Key questions from the third quarter earnings call conducted by Lehman Brothers Holdings Inc. on September 18, 2007.

William Tanona (Goldman Sachs): What were the leverage loan commitments and what were the mortgage-backed security hits, on both a gross and a net basis?

Chris O’Meara: They are big on both sides, the hedging programs as these instruments move, the hedging that is employed, the dynamic hedging strategies, particularly around the mortgage business, which is a business we have always had a full set of hedges on, will move with it. Knowing the gross numbers particularly in that business, we do not think is a meaningful thing. On the leverage loan side, we did take significant hits as we have mentioned, and we sized that by saying they were in excess of a $1 billion, and not a small amount in excess of a $1 billion. Not $50 million or $100 million more, but we do not want to give the details of it. It may put us in a position where some investors might try to figure out what those marks are, and we do not want that. We want to competitively keep that to ourselves but they were significant and we are marked at the current market.

William Tanona (Goldman Sachs): What have you seen thus far in the first couple of weeks in September across all of your businesses?

Chris O’Meara: It is early, and we do not give guidance on future periods but the worst of this credit correction is behind us.

William Tanona (Goldman Sachs): You made the adjustments for the 700 net marks in the FIC business but it still look like it was down sequentially. Your commentary sounded like commodities had stronger quarter-over-quarter rates, and foreign exchange was also stronger quarter-over-quarter. Were the underlying businesses in both just credit and mortgages down on a sequential basis?

Chris O’Meara: The liquid markets business includes rates and foreign exchange. The foreign exchange business was strong, but it is a relatively smaller business for us, and the commodities business which is largely the energy business for us, is a relatively new business for us, so it is working off a small base and growing. Those two businesses do not carry a lot of relative weight in terms of their size contribution to the revenue base, so they will not drive the results, but they are showing good signs of growth. On the other side, the mortgage business on the origination side continues to be underchallenged, the securitization levels were lower, and the revenue spreads that we have been making off those are lower as well, so that running rate continues to be relatively low by historical standards. The reality is it has been in the second quarter FIC was low as well. On that estimate of the $700 million impact net of all of the different valuation items, tells the story about what the difference is there versus the normal running.

William Tanona (Goldman Sachs): Was credit down more on a sequential basis than mortgages were?

Chris O’Meara: Yes.

Guy Moszkowski (Merrill Lynch): If spreads were not to widen any further on the LBO types of assets, you would then not expect that you would have any further declines in those commitments, is that correct?

Chris O’Meara: That is correct.

Guy Moszkowski (Merrill Lynch): You have marked all of the commitments, even if they were deals that were not going to fund until well in the fourth quarter. Is that correct?

Chris O’Meara: That is correct.

Guy Moszkowski (Merrill Lynch): Mortgage inventory was the bulk of the marks taken to the mortgage portfolio within the net $700 million applied to the $11 billion securitization residuals including the non-investment grade stuff. Is that correct?

Chris O’Meara: Yes, but the marks, there was credit spread widening across all assets. The bulk of it was to the lower-rated instruments.

Guy Moszkowski (Merrill Lynch): Can you give an idea of the percentage of the net writedown of $700 million that was in the U.S. versus international?

Chris O’Meara: Most of it was in the U.S. Percentage-wise.

Guy Moszkowski (Merrill Lynch): Your leverage increased both gross and net sequential quarters. Is it fair to assume that part of that was because you had to book some assets that you would not normally have wanted to book, but were a result of commitments?

Chris O’Meara: It is a small amount of that, so the amount that we have on our books from the commitments that were here at the end of the second quarter that have channeled through the system, we own about $4 billion of funded positions from that $44 billion that we had on at the end. The commitments, what formerly were commitments, many of them were funded, sold into the market, many of them fell away because we were paired up with other financiers and we had booked the commitment in at 100%, but we wound up being 25% in the end. $4 billion of that, of the amount of that reduction came on to our books as funded positions.

Guy Moszkowski (Merrill Lynch): Commercial paper facilities and things like that might have dumped some assets on to your books. Did any of that happen?

Chris O’Meara: No. Our involvement in that commercial paper and the asset-backed commercial paper market is one of a dealer remarketing agent to the world, not as a principal, and so we have had little that we have positioned in our books.

Guy Moszkowski (Merrill Lynch): If you backed out the $4 billion that was an involuntary asset growth, you would not see a net deleveraging of your balance sheet in the quarter. Is that correct?

Chris O’Meara: There is no deleveraging. What you might see is that the mortgage positions are up as we have continued to originate, albeit at a slower pace, and we are originating and the securitization levels are down, so we have not securitized everything that we have originated, just given where the market is. We have built up some although it is not a real significant amount; we have built up some whole loans that are going to be delayed in securitization given the market conditions.

Guy Moszkowski (Merrill Lynch): You expected that the securitization markets and the structured product markets would be subdued and the core profitability of some of those types of businesses has been high. In the scenario that you are currently contemplating some of that stuff is weaker but some of your commodities and other buildouts are going to help offset that. Is it wise for you to expect that your Fixed Income business can produce similar margins to what it had been over the four quarters and do you expect that margins would be weaker?

Chris O’Meara: There will be a slower level of origination, but there are different opportunities that present themselves in this type of dislocated market, and there are trading opportunities, so the revenue generation will be less about new issue origination and more about working with investors about restructuring their portfolios and trying to transition out of those structured products, and working with them in the secondary trading market. There are opportunities there that will fill in part of the revenue slowdown that we would expect on the new issue side. There are lots of different businesses that are inside this Fixed Income series of businesses, and we are encouraged by seeing the benefits that we derive. The securitized products are an important element of what is in there, but they have been performing in a lower in the last couple of quarters. Other businesses have grown up into filling in that space, and we would not expect a significant fall-off on balance across these different asset categories.

Guy Moszkowski (Merrill Lynch): How much were the hedging gains on the $700 million reduction?

Chris O’Meara: It is hard when you look at all of the component pieces that go in here to break them out individually. Each of these businesses has long positions for assets that are in many cases themselves hedges against derivatives, where clients own returns on a synthetic basis and the assets themselves are hedges, so it is hard to say how much of the assets declined and the hedges made, but the hedges can be on both sides of this ledger. What we estimate this mark to be, the 700, is if you just looked at all of the positions and said if all of the positions stood still and we took all of the marks on both sides of the ledger, including mark-to-market of the shorts and liabilities, you will get to the 700. That all happened as a result of this massive credit spread widening that we saw in the marketplace, and that is how it behaved in all of its components.

Mike Mayo (Deutsche Bank): You went from $44 billion down to $17 billion before adding anything new on the leveraged loans. What happened from the $44 billion to the $17 billion?

Chris O’Meara: Some deals got completed, and that is an important part here. The world is saying none of these deals are getting done, that is just not right. The biggest deals are not getting done, at least they have not filled to full order books, but there are many deals that are in the $500 million to $1 billion range that have gotten done. We have seen from the $44 billion that we had, we had a number of situations in which we committed to a deal, we had some situations in which the deal we committed to fell away, the sponsor we were backing for example, did not win the property, and so that commitment fell away. We had situations where the sponsor did win the property, but used multiple financiers instead of one financier. The one other thing is there is in our $44 billion, we know that we had in there situations where we signed up for 100% commitment for a deal, and we know that other financiers, other dealers signed up for 100% commitment to that same deal, so the sponsors frequently ask their financiers, multiple ones to present full financing packages for these deals, and so once they win the property, then they will invite all of the financiers to come in together in many cases, and sometimes you will be in at a three or four-handed deal, and so that will reduce the amount of our commitment, and that is a substantial amount of the reduction from $44 billion going down to the $17 billion. Deals got done, some of the commitments were sold away, and where we risk mitigated those, or sold them away to other parties as commitments, so there is a combination of those situations that are in there that got us down to the $17 billion.