Banks. SNS Bank N.V. Netherlands. Full Rating Report. Key Rating Drivers. Rating Sensitivities. Ratings

Transcription

1 Netherlands Full Rating Report Ratings Foreign Currency Long-Term IDR Short-Term IDR BBB+ F2 Viability Rating bbb- Support Rating 2 Support Rating Floor BBB+ Sovereign Risk Foreign-Currency Long-Term IDR Local-Currency Long-Term IDR Outlooks Foreign-Currency Long-Term IDR Sovereign Foreign-Currency Long-Term IDR Financial Data 31 Dec 13 AAA AAA Negative Negative 31 Dec 12ᵃ Total assets (USDm) 102, ,324 Total assets (EURm) 74,537 81,341 Total equity (EURm) 2,582 1,337 Operating profit (EURm) Published net income (EURm) Comprehensive income (EURm) -1, , Operating ROAA (%) Operating ROAE (%) Fitch core capital/weighted risks (%) Core tier 1 ratio (%) Tangible common equity/tangible assets (%) ᵃ: restated Key Rating Drivers Support-Driven IDRs: The Long-Term IDR assigned to is at the bank s Support Rating Floor (SRF) of BBB+ as the latter is higher than the bank s Viability Rating (VR) of bbb-. The SRF reflects Fitch Ratings belief that there remains a high probability that SNS Bank would receive further support from the Dutch state (AAA/Negative), if needed. The Negative Outlook on the bank s Long-Term IDR reflects the agency's expectation that the probability of state support, if ever required, without senior creditors suffering losses, is likely to decline within the next one to two years. This opinion is based on Fitch's view that there is a clear intention ultimately to reduce implicit state support for financial institutions in the EU, as demonstrated by the legislative, regulatory and policy initiatives. Narrow Business Mix, Moderate Franchise: Fitch believes SNS Bank s company profile is an important rating factor influencing the bank s VR. SNS Bank s focus on domestic retail banking induces a lack of business and geographical diversification, but this is mitigated by the overall low-risk nature of these activities, operated in a stable environment. SNS Bank s franchise lags behind that of the three large Dutch banks; it has strived to make up for a lack of scale and constrained pricing power by a multi-brand strategy and a focus on cost efficiency. Solid Risk-Weighted Capital, High Leverage: The various measures decided when the bank was nationalised and implemented throughout 2013 have substantially improved capital ratios. Leverage is high, as the vast majority of the bank s assets carries low risk-weighting. Weaker Mortgage Loans than Peers: Most of SNS Bank s credit risk lies in its large Dutch residential mortgage loan book (90% of customer loans). Despite this book being weaker than Dutch peers, with a 90-day past due ratio of 2.1% at end-2013 (around 1% for the sector), asset quality remains satisfactory overall, and should stay so, under Fitch s base case. Wholesale Funding Reliance: SNS Bank s loan book exceeds its customer deposit base (which is a structural feature of Dutch banks), resulting in a reliance on debt capital markets to close the funding gap. Liquidity management has been prudent, alleviating refinancing risk. Satisfactory Profitability: Fitch expects SNS Bank to deliver a satisfactory level of recurring profitability, based on rather predictable earnings and good cost efficiency. Related Research Sovereign Support for Banks - Rating Paths Expectations (March 2014) The Netherlands (January 2014) 2014 Outlook: Major Benelux banks (January 2014) Analysts Philippe Lamaud philippe.lamaud@fitchratings.com Olivia Perney Guillot olivia.perney@fitchratings.com Rating Sensitivities Change in Support Assumptions: SNS Bank s IDRs are sensitive to any weakening of Fitch s assumptions on the ability or propensity of the Dutch state to support it. Once resolution legislation and mechanisms are in place at EU level, Fitch expects to downgrade SNS Bank s SRF to No Floor, suggesting the Long-Term IDR is likely to be downgraded to the bank s VR. Successful Track Record: The VR would benefit from a track record of maintaining a good operating performance, managing the deterioration in asset quality and improving market shares in the production of new mortgages, while adhering to its moderate risk appetite. Pressure on Asset Quality, Capital: The bank s VR would be negatively affected by a material reduction in capital ratios, most likely resulting from severe strains on asset quality. Any set back in the cautious liquidity management would also be detrimental to the bank s VR. 30

2 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Banks Figure 1 Dutch GDP Growth (%) GDP y/y GDP q/q Operating Environment SNS Bank s operations are conducted solely in the Netherlands and the bank s strategy does not consider any expansion abroad. Fitch considers the Netherlands (AAA/Negative), as a stable and advanced economy, with a high degree of transparency. The country experienced a mild but long economic recession for two years between 2Q11 and 3Q13 accompanied (and exacerbated) by decreasing housing prices (negative 20% from their 2008 peak) and feeble consumer and producer confidence. Signs of stabilisation have appeared since 3Q13 and a nascent recovery seems on track, although its pace should be anaemic and lag effects from a protracted recession are expected to be felt throughout Fitch expects the economy to grow by 0.7% during 2014 (GDP fell 1% in 2013), an average unemployment rate of 7.5% during 2014 (6.7% in 2013) and housing prices to bottom out from Source: CBS Stastics Netherlands Figure 2 Unemployment and Housing Prices (%) Unemployment (LHS) Housing prices (RHS) (100=3Q08) 90 Source: CBS Statistics Netherlands The Dutch banking sector is very developed and concentrated, with the aggregated market shares of the three largest banks amounting to 70%-75% in the segments where SNS Bank operates (retail and SME lending and deposit gathering). Barriers to entry are high given the dominance of leading players with an established franchise. SNS Bank is the fourth largest domestic institution but its market shares lag behind the ones of the three major Dutch banks (see Figure 3). The bank operates under a Dutch banking licence. It is currently supervised by the Dutch regulator (De Nederlansde Bank, DNB, the Dutch central bank). Fitch believes that SNS Bank s regulatory environment is developed and transparent and that legislation and regulation are effectively enforced. The bank meets the criteria of a significant bank under the single supervisory mechanism (SSM) definition and its supervision is therefore expected to be transferred to the ECB by the end of It is subject to the ECB s 2014 comprehensive assessment. Company Profile SNS Bank is the banking subsidiary of the SNS REAAL group which was nationalised in February 2013 to solve the financial difficulties experienced by the bank due to its large and weak property finance (PF) portfolio. The latter was fully transferred to an ad-hoc state-owned entity (Propertize B.V., Propertize ) on 30 December 2013 and the residual (state-guaranteed) funding provided to Propertize by SNS Bank has been fully repaid by the former since early. The European Commission (EC) on 19 December 2013 approved the restructuring plan on state aid received submitted by the Dutch state and SNS REAAL; the EC decision allowed the transfer of PF out of SNS Bank. The plan encompasses the sale of SNS Bank s sister insurance companies that will lead to the complete split of the group. SNS Bank will be privatised when market conditions permit. Figure 3 Large Dutch Banks Market Shares (end-2013) (%) Residential mortgage loans Retail savings Rabobank ABN AMRO ING Bank SNS Bank 8 10 Source: DNB, Fitch calculations, banks Related Criteria Global Financial Institutions Rating Criteria (January 2014) Narrow Business Mix, but Focused on Low-Risk Retail Banking The bank s strategy now focuses solely on retail banking (individuals and self-employed) in the Netherlands where it operates under a multi-brand strategy targeting specific sectors of the markets (such as ethical banking with ASN). SNS Bank s business mix is highly concentrated by business and geography, although this is to an overall steady business and stable economy. Moderate Franchise in National Context SNS Bank is the challenger among the large Dutch banks and its franchise in the domestic retail market is moderate when compared with the ones enjoyed by its larger peers. Client relationships also appear weaker than at the three largest Dutch banks and tend to be more opportunistic; in Fitch s view, this limits competitive advantage and pricing power. It has put the emphasis on simple products (essentially mortgage loans, savings and payment), given its more modest scale than the three large Dutch banks. Fitch understands that the bank 2

3 has no appetite to grow above market rates but wants to defend its current market shares in savings and regain its natural one in residential mortgage lending, as SNS Bank virtually halted new production in 2011/2012 for balance sheet management. Management A number of management changes occurred at the group and bank level, both at supervisory and executive boards, following the nationalisation. The group s chairman of the supervisory board as well as the CEO and CFRO resigned on the day of the nationalisation. The executive managers have been immediately replaced by professionals with extensive experience in the financial industry. In Fitch s opinion, SNS Bank s management has a reasonable degree of depth and experience, and executive staff turnover has proven manageable during 2013 while a number of departures occurred. The new organisational structure leaves very few positions doubled between bank and insurance, and the separation will not lead to management vacancy. Given the refocused strategy and new objectives, the bank factually lacks the track record to demonstrate strategic consistency and long-term vision; identically, the achievement of business and financial targets will be time tested, although these seem overall prudent and realistic. Risk Appetite The new SNS Bank has adopted a moderate risk appetite, notably to offset historically looser underwriting standards than the industry mean in residential mortgage lending essentially to achieve growth; this has resulted in a weaker book than the market average (see Figure 5). However, given the typical long maturity of the asset class and low level of new origination, it will take time before the more restrictive credit acceptance criteria significantly impact the overall quality of the total loan book. SNS Bank s credit risk is essentially driven by its focus on mortgage lending, which accounts for around 90% of its customer loan book. The bank s policy regarding its investment securities portfolio is driven by eligibility to the Basel III Liquidity Coverage Ratio (LCR), meaning it is focused on high quality assets. Risk controls and reporting appear adequate to capture credit, market and operational risk. SNS Bank has stated that it does not envisage growing its business above market growth, which should mean it avoids excessive risk taking. The main market risk faced by SNS Bank is the global interest rate risk. It appears well managed using gap analysis, duration of equity, earnings-at-risk and value at risk (VaR) measurements. The bank does not run trading activities and its foreign currency risk is small, given the vast majority of SNS Bank s assets and liabilities are euro-denominated. Figure 4 Key Asset Quality Ratios Pro-forma, excluding PF End- End- (%) Growth of gross loans Impaired loans/gross loans Reserves for impaired loans/impaired loans Impaired loans less reserves for impaired loans/fitch core capital Loan impairment charges/average gross loans Source: SNS Bank, Fitch Financial Profile Fitch only discusses below the bank s main financial metrics for 2013 and 2012 excluding PF, given the substantial impact of the transfer of the PF exposures to Propertize. The financial spreadsheets attached at the end of the report are the statutory accounts, except 2012 income statement which has been restated for comparison purposes. Asset Quality Key Risk is Dutch Mortgage Loan Book SNS Bank s asset quality is good overall but sensitive to the economic cycle. Reported level of past due loans is modest overall, but relatively high when compared with banks having a similar asset mix (class and geography). The bank s customer loan book is exposed to the Dutch economy and highly concentrated on residential mortgage lending. There have been moderate regional differences in the evolution of employment and housing prices in the Netherlands and SNS Bank does not appear excessively exposed to one specific province. 3

4 There has been gradual deterioration since 2009 in the credit quality of Dutch residential mortgage loans, which remain one of the best performing asset classes in Europe. The proportion of interest-only mortgage loans (either full or coupled with another type of mortgage loans) is higher at SNS Bank, increasing borrowers reliance on housing value for repayment of mortgage loan at maturity. High loan to value ratios (LTVs) are typical of the Dutch mortgage lending markets given the fiscal incentive to limit repayment (and maximise tax advantages of interest deductibility); this has been reinforced by the 20% decrease in housing prices over the past five years. Figure 6 Securities: Rating Breakdown EUR5.3bn, end-2013 AA 32% BBB A 8% 4% Source: SNS Bank NIG 1% AAA 55% Figure 5 Dutch Mortgage Loan Books Comparison (End-2013) (%) Rabobank ABN AMRO ING Bank SNS Bank Average LTV NHG loans a 21 LTV>100% 21 b 24 b 35 b 27 Interest-only loans a 65 O/w full interest-only n.a a 34 a Past due n.a. 3.8 n.a day past due LICs average gross loans (FY2013 in bp) 6bp 24bp 23bp 35bp Regulatory risk-weighting a Data at end-june 2013 b Excludes NHG loans Source: Banks data, Fitch A number of regulatory changes have been adopted since 2011 in the Netherlands that will progressively reduce the risk profile of residential mortgage loans (such as a gradual reduction of cap on LTV to 100% in 2018, and the required full annuity repayment of mortgage loans for eligibility to tax deduction of interest rates). Mortgage loans in arrears have increased substantially over the past years (4.4% at end-2013 versus 2.4% at end-2008) and should peak in 2014, according to Fitch s estimates. Loan impairment charges (LICs) have been high for a mortgage loan book (35bp in 2013) but comfortably absorbed by net interest lending margin and well above charge-offs since The remainder of the customer loan book consists of commercial loans (EUR2.8bn at end- 2013), real-estate backed loans to SMEs (a granular portfolio of EUR1.1bn loans) and loans to the public sector (EUR2.3bn at end-2013). Figure 7 Key Profitability Ratios PF as discontinued operations (%) Net interest income/ average earning assets Non-interest expense/ gross revenues Loans and securities imp. charges/pre-imp. operating profit Operating profit/ average total assets Operating profit/ risk-weighted assets Net income/average equity a a Net income excludes Discontinued Operations from PF Source: SNS Bank, Fitch The impaired loans (impaired being defined as 90-day past due) ratio amounted to 2.3% at end-2013 (4.6% when all arrears are retained). The overall coverage of impaired loans by impairment reserves is moderate (36.7% at end-2013 according to Fitch s calculations), reflecting the largely collateralised loan book (virtually all in the form of mortgages). As such, the unreserved impaired loans represented 36.5% of Fitch Core Capital at end Asset quality in SNS Bank s investment securities portfolio is solid (see rating breakdown at end-2013 in Figure 6-83% of total exposure was sovereign bonds). Interbank lending at end (EUR6bn) mostly consisted of the state-guaranteed credit lines granted to Propertize, (terminated early ). Earnings and Profitability Satisfactory Profitability Supported by Low Cost Efficiency Fitch excludes from its analysis the massive negative loss reported in 2013 from Discontinued Operations (Property Finance). In addition, a number of incidental items occurred in 2013 and these have been reclassified under the lines 25 and 26 of the attached income statement ( Non-Recurring Income and Non-Recurring Expenses ). 4

5 The agency believes that the new SNS Bank (or the Retail division until 2012) has a satisfactory profitability capacity. The sensitivity of income generation to the economic cycle is moderate; 90% of operating revenues stem from net interest income which is a rather recurring and predictable source of revenues, although this makes the bank sensitive to funding costs and to ability to originate new lending. A highly competitive domestic banking landscape and SNS Bank s second-tier franchise indicate a moderate ability to command mortgage lending pricing. Fitch also believes that SNS Bank s revenue diversification is very limited, reflecting its narrow product and business range, with small treasury activities supplementing earnings from its retail business. Its net interest margin significantly improved in 2013 as funding costs fell materially and the large cash buffer (carrying negative yield) reduced. In previous years, while the bank experienced stress in the transferred PF portfolio, SNS Bank led an aggressive and expensive deposit gathering strategy to attract liquidity and make up for difficult access to the debt capital markets. Profitability has been supported by a historically good cost efficiency, which will continue to be a key focus of the institution, notably in order to compensate its relatively small scale. As part of the ongoing disentanglement process between insurance, bank and holding company, the latter s shared costs have been gradually affected to the operating entities during Although the full-effect of these measures is not entirely reflected in the 2013 expenses, the full allocation will not result in substantial additions to the cost base reported for operating expenses will be inflated by the bank s sector-wide EUR1bn contribution to its bailout, which is based on each bank s share in the deposit guarantee scheme and should amount to EUR76m for SNS Bank. Figure 8 Key Capitalisation and Leverage Ratios (%) End End Fitch core capital/ weighted risk Fitch eligible capital/ weighted risks Tangible common equity/ tangible assets Core Tier 1 regulatory capital ratio Internal capital generation a a Excluding Discontinued Operations from PF Source: SNS Bank, Fitch The Non-recurring income in 2013 included gains on buy-backs of own bonds (EUR44m) and gains from unwinding the derivatives related to subordinated debt securities that were expropriated as part of the nationalisation (EUR68m). The Non-recurring expenses in 2013 included EUR115m from the revaluation of derivatives related to a mortgage loan book acquired in 2007 and EUR53m provision for the compensation of retail investors in expropriated participation certificates. Capitalisation and Leverage Strong Risk-Weighted Capitalisation, but High Leverage The effects of the nationalisation-related measures (a massive write-down on PF exposures, EUR1.9bn equity injection, EUR0.7bn expropriation of subordinated debt) contributed to a net EUR0.7bn increase in SNS Bank s equity. The transfer of PF to Propertize (and the state guarantee on funding to the entity) reduced risk-weighted assets (RWAs) by EUR5.3bn (or 25% of reported RWAs at end-2012). During 2013, RWAs - excluding PF - increased by EUR1.4bn (+10%) reflecting the impact on internal models of the deteriorated economic environment and fall in housing prices, and the 500%-weighting imposed by the Dutch regulator on a EUR250m loan granted to REAAL NV, the holding company for the insurance entities. SNS Bank s Fitch Core Capital (FCC) ratio was a strong 14.7% at end-2013 and its fullyloaded Basel III common equity Tier 1 (CET1) ratio was similarly strong at 12.9%. The main difference between FCC ratio and fully-loaded CET 1 ratio is the additional risk-weight for counterparty risk on derivatives transactions ( CVA ). The local regulator has imposed a capital add-on as systemic risk buffer on SNS Bank of 1%, to be phased from 2016 until The agency expects the bank s dividend policy to be calibrated to maintain a solid capitalisation ahead of building an equity story to attract investor interest for a future privatisation. The EC has not required a certain level of dividend pay-out. 5

6 Following the expropriation of the bank s subordinated debt securities, regulatory capital is currently only composed of equity, and the bank will likely issue subordinated debt and, potentially later on, additional Tier 1 hybrid securities to protect senior unsecured bondholders, streamline its capital mix and improve a currently weak leverage ratio. Funding and Liquidity Some Wholesale Funding Dependency SNS Bank s loan book exceeds its customer deposits (loan/deposit ratio of 123% at end-2013) making it reliant on confidence-sensitive debt capital markets to close the gap. This is a structural feature of the Dutch banking system. Fitch believes the dependence on this potentially volatile funding source is a more acute issue for smaller banks, with more volatile access to capital markets. SNS Bank experienced difficult access to the wholesale markets in when investor confidence in the bank reduced. The bank compensated a prevented access to the unsecured debt market by attracting retail deposits, paying relatively high interest rates which eroded the bank s profitability. Wholesale funding (EUR16.4bn excluding interbank at end-2013) is essentially composed of secured debt securities (RMBS and covered bonds, EUR7.5bn and EUR4.5 respectively). Adding the assets pledged for the ECB long-term refinancing operation (LTRO), balance sheet encumbrance was around 35% of total assets at end-2013, according to Fitch s estimates. Interbank borrowing at end-2013 largely related to funding raised under the ECB LTRO. Given the nature of SNS Bank s clientele, most of SNS Bank s deposits are eligible to the national Deposit Guarantee Scheme (DGS) which helps in providing stability in the funding source. The stability of SNS Bank s retail deposits is viewed as weaker than that of large Dutch banks enjoying stronger franchise and broader customer relationship. SNS Bank experienced EUR1.3bn net retail deposit outflows in January 2013 (4% of stock at end-2012) when the bank hit the media headlines; this has been regained now. While the nationalisation stopped outflows on 1 February 2013, SNS Bank s prudent and consistent liquidity management permitted the bank to face this liquidity strain. Cautious Liquidity Management SNS Bank s balance is structurally not very liquid given its business mix consisting in transformation of short-dated deposits to longer term loans. However, the bank has maintained a cautious liquidity management in recent years to face tough market conditions. At end-2013, the bank ran a material liquidity buffer (EUR11.6bn) consisting of cash (EUR5.3bn) and liquid assets (EUR6.3bn liquidity value). This largely exceeds capital market liabilities coming due in 2014 and Support IDRs Based on Sovereign Support SNS Bank's Long- and Short-Term IDRs and senior debt ratings are driven by the bank s SRF. The SRF of BBB+ incorporates Fitch's expectation that there remains a high probability of support from the Dutch state if required. This expectation reflects the Netherlands' extremely high ability and high propensity to support its banks. Specific to SNS Bank, our view of support likelihood (hence the SRF assigned to the bank) is based mostly on the bank s moderate systemic importance in the Dutch banking landscape where SNS Bank is the fourth-largest retail bank. Another consideration is the bank s current full state ownership. However, this public ownership is temporary and will cease as the state clearly intends to privatise SNS Bank over the medium term. 6

7 The Negative Outlook on SNS Bank's Long-Term IDRs reflects Fitch's view that there is a clear intention ultimately to reduce implicit state support for financial institutions in the EU. Fitch expects to see the EU's Bank Recovery and Resolution Directive (BRRD) voted through European parliament in the coming weeks and implemented into national legislation and practice within the next one to two years. We also expect progress towards the Single Resolution Mechanism (SRM) for eurozone banks in this time horizon. These two developments will, in Fitch's view, dilute the influence the Dutch state has in deciding how its domestic banks are resolved and increase the likelihood of senior debt losses in its banks if these fall foul of solvability assessments. Peer Analysis The table below compares key quantitative indicators of SNS Bank with Belfius Bank SA/NV (the third largest retail and commercial Belgian bank), Yorkshire Building Society (YBS; given a similar business mix) and NIBC Bank NV (despite being predominantly focused on corporate banking, it is operates mostly in the Netherlands and runs a residential mortgage loans book). The funding profile is the most important difference between SNS Bank and YBS, with the latter having its loan book largely funded by retail deposits which implies minimal reliance on wholesale markets. Although not reflected in its loan/deposit ratio, Belfius is also essentially funded by retail sources as savings bonds subscribed by retail customers are accounted not as deposits but debt securities (an adjusted loan/deposit ratio would be slightly above 100%). SNS Bank s key profitability ratios (in its new scope, i.e. for 2013) compare relatively well with YBS, and are better than NIBC s. SNS Bank enjoys a stronger franchise than YBS, but a slightly weaker one than Belfius. The asset quality ratios overall compare well to YBS s, but they somewhat ignore the lower average weighted LTV of the latter (about 70%); this explains the weaker reserves for impaired loans reported by YBS (and resulting in a slightly higher share of FCC exposed to unreserved impaired loans). SNS Bank s risk-weighted capital ratios are in line with peers (if not stronger), but leverage is significantly higher than YBS s and NIBC s. 7

8 Figure 9 Peers Table SNS Bank NV (BBB+/Negative; bbb-) NIBC Bank NV (BBB-/Stable; bbb-) YBS (BBB+/Stable; bbb+) Belfius Bank (A-/Negative; bb+) (%) Unless otherwise stated a H Total assets (EURm) 74,537 81,341 22,323 26,244 41,651 40, , ,947 Total equity (EURm) 2,582 1,337 1,789 1,825 2,187 1,995 5,842 5,360 Key asset quality ratios Growth of gross loans Impaired loans/gross loans Reserves for impaired loans/impaired loans Impaired loans less reserves for impaired loans/ Fitch core capital Loan impairment charges/average gross loans Key profitability ratios Net interest income/average earning assets Non-interest expense/gross revenues Loans and securities imp. charges/ n.m n.m. 312 pre-imp. operating profit Operating profit/average total assets n.m. n.m n.m. Operating profit/risk-weighted assets n.m. n.m n.m. Net income/average equity Key capitalisation and leverage ratios Fitch core capital/weighted risk Fitch eligible capital/weighted risks n.a. n.a. n.a. n.a. Tangible common equity/tangible assets Core Tier 1 regulatory capital ratio Internal capital generation n.m. n.m. n.m Key funding and liquidity ratios Loans/customer deposits Interbank assets/interbank liabilities Customer deposits/total funding (excluding derivatives) a Excludes PF Source: Banks, Fitch 8

9 Income Statement 31 Dec Dec Dec Dec 2010 Year End Year End As % of Year End As % of Year End As % of Year End As % of USDm EURm EURm EURm EURm Unqualified Unqualified Earning Assets Unqualified Earning Assets Unqualified Earning Assets Unqualified Earning Assets 1. Interest Income on Loans 3, , , , , Other Interest Income Dividend Income n.a. n.a. - n.a. - n.a. - n.a Gross Interest and Dividend Income 3, , , , , Interest Expense on Customer Deposits 1, , , Other Interest Expense Total Interest Expense 1, , , , , Net Interest Income 1, Net Gains (Losses) on Trading and Derivatives (20.0) (0.03) 10. Net Gains (Losses) on Other Securities Net Gains (Losses) on Assets at FV through Income Statement (6.9) (5.0) (0.01) (31.0) (0.04) n.a. - n.a Net Insurance Income n.a. n.a. - n.a. - n.a. - n.a Net Fees and Commissions Other Operating Income (6.0) (0.01) Total Non-Interest Operating Income Personnel Expenses Other Operating Expenses Total Non-Interest Expenses Equity-accounted Profit/ Loss - Operating n.a. n.a. - n.a. - (1.0) (0.00) (9.0) (0.01) 20. Pre-Impairment Operating Profit Loan Impairment Charge Securities and Other Credit Impairment Charges Operating Profit (49.0) (0.07) (464.0) (0.63) 24. Equity-accounted Profit/ Loss - Non-operating n.a. n.a. - n.a. - n.a. - n.a Non-recurring Income n.a Non-recurring Expense n.a Change in Fair Value of Ow n Debt n.a. n.a. - n.a. - n.a. - n.a Other Non-operating Income and Expenses n.a. n.a. - n.a. - n.a. - n.a Pre-tax Profit (532.0) (0.73) 30. Tax expense (101.0) (0.14) 31. Profit/Loss from Discontinued Operations (2,118.3) (1,536.0) (2.27) (813.0) (1.12) (4.0) (0.01) n.a Net Income (1,864.6) (1,352.0) (2.00) (719.0) (0.99) (431.0) (0.59) 33. Change in Value of AFS Investments (82.0) (0.11) (157.0) (0.21) 34. Revaluation of Fixed Assets n.a. n.a. - n.a. - (2.0) (0.00) n.a Currency Translation Differences n.a. n.a. - n.a. - n.a. - n.a Remaining OCI Gains/(losses) (27.6) (20.0) (0.03) (10.0) (0.01) 37. Fitch Comprehensive Income (1,870.1) (1,356.0) (2.01) (606.0) (0.83) (11.0) (0.01) (598.0) (0.82) 38. Memo: Profit Allocation to Non-controlling Interests n.a. n.a. - (1.0) (0.00) Memo: Net Income after Allocation to Non-controlling Interests (1,864.6) (1,352.0) (2.00) (718.0) (0.99) (431.0) (0.59) 40. Memo: Common Dividends Relating to the Period Memo: Preferred Dividends Related to the Period n.a. - Exchange rate USD1 = EUR USD1 = EUR USD1 = EUR USD1 = EUR

10 Balance Sheet Assets A. Loans 31 Dec Dec Dec Dec 2010 Year End Year End As % of Year End As % of Year End As % of Year End As % of USDm EURm Assets EURm Assets EURm Assets EURm Assets 1. Residential Mortgage Loans 66, , , , , Other Mortgage Loans n.a. n.a. - n.a. - n.a. - n.a Other Consumer/ Retail Loans n.a. n.a. - n.a. - n.a. - n.a Corporate & Commercial Loans n.a. n.a. - 7, , , Other Loans 7, , , , , Less: Reserves for Impaired Loans/ NPLs , Net Loans 73, , , , , Gross Loans 74, , , , , Memo: Impaired Loans included above 1, , , , , Memo: Loans at Fair Value included above n.a. n.a. - n.a. - n.a. - n.a. - B. Other Earning Assets 1. Loans and Advances to Banks 8, , , , , Reverse Repos and Cash Collateral n.a. n.a. - n.a. - n.a. - n.a Trading Securities and at FV through Income n.a Derivatives 3, , , , , Available for Sale Securities 6, , , , , Held to Maturity Securities n.a. n.a. - n.a. - n.a. - n.a At-equity Investments in Associates Other Securities n.a. n.a. - n.a. - n.a. - n.a Total Securities 11, , , , , Memo: Government Securities included Above n.a. n.a. - n.a. - n.a. - n.a Memo: Total Securities Pledged n.a. n.a. - n.a. - n.a. - n.a Investments in Property Insurance Assets n.a. n.a. - n.a. - n.a. - n.a Other Earning Assets n.a. n.a. - n.a. - n.a. - n.a Total Earning Assets 93, , , , , C. Non-Earning Assets 1. Cash and Due From Banks 7, , , , , Memo: Mandatory Reserves included above n.a. n.a. - n.a. - n.a. - n.a Foreclosed Real Estate Fixed Assets Goodw ill Other Intangibles Current Tax Assets Deferred Tax Assets Discontinued Operations n.a. n.a. - n.a Other Assets , Total Assets 102, , , , , Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 14, , , , , Customer Deposits - Savings 45, , , , , Customer Deposits - Term n.a. n.a. - n.a. - n.a. - n.a Total Customer Deposits 60, , , , , Deposits from Banks 10, , , , , Repos and Cash Collateral n.a. n.a. - n.a. - n.a. - n.a Other Deposits and Short-term Borrow ings 15, , , , n.a Total Deposits, Money Market and Short-term Funding 86, , , , , Senior Debt Maturing after 1 Year 7, , , , , Subordinated Borrow ing , Other Funding n.a. n.a. - n.a. - n.a. - n.a Total Long Term Funding 7, , , , , Derivatives 3, , , , , Trading Liabilities n.a. n.a. - n.a. - n.a. - n.a Total Funding 97, , , , , E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt n.a. n.a. - n.a. - n.a. - n.a Credit impairment reserves n.a. n.a. - n.a. - n.a. - n.a Reserves for Pensions and Other Current Tax Liabilities n.a. n.a. - n.a. - n.a. - n.a Deferred Tax Liabilities Other Deferred Liabilities n.a. n.a. - n.a. - n.a. - n.a Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a Insurance Liabilities n.a. n.a. - n.a. - n.a. - n.a Other Liabilities 1, , , , , Total Liabilities 99, , , , , F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. - n.a G. Equity 1. Common Equity 3, , , , , Non-controlling Interest n.a. n.a. - n.a. - n.a. - n.a Securities Revaluation Reserves (139.3) (101.0) (0.14) (117.0) (0.14) (227.0) (0.28) (145.0) (0.18) 4. Foreign Exchange Revaluation Reserves n.a. n.a. - n.a. - n.a. - n.a Fixed Asset Revaluations and Other Accumulated OCI Total Equity 3, , , , , Total Liabilities and Equity 102, , , , , Memo: Fitch Core Capital 2, , , , , Memo: Fitch Eligible Capital 2, , , n.a. - n.a. - Exchange rate USD1 = EUR USD1 = EUR USD1 = EUR USD1 = EUR

11 Summary Analytics 31 Dec Dec Dec Dec 2010 Year End Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans Interest Expense on Customer Deposits/ Average Customer Deposits Interest Income/ Average Earning Assets Interest Expense/ Average Interest-bearing Liabilities Net Interest Income/ Average Earning Assets Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues Non-Interest Expense/ Gross Revenues Non-Interest Expense/ Average Assets Pre-impairment Op. Profit/ Average Equity Pre-impairment Op. Profit/ Average Total Assets Loans and securities impairment charges/ Pre-impairment Op. Profit Operating Profit/ Average Equity (2.97) (23.14) 8. Operating Profit/ Average Total Assets (0.06) (0.58) 9. Taxes/ Pre-tax Profit Pre-Impairment Operating Profit / Risk Weighted Assets Operating Profit / Risk Weighted Assets (0.24) (2.10) C. Other Profitability Ratios 1. Net Income/ Average Total Equity (65.09) (44.71) 2.30 (21.49) 2. Net Income/ Average Total Assets (1.74) (0.88) 0.05 (0.53) 3. Fitch Comprehensive Income/ Average Total Equity (65.29) (37.68) (0.67) (29.82) 4. Fitch Comprehensive Income/ Average Total Assets (1.74) (0.74) (0.01) (0.74) 5. Net Income/ Av. Total Assets plus Av. Managed Securitized Assets n.a. n.a. n.a. n.a. 6. Net Income/ Risk Weighted Assets (9.27) (3.49) 0.19 (1.95) 7. Fitch Comprehensive Income/ Risk Weighted Assets (9.30) (2.94) (0.05) (2.70) D. Capitalization 1. Fitch Core Capital/Weighted Risks Fitch Eligible Capital/ Weighted Risks n.a. n.a. 3. Tangible Common Equity/ Tangible Assets Tier 1 Regulatory Capital Ratio Total Regulatory Capital Ratio Core Tier 1 Regulatory Capital Ratio Equity/ Total Assets Cash Dividends Paid & Declared/ Net Income Cash Dividend Paid & Declared/ Fitch Comprehensive Income Cash Dividends & Share Repurchase/Net Income n.a. n.a. n.a. n.a. 11. Internal Capital Generation (52.36) (53.78) 2.21 (27.28) E. Loan Quality 1. Grow th of Total Assets (8.36) (1.71) 2. Grow th of Gross Loans (14.97) (3.56) (0.46) (2.84) 3. Impaired Loans/ Total Gross Loans Reserves for Impaired Loans/ Gross loans Reserves for Impaired Loans/ Impaired Loans Impaired loans less Reserves for Impaired Loans/ Fitch Core Capital Impaired Loans less Reserves for Imp Loans/ Equity Loan Impairment Charges/ Average Gross Loans Net Charge-offs/ Average Gross Loans n.a. n.a. n.a. n.a. 10. Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets F. Funding 1. Loans/ Customer Deposits Interbank Assets/ Interbank Liabilities Customer Deposits/ Total Funding (excluding derivatives)

12 Reference Data 31 Dec Dec Dec Dec 2010 Year End Year End As % of Year End As % of Year End As % of Year End As % of USDm EURm Assets EURm Assets EURm Assets EURm Assets A. Off-Balance Sheet Items 1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. - n.a. - n.a. - n.a Other off-balance sheet exposure to securitizations n.a. n.a. - n.a. - n.a. - n.a Guarantees n.a. n.a. - n.a. - n.a. - n.a Acceptances and documentary credits reported off-balance sheet n.a. n.a. - n.a. - n.a. - n.a Committed Credit Lines n.a. n.a. - n.a. - n.a. - n.a Other Contingent Liabilities n.a. n.a. - n.a. - n.a. - n.a Total Business Volume 102, , , , , Memo: Total Weighted Risks 20, , , , , Fitch Adjustments to Weighted Risks. n.a. n.a. - n.a. - n.a. - n.a Fitch Adjusted Weighted Risks 20, , , , , B. Average Balance Sheet Average Loans 77, , , , , Average Earning Assets 96, , , , , Average Assets 107, , , , , Average Managed Securitized Assets (OBS) n.a. n.a. - n.a. - n.a. - n.a. - Average Interest-Bearing Liabilities 101, , , , , Average Common equity 2, , , , , Average Equity 2, , , , , Average Customer Deposits 59, , , , , C. Maturities Asset Maturities: Loans & Advances < 3 months 3, , , n.a. - n.a. - Loans & Advances 3-12 Months n.a. - n.a. - Loans and Advances 1-5 Years 1, , , n.a. - n.a. - Loans & Advances > 5 years 67, , , n.a. - n.a. - Debt Securities < 3 Months n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Loans & Advances to Banks < 3 Months 2, , , , n.a. - Loans & Advances to Banks 3-12 Months 5, , n.a. - n.a. - Loans & Advances to Banks 1-5 Years n.a. n.a n.a. - Loans & Advances to Banks > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Liability Maturities: Retail Deposits < 3 months 46, , , , n.a. - Retail Deposits 3-12 Months 2, , , n.a. - Retail Deposits 1-5 Years 4, , , , n.a. - Retail Deposits > 5 Years 7, , , , n.a. - Other Deposits < 3 Months n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Interbank < 3 Months 1, , , n.a. - Interbank 3-12 Months n.a. n.a. - n.a n.a. - Interbank 1-5 Years 8, , , , n.a. - Interbank > 5 Years n.a. - Senior Debt Maturing < 3 months 3, , , n.a. - Senior Debt Maturing 3-12 Months 11, , , n.a. - Senior Debt Maturing 1-5 Years 5, , , , n.a. - Senior Debt Maturing > 5 Years 2, , , , n.a. - Total Senior Debt on Balance Sheet 22, , , , n.a. - Fair Value Portion of Senior Debt n.a. n.a. - n.a. - n.a. - n.a. - Covered Bonds n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing < 3 months n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing 1-5 Year n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Total Subordinated Debt on Balance Sheet , Fair Value Portion of Subordinated Debt n.a. n.a. - n.a. - n.a. - n.a. - D. Equity Reconciliation 1. Equity 3, , , , , Add: Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. - n.a Add: Other Adjustments n.a. n.a. - n.a. - n.a. - n.a Published Equity 3, , , , n.a. - E. Fitch Eligible Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 3, , , , , Fair value effect incl in own debt/borrowings at fv on the B/S- CC only Non-loss-absorbing non-controlling interests Goodw ill Other intangibles Deferred tax assets deduction Net asset value of insurance subsidiaries First loss tranches of off-balance sheet securitizations Fitch Core Capital 2, , , , , Eligible w eighted Hybrid capital n.a. - n.a Government held Hybrid Capital Fitch Eligible Capital 2, , , n.a. - n.a. - Exchange Rate USD1 = EUR USD1 = EUR USD1 = EUR USD1 = EUR

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