Improvement in U.S. Credit Quality Accelerates. Kamakura Reports Sharp Improvement in Corporate Financial Strength

HONOLULU, February 2, 2004: Kamakura Corporation reported today the number of troubled companies in the United States showed another sharp improvement in January. Kamakura rated 11.7% of public companies in the "high risk" category on January 2, down substantially from 13.1% reported a month earlier. Kamakura defines a company as "high risk" if its default probability over the next year is more than one percent.

Kamakura's analysis showed that 5.6% of the North American universe of public companies had an annual probability of default between 1% and 5% on February 2, a significant improvement over the 6.2% in the previous month. Companies with default probabilities between 5% and 10% were 1.7% of the North American universe, and companies in the 10% to 20% range were another 1.2% of the universe. Kamakura's analysis showed that 3.2% of North American corporations were in the very high risk category, defined as companies with default probabilities between 20% and 100%. This is a decrease of 0.5% over the month-earlier figure.

"The number of high risk companies in North America is continuing to decline, and the pace of improvement is increasing," commented Donald R. van Deventer, Kamakura Chairman and Chief Executive Officer. "The size of the universe we classify as high risk' is down from 32.0% in November 2002, an improvement of very substantial proportions."

Kamakura's default probability estimates have proven highly accurate in forecasting defaults over the 1989-2003 period. On an annual basis, Kamakura's default probabilities have explained 87% of the cyclical variation in corporate defaults. The credit cycle is a key driver of financial institutions risk according to Fed Chairman Alan Greenspan and a recent working paper of the Bank for International Settlements by Linda Allen and Anthony Saunders.

For more information on Kamakura's public firm and private firm default probability models, see the Kamakura Corporation web site and Credit Risk Models and the Basel Accords (John Wiley & Sons, 2003) by Kamakura's van Deventer and Kenji Imai and available on Amazon.

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