Y Vol-2.7% (vol shocks are relative) r m m >< :i> s 0 ...... en 1\) LEHMAN BROTHERS 17 0'1w Oil Supply Crisis

Major oil supply disruption at the source, likely due to political events in oil producing I countries and/or terrorism, with great uncertainty around supplies returning to normal levels in the near future •~-=·------.::.·.-, ..,.,. ,-~ •=-->=-....., -...-,·; ---~-=•=-=-=----=.,.--~··..;:;..:o,;:::.-_7"=.-:.:...=-:::-.~.- -"-·,.-::;.·· ...---=-.r.-~-=o=-ll:;:;~;,..-::-._-..:.r.:.r.•=·~=.. ..\t + USD: Treasuty rates: 2Y -125bps, lOY -50bps(75bps steepening) Swap Spr: 2yr +20bp, !Oyr: + !Obp. Cap vol +5%, Swaption vol +3%. + EUR: Govt rates: 2Y -50bps, I OY -25bps (25bps steepening) Swap Spr: -3bps. Cap vol +5%, Swaption vol +3% + GBP: Govt rates: 2Y -75bps, I OY -25bps (50 bps steepening) Swap Spr: -Sbps. Cap vol +7%, Swaption vol +3.5% + JPY: Govt rates: JOY -30bp. Cap vol +15%, Swaption vol +10% + Inflation: -20 bps (val shocks are absolute) ...... ~"'--=""="'• ...... ~-=..,...... -_...... ,.,.,.. .. ~ ... ~--·~=~--...... -.. _....., __ .....,.,._,.c=-~=-...... -=~--- ,...... ,.. ··-...... ,----..:. .... ;;.-.·"'""'""=-----~-=-<--.-o.~-~-... =_;,:_....,_..__..~~-....==·------...... -~-.,.. __ ·-""-" ...... ,._,.,:;,._-.:-.-.;;'--"""~...... ,.,....,._,--,_=..<;>~,..,_ • EUR +6%, JPY +8%, GBP +4%, CHF +9%, Latam -10%to -15%, Emerging Europe -12%, Asia -12%, Other: pegged currencies: -lo/o/+1% + Vols: +50% on major currencies,+ 100%-200% on emerging currencies (val shocks are relative)

~~-=">'.r"-""'-'~..,.""."'-""'~-...... ,~"''"' .~_...-..._-...,:£..~-.-._.,._._..,~,~r A""-"-= •...... , •• ....,....~...,...... ,.,.-,, >'"·~·-~-·· ._.., .. ,_ .-..•..,.._,. '''"' ...,...._r~.,.=-·~,.._....., . .,_J~-r. •• ...-.·..s=··""·"'~ !~~ ..-..·;.·_....-~ ·<-·=~.,....~~"""~-~-==v..<~_.-..,.-,,- ... ._.,~- ... ..--,=---~• """"-"""our_..,.,....,..-o...... _.r.~,.,..;=-- + FNCL LOAS widened by 5 bp, FNCI LOAS by 3 bp. _Trust 10 by 54 bp and PO by -10 bp. • HEL AAA widens by 3 bp, and BBB- widens by 67 bp. OAS Drop widens by 3 bp, subprime loan by 17 bp, MTA Joan and hybrid loan widen by 15 and 12 bp respectively. CMBS AAA by 2 bp, BB by 45 bp. CMBS whole loan by+ 4 bp. ~--== ~~-~.,_-:: ..... -::n-_..::r-_...,.,.- .. -~~ "' -~--=.,..·=-·-""'----"'--...--...-.,.,.,...... ~...:: .. ~=--~.:-.::=::oa + HY market down 3.7% (Ba), 6.1% (B), 7.0% (Caa and below) HY Loans down 0.8% (Ba), 2.2% (B), 3.6% (Caa and below). CDS down 4.8% (Ba), 6.7% (B), 7.0% (Caa and below) + HG spreads widen 50%-65%. Latin/East Europe EMG spreads widen 30% (non-oil exporters). Asia credit spreads widen 40% (non-oil exporters)

:w==-""~~~=-,.,__.....,,..,_..,..._~o--~~-=--~-.:....=-"'"'.=..-,.-=.r-'~,_ ..,. __-:-..,.. . .:;.;....~~.-:.'---~=...- =-::::=o.~~.=.---=-=~~_,~&.,-...:.,--,,...-.=,..,.,=.:~~~~~=~"'··.,..__._..,..._,.,.._,.~-:.-u.:::....,...... ,.~.,.....,.~'"""":1"..::•''•""'="'=kl + North America -13.5% UK -11.5% Gennany -19.5% France -21% Remaining Euro -18.5% Japan -23% Hong Kong -17% Korea -12.5% Mexico -19% Brazil- 19%, India -16.9%, Turkey -21.5%, Australia -11.5% + All Energy Sector Stocks: -3.9% + Vols: IM +69%, 3M +40%, 6M +28%, 9M +23%, IY 20%, 2Y 14%, 3Y 12%, SY 9% (val shocks are relative)

·~-,_,...._,._-:;.,.._-...,----:::.. =-~=.::=-~,.o:;:-..=-==c;:~=-=o~-""~"""''=-...::.r-r-~~~~~···---·-- - -~:o..·=,._._--=,.,-..,_-;.~ - ·--.,• .,.-_:-_..,~~-,..~~~·:::>--<- - ...,..~-...:r-.-::--,.--=. = "'-:;_~·-. .;;.-=--==o.-o;:<;.r~- + Crude oil: front 6 mo ave. price: $106/ bbl, Year I: S I 05 bbl, Year 2: $104/ bbl, Year 3: S I 04/ bbl + Oil products: Heating oil - $4.55/ gallon, Unleaded gas: $4.65/ gallon + Oil vols up 100% r + US natural gas: front 6mo ave. price: S I 0.05/ mmbtu, following oil curve pattem m • US power peak prices: front end: $95/ MWh, following natural gas curve pattem m (Front end 0-6mo; back end 4yr and up; val shocks are relative) >< :i> s 0 ...... en 1\) 0'1 LEHMAN BROTHERS 18 ~ Liquidity Crunch Hawkish Federal Reserve and major Central Banks continuing on a path of raising rates, I draining the extra liquidity enjoyed previously, resulting in a decline in the risky assets and spread products ...... -,;:..-::....--::;·-::--__ ::-=="'%'"":".__. ..,. + USD: Treasmy rates: 2Y +95bp, lOY +70bp (25bps flattening) Swap Spr: 2yr+l2bp, IOyr: +8bp. Cap vol +4%, Swaption vol +2% + EUR: Govt rates: 2Y +61bps, lOY +41bp (20bp flattening) Swap Spr: +II bp. Cap vol +5%, Swaption vol + 3% + GBP: Govt rates: 2Y + 70bp, I OY +50bp (20bp flattening) . Swap Spr: +20bp. Cap vol +7%, Swaption vol +3.5%

+ JPY: Govt rates: short end +50bps, 2Y +35bps, JOY +20bps; cap vol +8%, Swaption vol +2% Inflation: -35 bps (vol shocks are absolute)

-r.:J + JPY and CHF up 8%, other majors down 2% to 3%, Latam down 15% to 32%, Emerging Europe down 15%-25%, Asia down 7%-15%, FX'"· ,. + Vols: JPY +40%, other major currencies + 15%, La tam currencies +50%, Emerging Europe and Asian currencies+30% to +200% -~·- ·,\.. . (vol shocks are relative) ~-~---=~.. ~- .-.-.. ,-... ~- ~~0;~~ ·.r.:~-:::'0:.j~?t~-:~:-:<_·:,;._~ + FNCL LOAS widened by 5 bp, FNCI LOAS by 3 bp. Trust 10 by -36 bp and PO by +8 bp. :Mor.tg~ge":5. · ·.. '~·· · + HEL AAA widens by 3 bp, and BBB- widens by 150 bp. OAS Drop widens by 7 bp, subprime loan by 20 bp, MTA loan and hybrid loan widen by 15 and 12 bp ~~,~--.: ··i:5·_~-~ :" ·l·:t>. -__ -'_,.·, respectively. CMBS AAA by 3 bp, BB by 85 bp. CMBS whole loan by+ 8 bp . .-=- ===-" w:::=== -cx::r:~o•:•,;·~-~~-=--._~--' - : ....,.._ -===--: + HY market down 6.3% (Ba), 7.0% (B), 7.5% (Caa and below). HY Loans down 1.3% (Ba), 2.5% (B), 3.8% (Caa and below). CDS down 7.6% (Ba), 7.5% (B), 7.5% (Caa and below) · + HG spreads widen 50%-65%. EMG spreads widen 50%-75%. + Correlation: Equity tranches up-front prices down (5Y Maturity ITRAXX 0-3 tranche -5.54%, COX 0-3 tranche -6.26%, CDX HY 0-10 tranche -5%) ~----..:..-...,,.- • .:...... ~.,..._.,-.,.=-:"'~~-.... =-~"'~-===-=-~---~~-~--:· ···- ___- ...... -...... _...... ,....= (_:~!:~ ~ >".; --­ + Developed Markets Countries (D)- Americas -8%, Asia -14%, EMEA -14%; Emerging Markets I Countries (El)- Americas -21%, Asia -14%, EMEA -20%; Equity<: Emerging Markets II Countries (E2)- Americas -25%, Asia -25%, EMEA -30% . :' _- .r·,r•·. -. -..;.· . "-·· -~-~--' + 1M Vol +86.6%, 3M Vol +50%, 6M Vol +35.4%, 9M Vol+28.9%, IY Vol +25%,2Y Vol +17.7%, 3Y Vol +14.4%, 5Y Vol +11.2% (vol shocks are relative)

======-=-,-~><.o~.·-·• ,-, + Crude front end prices fall 40%, back end prices fall 26% ; Oil products front end prices fall 45%, back end prices fall 29% ; Oil front end vols down 50% + US natural gas front end falls 40%, back end falls 26%, vols fall by 50% r m + US power front end falls 35%, back end falls 23%. m (Front end 0-6mo; back end 4yr and up; vols are relative) >< Note: T7zefactors are meant to reflect the nature of the stress events covering the historical periods specified for each scenario. T7ze actual factors might be adjusted depending on the conditions of the current )> markets (such as if a ccy peg has already been broken, default correlations are already up, new risk factors appear in the market, one count I)' started to resemble another counlly due to stmctural and/or s political changes, etc.). 0 ...... en 1\) 0'1 LEHMAN BROTHERS 19 0'1 .....co ·-a. co (.) c: 0 ·--en

LBEX-AM 067256 CSE Capital Adequacy Capital Management and Balance Sheet I

Since December 2005, Lehman has been operating under the SEC's Consolidated Supervised Entity (CSE) framework, which is similar to Basel II. The CSE framework introduces measurement of capital adequacy reflected by capital ratios, similar to . banks. The Firm maintains capital ratios in excess of "well capitalized" standards. Comparison indicates that Lehman is better capitalized than many higher-rated commercial banks

Lehman 2Q'07 Fed Standards Wells Absolute Well- Minimum Capitalized ~~Q~Q.7=~~q~~2 <~t ~-~-'~.!oA ~·~!!M =Wac_~a F~g-~= ===·..:r-=.... -==,~==--~~ Bank Capital Adequacy Measures

Tier 1 Capital Ratio 8.0% 7.5% 7.9% 8.5% 8.1% 7.5% 8.6% 4.0% 6.0%

Total Capital Ratio- incl. LTD(!) 12.0% 11.6% 11.2% 12.1% 12.0% 11.5% 11.7% 8.0% 10.0%

S&P Credit Rating A+ A+ AA AA AA­ AA­ AA+ Moody's Credit Rating A1 A1 Aa1 Aa1 Aa2 Aa3 Aal r m m >< )> I. hz addition to subordinated debt as allowed by the Fed, the SEC currently allows securities firms under CSE to include qualifYing senior debt in Tier 2 capita/through the end of 2008 {limited to 50% of s Tier 1 capital). it is expected that durinJI this period, securities firms will gradually replace senior debt with subordinated debt. 0 ...... en 1\) LEHMAN BROTHERS 20 ...... 0'1 Competitor Ratings Equity Adequacy Framework J

Competitor Ratings: LEH GS BSC MER MS

Moody's Investor Service Short-term P-1 P-1 P-1 P-1 P-1 Long-term (Senior) A1 Aa3 A1 Aa3 Aa3 Long-term (Subordinated) A2 A1 "A2 A1 A1

- ----standa-rd-&-P·o-or's·-- Short-term A-1 A-1+ A-1 A-1+ A-1+ Long-term (Senior) A+ AA- A+ AA- AA- Long-term (Subordinated) A A+ A A+ A+

Fitch Ratings Short-term F1+ F1+ F1+ F1+ F1+ Long-term (Senior) A A­ AA­ A+ A A­ A A­ Long-term (Subordinated) A+ A+ ·A A+ A+ r m m >< )> s 0 ...... en 1\) 0'1 LEHMAN BROTHERS 21 co Hybrid Equity Issuance

Equity, Balance Sheet, and Adequacy Hybrid Securities are an integral component of our equity structure. Used within limits, hybrid equity supports growth and optimizes the Firm's equity base in a non­ dilutive, cost-efficient manner

+ In 2007, we issued $1.5 billion of innovative Mandatory Capital Advantaged Preferred Securities (MCAPS) and $0.8 billion ofEuro ECAPS -'- As a result, our equity mix is fully optimized, up to allowable limits

+ MCAPS units are debt instruments that convert into perpetual preferred stock after 5 years Until conversion into preferred, the issuance provides tax deductibility, reducing the cost for the first 5 . years. The cumulative 5 year tax benefit of issuing MCAPS, as opposed to traditional Perpetual Preferred securities, is $116 million - At the same time, due to very long-dated maturity and deep subordination, regulators and rating agencies include MCAPS in the calculation of our equity base

Hybrid Equity ($mm) 2004 2005 2006 2007F Hybrid -.UK Preferred 501 1,218 1,120 Euro ECAPS 774 US ECAPS 300 296 300 Traditional Trust Preferred 1,000 1,225 1,224 1,225 MCAPS 1,500 Traditional Perpetual Preferred (1) 1,345 1,095 1,095 1,095 r m Total 2,345 3,121 3,833 6,014 m >< Hybrids as% of Adjusted Equity (2) 19% 20% 21% 26% :i> I Tradhional Pe1petual P/·eferred include Hybrid Securities when calculating limits s 2 S&P Hybrid limit is 25% of adjusted equity 0 ...... en 1\) 0'1 LEHMAN BROTHERS 22 CD