European Banks 16 July 2012

Transcription

1 Industry Update Mark Phin, CFA Analyst [email protected] Andrew Stimpson Analyst [email protected] Vasco Moreno Analyst [email protected] Luke Birtwistle Associate [email protected] European Banks 16 July 212 LIBOR - Sizing the potential damage The potential financial and reputational damage caused by Barclays' false LIBOR submissions has rightly raised company and sector concerns. Unequivocally, the LIBOR probes are a negative development and could have wide-ranging consequences. The direct financial penalties ( 29m for Barclays) are unhelpful, but likely to be very manageable. The far larger issue is the potential for (1) substantial civil damages, and/or (2) implications for senior management if found to be complicit. While we claim no legal expertise and acknowledge that estimates are necessarily speculative, we attempt to size potential industry damages. We arrive at U$35bn. Most impacted would be Barclays/RBS/Deutsche, where our estimated damages amount to 3.1bn/ 3.bn/ 3.4bn, accounting for 46%/18%/34% of E Basel 3 capital build, respectively. We take some comfort from (1) prior securities settlements, and (2) a likely elongated legal process, and our base case is that this situation does not bring with it external capital risk. Civil actions could be material... Direct damages (ie, fines) are likely to be very manageable, and we see greater financial risk from potential civil actions. We size the potential issue for the industry, but with inherent difficulty in estimation, we caveat that the list of assumptions in our methodology is long, the numbers large and the sensitivities high....we estimate U$35bn of industry settlements. We estimate U$35bn for the industry,.1-1.2% of 212E B2 RWAs across the European panel banks. We use the notional size of the (large) interest rate derivatives market as our base, adjusted for affected currencies and intra-dealer exposures. We then estimate the period affected, level of LIBOR suppression and the size of any settlement as a % of overall possible damages. We provide a sensitivity. Burden of proof will be high. We find little correlation between the average CDS of the panel banks and LIBOR-OIS, simplistically leaving some element of suppression from the panel banks as possible. However, correlations alone are not incontrovertible and we believe the burden of proof will be high. Recommendations intact. Large, class action lawsuits take a lot of time to complete, with 5-8 years between filing and settlement not uncommon, in turn allowing even the most impacted banks to increase capital ratios ahead of any potential settlement. We remain buyers of Barclays (tgt, 28p), RBS (tgt 33p), Credit Suisse (tgt CHF 27.2), UBS (CHF 16.8) and HSBC (tgt 64p). Please refer to important disclosures and analyst certification information on pages

2 16 July 212 Figure 1: Summary valuation table Rec Price TP EPS PE NAV P/NAV 212E 213E 214E 212E 213E 214E 212E 213E 214E 212E Barclays (p) OP Lloyds (p) MP RBS (p) OP HSBC (p) OP StanChart (p) MP Credit Suisse (CHF) OP Deutsche Bank (EUR) MP UBS (CHF) OP Source: KBW research estimates LIBOR basics Barclays settlement with the Financial Services Authority (FSA), US Commodity Futures Trading Commission (CFTC) and the US Department of Justice fraud section (DOJ) has understandably caused significant concern, not just for Barclays, but also for the other banks on the rate setting panels. We set out the basics and while not possible with any degree of accuracy given what we expect will be an elongated legal process attempt to frame the potential monetary risks. LIBOR/EURIBOR in a nutshell LIBOR and EURIBOR are short-term interest rate benchmarks intended to reflect unsecured borrowing costs in certain interbank markets, and are widely used as benchmarks to price OTC derivatives, bonds, loans, etc. Each bank on the panel submits rates daily, with different definitions between LIBOR and EURIBOR, as follows: LIBOR: The rate at which an individual contributor panel bank could borrow funds, were it to do so by asking for and then accepting interbank offers in reasonable market size just prior to 11: London time ( EURIBOR: The rate at which euro interbank term deposits are being offered within the EMU zone by one prime bank to another at 11: am Brussels time. ( The submissions are then transmitted to Thomson Reuters, who collate the data from each bank and calculate the final average on behalf of the BBA (for LIBOR) and the EBF (for EURIBOR), on the following basis. LIBOR: The highest and lowest 25% of contributed rates are excluded from the calculation and the remaining submissions are then averaged to calculate the fixed rates. EURIBOR: The highest and lowest 15% are excluded and the remaining 7% are averaged to calculate the fixed rates. Please refer to important disclosures and analyst certification information on pages

3 16 July 212 Figure 2: BBA LIBOR panel banks, 27 USD GBP EUR Bank of America Abbey National plc Bank of America Bank of Tokyo Mitsubishi UFJ Bank of America Barclays Bank plc Barclays Bank plc Bank of Tokyo Mitsubishi UFJ Bank of Tokyo Mitsubishi UFJ Citibank NA BNP Paribas Citibank NA Credit Suisse Barclays Bank plc Credit Suisse Deutsche Bank AG Citibank NA Deutsche Bank AG HBOS Deutsche Bank AG HBOS HSBC HBOS HSBC JP Morgan Chase HSBC JP Morgan Chase Lloyds TSB Bank plc JP Morgan Chase Lloyds TSB Bank plc Rabobank Lloyds TSB Bank plc Rabobank Royal Bank of Canada Rabobank Royal Bank of Canada The Norinchukin Bank Royal Bank of Canada Société Générale The Royal Bank of Scotland Group The Royal Bank of Scotland Group The Royal Bank of Scotland Group UBS AG UBS AG UBS AG West LB AG West LB AG West LB AG JPY CHF Bank of America Barclays Bank plc Bank of Tokyo Mitsubishi UFJ Bank of Tokyo Mitsubishi UFJ Barclays Bank plc Citibank NA Citibank NA Credit Suisse Deutsche Bank AG Deutsche Bank AG HSBC HSBC JP Morgan Chase JP Morgan Chase Lloyds TSB Bank plc Lloyds TSB Bank plc Mizuho Corporate Bank Société Générale Rabobank The Royal Bank of Scotland Group Société Générale UBS AG Sumitomo Mitsui Banking Corporation Europe West Ltd (SMBCE) LB AG The Norinchukin Bank The Royal Bank of Scotland Group UBS AG West LB AG Source: BBA, KBW Research. NB. KBW European coverage emboldened by KBW Research Barclays LIBOR-related settlement Simply put, at various times, Barclays input false LIBOR/EURIBOR submissions. There are, however, two very separate reasons leading to separate implications: Barclays traders not alone in manipulating LIBOR 1. Trading positions of its derivative traders: Employees responsible for LIBOR/EURIBOR submissions accommodated trader requests (in at least London, New York and Tokyo) on the level of those submissions. On occasion, that affected the overall LIBOR average. There was also coordination with traders at other financial institutions, including other panel members. There was a clear profit motive. Additionally, the FSA identifies systems and control failings at Barclays, as well as compliance failings (as LIBOR-related issues were escalated to the IB compliance function on three occasions in 27/8). It is very clear from the documentation that Barclays was not alone here, and we would fully expect other banks and individuals to be implicated. At this stage, though, we do not know exactly which ones. Please refer to important disclosures and analyst certification information on pages

4 6/7 8/7 1/7 12/7 2/8 4/8 6/8 8/8 1/8 12/8 2/9 4/9 6/9 8/9 1/9 12/9 2/1 4/1 6/1 8/1 1/1 12/1 2/11 4/11 6/11 8/11 1/11 12/11 2/12 4/12 6/12 % 16 July 212 Bigger issue: were all banks suppressing the LIBOR average? 2. Concerns about negative media attention: In 28, Barclays relatively high USD LIBOR submissions were cited by the press as, perhaps, reflective of liquidity issues. As a result, Barclays senior management (now known to be Jerry del Missier, COO) directed that those submissions should be lowered, resulting in input rates that did not reflect the cost of obtaining interbank funding. There is no evidence that the intention of Barclays management was to affect official published LIBOR rates. We think this is potentially a far bigger issue for the industry given the magnitude of the possible suppression and subsequent damages. Being outside the banks means that judging this will always be a tricky exercise. However, we believe it is sensible to assume that there should be a correlation between the LIBOR-OIS spread and the average CDS spread of the LIBOR panel banks. While some periods do show an element of correlation (2H11, 2Q1, 1Q9), the majority does not tally: we note that LIBOR-OIS came down materially in 2H8 even as CDS continued rising until March 29. Figure 3: Panel-bank CDS correlates poorly with LIBOR-OIS U$ 3 Mth LIBOR LIBOR/OIS spread Average CDS of U$ LIBOR panel Source: Bloomberg, BBA, KBW Research Three potential impacts Direct financial penalties: The combined financial penalties imposed on Barclays were 29m, following settlement with the DoJ (U$16m), US CFTC (U$2m) and FSA 59.5m (after a 3% discount for early settlement). While unhelpful, with a c 1m provision taken in 1Q12, the charge represents a modest c5bps of 1Q12 RWAs. In addition, Barclays was granted conditional leniency from the DoJ in connection with antitrust violations with respect to financial instruments that reference EURIBOR. Management implications: The fallout from the LIBOR case has already resulted in (1) the resignation of Marcus Agius (Chairman) on 2 nd July, (2) the resignation of Bob Diamond (CEO) on 3 rd July (with Marcus Agius named as interim full-time Chairman to lead the search for a new CEO), and (3) Jerry del Missier (COO) on 3 rd July (following disclosure that he passed direction to the LIBOR submitters to lower inputs). To date, none of the Please refer to important disclosures and analyst certification information on pages

5 16 July 212 divisional managers have been affected, nor implicated, but it is impossible to dismiss further fallout. The position of other banks and respective management teams will only become clear in time, although we note press reports of several trader suspensions at multiple banks (e.g. Reuters 9 Feb 212). Civil actions: As the results of the investigations are placed into the public domain, we would expect claims to grow (class action litigation has been forming for some time, with one US judge having already consolidated cases). We explore the costs of potential civil action cases in the next section, which we believe could be meaningful. Civil damages could reach ~U$35bn We make an initial industry estimate of potential damages from the LIBOR case of cu$35bn, with Barclays, RBS and Deutsche most affected in absolute terms within our European coverage universe. We set out our methodology below, which we apply equally across all affected banks on the US$ LIBOR panel. We expect the details on which banks are likely to be more affected by such litigation to become clear over the next few months and years, rather than weeks. Given the difficulties in calculating litigation losses, we acknowledge that our estimates are speculative and include a sensitivity table. Figure 4: KBWe LIBOR litigation loss estimation U$tr Industry Barclays RBS HSBC Lloyds DBK CS UBS* Notional rate derivatives (21), all currencies % U$ and combined 7% 7% 7% 7% 7% 7% 7% 7% Notional rate derivatives (21), U$ and (estimate) % customer business 71% 71% 71% 71% 71% 71% 71% 71% Notional customer derivatives (estimate) Number of years 4 % of time LIBOR suppressed 25% LIBOR supression.2% Settlement % of 'damages' 1% Potential settlement (U$bn) taxed (@25%) Potential settlement (Local currency) taxed % of 212 B2 RWA (%).8%.7%.1%.1% 1.2% 1.3% 1.3% % of 212 B3 RWA (%).7%.5%.1%.%.7% 1.%.8% Current E B3 capital build 1.5% 3.% 1.8% 3.% 2.1% 3.9% 4.8% Settlement estimate % capital build 46% 18% 6% 2% 34% 26% 16% Note: *Damages may be reduced by 2/3 for UBS to allow for DOJ leniency agreement benefit. We use a standard 25% tax rate across all banks. Source: Bank of International Settlements, Company reports, KBW Research estimates Our estimates by bank are dictated by outstanding notional interest rate derivatives at end-21, and we make no attempt to differentiate or apportion blame. We see Barclays ( 3.1bn net), RBS ( 3.bn net) and Deutsche ( 3.4bn net) as potentially most impacted in absolute terms, with Lloyds (.2bn) and HSBC (U$1.4bn) least. Damages of this magnitude would clearly be unhelpful as banks look to increase capital levels in advance of Basel 3 implementation, but crucially, our estimates of potential damages are equivalent to 2-46% of our E Basel 3 capital build estimates, rather than moving capital ratios down from those at end-212. As noted below, we also think that any settlement could well occur beyond our forecast period, in turn allowing a further period to build capital. Please refer to important disclosures and analyst certification information on pages

6 1H98 2H98 1H99 2H99 1H 2H 1H1 2H1 1H2 2H2 1H3 2H3 1H4 2H4 1H5 2H5 1H6 2H6 1H7 2H7 1H8 2H8 1H9 2H9 1H1 2H1 1H11 2H11 U$trillion 16 July 212 Figure 5: Sensitivity of industry losses to changes in: Increase of: losses (U$bn) Affected assets +/-$1bn 15. % time LIBOR suppressed +/-5% 7. LIBOR suppression size +/-.1% 17.5 Settlement % damages +/-1% 3.5 Source: Bloomberg, BBA, KBW Research Estimating the damages and settlements Given the difficulties in estimating potential legal costs, we acknowledge that our estimates are subjective, and almost all our assumptions used here could be open to debate. However, we explain our thinking and methodology in estimating damages and likely settlement amounts below: Size of affected securities In judging the size of the potential affected securities, we establish our start point as the notional amount of interest rate derivatives: we believe this forms a reasonable proxy for the size of the potential Libor-related market. This market has grown from U$42bn in 1998 to U$54bn at end-211, according to BIS data, with ~7% in US$ and EUR. Figure 6: Interest rate derivatives outstanding (notional), 1H98-2H Canadian $ Euro Jap yen Sterling Swed krona Swiss franc US $ Other Source: Bank of International Settlements, KBW Research BIS data also helps us to eliminate the amount of notional derivatives that exist between the reporting dealers, which by BIS definitions is essentially investment banks and securities houses which we assume will not sue each other (i.e. zero sum between dealers). On the 21 BIS data, this is ~29% of the total volume. The notional value of customer interest rate derivatives at risk of applying for damages is therefore reduced to $233tr. Please refer to important disclosures and analyst certification information on pages

7 Settlement (U$bn) Median Settlemnt % of 'estimated damages' 16 July 212 Figure 7: Interest rate derivatives counterparty split U$bn Dec-9 Jun-1 Dec-1 Dec-11 Total contracts 449, , ,26 553,24 54,98 o/w Reporting dealers 138,58 132, , , ,33 o/w Other financial institutions 275, ,31 293,49 354,281 39,362 o/w Non-financial customers 35,67 37,673 37,286 39,737 37,46 "Reporting dealers" 31% 29% 29% 29% 31% Non "reporting dealers" 69% 71% 71% 71% 69% Source: Bank of International Settlements, KBW Research Estimating the size of the damages sought The Schwab case highlights a period of 4 years where LIBOR was potentially suppressed from However, we would also assume that LIBOR was not suppressed at all times through that period. Also, even during the prolonged crisis there were times when the market was working and things calmed slightly (e.g. in mid-29, European banks equity rallied to 1.6x 12m forward NAV). We therefore assume that LIBOR was suppressed for ~25% of those 4 years. The size of the suppression itself is difficult to measure. Clearly the plaintiffs in the Schwab case will argue it is high (they cite various sources showing estimates of 3-4bp), while, should a case get to this stage, the banks will argue the suppression is smaller. In our scenario we assume a 2bps average suppression, in turn bringing potential damages down to U$349bn. Settlement % typically a fraction of potential damages Estimating the size of potential settlements While it is difficult to predict any settlement amount with any degree of accuracy, we find a study of securities class action settlements by Cornerstone Research informative. Based on a research sample of common stock fraud cases (ie, excluding cases with alleged classes comprising only bondholders, preferred stockholders, etc), they make a number of interesting observations, but most importantly that settlements as a % of estimated damages ranges from 1% in small cases to 1% for large cases and an average of 3%. Figure 8: Securities settlement (22-211) and Median Settlement as % of estimated damages * by damage range ( ) % 1% 8% 6% 4% 2% % Settlement (ex large cases) WorldCom Enron Tyco Source: Cornerstone Research 211 Review and Analysis. Charts reproduced by KBW Research from *Cornerstone Research uses as a simplified approach to calculate estimated damages and do not intend for any damages estimate to be indicative of actual economic damages borne by shareholders. Please refer to important disclosures and analyst certification information on pages

8 16 July 212 Clearly, each case has to be taken in isolation, and the numbers related to LIBOR are potentially larger than anything that we know of, but we observe the following with regard to prior securities class actions: The typical duration between filing date and settlement hearing date is around 3.5 years, but can be substantially longer. Credit-crisis related cases have settled at a slower rate than traditional cases, and while those have settled for higher U$ amounts (than non credit-crisis related cases), they have settled at a lower % of estimated damages (c3% on average 29-11). Settlements generally increase as estimated damages increase, but also settlements as a percentage of estimated damages typically decrease as damages increase. The burden of proof We expect the burden of proof on the part of plaintiffs to be high, something which is very apparent even in the Schwab case. We expect some of the challenges to be: Establishing whether LIBOR was incorrectly stated in the first place. With some firms acting as whistleblower and co-operating fully with investigations, along with the Barclays fines and evidence, we think the trader element should be straightforward to prove for at least some of the defendant banks where trader s and instructions/requests exist. However, this is a small part of the case, and we think LIBOR will only have been marginally impacted and not in the same direction. The more difficult part of the case will be to prove that LIBOR rates were suppressed for an extended period, which we expect to be the substantive part of the potential damages claim. If LIBOR is proven to have been incorrectly stated, the plaintiffs will need to prove that a loss has actually taken place. Nearly all counterparties will have some element of borrowing costs themselves, so saying that they lose out on purchasing a LIBOR-based instrument ignores the economic profit from being able to refinance oneself with cheaper funds as well. Please refer to important disclosures and analyst certification information on pages

9 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 16 July 212 Appendix 1 Figure 9: Panel bank LIBOR submissions vs LIBOR & relative CDS (27-12) HSBC Barclays US LIBOR delta, bps (LHS) 5 CDS Delta Lloyds 16 1 RBS UBS 16 1 Credit Suisse Deutsche Bank Bank of America Note: CDS delta = Bank CDS versus average CDS for panel banks Source: Bloomberg, BBA, KBW Research Please refer to important disclosures and analyst certification information on pages

10 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 Jun-7 Jun-8 Jun-9 Jun-1 16 July 212 Figure 1: Panel bank LIBOR submissions vs LIBOR & relative CDS (27-12) US LIBOR delta, bps (LHS) CDS Delta Bank of Tokyo Mitsubishi UFJ Citibank NA HBOS 16 1 JP Morgan Chase Rabobank 16 1 Royal Bank of Canada The Norinchukin Bank West LB AG -16 Note: CDS delta = Bank CDS versus average CDS for panel banks Source: Bloomberg, BBA, KBW Research Please refer to important disclosures and analyst certification information on pages

11 16 July 212 Appendix 2: Report & Accounts extracts (211) Barclays The FSA, the US Commodity Futures Trading Commission, the SEC, the US Department of Justice Fraud Section of the Criminal Division and Antitrust Division and the European Commission are amongst various authorities conducting investigations into submissions made by Barclays and other panel members to the bodies that set various interbank offered rates. Barclays is co-operating in the relevant investigations and is keeping regulators informed. In addition, Barclays has been named as a defendant in a number of class action lawsuits filed in US federal courts involving claims by purported classes of purchasers and sellers of LIBOR-based derivative products or Eurodollar futures or options contracts between 26 and 29. The complaints are substantially similar and allege, amongst other things, that Barclays and other banks individually and collectively violated US antitrust and commodities laws and state common law by suppressing LIBOR rates during the relevant period. Barclays has been informed by certain of the authorities investigating these matters that proceedings against Barclays may be recommended with respect to some aspects of the matters under investigation, and Barclays is engaged in discussions with those authorities about potential resolution of those aspects. It is not currently possible to predict the ultimate resolution of the issues covered by the various investigations and lawsuits, including the timing and the scale of the potential impact on the Group of any resolution. Lloyds Several government agencies in the UK, US and overseas, including the US Commodity Futures Trading Commission, the US SEC, the US Department of Justice and the FSA as well as the European Commission, are conducting investigations into submissions made by panel members to the bodies that set various interbank offered rates. The Group, and/or its subsidiaries, were (at the relevant time) and remain members of various panels that submit data to these bodies. The Group has received requests from some government agencies for information and is co-operating with their investigations. In addition, recently the Group has been named in private lawsuits, including purported class action suits in the US with regard to the setting of London interbank offered rates (LIBOR). It is currently not possible to predict the scope and ultimate outcome of the various regulatory investigations or private lawsuits, including the timing and scale of the potential impact of any investigations and private lawsuits on the Group. RBS Certain members of the Group have been named as defendants in a number of class actions and individual claims filed in the US with respect to the setting of LIBOR. The complaints are substantially similar and allege that certain members of the Group and other panel banks individually and collectively violated US commodities and antitrust laws and state common law by manipulating LIBOR and prices of LIBOR based derivatives in various markets through various means. The Group considers that it has substantial and credible legal and factual defences to these and prospective claims. The Group continues to receive requests from various regulators investigating the setting of LIBOR and other interest rates, including the US Commodity Futures Please refer to important disclosures and analyst certification information on pages

12 16 July 212 Trading Commission, the US Department of Justice, the European Commission, the FSA and the Japanese Financial Services Agency. The authorities are seeking documents and communications related to the process and procedures for setting LIBOR and other interest rates, together with related trading information. In addition to co-operating with the investigations as described above, the Group is also keeping relevant regulators informed. It is not possible to estimate with any certainty what effect these investigations and any related developments may have on the Group. HSBC Various regulators and competition and enforcement authorities around the world including in the UK, the US and the EU, are conducting investigations related to certain past submissions made by panel banks in connection with the setting of London interbank offered rates ( LIBOR ) and European interbank offered rates. As certain HSBC entities are members of such panels, HSBC and/or its subsidiaries have been the subject of regulatory demands for information and are cooperating with their investigations. In addition, HSBC and other panel banks have been named in putative class action lawsuits filed by private parties in the US with respect to the setting of US dollar LIBOR. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these regulatory investigations or putative class action lawsuits, including the timing and potential impact, if any, on HSBC. Deutsche Deutsche Bank AG has received various subpoenas and requests for information from certain regulators and governmental entities in the United States and abroad, including the U.S. Department of Justice, the U.S. Commodity Futures Trading Commission, the U.S. Securities and Exchange Commission, and the European Commission, in connection with setting interbank offered rates for various currencies. These inquiries relate to various periods between 25 and 211. Deutsche Bank is cooperating with these investigations. In addition, a number of civil actions, including putative class actions, have been filed in federal courts in the United States against Deutsche Bank AG, an affiliate and numerous other banks on behalf of certain parties who allege that they transacted LIBOR-based financial instruments and that the defendants manipulated, through various means, the U.S. dollar LIBOR rate and prices of U.S. dollar LIBOR-based derivatives in various markets. Claims for damages are asserted under various legal theories, including violations of the Commodity Exchange Act and the antitrust laws. The civil actions have been consolidated for pre-trial purposes in the United States District Court for the Southern District of New York. The litigations are in their early stages. UBS Several government agencies, including the SEC, the US Commodity Futures Trading Commission, the DOJ and the FSA, are conducting investigations regarding submissions with respect to British Bankers Association LIBOR rates. We understand that the investigations focus on whether there were improper attempts by UBS (among others), either acting on our own or together with others, to manipulate LIBOR rates at certain times. In addition, the Swiss Competition Commission (WEKO) has commenced an investigation of numerous banks and financial intermediaries concerning possible collusion relating to LIBOR and TIBOR reference rates and certain derivatives transactions. Please refer to important disclosures and analyst certification information on pages

13 16 July 212 UBS has been granted conditional leniency or conditional immunity from authorities in certain jurisdictions, including the Antitrust Division of the DOJ and WEKO, in connection with potential antitrust or competition law violations related to submissions for Yen LIBOR and Euroyen TIBOR. WEKO has also granted UBS conditional immunity in connection with potential competition law violations related to submissions for Swiss franc LIBOR and certain transactions related to Swiss franc LIBOR. The Canadian Competition Bureau has granted UBS conditional immunity in connection with potential competition law violations related to submissions for Yen LIBOR. As a result of these conditional grants, we will not be subject to prosecutions, fines or other sanctions for antitrust or competition law violations in the jurisdictions where we have conditional immunity or leniency in connection with the matters we reported to those authorities, subject to our continuing cooperation. However, the conditional leniency and conditional immunity grants we have received do not bar government agencies from asserting other claims against us. In addition, as a result of the conditional leniency agreement with the DOJ, we are eligible for a limit on liability to actual rather than treble damages were damages to be awarded in any civil antitrust action under US law based on conduct covered by the agreement and for relief from potential joint-and-several liability in connection with such civil antitrust action, subject to our satisfying the DOJ and the court presiding over the civil litigation of our cooperation. The conditional leniency and conditional immunity grants do not otherwise affect the ability of private parties to assert civil claims against us. On 16 December 211, the Japan Financial Services Agency (JFSA) commenced an administrative action against UBS Securities Japan Ltd (UBS Securities Japan) based on findings by the Japan Securities and Exchange Surveillance Commission (SESC) that (i) a trader of UBS Securities Japan engaged in inappropriate conduct relating to Euroyen TIBOR (Tokyo Interbank Offered Rate) and Yen LIBOR, including approaching UBS AG, Tokyo Branch, and other banks to ask them to submit TIBOR rates taking into account requests from the trader for the purpose of benefiting trading positions; and (ii) serious problems in the internal controls of UBS Securities Japan resulted in its failure to detect this conduct. Based on the findings, the JFSA issued a Business Suspension Order requiring UBS Securities Japan to suspend trading in derivatives transactions related to Yen LIBOR and Euroyen TIBOR from 1 January to 16 January 212 (excluding transactions required to perform existing contracts). The JFSA also issued a Business Improvement Order that requires UBS Securities Japan to (i) develop a plan to ensure compliance with its legal and regulatory obligations and to establish a control framework that is designed to prevent recurrences of the conduct identified in the JFSA s administrative action, and (ii) provide periodic written reports to the JFSA regarding the company s implementation of the measures required by the order. On the same day the JFSA also commenced an administrative action against UBS AG, Tokyo Branch, based on a finding that an employee of the Tokyo branch continuously received approaches from an employee of UBS Securities Japan regarding Euroyen TIBOR rate submissions, which was determined to be an inappropriate practice that was not reported to the branch s management. Pursuant to this administrative action, the JFSA issued an order under the Japan Banking Act which imposes requirements similar to those imposed under the Business Improvement Order directed to UBS Securities Japan. A number of putative class actions and other actions have been filed in federal courts in the US against UBS and numerous other banks on behalf of certain parties who transacted in LIBOR based derivatives. The complaints allege manipulation, through Please refer to important disclosures and analyst certification information on pages

14 16 July 212 various means, of the US dollar LIBOR rate and prices of US dollar LIBOR based derivatives in various markets. Claims for damages are asserted under various legal theories, including violations of the US Commodity Exchange Act and antitrust laws. Credit Suisse On February 3, 212, following related investigations in the US and in the UK by the respective authorities, the Swiss Competition Commission commenced an investigation involving twelve banks and certain other financial intermediaries, including the Group, concerning alleged collusive behaviour among traders to affect the bid ask spread for derivatives tied to the LIBOR and TIBOR reference rates fixed with respect to certain currencies. The investigation also relates to alleged collusive agreements to influence these reference rates. Credit Suisse is not a panel bank for Yen LIBOR, Yen TIBOR or Euroyen TIBOR. Credit Suisse is cooperating fully with these investigations. Please refer to important disclosures and analyst certification information on pages

15 16 July 212 Figure 11: Barclays summary estimates, E GROUP P&L ( m) E 213E 214E 1Q11 2Q11 3Q11 4Q11 1Q12 Net Interest Income Fees & Commissions Principal Transaction Premiums from Insurance Income (net of claims) Own credit Income (ex own credit) Expenses Trading Surplus Impairment charge Share of Associates/dividends Underlying PBT Exceptionals Profit Before Tax Tax Profit after tax M inority interests (Absa mainly) M inority interests (non-equity) Attributable Profit Underlying attributable Balance sheet ( m) Net loans Assets Shareholders equity Per share (p) Basic EPS Underlying EPS DPS Key ratios Cost/income 59.4% 72.6% 65.8% 64.9% 65.4% 62.3% 47.1% 66.9% 89.7% Impairment charge (bps) NPLs (bps) NPL coverage 5% 47% 51% 57% 52% 49% 48% 5% 47% LDR 118% 116% 115% 115% 121% 118% 122% 118% 116% Equity/Assets 3.6% 3.4% 3.5% 3.7% 3.4% 3.5% 3.5% 3.6% 3.4% Tangible equity/assets 3.1% 2.9% 3.% 3.2% 3.% 2.9% 3.% 3.1% 2.9% RoNAV 12.7% 8.6% 8.5% 9.1% 9.5% 11.1% 28.1% 3.3% 14.6% ROE 1.7% 7.3% 7.3% 7.9% 8.1% 9.4% 23.4% 2.8% 12.4% RWA return 1.4%.97%.97% 1.8% 1.3% 1.22% 3.1%.36% 1.69% Key data Core capital (B2) RWAs (B2/2.5) Core tier 1 ratio (Basel 2/2.5) 11.% 1.8% 11.3% 11.8% 11.% 11.% 11.% 11.% 1.8% Core tier 1 ratio (Basel 3) 7.8% 8.3% 9.1% 9.9% n/a n/a n/a 7.8% n/a NAVPS (p) BVPS (p) Source: Company reports, KBW Research estimates 417 Please refer to important disclosures and analyst certification information on pages

16 16 July 212 Figure 12: HSBC summary estimates, E PROFIT & LOSS (U$m) E 213E 214E 1Q11 2Q11 3Q11 4Q11 1Q12 Net interest income Fee income Trading income Other income Non-interest income Total income o/w own debt fair value Total income (ex FVOD) Expenses Pre-impairment profit Pre-impairment profit (ex FVOD) Impairment Profit after impairment Associates/JV's Underlying PBT Exceptionals 29 PBT o/w own debt fair value PBT before fair value Attributable Balance Sheet Gross loans Assets Deposits Per share (U$) Basic EPS Underlying EPS DPS BVPS ROE 9.7% 11.3% 8.3% 1.7% 12.% 11.3% 13.2% 13.6% 6.% 6.4% NAV RoNAV 12.5% 14.2% 1.2% 12.9% 14.2% 14.3% 16.7% 17.3% 7.6% 8.% Key ratios Margin (bps) Cost/income (ex FVO) 55% 61% 58% 55% 53% 59% 56% 62% 67% 55% Impairment charge (bps) NPLs (bps) NPL coverage 43% 42% 38% 41% 45% 73% 42% Equity/assets 6.% 6.2% 6.7% 7.% 7.3% 5.8% 6.% 5.8% 6.2% 6.2% Tangible equity/assets 4.8% 5.1% 5.5% 5.9% 6.2% 4.7% 4.8% 4.6% 5.1% 5.1% Core tier 1 ratio (Basel 2/2.5) 1.5% 1.1% 11.6% 12.3% 13.% 1.7% 1.8% 1.6% 1.1% 1.5% Core tier 1 ratio (B3) 7.5% 8.% 9.5% 1.6% 11.4% n/a n/a n/a 8.% n/a GEOGRAPHIC SUMMARY Europe Hong Kong Rest of Asia Pacific M iddle East North America Latin America Total Source: Company reports, KBW Research estimates 4322 Please refer to important disclosures and analyst certification information on pages

17 16 July 212 Figure 13: Lloyds summary estimates, E GROUP P&L E 213E 214E 1Q11 2Q11 3Q11 4Q11 1Q12 Net interest income Other income Effects of liability mge, volatility & asset sales Operating income Insurance claims Non-interest income Income (net of claims) Underlying income (net of claims) Expenses Operating profit Impairment charge Associates/joint ventures PBT (before FV unwind) FV unwind PBT (pro-forma) Exceptionals PBT Attributable Underlying attributable Balance sheet Gross loans ( bn) n/d Assets ( bn) n/d Shareholders equity ( bn) n/d AIEA ( bn) Per share (p) Basic EPS o/w Core o/w Non-Core Basic diluted EPS Diluted underlying EPS DPS Key ratios Cost/income 5.3% 54.6% 53.5% 52.8% 57.3% 48.% 5.8% 46.2% 57.1% Margin (bps) Impairment charge (bps) NPLs (bps) NPL coverage 46% 56% 61% 89% 45% 45% 46% 46% 47% LDR 139% 122% 111% 16% 15% 149% 146% 139% 131% Tangible equity/assets 4.% 4.3% 4.9% 5.2% 3.7% 3.9% 4.% 4.% 4.1% Key data Core tier 1 ratio (Basel 2.5) 1.8% 11.7% 13.4% 14.7% 1.% 1.1% 1.3% 1.8% 1.9% Tier 1 ratio (Basel 2.5) 12.5% 13.5% 15.4% 16.8% 11.4% 11.6% 11.9% 12.5% 12.6% Core tier 1 ratio (Basel 3) 7.% 7.5% 9.% 1.5% n/a n/a n/a 7.% n/a NAVPS (p) DIVIS IONAL S UMMARY Retail 2,797 2,25 2,215 2,21 Wholesale -1, ,116 Commercial Wealth & International -4,13-2, Insurance 1,465 1,484 1,544 1,617 Group & Central 1, Source: Company reports, KBW Research estimates Please refer to important disclosures and analyst certification information on pages

18 16 July 212 Figure 14: RBS summary estimates, E GROUP P&L ( m) E 213E 214E 1Q11 2Q11 3Q11 4Q11 1Q12 Net interest income Non-interest income (ex premiums) Insurance premiums (net of claims) Non-interest income Total income (net of claims) Operating Expenses Pre-impairment profit Impairment charges Operating Profit Exceptionals PBT Attributable profit Balance sheet Loans Assets Funded balance sheet S/hers equity (incl B Shares) Per share (B share diluted) Basic EPS (p) Adjusted EPS (p) Core adjusted EPS (p) Key ratios Cost/income 62.6% 65.% 61.8% 56.7% 57.2% 55.7% 71.3% 7.2% 61.5% Margin (bps) Impairment charge (bps) NPLs (bps) NPLs ( m) NPL coverage 49% 58% 54% 74% 47% 49% 49% 49% 51% RoNAV.4% 1.8% 5.% 8.4% 3.1% 2.3% -1.7% -2.1% 3.5% RoE.3% 1.4% 3.9% 6.7% 2.5% 1.8% -1.3% -1.6% 2.8% Key data Basel II Core tier 1 ratio (Basel 2) 1.6% 11.4% 11.9% 13.5% 11.2% 11.1% 11.3% 1.6% 1.8% Core tier 1 ratio (Basel 3) 6.8% 8.% 9.5% 11.% n/a n/a n/a 6.8% 7.2% Tier 1 ratio (Basel 2) 13.% 13.9% 14.2% 15.9% 13.5% 13.5% 13.8% 13.% 13.2% NAVPS (p) BVPS (p) Tangible equity/assets 3.5% 4.% 4.5% 5.2% 3.9% 3.5% 3.5% 3.5% 3.8% Tangible equity/assets (ex derivs) 5.5% 5.9% 6.4% 7.% 5.2% 5.4% 5.4% 5.5% 5.7% DIVISIONAL SUMMARY M arkets International Banking UK Retail UK Corporate Wealth Ulster Bank US Retail & Commercial RBS Insurance n/a Central items Total Core Non-Core Underlying PBT Source: Company reports, KBW Research estimates 1184 Please refer to important disclosures and analyst certification information on pages

19 16 July 212 Figure 15: Credit Suisse summary estimates, 29-14E Group E 213E 214E 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12E 2Q12 / 2Q12 / CHF mn 1Q12 2Q11 Net interest income 6,891 6,541 6,433 7,592 8,68 9,94 1,753 1,377 1,646 1,657 1,884 1,87-4% 31% Fee and commission income 13,75 14,78 12,952 13,489 15,29 16,666 3,671 3,463 3,61 2,757 3,172 3,427 8% -1% Net trading income 12,151 9,338 5,2 2,379 4,256 3,853 2,11 1,116 1, % -21% Other income 52 1,429 1,82 1,252 1, 1, % -84% Revenues 33,294 31,386 26,225 24,712 28,532 3,613 8,156 6,892 6,689 4,488 6,47 6,264 4% -9% Loan loss charge % Personnel expense -15,13-14,599-13,213-12,39-11,955-12,81-4,29-3,96-3,67-3,21-3,711-2,8-25% -1% Other expense -9,698-9,379-9,364-8,186-8,55-9,137-2,168-2,143-2,694-2,359-2,14-2,76-1% -3% Operating profit 8,77 7,487 3,461 3,999 7,756 8,347 1,966 1, , % -19% Intangible effects Extraordinary items, net Accounting changes, net Discontinued operations, net Pre-tax profit 8,246 7,468 3,461 3,999 7,756 8,347 1,966 1, , % -19% Tax -1,835-1, ,788-1, % 16% Minorities % -78% Net profit [before pref dividend] 6,724 5,98 1,953 2,56 5,9 5,457 1, % 15% Preferred dividend Net profit [after pref dividend] 6,593 4,936 1,737 2,36 4,89 5,257 1, % 18% Deduct: unvested share awards Net profit [for basic EPS] 6,25 4,627 1,542 2,218 4,529 4,951 1, % 29% Net profit [for basic EPS] reported 6,25 4,627 1,542 2,218 4,529 4,951 1, % 29% Deduct: disposal gains, net Add: intangible effects Add: restructuring charges, net 1, Add: litigation charges etc Deduct: own-debt gains [FVOD, stand-alone & DVA] 1, ,194 1, , ,11 Deduct: other Net profit adjusted 7,15 4,126 2,85 3,454 4,529 4,951 1, , % LLC / net loans.21% -.4%.8%.1%.14%.14% -.1%.2%.15%.17%.6%.1% Cost / income 74% 76% 86% 83% 72% 72% 76% 76% 86% 12% 96% 78% Tax rate [effective] 22% 21% 19% 22% 23% 23% 24% 17% 39% 4% -8% 24% Op. RoNAV 31.9% 17.2% 9.1% 14.4% 15.5% 15.1% 26.% 1.3%.6% -1.7% 18.4% 13.8% Shares outstanding [basic] 1,169 1,174 1,22 1,268 1,311 1,311 1,21 1,199 1,23 1,22 1,225 1,268 Ø shares outstanding [FD] 1,21 1,21 1,27 1,29 1,333 1,333 1,188 1,28 1,224 1,27 1,257 1,31 EPS [diluted] Operating EPS [diluted] Book per share [basic] NAV per share [basic] % 4% ANAV per share [basic] % 2% Buy-back per share [basic] Dividend per share [basic] Group AUM 1,229, 1,253, 1,229,5 1,29,669 1,355,22 1,422,962 1,282,4 1,233,3 1,196,8 1,229,5 1,249,6 1,244,434 AUM growth 4.7% 2.% -1.9% 5.% 5.% 5.% 2.3% -3.8% -3.% 2.7% 1.6% -.4% Group inflows 44,2 69, 4,9 21,82 38,649 54,234 19,1 14,3 7,1 4-7,1 7,84 'Headline' tier 1 capital 36,27 37,725 36,844 38,728 38,18 43,99 38,514 37,76 37,124 36,844 36,668 37,674 Deduct: 'hybrid capital' [CS basis] -12,198-11,98-1,888-9,46-9,46-9,46-1,948-1,364-1,564-1,888-9,46-9,46 Deduct: perpetual notes -1,742-3,35-3,365-3,417-3,417-3,417-3,492-3,526-3,435-3,365-3,417-3,417 'Equity' tier 1 capital 22,267 23,277 22,591 26,265 25,645 3,636 24,74 23,186 23,125 22,591 24,25 25,211 Risk-weighted assets 221,69 218,72 241, , ,2 282, ,196 23,741 21, , ,39 227,594 Ø RWA 239,39 227, ,76 228, ,616 28,62 215,449 27,969 26,94 225, ,72 23,992 'Headline' tier 1 ratio 16.3% 17.2% 15.2% 17.9% 13.7% 15.3% 18.2% 18.2% 17.7% 15.2% 15.6% 16.6% 'Equity' tier 1 ratio 1.% 1.6% 9.3% 12.1% 9.2% 1.9% 11.3% 11.4% 11.% 9.3% 1.3% 11.1% Basel 3 common tier 1 capital (KBWe) 11,674 18,26 13,546 19,561 25,645 3,636 16,964 16,959 16,197 13,546 15,24 17,132 Basel 3 RWA [no phasing] (KBWe) 371, , ,69 282, ,2 282, , ,93 369, ,69 293, ,95 Basel 3 common tier 1 ratio (KBWe) 3.1% 4.6% 4.% 6.9% 9.2% 1.9% 4.4% 4.6% 4.4% 4.% 5.2% 5.8% Tier 1 leverage ratio [FINMA style] 4.2% 4.4% 4.6% 4.9% 4.8% 5.4% 4.7% 4.7% 4.9% 4.6% 4.7% 4.8% Source: KBW estimates Please refer to important disclosures and analyst certification information on pages

20 16 July 212 Figure 16: Deutsche Bank summary estimates, 29-14E Group E 213E 214E 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12E 2Q12 / 2Q12 / mn 1Q12 2Q11 Net interest income 12,46 15,582 17,444 14,953 15,849 16,355 4,167 4,492 4,274 4,511 4,193 3,98-7% -13% Commissions 8,915 1,67 11,544 11,35 11,997 12,597 3,81 3,47 2,86 2,61 2,849 2,854 % -6% Trading revenues, net 2,581 3,353 3,59 6,229 6,553 6,867 2, ,399 1,319-45% 86% Other ,39 1, % -65% Revenues 23,429 28,566 33,228 32,263 34,815 36,219 1,474 8,54 7,315 6,899 9,193 7,858-15% -8% Loan loss charge -2,63-1,273-1,84-1,569-1,394-1, % -1% Compensation and benefits -11,31-12,672-13,135-13,175-13,82-14,58-4,278-3,365-2,694-2,798-3,656-3,135-14% -7% Other expenses -8,949-1,616-12,863-11,123-11,38-11,52-2,82-2,933-3,216-3,912-3,334-2,565-23% -13% Operating profit 54 4,5 5,39 6,396 8,293 9,365 3,21 1, ,889 1,739-8% -2% Intangible effects Accounting changes, net Pre-tax profit 674 3,976 5,39 6,386 8,293 9,365 3,21 1, ,879 1,739-7% -2% Tax ,646-1,64-1,97-2,654-2, % Minority Interest Net profit 445 2,31 4,132 4,368 5,52 6,248 2,62 1, ,381 1,153-4% Net profit reported 445 2,31 4,132 4,368 5,52 6,248 2,62 1, ,381 1,153 Add: restructuring charges, net Deduct: disposal gains, net Provisions/releases, net Other, net 2, Add: intangible effects Tax releases etc -1,159 Net profit adjusted -1,433 4,469 5,375 4,865 5,745 6,248 2,38 1, ,12 1,642 1,235-25% 1% Cost / income 86% 82% 78% 75% 72% 71% 68% 74% 81% 97% 76% 73% LLC / net loans 1.2%.31%.45%.4%.37%.33%.38%.47%.45%.52%.31%.42% Pre-tax return on Ø 'active equity' 2.% 9.7% 1.7% 11.5% 13.9% 14.5% 24.8% 14.4% 7.5% -2.7% 14.% 12.6% Tax rate [effective] 36.1% 41.4% 19.7% 29.9% 32.% 32.% 29.5% 3.7% 17.5% 153.% 25.4% 32.% ROE 1.3% 5.6% 8.2% 7.9% 9.3% 9.6% 16.7% 9.6% 5.7% 1.1% 1.2% 8.4% Op. RONAV -6.% 15.8% 15.2% 12.2% 13.% 12.7% 27.9% 14.% 8.4% 1.9% 17.1% 12.5% # shares outstanding [basic] Ø # shares [diluted] EPS [diluted] Operating EPS [diluted] Book per share [basic] NAV per share [basic] Dividend per share [basic] Group AUM 88, 1,179, 1,116, n/a n/a n/a 1,112, 1,19, 1,83, 1,116, 1,128, n/a Group AUM growth 7.8% 34.% -5.3% n/a n/a n/a n/a -.3% -2.3% 3.% 1.1% n/a Group inflows 13, -1, -2, n/a n/a n/a 5, -1, 3, -2, n/a Group inflows / AUM 1.6% -.1% -.2% n/a n/a n/a.4%.% -.9%.3% -.2% n/a B2.5 B2.5 B3 B3 B2 B2 B2.5 B2 'Headline' tier 1 capital 34,46 42,565 49,47 51,852 52,249 59,11 43,82 44,658 46,638 49,47 49,419 5,4 Deduct: hybrid capital -1,616-12,593-12,734-12,416-12,416-12,416-12,222-12,141-12,548-12,734-12,416-12,416 Add: unrealised gain on industrial holdings n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 'Equity' tier 1 capital 23,79 29,972 36,313 39,436 39,833 46,685 31,58 32,517 34,9 36,313 37,3 37,984 B2.5 B2.5 B3 B3 Credit RWA 217,3 285, , , , , , ,83 278, , , ,38 Market RWA 24,88 23,66 68,123 82, 82, 82, 24,553 21,49 22,423 68,123 64,929 82, Operational RWA 31,593 37,326 5,697 5,7 5,7 5,7 36,96 36,376 36,697 5,697 51,718 5,7 Risk-weighted assets (RWA) 273, ,24 381,2 357, ,85 52,56 327, , , ,2 368, ,738 RWA growth -11% 27% 1% -6% 39% 1% -5% -3% 6% 13% -3% -1% 'Headline' tier 1 ratio 12.6% 12.3% 12.9% 14.5% 1.5% 11.8% 13.4% 14.% 13.8% 12.9% 13.4% 13.8% 'Equity' tier 1 ratio [no transition] 8.7% 8.7% 9.5% 11.% 8.% 9.3% 9.6% 1.2% 1.1% 9.5% 1.% 1.4% Basel 3 common tier 1 capital (KBWe) 31,419 34,849 39,833 46,685 31,393 3,815 31,399 31,419 32,444 33,294 Basel 3 RWA [no phasing] (KBWe) 525,38 482, ,85 52,56 616, ,85 591, ,38 57,69 499,217 Basel 3 common tier 1 ratio (KBWe) 6.% 7.2% 8.% 9.3% 5.1% 5.2% 5.3% 6.% 6.4% 6.7% Level 3 assets 58,22 46,656 47,573 n/a n/a 44,89 45,521 49,533 47,573 42,49 n/a Level 3 liabilities 18,169 13,3 13,421 n/a n/a 11,673 11,866 15,14 13,421 11,883 n/a Level 3 assets & liabilities 76,389 59,659 6,994 n/a n/a 55,762 57,387 64,673 6,994 54,292 n/a Level 3 assets & liabilities / tier 1 2.2x 1.4x 1.2x n/a n/a.x 1.3x 1.3x 1.4x 1.2x 1.1x n/a Total assets [IFRS] 1,5,664 1,96, 2,164, 1,912,428 1,768,67 1,678,541 1,842, 1,85, 2,282, 2,164, 2,13, 2,29,823 Deduct: derivative netting / other -69, , -897, -656, ,67-422,541-64, -641, -986, -897, -847, -773,823 Total assets [US GAAP style] 891, 1,211, 1,267, 1,256, 1,256, 1,256, 1,22, 1,29, 1,296, 1,267, 1,256, 1,256, Adjusted sh' equity [DBK style] 39,269 52,368 59,16 61,163 65,997 71,56 53,29 53,278 57,68 59,16 58,95 59,368 Leverage multiple [DBK style] 22.7x 23.1x 21.4x 2.5x 19.x 17.6x 22.6x 22.7x 22.5x 21.4x 21.3x 21.2x Source: KBW estimates Please refer to important disclosures and analyst certification information on pages

21 16 July 212 Figure 17: UBS summary estimates, 29-14E Group [incl. indu hldgs] E 213E 214E 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12E 2Q12E / 2Q12E / CHF mn 1Q12 2Q11 Net interest income 6,445 6,215 6,827 6,149 6,26 6,592 1,781 1,44 1,861 1,745 1,591 1,6 1% 11% Net fee and commission income 17,711 17,16 15,236 15,341 16,685 17,918 4,24 3,879 3,557 3,56 3,843 3,7-4% -5% Net trading income ,471 4,342 5,842 7,714 8,19 2,23 1, ,569 63% -9% Other income 599 1,214 1, , % -11% Total revenues 24,431 32,6 27,873 27,526 3,659 32,53 8,341 7,155 6,51 5,876 6,488 6,969 7% -3% Loan loss charge -1, % -425% Personnel expense -16,542-16,92-15,591-14,86-16,191-16,78-4,47-3,925-3,758-3,51-3,643-3,685 1% -6% Other expense -7,296-7,53-6,721-6,159-6,28-6,284-1,679-1,569-1,623-1,85-1,556-1,564 1% % Operating profit -1,239 7,571 5,477 6,442 8,51 9,268 2,258 1,677 1, ,326 1,668 26% -1% Amort. of intangibles -1, % 5% Discontinued operations, net -7 2 Pre-tax profit -2,57 7,456 5,351 6,35 7,959 9,135 2,234 1, ,33 1,645 26% -1% Tax ,111-1,393-1, % -13% Minorities % 3% Net profit -2,738 7,532 4,16 4,968 6,36 7,277 1,86 1,16 1, ,46 27% 3% Net profit, reported -2,738 7,532 4,16 4,968 6,36 7,277 1,86 1,16 1, ,46 27% 3% Deduct: disposal gains, net Add: intangible effects 1, Add: restructuring charges, net Add: litigation charges etc 173 Deduct: own-debt & MCN gains 1, ,536 1, , ,164 Deduct: other -1, Operating profit, net -43 8,93 2,489 5,937 6,398 7,41 1,963 1, ,726 1,69-38% 1% Cost / income 98% 76% 8% 76% 73% 71% 73% 77% 83% 91% 8% 75% LLC / net loans.6%.2%.3%.4%.7%.9%.% -.2%.11%.2% -.5%.7% Tax rate [effective] 17.2% -5.1% 17.2% 17.5% 17.5% 17.5% 19.1% 22.8% -4.1% 33.2% 36.5% 2.% ROE -7.8% 16.7% 8.5% 9.1% 1.8% 11.6% 15.4% 8.7% 8.2% 2.4% 6.2% 7.8% Op. RoNAV -.2% 23.6% 6.3% 13.2% 13.% 13.8% 21.2% 11.3% -9.5% 4.% 15.7% 9.7% Shares outstanding [basic] 3,794 3,793 3,747 3,776 3,776 3,776 3,84 3,768 3,741 3,747 3,776 3,776 Ø shares outstanding [diluted] 3,669 3,837 3,834 3,819 3,819 3,819 3,849 3,869 3,815 3,8 3,819 3,819 EPS [diluted] Operating EPS [diluted] Book per share [basic] NAV per share [basic] % 16% Buy-back per share Dividend per share Group AUM 2,233, 2,152, 2,167, 2,138,92 2,27,183 2,426,976 2,198, 2,69, 2,25, 2,167, 2,88, 2,76,515 Group AUM growth 2.7% -3.6%.7% -1.3% 6.2% 6.9% 2.1% -5.9% -2.1% 7.% -3.6% -.6% Group inflows -147,3-14,4 41,4 29,79 44,531 66,5 22,3 8,7 5,2 5,2 2,7 7,278 Group inflows / AUM -6.8% -.6% 1.9% 1.4% 2.1% 2.9% 1.%.4%.3%.3%.1%.3% 'Headline' tier 1 capital 31,798 35,272 38,37 42,579 46,431 49,437 36,379 37,387 38,121 38,37 39,57 4,238 Deduct: hybrid capital -7,224-4,93-4,356-4,286-4,286-3,36-4,561-4,252-4,327-4,356-4,286-4,286 'Equity' tier 1 capital 24,574 3,369 34,14 38,293 42,145 46,41 31,818 33,135 33,794 34,14 35,284 35,952 Credit RWA 14, , ,84 111, , , , , , ,84 116, ,97 Non-counterparty 7,26 6,195 6,5 6,51 6,51 6,51 6,153 5,862 5,924 6,5 6,51 6,51 Market RWA 12,861 2,813 49,241 4,87 4,87 38,453 25,389 34,832 28,462 49,241 34,387 4,87 Operational RWA 46,144 51,948 58,867 53,999 53,999 49, 49,964 49,544 49,328 58,867 53,999 53,999 Risk-weighted assets 26, ,875 24, , , ,14 23,361 26,224 27,257 24, ,92 216,44 Ø RWA 247,71 26,244 29,19 216, , ,434 21,118 24,793 26, ,11 226,27 213,568 RWA growth -32% -4% 21% -12% 34% -1% 2% 1% 1% 16% -12% 2% 'Headline' tier 1 ratio 15.4% 17.7% 15.9% 2.1% 16.4% 17.6% 17.9% 18.1% 18.4% 15.9% 18.7% 18.6% 'Equity' tier 1 ratio 11.9% 15.3% 14.1% 18.1% 14.8% 16.5% 15.6% 16.1% 16.3% 14.1% 16.7% 16.6% Basel 3 RWA (KBWe) 35, ,68 38, 317, , ,14 47,44 42,231 4, 38, 35, 333,438 Basel 3 common tier 1 capital (KBWe) 14,4 19,19 25,4 29,32 34,798 39,554 21,18 24,11 24,6 25,4 26,1 26,644 B3 CET1 ratio 4.1% 4.9% 6.7% 9.2% 12.3% 14.1% 5.2% 6.% 6.2% 6.7% 7.5% 8.% Level 3 assets, net 37,6 24,5 25,2 n/a n/a n/a 23,5 2,8 24,5 25,2 21,2 n/a Level 3 liabilities, net 27,7 24,7 23,5 n/a n/a n/a 22,2 2,1 2,8 23,5 2,4 n/a Level 3 assets & liabilities 65,3 49,2 48,7 n/a n/a n/a 45,7 4,9 45,3 48,7 41,6 n/a Level 3 assets & liabilities / tier 1 2.1x 1.4x 1.3x n/a n/a n/a 1.3x 1.1x 1.2x 1.3x 1.1x n/a Tier 1 leverage ratio [FINMA style] 3.9% 4.4% 5.4% 6.2% 6.9% 7.5% 4.8% 4.9% 5.5% 5.4% 5.6% 5.8% Source: KBW estimates Please refer to important disclosures and analyst certification information on pages

22 16 July 212 IMPORTANT DISCLOSURES RESEARCH ANALYST CERTIFICATION: We, Mark Phin, CFA, Andrew Stimpson, Vasco Moreno and Luke Birtwistle, hereby certify that the views expressed in this research report accurately reflect our personal views about the subject companies and their securities. We also certify that We have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation in this report. Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking. For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see the most recently published company report or visit our global disclosures page on our website at or see the section below titled "Disclosure Information" for further information on how to obtain these disclosures. AFFILIATE DISCLOSURES: This report has been prepared by Keefe, Bruyette & Woods Inc. ( KBWI ) and/or its affiliates Keefe, Bruyette & Woods Limited and Keefe, Bruyette & Woods Asia Limited all of which are subsidiaries of KBW, Inc. (collectively KBW ). Keefe, Bruyette & Woods Inc. is regulated by FINRA, NYSE, and the United States Securities and Exchange Commission, and its headquarters is located at 787 7th Avenue, New York, NY 119. Keefe, Bruyette & Woods Limited is registered in England and Wales, no and its registered office is 7th Floor, One Broadgate, London EC2M 2QS. KBWL is authorised and regulated by the UK Financial Services Authority ("FSA"), entered on the FSA's register, no and is a member of the London Stock Exchange. Keefe, Bruyette & Woods Asia Limited is a licensed corporation regulated by the Securities and Futures Commission of Hong Kong ("SFC") (CE No.: AUI281). Its headquarters is located at 311, 31/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong. Disclosures in the Important Disclosures section referencing KBW include one or all affiliated entities unless otherwise specified. Registration of non-us Analysts: Any non-us Research Analyst employed by a non-us affiliate of KBWI contributing to this report is not registered/qualified as research analyst with FINRA and/or the NYSE and may not be an associated person of KBWI and therefore may not be subject to NASD Rule 2711 or NYSE Rule 472 restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. Disclosure Information. For current company specific disclosures please write to one of the KBW entities: Keefe, Bruyette & Woods Research Department at the following address: 787 7th Avenue, 4th Floor, New York, NY 119. The Compliance Officer, Keefe, Bruyette and Woods Limited, 7th Floor, One Broadgate, London EC2m 2QS. The Compliance Officer, Keefe, Bruyette and Woods Asia Limited, 311, 31/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong. Or visit our website at KBW has arrangements in place to manage conflicts of interest including information barriers between the Research Department and certain other business groups. As a result, KBW does not disclose certain client relationships with, or compensation received from, such companies in its research reports. Distribution of Ratings/IB Services KBW *IB Serv./Past 12 Mos. Rating Count Percent Count Percent Outperform [BUY] Market Perform [HOLD] Underperform [SELL] Restricted [RES].. Suspended [SP] Covered -Not Rated [CNR] * KBW maintains separate research departments; however, the above chart, "Distribution of Ratings/IB Services," reflects combined information related to the distribution of research ratings and the receipt of investment banking fees globally. Explanation of Ratings: KBW Research Department provides three core ratings: Outperform, Market Perform and Underperform, and three ancillary ratings: Suspended, Restricted, and Covered - Not Rated. For purposes of New York Stock Exchange Rule 472 and FINRA Rule 2711, Outperform is classified as a Buy, Market Perform is classified as a Hold, and Underperform is classified as a Sell. Suspended indicates that KBW s investment rating and/or target price have been temporarily suspended due to applicable regulations and/or KBW policies. Restricted indicates that KBW is precluded from providing an investment rating or price target due to the firm's role in connection with a merger or other strategic financial transaction. Covered - Not Rated indicates that KBW is not providing an investment rating and/or price target due to the lack of publicly available information and/or its inability to adequately quantify the publicly available information to sufficiently produce such metrics. North American Stocks are rated based on an absolute rate of return (percentage price change plus dividend yield).outperform Please refer to important disclosures and analyst certification information on pages

23 16 July 212 represents a total rate of return of 15% or greater. Market Perform represents a total rate of return in a range between -5% and +15%.Underperform represents a total rate of return at or below -5%. European and Asian Stocks are rated based on the share price upside to target price relative to the relevant sector index performance on a 12-month horizon. Outperform rated stocks have a greater than 1 percentage point ( pp ) relative performance versus the sector, Market Perform rated stocks between +1pp to -1pp relative performance versus the sector, and Underperform rated stocks a lower than 1pp relative performance versus the sector. The 12-month price target may be determined by the stock s fundamentally driven fair value and/or other factors (e.g., takeover premium or illiquidity discount). KBW Model Portfolio: "Model Portfolio Buy" - Companies placed on this list are expected to generate a total rate of return (percentage price change plus dividend yield) of 1% or more over the next 3 to 6 months. "Model Portfolio Sell" - Companies placed on this list are expected to generate a total rate of return (percentage price change plus dividend yield) at or below -1% over the next 3 to 6 months. The purpose of the Model Portfolio is to inform institutional investors of KBWI s short-term (as described above) outlook for a particular industry sector. The Portfolio is not available for purchase or sale, cannot be duplicated as shown, is hypothetical and is for illustrative purposes only. For a more detailed description of the selection criteria and other specifics related to the construction of the Model Portfolio, please refer to the January 5, 21 Model Portfolio Primer and/or contact your KBWI representative for more information. The Model Portfolio should be viewed as a short-term outlook of a particular industry sector, not as individual security recommendations. The Model Portfolio uses a three-to-six-month time horizon and should not be considered when making longer term investments. KBWI Research publishes research with a 12-month outlook on each issuer of securities contained in the Model Portfolio. Investors who are interested in a particular security should request KBWI Research s coverage of such securities by contacting your KBWI representative. KBW research contains analyses of fundamentals underlying each issuer. KBWI s long-term recommendations may differ from recommendations made for the Model Portfolio. These differences are the result of different time horizons -- KBWI research has a 12-month outlook and the Model Portfolio has a three-to-six-month outlook. Although the model portfolio is based upon actual performance of actual investments, KBWI did not recommend that investors purchase this combination -- or hypothetical portfolio -- of investments during the time period depicted here. As this hypothetical portfolio was designed with the benefit of hindsight, the choice of investments contained in it reflects a subjective choice by KBWI. Accordingly, this hypothetical portfolio may reflect a choice of investments that performed better than an actual portfolio, which was recommended during the depicted time frame, would have performed during the same time period. Moreover, unlike an actual performance record, these results do not represent actual trading wherein market conditions or other risk factors may have caused the holder of the portfolio to liquidate or retain all or part of the represented holdings. Other Research Methods: Please be advised that KBW provides to certain customers on request specialized research products or services that focus on covered stocks from a particular perspective. These products or services include, but are not limited to, compilations, reviews and analysis that may use different research methodologies or focus on the prospects for individual stocks as compared to other covered stocks or over differing time horizons or under assumed market events or conditions. OTHER DISCLOSURES Indices: The following indices: U.S.: KBW Bank Index (BKX), KBW Insurance Index (KIX), KBW Capital Markets Index (KSX), KBW Regional Banking Index (KRX), KBW Mortgage Finance Index (MFX), KBW Property & Casualty Index (KPX), KBW Premium Yield Equity REIT Index (KYX); KBW Financial Sector Dividend Yield Index (KDX); Europe: KBW Large-Cap Banks Index (KEBI), KBW Mid/Small Cap Banks Index (KMBI), KBW Large-Cap Insurance Index (KEII), KBW Miscellaneous Financials Index (KMFI), KBW Emerging Europe Financials Index (KEEI); and Global: KBW Global ex-u.s. Financial Sector Index (KGX), are the property of KBWI. KBWI does not guarantee the accuracy and/or completeness of the Indices, makes no express or implied warranties with respect to the Indices and shall have no liability for any damages, claims, losses or expenses caused by errors in the index calculation. KBWI makes no representation regarding the advisability of investing in options on the Index. Past performance is not necessarily indicative of future results. ETFs: The shares ("Shares") of KBW ETFs are not sponsored, endorsed, sold or promoted by KBWI. KBWI makes no representation or warranty, express or implied, to the owners of the Shares or any member of the public regarding the advisability of investing in securities generally or in the Shares particularly or the ability of its Indices to track general stock market performance. The only relationship of KBWI to Invesco PowerShares Capital Management LLC and ProShares is the licensing of certain trademarks and trade names of KBWI and its Indices which are determined, composed and calculated by KBWI without regard to Invesco PowerShares Capital Management LLC and ProShares, the fund, or the Shares. KBWI has no obligation to take the needs of Invesco PowerShares Capital Management LLC and ProShares or the owners of the shares into consideration in determining, composing, or calculating the Indices. KBWI is not responsible for and has not participated in any determination or calculation made with respect to issuance or redemption of the Shares. KBWI has no obligation or liability in connection with the administration, marketing or trading of the Shares. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Investing in a single sector may be subject to more volatility than funds investing in a diverse group of sectors. Brokerage commissions and ETF expenses will reduce returns. In general, ETFs can be expected to move up or down in value with the value of the applicable index. Although ETFs may be bought and sold on the exchange through any brokerage account, ETFs are not individually Please refer to important disclosures and analyst certification information on pages

24 16 July 212 redeemable from the Fund. Investors may acquire ETFs and tender them for redemption through the Fund in Creation Unit Aggregations only, please see the prospectus for more details. There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks including those regarding short selling and margin maintenance requirements. Past performance is not necessarily indicative of future results. Leverage and Inverse ETFs: ProShares Ultra KBW Regional Banking (KRU) and ProShares Short KBW Regional Banking (KRS) ETFs seek returns that are either 2x, -1x, respectively, the return of an index or other benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. These funds may not be suitable for all investors and should be used only by knowledgeable investors who understand the potential consequences of seeking daily leveraged investment results. Investing involves risk, including the possible loss of principal. ProShares Short are non-diversified and should lose value when their market indexes rise a result that is opposite from traditional ETFs and they entail certain risks including risk associated with the use of derivatives, imperfect benchmark correlation, leverage and market price variance, all of which can increase volatility and decrease performance. For more on correlation, leverage and other risks, please read the prospectus. An investor should consider the Funds investment objectives, risks, charges and expenses carefully before investing. This and other information can be found in their prospectuses. For this and more complete information about the Funds, call InvescoPowerShares at or visit or call ProShares Client Services at or visit for a prospectus. The prospectus should be read carefully before investing. Shares of the ETFs funds are not guaranteed or insured by the FDIC or by another governmental agency; they are not obligations of the FDIC nor are they deposits or obligations of or guaranteed by KBWI, Invesco PowerShares Capital Management LLC or ProShares. ETFs are distributed by Invesco Distributors, Inc. the distributor of the PowerShares Exchange-Traded Fund Trust II. PowerShares is a registered trademark of Invesco PowerShares Capital Management LLC; ProShares are distributed by SEI Investments Distribution Co. which is not affiliated with ProFunds Group or its affiliates. General Risk Disclosure: Investments in securities or financial instrument involve numerous risks which may include market risk, counterparty default risk, liquidity risk and exchange rate risk. No security or financial instrument is suitable for all investors and some investors may be prohibited in certain states or other jurisdictions from purchasing securities mentioned in this communication. The securities of some issuers may not be subject to the audit and reporting standards, practices and requirements comparable to those companies located in the investor s local jurisdiction. Where net dividends to ADR investors are discussed, these are estimated, using withholding tax rate conventions, and deemed accurate, but recipients should always consult their tax advisor for exact dividend computations. COUNTRY SPECIFIC AND JURISDICTIONAL DISCLOSURES: United States: This report is being distributed in the US by Keefe, Bruyette & Woods Inc. Where the report has been prepared by a non-us affiliate, Keefe, Bruyette & Woods Inc., accepts responsibility for its contents. U.K. and European Economic Area (EEA): This report is issued and approved for distribution in the EEA by Keefe Bruyette & Woods Limited, which is regulated in the United Kingdom by the Financial Services Authority. Hong Kong: This document has been distributed by Keefe, Bruyette & Woods Asia Limited for the information of institutional customers and is not intended for, and should not be distributed to, retail investors in Hong Kong. Keefe, Bruyette & Woods Asia Limited accepts responsibility for the information set out in this document. Singapore: This communication is distributed in Singapore only to persons who are "institutional investors" as defined in the Securities and Futures Act, Chapter 289 of Singapore and is not intended for, and should not be distributed to, any person in Singapore who is not an "institutional investor. In jurisdictions where KBW is not already licensed or registered to trade securities, transactions will only be affected in accordance with local securities legislation which will vary from jurisdiction to jurisdiction and may require that a transaction is carried out in accordance with applicable exemptions from registration and licensing requirements. Non US customers wishing to effect a transaction should contact a representative of the KBW entity in their regional jurisdiction except where governing law permits otherwise. US customers wishing to effect a transaction should do so by contacting a representative of Keefe, Bruyette & Woods Inc. ONLY DISTRIBUTE UNDER REGULATORY LICENSE: This communication is only intended for and will only be distributed to persons residing in any jurisdictions where such distribution or availability would not be contrary to local law or regulation. This communication must not be acted upon or relied on by persons in any jurisdiction other than in accordance with local law or regulation and where such person is an investment professional with the requisite sophistication and resources to understand an investment in such securities of the type communicated and assume the risks associated therewith. CONFIDENTIAL INFO: This communication is confidential and is intended solely for the addressee. It is not to be forwarded to any other person or copied without the permission of the sender. Please notify the sender in the event you have received this communication in error. NO SOLICITATION OR PERSONAL ADVICE: This communication is provided for information purposes only. It is not a personal recommendation or an offer to sell or a solicitation to buy the securities mentioned. Investors should obtain independent professional advice before making an investment. ASSUMPTIONS, EFFECTIVE DATE AND UPDATES: Certain assumptions may have been made in connection with the analysis presented herein, so changes to assumptions may have a material impact on the conclusions or statements made in this communication. Facts and views presented in this communication have not been reviewed by, and may not reflect information known to, professionals in other business areas of KBW, including investment banking personnel. Please refer to important disclosures and analyst certification information on pages

25 16 July 212 The information relating to any company herein is derived from publicly available sources and KBW makes no representation as to the accuracy or completeness of such information. Neither KBW nor any of its officers or employees accept any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its content. This communication has been prepared as of the date of the report. KBW does not undertake to advise clients of any changes in information, estimates, price targets or ratings, all of which are subject to change without notice. The recipients should assume that KBW will not update any fact, circumstance or opinion contained in this report. COPYRIGHT: This report is produced for the use of KBW customers and may not be reproduced, re-distributed or passed to any other person or published in whole or in part for any purpose without the prior consent of KBW. Please refer to important disclosures and analyst certification information on pages

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