WIXLIB

Value Investing Congress“A Few Thoughts About Risk”David EinhornNovember 29, 2007FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

DisclaimerVIAGRA is prescribed to treat erectile dysfunction (ED).If you take any medicines that have nitrates in them (like nitroglycerin for chest pain)—every day or even once in awhile—you should NOT take VIAGRA.Discuss your general health status with your doctor to ensure that you are healthy enough to engage in sexual activity.If you experience chest pain, nausea, or any other discomforts during sex, seek immediate medical help.Although erections lasting for more than 4 hours may occur rarely with all ED treatments in this drug class, to avoidlong-term injuries, it is important to seek immediate medical help.If you are older than age 65, or have serious liver or kidney problems, your doctor may start you at the lowest dose (25mg) of VIAGRA. If you are taking protease inhibitors, such as for the treatment of HIV, your doctor may recommend a25-mg dose and may limit you to a maximum single dose of 25 mg of VIAGRA in a 48-hour period.In rare instances, men taking PDE5 inhibitors (oral erectile dysfunction medicines, including VIAGRA) reported asudden decrease or loss of vision. It is not possible to determine whether these events are related directly to thesemedicines or to other factors. If you experience sudden decrease or loss of vision, stop taking PDE5 inhibitors,including VIAGRA, and call a doctor right away.Sudden decrease or loss of hearing has been rarely reported in people taking PDE5 inhibitors, including VIAGRA. It isnot possible to determine whether these events are related directly to the PDE5 inhibitors or to other factors. If youexperience sudden decrease or loss of hearing, stop taking VIAGRA and contact a doctor right away.If you have prostate problems or high blood pressure for which you take medicines called alpha blockers, your doctormay start you on a lower dose of VIAGRA.Remember to protect yourself and your partner from sexually transmitted diseases.The most common side effects of VIAGRA are headache, facial flushing, and upset stomach. Less commonly, bluishvision, blurred vision, or sensitivity to light may briefly occur.1FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

DisclaimerTHESE MATERIALS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THESOLICITATION OF AN OFFER TO BUY ANY INTERESTS IN GREENLIGHT OR ANYOF ITS AFFILIATES. SUCH AN OFFER TO SELL OR SOLICITATION OF AN OFFERTO BUY INTERESTS MAY ONLY BE MADE PURSUANT TO A DEFINITIVESUBSCRIPTION AGREEMENT BETWEEN GREENLIGHT AND AN INVESTOR.The information set forth in this presentation has been obtained from publicly availablesources. It is provided for informational purposes only and should not be deemed as arecommendation to buy or sell the securities mentioned or to invest in any investmentproduct. The information has not been independently verified by Greenlight or any of itsaffiliates. Neither Greenlight nor any of its affiliates makes any representations orwarranties regarding, or assumes any responsibility for the accuracy, reliability,completeness or applicability of, any information, calculations contained herein, or of anyassumptions underlying any information, calculations, estimates or projections containedor reflected herein.Investment accounts managed by Greenlight and its affiliates may have a position in anyof the securities discussed in this presentation. Greenlight may reevaluate its holdings insuch positions and sell or cover certain positions.2FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Top of the Morning to YouGiven some confidence level α Є (0,1) the VaR ofthe portfolio at the confidence level α is given bythe smallest number l such that the probability thatthe loss L exceeds l is not larger than (1 - α)VaRα inf{l Є ℜ : P(L l ) 1 - α} inf{l Є ℜ : FL(l ) α}3FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Value-at-RiskFrom Wikipedia:“The maximum loss not exceeded with agiven probability defined as the confidencelevel, over a period of time. It is commonlyused by security houses or investmentbanks to measure the market risk of theirasset portfolios.”4FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Value-at-RiskA simple definition:95% of the time I don’t expectto lose more than X5FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Value-at-Risk Should risk managers concentrate onVaR? Wikipedia says:“VaR does not give any information aboutthe severity of loss by which it isexceeded.”6FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Broker-Dealer 2nd Quarter VaRVaR ( MM)Lehman BrothersBear StearnsMerrill LynchMorgan Stanley872971937FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Broker-Dealer VaR2nd QuarterVaR ( MM)Lehman BrothersBear StearnsMerrill LynchMorgan Stanley872971933rd QuarterNet Writedowns7004757,8008008FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Broker-Dealer VaR3rd Quarter4th QuarterVaR ( MM) Net WritedownsLehman BrothersBear StearnsMerrill LynchMorgan Stanley100358584?1,200?3,7009FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Conclusions on VaR Not the appropriate way to measure risk Risk managers should focus on tails VaR in the tails does not solve Fat Tails Similar risk management failure in otherfinancial institutions10FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

FAS 159:Profiting From Your Own Demise FAS 159 is a new fair value accountingstandard Allows companies to value individualAssets and Liabilities at fair value Fair valuing only the Asset side of thebalance sheet creates a mismatch FAS 159 eliminates the mismatch11FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

FAS 159:Profiting From Your Own Demise Fair valuing Liabilities works fine formarket risk (rates up, value down) Problem: The issuer’s idiosyncratic riskdrives down the value of its own liabilities GAAP accounting does not equal goodaccounting12FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

FAS 159If your own credit spreadwidening counts as revenue 13FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

FAS 159 and you pay compensationas a percent of revenue 14FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

FAS 159 the most profitable andlucrative day in the historyof your firm will be 15FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

FAS 159THE DAY YOU GO BANKRUPT!16FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Are FAS 159 Gains Real?“I think the gains are real. It reallyreflects the change in fair value.There’s somebody on the otherside of that trade who lostmoney.”Bear Stearns CFO17FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

FAS 159: Gains on Widening ofOwn Credit Spreads(Third Quarter, in millions)GainsLehman BrothersBear StearnsMerrill LynchMorgan Stanley?225600390Pretax Income1,205175(3,465)2,24618FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Lehman’s FAS 159 Gain“Within Fixed Income Capital Markets, the Firmrecorded very substantial valuation reductions,most significantly on leveraged loancommitments and residential mortgage-relatedpositions. These losses were partially offset bylarge valuation gains on economic hedges andother liabilities. The result of these valuationitems was a net reduction in revenues ofapproximately 700 million.”Lehman Press Release19FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Lehman’s FAS 159 Gain from 10QBorrowings and Deposit Liabilities( in billions)Short Term Borrowings(1)Amount carried at fair valuePrincipal AmountAug 31,2007Nov 30, 2006 5.55.5 3.83.7Deposit liabilities at banks(1)Amount carried at fair valuePrincipal Amount 13.713.8 14.714.7Unsecured long-term borrowings(1)Amount carried at fair valuePrincipal Amount 23.024.5 11.011.1Total Difference 1.6 20FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Lehman’s FAS 159 Gain From 10Q(1)Substantially all of the borrowings recorded at fair valueare structured notes and contain two parts: a note andan embedded forward or option component. Thedifference between the aggregate principal balance andthe aggregate fair value represents cumulative changesin Holdings’ credit spreads as well as changes to theembedded forward or option component. During the2007 three and nine months, a substantial portion of thechange in fair value is associated with the embeddedforward or option component, which is risk managed andpart of our capital markets activities.21FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Lehman 3rd Quarter Charge Loss on Levered Loans“Well over 1 billion”Loss on Residential Mortgages“Less than levered loans”FAS 159 Gain on Liabilities 1.6 billion less the‘embedded option’Total 700 million22FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Lehman Stock PricePrice since earnings release on September 17, 1/079/24/079/17/0780%23FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Some Lehman History The 1998 credit meltdown created rumorsLehman reached the brink of insolvency While insolvency was overblown, themortgage market stopped Lehman had large mortgage exposure, buttook no writedowns (mark-to-model) The market rapidly recovered and Lehmanpulled through24FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Why has Lehman held up? A “good quarter” – reported earnings of 1.54They say they hedgedOriginate to move, not ownNovember estimates of 1.75 have not comedown 2008 estimates of 7.75 – a record year – havenot come down Sell-side consensus chance of write-down is“minimal”25FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444

Lehman’s Balance SheetAssets ( in millions)Aug 31,2007 Nov 30, 2006Cash and cash equivalents 7,048 5,987Segregated cash and securities10,5796,091Financial instruments and other positions302,297226,596Collateralized perty, equipment and other assets9,3668,382Identifiable intangibles and goodwill4,1083,362Total Assets 659,216 503,545Liabilities ( in millions)Short-term and long-term borrowingsShort financial instrumentsCollaterized financingsPayables and accrued liabilitiesTotal LiabilitiesStockholder's equityTotal liabilities and stockholders' equityFOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.Aug 31,2007 Nov 30, 2006 171,580 123,228140,840125,960256,077176,55768,98658,609 637,483 484,354 21,733659,216 19,191503,54526LBEX-DOCID 2490444

Lehman ExposuresFinancial instruments and other inventory positions owned and shorted( in millions)OwnedShortAug 31, 2007 Nov 30, 2006 Aug 31, 2007 Nov 30, 2006Mortgages and mortgage-backed 88,007Government and agencies37,10847,29363,77670,453Corporate debt and other52,15143,7648,6208,836Corporate equities64,28343,08740,39328,464Derivatives and other contracts35,71122,69627,72518,017Real estate held for sale20,0449,408--4,9932,622CP and other money marketTotal 302,297 57,726226,596 246 80 140,84080110 125,96027FOIA CONFIDENTIAL TREATMENT REQUESTEDBY LEHMAN BROTHERS HOLDINGS INC.LBEX-DOCID 2490444