Use these links to rapidly review the documentCAPMARK FINANCIAL GROUP INC. Table of Contents

Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                             to


Commission file number: 333-146211

CAPMARK FINANCIAL GROUP INC.(Exact name of registrant as specified in its charter)

Nevada(State or other jurisdiction of
incorporation or organization)

91-1902188(I.R.S. Employer
Identification No.)116 Welsh Road,
Horsham, Pennsylvania(Address of principal executive offices)

19044(Zip Code)(215) 328-4622(Registrant's telephone number, including area code)Not applicable(Former name, former address and former fiscal year, if changed since last report)


Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes o    No ý

Registrant is a voluntary filer and has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months.

Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes o    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a smaller
reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

As of April 30, 2009, 426,880,631 shares of the Registrant's common stock, par value of $.001 per share, were outstanding.



---







CAPMARK FINANCIAL GROUP INC.  Table of Contents



PagePART IFINANCIAL INFORMATIONItem 1.

Financial Statements

2Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

46Item 3.

Quantitative and Qualitative Disclosures about Market Risk

78Item 4T.

Controls and Procedures

84PART IIOTHER INFORMATIONItem 1.

Legal Proceedings

85Item 1A.

Risk Factors

85Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

85Item 3.

Defaults Upon Senior Securities

86Item 4.

Submission of Matters to a Vote of Security Holders

86Item 5.

Other Information

86Item 6.

Exhibits

86Signatures

87Exhibit Index

88


1

---





Table of Contents

PART IFINANCIAL INFORMATION

Item 1.    Financial Statements

CAPMARK FINANCIAL GROUP INC.        Condensed Consolidated Balance Sheet (unaudited)        (in thousands, except share amounts)

March 31,
2009

December 31,
2008AssetsCash, cash equivalents and restricted cash

$
3,397,779

$
874,390Accounts and other receivables


386,364


343,780Investment securities:Trading


81,199


1,457,384Available for sale


743,155


843,967Loans held for sale


3,803,344


3,970,683Loans held for investment, net of allowance for loan losses of $167.5 million and $108.2 million as of March 31, 2009 and December 31,
2008, respectively


8,023,954


8,207,980Real estate investments


1,731,980


1,844,924Equity investments


1,438,159


1,568,057Mortgage servicing rights


791,130


817,189Current taxes receivable


116,515


133,395Intangible assets, net


95,995


99,348Other assets


524,702


477,078Total assets

$
21,134,276

$
20,638,175Liabilities and EquityLiabilities:Short-term borrowings

$
3,202,098

$
3,310,758Collateralized borrowings in securitization trusts


181,239


184,086Other long-term borrowings


8,072,448


8,098,749Deposit liabilities


7,158,244


5,690,930Real estate syndication proceeds and related liabilities


1,196,080


1,258,743Other liabilities


667,625


689,624Total liabilities


20,477,734


19,232,890Commitments and Contingent Liabilities





Mezzanine Equity


72,902


72,851Equity:Preferred stock, $.001 par value; 100,000,000 shares authorized; none issued and outstanding as of March 31, 2009 and December 31, 2008





Common stock, $.001 par value; 650,000,000 shares authorized; 412,900,918 shares issued and outstanding as of March 31, 2009 and December 31,
2008


413


413Capital paid in excess of par value


2,064,264


2,063,280Retained deficit


(1,669,094
)

(941,398
)Accumulated other comprehensive income, net of tax:Net unrealized loss on investment securities and derivative instruments


(3,193
)

(18,468
)Net foreign currency translation adjustment


53,037


42,207Total accumulated other comprehensive income, net of tax


49,844


23,739Total stockholders' equity


445,427


1,146,034Noncontrolling interests


138,213


186,400Total equity


583,640


1,332,434Total liabilities and equity

$
21,134,276

$
20,638,175


The accompanying notes are an integral part of these condensed consolidated financial statements.

2

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.        Condensed Consolidated Statement of Operations (unaudited)        (in thousands, except per share data)

Three
months ended
March 31,
2009

Three
months ended
March 31,
2008Net Interest IncomeInterest income

$
162,885

$
276,978Interest expense


150,772


215,875Net interest income


12,113


61,103Provision for loan losses


98,715


7,629Net interest income after provision for loan losses


(86,602
)

53,474Noninterest IncomeNet (losses) gains:Net losses on loans


(229,200
)

(357,167
)Net losses on investments and real estate


(247,361
)

(11,738
)Other (losses) gains, net


(9,061
)

19,251Mortgage servicing fees


41,456


54,210Trust fees


23,570


35,382Asset management fees


17,187


18,763Placement fees


7,324


17,630Investment banking fees and syndication income


2,273


13,823Other fees


2,498


3,001Equity in loss of joint ventures and partnerships


(143,503
)

(9,993
)Net real estate investment and other income


33,269


23,614Total noninterest income


(501,548
)

(193,224
)Net revenue


(588,150
)

(139,750
)Noninterest ExpenseCompensation and benefits


67,094


89,637Amortization of mortgage servicing rights


32,765


35,232Occupancy and equipment


15,059


21,750Professional fees


39,083


24,292Other expenses


37,423


37,699Total noninterest expense


191,424


208,610Loss before income tax provision (benefit)


(779,574
)

(348,360
)Income tax provision (benefit)


2,369


(120,003
)Net loss


(781,943
)

(228,357
)Plus: Net loss attributable to noncontrolling interests


54,247


15,498Net loss attributable to Capmark Financial Group Inc.

$
(727,696
)
$
(212,859
)Basic net loss per share attributable to Capmark Financial Group Inc.:Net loss per share attributable to Capmark Financial Group Inc.

$
(1.70
)
$
(0.49
)Weighted average shares outstanding


427,131


432,940Diluted net loss per share attributable to Capmark Financial Group Inc.:Net loss per share attributable to Capmark Financial Group Inc.

$
(1.70
)
$
(0.49
)Weighted average shares outstanding


427,131


432,490


The
accompanying notes are an integral part of these condensed consolidated financial statements.

3

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.        Condensed Consolidated Statement of Changes in Equity (unaudited)        (in thousands)

Three
months ended
March 31,
2009

Three
months ended
March 31,
2008Common StockBalance at beginning of period

$
413

$
413Balance at end of period


413


413Capital Paid in Excess of Par ValueBalance at beginning of period


2,063,280


2,050,361Additional shares issued





3Stock-based compensation expense


1,035


6,693Other


(51
)

(158
)Balance at end of period


2,064,264


2,056,899Retained (Deficit) EarningsBalance at beginning of period


(941,398
)

418,876Cumulative effect of adopting Statement of Financial Accounting Standards No. 159





(9,805
)Net loss attributable to Capmark Financial Group Inc.


(727,696
)

(212,859
)Other





(506
)Balance at end of period


(1,669,094
)

195,706Accumulated Other Comprehensive Income, net of taxBalance at beginning of period


23,739


36,983Net unrealized gain (loss) on investment securities and derivative instruments


15,275


(11,607
)Net foreign currency translation adjustment


10,830


1,570Balance at end of period


49,844


26,946Total Stockholders' Equity


445,427


2,279,964Noncontrolling InterestsBalance at of beginning period


186,400


330,196Net loss attributable to noncontrolling interests


(54,247
)

(15,498
)Noncontrolling interests proceeds received, net


7,296


18,275Other


(1,236
)

6,593Balance at end of period


138,213


339,566Total Equity

$
583,640

$
2,619,530Comprehensive LossNet loss

$
(781,943
)
$
(228,357
)Other comprehensive income (loss)


26,105


(10,037
)Comprehensive loss


(755,838
)

(238,394
)Plus: Comprehensive loss attributable to the noncontrolling interests


54,247


15,498Comprehensive loss attributable to Capmark Financial Group Inc.

$
(701,591
)
$
(222,896
)


The
accompanying notes are an integral part of these condensed consolidated financial statements.

4

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.        Condensed Consolidated Statement of Cash Flows (unaudited)        (in thousands)

Three
months ended
March 31,
2009

Three
months ended
March 31,
2008Operating ActivitiesNet cash provided by (used in) operating activities

$
1,209,810

$
(434,923
)Investing ActivitiesNet decrease in restricted cash


12,985


5,118Proceeds from sales of investment securities classified as available for sale


1,926


Repayments of investment securities classified as available for sale


18,509


24,350Purchases of investment securities classified as available for sale


(41,170
)

(26,301
)Proceeds from/repayments of loans held for investment


283,877


310,553Origination/purchase of loans held for investment


(248,597
)

(752,188
)Proceeds from sales of real estate investments


8,139


50,722Purchases of real estate investments


(16,410
)

(80,426
)Net purchases of property and equipment


(1,122
)

(927
)Proceeds from sales of/capital distributions from equity investments


2,789


14,897Purchases of equity investments


(65,781
)

(62,645
)Purchases of mortgage servicing rights


(830
)

Other investing activities, net


892


37Net cash used in investing activities


(44,793
)

(516,810
)Financing ActivitiesNet (decrease) increase in short-term borrowings


(102,916
)

1,092,466Repayments of collateralized borrowings in securitization trusts


(76
)

Proceeds from issuance of other long-term borrowings


224,517


588,997Repayments of other long-term borrowings


(224,690
)

(68,379
)Net increase (decrease) in deposit liabilities


1,465,254


(1,064,433
)Real estate syndication proceeds received


1,438


29,917Noncontrolling interests proceeds received, net


7,296


18,275Repurchases of mezzanine equity net of additional common shares issued





(2,455
)Other financing activities, net





2,961Net cash provided by financing activities


1,370,823


597,349Effect of Foreign Exchange Rates on Cash


535


32,943Net Increase (Decrease) in Cash and Cash Equivalents


2,536,375


(321,441
)Cash and Cash Equivalents, Beginning of Period(1)


724,770


1,204,477Cash and Cash Equivalents, End of Period(1)

$
3,261,145

$
883,036Supplemental Disclosures of Cash Flow Information:Income taxes (refunded) paid

$
(9,488
)
$
23,316Interest paid


107,593


209,995


---

Note:

The
accompanying notes are an integral part of these condensed consolidated financial statements.

5

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.        Notes to Condensed Consolidated Financial Statements (unaudited)

1. Organization and Operations

Capmark Financial Group Inc. ("Capmark") is a diversified company that provides financial services to investors in commercial real estate-related assets. Capmark has three core
businesses: lending and mortgage banking, investments and funds management, and servicing. Capmark operates in North America, Europe and Asia. As used herein, the term "the Company" refers to Capmark
Financial Group Inc. and its consolidated subsidiaries, except where it is clear that the term means only Capmark Financial Group Inc.

Prior
to March 23, 2006, the Company was an indirect wholly-owned subsidiary of GMAC LLC, formerly known as General Motors Acceptance Corporation ("GMAC"). On
March 23, 2006, an investor entity owned by affiliates of Kohlberg Kravis Roberts & Co. L.P., Five Mile Capital Partners LLC, Goldman Sachs Capital Partners and Dune
Capital Management LP (collectively, the "Sponsors") acquired a controlling equity stake in the Company from a subsidiary of GMAC. As of March 31, 2009, the Sponsors and one other
investor owned approximately 75.4 percent of the Company's common stock; employees, former employees and non-employee directors (collectively, the "Management Stockholders") owned
approximately 3.3 percent of the Company's common stock and a subsidiary of GMAC owned approximately 21.3 percent of the Company's common stock. The changes in ownership and the other
related transactions that occurred on March 23, 2006 are referred to as the "Sponsor Transactions" in these notes to the condensed consolidated financial statements.

Historically,
the Company has performed certain lending, real estate investment and servicing activities in Europe and Asia. In 2008, the Company ceased proprietary lending and investing
activities in Europe and Asia and focused on managing its existing loan, investment and fee-for-services businesses in those regions. While the Company continues to originate
loans for third parties and government-sponsored enterprises ("GSEs"), in light of market
conditions, the Company has also substantially reduced proprietary loan originations and investment activities in North America.

2. Risks and Uncertainties

Going Concern

As a result of the adverse conditions in the financial and capital markets and general economic conditions throughout 2008 and
continuing in 2009, the Company incurred operating losses due principally to fair value adjustments on its loans held for sale, impairments on its real estate and investment portfolios and an increase
in the provision for loan losses on its portfolio of loans held for investment. The combination of pre-tax operating losses and valuation allowances on the Company's deferred tax assets
contributed to a significant decline in stockholders' equity. As a result, the Company was not in compliance with the leverage ratio covenant in the senior credit facility and bridge loan agreement
for the quarters ended December 31, 2008 and March 31, 2009.

In
light of adverse market conditions and the Company's operating results as well as the negative effect on its liquidity from the near-term maturity of its bridge loan, the
Company entered into discussions with the lenders under its senior credit facility and bridge loan agreement. On May 8, 2009, the Company received a commitment from certain lenders under the
bridge loan agreement and senior credit facility to provide a new term loan facility of up to $1.5 billion (the "Facility"). Proceeds from the Facility, along with $75.0 million in cash,
will be used to refinance a portion of the Company's bridge loan agreement and senior credit facility.

6

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

2. Risks and Uncertainties (Continued)

The
Facility will be guaranteed by each of the guarantors under the bridge loan agreement and senior credit facility and certain material domestic wholly-owned subsidiaries of the
Company. The Facility will be secured by a pledge and security interest on substantially all of the Company's U.S. and Canadian non-bank mortgage loans and foreclosed real estate. The
Facility will contain a number of financial and operating covenants, including minimum liquidity covenants and run rate operating expense covenants, limitations on incurring debt, granting liens and
making certain restricted payments, investments and capital expenditures. The maturity date of the Facility will be March 23, 2011, provided that if as of April 15, 2010, 90% of the
Company's senior notes due 2010 have not been repaid or redeemed, refinanced, exchanged or extended beyond June 30, 2011 and/or converted to equity, the maturity date of the Facility will be
accelerated to April 2010.

In
connection with the Facility, the Company will enter into amendments to the senior credit facility and bridge loan agreement (the "Amendments"). The Amendments will extend the
maturity date under the bridge loan agreement to the maturity date of the Facility, conform the financial covenants in those agreements to the financial covenants in the Facility and amend certain
other provisions of those agreements, including amendments necessary to enter into the Facility. The Facility and the Amendments are subject to a number of closing conditions, including the
negotiation and execution of definitive agreements and related documents satisfactory to the lenders. The Company is seeking to document and close the Facility and the Amendments by May 21,
2009.

To
facilitate the execution of definitive agreements with respect to the Facility, as well as the further amendments to the bridge loan agreement and senior credit facility described
above, as of May 14, 2009, the Company has obtained a further extension of the maturity date of 100% of its outstanding bridge loan to May 21, 2009. Additionally, the required lenders
under the senior credit facility and the bridge loan agreement have agreed to waive the Company's compliance with the leverage ratio covenant for the quarters ended December 31, 2008 and
March 31, 2009. These waivers are effective through May 21, 2009.

If
the Company does not close the Facility and the Amendments by May 21, 2009 and the lenders under the senior credit facility and bridge loan agreement fail to waive or eliminate
the leverage ratio covenant beyond May 21, 2009 and further extend the maturity of the bridge loan agreement, the Company will default under these agreements upon expiration of the waivers and
the extension and the majority lenders under such agreements can immediately declare all loans due and payable. Any such acceleration of the maturity of the Company's debt obligations would permit the
Company's senior noteholders and certain other lenders and contractual counterparties to terminate and/or accelerate the maturity of obligations due under other financing instruments and agreements,
including the senior notes. If the lenders, noteholders, and/or other counterparties demand immediate repayment of all of the Company's obligations, it would likely be unable to pay all such
obligations. In such an event, if the Company has not otherwise been able to recapitalize, refinance, or raise additional liquidity by selling some or all of its assets or through some other form of
restructuring, it will have to seek to reorganize under Chapter 11 of the United States Bankruptcy Code. The Company's management believes that
access to capital markets is extremely limited in the current economic environment. Due to these conditions and events, substantial doubt exists about the Company's ability to continue as a going
concern.

The
Company is performing a review of all of its businesses, including exploring strategic alternatives for such businesses and implementing significant expense reduction initiatives.
The Company has engaged advisors to assist with its efforts to manage expenses and evaluate its strategic alternatives.

7

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

2. Risks and Uncertainties (Continued)

The
Company continues to actively manage its assets while maintaining adequate liquidity to support its operations. Further, the Company's management is focused on maintaining
appropriate regulatory capital at Capmark Bank ("Capmark Bank US"), the Company's wholly-owned industrial bank subsidiary chartered by the State of Utah.

The
condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and
discharge of liabilities in the normal course of business for the foreseeable future. The condensed consolidated financial statements do not include any adjustments to reflect possible future effects
on the recoverability and classification of assets, or the amounts of liabilities that may result from the outcome of the Company's discussions with the lenders under the senior credit facility and
bridge loan agreement, which would affect its ability to continue as a going concern.

Other Risks and Uncertainties

In addition to the risk discussed above, the Company's primary business risks include: liquidity risk, credit risk, interest rate and
other market risks, and operational risk and are more fully described in Note 2 of the consolidated financial statements included in the Company's 2008 Annual Report on
Form 10-K. Management of these risks affects both the level and stability of the Company's earnings.

3. Basis of Presentation and Recently Issued Accounting Standards

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") for interim financial reporting. Accordingly, these interim financial statements do not include all of the information and footnote disclosures
required for annual financial reporting. Therefore, these interim financial statements should be read in conjunction with the audited consolidated financial statements in the Company's 2008 Annual
Report on Form 10-K. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expense. The Company's estimates and assumptions are affected by risks and uncertainties,
including those associated with credit exposure and interest rate and market spread volatility. Management uses available information in developing estimates and assumptions. Future changes in credit
and market trends and conditions may occur which could cause actual results to differ materially from the estimates used in preparing the accompanying condensed consolidated financial statements.

The
Company consolidates all wholly-owned and majority-owned subsidiaries that it controls. In certain cases, economic ownership interests and control do not strictly align and there are
other specific consolidation criteria that must be applied under GAAP, and in those cases the Company follows the accounting policies more fully described in Note 3 of the consolidated
financial statements included in the Company's 2008 Annual Report on Form 10-K. All significant intercompany accounts and transactions have been eliminated in consolidation.

In
the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial
position of the Company as of March 31, 2009 and the results of its operations and cash flows for the interim

8

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

3. Basis of Presentation and Recently Issued Accounting Standards (Continued)

periods
presented. The Company's results for any interim period are not necessarily indicative of results for a full year or any other interim period.

Certain
items in the prior period financial statements have been reclassified to conform to the presentation in the current period financial statements.

The
Company has a number of related party arrangements in conjunction with its business as more fully described in Note 24 of the consolidated financial statements included in the
Company's 2008 Annual Report on Form 10-K. Affiliates of Goldman Sachs Capital Partners, a member of the Sponsors, act as lenders under the senior credit facility and bridge loan
agreement. See Note 2 for a discussion of amendments and waivers to the senior credit facility and bridge loan agreement that the Company intends to enter into in connection with the closing of
the Facility. The Company has not entered into any other material related party arrangements subsequent to December 31, 2008.

The
Company adopted Statement of Financial Accounting Standards ("SFAS") No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an
amendment of FASB Statement No. 115," or "SFAS No. 159," on January 1, 2008. The Company elected fair value accounting for certain loan assets and deposit liabilities not
previously carried at fair value. The after-tax cumulative effect from electing the fair value option for the selected financial instruments decreased retained earnings by
$9.8 million on January 1, 2008.

The
Company adopted SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51," or "SFAS No. 160," on
January 1, 2009. The required disclosures and changes in financial statement presentation are reflected in these condensed consolidated financial statements.

Recently Issued Accounting Standards

In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141 (revised 2007), "Business Combinations,"
or "SFAS No. 141R," which is intended to improve reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete,
comparable, and relevant information for investors
and other users of financial statements. To achieve this goal, the new standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose
to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. Prior to the adoption of SFAS No. 141R, any
adjustments to the FASB Interpretation No. ("FIN") 48 reserve were recorded as an increase to goodwill if an expense and, if a benefit, are applied (a) first to reduce to zero any goodwill
related to the acquisition, (b) second to reduce to zero other noncurrent intangible assets related to the acquisition, and (c) third to reduce income tax expense. Subsequent to the
adoption of SFAS No. 141R, the above rule will no longer apply and any expense or benefit associated with realizing (or re-measuring) unrecognized tax benefits will be recorded as
part of income tax expense. SFAS No. 141R has been applied by the Company prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The
adoption of SFAS 141R did not have a material impact on the Company's condensed consolidated financial statements. In connection with the adoption of SFAS No. 141R, all adjustments to
tax liabilities associated with FIN 48, if any, will be recorded as a component of income tax expense.

9

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

3. Basis of Presentation and Recently Issued Accounting Standards (Continued)

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51," or "SFAS
No. 160," which is intended to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling
(minority) interests in subsidiaries as equity (as opposed to as a liability or mezzanine equity) in the consolidated financial statements. In addition, SFAS No. 160 eliminates the diversity
that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. SFAS No. 160 was adopted by the Company
on January 1, 2009 and the required disclosures and changes in financial statement presentation are reflected in these condensed consolidated financial statements.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133," or "SFAS
No. 161." SFAS No. 161 changes disclosure requirements about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial
performance, and cash flows. SFAS No. 161 was adopted by the Company on January 1, 2009 and the required disclosures are included in Note 15 to these condensed consolidated
financial statements.

In
September 2008, the FASB issued Emerging Issues Task Force ("EITF") 08-05, "Issuer's Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement," or "EITF 08-05." EITF 08-05 requires issuers of liability instruments with a third-party guarantee or other credit enhancement to exclude the effect
of the credit enhancement
when measuring the liability's fair value. The effect of initially applying the guidance in EITF 08-05 shall be included in the change in fair value in the period of adoption.
EITF 08-05 was adopted by the Company on January 1, 2009 and did not have a material impact on these condensed consolidated financial statements.

In
November 2008, the FASB issued EITF 08-06, "Equity Method Investment Accounting Considerations," or "EITF 08-06." EITF 08-06
addresses the potential effect of SFAS No. 141R and SFAS No. 160 on equity method accounting under Accounting Principles Board Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock," or "Opinion No. 18." EITF 08-06 will continue existing practices under Opinion No. 18 including the use of a cost accumulation approach
to initial measurement of the investment. The EITF will not require the investor to perform a separate impairment test on the underlying assets of an equity method investment. However, an equity
method investor is required to recognize its proportionate share of impairment charges recognized by the investee, adjusted for basis differences, if any, between the investee's carrying value for the
impaired assets and the cost allocated to such assets by the investor. The investor is also required to perform an overall other-than-temporary impairment test of its
investment in accordance with Opinion No. 18. EITF 08-06 was adopted by the Company on January 1, 2009 and did not have a material impact on these condensed
consolidated financial statements.

In
April 2009, the FASB issued FASB Staff Position ("FSP") FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly," or "FSP FAS 157-4," to provide additional guidance for estimating fair value in accordance with SFAS
No. 157 when the volume and level of market activity for the asset and liability have significantly decreased. FSP FAS 157-4 is effective for the Company for

10

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

3. Basis of Presentation and Recently Issued Accounting Standards (Continued)

its
Quarterly Report on Form 10-Q for the period ending June 30, 2009. Management is currently evaluating the impact of FSP FAS 157-4 on the Company's
consolidated financial statements.

In
April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary
Impairments," or "FSP FAS 115-2 and FAS 124-2." The FSP modified the requirement in existing accounting guidance to demonstrate the intent and ability to hold an
investment security for a period of time sufficient to allow for any anticipated recovery in fair value. When the fair value of a debt security has declined below the amortized cost at the measurement
date, an entity that intends to sell a security or is more-likely-than-not to sell the security before the recovery of the security's cost basis must recognize the
other-than-temporary impairment in earnings. For a debt security with a fair value below the amortized cost at the measurement date where it is
more-likely-than-not that an entity will not sell the security before the recovery of its cost basis, but an entity does not expect to recover the entire cost basis
of the security, the security is considered other-than-temporarily impaired. The
related other-than-temporary impairment loss on the debt security will be recognized in earnings to the extent of the credit losses with the remaining impairment loss
recognized in accumulated other comprehensive income. FSP FAS 115-2 and FAS 124-2 is effective for the Company for its Quarterly Report on
Form 10-Q for the period ending June 30, 2009. Management is currently evaluating the impact of FSP FAS 115-2 and FAS 124-2 on the
Company's consolidated financial statements.

In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments," or "FSP
FAS 107-1 and APB 28-1". The FSP amends SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," or "SFAS No. 107," to require an
entity to provide disclosures about fair value of financial instruments in interim financial statements. FSP FAS 107-1 and APB 28-1 is effective for interim and
annual periods ending after June 15, 2009. The Company will include the required disclosures in the notes to its consolidated financial statements for its Quarterly Report on
Form 10-Q for the period ending June 30, 2009.

4. Investment Securities

Investment securities classified as available for sale include: commercial mortgage backed securities ("CMBS"); asset-backed securities ("ABS"); collateralized debt obligations ("CDOs")
which may be collateralized by CMBS, unsecured real estate investment trust debt and other real estate-related investments; tax-exempt securities; certain Japanese bonds ("TMK
securities"); securities backed by Ginnie Mae, Fannie Mae and Freddie Mac ("GSE securities"); U.S. Treasury securities; and other investment securities.

The
following table summarizes the Company's investment securities classified as available for sale, by security type (in thousands):

March 31, 2009

December 31, 2008Amortized
cost

Unrealized
gains

Unrealized
losses

Fair
value

Amortized
cost

Unrealized
gains

Unrealized
losses

Fair
valueCMBS, ABS and CDOs

$
36,678

$
2,568

$


$
39,246

$
43,459

$
917

$


$
44,376Tax-exempt securities


263,076


3,241





266,317


242,568


57





242,625TMK securities


187,676


1,166





188,842


325,343








325,343GSE securities


227,168


6,431





233,599


219,264


7





219,271U.S. Treasury and other securities


14,925


226





15,151


12,033


319





12,352Total

$
729,523

$
13,632

$


$
743,155

$
842,667

$
1,300

$


$
843,967


11

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

4. Investment Securities (Continued)

For the three months ended March 31, 2009, the Company recognized losses of $1.4 million and received proceeds of
$1.9 million on sales of investment securities classified as available for sale. The Company did not sell any investment securities classified as available for sale for the three months ended
March 31, 2008. Gross realized gains and losses are recognized as a component of net losses on investments and real estate in the condensed consolidated statement of operations.

The
Company evaluates unrealized losses to identify those impairments that would be considered other-than-temporary. The Company's evaluation includes a credit
analysis of its investment securities based on the preparation of cash flow projections reflecting its monitoring of the underlying assets and relevant market information. In the case of subordinate
CMBS, ABS and CDOs, the Company also considers its projected loss position in the relevant securities. Impairments considered other-than-temporary typically result from a
decline in the projected cash flows due to increased loss projections and the Company's determination that the impairments will not otherwise be recovered. As a result of the Company's evaluation, and
its conclusion that the amount it expects to recover on some of its investment securities was less than the amortized cost of those securities, the Company recognized impairment charges for declines
in value in certain investment securities classified as available for sale, primarily consisting of CMBS, ABS and CDOs, that were considered other-than-temporary and were
primarily related to the performance of the underlying collateral. In addition, as of March 31, 2009, management determined that the Company may no longer have the ability to hold certain
securities for which the
fair value had declined below amortized cost for a period of time sufficient to allow for the recovery in fair value. As a result of this determination, an impairment charge on those investment
securities was also recognized. Total impairment charges recognized were $68.5 million and $3.8 million for the three months ended March 31, 2009 and 2008, respectively. The
impairment charges were recorded as a component of net losses on investments and real estate in the consolidated statement of operations.

5. Loans Held for Sale

Loans held for sale carried at fair value, by loan type, consisted of the following (in thousands):

March 31,
2009

December 31,
2008Floating rate mortgage loans

$
2,926,560

$
3,178,369Fixed rate mortgage loans


856,816


788,317Construction loans


19,968


3,997Total

$
3,803,344

$
3,970,683


No
loans were transferred from "held for sale" to "held for investment" for the three months ended March 31, 2009 or the year ended December 31, 2008.

12

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

6. Loans Held for Investment

Loans held for investment, by loan type, consisted of the following (in thousands):

March 31,
2009

December 31,
2008Floating rate mortgage loans

$
5,994,130

$
5,895,031Fixed rate mortgage loans


664,007


692,780Construction loans


1,296,739


1,423,119Acquired non-performing loans


236,598


305,261Total


8,191,474


8,316,191Allowance for loan losses


(167,520
)

(108,211
)Net

$
8,023,954

$
8,207,980


The
"Total" amounts set forth in the table above are equal to the unpaid principal balance of the loans less the amount of any fair value adjustments applied to any loans that were
previously classified as held for sale and other discounts to carrying value. The aggregate amount of such adjustments/discounts for all loans held for investment was $46.4 million and
$56.0 million as of March 31, 2009 and December 31, 2008, respectively.

The
Company's allowance for loan losses is established, monitored and maintained on the basis of past loan experience, the current composition of the loan portfolio, historical credit
migration, property type diversification, default, loss severity, industry loss experience, economic conditions and trends, and other relevant factors.

The
following table summarizes activity related to the Company's allowance for loan losses (in thousands):

Three
months ended
March 31,
2009

Three
months ended
March 31,
2008Balance at beginning of period

$
108,211

$
28,752Provision for loan losses


98,715


7,629Loans charged off


(27,794
)

(4,000
)Foreign currency translation adjustment


(1,663
)

285Transfers and other(1)


(9,949
)

(578
)Balance at end of period

$
167,520

$
32,088


---

Note:

13

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

6. Loans Held for Investment (Continued)

The
following table summarizes information about loans originated by the Company that are held for investment and have specifically been identified as being impaired (in thousands):

March 31,
2009

December 31,
2008Impaired loans with an allowance for loan losses

$
620,085

$
330,822Impaired loans without an allowance for loan losses


37,712


54,473Total impaired loans


657,797


385,295Allowance for loan losses on impaired loans


(106,924
)

(50,111
)Net impaired loans

$
550,873

$
335,184


The
average balance of total impaired loans was $521.5 million and $114.3 million for the three months ended March 31, 2009 and 2008, respectively.

The
allowance for loan losses on impaired loans is included in the Company's overall allowance for loan losses. In general, the Company does not recognize interest income on impaired
loans. Impaired loans also include loans that have been modified in troubled debt restructurings where concessions to borrowers who experienced financial difficulties have been granted. The Company
may recognize interest income on loans that have been modified in troubled debt restructurings when the loan is performing in accordance with its restructured terms.

There
were no acquisitions of non-performing loans for the three months ended March 31, 2009. Acquisitions of non-performing loans were not material for the year ended
December 31, 2008. Charges for impairments of acquired non-performing loans totaled $6.9 million and $4.0 million for the three months ended March 31, 2009 and
2008, respectively.

7. Real Estate Investments

Real estate investments, by classification and geographic region, consisted of the following (in thousands):

North
America

Asia

TotalAs of March 31, 2009Held for investment, net of depreciation

$
403,387

$
794,246

$
1,197,633Held for sale


61,899


237,827


299,726Acquired through foreclosure


97,023


137,598


234,621Total

$
562,309

$
1,169,671

$
1,731,980As of December 31, 2008Held for investment, net of depreciation

$
454,511

$
925,444

$
1,379,955Held for sale


12,769


314,702


327,471Acquired through foreclosure


99,266


38,232


137,498Total

$
566,546

$
1,278,378

$
1,844,924


14

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

8. Equity Investments

Equity investments, by investment type, consisted of the following (in thousands):

March 31, 2009

December 31, 2008Amount

Percent of
portfolio

Amount

Percent of
portfolioInvestments in affordable housing partnerships in the United States

$
740,631


51
%
$
786,512


50
%Investments in real estate equity investment funds in the United States


277,325


19


342,304


22Investments in other real estate ventures in the United States


130,891


9


138,050


9Investments in non-performing commercial loan and real estate joint ventures, principally in Asia


110,533


8


119,429


8Investments in real estate projects, joint ventures and real estate equity investment funds in Europe


56,077


4


83,752


5Investments in CMBS and debt investment funds, with collateral principally in the United States


45,379


3


34,386


2Other(1)


77,323


6


63,624


4Total

$
1,438,159


100
%
$
1,568,057


100
%


---

Note:

9. Mortgage Servicing Rights

The following table summarizes activity related to the Company's mortgage servicing rights (in thousands):

Three
months ended
March 31,
2009

Three
months ended
March 31,
2008Balance at beginning of period

$
817,189

$
890,550Additions


6,948


6,222Amortization


(32,765
)

(35,232
)Other


(242
)

(107
)Balance at end of period

$
791,130

$
861,433


Based
on the Company's quarterly impairment analyses, the Company did not have a valuation allowance related to mortgage servicing rights in the periods presented.

The
estimated fair value of mortgage servicing rights was $885.4 million and $894.9 million as of March 31, 2009 and December 31, 2008, respectively.

15

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

10. Short-term and Long-term Borrowings

Outstanding borrowings consisted of the following (in thousands):

March 31,
2009

December 31,
2008Short-term borrowings

$
3,202,098

$
3,310,758Collateralized borrowings in securitization trusts


181,239


184,086Other long-term borrowings


8,072,448


8,098,749Total

$
11,455,785

$
11,593,593


Short-term borrowings

In connection with the Sponsor Transactions, the Company entered into a senior credit facility with a syndicate of lenders. The senior
credit facility is unsecured and includes a $2.75 billion multi-currency revolving credit facility. In October 2008, the Company drew down substantially all of the remaining capacity under the
revolving credit facility. The Company had $2.7 billion of indebtedness outstanding under the revolving credit facility as of March 31, 2009 and December 31, 2008. These amounts
bear interest at rates equal to short-term index rates appropriate for the currencies borrowed (such as LIBOR) plus a margin that is based on the credit ratings assigned to the Company's
long-term senior unsecured indebtedness. In addition, the Company pays a facility fee based on the committed amount of the facility. See Note 2 for a discussion of the amendments to
the senior credit facility, which includes the revolving credit facility, that the Company intends to enter into in connection with the closing of the Facility.

The
Company has secured and unsecured lines of credit with various banks. Balances borrowed on a short-term basis under these lines of credit totaled $488.6 million
and $618.3 million as of March 31, 2009 and December 31, 2008, respectively. Interest rates are fixed or variable and proceeds may have been discounted at the time of issuance.
The Company's secured borrowings provide multi-currency denominated funding through repurchase agreements and collateralized borrowing arrangements. Interest rates are variable and based on market
rate indices. Generally, interest is paid monthly on these borrowings.

Capmark
Bank US also has access to unsecured Federal funds issued by unaffiliated banks. These borrowings are unsecured and issued at fixed interest rates at terms not greater than
364 days. Balances borrowed on a short-term basis under unsecured Federal funds issued by unaffiliated banks and secured lines of credit with various banks totaled
$50.0 million as of March 31, 2009. There were no outstanding balances under these arrangements as of December 31, 2008.

See
Note 2 for a discussion of the status of the Company's compliance with the covenant requirements for the senior credit facility and amendments to the covenant requirements to
conform to the covenants in the Facility. Management believes that the Company was in compliance with its covenant requirements for all other short-term borrowings as of March 31,
2009.

Long-term borrowings

The senior credit facility also includes a $2.75 billion multi-currency term loan facility. Foreign currency fluctuations
resulted in amounts available that were less than the contractual capacity as of March 31, 2009 and December 31, 2008. The Company had $2.6 billion and $2.7 billion of
indebtedness

16

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

10. Short-term and Long-term Borrowings (Continued)

outstanding
under the term loan facility, with no additional capacity, as of March 31, 2009 and December 31, 2008, respectively. See Note 2 for a discussion of amendments to the
senior credit facility that the Company intends to enter into in connection with the closing of the Facility.

In
connection with the Sponsor Transactions, the Company entered into a $5.25 billion bridge loan agreement with a syndicate of lenders. The Company had $824.8 million and
$833.0 million of indebtedness outstanding under the bridge loan as of March 31, 2009 and December 31, 2008, respectively. The bridge loan contains financial and other covenants
that are substantially similar to those contained in the senior credit facility. See Note 2 for a discussion of the Company's extension of the bridge loan maturity date and the amendments to
such agreement that the Company intends to enter into in connection with the closing of the Facility.

See
Note 2 for a discussion of the status of the Company's compliance with the covenant requirements for the senior credit facility and bridge loan agreement and amendments to the
covenant requirements to conform to the covenants in the Facility. Management believes that the Company was in compliance with its covenant requirements for all other long-term borrowings
as of March 31, 2009.

The
following table summarizes the carrying value of the Company's assets that are pledged as collateral for the payment of related secured borrowings (in thousands):

March 31,
2009

December 31,
2008Loans held for sale

$
816,559

$
1,244,189Loans held for investment


4,076,779


4,488,466Investment securities classified as trading





53,945Investment securities classified as available for sale


220,096


209,503Real estate investments


434,569


769,249Equity investments(1)


57,858


48,858Other





39,561Total assets pledged as collateral

$
5,605,861

$
6,853,771Related secured borrowings

$
2,420,112

$
2,417,987


---

Note:

17

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

10. Short-term and Long-term Borrowings (Continued)

The
following table bifurcates the assets pledged as collateral (substantially consisting of loans) for Capmark Bank US and for the rest of the Company (in thousands):

March 31,
2009

December 31,
2008Capmark Bank US:Total assets

$
10,242,231

$
8,469,619Total assets pledged as collateral


4,658,992


5,390,891Related secured borrowings


1,663,504


1,363,504Remaining secured borrowing capacity


997,809


2,174,340Non-Capmark Bank US:Total assets

$
10,892,045

$
12,168,556Total assets pledged as collateral


946,869


1,462,880Related secured borrowings


756,608


1,054,483Remaining secured borrowing capacity


12,795


12,683


Capmark
Bank US's remaining secured borrowing capacity consists of capacity with the FHLB of Seattle and the Federal Reserve Bank ("FRB") of San Francisco and is reported
as of March 31, 2009 and December 31, 2008. Actual borrowing capacity on any business day is subject to change as individual qualifying loans are routinely pledged and
de-pledged by Capmark Bank US in the normal course of business. Additionally, changes in loan performance and other collateral-specific criteria may affect whether an individual loan
continues to qualify as collateral.

The
amounts shown above for Non-Capmark Bank US include total assets pledged as collateral related to the consolidation of certain low-income housing tax credit
("LIHTC") partnerships and assets collateralized in securitization trusts, in the aggregate, of $470.7 million and $485.7 million as of March 31, 2009 and December 31,
2008, respectively, and related secured borrowings of $381.9 million and $364.5 million as of March 31, 2009 and December 31, 2008, respectively.

11. Variable Interest Entities

The Company is involved with various entities in the normal course of business that may be deemed to be variable interest entities ("VIEs"). The Company consolidates certain VIEs for
which it is determined to be the primary beneficiary. The Company holds significant variable interests in VIEs that have not been consolidated because it is not considered the primary beneficiary. In
addition, the Company is a sponsor and holds a variable interest in numerous VIEs of which it is not considered to be the primary beneficiary. The Company initially determines if it is the primary
beneficiary of a VIE using a qualitative approach based on the estimated economics of the VIE. Otherwise, the Company uses a quantitative approach to determine if it is the primary beneficiary,
allocating estimated cash flows to each variable interest holder based on seniority of each of the cash flow scenarios that are probability weighted and used to determine the VIE's expected losses and
expected residual returns. The significant judgments and assumptions made by the Company in determining whether to consolidate a VIE, including a description of the Company's involvement in the VIE,
are discussed in Note 13 of the consolidated financial statements included in the Company's 2008 Annual Report on Form 10-K.

The
Company reviews and determines quarterly whether a reconsideration event has occurred which could change the status of a VIE or primary beneficiary of a VIE. There were no material
reconsideration events in the first quarter of 2009.

18

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

11. Variable Interest Entities (Continued)

The
Company did not provide any financial support that it was not contractually obligated to provide for the three months ended March 31, 2009. The Company provided
$0.5 million of financial support for real estate investments that it was not contractually required to provide for the three months ended March 31, 2008. This support was provided to
satisfy the real estate investment VIE's working capital requirements.

The
following table sets forth the carrying amounts of the assets and liabilities and sources of maximum exposure of non-consolidated VIEs, including significant variable
interests as well as sponsored entities with a variable interest: (in thousands):

Maximum exposure to loss(3)Size of
VIEs(1)

Carrying
amount of
assets(2)

Carrying
amount of
liabilities(2)

Purchased
and
retained
interests

Commitments,
guarantees
and
collateral

Loans and
investments

Other

TotalAs of March 31, 2009Lower-tier operating partnerships

$
6,053,349

$
91,695

$


$


$
279,069

$


$


$
279,069Non-guaranteed upper-tier tax credit funds


342,614




















New markets tax credit funds


402,256


261,158











270,998





270,998Collateralized debt obligations


3,997,131


25,802





25,802











25,802Real estate investments


259,539


127,174


80,592











46,483


46,483CMBS securitization trusts


2,820,272


200,340


181,239


18,931











18,931Trust preferred securities


250,001


1


250,000


1


250,000








250,001Total

$
14,125,162

$
706,170

$
511,831

$
44,734

$
529,069

$
270,998

$
46,483

$
891,284As of December 31, 2008Lower-tier operating partnerships

$
6,466,230

$
112,502

$


$


$
270,384

$


$


$
270,384Non-guaranteed upper-tier tax credit funds


352,972




















New markets tax credit funds


376,706


238,418











248,258





248,258Collateralized debt obligations


4,122,931


32,027





32,027











32,027Real estate investments


241,471


118,321


71,380











46,483


46,483CMBS securitization trusts


3,209,640


204,222


184,086


19,956











19,956Trust preferred securities


250,001


1


250,000


1


250,000








250,001Total

$
15,019,951

$
705,491

$
505,466

$
51,984

$
520,384

$
248,258

$
46,483

$
867,109


---

Notes:

19

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

11. Variable Interest Entities (Continued)

The
following table sets forth the carrying amounts of the assets and liabilities of consolidated VIEs for which the Company is the primary beneficiary (in thousands):

Total
assets(1)

Carrying
amount of
assets(2)

Carrying
amount of
liabilities(2)As of March 31, 2009Guaranteed upper-tier tax credit funds

$
1,082,460

$
765,330

$
893,448Lower-tier operating partnerships


458,738


458,738


341,598New markets tax credit funds


629,100


502,950


Real estate investments


25,666


25,666


34,808Total

$
2,195,964

$
1,752,684

$
1,269,854




Total
assets(1)

Carrying
amount of
assets(2)

Carrying
amount of
liabilities(2)As of December 31, 2008Guaranteed upper-tier tax credit funds

$
1,117,150

$
808,371

$
940,176Lower-tier operating partnerships


445,383


445,383


336,962New markets tax credit funds


696,828


547,702


Real estate investments


24,293


24,293


37,735Total

$
2,283,654

$
1,825,749

$
1,314,873


---

Notes:

12. Deposit Liabilities

Deposit liabilities consisted of the following (in thousands):

March 31,
2009

December 31,
2008Brokered CDs at fair value

$
4,621,300

$
5,405,331Brokered CDs at amortized cost


2,536,944


285,599Total

$
7,158,244

$
5,690,930


The
deposits of Capmark Bank US are primarily interest-bearing and insured by the Federal Deposit Insurance Corporation ("FDIC"), subject to current insurance program
limits.

13. Income Taxes

In the fourth quarter of 2008, the Company established a valuation allowance on its federal, state, and foreign deferred tax assets; including federal, state, and foreign net operating
loss, tax credit carryforwards, and temporary tax differences, net of any deferred tax liabilities based on a more-likely-than-not threshold. The Company's ability
to realize its deferred tax assets depends on its ability to generate sufficient taxable income within the carryback or carryforward periods provided for

20

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

13. Income Taxes (Continued)

in
the tax law for each applicable tax jurisdiction. The Company concluded that a valuation allowance was still required as of March 31, 2009.

The
Company recognized approximately $1.7 million and $4.7 million of gross interest and penalties for the three months ended March 31, 2009 and 2008, respectively.
The Company accrued approximately $37.3 million and $35.6 million for the payment of interest and penalties as of March 31, 2009 and December 31, 2008, respectively. The
Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The
Company operates in multiple tax jurisdictions, both within and outside the United States. Accordingly, the Company is, from time to time, under examination in certain tax
jurisdictions and remains subject to examination until the statute of limitations expires for the respective tax jurisdiction. Within specific countries, the Company may be subject to audit by various
tax authorities, or subsidiaries operating within the country may be subject to different expiration dates regarding the statute of limitations. The following table summarizes the tax years that
remain subject to examination in the Company's major tax jurisdictions as of March 31, 2009:

United StatesFederal


2004 and forwardUnited StatesIndividual States


2001 and forwardJapan


2004 and forwardIreland


2003 and forwardCanada


2005 and forwardTaiwan


2004 and forward


Based
upon the expiration of statutes of limitations and/or conclusion of tax examinations in several jurisdictions, management believes it is reasonably possible that
the total amount of previously unrecognized tax benefits as of March 31, 2009 may decrease by up to $20.6 million within the next 12 months.

14. Fair Value of Financial Instruments

The following is a description of the financial instruments measured at fair value on a recurring basis in accordance with SFAS No. 159.

Loans Held for Sale

In connection with the adoption of SFAS No. 159, the Company elected to account for its loans held for sale at fair value. This
election allows the offsetting of the changes in fair value of the loans and the derivative instruments used to economically hedge such loans without the administrative burden of complying with the
requirements for hedge accounting under SFAS No. 133.

As
of March 31, 2009, loans held for sale for which the fair value option was elected had an aggregate fair value of $3.8 billion and an aggregate unpaid principal balance
of $4.8 billion. Interest income on these loans continues to be recorded as a component of interest income in the condensed consolidated statement of operations. Net realized and unrealized
losses of $224.7 million resulting from the changes in fair value of loans held for sale for which the fair value option was elected were recorded during the three months ended March 31,
2009, and reported as a component of losses on loans in the condensed consolidated statement of operations.

21

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

14. Fair Value of Financial Instruments (Continued)

Deposit LiabilitiesBrokered CDs

In connection with the adoption of SFAS No. 159, the Company elected to account for all brokered certificates of deposit
("Brokered CDs") then outstanding at fair value. Beginning in October 2008, the Company elected to account for newly issued Brokered CDs with original maturities greater than one year at amortized
cost. Beginning in January 2009, the Company elected to account for newly issued Brokered CDs with original maturities of one year or greater at amortized cost. The Company accounts for newly-issued
Brokered CDs issued with original maturities of less than one year at fair value. The Company may decide to enter into interest rate swaps to hedge the interest rate risk associated with fixed-rate
deposit liabilities.

The
fair value option for Brokered CDs allows the offsetting of the changes in fair value of the Brokered CDs and the derivative instruments used to economically hedge such deposits.
Interest expense on these Brokered CDs continues to be recorded as a component of interest expense in the condensed consolidated statement of operations. Net losses of $5.3 million resulting
from the changes in fair value of these deposits were recorded during the three months ended March 31, 2009, and reported as a component of other (losses) gains, net in the condensed
consolidated statement of operations.

For
Brokered CDs accounted for at fair value under SFAS No. 159, the Company ceased deferring recognition of issuance costs because such deposits are carried at fair value. For
Brokered CDs accounted for at amortized cost, issuance costs are deferred and recognized as a component of interest expense over the term of such deposits.

The
Company accounts for a significant portion of its financial instruments at fair value or considers fair value in their measurement. The following tables summarize the financial
assets and financial liabilities measured at fair value on a recurring basis, including financial instruments for which the Company has elected the fair value option (in thousands):

Description

Quoted Prices In
Active Markets For
Identical
Assets/Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Counterparty
and Cash
Collateral
Netting

Balance as of
March 31,
2009Assets:Investment securities:Trading

$


$
48,127

$
33,072

$


$
81,199Available for sale


9,944


291,220


441,991





743,155Loans held for sale





478,056


3,314,880





3,792,936Derivative assets





302,100





(197,681
)

104,419Total assets

$
9,944

$
1,119,503

$
3,789,943

$
(197,681
)
$
4,721,709Liabilities:Deposit liabilitiesBrokered CDs

$


$
4,621,300

$


$


$
4,621,300Derivative liabilities





37,458


1,284


(25,897
)

12,845Total liabilities

$


$
4,658,758

$
1,284

$
(25,897
)
$
4,634,145


22

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

14. Fair Value of Financial Instruments (Continued)



Description

Quoted Prices In
Active Markets For
Identical
Assets/Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Counterparty
and Cash
Collateral
Netting

Balance as of
December 31,
2008Assets:Investment securities:Trading

$
1,302,945

$
58,578

$
95,861

$


$
1,457,384Available for sale


7,053


262,571


574,343





843,967Loans held for sale





208,400


3,740,452





3,948,852Derivative assets


(19,440
)

116,397


348


6,100


103,405Total assets

$
1,290,558

$
645,946

$
4,411,004

$
6,100

$
6,353,608Liabilities:Deposit liabilitiesBrokered CDs

$


$
5,405,331

$


$


$
5,405,331Derivative liabilities





35,638


1,284


(27,803
)

9,119Total liabilities

$


$
5,440,969

$
1,284

$
(27,803
)
$
5,414,450


Loans
held for sale in the table above exclude $10.4 million and $21.8 million of loans held for sale in the Philippines as of March 31, 2009 and December 31,
2008, respectively, for which the Company did not elect the fair value option. In the table above, deposit liabilities exclude $2.5 billion and $0.3 billion of Brokered CDs accounted for
at amortized cost as of March 31, 2009 and December 31, 2008, respectively, for which the Company did not elect the fair value option.

The
following table summarizes the aggregate fair value and unpaid principal balance of loans held for sale for which the fair value option has been elected that were 90 days or
more past due or in nonaccrual status (in thousands):

March 31,
2009

December 31,
2008Aggregate fair value of loans 90 days or more past due

$
163,554

$
70,676Aggregate unpaid principal balance in excess of fair value of loans past due 90 days or more


53,912


14,427Aggregate fair value of loans in nonaccrual status


550,461


262,596Aggregate unpaid principal balance in excess of fair value of loans in nonaccrual status


293,999


93,748


23

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

14. Fair Value of Financial Instruments (Continued)

Level 3 financial assets presented in the following tables include investment securities classified as trading and available for sale, loans held for sale, and net derivatives.
These instruments were valued using pricing models and discounted cash flow models that incorporate assumptions, which in management's judgment, reflect the assumptions a market participant would use
including discount rates, spreads and collateral values as well as internal risk ratings and anticipated credit losses. There were no Level 3 financial liabilities as of March 31, 2009
and March 31, 2008. The following tables summarize the changes in fair value for all financial assets measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) for the three months ended March 31, 2009 and 2008 (in thousands):

Investment
Securities
Trading

Investment
Securities
Available
for Sale

Loans Held
for Sale

Net
Derivatives

TotalBeginning balance as of December 31, 2008

$
95,861

$
574,343

$
3,740,452

$
(936
)
$
4,409,720Purchases, issuances, sales and settlements


(55,258
)

5,186


(97,992
)




(148,064
)Total net realized/unrealized losses:Included in earnings


(5,146
)

(79,460
)

(235,499
)

(348
)

(320,453
)Included in other comprehensive income


(167
)

(11,642
)

(32,086
)




(43,895
)Net transfers out of Level 3


(2,218
)

(46,436
)

(59,995
)




(108,649
)Ending balance as of March 31, 2009

$
33,072

$
441,991

$
3,314,880

$
(1,284
)
$
3,788,659The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to assets still held as of
March 31, 2009

$
(4,987
)
$
(80,723
)
$
(229,271
)
$
(348
)
$
(315,329
)




Investment
Securities
Trading

Investment
Securities
Available
for Sale

Loans Held
for Sale

Net
Derivatives

TotalEnding balance as of December 31, 2007

$
126,878

$
675,254

$
7,508,926

$
3,567

$
8,314,625Transition adjustment








1,911





1,911Beginning balance as of January 1, 2008


126,878


675,254


7,510,837


3,567


8,316,536Purchases, issuances, sales and settlements


1,397


2,977


(186,991
)




(182,617
)Total net realized/unrealized (losses) gains:Included in earnings


(17,836
)

(4,892
)

(318,514
)

1,954


(339,288
)Included in other comprehensive income


540


28,223


212,453





241,216Net transfers into Level 3








54,390


443


54,833Ending balance as of March 31, 2008

$
110,979

$
701,562

$
7,272,175

$
5,964

$
8,090,680The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized (losses) gains relating to assets still
held as of March 31, 2008

$
(17,818
)
$
(4,892
)
$
(329,100
)
$
1,954

$
(349,856
)


24

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

14. Fair Value of Financial Instruments (Continued)

Certain
financial assets are measured at fair value on a nonrecurring basis. There were no financial liabilities measured at fair value on a nonrecurring basis as of March 31,
2009 and December 31, 2008. The carrying value of certain impaired loans held for investment is primarily based on the appraised value of the underlying collateral less estimated selling costs.
The following table presents the carrying value of certain impaired loans held for investment measured at fair value on a nonrecurring basis and any impairment recognized on such loans during the
period (in thousands):

Quoted Prices In
Active Markets
For Identical
Assets/Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Total losses
for the three
months ended
March 31,
2009

Total losses
for the three
months ended
March 31,
2008March 31, 2009

$


$


$
440,412

$
440,412

$
74,485

$
6,076December 31, 2008

$


$


$
335,184

$
335,184


Certain
non-financial assets are measured at fair value on a nonrecurring basis. There were no non-financial liabilities measured at fair value on a nonrecurring
basis as of March 31, 2009. The fair value of real estate investments is primarily based on the undiscounted cash flows expected to result from the use and eventual disposition of the asset.
The fair value of equity investments is evaluated using a discounted cash flow analysis, observable competitive market data and a qualitative and quantitative evaluation of the investees. The
following table presents the carrying value of certain impaired non-financial assets measured at fair value on a nonrecurring basis as of March 31, 2009 and any impairment
recognized on such assets and reported as a component of net losses on investments and real estate in the condensed consolidated statement of operations for the three months ended March 31,
2009 (in thousands):

Quoted Prices In
Active Markets
For Identical
Assets/Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Balance as of
March 31,
2009

Total losses
for the three
months ended
March 31,
2009Real estate investments, held for investment(1)

$


$


$
416,839

$
416,839

$
78,444Real estate investments, acquired through foreclosure(1)








234,621


234,621


26,196Equity investments








166,171


166,171


13,059


---

Note:

Intangible
assets are non-financial assets measured at fair value on a nonrecurring basis. As of March 31, 2009, the Company does not have any impaired intangible
assets and did not recognize any impairment on intangible assets for the three months ended March 31, 2009.

25

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

15. Derivative Instruments

The Company primarily uses derivative instruments in connection with its risk management activities. The Company's primary objective in utilizing these derivative instruments is to
minimize market risk volatility associated with interest rate and foreign currency risks related to the Company's assets and liabilities. Minimizing this volatility enables the Company to mitigate the
impact of market risk on earnings. The derivative instruments that the Company uses include swaps, caps, forwards, options and swaptions, all of which may be exchange-traded or contracted in the
over-the-counter market.

In
accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," or "SFAS No. 133," as amended and interpreted, the Company records
derivative instruments at estimated fair value in the condensed consolidated balance sheet. Gains and losses resulting from changes in the fair value of such instruments are accounted for depending on
whether or not they qualify for hedge accounting.

Interest rate risk exposureas of March 31, 2009, the Company's fair value hedges consisted of interest rate swaps associated with Brokered CDs
with original maturities of one year or
greater. The hedging relationships are expected to be highly effective in achieving offsetting changes in fair value attributable to the designated hedge risk during the hedge period. The fair value
change in the Brokered CDs is included as a basis adjustment of the Brokered CDs' carrying value, and the fair value change of the interest rate swaps is recorded in other assets or other liabilities,
as appropriate. The difference between the change in fair value of the Brokered CDs and the change in fair value of the related interest rate swaps represents hedge ineffectiveness and is recognized
in current period earnings as a component of other (losses) gains, net in the condensed consolidated statement of operations.

Foreign exchange rate exposurethe Company makes investments in foreign operations that have functional currencies other than the U.S. dollar, which
is the functional currency of the Company. The change in the carrying value of these operations, translated at month-end exchange rates, is recorded in accumulated other comprehensive
income, net of tax. The change in the carrying value of these operations over future periods exposes the Company to fluctuations in currency exchange rates. In order to manage this exposure, the
Company entered into a portfolio of net investment derivative instruments to minimize the impact of foreign currency exchange movements on stockholders' equity. In March 2009, the derivative
instruments used to manage the foreign exchange rate exposure matured and were not replaced due to the substantial margin requirements of the Company's counterparties. The portion of the change in
estimated fair value of the related derivative instruments due to changes in month-end foreign exchange rates was recorded in other assets or other liabilities, as appropriate, in the
condensed consolidated balance sheet with an offset to accumulated other comprehensive income, net of tax, to the extent the derivative instrument was effective. The remainder was recorded in current
period earnings as a component of other (losses) gains, net in the condensed consolidated statement of operations.

The
Company previously recognized hedge ineffectiveness in earnings if the notional amount of the derivatives exceeded the portion of the net investment that was designated as being
hedged or if the derivatives' underlying exchange rate was not the exchange rate between the functional currency of the hedged net investment and the Company's functional currency.

Derivatives classified as tradingderivative instruments that do not qualify for hedge accounting are reported at their estimated fair value in either
other assets or other liabilities, as appropriate. The

26

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

15. Derivative Instruments (Continued)

resulting
gains and losses are included in current period earnings as a component of net losses on investments and real estate in the condensed consolidated statement of operations. The net interest
settlement periodically recognized for these derivative instruments is included as a component of other (losses) gains, net in the condensed consolidated statement of operations.

The
Company enters into derivative instruments to mitigate the risk associated with changes in the estimated fair value of investment securities classified as trading,
fixed-rate loans held for sale and fixed-rate Brokered CDs with original maturities of less than one year. The Company also enters into interest rate swaps to mitigate the
volatility in cash flows of certain of its variable rate liabilities. In addition, the Company enters into forward currency contracts to mitigate the foreign exchange risk on its foreign denominated
borrowings. Beginning in March 2009, the margin required by counterparties to enter into forward currency contracts was increased and the Company elected not to replace the maturing derivative
instruments which hedged the foreign exchange rate exposure. As a result, the Company's foreign exchange rate exposure has increased substantially as of March 31, 2009 compared to
December 31, 2008.

The
following table presents the notional amount and fair value for derivatives designated as hedging instruments, disaggregated by asset and liability amounts for the periods indicated
(in thousands):

Asset Derivatives

Liability DerivativesAs of
March 31, 2009

As of
December 31, 2008

As of
March 31, 2009

As of
December 31, 2008Notional

Fair value

Notional

Fair value

Notional

Fair value

Notional

Fair valueInterest rate contracts

$
268,970

$
21,376

$
268,970

$
18,978

$
261,682

$
2,236

$


$
Foreign exchange contracts








126,276


2,644








569,958


23,432Total

$
268,970

$
21,376

$
395,246

$
21,622

$
261,682

$
2,236

$
569,958

$
23,432


Interest
rate and foreign exchange contracts are included in other assets or other liabilities, as appropriate, in the condensed consolidated balance sheet.

27

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

15. Derivative Instruments (Continued)

The
following table presents the notional amounts and fair value for derivatives not designated as hedging instruments, and included in other assets or other liabilities in the condensed
consolidated balance sheet, disaggregated by asset and liability amounts for the periods indicated (in thousands):

Asset Derivatives

Liability DerivativesAs of
March 31, 2009

As of
December 31, 2008

As of
March 31, 2009

As of
December 31, 2008Notional

Fair Value

Notional

Fair Value

Notional

Fair Value

Notional

Fair ValueInterest rate contracts

$
7,250,517

$
348,486

$
7,929,987

$
333,592

$
2,193,933

$
187,861

$
2,440,984

$
178,772Credit default contracts


10,000


8,825


10,000


6,919


17,753


17,733


20,000


19,440Foreign exchange contracts


978,528


95,534


838,821


53,543


58,197


1,748


2,380,070


131,984Loan commitments








13,500


348


32,135


1,285


32,136


1,285Total

$
8,239,045

$
452,845

$
8,792,308

$
394,402

$
2,302,018

$
208,627

$
4,873,190

$
331,481


Interest
rate, foreign exchange and credit default contracts and loan commitments are included in other assets or other liabilities, as appropriate, in the condensed consolidated balance
sheet.

The
Company is required to deposit cash in collateral and margin accounts maintained by counterparties related to certain derivative positions. Collateral in the amount of
$53.8 million and $135.6 million was deposited by the Company related to these arrangements as of March 31, 2009 and December 31, 2008, respectively. These amounts are
netted against unrealized losses on derivative positions. The Company held $225.6 million and $101.7 million in collateral and margin accounts on behalf of counterparties as of
March 31, 2009 and December 31, 2008, respectively. These amounts are netted against unrealized gains on derivative positions. Net unrealized losses are reported as a component of other
liabilities in the condensed consolidated balance sheet. Net unrealized gains are reported as a component of other assets in the condensed consolidated balance sheet.

For
the three months ended March 31, 2009, a $0.7 million gain was recognized in other (losses) gains, net in the condensed consolidated statement of operations related to
fair value hedging relationships. There were no gains or losses related to fair value hedging relationships for the three months ended March 31, 2008.

28

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

15. Derivative Instruments (Continued)

The
following table presents the effect of derivative instruments designated as net investment hedges recorded in accumulated other comprehensive income during the term of the hedging
relationship for periods indicated (in thousands):

Amount of gain(loss)
recognized in
earnings on
derivatives
(ineffective portion
and amount excluded
from effectiveness
testing)(1)Amount of gain(loss)
reclassified from
accumulated other
comprehensive
income into earnings
(effective portion)Amount of gain/(loss)
recognized in other
comprehensive
income on derivatives
(effective portion)Classification
of gain(loss)
reclassified
from
accumulated
other
comprehensive
income into
earnings
(effective
portion)

Classification of
gain(loss)
recognized in
earnings on
derivatives
(ineffective
portion and
amount excluded
from effectiveness
testing)Three
months
ended
March 31,
2009

Three
months
ended
March 31,
2008

Three
months
ended
March 31,
2009

Three
months
ended
March 31,
2008

Three
months
ended
March 31,
2009

Three
months
ended
March 31,
2008Foreign exchange contracts

$
37,290

$
(72,050
)
Other (losses)
gains, net

$


$


Interest expense

$
(1,581
)
$
1,934


---

Note:

Losses
of $58.2 million and $178.6 million were recognized in accumulated other comprehensive income from the inception of the net investment hedges as of March 31,
2009 and 2008, respectively.

The
following table presents the effect of derivative instruments not designated as hedging instruments under SFAS No. 133 in the condensed consolidated statement of operations
(in thousands):

Amount of gain(loss)
recognized in earnings on derivativesThree months ended
March 31, 2009

Three months ended
March 31, 2008Interest rate contracts

$
17,388

$
(15,427
)Credit default contracts


1,351


20,651Foreign exchange contracts


104,979


(229,473
)Treasury short repurchase contracts





(434
)Loan commitments


(348
)

1,954Total

$
123,370

$
(222,729
)


Gains
and losses on derivatives not designated as hedging instruments under SFAS No. 133 are recognized in other (losses) gains, net in the condensed consolidated statement of
operations.

16. Securitization of Assets

The Company originates and purchases commercial mortgage loans and investment securities, with the intent to earn interest income, origination fees and servicing income. Those loans and
investment securities which are considered held/available for sale are sold to third party investors, when market conditions allow, directly or through a variety of special purpose entities ("SPEs"),
including qualified special purpose entities ("QSPEs"), and other structured facilities in order to provide funding for the

29

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

16. Securitization of Assets (Continued)

continued
origination and purchase of loans and investments. The beneficial interests in the underlying pools of loans and investments are typically sold to institutional investors. These
securitization activities were severely limited throughout 2008 and in the first quarter of 2009 due to the unfavorable market conditions.

Prior
to the current market disruptions, the Company also operated its own securitization programs. Under the Company's term securitization programs, commercial mortgage loans and
investment securities were sold to limited purpose bankruptcy-remote subsidiaries of the Company. In turn, these subsidiaries generally established separate trusts to which they transferred the assets
in exchange for the proceeds from the sale of securities issued by the trusts. The activities of the trusts are generally limited to acquiring the assets, issuing securities, collecting payments on
assets and making payments on the securities. Due to the nature of the assets held by the trusts and the limited nature of the activities of the trusts, they are typically classified as QSPEs under
SFAS No. 140. In accordance with SFAS No. 140, assets and liabilities of the trusts that meet all of the conditions to qualify as QSPEs are not included in the Company's condensed
consolidated balance sheet. Assets and liabilities of the trusts that do not meet all of the conditions to qualify as QSPEs are analyzed for consolidation under FIN 46R. See Note 11 for
related disclosures. In either case, the investors in the debt securities issued by the trusts have no further recourse against the Company if cash flows generated by the securitized assets are
inadequate to service the obligations of the trusts. The Company has not provided any financial support that it was not contractually obligated to provide for the three months ended March 31,
2009 and the year ended December 31, 2008.

The
Company periodically enters into transactions in which it sells financial assets, principally commercial mortgage loans. When the Company securitizes mortgage loans in transactions
accounted for as a sale in accordance with SFAS No. 140, it may retain an interest in the assets sold. These retained interests may take the form of interest-only, investment grade,
subordinate, or unrated securities and are reported as investment securities classified as available for sale in the condensed consolidated balance sheet. The subordinate interests that the Company
retains provide a form of credit enhancement for the more highly-rated securities. In addition, the Company generally retains servicing rights for all mortgage loans sold or securitized for an annual
fee averaging approximately 0.1% of the outstanding balance and may earn other related ongoing income.

The
accounting policies related to securitization of assets are discussed in Note 3 of the consolidated financial statements included in the Company's 2008 Annual Report on
Form 10-K.

The
Company's past securitization activities have also included the securitization of commercial mortgage securities, real estate investment trust debt, and commercial mortgage loans
using SPEs that issue CDOs. With respect to such transactions, the Company and other unaffiliated parties each contribute a portion of the total collateral underlying the CDO investments. The Company
holds subordinated interests, including first loss positions, and also acts as collateral manager for these SPEs. The assets in these CDOs totaled $5.0 billion and $5.1 billion as of
March 31, 2009 and December 31, 2008, respectively, of which the Company's exposure to loss was $25.8 million and $32.0 million as of March 31, 2009 and
December 31, 2008, respectively, representing the Company's retained interests in these entities and are reported as a component of investment securities classified as available for sale in the
condensed consolidated balance sheet.

The
Company did not securitize financial assets in the three months ended March 31, 2009 or March 31, 2008. The Company has not retained interests in securitized investment
securities since 2005.

30

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

16. Securitization of Assets (Continued)

Cash
flows received from (and paid to) securitization trusts consisted of the following (in thousands):

Three months ended
March 31, 2009

Three months ended
March 31, 2008Servicing and late fees received(1)

$
4,677

$
5,275Other cash flows received on retained interests


3,344


6,690Servicing advances


(56,081
)

(40,451
)Repayments of servicing advances


45,274


39,826


---

Note:

The
key economic assumptions used in measuring the estimated fair value of retained interests including mortgage servicing rights as of March 31, 2009 and December 31,
2008, and the sensitivity of such retained interests to immediate 10% and 20% adverse changes in those assumptions, are summarized below (in thousands):

Commercial Mortgage LoansMarch 31, 2009

December 31, 2008Fair value of retained interests


$23,468


$26,810




Range

Weighted
average

Range

Weighted
averageLife (in years)


0.0-4.7


1.6


0.1-4.7


1.9Annual prepayment rate


0.0-50.0
%

8.6
%

0.0-50.0
%

10.3
%Impact on fair value of 10% adverse change

$
(849
)



$
(955
)Impact on fair value of 20% adverse change

$
(1,579
)



$
(1,786
)Expected credit losses


0.0-36.1
%

7.8
%

0.0-36.0
%

6.8
%Impact on fair value of 10% adverse change

$
(636
)



$
(491
)Impact on fair value of 20% adverse change

$
(974
)



$
(663
)Discount rate


6.3-44.3
%

30.7
%

6.3-40
%

21.7
%Impact on fair value of 10% adverse change

$
(807
)



$
(706
)Impact on fair value of 20% adverse change

$
(1,510
)



$
(1,380
)


31

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

16. Securitization of Assets (Continued)

Taxable Investment SecuritiesMarch 31, 2009

December 31, 2008Fair value of retained interests


$26,059


$32,407




Range

Weighted
average

Range

Weighted
averageLife (in years)


0.1-12.3


3.5


0.3-12.5


3.8Annual prepayment rate


0.0
%

0.0
%

0.0
%

0.0
%Impact on fair value of 10% adverse change


N/A





N/AImpact on fair value of 20% adverse change


N/A





N/AExpected credit losses


0.0-1.2
%

0.2
%

0.0-1.0
%

0.1
%Impact on fair value of 10% adverse change

$
(439
)



$
(97
)Impact on fair value of 20% adverse change

$
(620
)



$
(194
)Discount rate


30.0-40.0
%

37.9
%

20.0-40.0
%

35.2
%Impact on fair value of 10% adverse change

$
(2,782
)



$
(2,785
)Impact on fair value of 20% adverse change

$
(4,968
)



$
(5,234
)


---

N/A = not
applicable

Mortgage Servicing RightsMarch 31, 2009

December 31, 2008Fair value of retained interests


$76,664


$81,683




Range

Weighted
average

Range

Weighted
averageLife (in years)


0.0-21.33


5.4


0.0-21.58


5.6Annual prepayment rate


0.0-25
%

**


0.0-25
%

**Impact on fair value of 10% adversechange

$
(372
)



$
(404
)Impact on fair value of 20% adversechange

$
(739
)



$
(804
)Discount rate


7.9
%

7.9
%

8.1
%

8.1
%Impact on fair value of 10% adversechange

$
(1,885
)



$
(2,081
)Impact on fair value of 20% adversechange

$
(3,698
)



$
(4,080
)


---

These
sensitivities are hypothetical and should be considered with caution. Changes in fair value based on a 10 percent change in assumptions generally cannot be extrapolated,
because the relationship of the changes in assumptions to the change in fair value may not be linear. Also, the effect of a change in one particular assumption on the fair value of the retained
interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. The discount rate
presented represents post-loss yields.

Managed
assets include assets recognized in the Company's condensed consolidated balance sheet and assets that have been derecognized in a securitization. Performance of the managed
loans and

32

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

16. Securitization of Assets (Continued)

investment
securities is relevant and useful because we retain interests in the securitized assets and, therefore we have a financial interest in and exposure to the performance of the securitized
assets. Information pertaining to the Company's managed loans and investment securities as of March 31, 2009 and December 31, 2008 consisted of the following (in thousands):

Loans

Investment SecuritiesMarch 31,
2009

December 31,
2008

March 31,
2009

December 31,
2008Balance sheet loans/securities

$
11,827,298

$
12,178,663

$
824,354

$
2,301,351Plus: Securitized loans/securities


13,569,273


14,594,550


4,590,999


4,571,706Managed loans/securities

$
25,396,571

$
26,773,213

$
5,415,353

$
6,873,057Loans 60 days or more delinquent:Owned

$
1,773,276

$
915,198Securitized


1,430,711


604,171Total managed

$
3,203,987

$
1,519,369Net principal charge-offs for the three months ended March 31, 2009 and the year ended December 31, 2008:Owned

$
50,104

$
101,046Securitized


7,675


308,215Total managed

$
57,779

$
409,261


17. Guarantees

In the ordinary course of business, the Company issues various guarantees. The Company's outstanding guarantees as of March 31, 2009 and December 31, 2008 consisted of the
following (in thousands):

March 31, 2009

December 31, 2008Maximum
liability

Carrying value
of liability

Maximum
liability

Carrying value
of liabilityAgency/construction lending guarantees

$
171,820

$
1,978

$
269,025

$
675Agency loans sold with recourse


710,610


20,710


693,935


20,907Other third party guarantees


268,200





268,825


Total

$
1,150,630

$
22,688

$
1,231,785

$
21,582


18. Commitments and Contingent Liabilities

The Company holds variable interests in syndicated affordable housing partnerships where the Company provides unaffiliated investors with a guaranteed yield on their investment. As of
March 31, 2009, the Company's maximum exposure to loss under the yield guarantees was $1.6 billion. As of March 31, 2009, the Company's estimate of actual loss under these yield
guarantees was $234.2 million and is reported as a component of real estate syndication proceeds and related liabilities in the condensed consolidated balance sheet.

33

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

18. Commitments and Contingent Liabilities (Continued)

The
Company is subject to potential liability under laws and government regulations, and various claims and legal actions that are pending or may be asserted against it. As of
March 31, 2009, after consultation with counsel, it is the opinion of management that potential liability arising from pending litigation is not expected to have a material adverse effect on
the Company's condensed consolidated financial condition, results of operations or cash flows. However, due to the inherent uncertainty in litigation and since the ultimate resolution of the Company's
litigation, claims and other legal proceedings are influenced by factors outside of the Company's control, it is reasonably possible that actual results will differ from management's estimates.

19. Segment Information

The operating results for the Company's six business segments have been determined in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This standard is based on a management approach, which requires presentation of business segments based upon a company's organization and internal reporting of operating results to the
company's chief operating decision maker. The Company's chief operating decision maker is its Chief Executive Officer. The accounting policies of the Company's business segments are the same as those
described in Note 3 of the consolidated financial statements included in the Company's 2008 Annual Report on Form 10-K, except that disaggregated results have been prepared
using a management approach, which is substantially consistent with the basis and manner in which management internally disaggregates financial information for the purpose of assisting in the
operating-decision process. Material intersegment transactions have been eliminated in consolidation.

The
Company's business segments are managed and organized based on geography and the type of business conducted. The Company has six business segments: North American Lending and
Mortgage
Banking, North American Investments and Funds Management, North American Servicing, Asian Operations, European Operations and North American Affordable Housing.

The
following table summarizes the financial results for the Company's business segments for the three months ended March 31, 2009 (in thousands):

SegmentsNorth
American
Lending and
Mortgage
Banking

North
American Investments
and Funds
Management

North
American
Servicing

Asian
Operations

European
Operations

North
American
Affordable
Housing

Corporate &
other

ConsolidatedNet interest income

$
77,818

$
1,410

$
(2,974
)
$
217

$
6,066

$
1,293

$
(71,717
)
$
12,113Noninterest income


(154,408
)

(140,794
)

61,143


(185,211
)

(57,187
)

(40,599
)

15,508


(501,548
)Total revenue


(76,590
)

(139,384
)

58,169


(184,994
)

(51,121
)

(39,306
)

(56,209
)

(489,435
)Provision for loan losses


83,142








13,213


423





1,937


98,715Net revenue


(159,732
)

(139,384
)

58,169


(198,207
)

(51,544
)

(39,306
)

(58,146
)

(588,150
)Noninterest expense


44,452


6,942


40,010


25,547


4,435


5,175


64,863


191,424(Loss) income before income taxes

$
(204,184
)
$
(146,326
)
$
18,159

$
(223,754
)
$
(55,979
)
$
(44,481
)
$
(123,009
)
$
(779,574
)Net loss attributable to noncontrolling interests

$
17,055

$
31,512

$


$
80

$


$


$
5,600

$
54,247Total assets at end of period

$
13,088,795

$
670,658

$
929,708

$
2,378,624

$
395,630

$
938,562

$
2,732,299

$
21,134,276


34

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

19. Segment Information (Continued)

The following table summarizes the financial results for the Company's business segments for the three months ended March 31, 2008 (in thousands):

SegmentsNorth
American
Lending and
Mortgage
Banking

North
American
Investments
and Funds
Management

North
American
Servicing

Asian
Operations

European
Operations

North
American
Affordable
Housing

Corporate &
other

ConsolidatedNet interest income

$
78,025

$
619

$
(4,087
)
$
7,364

$
4,852

$
(2,293
)
$
(23,377
)
$
61,103Noninterest income


(74,737
)

17,489


79,113


3,359


(243,582
)

5,119


20,015


(193,224
)Total revenue


3,288


18,108


75,026


10,723


(238,730
)

2,826


(3,362
)

(132,121
)Provision for loan losses


4,968








2,825


(42
)




(122
)

7,629Net revenue


(1,680
)

18,108


75,026


7,898


(238,688
)

2,826


(3,240
)

(139,750
)Noninterest expense


47,870


13,369


51,773


27,091


7,914


8,621


51,972


208,610(Loss) income before income taxes

$
(49,550
)
$
4,739

$
23,253

$
(19,193
)
$
(246,602
)
$
(5,795
)
$
(55,212
)
$
(348,360
)Net loss (income) attributable to noncontrolling interests

$
8,606

$
(4,235
)
$


$
74

$


$


$
11,053

$
15,498Total assets at end of period

$
12,344,551

$
1,081,545

$
862,514

$
3,087,171

$
3,063,943

$
1,027,740

$
2,087,729

$
23,555,193


20. Regulatory Matters

Certain subsidiaries of the Company are subject to GSE and the Department of Housing and Urban Development minimum net worth requirements. Failure to meet the minimum net worth
requirements can result in the initiation of certain actions by these entities that, if undertaken, could have a material adverse effect on the Company's condensed consolidated financial statements.
Management believes the Company was in compliance with these minimum net worth requirements as of March 31, 2009.

Fannie
Mae has established certain eligibility requirements that Capmark Finance Inc. must comply with as a condition of being a Fannie Mae Delegated Underwriting and Servicing
seller/servicer. Capmark Finance received a waiver from complying with certain of these eligibility requirements for so long as the Company maintained an "Investment Grade Credit Rating," which means
that its senior long-term unsecured debt rating is (i) BBB- or higher from Standard & Poor's Ratings Services ("S&P"); or (ii) Baa3 or above from Moody's
Investors Service ("Moody's") or (iii) BBB- or above from Fitch Ratings ("Fitch") (with the lowest rating prevailing if there is a split among the rating agencies). The senior
long-term unsecured debt ratings of the Company were reduced below investment grade by each of the rating agencies during the first or second quarter of 2009. As of the date of the filing
of this Quarterly Report on Form 10-Q, the Company has not received notification from Fannie Mae that the waiver has been terminated.

Capmark
Bank US and Escrow Bank USA ("Escrow Bank") must maintain minimum regulatory capital ratios to qualify as "well capitalized" under the capital rules of the FDIC. In addition, in
connection with the Sponsor Transactions, the Company and both banks entered into capital

35

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

20. Regulatory Matters (Continued)

maintenance
agreements with the FDIC pursuant to which they have agreed to maintain a Tier 1 leverage ratio of not less than 8.0%. In June 2008, Escrow Bank ceased its trust operations and the
trust customers of Escrow Bank appointed Capmark Bank US as their new trustee. Following the cessation of trust operations, Escrow Bank no longer has any daily operations and expects its deposit
insurance to terminate effective June 30, 2009. Until the termination of deposit insurance is effective,
Escrow Bank remains subject to the FDIC capital rules. The following table summarizes the FDIC's regulatory capital ratio requirements for well-capitalized banks and the regulatory capital
ratios as of March 31, 2009 and December 31, 2008 for Capmark Bank US and Escrow Bank:

March 31, 2009

December 31, 2008Ratios to qualify as
"Well-Capitalized"

Capmark
Bank US

Escrow
Bank

Capmark
Bank US(1)

Escrow
BankLeverage


5.0
%(2)

13.1
%

87.6
%

12.5
%

16.0
%Tier 1 risk-based


6.0
%

13.3
%

424.1
%

13.3
%

405.4
%Total risk-based


10.0
%

14.1
%

424.1
%

15.9
%

405.4
%


---

Notes:

Capmark
Bank Europe p.l.c. ("Capmark Bank Europe") is required to comply with various laws, rules and regulations in Ireland. These requirements, among others, require Capmark Bank
Europe to maintain certain capital adequacy and liquidity ratios calculated in accordance with applicable laws and related accounting standards in Ireland. In July 2008, Capmark Bank Europe notified
the Irish banking regulatory authority that, in connection with the Company's decision to end proprietary lending in Europe, Capmark Bank Europe would commence cessation of its banking operations. In
connection with the wind-down of banking activities, Capmark Bank Europe will voluntarily surrender its banking license once it has repaid all of its deposits and unwound or transferred to
a third party all of the obligations under which it is required to hold a banking license. The Company expects that the process of winding down Capmark Bank Europe's banking activities will be
completed and the banking license will be relinquished prior to June 30, 2009. Until it relinquishes its license, Capmark Bank Europe is required to comply with the capital adequacy and
liquidity ratios described above.

36

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

20. Regulatory Matters (Continued)

The
following table summarizes Capmark Bank Europe's regulatory capital adequacy and liquidity ratios as of March 31, 2009 and December 31, 2008:

Ratio
minimum

March 31,
2009

December 31,
2008Capital adequacy


15
%

53.0
%

46.5
%Liquidity(1)


100
%

2,387
%

18,235.0
%






Capmark
Securities Inc. is subject to the Securities and Exchange Commission's broker-dealer minimum net capital requirements. Capmark Securities Inc.'s net capital
requirement was $250,000 as of March 31, 2009 and December 31, 2008. Capmark Securities Inc.'s net capital totaled $13.2 million and $11.4 million as of
March 31, 2009 and December 31, 2008, respectively.

21. Loss per Share

The table below demonstrates how the Company has computed basic and diluted earnings per share. The denominator in the calculation below includes shares of common stock issued and sold
to employees and non-employee directors, for the three months ended March 31, 2009 and 2008, which are reported as mezzanine equity in the condensed consolidated balance sheet.

Three months
ended March 31,
2009

Three months
ended March 31,
2008(in thousands, except per share amounts)Net loss attributable to Capmark Financial Group Inc.

$
(727,696
)
$
(212,859
)Basic loss per share

$
(1.70
)
$
(0.49
)Diluted loss per share

$
(1.70
)
$
(0.49
)Basic weighted average shares outstanding


427,131


432,940Effect of dilutive shares





Diluted weighted average shares outstanding


427,131


432,940Antidilutive sharesTime-based stock options


24,452


32,942Performance-based stock options


7,365


9,811Total antidilutive shares


31,817


42,753


22. Subsequent Events

On April 7, 2009, Moody's downgraded the Company's long-term senior unsecured debt rating to B2 from Ba2 and kept the rating under review for further possible
downgrade. On April 24, 2009, S&P

37

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

22. Subsequent Events (Continued)

downgraded
the Company's long-term senior unsecured debt rating to B- from B+ and changed the outlook from negative to developing. On April 28, 2009, Moody's further
downgraded the Company's long-term senior unsecured debt rating to Caa1 from B2 and kept the rating under review for further possible downgrade.

On
May 8, 2009, the Company received a commitment from certain lenders under the bridge loan agreement and senior credit facility to provide the Facility. Proceeds from the
Facility, along with $75.0 million in cash, will be used to refinance a portion of the Company's bridge loan agreement and senior credit facility.

The
Facility will be guaranteed by each of the guarantors under the bridge loan agreement and senior credit facility and certain material domestic wholly-owned subsidiaries of the
Company. The Facility will be secured by a pledge and security interest on substantially all of the Company's U.S. and Canadian non-bank mortgage loans and foreclosed real estate. The
Facility will contain a number of financial and operating covenants, including minimum liquidity covenants and run rate operating expense covenants, limitations on incurring debt, granting liens and
making certain restricted payments, investments and capital expenditures. The maturity date of the Facility will be March 23, 2011, provided that if certain conditions relating to the
restructuring of the Company's senior notes due 2010 have not been met, the maturity date of the Facility will be accelerated to April 2010.

In
connection with the Facility, the Company will enter into the Amendments. The Amendments will extend the maturity date under the bridge loan agreement to the maturity date of the
Facility, conform
the financial covenants in those agreements to the financial covenants in the Facility and amend certain other provisions of those agreements, including amendments necessary to enter into the
Facility. The Facility and the Amendments are subject to a number of closing conditions, including the negotiation and execution of definitive agreements and related documents satisfactory to the
lenders. The Company is seeking to document and close the Facility and the Amendments by May 21, 2009.

In
addition, the Company intends to seek an additional facility contemplated under the terms of the Facility to finance servicing advances made by Capmark Finance Inc. in the
ordinary course of its master servicing activities. In the event a servicing facility is entered into, it will be secured by the rights to repayment of the servicing advances and a security interest
covering the residual value of the servicing advances also will be granted as security for repayment of the Facility.

To
facilitate the execution of definitive agreements with respect to the Facility and the Amendments, the Company has extended the maturity date of 100% of its outstanding bridge loan to
May 21, 2009. Prior to the current extension, the bridge loan maturity was extended to April 9, 2009, April 20, 2009 and May 8, 2009. In connection with the prior
extensions, the Company paid the extending lenders a fee equal to 0.25%, 0.15% and 0.05% of the extended amount, respectively. Additionally, the required lenders under the senior credit facility and
the bridge loan agreement have agreed to waive the Company's compliance with the leverage ratio covenant for the quarters ended December 31, 2008 and March 31, 2009. These waivers are
effective through May 21, 2009.

On
May 12, 2009, the Company entered into a settlement agreement with the one bridge loan lender that previously had not consented to the extension of the bridge loan maturity and
waiver of the leverage covenant. The settlement required that such lender become a party to the most recent bridge loan extension and waiver, execute the Facility commitment and dismiss its complaint
filed on April 3, 2009 with prejudice. In consideration of the settlement, the Company paid the non-consenting lender

38

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

22. Subsequent Events (Continued)

$1.2 million
as compensation for fees related to the earlier extensions and the lender's legal fees. The complaint was filed in connection with the non-repayment of the
$48 million principal amount of the bridge loan held by such lender. The complaint alleged breach of contract, breach of the covenant of good faith and fair dealing and conversion by the
Company in connection with the non-repayment.

In
March and April 2009, the Company has received correspondence from certain of the holders of its senior notes stating that they believe that the Company has defaulted under the terms
of the indentures governing the senior notes by failing to timely file its Annual Report on Form 10-K for the year ended December 31, 2008. The Company subsequently filed its
2008 Annual Report on Form 10-K and does not believe there is any default. The Company has also received correspondence from certain of the holders of its senior notes and certain of the
lenders under the senior credit facility that are not lenders under the bridge loan agreement requesting that the Company provide them with
the information that it has provided to the bridge lenders and urging the Company to undertake a comprehensive debt restructuring.

23. Supplemental Financial Information

Certain wholly-owned subsidiaries of the Company have guaranteed the Company's borrowings under its senior credit facility. The guarantees are full and unconditional, joint and several.
The following supplemental financial information presents the condensed consolidating balance sheet, statement of operations and statement of cash flows for the parent company, the guarantor
subsidiaries and the non-guarantor subsidiaries.

39

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

23. Supplemental Financial Information (Continued)

Condensed Consolidating Balance Sheet  March 31, 2009  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedAssetsCash, cash equivalents and restricted cash

$
1,311,604

$
13,723

$
2,084,260

$
(11,808
)
$
3,397,779Investment securitiestrading





49,694


31,505





81,199Investment securitiesavailable for sale





336,480


489,716


(83,041
)

743,155Loans held for sale





1,270,019


2,516,049


17,276


3,803,344Loans held for investment





1,100,584


7,644,790


(721,420
)

8,023,954Real estate investments





13,848


1,718,655


(523
)

1,731,980Equity investments


30,549


259,040


1,294,157


(145,587
)

1,438,159Other assets


5,973,449


1,628,296


806,507


(6,493,546
)

1,914,706Investment in subsidiaries


1,851,450


(412,747
)




(1,438,703
)

Total assets

$
9,167,052

$
4,258,937


16,585,639


(8,877,352
)

21,134,276Liabilities and EquityLiabilities:Short-term borrowings

$
2,431,125

$
209,029

$
687,845

$
(125,901
)
$
3,202,098Long-term borrowings


5,912,143


251,741


2,530,568


(440,765
)

8,253,687Deposit liabilities








7,158,244





7,158,244Real estate syndication proceeds and related liabilities








1,196,080





1,196,080Other liabilities


305,455


3,547,597


3,664,408


(6,849,835
)

667,625Total liabilities


8,648,723


4,008,367


15,237,145


(7,416,501
)

20,477,734Commitments and Contingent Liabilities














Mezzanine Equity


72,902











72,902Equity:Preferred stock














Common stock


413


786


190,880


(191,666
)

413Other stockholders' equity


445,014


180,272


1,062,901


(1,243,173
)

445,014Total stockholders' equity


445,427


181,058


1,253,781


(1,434,839
)

445,427Noncontrolling interests





69,512


94,713


(26,012
)

138,213Total equity


445,427


250,570


1,348,494


(1,460,851
)

583,640Total liabilities and equity

$
9,167,052

$
4,258,937

$
16,585,639

$
(8,877,352
)
$
21,134,276


40

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

23. Supplemental Financial Information (Continued)

Condensed Consolidating Balance Sheet  December 31, 2008  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedAssetsCash, cash equivalents and restricted cash

$
179,592

$
2,718

$
726,723

$
(34,643
)
$
874,390Investment securitiestrading


1,302,945


119,987


34,452





1,457,384Investment securitiesavailable for sale





336,943


599,792


(92,768
)

843,967Loans held for sale





1,390,789


2,567,695


12,199


3,970,683Loans held for investment





1,081,978


7,569,807


(443,805
)

8,207,980Real estate investments





18,415


1,827,032


(523
)

1,844,924Equity investments


33,985


276,191


1,271,807


(13,926
)

1,568,057Other assets


5,814,640


1,547,936


965,632


(6,457,418
)

1,870,790Investment in subsidiaries


2,352,985


(189,325
)




(2,163,660
)

Total assets

$
9,684,147

$
4,585,632

$
15,562,940

$
(9,194,544
)
$
20,638,175Liabilities and EquityLiabilities:Short-term borrowings

$
2,273,125

$
319,512

$
849,518

$
(131,397
)
$
3,310,758Long-term borrowings


5,934,480


239,107


2,356,315


(247,067
)

8,282,835Deposit liabilities








5,690,930





5,690,930Real estate syndication proceeds and related liabilities








1,258,743





1,258,743Other liabilities


257,657


3,293,653


3,763,772


(6,625,458
)

689,624Total liabilities


8,465,262


3,852,272


13,919,278


(7,003,922
)

19,232,890Commitments and Contingent Liabilities














Mezzanine Equity


72,851











72,851Equity:Preferred stock














Common stock


413


786


187,943


(188,729
)

413Other stockholders' equity


1,145,621


643,430


1,334,388


(1,977,818
)

1,145,621Total stockholders' equity


1,146,034


644,216


1,522,331


(2,166,547
)

1,146,034Noncontrolling interests





89,144


121,331


(24,075
)

186,400Total equity


1,146,034


733,360


1,643,662


(2,190,622
)

1,332,434Total liabilities and equity

$
9,684,147

$
4,585,632

$
15,562,940

$
(9,194,544
)
$
20,638,175


41

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

23. Supplemental Financial Information (Continued)

Condensed Consolidating Statement of Operations  Three months ended March 31, 2009  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedNet Interest IncomeInterest income

$
27,321

$
48,830

$
127,594

$
(40,860
)
$
162,885Interest expense


69,235


27,660


96,141


(42,264
)

150,772Net interest income


(41,914
)

21,170


31,453


1,404


12,113Provision for loan losses





44,025


83,233


(28,543
)

98,715Net interest income after provision for loan losses


(41,914
)

(22,855
)

(51,780
)

29,947


(86,602
)Noninterest IncomeNet losses


(61,512
)

(137,275
)

(278,708
)

(8,127
)

(485,622
)Fee and investment income


(1,908
)

6,514


(6,447
)

(14,085
)

(15,926
)Total noninterest income


(63,420
)

(130,761
)

(285,155
)

(22,212
)

(501,548
)Net revenue


(105,334
)

(153,616
)

(336,935
)

7,735


(588,150
)Noninterest ExpenseCompensation and benefits





49,998


17,096





67,094Other expenses


10,381


73,973


76,921


(36,945
)

124,330Total noninterest expense


10,381


123,971


94,017


(36,945
)

191,424Loss before income tax provision


(115,715
)

(277,587
)

(430,952
)

44,680


(779,574
)Income tax provision


1,194


199


976





2,369Equity in net loss of subsidiaries


(610,787
)

(151,069
)




761,856


Net loss


(727,696
)

(428,855
)

(431,928
)

806,536


(781,943
)Plus: Net loss attributable to noncontrolling interests





16,678


38,441


(872
)

54,247Net loss attributable to Capmark Financial Group Inc.

$
(727,696
)
$
(412,177
)
$
(393,487
)
$
805,664

$
(727,696
)


42

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

23. Supplemental Financial Information (Continued)

Condensed Consolidating Statement of Operations  Three months ended March 31, 2008  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedNet Interest IncomeInterest income

$
77,626

$
108,522

$
203,777

$
(112,947
)
$
276,978Interest expense


103,363


66,923


158,267


(112,678
)

215,875Net interest income


(25,737
)

41,599


45,510


(269
)

61,103Provision for loan losses





(4,541
)

12,212


(42
)

7,629Net interest income after provision for loan losses


(25,737
)

46,140


33,298


(227
)

53,474Noninterest IncomeNet losses


(228,082
)

(63,811
)

(57,222
)

(539
)

(349,654
)Fee and investment income


1,182


67,600


90,850


(3,202
)

156,430Total noninterest income


(226,900
)

3,789


33,628


(3,741
)

(193,224
)Net revenue


(252,637
)

49,929


66,926


(3,968
)

(139,750
)Noninterest ExpenseCompensation and benefits





63,999


25,638





89,637Other expenses


7,557


75,367


44,397


(8,348
)

118,973Total noninterest expense


7,557


139,366


70,035


(8,348
)

208,610Loss before income tax benefit


(260,194
)

(89,437
)

(3,109
)

4,380


(348,360
)Income tax benefit


(97,126
)

(29,838
)

(795
)

7,756


(120,003
)Equity in net loss of subsidiaries


(49,791
)

(21,985
)




71,776


Net loss


(212,859
)

(81,584
)

(2,314
)

68,400


(228,357
)Plus: Net loss attributable to noncontrolling interests





8,802


6,653


43


15,498Net loss attributable to Capmark Financial Group Inc.

$
(212,859
)
$
(72,782
)
$
4,339

$
68,443

$
(212,859
)


43

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

23. Supplemental Financial Information (Continued)

Condensed Consolidating Statement of Cash Flows  Three months ended March 31, 2009  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedOperating ActivitiesNet cash provided by operating activities

$
1,092,142

$
237,129

$
353,379

$
(472,840
)
$
1,209,810Investing ActivitiesNet (increase) decrease in restricted cash








12,985





12,985Net (increase) decrease in investment securitiesavailable for sale





1,155


(21,799
)

(91
)

(20,735
)Net (increase) decrease in mortgage loans held for investment





(57,854
)

(231,987
)

325,121


35,280Net (increase) decrease in real estate investments





85


(8,546
)

190


(8,271
)Net (increase) decrease in equity investments


931


(38,473
)

(161,678
)

136,228


(62,992
)Other investing activities, net





(1,913
)

853





(1,060
)Net cash provided by (used in) investing activities


931


(97,000
)

(410,172
)

461,448


(44,793
)Financing ActivitiesNet increase (decrease) in short-term borrowings


158,000


(110,484
)

(134,407
)

(16,025
)

(102,916
)Net increase (decrease) in long-term borrowings


(8,171
)

3,554


(51,481
)

55,849


(249
)Net increase (decrease) in deposit liabilities








1,465,254





1,465,254Real estate syndication proceeds received








1,438





1,438Other financing activities, net


(110,888
)

(21,913
)

145,694


(5,597
)

7,296Net cash provided by (used in) financing activities


38,941


(128,843
)

1,426,498


34,227


1,370,823Effect of Foreign Exchange Rates on Cash


(2
)

(281
)

818





535Net Increase in Cash and Cash Equivalents


1,132,012


11,005


1,370,523


22,835


2,536,375Cash and Cash Equivalents, Beginning of Period


179,592


2,718


577,103


(34,643
)

724,770Cash and Cash Equivalents, End of Period

$
1,311,604

$
13,723

$
1,947,626

$
(11,808
)
$
3,261,145


44

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

23. Supplemental Financial Information (Continued)

Condensed Consolidating Statement of Cash Flows  Three months ended March 31, 2008  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedOperating ActivitiesNet cash (used in) provided by operating activities

$
(635,545
)
$
81,393

$
161,835

$
(42,606
)
$
(434,923
)Investing ActivitiesNet (increase) decrease in restricted cash





(387
)

5,505





5,118Net (increase) decrease in investment securitiesavailable for sale





(10,821
)

8,934


(64
)

(1,951
)Net (increase) decrease in mortgage loans held for investment





(77,651
)

(398,329
)

34,345


(441,635
)Net (increase) decrease in real estate investments





(49
)

(29,655
)




(29,704
)Net (increase) decrease in equity investments


(2
)

(15,781
)

(38,253
)

6,288


(47,748
)Other investing activities, net





(702
)

(188
)




(890
)Net cash provided by (used in) investing activities


(2
)

(105,391
)

(451,986
)

40,569


(516,810
)Financing ActivitiesNet increase (decrease) in short-term borrowings


696,915


(180,358
)

575,909





1,092,466Net increase (decrease) in long-term borrowings


(830
)




521,405


43


520,618Net increase (decrease) in deposit liabilities








(1,066,433
)

2,000


(1,064,433
)Real estate syndication proceeds received








29,917





29,917Other financing activities, net


(8,951
)

158


27,580


(6
)

18,781Net cash provided by financing activities


687,134


(180,200
)

88,378


2,037


597,349Effect of Foreign Exchange Rates on Cash


2


206


32,735





32,943Net Increase (Decrease) in Cash and Cash Equivalents


51,589


(203,992
)

(169,038
)




(321,441
)Cash and Cash Equivalents, Beginning of Period


7,421


205,785


991,271





1,204,477Cash and Cash Equivalents, End of Period

$
59,010

$
1,793

$
822,233

$


$
883,036


45

---





Table of Contents

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

As used herein, the terms "the Company," "we," "us" and "our" refer to Capmark Financial Group Inc. and its consolidated
subsidiaries, except where it is clear that the term means only Capmark Financial Group Inc.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify
these statements by our use of forward-looking
words such as "may," "will," "should," "anticipate," "estimate," "expect," "plan," "believe," "predict," "potential," "project," "intend," "could" or similar expressions. In particular, statements
regarding our plans, strategies, prospects and expectations regarding our business are forward-looking statements.

Forward-looking
statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs,
assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial
condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Important factors that could cause our actual results to be materially
different from our expectations include the risks and uncertainties set forth under Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q and in
Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2008.

Accordingly,
you should not place undue reliance on the forward-looking statements contained in this Quarterly Report on Form 10-Q. These forward-looking statements
are made only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.

Overview

We are a commercial real estate finance company that operates in three core business lines: lending and mortgage banking; investments
and funds management; and servicing. Through our operating subsidiaries, we operate our businesses in North America, Asia and Europe. We provide our borrowers, investors and other customers with
commercial real estate financial products and services, which we tailor to our customers' particular needs. As of March 31, 2009, we had more than 1,800 employees located in 47 offices
worldwide.

We
originated $0.9 billion and $2.7 billion in aggregate principal amount of financing during the three months ended March 31, 2009 and 2008, respectively. Our
global primary, master and special servicing portfolios included approximately 48,000 loans with an aggregate unpaid principal balance of $351.5 billion as of March 31, 2009 compared to
approximately 49,000 loans with an aggregate unpaid principal balance of $362.1 billion as of December 31, 2008. Real estate-related assets under management were approximately
$8.5 billion as of March 31, 2009 compared to $9.0 billion as of December 31, 2008. As of March 31, 2009, our total assets were $21.1 billion and our
stockholders' equity was $445.4 million compared to total assets of $20.6 billion and stockholders' equity of $1.1 billion as of December 31, 2008.

For
management reporting purposes, we conduct our lending and mortgage banking, investments and funds management, and servicing businesses through six business segments. These business
segments, which are organized based on geography and the type of business conducted, are as follows:



46

---



Table of Contents



Global Financial Crisis

There have been significant negative developments in the financial and capital markets and general business environment worldwide over
the past two years. These developments began with credit problems in residential real estate, which led to a lack of liquidity in and depreciation of residential real estate and residential mortgage
backed securities. The problems soon extended to disruptions in the credit and capital markets. In addition, the adverse impact of these developments on economic growth and general economic conditions
caused the U.S. economy to enter into an economic recession. The bankruptcy filing of Lehman Brothers Holdings Inc., the federal government conservatorship of Fannie Mae and Freddie Mac,
JPMorgan Chase & Co.'s acquisition of The Bear Stearns Companies, Inc., JPMorgan Chase & Co.'s acquisition of Washington Mutual Bank, the federal government's
significant investment in American International Group, Inc., Bank of America Corp.'s acquisition of Merrill Lynch & Co. Inc., and Wells Fargo & Co.'s
acquisition of Wachovia Corp. further eroded confidence and caused further dislocation in the credit and capital markets. In response to deteriorating economic conditions, the commercial real estate
markets became significantly weaker in 2008 and the deterioration has continued into 2009.

The
current global financial crisis has adversely affected our business and our primary sources of liquidity. The lack of credit available to potential purchasers of our assets and the
dislocations in the securitization markets have severely impaired our ability to sell assets in the normal course of business. We have historically utilized the proceeds from such asset sales as a
source of liquidity for new originations and the repayment of debt. The capital markets dislocations, together with the deterioration of our operating results, further described below, have also
impaired our ability to obtain alternative means of financing our origination and investment activities through the issuance of short-term or long-term debt or equity capital.
In response to these conditions, we have effectively ceased proprietary loan originations and investment activity and shifted our origination activities to those activities where financing remains
available, such as lending activities through Capmark Bank, our Utah industrial loan company ("Capmark Bank US"), for the benefit of government-sponsored entities ("GSEs") and other third parties
through our correspondent lending relationships. Our ability to continue our business relationships with GSEs and other third parties is based upon agreements that give such GSEs and third parties
broad rights to terminate the agreements, including if there is a material adverse event with respect to our Company. The overall reduction in originations has the corresponding effect of reducing our
origination fees, the growth of our servicing portfolio and our servicing fee income and limiting our ability to increase our assets under management. In addition, market dislocations and declining
real estate values have impaired our ability to profitably dispose of assets in our loan and real estate investment portfolio, eliminating the earnings we have historically obtained from net gains on
asset sales.

Our
inability to sell our assets has required us to hold a greater portion of our assets on our balance sheet for a longer duration, thereby increasing our credit risk from our lending
activities. The negative impact from this increased credit exposure has been exacerbated by the fact that our loans and real estate investments are not performing as expected. The current market
conditions have made it difficult for our borrowers to find replacement financing or to sell their properties, which are the typical sources of repayment for commercial mortgage loans. In addition,
our borrowers have

47

---



Table of Contents

experienced
decreased demand by tenants, decreased cash flows and declining property values. These increasing difficulties have resulted in a deterioration of the credit characteristics of our loan
and real estate investment portfolio, adverse risk-rating migration and an increase in non-performing assets. In the first quarter of 2009, we experienced net losses on loans
of approximately $229.2 million, including downward changes in fair value on our portfolio of loans held for sale, and a provision for loan losses on our portfolio of loans held for investment
of $98.7 million. The carrying value of our originated non-performing assets totaled $1.2 billion as of March 31, 2009. Non-performing loans also rose
sharply in the first quarter of 2009 and we expect further increases. A significant additional increase in non-performing loans at Capmark Bank US could adversely affect its capital ratios
and regulatory ratings. If Capmark Bank US were to fail to maintain its well-capitalized status or fail to meet other regulatory requirements, the Federal Deposit Insurance Corporation
("FDIC") could impose restrictions on the activities of Capmark Bank US including prohibiting Capmark Bank US from continuing to issue brokered certificates of deposit ("Brokered CDs"), which are its
main source of liquidity, and could require our Company to contribute cash or assets to Capmark Bank US under a capital maintenance agreement between our Company and the FDIC.

Our
investments and real estate experienced net losses of $247.4 million in the first quarter of 2009. In addition, our ability to earn incentive fees on current real estate
investment funds and raise new investment funds has and may continue to be severely constrained by the current real estate market conditions and the deterioration of the underlying assets.

As
a result of our current financial condition, our unsecured corporate credit ratings were reduced to below investment grade by each of the major national credit rating agencies rating
those obligations during the first quarter of 2009. These downgrades have had multiple negative effects on our business, including increasing borrowing costs under our bridge loan, senior credit
facility and senior notes; requiring us to post collateral to third parties to secure our contractual obligations; and subjecting us to potential termination by Fannie Mae of our subsidiary's status
as an approved Delegated Underwriting and Servicing ("DUS") seller/servicer. These downgrades, coupled with our recent operating results, resulted in a downgrade of our servicer ratings
from Fitch Ratings. Further declines in our servicer ratings may negatively impact the rating of securitizations for which we act as master servicer which may trigger contractual provisions that would
permit our termination as servicer under certain of the securitizations for which we act as servicer and a corresponding loss of servicing fee income. In addition, some of our derivative
counterparties have ceased trading with us or required changes to margin threshold amounts to reduce their exposure to us. Our inability to maintain derivatives to hedge our interest rate and currency
risk could exacerbate our financial condition by adding volatility to our income statement.

During
2008 and the first quarter of 2009, we focused our efforts on allocating capital effectively and preserving our liquidity position in each of the geographic regions where we
operate. We curtailed our European lending activities starting in the fourth quarter of 2007 and sold a large portion of our European loan portfolio in April 2008. We also significantly reduced our
Asian proprietary lending and investing activities beginning in the second quarter of 2008. Our efforts in Asia and Europe are currently focused on managing our existing loan, investment and
fee-for-services businesses. We have also reduced staffing levels to correspond with the decreased level of activities in both segments. In light of current market conditions,
we also substantially reduced proprietary loan originations and investment activities in North America in 2008 and reduced staff to reflect the decrease in originations, while continuing to originate
loans for third parties and GSEs. We have also reduced staff in North America in the first quarter of 2009 to reflect the decline in business activities and anticipate further staff reductions during
the remainder of 2009.

The
following tables summarize financial information for each of our six business segments as of the dates and for the periods indicated. The tables also present reconciling amounts that
are included

48

---



Table of Contents

in
"Corporate and other" to reconcile management's reporting of our segment financial information to amounts included in our condensed consolidated financial statements:

Three months ended
March 31,2009

2008(in thousands)Net Revenue(1):North American Lending and Mortgage Banking

$
(159,732
)
$
(1,680
)North American Investments and Funds Management


(139,384
)

18,108North American Servicing


58,169


75,026Asian Operations


(198,207
)

7,898European Operations


(51,544
)

(238,688
)North American Affordable Housing


(39,306
)

2,826Subtotal


(530,004
)

(136,510
)Corporate and other:Corporate functions and immaterial businesses


(79,059
)

2,058Consolidated affordable housing partnerships


7,838


1,072Push down accounting adjustments


16,393


2,036Eliminations and other adjustments


(4,790
)

(5,042
)Deferral of placement fees


1,472


(3,364
)Total Corporate and other


(58,146
)

(3,240
)Consolidated amount

$
(588,150
)
$
(139,750
)(Loss) Income Before Income Taxes:North American Lending and Mortgage Banking

$
(204,184
)
$
(49,550
)North American Investments and Funds Management


(146,326
)

4,739North American Servicing


18,159


23,253Asian Operations


(223,754
)

(19,193
)European Operations


(55,979
)

(246,602
)North American Affordable Housing


(44,481
)

(5,795
)Subtotal


(656,565
)

(293,148
)Corporate and other:Corporate functions and immaterial businesses


(122,385
)

(40,322
)Consolidated affordable housing partnerships


(5,488
)

(11,025
)Push down accounting adjustments


4,864


(3,865
)Total Corporate and other


(123,009
)

(55,212
)Consolidated amount


(779,574
)

(348,360
)Net loss attributable to noncontrolling interests:North American Lending and Mortgage Banking


17,055


8,606North American Investments and Funds Management


31,512


(4,235
)North American Servicing





Asian Operations


80


74European Operations





North American Affordable Housing





Corporate and other


5,600


11,053Subtotal


54,247

$
15,498Adjusted loss before income taxes(2)

$
(725,327
)
$
(332,862
)


---

Note:

49

---



Table of Contents

We have provided a non-GAAP financial measure to adjust our consolidated loss before income taxes. We present (loss) income before income taxes for each of
our six business segments because we do not allocate income taxes to our business segments. The net loss attributable to noncontrolling interests is an after-tax amount. Management
believes that performance on a consolidated basis reflecting the impact of the net loss attributable to noncontrolling interests is useful information to readers of our financial statements.

March 31,
2009

March 31,
2008(in thousands)Adjusted loss before income taxes

$
(725,327
)
$
(332,862
)Income taxes


2,369


(120,003
)Net loss attributable to Capmark Financial Group Inc.

$
(727,696
)
$
(212,859
)


March 31,
2009

December 31,
2008(in thousands)Total Assets:North American Lending and Mortgage Banking

$
13,088,795

$
11,597,285North American Investments and Funds Management


670,658


772,285North American Servicing


929,708


901,151Asian Operations


2,378,624


2,886,256European Operations


395,630


538,675North American Affordable Housing


938,562


891,907Subtotal


18,401,977


17,587,559Corporate and other:Corporate functions and immaterial businesses(1)


1,373,349


1,634,754Consolidated affordable housing partnerships


1,098,360


1,144,794Push down accounting adjustments


260,590


271,068Total Corporate and other


2,732,299


3,050,616Consolidated amount

$
21,134,276

$
20,638,175


---

Note:

Recent Developments

In light of adverse market conditions and our operating results as well as the negative effect on our liquidity from the
near-term maturity of our bridge loan, we entered into discussions with the lenders under our senior credit facility and bridge loan agreement. On May 8, 2009, we received a
commitment from certain lenders under the bridge loan agreement and senior credit facility to provide a new term loan facility of up to $1.5 billion (the "Facility"). Proceeds from the
Facility, along with $75.0 million in cash, will be used to refinance a portion of our bridge loan agreement and senior credit facility.

The
Facility will be guaranteed by each of the guarantors under the bridge loan agreement and senior credit facility and certain material domestic wholly-owned subsidiaries of our
Company. The Facility will be secured by a pledge and security interest on substantially all of our U.S. and Canadian

50

---



Table of Contents

non-bank
mortgage loans and foreclosed real estate. The Facility will contain a number of financial and operating covenants, including minimum liquidity covenants and run rate operating
expense covenants, limitations on incurring debt, granting liens and making certain restricted payments, investments and capital expenditures. The maturity date of the Facility will be
March 23, 2011, provided that if certain conditions relating to the restructuring of the Company's senior notes due 2010 have not been met, the maturity date of the Facility will be accelerated
to April 2010.

In
connection with the closing of the Facility, we will enter into amendments to the senior credit facility and bridge loan agreement (the "Amendments"). The Amendments will extend the
maturity date under the bridge loan agreement to the maturity date of the Facility, conform the financial covenants in those agreements to the financial covenants in the Facility and amend certain
other provisions of those agreements, including amendments necessary to enter into the Facility. The Facility and the Amendments are subject to a number of closing conditions, including the
negotiation and execution of definitive agreements and related documents satisfactory to the lenders. We are seeking to document and close the Facility by May 21, 2009.

To
facilitate the execution of definitive agreements with respect to the Facility, as well as the further amendments to the bridge loan agreement and senior credit facility described
above, as of May 14, 2009 we have obtained a further extension of the maturity date of 100% of our outstanding bridge loan to May 21, 2009. Additionally, the required lenders under the
senior credit facility and the bridge loan agreement have agreed to waive our compliance with the leverage ratio covenant for the quarters ended December 31, 2008 and March 31, 2009.
These waivers are effective through May 21, 2009.

Understanding Our Financial Results

As a commercial real estate finance company, our ability to generate income and cash flow is highly dependent on the volume of
financing that we originate; our ability to securitize, sell, participate or otherwise finance our loans; the value of the loans on our balance sheet; and the spreads we generate on our
interest-earning assets. In addition, our financial performance is driven by, among other things, our ability to increase the size of our servicing portfolio and the amount of real estate-related
assets under our management. The success of our origination activities impacts our level of placement fees and net interest income and impacts the amount of loans that we have available for future
sale and servicing opportunities, which in turn affects our levels of net gains or losses and fee-based income. Our ability to increase the size of our servicing portfolio, which is also
driven by the level of our origination and distribution activities as well as the volume of mortgage servicing rights that we acquire, affects the level of servicing fees that we earn and income that
we derive from escrow balances. Our financial results are also dependent on the amount of assets under our management as well as on changes in the values of our real estate-related assets, which
impact the levels of fee-based income and net gains or losses that we recognize.

The
amount of financing that we arrange, the number of servicing opportunities that are presented to us, the spreads we generate on our interest-earning assets and the gains or losses we
realize on sales of our assets are subject to various factors. These factors include availability of funding sources, cost of capital, changes in the interest rate environment, CMBS spreads,
commercial real estate prices, levels
of supply and demand for commercial real estate and real estate-related investments, competition in our industry and the condition of local, national and international economies. These factors also
affect our estimates of loan losses and other items affecting expected cash flows from our assets and our related valuation of those assets. As a consequence of these factors, activity of our business
lines is cyclical.

51

---



Table of Contents

Outlook and Recent Trends

Our financial results are highly dependent on the condition of the economies and financial markets in which we operate. Beginning in
mid-2007 and continuing throughout 2008 and into 2009, global market volatility, disruptions in the credit and capital markets and weakening economic conditions created an extremely
challenging business environment. The U.S. structured credit markets have remained severely limited with respect to new issuances, including the CMBS and CDO markets which have effectively ceased.
Delinquency and default rates on commercial mortgage loans have increased. These rates may continue to increase as a result of adverse economic conditions, including lack of available credit, higher
vacancy rates and declining rents. The European and Asian economies have experienced similar turmoil in their financial markets and broader economies.

These
difficult market conditions have continued to negatively affect our three core businesses. The general lack of liquidity in the debt markets has made it increasingly difficult for
us to access the capital we need to operate our business. As a result of our inability to access new capital, we have effectively ceased our proprietary lending and investment activities, which has
and is expected to continue to negatively impact the growth of our loan and servicing portfolios. The scarcity of liquidity in the market has also made it difficult for commercial real estate
borrowers seeking replacement financing. The unavailability of replacement financing decreases our transaction-related servicing fees and increases the average duration of our loan portfolio as a
result of loan extensions, thereby decreasing our cash flow. Additionally, the unavailability of replacement financing and current market conditions has increased our number of
non-performing assets. The growth of our servicing portfolio has and may continue to be slowed by the lack of new CMBS issuances, decreasing our source of counter-cyclical income.
Additionally, if Fannie Mae, Freddie Mac or the Federal Housing Administration ("FHA") were to reduce or modify their lending programs, or were to suspend or alter their servicing relationship with
us, we may be unable to continue to originate and sell loans to, or service loans for, these GSEs or under the programs sponsored by the FHA.

The
unfavorable economic and financial market conditions have caused us to recognize significant downward changes in fair value on our loans held for sale and investment securities. We
have also
experienced increased loan loss provisions on our loans held for investment, and higher levels of non-performing loans and foreclosed real estate in our portfolio. In addition, our real
estate and real estate equity investments, including those held directly and those held in funds, have declined in value. Our ability to earn incentive fees on current investment funds and raise new
real estate investment funds has and is expected to continue to be constrained by the current real estate market conditions. Our expectation is that the commercial real estate markets in which we
operate will continue to be stressed throughout the remainder of 2009 due to weaker economic conditions and reduced liquidity.

The
combination of the foregoing factors has constrained our liquidity and caused us to incur significant losses. These factors have also negatively impacted our ability to execute our
operating strategies as originally planned. In light of the obstacles presented in the current market environment, our current focus is on allocating capital effectively, preserving our liquidity
position, and seeking to reduce our expenses. As the disruptions to the markets persist, we will continue to manage our originations, reducing their overall volume and changing the composition among
product types to emphasize products with better liquidity and lower funding costs, including GSEs, the U.S. Department of Housing and Urban Development and third party originations. We will also
continue to focus on our recurring fee businesses, such as servicing and investments and funds management.

In
addition, we are performing a review of all of our businesses, including exploring strategic alternatives for such businesses and implementing significant expense reduction
initiatives. We have engaged financial advisors to assist with our efforts to manage expenses and evaluate our strategic alternatives.

52

---



Table of Contents

Results of Operations

Consolidated

The following table presents our consolidated results of operations for the periods indicated:

Three months ended
March 31,2009

2008(in thousands)Net interest income

$
12,113

$
61,103Noninterest income


(501,548
)

(193,224
)Total revenue


(489,435
)

(132,121
)Provision for loan losses


98,715


7,629Net revenue


(588,150
)

(139,750
)Noninterest expense


191,424


208,610Loss before income taxes


(779,574
)

(348,360
)Income taxes


2,369


(120,003
)Net loss


(781,943
)

(228,357
)Plus: Net loss attributable to noncontrolling interests


54,247


15,498Net loss attributable to Capmark Financial Group Inc.

$
(727,696
)
$
(212,859
)




The $514.8 million increase in net loss attributable to our Company was primarily due to lower noninterest income, a higher
provision for loan losses and the absence of an income tax benefit on the losses incurred for the three months ended March 31, 2009. Noninterest
income was impacted by continued adverse market conditions that resulted in increased net losses on our loans, investments and real estate of $107.6 million and declines in our fee and
investment income of $172.4 million primarily due to equity in losses of joint ventures and partnerships resulting from declines in fair value of the assets held through such joint ventures and
partnerships. We established a valuation allowance on our deferred tax assets that resulted in the absence of an income tax benefit on the losses incurred for the three months ended March 31,
2009.

Net Interest Income

The following table presents our net interest income for the periods indicated:

Three months ended
March 31,Net Interest Income

2009

2008(in thousands)Interest income

$
162,885

$
276,978Interest expense


150,772


215,875Net interest income

$
12,113

$
61,103




The $49.0 million decline in net interest income for the three months ended March 31, 2009 compared to the three months
ended March 31, 2008 was primarily due to a decrease in the average balance of loans and investment securities outstanding during the respective quarters, an increase in impaired loans for
which interest income is not recognized and the impact of an increase in our borrowing costs related to the downgrades of our credit ratings.

53

---



Table of Contents



The following table presents our interest income for the periods indicated:

Three months ended March 31,Interest Income

2009

2008(in thousands)Loans(1)

$
133,339

$
226,904Investment securities


13,660


21,126Acquired non-performing loans


2,885


8,336Assets collateralized in securitization trusts(2)


2,613


3,794Escrow balances


1,049


8,086Other


9,339


8,732Total

$
162,885

$
276,978


---

Notes:



The following table presents our interest expense for the periods indicated:

Three months ended
March 31,Interest Expense

2009

2008(in thousands)Long-term borrowings

$
70,388

$
107,301Short-term borrowings


19,268


35,480Deposit liabilities


54,625


63,658Collateralized borrowings in securitization trusts(1)


2,667


3,870Other(2)


3,824


5,566Total

$
150,772

$
215,875


---

Notes:

54

---



Table of Contents

Noninterest Income



The following table presents our net (losses) gains for the periods indicated:

Three months ended
March 31,Net (Losses) Gains

2009

2008(in thousands)Net losses on loans

$
(229,200
)
$
(357,167
)Net losses on investments and real estate(1)


(247,361
)

(11,738
)Other (losses) gains, net(2)


(9,061
)

19,251Total

$
(485,622
)
$
(349,654
)


---

Notes:



The increase in net losses of $136.0 million was primarily attributable to an increase in net losses on investments and real
estate, partially offset by a decrease in net losses on loans. Net losses on investments and real estate increased $235.6 million largely due to impairment charges on real estate investments in
our Asian Operations business segment. The decline in net losses on loans of $128.0 million reflected lower downward changes in fair value recognized on our portfolio of loans held for sale for
the three months ended March 31, 2009 compared to the three months ended March 31, 2008 due to the sale of significant interests in 39 European loans in 2008.



The following table presents our fee and investment income for the periods indicated:

Three months ended
March 31,Fee and Investment Income

2009

2008(in thousands)Mortgage servicing fees

$
41,456

$
54,210Trust fees


23,570


35,382Asset management fees


17,187


18,763Placement fees


7,324


17,630Investment banking fees(1)


74


6,547Structuring fees and investment syndication income(1)


2,199


7,276Other fees


2,498


3,001Equity in loss of joint ventures and partnerships


(143,503
)

(9,993
)Net real estate investment income(2)


20,396


19,344Other income(2)


12,873


4,270Total

$
(15,926
)
$
156,430


---

Notes:

55

---



Table of Contents



The decline in fee and investment income of $172.4 million was largely due to an increase in losses from equity investments in
joint ventures and partnerships and declines in mortgage servicing fees, trust fees and placement fees. Our loss from equity investments in joint ventures and partnerships increased
$133.5 million primarily due to downward changes in fair value of the assets held through such joint ventures and partnerships. Mortgage servicing fees declined $12.8 million primarily
due to lower assumption fees. Trust fees decreased $11.8 million primarily due to the lower interest rate environment. Placement fees declined $10.3 million primarily due to a decrease
in loan origination volume.

Provision for Loan Losses



Our provision for loan losses totaled $98.7 million for the three months ended March 31, 2009 compared to
$7.6 million for the three months ended March 31, 2008. The increase in our provision for loan losses reflects an overall increase in our loans held for investment from a year ago, an
increase in impaired loans for which a specific allowance is recorded and the impact of declining asset quality on the remaining loans held for investment due to challenging economic conditions.
Declining asset quality resulted in an adverse risk-rating migration within our portfolio of loans held for investment leading to an increase in impaired loans, delinquencies and defaults.
Our loans held for investment include total impaired loans of $657.8 million and $385.3 million as of March 31, 2009 and December 31, 2008, respectively. Our allowance for
loan losses on impaired loans totaled $106.9 million and $50.1 million as of March 31, 2009 and December 31, 2008, respectively.

Noninterest Expense

The following table presents our noninterest expense for the periods indicated:

Three months ended
March 31,Noninterest Expense

2009

2008(in thousands)Compensation and benefits

$
67,094

$
89,637Amortization of mortgage servicing rights


32,765


35,232Occupancy and equipment


15,059


21,750Professional fees


39,083


24,292Other expenses(1)


37,423


37,699Total

$
191,424

$
208,610


---

Note:

56

---



Table of Contents



The $17.2 million decrease in noninterest expense was primarily due to a $22.5 million decrease in compensation and
benefits due to lower fixed and variable compensation costs related to staff reductions and the decline in operating results, partially offset by a $14.8 million increase in professional fees
primarily for financial advisory and legal services related to our debt restructuring efforts.

Income Taxes



We recorded an income tax provision of $2.4 million for the three months ended March 31, 2009 compared to an income tax
benefit of $120.0 million for three months ended March 31, 2008. We established a valuation allowance on our deferred tax assets that resulted in the absence of an income tax benefit on
the losses incurred for the three months ended March 31, 2009.

Noncontrolling Interests



The net loss attributable to noncontrolling interests totaled $54.2 million for the three months ended March 31, 2009
compared to $15.5 million for the three months ended March 31, 2008. The $38.7 million increase was primarily due to higher losses incurred by joint ventures and other investments
in which third parties held noncontrolling interests.

Corporate and Other

The loss before income taxes in our "Corporate and other" category totaled $123.0 million for the three months ended
March 31, 2009 compared to $55.1 million for the three months ended March 31, 2008. These amounts include unallocated personnel-related expenses for corporate departments such as
accounting, tax, treasury, risk management, legal, information technology, human resources, facilities and internal audit. In addition, as described in our 2008 Annual Report on
Form 10-K, these amounts include the impact of push down accounting. The $67.9 million increase in loss before income taxes was primarily due to an increase of
$82.1 million associated with corporate functions and immaterial businesses partially offset by an $8.8 million decrease associated with push down accounting.

Segments

North American Lending and Mortgage Banking Segment

The following table presents our North American Lending and Mortgage Banking segment results of operations for the periods indicated:

Three months ended
March 31,2009

2008(in thousands)Net interest income

$
77,818

$
78,025Noninterest income


(154,408
)

(74,737
)Total revenue


(76,590
)

3,288Provision for loan losses


83,142


4,968Net revenue


(159,732
)

(1,680
)Noninterest expense


44,452


47,870Loss before income taxes

$
(204,184
)
$
(49,550
)Net loss attributable to noncontrolling interests

$
17,055

$
8,606


57

---



Table of Contents



The $154.6 million increase in loss before income taxes was driven primarily by lower noninterest income and a higher provision
for loan losses.

The
$79.7 million decrease in noninterest income was driven by an increase in net losses and a reduction in placement fees. Net losses totaled $174.8 million for the three
months ended March 31, 2009 compared to net losses of $111.5 million for the three months ended March 31, 2008. The $63.3 million increase was driven by an increase of
$33.8 million in losses from the discounted payoff of loans and an increase of $29.5 million in losses due primarily to impairments recognized on foreclosed assets. Placement fees
declined $13.5 million due to a decrease in loan origination volume to $0.9 billion for the three months ended March 31, 2009 from $2.6 billion for the three months ended
March 31, 2008. All other noninterest income decreased $2.9 million primarily due to lower investment banking fees associated with certain new markets tax credit ("NMTC") syndications
partially offset by higher fees and net real estate investment income associated with our Fannie Mae DUS platform.

The
$78.2 million increase in provision for loan losses was primarily due to the impact of challenging economic conditions on the loan portfolio, resulting in adverse migration in
risk ratings on loans, an overall increase in our loans held for investment from a year ago and an increase in impaired loans for which a specific allowance is recorded.

The
$8.4 million increase in net loss attributable to noncontrolling interests was associated with certain NMTC partnerships that are consolidated under applicable accounting
guidance. The majority of the increase was due to a provision for loan losses in our condensed consolidated statement of operations that is allocated to the noncontrolling interest holders of such
NMTC partnerships.

North American Investments and Funds Management Segment

The following table presents our North American Investments and Funds Management segment results of operations for the periods
indicated:

Three months ended
March 31,2009

2008(in thousands)Net interest income

$
1,410

$
619Noninterest income


(140,794
)

17,489Total revenue


(139,384
)

18,108Provision for loan losses





Net revenue


(139,384
)

18,108Noninterest expense


6,942


13,369(Loss) income before income taxes

$
(146,326
)
$
4,739Net loss (income) attributable to noncontrolling interests

$
31,512

$
(4,235
)




The $151.1 million increase in loss before income taxes was primarily driven by losses from equity investments in joint ventures
and partnerships largely due to downward changes in fair value of investment funds in which we co-invest with third-party investors and an increase in net losses. These unfavorable
variances were partially offset by an increase in the net loss attributable to noncontrolling interests.

58

---



Table of Contents

The
$158.3 million decrease in noninterest income was primarily the result of $134.4 million of losses from equity investments in joint ventures and partnerships for the
three months ended March 31, 2009 compared to $4.0 million of gains for the three months ended March 31, 2008 and a $17.8 million
increase in net losses. Our income from equity investments in joint ventures and partnerships includes the results of certain commingled funds that we consolidate. Income from equity investments in
joint ventures and partnerships, excluding asset sales, decreased $133.4 million primarily due to declines in the fair value of assets held through such joint ventures and partnerships. Gains
from asset sales executed through joint venture holdings decreased $5.0 million for the three months ended March 31, 2009 compared to the three months ended March 31, 2008 due to
a reduction in sales activity. Net losses on investment securities amounted to $7.8 million for the three months ended March 31, 2009 compared to net gains of $4.4 million for the
three months ended March 31, 2008 due primarily to impairment charges on investment securities classified as available for sale where we determined that the amount we expect to recover was less
than the amortized cost and generally related to the performance of the underlying collateral. Net losses incurred from downward changes in fair value of loans increased $5.6 million for the
three months ended March 31, 2009, reflecting continued adverse market conditions.

The
$6.4 million decrease in noninterest expense was primarily due to a reduction in compensation and benefits of $5.5 million due to lower fixed and variable compensation
costs related to a reduction in headcount and the decline in operating results.

The
$35.7 million increase in net loss attributable to noncontrolling interests was primarily due to downward changes in fair value recognized in the current year for certain
commingled funds that we consolidate. The downward changes in fair value resulted in a net loss attributable to noncontrolling interests equal to the third-party investors' share of such losses.

North American Servicing Segment

The following table presents our North American Servicing segment results of operations for the periods indicated:

Three months ended
March 31,2009

2008(in thousands)Net interest income

$
(2,974
)
$
(4,087
)Noninterest income


61,143


79,113Total revenue


58,169


75,026Provision for loan losses





Net revenue


58,169


75,026Noninterest expense


40,010


51,773Income before income taxes

$
18,159

$
23,253Net income attributable to noncontrolling interests

$


$





The $5.1 million decrease in income before income taxes was primarily driven by lower noninterest income partly offset by lower
noninterest expense.

The
$18.0 million decrease in noninterest income was driven by lower trust fees and mortgage servicing fees. Trust fees are interest rate sensitive and decreased
$10.6 million due to the lower interest rate environment. Mortgage servicing fees decreased $5.1 million primarily as a result of lower

59

---



Table of Contents

assumption
fees. Assumption fees are a component of mortgage servicing fees in our condensed consolidated statement of operations, and we earn an assumption fee when an existing borrower's mortgage is
assumed by a new borrower. Assumption transactions and related fees have declined due to declining real estate transaction volumes resulting from the real estate market downturn, including a lack of
transactions due to market inactivity.

The
$11.8 million decrease in noninterest expense was primarily due to a reduction in compensation and benefits of $6.9 million due to lower fixed and variable compensation
costs related to staff reductions and the decline in operating results, and lower amortization of mortgage servicing rights of $4.2 million due to a lower carrying value of the mortgage
servicing rights.

Asian Operations Segment

The following table presents our Asian Operations segment results of operations for the periods indicated:

Three months ended
March 31,2009

2008(in thousands)Net interest income

$
217

$
7,364Noninterest income


(185,211
)

3,359Total revenue


(184,994
)

10,723Provision for loan losses


13,213


2,825Net revenue


(198,207
)

7,898Noninterest expense


25,547


27,091Loss before income taxes

$
(223,754
)
$
(19,193
)Net loss attributable to noncontrolling interests

$
80

$
74




The $204.6 million increase in loss before income taxes was primarily driven by a reduction in net interest income and
noninterest income and an increase in provision for loan losses.

The
$7.1 million decrease in net interest income was primarily attributable to a reduction in the size of our portfolio of acquired non-performing loans, which
resulted in real estate investments that are not interest-earning assets comprising a larger percentage of the Asian Operations segment balance sheet.

The
$188.6 million decrease in noninterest income was driven primarily by net losses. Net losses increased $186.4 million for the three months ended March 31, 2009
compared to the three months ended March 31, 2008 due to increases in real estate and equity investment impairment charges of $105.7 million, other-than-temporary
impairments recognized on investment securities classified as available for sale of $62.6 million and downward changes in fair value of loans held for sale of $12.8 million.

The
provision for loan losses increased $10.4 million for the three months ended March 31, 2009 compared to the three months ended March 31, 2008 due to losses on
our portfolio of loans held for investment, including our acquired non-performing loans.

60

---



Table of Contents

European Operations Segment

The following table presents our European Operations segment results of operations for the periods indicated:

Three months ended
March 31,2009

2008(in thousands)Net interest income

$
6,066

$
4,852Noninterest income


(57,187
)

(243,582
)Total revenue


(51,121
)

(238,730
)Provision for loan losses


423


(42
)Net revenue


(51,544
)

(238,688
)Noninterest expense


4,435


7,914Loss before income taxes

$
(55,979
)
$
(246,602
)Net loss attributable to noncontrolling interests

$


$





The $190.6 million decrease in loss before income taxes was primarily due to an increase in noninterest income due to lower
valuation charges on our portfolio of loans held for sale for the three months ended March 31, 2009 compared to the three months ended March 31, 2008.

The
$186.4 million improvement in noninterest income was primarily due to decreased net losses. Net losses decreased $184.5 million primarily due to significant downward
changes in fair value recognized on our portfolio of loans held for sale for the three months ended March 31, 2008. We completed the sale of significant interests in 39 loans in April 2008 to a
third party institutional buyer for a total aggregate sale price of approximately $1.8 billion. The loss associated with the sale was recognized in the first quarter of 2008 because the sale
price was indicative of fair value as of March 31, 2008.

North American Affordable Housing Segment

The following table presents our North American Affordable Housing segment results of operations for the periods indicated:

Three months ended
March 31,2009

2008(in thousands)Net interest income

$
1,293

$
(2,293
)Noninterest income


(40,599
)

5,119Total revenue


(39,306
)

2,826Provision for loan losses





Net revenue


(39,306
)

2,826Noninterest expense


5,175


8,621Loss before income taxes

$
(44,481
)
$
(5,795
)Net income attributable to noncontrolling interests

$


$



61

---



Table of Contents



The $38.7 million increase in loss before income taxes was primarily attributable to a decrease in noninterest income.

The
$45.7 million decrease in noninterest income was primarily due to $19.0 million of net losses for the three months ended March 31, 2009 compared to
$8.3 million of net gains for the three months ended March 31, 2008, a $16.0 million increase in losses related to LIHTC yield guarantees and a $2.8 million increase in
losses from equity investments in joint ventures and partnerships. The unfavorable variance in net losses included impairments recognized on real estate investments of $13.9 million, impairment
charges of $1.4 million on investment securities classified as available for sale that were in an unrealized loss position where we determined that we may no longer have the ability to hold
these investment securities for a period of time sufficient to allow for recovery in fair value, and non-recurring gains on asset dispositions of $11.2 million during the three
months ended March 31, 2008.

Critical Accounting Estimates

The preparation of our condensed consolidated financial statements in accordance with GAAP requires our management to make estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of income and expense. Our management
regularly evaluates these estimates, judgments and assumptions based on available information and experience. Because the use of estimates, judgments and assumptions is inherent in the financial
reporting process, actual results may differ from these estimates under different assumptions or conditions. Certain of our accounting policies require higher degrees of judgment and are more complex
than others in their application. Our significant accounting policies are disclosed in Note 3 of the consolidated financial statements included in our 2008 Annual Report on
Form 10-K. There have been no significant changes to the Company's critical accounting estimates and significant accounting policies.

Determination of Fair Value

In accordance with SFAS No. 157, we categorize our financial instruments, based on the priority of the inputs to the valuation
technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the
lowest level input that is significant to the fair value measurement of the instrument.

It
is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. For assets and liabilities where there
exists limited or no observable market data, fair value measurements are based primarily upon management's own estimates, and are calculated based upon our pricing policy, the economic and competitive
environment, the characteristics of the asset or liability and other factors. The degree to which management's judgment is necessary in determining the fair value for assets and liabilities is
directly dependent upon the availability of quoted prices in active markets. For financial instruments that have quoted market prices and actively trade, there is minimal subjectivity in determining
fair value. Market conditions often affect the availability of observable fair value inputs. As observable market prices become unavailable or trading activity diminishes, there is a greater need for
the use of valuation techniques requiring management judgment to estimate fair value.



Commercial mortgage loans are highly individualized. Under normal market conditions, transactions occur directly between parties or
through seller-sponsored securitization vehicles. GSEs

62

---



Table of Contents

such
as Fannie Mae and Freddie Mac also facilitate a market for securitization of individual loans as well as groups of loans. We have historically used pricing for both direct sale transactions and
securitizations (through both seller-sponsored and government-sponsored securitization vehicles) when making fair value determinations. However, current market turmoil has contributed to a significant
decline in activity. Securitization market activity and direct sales activity have effectively ceased due to continued turmoil in the capital markets. GSEs continue to provide a market for the sale of
loans although activity is limited.

As
a result of the substantial reduction in sales, syndication and securitization activity in 2008 and 2009, we observed limited activity and received limited bids for specific loans
that could be used in the valuation of our portfolio of loans held for sale. However, we did incorporate market information related to new loan originations which reflects spreads at which our loan
portfolio could be refinanced. Considering their importance to the value of loans, these spreads were used as the basis for creating a pricing matrix for a portion of our portfolio. In addition,
during the first quarter of 2009, we obtained appraisals for the collateral underlying approximately $1.7 billion of our loans held for sale. The appraisals obtained were the basis for updating
the loan-to-value ratios for the loan portfolio which were used to establish the appropriate discount spread used to price the loan portfolio. Consistent with prior quarters,
any loan held for sale that was specifically identified as impaired was valued using the net realizable value of the collateral, as the evaluation of impaired loans by potential buyers would be based
to a large extent on the underlying real estate. The majority of our loans held for sale portfolio is classified within Level 3 of the valuation hierarchy.

The
availability of quoted prices for our U.S. Treasury investment securities were unaffected by the market turmoil due to their desirability as high-quality, highly liquid
investments. As described above, market inputs for less liquid investment securities became increasingly unreliable throughout the second half of 2008 and into 2009 due to the financial markets
participants' desire for only the highest quality investments. Where we obtained inputs from third-party pricing providers to assist us in determining the fair value of investment securities, we
evaluated these inputs and considered whether the resulting fair value estimates were appropriately placed in the fair value hierarchy. The majority of our investment securities portfolio is
classified within Level 3 of the valuation hierarchy. For these securities, cash flows were analyzed and adjusted for anticipated credit losses. The resulting projected cash flows were then
discounted at a rate we believe market participants would use given current market conditions.

As
of March 31, 2009, approximately $4.7 billion of our total assets consisted of financial instruments measured at fair value on a recurring basis, including financial
instruments for which we elected the fair value option. Approximately $0.9 billion of these financial instruments, net of counterparty and cash collateral balances, were measured using
valuation methodologies involving market-based or market-derived information, collectively Level 1 and 2 inputs. Approximately $3.8 billion of these financial instruments were measured
using model-based techniques, or Level 3 inputs, and represented approximately 80% of our total assets measured at fair value and approximately 18% of our total consolidated assets.



While increased market volatility and illiquidity continued to be evident in 2009, the fair value methodology related to our Brokered
CDs remained unchanged. There is no impact on the value of our Brokered CDs due to credit risk because the deposits are insured by the FDIC. Also, while the dislocation of market liquidity is evident
in the marketplace, the yield curve used to discount the future cash flows related to the deposits reflects current market conditions. For these reasons, we continue to classify our Brokered CDs as
Level 2 financial instruments because the yield curve is considered a reliable observable input.

63

---



Table of Contents

Liquidity and Capital Resources

We require substantial amounts of capital to support our operations. Members of our senior management, in consultation with our board
of directors, establish our overall liquidity and capital allocation strategies. A key objective of these strategies is to support the execution of our business strategy while maintaining sufficient
ongoing liquidity throughout the business cycle to service our financial obligations as they become due.

When
making funding and capital allocation determinations, members of our senior management consider business performance; the availability of, and the costs and benefits associated
with, different funding sources; current and expected capital markets and general economic conditions; our balance sheet and capital structure; and our targeted liquidity profile and risks relating to
our funding needs. In carrying out these activities, members of our senior management monitor, evaluate and seek to control the impact that our business activities have on our balance sheet, liquidity
and capital structure, thereby
helping to ensure that our operations are aligned with our liquidity and capital allocation strategies. Although we manage our liquidity on a consolidated basis, we also review our liquidity sources
and uses at Capmark Bank US and at non-Capmark Bank US entities separately in light of the different sources and needs for liquidity in these operations.

Our
primary uses of liquidity are for (1) the origination and funding of loan commitments and real estate-related investments, (2) the repayment of short-term
and long-term borrowings and related interest, and (3) the funding of our operating expenses. We generally require short-term liquidity to fund loans that we originate
and hold on our consolidated balance sheet pending sale, including through syndication, participation or securitization. We generally require longer-term funding to finance the loans and
real estate-related investments that we hold for investment. Due to the lack of short-term and longer-term funding currently available outside of Capmark Bank US and the
significantly reduced opportunities for syndication, participation or securitization of loans, we have ceased originating new loans and acquiring real estate investments for our
non-Capmark Bank US balance sheet at this time.

Our
primary sources of liquidity have been (1) net cash from our operations, (2) proceeds from the repayment of loans, (3) proceeds from the issuance of
short-term and long-term borrowings/deposits and (4) proceeds from the sale of loans. Our principal debt financing sources have been (1) committed unsecured
funding provided by banks, including our senior credit facility and other bank loans; (2) secured funding facilities, including borrowings by Capmark Bank US from the FRB of San Francisco and
the FHLB of Seattle; and (3) other uncommitted funding sources, including Brokered CDs issued by Capmark Bank US.

The
non-Capmark Bank US entities maintain their own liquidity and funding program focused on operating cash flow from their businesses. During 2008 and the first quarter of
2009, we were severely limited in our ability to access new capital from outside parties or issue new unsecured short-term and long-term debt. As a result, the
non-Capmark Bank US entities' current primary sources of liquidity are asset sales and loan repayments. We have received a commitment from certain lenders under the bridge loan agreement
and senior credit facility to provide the Facility. In connection with the Facility, we will enter into the Amendments. The closing of the Facility and Amendments are subject to a number of closing
conditions. See "$1.5 Billion Term Loan Facility Commitment and Senior Credit Facility and Bridge Loan Agreement" below.

Capmark
Bank US maintains its own funding program to provide for its liquidity needs. Capmark Bank US relies on the issuance of Brokered CDs for unsecured financing. Capmark Bank US's
ability to issue Brokered CDs is dependent upon Capmark Bank US remaining properly capitalized and maintaining appropriate ratings by its regulators. Capmark Bank US may have access to borrowings from
the FHLB of Seattle and the FRB of San Francisco for secured financing. The Company, Capmark Bank US and Escrow Bank also entered into a capital maintenance agreement whereby the Company has agreed
with the FDIC to maintain minimum levels of capital at Capmark Bank US and

64

---



Table of Contents

Escrow
Bank. We have made capital contributions consisting of cash and loans to Capmark Bank US since its inception and additional capital contributions may be made in the future. Capmark Bank US has
the ability to dividend cash to Capmark Financial Group Inc. to the extent of Capmark Bank US's cumulative earnings and subject to maintaining compliance with regulatory capital requirements.
Since the inception of Capmark Bank US, this activity has been limited and is not expected to occur in the near future.

As
of March 31, 2009, we had $3.4 billion in total cash, of which $136.6 million was restricted under current regulatory and other contractual arrangements. This
represented a net increase in total cash and certain U.S. Treasury securities of approximately $1.2 billion compared to December 31, 2008. As of March 31, 2009, we had readily
available cash (excluding cash held by Capmark Bank US) of approximately $1.4 billion. Cash held at Capmark Bank US totaled $1.8 billion as of March 31, 2009.

For
the three months ended March 31, 2009, net cash provided by operating activities totaled $1.2 billion due primarily to the sale of $1.3 billion of U.S. Treasury
securities classified as trading.

We
used net cash of $44.8 million in investing activities for the three months ended March 31, 2009 primarily for the purchase of equity investments under existing
commitments to our sponsored funds and partnership investments, the purchase of investment securities for collateral in our LIHTC business, and the origination of loans held for investment, partially
offset by repayments of loans held for investment.

For
the three months ended March 31, 2009, net cash provided by financing activities totaled $1.4 billion due to a net increase of $1.5 billion in deposit
liabilities at Capmark Bank US.

In
the first quarter of 2009, we continued to take actions to maintain liquidity to support our business operations such as focusing our efforts on originating loans for GSEs and
third-parties of $0.9 billion for the three months ended March 31, 2009. In addition, we have materially reduced our proprietary originations and, other than funding of previously
committed loans, substantially all of our originations for the three months ended March 31, 2009 were funded by Capmark Bank US.

Government Programs

In December 2008, we applied to become a bank holding company and financial holding company and to participate in the U.S. Department
of the Treasury's ("Treasury") Capital Purchase Program ("CPP"). In February 2009, we withdrew such applications. Our board of directors instructed management to withdraw the applications after
evaluating the financial and other requirements for becoming a bank holding company communicated by the Federal Reserve Board's staff and our other current priorities. As a result of the withdrawal of
our bank holding company application, Capmark Financial Group Inc. is not eligible to participate in the CPP, which is a program pursuant to which the Treasury injects capital into eligible
financial institutions through the purchase of preferred stock and warrants to purchase preferred stock, or the Temporary Liquidity Guarantee Program ("TLGP"), pursuant to which the FDIC guarantees
senior debt of eligible financial institutions.

Capmark
Bank US also applied to participate in the CPP. Participation by Capmark Bank US in the CPP is subject to, among other things, the discretion of the FDIC and the Treasury. We
cannot provide assurance that Capmark Bank US's application will be approved or that it will be able to obtain any material benefits under the CPP. Capmark Bank US is also eligible to participate in
the TLGP.

Credit Ratings

Our reliance on debt financing to fund a portion of our operations makes access to sources of short-term and
long-term unsecured financing important. The cost and availability of unsecured debt financing generally are dependent on our short-term and long-term credit
ratings. Factors that are significant to the determination of our credit ratings or that otherwise affect our ability to raise

65

---



Table of Contents

short-term
and long-term financing include the level and volatility of our earnings, our relative competitive position, our risk management policies, our access to sources of
liquidity, our capital adequacy, our level of leverage, the credit quality of our balance sheet, our ability to retain key personnel and legal, regulatory and tax developments. See Part 1,
Item 1A "Risk Factors" in our 2008 Annual Report on Form 10-K for a discussion of the risks associated with a reduction in our credit ratings.

The
following table presents the credit ratings and ratings outlook assigned to our senior unsecured indebtedness by S&P, Fitch and Moody's as of the date of the filing of this Quarterly
Report on Form 10-Q. On April 24, 2009, S&P downgraded the Company's long-term senior unsecured debt rating to B- from B+ and changed the outlook from
negative to developing. On April 28, 2009, Moody's downgraded the Company's long-term senior unsecured debt rating to Caa1 from B2 and kept the rating under review for further
possible downgrade. Credit ratings are opinions of a rated entity's ability to meet its ongoing obligations. Credit ratings are not recommendations to buy, sell or hold securities and are subject to
revision or withdrawal at any time by the assigning rating agency. Each agency's rating should be evaluated independently of any other agency's rating.

Short-Term

Long-TermRating Agency

Rating

Outlook

Rating

OutlookS&P






B-

DevelopingMoody's






Caa1

NegativeFitch


B

Negative

B-

Negative


Based
on the downgrades of our credit ratings through the date of this filing, additional collateral was posted pursuant to agreements with certain counterparties of approximately
$202.4 million. In addition, our interest expense under our senior credit facility, bridge loan and senior notes increased by $71.6 million, on an annualized basis, as a result of such
downgrades.

The
following table presents the ratings assigned to our servicing operations as of the date of the filing of this Quarterly Report on Form 10-Q. The servicer ratings
are an indication of a servicer's ability to effectively service CMBS and RMBS and are subject to revision or withdrawal at any time by the assigning rating agency. Each agency's rating should be
evaluated independently of any other agency's rating.

Rating AgencyType of Servicing

S&P

Fitch

DBRSU.S. primary servicing

Strong

CPS2-

SuperiorU.S. master servicing

Strong

CMS3-

SuperiorU.S. special servicing

Strong

CSS2-

Not RatedUnited Kingdom/Ireland primary servicing

Strong

CPS2+

SuperiorUnited Kingdom/Ireland special servicing

Strong

CSS2

Not Rated


Our
CDO asset management operations as of the date of the filing of this Quarterly Report on Form 10-Q had a rating of CAM2 from Fitch. Asset management ratings are an
indication of an asset management organization's vulnerability to operational and investment management failures.



Liquidity in the capital markets has been constrained, limiting our access to the secured and unsecured debt markets. Our ability to
access additional liquidity is subject to a number of factors, including our ability to close the Facility, financial performance, our liquidity, the general availability of and rates applicable to
financing transactions, lenders' and investors' resources, our credit ratings, and our industry and market trends.

66

---



Table of Contents

Our ability to access the capital markets and other sources of secured and unsecured funding, which is critical to our ability to do business, has been and could
continue to be adversely affected by recent events in the global markets and in the economy. As described in "Outlook and Recent Trends," global market and economic conditions have been,
and continue to be, disrupted and volatile to an unprecedented extent. The availability of funding outside of Capmark Bank US has been and may continue to be adversely affected by illiquid credit
markets and wider credit spreads. Due to widespread concerns about the stability of the markets and the strength of counterparties, many lenders have reduced and, in some cases, ceased to provide
funding to borrowers. Further or prolonged disruptions in the global markets and economy may further adversely affect our liquidity and access to the secured and unsecured debt markets. For additional
information on factors that may affect our liquidity and financial condition, see "Risk Factors" included in Part I, Item 1A of our 2008 Annual Report on Form 10-K.

Brokered
CDs continue to provide a key liquidity source for Capmark Bank US. Although market conditions adversely affected the availability of other funding sources throughout 2008 and
the first quarter of 2009, Capmark Bank US was able to issue Brokered CDs to support the repayment of maturing Brokered CDs as the Brokered CD market remained stable and provided consistently
available funding. While we do not maintain specific target levels for Brokered CDs, we manage the level of Brokered CDs in response to Capmark Bank US's current and anticipated funding needs changes
in depositor demand, prevailing pricing and alternative funding spreads and overall economic conditions. When issuing Brokered CDs, one of our goals is to achieve a liability maturity profile similar
to that of our asset maturity profile. Based upon the increasing duration of our asset maturity profile, we have increased our issuance of Brokered CDs ranging in maturity from two to five years.
We continue to monitor shorter-term maturities should the opportunity arise to issue shorter-term Brokered CDs for economic reasons.

General
economic conditions may affect our ability to access the Brokered CD market. We face the risk that we may not be able to issue Brokered CDs or may need to issue them at higher
rates. An increase in rates could have a negative impact on our net interest income. Capmark Bank US also has access to secured funding through FHLB Seattle and the FRB of San Francisco, which are
subject to the terms of the programs. We believe that these secured borrowing arrangements may provide alternative funding sources for a portion of Capmark Bank US's Brokered CD liabilities if we are
either unable to access the Brokered CD market or the overall cost of obtaining funding in this market increases significantly. Capmark Bank US's trust department also accepts deposits of principal,
interest, escrow and reserve balances that borrowers maintain in custodial accounts for the purpose of paying principal and interest on their loans and funding repairs, tenant improvements, taxes and
insurance on the properties that are financed with their loans. Deposits held in a fiduciary capacity are not our assets or liabilities and, accordingly, are not included in the consolidated balance
sheet. A portion of these deposits are eligible for investment as deposits at Capmark Bank US at the discretion of the trust department and may provide us with an alternative form of financing.

67

---



Table of Contents

The
following table presents information concerning the financing arrangements and other funding sources that we had in place as of March 31, 2009 (in thousands):

Financing Arrangements and Funding Sources

Amount
Outstanding

Funding
Limit(10)

Weighted
Average
Remaining
Maturity(in thousands)

(months)Primary long-term funding:Senior credit facilityTerm loan(1)(2)

$
2,624,343

$
2,624,343


24Revolving credit facility(1)(2)


2,663,490


2,663,490


24Total


5,287,833


5,287,833


24Bridge loan(2)


824,829


824,829


Senior notes


2,494,319


2,494,319


44Total primary long-term funding


8,606,981


8,606,981


27Secured funding(3):Repurchase agreements(4)





12,795


Other secured funding facilitiesCapmark Bank US(5)


1,663,504


2,661,313


24Other secured funding facilitiesOther(5)


185,765


185,765


16Bank and third-party funding


188,932


188,932


56Total secured funding


2,038,201


3,048,805


26Unsecured funding:Other unsecured fundinguncommittedCapmark Bank US(6)


50,000


90,000


Other unsecured fundinguncommittedOther


93,121


93,121


0Other bank and third party loans(5)


35,570


35,570


2Total unsecured funding


178,691


218,691


1Subtotal


10,823,873


11,874,477


27Brokered CDs(7)


7,158,244


7,158,244


22Total funding and bank deposit liabilities


17,982,117


19,032,721


25Consolidated debt agreements(8):Secured debt attributable to the consolidation of securitizations


181,239


181,239


N/ASecured debt attributable to the consolidation of LIHTC partnerships


200,672


200,672


N/ATotal consolidated debt agreements


381,911


381,911


N/AJunior subordinated debentures(9)


250,001


250,001


444Total borrowings and deposit liabilities

$
18,614,029

$
19,664,633


31


---

Notes:

68

---



Table of Contents

In
addition to the outstanding funding reflected in the above table, as of March 31, 2009, we had $445.4 million of stockholders' equity and $72.9 million of common
stock classified as mezzanine equity. As of March 31, 2009, we held $3.4 billion of total cash, including $1.8 billion of cash held at Capmark Bank US.

Of
the total deposit liabilities reflected in the above table, $7.2 billion consisted of FDIC insured Brokered CDs issued by Capmark Bank US, compared to $5.7 billion of
Brokered CDs outstanding as of December 31, 2008. We increased our deposit funding through Brokered CDs to generate additional liquidity in response to unfavorable economic conditions and to
fund repayment of maturing Brokered CDs throughout the remainder of 2009.

Capmark
Bank US may also have access to funding in the form of escrow deposits held in trust at the discretion of the trust department. As of March 31, 2009, none of the eligible
escrow funds held in trust by our U.S. servicing operations were placed on deposit with Capmark Bank US. As of March 31, 2009, the amount of escrow deposits that were eligible for deposit at
Capmark Bank US at the discretion of the trust department was $1.1 billion.

$1.5 Billion Term Loan Facility Commitment and Senior Credit Facility and Bridge Loan Agreement

On May 8, 2009, we received a commitment from certain lenders under the bridge loan agreement and senior credit facility to
provide the Facility. Proceeds from the Facility, along with $75.0 million in cash, will be used to refinance a portion of our bridge loan agreement and senior credit facility.

69

---



Table of Contents

The
Facility will be guaranteed by each of the guarantors under the bridge loan agreement and senior credit facility and certain material domestic wholly-owned subsidiaries of our
company. The Facility will be secured by a pledge and security interest on substantially all of our U.S. and Canadian non-bank mortgage loans and foreclosed real estate. The Facility will
contain a number of financial and operating covenants, including minimum liquidity covenants and run rate operating expense covenants, limitations on incurring debt, granting liens and making certain
restricted payments, investments and capital expenditures. The maturity date of the Facility will be March 23, 2011, provided that if certain conditions relating to the restructuring of our
senior notes due 2010 have not been met, the maturity date of the Facility will be accelerated to April 2010.

In
connection with the Facility, we will enter into the Amendments. The Amendments will extend the maturity date under the bridge loan agreement to the maturity date of the Facility,
conform the financial covenants in those agreements to the financial covenants in the Facility and amend certain other provisions of those agreements, including permitting the Facility. The Facility
and the Amendments are subject to a number of closing conditions, including the negotiation and execution of definitive agreements and related documents satisfactory to the lenders. We are seeking to
document and close the Facility and Amendments by May 21, 2009.

In
addition, we intend to seek an additional facility contemplated under the terms of the Facility to finance servicing advances made by Capmark Finance Inc. in the ordinary
course of its master servicing activities. In the event a servicing facility is entered into, it will be secured by the rights to repayment of the servicing advances and a security interest covering
the residual value of the servicing advances also will be granted as security for repayment of the Facility.

To
facilitate the execution of definitive agreements with respect to the Facility and the Amendments, we have extended the maturity date of 100% of our outstanding bridge loan to
May 21, 2009. Additionally, the required lenders under the senior credit facility and the bridge loan agreement have
agreed to waive our compliance with the leverage ratio covenant for the quarters ended December 31, 2008 and March 31, 2009. These waivers are effective through May 21, 2009.

Our
senior credit facility contains financial, affirmative and negative covenants that we believe are usual and customary for similar senior credit facilities. Our bridge loan agreement
contains financial, affirmative and negative covenants that are substantially similar to those contained in our senior credit facility. The covenants in the senior credit facility include limitations
(each of which is subject to customary exceptions) on our ability and the ability of our current and future subsidiaries to incur additional indebtedness, grant liens, merge, consolidate or engage in
asset sales, engage in transactions with affiliates and change the nature of the business conducted by us and our subsidiaries. In addition, the senior credit facility and bridge loan require us to
maintain a total debt to total capitalization ratio (as defined in the senior credit facility) of no more than 0.87 to 1.0. Compliance with this covenant is measured without giving effect to the
consolidation of our LIHTC partnerships or other entities under SFAS No. 66 or FIN 46(R). We were not in compliance with the leverage ratio covenant for the quarter ended
March 31, 2009, but received a waiver of such non-compliance through May 21, 2009 as described above.

Our
senior credit facility contains certain customary events of default, including a failure to pay principal, interest, fees or other amounts when due, a failure of a representation or
warranty to be true in all material respects when made or deemed made, a breach of a covenant, a cross-default, the entry of a material judgment against us, bankruptcy or insolvency events, certain
ERISA violations or a "change of control" or "ownership" as defined in the credit agreement. Our bridge loan agreement also contains certain customary events of default that are substantially similar
to those contained in our senior credit facility, including a failure to pay principal, interest, fees or other amounts when due, a failure of a representation or warranty to be true in all material
respects when made or deemed made, a breach of a covenant, a cross-default, the entry of a material judgment against us, bankruptcy or

70

---



Table of Contents

insolvency
events, certain ERISA violations or a "change of control" as defined in the bridge loan agreement. These events of default may allow for certain grace periods and materiality limitations.
Upon an event of default resulting from non-compliance with the leverage ratio covenant, the senior credit facility and bridge loan lenders owed at least a majority of the aggregate
outstanding loans can declare all outstanding loans to be immediately due and payable. Other events of default may allow for certain grace periods and materiality limitations.

If
we do not close the Facility and the Amendments by May 21, 2009 and the lenders under the senior credit facility and bridge loan agreement fail to waive or eliminate the
leverage ratio covenant beyond May 21, 2009 and further extend the maturity of the bridge loan agreement, upon expiration of the waivers we will default under these agreements and the majority
lenders under such agreements can immediately declare all loans due and payable. Any such acceleration of the maturity of our debt obligations would permit our senior noteholders and certain other
lenders and contractual counterparties to terminate and/or accelerate the maturity of obligations due under other financing instruments and agreements, including our senior notes. If the lenders,
noteholders, and/or other counterparties demand immediate repayment of all of our obligations, we would likely be unable to pay all such obligations. In such an event, if we have not otherwise been
able to recapitalize, refinance, or
raise additional liquidity by selling some or all of our assets or through some other form of restructuring, we will have to seek to reorganize under Chapter 11 of the United States Bankruptcy
Code.

Other Secured Uncommitted Funding FacilitiesCapmark Bank US and Other

We have established other uncommitted secured funding facilities with financial institutions located in the United States. Issuance of
secured indebtedness is subject to limitations under the various facilities. The lenders of these secured funding facilities require a specific amount of eligible assets as collateral for the amounts
borrowed.

The
following table presents information concerning our other secured funding facilities as of March 31, 2009:

Financing Arrangement

Facility
Limit

Amount
Drawn

Remaining
Availability(in thousands)Capmark Bank US:FHLB of Seattle(1)

$
1,434,173

$
1,313,504

$
120,669FRB of San Francisco(2)


1,227,140


350,000


877,140Total


2,661,313


1,663,504


997,809Non-Capmark Bank US:Merrill Lynch "Roaring Fork" facility


185,765


185,765


Total


185,765


185,765


Total

$
2,847,078

$
1,849,269

$
997,809


---

Notes:

71

---





Table of Contents

We previously had uncommitted secured funding facilities with Shinsei Bank and Société Générale. The
Shinsei and Société Générale sponsored asset-backed facilities were terminated and paid in full in January 2009 and March 2009,
respectively. We did not obtain replacement funding for these facilities.

Capmark
Bank US's total borrowing capacity with both the FHLB of Seattle and the FRB of San Francisco is reported as of March 31, 2009. Actual borrowing capacity on any business
day is subject to change as individual qualifying loans are routinely pledged and de-pledged by Capmark Bank US in the normal course of business. Additionally, changes in loan performance
and other collateral-specific criteria may affect whether an individual loan continues to qualify as collateral.

Due
to deteriorating economic conditions, during the first quarter of 2009, Capmark Bank US experienced a decline in the volume of qualifying collateral available to support our FHLB of
Seattle and FRB of San Francisco secured borrowings. If a reduction in qualifying collateral pledged at either the FHLB of Seattle or FRB of San Francisco reduces Capmark Bank US's total borrowing
capacity to a level below that needed to support then-outstanding secured borrowings, Capmark Bank US is required to take one or more of the following remedial steps: (1) post
additional loan collateral; (2) prepay a portion of the then-outstanding borrowings and/or; (3) post a cash deposit to adequately cover any remaining collateral shortfall.
Subsequent to March 31, 2009, Capmark Bank US's collateral position with the FHLB of Seattle deteriorated due to a decline in the volume of qualifying collateral and a combination of the
remedial steps cited above has been taken by Capmark Bank US as necessary. No material change in Capmark Bank US's available borrowing capacity with the FRB of San Francisco has occurred subsequent to
March 31, 2009.

Commitments and Contractual Obligations



In connection with our business activities, we enter into commitments that may give rise to future cash funding requirements. As of
March 31, 2009, these commitments consisted of commitments to originate or purchase loans or investments, commitments to fund loans and commitments to provide equity to equity method investees.
We also have commitments to sell loans. The future cash payments and receipts that were associated with these obligations as of March 31, 2009 are summarized in the table below. Because these
commitments may expire unused and may require certain conditions to be met prior to funding, the amounts shown do not necessarily reflect our actual future cash funding requirements.

Years to MaturityType of Commitment

Less than
1 Year

1 to 3 Years

3 to 5 Years

More than
5 Years

Total(in thousands)Commitments to originate or purchase loans(1)

$
118,185

$


$


$


$
118,185Commitments to fund construction loans(1)


280,708


265,000


204,677


25,942


776,327Commitments to fund other loans(1)


175,865


614,018


27,666


2,821


820,370Commitments to purchase investments


7,624











7,624Commitments to provide equity to equity method investees





64,991


3,033


43,807


111,831Total

$
582,382

$
944,009

$
235,376

$
72,570

$
1,834,337Commitments to sell loans

$
503,416










$
503,416


---

Note:

72

---



Table of Contents

As
an approved multifamily seller/servicer under Fannie Mae's DUS program, we are responsible for assuming a portion of the losses that may result from a borrower's payment
default on the loans that we have sold to Fannie Mae. Our loss sharing obligations are determined based on agreed loss sharing formulas. We generally are required to assume responsibility for the
first 5% of the unpaid principal and a portion of any additional losses up to a maximum of 20% of the original principal balance of the loan. Any significant losses under this program would have an
adverse effect on our results of operations and financial condition.

The
table above reflects the future cash payments and receipts associated with commitments for our entire Company. The future cash payments and receipts solely associated with the
commitments for Capmark Bank US as of March 31, 2009 are summarized in the table below:

Years to MaturityType of Commitment

Less than
1 Year

1 to 3 Years

3 to 5 Years

More than
5 Years

Total(in thousands)Commitments to originate or purchase loans

$
78,400

$


$


$


$
78,400Commitments to fund construction loans


25,053


204,458


196,754


25,942


452,207Commitments to fund other loans


25,450


452,916


27,416





505,782Total

$
128,903

$
657,374

$
224,170

$
25,942

$
1,036,389Commitments to sell loans

$
452,529

$


$


$


$
452,529


The future cash payments and receipts associated with the commitments for all non-Capmark Bank US entities as of March 31, 2009
are summarized in the table below:

Years to MaturityType of Commitment

Less than
1 Year

1 to 3 Years

3 to 5 Years

More than
5 Years

Total(in thousands)Commitments to originate or purchase loans

$
39,785

$


$


$


$
39,785Commitments to fund construction loans


255,655


60,542


7,923





324,120Commitments to fund other loans


150,415


161,102


250


2,821


314,588Commitments to purchase investments


7,624











7,624Commitments to provide equity to equity method investees





64,991


3,033


43,807


111,831Total

$
453,479

$
286,635

$
11,206

$
46,628

$
797,948Commitments to sell loans

$
50,887

$


$


$


$
50,887




In the ordinary course of our business, we enter into contractual arrangements that may require future cash payments. The future cash
payments that were associated with these obligations as of March 31, 2009 are summarized in the table below.

Payments due by PeriodType of Obligation

Less than 1 Year

1 to 3 Years

3 to 5 Years

More than
5 Years

Total(in thousands)Borrowings and deposit liabilities(1)

$
1,550,992

$
7,401,480

$
3,662,760

$
1,835,739

$
14,450,971Derivative instruments(2)


173,952


336,835


125,188


96,983


732,958FIN 48 obligations(3)


28,747


18,094


72,360





119,201Operating leases and other(4)


39,823


70,101


63,737


7,118


180,779Total

$
1,793,514

$
7,826,510

$
3,924,045

$
1,939,840

$
15,483,909


73

---



Table of Contents

---

Notes:

Guarantees and Off-Balance Sheet Transactions



We enter into guarantees in the ordinary course of our business, including, among others, guarantees in support of some of our LIHTC
sponsored funds, NMTC sponsored funds and guarantees of payment of some of the agency and construction loans that we originate and certain other transactions.



For the three months ended March 31, 2009, we did not enter into any loan securitization transactions.



The instruments governing some of our securitization transactions and other off-balance sheet transactions contain
customary provisions that require us to purchase specific assets from our securitization trusts and indemnify the issuer with respect to any material misstatement or omission with respect to
information we provide for inclusion in the applicable offering documents. In connection with certain asset sales and securitization transactions, we typically make customary

74

---



Table of Contents

representations
and warranties to the purchaser of our assets that relate to the characteristics of the assets transferred. These clauses are intended to ensure that the terms and conditions of the
sales contracts are met upon transfer of the assets. Prior to any sale or securitization transaction, we perform due diligence with respect to the assets to be included in the sale to ensure that they
meet the purchaser's requirements, as described in the representations and warranties. Due to these procedures, we believe that the potential for loss under these arrangements is remote. Accordingly,
we have not recorded a liability in our consolidated balance sheet relating to these potential obligations. The maximum potential amount of future payments that we could be required to make would be
equal to the current balances of all assets subject to these securitization or sale activities. We do not monitor the total value of assets historically transferred to securitization vehicles or
through other asset sales and, as a result, we are unable to develop an estimate of the maximum payout under these representations
and warranties. As of March 31, 2009, we had not been required to repurchase any assets under these provisions.



We participate as a lender in Fannie Mae's DUS program and other similar programs. As a condition to Fannie Mae's
delegation of responsibility for underwriting, originating and servicing of loans under the program, we assume a limited first-dollar loss position throughout the term of each loan we sell to Fannie
Mae. As of March 31, 2009, we maintained a liability for such potential losses in the amount of $20.7 million. The maximum amount of loss we were exposed to under these programs was
$710.6 million as of March 31, 2009.



We sponsor NMTC funds that make investments in qualifying CDEs that receive new markets tax credit allocations under a federal program
that is designed to increase the availability of investment capital in low-income communities. We have determined that our NMTC funds are variable interest entities under FIN 46(R)
and that we were the primary beneficiary of all but twenty-one of the NMTC funds that we had sponsored as of March 31, 2009. The NMTC funds of which we were not the primary
beneficiary had total assets of $402.3 million as of March 31, 2009. Our exposure to loss relating to these NMTC funds was $214.4 million as of that date, representing the amount
of financing we have provided to the funds.



We have sponsored CDOs in which we may retain a subordinated or equity interest and for which we serve as the collateral manager. When
we sponsor a CDO, we establish a bankruptcy-remote special purpose entity that purchases a portfolio of assets that may consist of commercial mortgage loans and other real estate-related securities
and issues debt and equity certificates, representing interests in the special purpose entity. Certain of the CDOs that we have sponsored were initially structured, or have been restructured, as QSPEs
under SFAS No. 140 and, accordingly, are not consolidated in our financial statements.

The
CDOs that we have sponsored that have not been structured as QSPEs are variable interest entities under FIN 46(R). We have determined that we were not the primary beneficiary
of any of these entities as of March 31, 2009 and, accordingly, have not consolidated them in our financial statements. These CDOs had total assets of $4.0 billion as of March 31,
2009. Our exposure to loss relating to these CDOs was approximately $29.4 million as of that date, representing the value of our retained interests in these entities including our indirect
interests in the CDOs held through our co-investment in a sponsored investment fund.

75

---



Table of Contents

Credit Risk Management

Credit risk represents the risk that a financial loss will result from the failure of a borrower, obligor or counterparty to perform
its obligations. We have developed and implemented formal, systematic credit risk management policies and processes for our lending activities that are designed to preserve the independence and
integrity of credit-related decisions and to ensure that credit risks are accurately assessed, are properly approved, and are monitored and actively managed at both the transaction and portfolio
levels. These policies and processes employ specific limits on credit approval authorities, the use of a programmatic risk-rating methodology, certain concentration limitations and
independent credit risk monitoring and asset management procedures. In order to meet our credit risk management objectives, we seek to maintain a risk profile that is diverse in terms of property
type, geographical location and single asset exposure. Historically, we have managed this diversification through the use of asset sales, including syndications, participations and securitizations and
other risk reduction techniques.



Challenging economic conditions have resulted in declining asset quality in recent quarters, particularly during the fourth quarter of
2008 and the first quarter of 2009, resulting in adverse credit migration and increases in non-performing loans. The factors contributing to the decline in asset quality include weak
economic conditions, market illiquidity, declining commercial real estate fundamentals, our concentration of transitional real estate, and declining real estate values.

The
year ended December 31, 2008 and the three months ended March 31, 2009 were characterized by a lack of available financing for commercial real estate and a
corresponding scarcity of purchases and sales of real estate. Typically, the primary repayment source for a commercial real estate loan is refinancing, or in some cases, the sale of the property. The
market illiquidity experienced in 2008 and the first quarter of 2009 resulted in a lack of viable repayment sources for maturing loans, which has contributed to increased loan extension activity. We
have granted, and may in the future continue to grant, extensions of loans, subject to negotiation of acceptable consideration for such extensions. The nature of such consideration depends on the
credit profile of a given loan, but might include a partial pay-down and/or an increased interest rate. If we and the borrower are unable to reach mutually acceptable extension terms, and
the borrower is unable to refinance or otherwise repay the loan, the loan will default and be classified as non-performing. Such circumstances have contributed to increases in defaults and
non-performing loans.

Current
recessionary economic conditions have reduced demand by users (tenants) of commercial real estate. Reductions in demand impact current property cash flows and the expectation for
future cash flows. Our loan portfolio is significantly comprised of construction loans and interim, floating rate loans secured by "transitional" real estate. The repayment of such loans is dependent
on the construction and renovation, and subsequent leasing, of collateral and debt service payments for such loans are dependent on capitalized reserves or subsidization by sponsors. Reductions in
demand by users of commercial real estate have caused certain of these loans to fail to achieve underwritten expectations for leasing and cash flow, contributing to increases in defaults and
non-performing loan classifications.

The
scarcity of commercial real estate financing, declining fundamentals and generally weak economic conditions have contributed to reductions in commercial real estate values. This
trend is putting additional pressure on our loan portfolio, causing loan-to-value ratios to rise. During the first quarter of 2009, we obtained updated appraisals on
approximately $1.7 billion of loans. The new appraisals in combination with other loan-level data resulted in the detection of impairment in certain loans, contributing to the
increase in loans classified as non-performing in the first quarter of 2009.

76

---



Table of Contents



The following table sets forth our exposure to these property types in our loan portfolio. We also maintain additional direct and
indirect exposure to these property types through
our interests in funds, securities, equity investments and other non-loan exposures. The following table summarizes the composition of our total loan portfolio by property type (in
thousands):

March 31, 2009

December 31, 2008Property Type

Amount

Percentage

Amount

PercentageOffice

$
2,418,759


20
%
$
2,535,343


21
%Multifamily


2,362,197


20


2,367,555


19Hospitality


2,179,105


18


2,148,095


17Healthcare


1,610,644


13


1,699,960


14Retail


1,276,543


11


1,306,862


11Mixed-use and other(1)


2,147,570


18


2,229,059


18Total(2)

$
11,994,818


100
%
$
12,286,874


100
%


---

Notes:



As of March 31, 2009, we had 35 loan commitments that exceeded $50.0 million. Our aggregate commitments with respect to
these 35 loans totaled $2.8 billion, of which $2.4 billion has been funded. Though we sought to minimize our exposure to losses on a single loan by using credit approval limits and by
developing loan distribution strategies before we committed to provide financing, market illiquidity restrained our ability to economically reduce these remaining large exposures. These loans, as with
our loan portfolio as a whole, have since been subject to adverse credit migration due to market conditions described above. Nine of these loans are non-performing and maintained on
non-accrual status. The gross commitment and funded amount related to these non-performing loans totaled $545.6 million as of March 31, 2009. The remaining 26
loans are performing loans.



Our originated non-performing assets consist of loans that are on non-accrual status, real estate acquired
through foreclosure upon default of a related loan, and non-performing equity investments for which the Company does not consolidate the entity that holds a foreclosed real estate asset.
Loans on non-accrual status exclude any loans that were on non-accrual status at the time we acquired such loans for investment purposes ("acquired non-performing
loans"). The following table presents information concerning our originated non-performing assets (in thousands):

March 31,
2009

December 31,
2008Gross asset value(1)

$
1,604,128

$
877,395Basis adjustments before allowance for loan losses(2)


(334,159
)

(112,005
)Specifically assigned allowance for loan losses


(106,115
)

(50,111
)Carrying value

$
1,163,854

$
715,279Carrying value as a percentage of total assets


5.5
%

3.5
%


77

---



Table of Contents

---

Notes:

The
table above includes $15.1 million and $10.1 million as of March 31, 2009 and December 31, 2008, respectively, of non-performing equity
investments for which the Company does not consolidate the entity that holds a foreclosed real estate asset.



We have acquired non-performing loans for investment purposes at substantial discounts to par. At the time of acquisition,
these non-performing loans evidenced credit quality deterioration and the probability that not all contractually required payments would be collected. The carrying value of these loans
totaled $236.6 million and $301.7 million as of March 31, 2009 and December 31, 2008, respectively. We recognize an estimate of the accretable yield on these loans. The
accretable yield is limited to the excess of the estimated undiscounted principal, interest and other expected cash flows over the acquisition price of the loans.

We
seek to maximize recovery on our acquired non-performing loans. However, the time and amount of our expected cash flows from such loans are based upon a number of
assumptions that are subject to business and economic uncertainties, including the amount and timing of principal payments, collateral disposition activity and other factors. Charges for impairments
of acquired non-performing loans totaled $6.9 million and $4.0 million for the three months ended March 31, 2009 and 2008, respectively.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Market Risk Management

Market risk represents the risk that a change in the level of one or more market prices, rates, indices, implied volatilities,
correlations or other market factors will result in a financial loss. The primary market risks that we face are interest rate risk, credit spread risk and foreign currency risk. These risks include
the risk that changes in prevailing interest rates, credit spreads or foreign currency exchange rates will impact the fair value of our assets and liabilities, decrease our revenue or increase our
expenses. We seek to control these risks primarily through the use of interest rate and foreign currency swaps. From time to time, we may also sell U.S. Treasury securities or enter into various other
derivative instruments, including total rate of return swaps, CMBS index swaps, interest rate caps and floors, and options to purchase the foregoing instruments. We seek to further control our
exposure to fluctuations in foreign currency exchange rates by securing multi-currency funding sources that we may use when funding foreign currency denominated assets.

As
a result of our financial condition, we have reduced the margin thresholds with certain counterparties from generally $5 million to a zero margin threshold. In addition,
certain counterparties have discontinued trading with us or have required upfront, independent margin amounts in order to enter into derivative transactions with them. In addition, counterparties have
and may continue to require higher fees and more collateral than we are willing or able to provide. As a result, we have not been able to fully hedge interest rate or currency risks associated with
our businesses and in such event changes in interest rates or currency exchange rates could result in additional volatility in our results of operations, which may have a material adverse effect on
our results of operations and financial condition.

78

---





Table of Contents

We have implemented centralized risk management policies and processes that are intended to ensure that our market risk exposure is accurately measured, regularly
monitored and appropriately managed on a company-wide basis and within individual market positions. Our market risk limits are established by our market risk management department. These
limits are approved by our Asset/Liability Management Committee. Our market risk exposure is measured using a variety of quantitative and qualitative risk measures and analyses, performed either daily
or monthly, including value-at-risk ("VaR") measurements and sensitivity analyses. Price sensitivity metrics, portfolio valuations and correlation analyses are performed on a
daily basis, while stress testing is performed on a monthly basis using the VaR methodology explained below. VaR measures the impact on the value of existing portfolios of specified changes in market
factors for all of our interest rate sensitive assets and liabilities. We also conduct a net interest income sensitivity analysis, which estimates our net interest income sensitivity to immediate
increases or decreases in interest rates of 100 and 200 basis points.

Recent Market Conditions

Recent unprecedented events in the financial and capital markets (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations- Outlook and Recent Trends") are causing losses that are significantly outside the loss estimates forecast by VaR models and are more commonly measured by alternative risk
measures such as stress tests and scenario
analyses. Starting in 2008, we continued to enhance these alternative risk measures to better reflect exposures arising from certain products (e.g., securitized products). We continue to
improve our risk measurement using stress tests and scenario analyses and have refined its market risk limit framework. These actions, however, may not address the potential severity of possible
losses as actual market movements may continue to be more dramatic than the estimates included in our VaR, stress tests and scenario analyses. For a further discussion on limitations to VaR models,
see "Value at Risk Analysis" below.

Interest Rate and Credit Spread Risk

The predominant type of interest rate risk that we face is the risk that the value of our assets and liabilities (including the value
of our loans, debt obligations and investment portfolios) will change due to changes in interest rates, shape of the yield curve or interest rate spreads between two different financial instruments.
We are also exposed to the risk that changes in interest rates will impact the levels of revenue that are generated by our lending, servicing and investments and funds management businesses, including
trust fees that we earn on escrow balances, or give rise to mismatches between the values of our assets and the liabilities that we incur when funding those assets. Because we have floating rate debt
outstanding, changes in interest rates have and may continue to impact our debt servicing costs, which has and may continue to lead to changes in the levels of net income and cash flows that we report
from time to time.

We
actively monitor our exposure to changes in credit spreads and, when appropriate, we may enter into credit total return swaps to moderate our exposure against losses associated with a
widening of credit spreads, although such swaps may not result in a reduction of losses in certain instances. However, by entering into such swaps, we reduce the potential to benefit from gains
associated with the narrowing of credit spreads. The use of credit total return swaps and other transactions to manage our exposure to credit spread risks also exposes us to the risk that our swap
counterparties will default on their obligations to us as well as the risk that our strategy may not be successful.

Foreign Currency Risk

We are exposed to market risks associated with changes in foreign currency exchange rates because we generate a portion of our revenue
and incur a portion of our expenses in currencies other than the U.S. dollar. We are also exposed to risks associated with foreign currency exchange rates because we have non-U.S. dollar
assets funded by borrowings in U.S. dollars under our senior credit facility and other borrowing facilities, and because we have subsidiaries and investments in other entities with

79

---



Table of Contents

retained
earnings that are denominated in foreign currencies. As of March 31, 2009, our foreign currency exposure consisted primarily of exposure to changes in exchange rates between the U.S.
dollar and the Euro and between the U.S. dollar and Japanese yen. We were to a lesser extent subject to risks associated with movements in exchange rates between U.S. dollars and British pounds
sterling, Taiwanese dollars, Chinese renminbi, Canadian dollars, Mexican pesos, Indian rupees and Filipino pesos.

To
manage foreign currency exposure in our business, we seek to finance assets that are denominated in foreign currencies with funding sources denominated in the same currency. When
assets denominated in foreign currencies are not funded with liabilities denominated in the same currencies, we use foreign exchange swaps and forward transactions that are designed to mitigate the
risks associated with adverse movements in the applicable foreign currency exchange rates. We similarly use foreign exchange forward contracts to manage our foreign currency exposure related to income
streams and expenses that are denominated in foreign currencies when the amount and timing of the income streams and expenses are known. To manage the effect that fluctuations in exchange rates may
have on the value of foreign currency denominated retained earnings in our subsidiaries and the entities in which we have made investments, we have developed an active hedging policy that manages and
adjusts our exposure using one-month foreign exchange swaps and forward contracts. As discussed above, our foreign currency exposure has increased as certain of our foreign currency
derivative transactions have terminated and have not been replaced as a result of either our inability or unwillingness to enter into new derivative contracts given the substantial margin required by
our derivative counterparties.

Exposure
associated with our assets and liabilities that are denominated in foreign currencies are primarily related to foreign denominated assets and liabilities residing in U.S. dollar
entities. A 10% adverse change in the U.S. dollar relative to the foreign currencies associated with the aforementioned positions would result in a $122.1 million loss reflected in other
(losses) gains, net in our consolidated statement of operations for the three months ended March 31, 2009. A 10% adverse change in the U.S. dollar relative to the foreign currencies associated
with our net investment position in non-U.S. dollar entities globally would result in a $64.8 million loss reflected in accumulated other comprehensive income (loss), net of tax, a
component of stockholders' equity as of March 31, 2009.

Derivative Counterparty Exposure

The use of derivative instruments to manage and mitigate our exposure to market risks exposes us to the risk that counterparties to
derivative transactions will fail to perform their obligations under the derivative instruments. Because obligations under our derivative instruments are determined by reference to interest rates,
foreign currency exchange rates and credit spreads, our exposure to a risk of loss from defaults by counterparties to our derivative transactions is impacted by movements in interest rates, foreign
currency exchange rates and to a lesser extent credit spreads. To manage our credit exposures to counterparties to our derivative transactions, before we enter into derivative transactions, we
negotiate and execute industry standard agreements that govern the maximum credit exposure that we will assume with respect to counterparties in derivative transactions. The typical margin threshold
that has been negotiated with our counterparties is $5.0 million. As discussed above, margin thresholds with certain counterparties have been reduced to zero given current market conditions. We
measure our credit exposure to counterparties under our derivative instruments on a daily basis. If exposures with respect to counterparties exceed agreed-upon thresholds, we make margin
calls under which the counterparties are required to post collateral in order to bring our credit exposure to them within the agreed-upon ranges. To date, we have not incurred a loss as a
result of a default on performance by our derivative counterparties.

Our
derivative counterparties were rated single A or better by the credit rating agencies as of March 31, 2009. Our exposure to derivative counterparties as of March 31,
2009 is summarized in the table below by counterparty credit rating and remaining contract maturity of the fair value of

80

---



Table of Contents

derivatives
in a gain position, including interest rate swaps, caps, foreign exchange forwards, foreign exchange swaps and cross currency swaps. The table excludes fair values corresponding to other
credit exposures, such as those arising from the Company's lending activities. Total exposure takes into account the risk reduction arising from master netting agreements, where applicable, and, in
the final column, net of collateral received.

Years to MaturityCredit Rating(1)

Less than
1 Year

1 to 3 Years

3 to 5 Years

More than
5 Years

Total
Exposure(2)

Margin
Balance
Posted/(Held)

Net Exposure
Post Cash
Collateral(3)(in thousands)AA

$
31,368

$
12,009

$
18,462

$
(12,995
)
$
48,844

$
(36,840
)
$
12,004A


137,046


18,758


54,578


(2,422
)

207,960


(187,982
)

19,978Total

$
168,414

$
30,767

$
73,040

$
(15,417
)
$
256,804

$
(224,822
)
$
31,982


---

Notes:

Value-at-Risk Analysis

We use a statistical methodology known as value-at-risk, commonly referred to as "VaR," as one of our tools for
measuring, monitoring and reviewing our market risk exposure. VaR measures the dollar amount of potential losses in fair value from adverse movements in interest rates and credit spreads in an
ordinary market. Our VaR model uses a distribution of historical changes in key market indices or other market factors to assess the potential for future losses. Our VaR model also takes into account
correlations between risks and the potential for movements in one portfolio to offset movements in another. We measure VaR using a 95% confidence interval and an assumed one-month holding
period, meaning that we would expect to incur changes in fair value greater than those predicted by our VaR model in only one out of every 20 months. We believe that our VaR analysis takes into
account our material interest rate and credit spread sensitive positions. The following table represents the maximum, average and minimum potential VaR losses measured for the three months ended
March 31, 2009 and 2008. This analysis has been presented for illustrative purposes only and does not represent our current views as to future movements in interest rates and credit spreads.
The table below shows a greater variation in our potential VaR losses for the three months ended March 31, 2009 compared to the three months ended March 31,

81

---



Table of Contents

2008
as a result of adverse market conditions, specifically a significant increase in spread volatility across the credit curve, experienced during the past several quarters.

Three Months Ended
March 31,Value-at-Risk(1)

2009

2008(in thousands)Maximum

$
97,982

$
60,868Average


81,598


55,685Minimum


60,875


45,844


---

Note:

Net Interest Income Sensitivity Analysis

While VaR measures the risk of loss due to unlikely events in an ordinary market, a sensitivity analysis measures exposure to an
isolated hypothetical movement in one or more specific market prices, rates or indices. To measure our exposure to volatility in net interest income, we perform a sensitivity analysis on a monthly
basis that considers isolated hypothetical movements in specific market rates for each currency in which we transact business. The first table reflects our sensitivity to sudden shifts in
short-term rates in all currencies in which we transact business, taking into consideration our asset and liability positions on our consolidated balance sheet and the derivative
instruments that we use to mitigate market risk as of March 31, 2009. The second table reflects our sensitivity to similar movements in U.S. interest rates on the trust fee income earned on
escrow balances as of March 31, 2009. Due to the current low interest rate environment, rates were decreased no more than 100 basis points and 40 basis points in the first and second tables,
respectively. Both tables measure the impact on net interest income over the next 12 months. These analyses have been presented for illustrative purposes only and do not represent our current
views as to future interest rate movements.

Additionally,
given the current level of interest rates, the downward hypothetical movements were lowered to 25 and 40 basis points for the U.S. dollars, Japanese yen, Canadian dollars
and Taiwanese dollars and 50 and 100 basis points for the remainder of the currency positions. The upward

82

---



Table of Contents

hypothetical
movements remained at 100 and 200 basis points with the exception of Japanese yen LIBOR which was applied at 50 and 100 basis points.

Annualized Impact on Net Interest IncomeCurrency

100 Basis Point
Decrease

50 Basis Point
Decrease

100 Basis Point
Increase

200 Basis Point
Increase(in thousands)U.S. dollars

$
(8,724
)
$
(5,453
)
$
21,811

$
43,622Japanese yen


5,169


3,231


(6,461
)

(12,922
)Pounds sterling


1,135


568


(1,135
)

(2,271
)Euro


(3,796
)

(1,898
)

3,796


7,592Canadian dollars


(196
)

(122
)

490


979Mexican pesos


125


62


(125
)

(250
)Taiwanese dollars


141


88


(351
)

(703
)Filipino pesos


64


32


(64
)

(129
)Chinese renminbi


(75
)

(37
)

75


150Indian rupees


(11
)

(5
)

11


22All currencies

$
(6,168
)
$
(3,534
)
$
18,047

$
36,090




Annualized Impact on Net Interest Income40 Basis Point
Decrease

25 Basis Point
Decrease

100 Basis Point
Increase

200 Basis Point
Increase(in thousands)Escrow balances

$
(11,615
)
$
(7,400
)
$
31,291

$
62,583


Although
we believe that the above sensitivity data measurements provide an estimate of interest rate sensitivity, there are limitations inherent in those measurements. For example, they
do not take into account potential changes in credit quality, size or composition of our asset portfolios, potential changes in our funding mix or other possible business developments. They are also
limited in that they are performed at a particular point in time and only contemplate certain movements in market rates or indices. Accordingly, we can give no assurance that our actual results would
not differ materially from the estimated outcomes of the above simulations. We are aware of the foregoing limitations on the use of sensitivity analyses for measuring and monitoring risks and,
accordingly, employ our sensitivity analysis as only one tool for identifying, measuring, monitoring, managing and reporting our exposure market risks.

Operational Risk

Operational risk refers to the risk of losses resulting from inadequate or failed internal processes, people, systems, facilities or
from external events such as governance risk, business continuity issues, legal or regulatory compliance issues, fraud or sabotage (internal or external), data entry or bookkeeping errors, information
technology system failure, vendor failures or mismanagement, and human resources concerns. We are exposed to operational risk across all of our income-generating activities and support functions,
including aggregation of the current information with respect to our assets.

Primary
responsibility for the management of operational risk lies with our business segments and support functions, which are required to maintain controls designed to identify, assess
and mitigate operational risks for their existing activities. These controls include systems and processes that relate to theft and fraud, our general business practices, our technology, the
safeguarding of our assets and data security, our personnel, our customers, our financial reporting and our external service providers. In addition, we have developed and continue to enhance specific
policies and procedures that are designed to ensure that transactions are properly approved, processed, recorded, reported, monitored/updated and reconciled on a timely basis and that we have adequate
business continuity and disaster recovery

83

---



Table of Contents

plans
for critical facilities and resources. The operational risk management activities of our business segments are overseen by our Senior Vice President, Internal Audit and Risk & Controls
with the assistance of our human resources, legal, information technology, treasury, accounting and risk management departments.

We
seek to limit our exposure to legal risks through the use of procedures and requirements that are designed to foster compliance with applicable statutory and regulatory regimes. These
procedures address matters relating to regulatory capital requirements, sales and trading practices, new products, potential conflicts of interest, structured transactions, the use and safekeeping of
customer funds and securities, the extension of credit, debt collection activities, money-laundering, privacy, recordkeeping and reporting. The increased legal and regulatory focus that has been
applied to the financial services industry in recent periods has increased the importance of our legal and regulatory compliance procedures for our operational risk management activities.

Item 4T.    Controls and Procedures

Disclosure controls and procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended ("Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our
management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives.

Our
management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls
and procedures as of March 31, 2009. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31,
2009, the design and operation of our disclosure controls and procedures provided reasonable assurance that the disclosure controls and procedures are effective to accomplish their objectives.

Internal Controls over Financial Reporting

Section 404 of the Sarbanes-Oxley Act requires that the management of public companies evaluate, and their independent
registered public accountants report on, internal controls over financial reporting on an annual basis. We are not yet required to report on our internal controls over financial reporting or to obtain
an attestation report of the Company's independent registered public accounting firm due to a transition period established by the rules of the Securities and Exchange Commission for newly public
companies. We expect that we will be required to complete our initial internal controls assessment by the time of the filing of our Form 10-K for our fiscal year ending
December 31, 2009.

Prior
to 2008, both we and our independent registered public accounting firm identified material weaknesses, as well as significant deficiencies, with respect to our internal controls
over financial reporting in connection with the audits of our consolidated financial statements. Beginning in 2007, we undertook specific actions to remediate these weaknesses and deficiencies.

As
part of our efforts to address the identified weaknesses and deficiencies, emphasis was placed upon recruiting for key financial positions, projects to improve financial processes and
information flows, and implementation of formal accounting policies and controls designed to facilitate company-wide compliance with proper interpretation and application of GAAP. We
believe these actions have sufficiently remediated the previously identified deficiencies with respect to our internal controls over financial reporting such that a material weakness no longer exists.

84

---





Table of Contents

PART IIOTHER INFORMATION

Item 1.    Legal Proceedings

As previously reported, the Investigation Bureau of the Ministry of Justice of Taiwan presented one of our Taiwan-based subsidiaries
with a search warrant in June 2008, authorizing a search for documents relating to a 2005 transaction involving a purchase of non-performing loan and real estate assets from Bowa Bank, a
Taiwanese bank. Bowa Bank was taken over by the Central Deposit Insurance Corporation in August 2007 as part of an insolvency proceeding. The Investigation Bureau is reviewing a number of transactions
entered into by Bowa Bank prior to its insolvency. According to the search warrant, this case relates to an investigation of potential violations of the Taiwanese Banking Law and Securities and
Exchange Law. An officer of this Taiwanese subsidiary was also questioned as a witness in connection with the investigation. No
criminal or civil claims have been brought against us or any of our employees in connection with these matters. We are cooperating with the investigation.

As
previously reported in our Annual Report on Form 10-K for the year ended December 31, 2008, on April 3, 2009, the one non-extending bridge
loan lender filed a complaint against us in connection with the non-repayment of the $48 million principal amount of the bridge loan held by such lender, which is included in other
long-term borrowings in the condensed consolidated balance sheet at March 31, 2009. On May 12, 2009, the Company entered into a settlement agreement with the one bridge loan
lender that previously had not consented to the extension of the bridge loan maturity and waiver of the leverage covenant. The settlement required that such lender become a party to the most recent
bridge loan extension and waiver, execute the Facility commitment and dismiss its complaint filed on April 3, 2009 with prejudice. In consideration of the settlement, the Company paid the
non-consenting lender $1.2 million as compensation for fees related to the earlier extensions and the lender's legal fees. The complaint was filed in connection with the
non-repayment of the $48 million principal amount of the bridge loan held by such lender. The complaint alleged breach of contract, breach of the covenant of good faith and fair
dealing and conversion by the Company in connection with the non-repayment.

As
previously reported in our Annual Report on Form 10-K for the year ended December 31, 2008, we have received correspondence from certain of the holders of
our senior notes stating that they believe that we have defaulted under the terms of the indentures governing the senior notes by failing to timely file our Annual Report on
Form 10-K for the year ended December 31, 2008. The Company subsequently filed the 2008 Annual Report on Form 10-K and does not believe there is any default. We have
also received correspondence from certain of the holders of our senior notes and certain of the lenders under our senior credit facility that are not lenders under our bridge loan agreement requesting
that we provide them with the information that we have provided to the bridge lenders and urging us to undertake a comprehensive debt restructuring.

We
may be subject to potential liability under various legal actions that are pending or that may be asserted against us in the ordinary course of business or in connection with our
restructuring efforts. While the outcomes of the various pending legal actions are not certain, based on present assessments, management does not believe that they will have a material adverse effect
on our business.

Item 1A.    Risk Factors

For a discussion of our potential risks and uncertainties, see the information under the heading "Risk Factors" in our Annual Report on
Form 10-K filed with the SEC on April 24, 2009.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

85

---



Table of Contents

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Submission of Matters to a Vote of Security Holders

None.

Item 5.    Other Information

None.

Item 6.    Exhibits

The exhibits filed as a part of this report are as follows:

3.1

Amended and Restated Articles of Incorporation of Capmark Financial Group Inc. (incorporated by reference to the Registration Statement on Form S-4 of Capmark Financial Group Inc. (File No. 333-146211)
filed on September 20, 2007).3.2

Amended and Restated By-laws of Capmark Financial Group Inc. (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed on August 13, 2008).10.1

Amendment No. 7 and Waiver to the Bridge Loan Agreement, dated as of May 8, 2009, among Capmark Financial Group Inc., the financial institutions and other institutional lenders party thereto, and
Citicorp North America, Inc., as administrative agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on May 12, 2009).10.2

Waiver No. 2 to the Credit Agreement, dated as of May 8, 2009, among Capmark Financial Group Inc., certain subsidiaries of the Capmark Financial Group Inc., the financial institutions and other
institutional lenders party thereto, and Citibank N.A., as administrative agent (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on May 12, 2009).31.1

CEO Certification pursuant to Rule 13a-14(a)/15d-14(a).31.2

CFO Certification pursuant to Rule 13a-14(a)/15d-14(a).32.1

Section 1350 Certifications.


86

---





Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Capmark Financial Group Inc.Date: May 15, 2009

/s/ JAY N. LEVINE Name:  Jay N. Levine
Title:President and Chief Executive OfficerDate: May 15, 2009

/s/ GREGORY J. MCMANUS Name:  Gregory J. McManus
Title:Executive Vice President and
            Chief Financial Officer


87

---





Table of Contents

EXHIBIT INDEX

Exhibit
Numbers

Description and Method of Filing3.1

Amended and Restated Articles of Incorporation of Capmark Financial Group Inc. (incorporated by reference to the Registration Statement on Form S-4 of Capmark Financial Group Inc. (File No. 333-146211)
filed on September 20, 2007).3.2

Amended and Restated By-laws of Capmark Financial Group Inc. (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed on August 13, 2008).10.1

Amendment No. 7 and Waiver to the Bridge Loan Agreement, dated as of May 8, 2009, among Capmark Financial Group Inc., the financial institutions and other institutional lenders party thereto, and
Citicorp North America, Inc., as administrative agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on May 12, 2009).10.2

Waiver No. 2 to the Credit Agreement, dated as of May 8, 2009, among Capmark Financial Group Inc., certain subsidiaries of the Capmark Financial Group Inc., the financial institutions and other
institutional lenders party thereto, and Citibank N.A., as administrative agent (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on May 12, 2009).31.1

CEO Certification pursuant to Rule 13a-14(a)/15d-14(a).31.2

CFO Certification pursuant to Rule 13a-14(a)/15d-14(a).32.1

Section 1350 Certifications.


88

---