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Counterparty Credit Risk Management

Project Status Update

April 8, 2013

P Please consider the impact on the environment before printing this document.

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Agenda

I. Executive Summary – Status Update

II. Systems and Reporting

III. Customer Relationship Hierarchy / Single Name

IV. Policy & Procedures

V. Next Steps

VI. Appendix 1 – Reports and Process Flow Chart.

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I. Executive Summary – Status Update

Systems and Reporting

• Received final approval from business stakeholders for reporting requirements.

• Finalized a two-pronged approach to addressing reporting needs:o Near Term Solution - Limited number of reports (13) on monthly basis in business Objects environment.

Reports to be available in two releases in 2013.

o Long Term Solution - Facilitate reporting from ICRS, which provides greater flexibility and daily updates.

• Developed a plan for implementation of the Near Term Solution with estimated costs. We will be seeking funding approval very soon.

• Plan for Long Term Solution under development with expected completion by May 2013.

Aggregation – relationship structures

• Confirmed that the existing guidance to business units for building relationship structures in RCIF is appropriate for meeting the ISG requirements (guidance provided by Customer Information Program (CIP) / Customer Due Diligence Program (CDD) ).

• Developed approach for working with business to review and validate relationship hierarchies established in RCIF using “Parent/Subsidiary” links.

Policy and Procedure

• Gap Assessment by KPMG completed on 3/28, and final document to be delivered by 4/12/13.

• Project team will work with CCRM representatives to develop and implement plan to close the gaps.

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Near Term Solution

• Limited to monthly reports only.

• Data extraction and report development will be in 2 phases (reports and data flows in Appendix 1]

o First set of 8 reports will be ready in first week Oct 2013

o Second set of 5 reports will be ready in mid Nov 2013

• Phase 1 reports will not have data in few columns till Phase 2 is complete , as data extraction is in two stages [ ex. Regulatory capital, CAT III limits, CDS, some collateral related data]

• The work effort around validating, remediating or building out relationship structures for all Cat II exposures will have to be completed prior to the release of the reports or will result in inaccurate aggregated data. Plan outlined in the following slides.

• Total estimated cost for this work effort is $450,000. We will be seeking funding approval after reviewing this plan with business stakeholders today, so that we can meet the timeline outlined above.

II. Systems and Reporting

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Near Term Solution

II. Systems and Reporting

Please refer to Appendix 1 for list of reports and a more detailed Process Flow chart.

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Long Term Solution

• This solution will move required Cat II and Cat III data to the Data Warehouse so it can be accessed in both the Data Warehouse the ICRS environment [and allow CCRM reporting off of ICRS platform]. o This would allow for reporting based on daily data.

o Provide greater flexibility for the CCRM user – they can generate and customize their reports.

o Reconciliation/Validation requirements for daily data is to be finalized in discussion with Business.

o Results in all Wholesale credit reporting being available from one data mart.

• The details of the requirements of this solution are still being developed, with expected delivery of an implementation plan by May 2013.

II. Systems and Reporting

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III. Relationship Hierarchy

ISG Guidance – key requirement: Exposure aggregation must occur for “affiliated legal entities at the parent entity level”.

Proposed approach1. For a group of legal entities identify a “Relationship Head”.2. Link individual legal entities to the “Relationship Head” on RCIF. 3. Base linkage on CIP/CDD guideline for RCIF linking: ownership >25%.

Validation of current relationships• 3 areas of analysis and line review:

1. Comparison of relationships reported to our parent through the Large Lending Relationship Report (LRR), and the Global Top 50 Financial Counterparties (GT50). Completeness of relationships on RCIF checked against these reports.

2. Relationships and stand alone entities not on LRR or GT50 reports that need to be validated by the line as correct.

3. Entities with CAT I or CAT II exposure that may be:

a. Duplicate records that should be merged.b. Related entities that should be linked.

 Next Steps• Prepare relationship review package for senior line managers. (Completion: April 30).• Conduct line outreach and relationship validation. (May through July)

1&2 Summary LRR

CIF Rel Match GT50

CIF Rel Match

Other Rel & Standalone

Rel Count 101 79 29 12 516

CIF # Count 471 71 1283

CAT II EAD $56MM $215MM $626MM

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III. Relationship Hierarchy: Analysis ExamplesGLOBAL TOP 50 REPORT Data

RELATIONSHIP NAME RCIF MATCH P_COUNT EAD_GDW-COMM EAD_GMG-LMTMorgan Stanley CIF DIFF 4 $0.00 $57,822,494.55UBS CIF DIFF 3 $0.00 $28,366,161.56JPMorgan Chase & Co. MATCH 1 $15,000,000.00 $26,896,101.34

relationship_name RWA - loan_nameRCIF CUST NUM

RCIF_PARENT CUST NUM RCIF_PARENT NAME

Morgan Stanley Morgan Stanley Capital Services LLC 207199335 207199335 MORGAN STANLEY CAPITAL SERVICES LLCMorgan Stanley Morgan Stanley Capital Group Inc. 205657349 205657349 MORGAN STANLEY CAPITAL GROUP INCMorgan Stanley Morgan Stanley & Co. LLC 206691463 206691463 MORGAN STANLEY & CO LLCMorgan Stanley Morgan Stanley & Co. International plc 205486516 205486516 MORGAN STANLEY & COMPANY INTERNATIONAL P

Morgan Stanley is the relationship on the Global Top 50 report.• The report has 4 entities in the relationship.• None of the entities is linked on RCIF.• Action is needed to create the links.

LARGE LENDING RELATIONSHIP REPORT Data

RELATIONSHIP_NAME(LRP)RCIF MATCH P_COUNT EAD_GMG-LMT(RWA) EAD_GDW-COMM(RWA)

STERICYCLE, INC. MATCH 1 $0.00 $45,666,949.65PACIFIC DEVELOPMENT GROUP MATCH 1 $8,895,553.01 $69,793,289.53MACY'S CORPORATE SERVICES INC MATCH 1 $0.00 $45,900,449.33

RELATIONSHIP_NAME(LRP) LOAN_NAME(ICRS)CUSTOMER_NUMBER(ICRS)

PARENT_CUS_NUM(RCIF) PARENT_NAME(RCIF)

PACIFIC DEVELOPMENT GROUP THE COLONIES-PACIFIC 19C, LLC 206882563 100118939 PACIFIC DEVELOPMENT GROUPPACIFIC DEVELOPMENT GROUP THE COLONIES-PACIFIC 19A, LLC 205262292 100118939 PACIFIC DEVELOPMENT GROUPPACIFIC DEVELOPMENT GROUP SDC/PACIFIC/YOUNGMAN 100642052 100118939 PACIFIC DEVELOPMENT GROUPPACIFIC DEVELOPMENT GROUP PACIFIC/YOUNGMAN WOODLAND HILLS 100499052 100118939 PACIFIC DEVELOPMENT GROUPPACIFIC DEVELOPMENT GROUP PACIFIC/DSLA NO 2 100501559 100118939 PACIFIC DEVELOPMENT GROUPPACIFIC DEVELOPMENT GROUP PACIFIC/COSTANZO-LEWIS 203045727 100118939 PACIFIC DEVELOPMENT GROUPPACIFIC DEVELOPMENT GROUP PACIFIC/COSTANZO-GLENDORA 206633028 100118939 PACIFIC DEVELOPMENT GROUPPACIFIC DEVELOPMENT GROUP PACIFIC INVESTORS GROUP 100519179 100118939 PACIFIC DEVELOPMENT GROUPPACIFIC DEVELOPMENT GROUP PACIFIC DEVELOPMENT II 100519168 100118939 PACIFIC DEVELOPMENT GROUP

Pacific Development Group is the relationship on the Large Lending Relationship Report• The report has 9 entities in the relationship.• All the entities are linked on RCIF.• Line should confirm the relationship is

correct.

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III. Relationship Hierarchy: Duplicate Analysis

Match run against “Customer Name” for all entities with either CAT I or CAT II exposure.

154 “clusters” found with one or more candidate duplicate records. Different scenarios to review:1. Are the records duplicates? If so, the line needs to initiate a merge.2. If the records are separate legal entities, are they linked? If not, the line should assess if they need to be linked.

CLUSTERID COUNTERPARTY_NEW_DESC CIF NUM ADDR1_LINE CITY_NAME POSTAL_CD STATE_CD EIN CAT_II U_ORG_NAMEU_CUST_NUM

000004456 HELIX PROPERTIES II LLC 200133382 8260 CAMINO SANTA FE SAN DIEGO 92121 CA 330810533 Y HELIX ELECTRIC INC 200082055000004456 HELIX PROPERTIES III, LLC 207147675 8260 CAMINO SANTE FE SAN DIEGO 92121 CA 455121130 Y HELIX ELECTRIC INC 200082055

000005826 CHAINRING LLC 205245697 330 SE SALMON ST PORTLAND 97214 OR 263051105 YACME CONSTRUCTION SUPPLY CO INC 203666122

000005826 CHAINRING II LLC 207017473 330 SE SALMON STREET PORTLAND 97214 OR 454084327 YACME CONSTRUCTION SUPPLY CO INC 203666122

000003382 MP SOUTH CITY LP 205312346 303 VINTAGE PARK DR STE 250FOSTER CITY 94404 CA 263339253 Y MIDPEN HOUSING CORPORATION 206410678

000003382 MP SOUTH CITY II LP 206334413 303 VINTAGE PARK DR STE 250FOSTER CITY 94404 CA 272933010 Y MIDPEN HOUSING CORPORATION 206410678

000004933 FIERA AXIUM SOLAR ELMSLEY EAST LP 2073657361 ADELAIDE STREET EAST SUITE 600 TORONTO M5C 2V9 ON Y

FIERA AXIUM SOLAR ELMSLEY EAST LP 207365736

000004933 FIERA AXIUM SOLAR ELMSLEY WEST LP 2073657461 ADELAIDE STREET EAST SUITE 600 TORONTO M5C 2V9 ON Y

FIERA AXIUM SOLAR ELMSLEY EAST LP 207365736

000001965 RICH INVESTMENTS-222 INC A 205373646 222 PLAYA DEL NORTE LA JOLLA 92037 CA 208148649 N RICH INVESTMENTS-222 INC A 205373646000001965 RICH INVESTMENTS-234 INC A 205373731 222 PLAYA DEL NORTE LA JOLLA 92037 CA 208148584 N RICH INVESTMENTS-234 INC A 205373731000001965 RICH INVESTMENTS-1610 INC A 207765940 222 PLAYA DEL NORTE LA JOLLA 92037 CA 461419618 N RICH INVESTMENTS-1610 INC A 207765940000001965 RICH INVESTMENTS-305 INC A 207765992 222 PLAYA DEL NORTE LA JOLLA 92037 CA 273220790 N RICH INVESTMENTS-305 INC A 207765992

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IV. Policy and Procedures

• Conducted final Policy and Procedure gap review with KPMG on 3/28/13.

• KPMG has to complete the following:

o Incorporate CVA and Wrong-Way risk gap analysis into deliverable.

o Discuss next steps with UB for incorporating review of desktop procedures associated with 7 requirements.

o Incorporate final UB comments.

o Review of updated gap analysis with UB and delivery of final product by April 12, 2013.

• Project Team

• Upon receipt of the final project Deliverable from KPMG, project team will schedule a meeting with the larger stakeholder group to review the final results of the project and plans to address gaps.

• Project team will work with CCRM team to define and implement a plan to address the closure of the identified gaps as deemed appropriate by the business. This plan will be completed by May 2013.

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VI. Next Steps

• Kick-off the Interim Reporting project and begin Design Phase in May.

• Develop work plan to address KPMG P&P recommendations by end of May.

• Schedule update meeting with larger stakeholder working group to provide an update.

• Begin work effort around validation/remediation/building of relationship structures for all Cat II exposures.

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Appendix 1 – Reports by Phase

No Report Name Phase1 Total Counterparty Exposure by Significant Legal Entities

Phase 1

2 Largest Single Name Counterparties across all Exposure Categories

3 Top N Largest Single Name Counterparties with Category II Exposure

4 Top N Largest Single Name Counterparties with Category II Exposure by Exposure Type, Legal Entity, and Product

5 Exposure Concentration by Product 6 Exposure Concentration by Region 7 Exposure Concentration by Industry 8 Exposure Concentration by Counterparty Type Code 9 Collateral Concentrations

Phase 2

10 Exposure Concentration by Counterparty Risk Rating 11 Notional Amount by Reference Entity Quality and Maturity Period

12 Exposure Changes by Month 13 Exposure Trend by Quarter 14 Cross-Category Exposure

[daily report ] Long term solution15 Financial Counterparty Exposure

[daily report ]

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Appendix 1[cont’d] – proposed data flow