P Z E N A INVESTMENT MANAGEMENT, LLC

Evaluating Financials
In a State of Panic
 Financial Stocks in Free Fall
Lehman Brothers Holdings Inc. (LEH) Citigroup Inc. (C)
29-Dec-2006 to 27-Nov-2007 (Daily) High: 86.180 29-Dec-2006 to 27-Nov-2007 (Daily) High: 56.280
U.S. Dollar Low: 49.060 U.S. Dollar Low: 29.600
Last: 60.110 Last: 29.960

85 55
80
50
75
70 45

65 40
60
35
55

50 30

Volume in Millions (max/avg) Volume in Millions (max/avg)

45 230

9 35
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Data Source: Prices / Exshare ©FactSet Research Systems 2007 Data Source: Prices / Exshare ©FactSet Research Systems 2007

Fannie Mae (FNM) Freddie Mac (FRE)

29-Dec-2006 to 27-Nov-2007 (Daily) High: 70.570 29-Dec-2006 to 27-Nov-2007 (Daily) High: 68.550
U.S. Dollar Low: 26.380 U.S. Dollar Low: 22.900
Last: 28.990 Last: 25.360
70 70
65
65
60
60
55
55
50
50 45
45
40
40
35
35
30
30
25

25
Volume in Millions (max/avg) Volume in Millions (max/avg)
71 85

7 5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Data Source: Prices / Exshare ©FactSet Research Systems 2007 Data Source: Prices / Exshare ©FactSet Research Systems 2007

1
 Financials Stocks are Extremely Cheap
U.S. Financial Stocks* Relative Price-to-Book Ratio 1965 through Late-November 2007

Higher Price-to-Book Ratios

Current

1990
Beginning 2007

1999 - 2000

Lower Price-to-Book Ratios

Percentile (100=Financials Cheapest)

Source: Corporate Reports, Empirical Research Partners Analysis

*Largest 1,500 stocks; capitalization-weighted data

2
Subprime Borrower – Not All Deadbeats

Average Loan Size $223,000

Average Down Payment 33,000

Average Second Mortgage 19,000

Average Home Price $275,000

Owner Occupied % 95%

Weighted Average Coupon 8.3%

% FICO < 600 33%

Source: Company Reports and Pzena Estimates

3
Subprime Borrower – Not All Deadbeats

Monthly Income $3,900

Monthly Payment – First 2 Years 1,642

Monthly Payment – After Reset 1,846

Avoided Rent 1,000

Budget Cut to Make New Monthly Payment 5%

# of Months Savings to Recoup Down Payment 39

Source: Company Reports and Pzena Estimates

4
 GSE’s Credit Portfolios are Very High Quality
FRE Credit Guarantee Portfolio at September 2007

LTV Ratio Product Type

125

5% Other
100
Above* 17 16 42 61 1% Option ARM
80%
75 9% Interest Only

5% Hybrid ARM
50
Below
80%
LTV 25 83 84 58 39
80%
Fixed
0
FRE Current FRE at U.S. Market Alt- U.S. Market
Origination A 2006 VintageSubprime 2006
at Origination Vintage at
Origination

Weighted
Average Loan 60% 73% 81% 85%
to Value

*Credit enhancement required for GSE origination above 80% LTV by charter
Source: Freddie Mac

5
FRE’s Credit Portfolio Continues to Perform Well
90 Day Delinquency Rate

1.00%

0.75%

0.50%

0.25%
2004 Sept 2007

Source: Freddie Mac and Mortgage Brokers Association

6
 FRE Profitability

(basis points)

Credit Guarantee Recent Vintage

Current
Expected Actual
Market
Fees 20 20 28

Expected Losses (4) (9) (3)

Operating Expenses (6) (6) (6)

Operating Margin 10 5 19

Implied ROE 20% 10% 39%

Retained Portfolio

OAS 25 65

Implied ROE 14% 24%

Source: Company Reports and Pzena estimates

7
 FRE – Calculation of Earnings Power

Implied Normal
Fair Value
ROE Earnings

June 1, 2007 $39

Less: Impairment Due to Expected Credit Losses (3)

$35 X 18% $6.30

Less: Impairment Due to Over-Reserving (4)

$31

Less: Impairment Due to Interest Rate Moves (6)

September 30, 2007 $25 X 25% $6.30

Source: Company Reports and Pzena Estimates

8
 FRE Earnings Power

Low Case Base Case High Case

$5B @ $1B
Common Equity Issued 0
$20/share @$25/share

Long-term ROE 18% 20% 25%

Long-term Growth Rate 3% 5% 8%

Capital Surcharge 30% 15% 0%

2012 EPS $3.75 $6.25 $9.25

Source: Company Reports and Pzena Estimates

Source: ?

9
 Further Information

These presentation materials are intended for use by the recipient named on the front cover
hereof for the exclusive purpose of evaluating the investment advisory services of Pzena
Investment Management, LLC. Any other use is strictly prohibited.

These presentation materials and any attachments delivered separately herewith may contain
non-public or confidential information of Pzena Investment Management. Accordingly, neither this
booklet nor any portion hereof may be reproduced or redistributed without the prior written
consent of Pzena Investment Management. Disclosure of the information presented in this
booklet to anyone other than the recipient’s employees, officers, directors, or financial or legal
representatives is also prohibited without the prior written consent of Pzena Investment
Management.

© Pzena Investment Management, LLC, 2007. All rights reserved.

10