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Deutsche Bank
Markets Research

Europe Industry Date

4 April 2016
Banks
European Banks 101
Special Report

Kinner Lakhani

A short European Banks primer Research Analyst

(+44) 20 754-14140
[email protected]

Understanding banks and bank stocks Omar Keenan David Lock

In this report we look at the analysis of banks and bank stocks, with a focus on Research Analyst Research Analyst
the European banking sector. The report aims to provide a short and concise (+44) 20 754-14647 (+44) 20 754-11521
explanation of the basics of banking financial statements, different types of [email protected] [email protected]
banks, interest margins, credit risk, how banks fund themselves, banking
sector regulation, and a number of statistical tables. The report is targeted at Paola Sabbione
readers that do not have any previous experience of looking at banks.
Research Analyst
Valuation of banks: easier than you think (+39) 02 86379-704
We also include a chapter on the valuation of banks, covering different [email protected]
valuation methodologies, the importance of earnings power and free cash
flow, and the types of multiples we see at different points at the economic Flora Benhakoun
cycle. We find that in good years and bad, the most important driver of bank Research Analyst
performance is earnings revisions. (+33 ) 144956617
[email protected]
In addition, we provide thoughts on the current position of European banks in
the cycle, and why the next few years are likely to see lower peak valuations
Benjamin Goy
than we have seen in the past.
Research Analyst
Our view is that banks’ cyclical upside has been permanently capped by the (+44) 20 754-73341
changes in the regulatory environment, which we think will make balance [email protected]
sheet growth far more capital-intensive than in the past. This will limit balance
sheet expansion to not much more than nominal GDP growth. But the corollary
of this lower-growth view is that banks will be less able to generate credit
bubbles, leading to less of a cycle in credit risk than previous peak-to-trough
bad debt charges. As yet, of course, this thesis has not been tested by a full-on
recession, so markets remain nervous of banks and the cost of equity is
consequently elevated.

Our overall view of banks in Europe is that we think peak profitability in a more
heavily regulated system will be found around 10%-11% RoTE, of course with
winners and losers / higher return banks and lower return banks, with a peak
valuation for the industry of 1.2x PTBV. In addition, banks are still cyclical,
exposed to large numbers of risk factors, and more leveraged than other
industries, even after changes to bank regulation. We expect to see the sector
earning low-to-mid single-digit RoEs in recessionary years, trading at a
substantial discount to PTBV. On a through-cycle basis, we see fair value for
European banks in a post-crisis world as 1.0x PTBV.

________________________________________________________________________________________________________________
Deutsche Bank AG/London
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should
consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.
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Banks
European Banks 101

Table Of Contents

The F.I.T.T. series................................................................. 4

Further reading ................................................................................................... 4

An introduction .................................................................... 5
Before we get started… ...................................................................................... 5
Declining leverage and the shift to utility ........................................................... 5
Where next for the banks? ................................................................................. 6

The basics of banks ............................................................. 7

Chapter summary ............................................................................................... 7
The purposes and types of banks ....................................................................... 7
A simple taxonomy of banks .............................................................................. 8
European Banks and the economic cycle ........................................................... 9
A simplified bank income statement ................................................................ 11
A simplified bank balance sheet ....................................................................... 16

Valuing bank stocks .......................................................... 19

Chapter summary ............................................................................................. 19
Why are banks valued differently to other industries? ..................................... 19
What valuation metrics do we use for banks? .................................................. 20
Solving for different variables ........................................................................... 24
Sum-of-the-parts valuations and dealing with conglomerates ......................... 25
Derivation of formulae ...................................................................................... 27

Interest Margins ................................................................ 30

Chapter summary ............................................................................................. 30
Margins, and How To Monitor Them ................................................................ 30
Deutsche Bank’s Margin Monitor ..................................................................... 33

Credit risk and the cycle .................................................... 35

Chapter summary ............................................................................................. 35
Credit risk: still the most important driver of the P&L....................................... 35
Measuring credit risk ........................................................................................ 38

Investment banks .............................................................. 40

Chapter summary ............................................................................................. 40
Investment banks: the vanishing breed ............................................................ 40

Banks and Funding ............................................................ 44

Chapter Summary ............................................................................................. 44
Bank funding: an overview ............................................................................... 45
Debt market funding: senior bonds and covered bonds ................................... 46
The Lender of Last Resort: the ECB .................................................................. 47

Prudential Regulation ........................................................ 49

Chapter Summary ............................................................................................. 49
Capital ratios, funding and liquidity .................................................................. 50
MDA and SREP ................................................................................................. 53

Glossary ............................................................................. 55
Commonly used bank terms ............................................................................. 55

Annex ................................................................................ 59
Deutsche Bank’s Running the Numbers product.............................................. 59

Page 2 Deutsche Bank AG/London

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Banks
European Banks 101

Figure 1: DB European Banks Team

Swiss Banks / Strategy Kinner Lakhani [email protected] +44 20 7547 4433
UK & Irish Banks David Lock [email protected] +44 20 7541 1521
German and Iberian Banks Benjamin Goy [email protected] +49 69 910 31928
French Banks Flora Benhakoun [email protected] +49 69 910 31962
Italian Banks Paola Sabbione [email protected] +39 02 8637 9704
Nordic Banks and Regulation Omar Keenan [email protected] +44 20 7541 4647
Specialist Sales Rolf Zartner [email protected] +44 20 7545 7306
Specialist Sales Elizabeth Rogers [email protected] +44 20 7547 3010
Source: Deutsche Bank

Figure 2: DB aggregation of European Banks data

M odel updated: 01 April 2016 Year Ending 31December 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Equity Research Earnings & Book Value Growth Rates
No. of Banks 33 34 38 41 45 45 45 45 45 45 45
Europe Earnings - St at ed -112% -323% 164% -73% -123% -777% 33% 67% 5% 39% 19%
Earnings - adj., f ully dilut ed, core -83% 201% 52% 2% -36% 29% 44% 8% -1% 19% 11%
Aggregation Dividends -44% -13% 9% -10% 32% 19% 19% 17% 21% 9% -6%
Book Value - St at ed -5% 20% 20% 5% 12% 0% 8% 6% 3% 4% 4%
Tangible NAV (incl. holdings) -8% 30% 27% 10% 15% 3% 10% 7% 3% 4% 4%
Tot al Market Cap 933,042 704,068 898,936 1,261,932 894,728 1,132,459 1,429,797 1,326,714 911,519 914,686 922,333
European Banks Valuation & Profitability M easures
P/ E (st at ed) -74.6 26.6 12.8 67.8 -195.1 37.7 35.7 19.8 13.0 9.4 7.9
P/ E (adj) 67.1 16.3 13.3 18.4 20.5 20.0 17.4 15.0 10.4 8.7 7.9
P/ E (adj ex holdings) 67.1 16.3 13.3 18.4 20.5 20.0 17.4 15.0 10.4 8.7 7.9
P/ B (st at ed) 1.39 0.89 0.91 1.22 0.76 0.98 1.19 0.93 0.70 0.68 0.65
P/ Tangible equit y 2.11 1.26 1.21 1.55 0.95 1.18 1.40 1.09 0.81 0.78 0.76
P/ Tangible equit y (DB Core) 2.11 1.26 1.21 1.55 0.95 1.18 1.40 1.09 0.81 0.78 0.76
ROE (st at ed) (%) -1.8% 3.6% 7.7% 1.9% -0.4% 2.7% 3.5% 5.3% 5.5% 7.4% 8.5%
ROTE (ret urn on t angible equit y) 3.3% 9.1% 10.2% 9.1% 5.0% 6.2% 8.5% 8.4% 7.9% 9.1% 9.7%
ROTE (ex holdings) 3.5% 8.0% 9.6% 8.8% 4.9% 6.2% 8.1% 8.1% 7.8% 9.0% 9.5%
ROIC (ret urn on invest ed capit al) 2.1% 5.8% 7.2% 7.0% 4.1% 5.4% 7.5% 7.4% 7.3% 8.4% 9.0%
Dividend yield (%) 2.3% 2.6% 2.2% 1.4% 2.7% 2.5% 2.4% 3.0% 5.2% 5.7% 5.3%
Dividend cover (x) 0.7 2.4 3.4 3.8 1.9 2.0 2.4 2.2 1.8 2.0 2.4

Profit & Loss (EUR m)

Net int erest revenue 218,779 238,420 264,542 265,064 286,480 268,538 276,999 288,911 281,872 285,574 292,615
Non-int erest income 118,370 160,295 208,579 197,011 220,433 216,605 209,938 235,136 217,562 229,689 238,286
Commissions 92,015 90,039 101,739 104,858 106,716 102,950 106,918 113,053 114,073 118,627 123,424
Trading revenue -20,774 34,318 44,289 24,870 33,992 43,874 43,479 46,979 41,806 41,935 42,752
Ot her revenue 47,129 35,937 62,551 67,283 79,725 69,781 59,541 75,104 61,683 69,127 72,110
Tot al revenue 337,149 398,715 473,122 462,075 506,913 485,143 486,937 523,851 499,398 515,263 530,901
Tot al Operat ing Cost s 273,599 240,303 272,671 298,223 343,273 325,111 323,319 356,900 330,477 314,795 304,075
Employee cost s 103,561 107,105 124,624 129,871 137,088 126,017 126,842 135,782 132,970 132,253 132,449
Ot her cost s 170,038 133,198 133,318 150,020 169,029 158,562 157,649 178,117 163,143 150,678 140,656
Pre-Provision prof it / (loss) 89,800 155,679 199,032 177,250 182,828 174,905 174,439 183,885 181,547 205,550 228,589
Bad debt expense 69,619 108,585 94,354 91,047 128,118 105,137 78,480 59,890 55,081 51,424 52,000
HSBA.L Operat ing Prof it -6,070 49,827 106,097 72,804 35,522 54,896 85,138 107,061 113,840 149,044 174,825
(9.5%)
Pre-t ax associat es 1,789 2,688 1,462 2,664 -972 6,815 1,879 4,110 4,626 3,741 3,798
SAN.MC
(9.1%) Pre-t ax prof it -4,281 52,515 107,558 75,468 34,549 61,711 87,018 111,171 118,466 152,786 178,624

BNPP.PA
Tax 1,383 13,367 25,367 21,584 17,543 17,608 24,466 28,562 33,496 41,767 48,387
(8.5%) Ot her post t ax it ems -6,317 -12,421 -11,694 -34,715 -22,242 -15,296 -13,967 -19,988 -14,904 -13,493 -13,926
UBSG.S St at ed net prof it -12,514 26,506 70,427 18,617 -4,586 30,042 40,041 66,864 70,067 97,527 116,312
Other (5.4%)
(67.5%) Reconciliat ion t o DB adjust ed core earnings
Goodwill 3,848 2,235 2,021 19,940 3,558 2,342 2,166 395 280 253 230
Ext raordinary & Ot her it ems 23,625 16,302 -4,191 30,305 45,608 24,915 40,441 22,069 17,154 6,664 -393
Bad Debt Provisioning 0 0 0 1,671 0 0 8 6 0 0 0
Invest ment reval, cap gains / losses -34 -96 139 -1,091 -411 -205 -378 -622 365 401 241
Revenues - FY1 (EUR m) DB adj. core earnings 14,925 44,946 68,396 69,441 44,169 57,094 82,278 88,712 87,866 104,846 116,390
1. HSBC Holdings (HSBA.L) 47,572 Key Balance Sheet Items & Capital Ratios
2. Banco Santander (SAN.M C) 45,135 Risk weight ed asset s 6,938,510 6,698,961 7,533,445 7,813,422 8,175,275 7,701,835 8,076,170 8,035,580 8,011,540 8,058,946 8,268,318
3. BNP Paribas (BNPP.PA) 42,393 Average Tot al Asset s 17,395,486 17,665,405 19,224,485 20,293,314 23,270,996 21,932,352 22,122,584 22,867,831 22,215,509 22,250,334 22,541,513
4. UBS (UBSG.S) 26,664 Tot al loans 7,123,747 7,253,168 8,528,888 9,416,720 10,294,165 9,741,144 10,100,281 10,441,795 10,555,870 10,785,331 11,082,359
Other (Other) 336,490 Tot al deposit s 6,755,059 7,065,366 8,271,334 8,571,922 9,496,314 9,557,769 10,084,258 10,493,656 10,581,975 10,786,298 11,033,626
Total 498,253 St at ed Shareholder Equit y 655,177 788,499 950,080 999,752 1,120,578 1,116,511 1,203,198 1,278,977 1,312,482 1,358,992 1,412,251
Tangible shareholders equit y 430,660 559,176 711,428 786,040 902,048 925,697 1,017,181 1,092,543 1,124,873 1,171,087 1,223,088
Tier 1capit al 582,331 698,322 845,159 907,158 1,041,889 989,552 1,056,040 1,151,383 1,177,117 1,230,078 1,280,040
Tier 1rat io (%) 8.4% 10.4% 11.2% 11.6% 12.7% 12.8% 13.1% 14.3% 14.7% 15.3% 15.5%
LLOY.L Basel III CET1rat io nm nm nm nm 9.2% 10.1% 11.1% 12.2% 12.5% 13.0% 13.2%
HSBA.L (6.7%)
(12.%) Tangible equit y / t ot al asset s (%) 2.5% 2.9% 3.3% 3.5% 3.7% 4.2% 4.1% 4.6% 4.8% 4.9% 5.1%
SAN.MC
(6.1%) Credit Quality
Gross NPLs / Tot al Loans (%) 3.68% 5.38% 6.17% 6.19% 6.63% 7.43% 6.77% 6.01% 5.59% 5.24% 5.00%
BNPP.PA
(6.%)
Risk Provisions / NPLs (%) 61% 51% 41% 40% 45% 46% 49% 52% 55% 58% 59%
Other
(69.1%) Bad debt chg / Avg loans (%) 0.98% 1.50% 1.11% 0.97% 1.24% 1.08% 0.78% 0.57% 0.52% 0.48% 0.47%

Growth Rates & Key Ratios

Growt h in revenues (%) -15% 18% 19% -2% 10% -4% 0% 8% -5% 3% 3%
Growt h in cost s (%) 17% -12% 13% 9% 15% -5% -1% 10% -7% -5% -3%
Growt h in bad debt s (%) 78% 56% -13% -4% 41% -18% -25% -24% -8% -7% 1%
M arket Capitalization - Current (EUR m) Growt h in RWA (%) -3% -3% 12% 4% 5% -6% 5% -1% 0% 1% 3%
1. HSBC Holdings (HSBA.L) 107,676 Growt h in loans (%) 4% 2% 18% 10% 9% -5% 4% 3% 1% 2% 3%
2. Lloyds Banking Group (LLOY.L) 61,451 Growt h in deposit s (%) 7% -7% 21% 6% 12% -9% 7% -1% -1% 1% 2%
3. Banco Santander (SAN.M C) 55,660 Net int . margin (%) 1.96% 2.07% 2.12% 1.93% 1.99% 1.89% 1.91% 1.88% 1.82% 1.83% 1.84%
4. BNP Paribas (BNPP.PA) 54,978 Cost income rat io (%) 73.4% 61.0% 57.9% 61.6% 63.9% 63.9% 64.2% 64.9% 63.6% 60.1% 56.9%
Other 628,590 Cap.-market rev. / Tot al revs (%) 17% 31% 29% 26% 27% 27% 27% 28% 28% 28% 29%
Total 908,355 Tot al loans / Tot al deposit s (%) 105% 103% 103% 110% 108% 102% 100% 100% 100% 100% 100%

Source: Deutsche Bank estimates and aggregated company data

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Banks
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The F.I.T.T. series

Further reading

This report deals with the basics of banking analysis, which are applicable
across all broad types of banks. But we hope that readers will want to know
more than just the basics!

Deutsche Bank produces a series of F.I.T.T. reports: Fundamental, Industry-

focused, Thematic and Thought Provoking. These deep dive publications offer
additional reading for topical issues and sub-segments of the banking industry.
In many cases, these F.I.T.T. documents are updated and maintained to
provide an ongoing guide, e.g. to banking sector regulation.

Below we list reports that should be useful for readers looking to get a more
in-depth view of specific parts of the banking industry.

 Regulatory change: We wrote about regulatory change in our 17 June

2015 report, Basel 4 – Truth and Advertising, looking at issues ranging
from the Fundamental Review of the Trading Book, Standardised
Floors, and the new Standardised Approach.
 Merger & Acquisition trends in banking: The DB banks team maintains
a database of merger and acquisition data for European banks dating
back to 1998. This is a “live” database, most recently published in our
28 July 2015 report, M&A: Poor track record, rich opportunities.
 Technology in banking: Especially in retail banking, technology has the
scope to completely change how people interact with money and
banks, and also enable new entrants. Our most recent Technology in
Banking FITT report is our September 2013 report, The Future of Retail
Banking.
 Investment banking: we wrote in-depth on the investment banking
industry, sales and trading, and cost and RoE structures in our FITT
report dated 31 August 2014, Long-run drivers of demand for
investment banking services.
 Retail and commercial banking: This is a key part of the majority of
European banks, for example featuring in our FITT report on the UK
retail banking market, UK Retail Banking, dated 8 September 2014.
Also key to our retail banking product is our Margin Monitor, which we
publish monthly.

The Deutsche Bank European banks team aims to publish several industry FITT
reports per annum. We intend that these will provide additional reading for
experienced investors and also act as supplementary reading to this report.

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Banks
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An introduction
Before we get started…

In this report, we aim to provide a springboard for investing in banks. There are
many challenges in analysing banks, due to cyclicality and poor disclosure, and
the different forms of reporting and valuation used for financials compared to
industrials. In the following chapters, we try to make these challenges simpler
for the novice banks analyst. But before we dive into the report, we will say a
few words about the current state of the European banking sector.

Declining leverage and the shift to utility

Most industries, over time, should earn roughly their cost of capital. This can
change due to spells of innovation, or market inefficiencies (tendency to
monopoly or oligopoly). But other things being equal, industries that do not
have high barriers to entry should earn their cost of capital, as excess returns
are competed away.

By and large, this is true for many industries over long periods of time; but –
especially in the 1990s and 2000s, banking looked like it was different. Market
participants (including us) put this down to innovation, economies of scale,
and barriers to entry caused by regulation. Returns on tangible equity were
high and growth consistently in double-digits. It sounds too good to be true,
and indeed it was.

Figure 3: Returns on tangible equity versus total asset to tangible equity

leverage, DB coverage universe
30.0% 45.0

40.0
25.0%
26.0%
24.9% 35.0
24.0%
22.7%23.0% 23.0%
20.0% 30.0
20.0%
18.0%18.3% 25.0
15.0%
15.50%
20.0

12.7%
10.0% 15.0
10.1%10.3% 10.2%
9.5% 9.4%
8.9% 8.6% 10.0
5.0% 6.3%
4.8% 5.0% 5.0

0.0% 0.0
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017E

TE / TA RoTE

Source: Deutsche Bank aggregation of company data

We now know that on a risk-adjusted basis, returns were not as high as we

thought. This leverage explosion has been unwound under pressure from
funding markets and regulators. Roughly speaking, we expect leverage to have
halved between 2007 and 2016. For our coverage universe, we calculate that
tangible shareholder equity in 2007 was around Euro 0.5tr. By end-2016, we

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Banks
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expect efforts to recapitalise to have yielded around Euro 1.1tr of tangible

shareholder equity. Over the same time period, we expect profits to be almost
unchanged on 2007. Returns will have more than halved, at a 9% RoTE.

Figure 4: Adjusted net profits and tangible shareholders equity: DB coverage

universe, Indexed to 100
238
224
213
198

180
174
167
155

131 128
113
100 100 97 100

79
72 71
55
49
42

12

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E

TBV Net Profit

Source: Deutsche Bank aggregation of company data

Where next for the banks?

On the positive side, the banking sector still exists, and is a large, profitable
concern. As we discuss in our next chapter, if the sector did not exist, we
would have to invent it. But large parts of the sector have taken on the growth
characteristics of a utility-type business, growing at best in line with nominal
GDP. This is not unprecedented. Readers that have covered other industries
will know that the same thing happened in sectors like telcos or big pharma.

Indeed, at constant leverage ratios, with a 9% return on tangible equity

through-cycle and a 60% payout ratio, it is impossible for the banks to grow
their asset bases faster than 3% per annum on average. This would be more
consistent with the banking sector growing proportionately to nominal GDP.

So is the whole European banking sector one homogenous morass,

condemned to low-single-digit rates of growth? Thankfully, the answer is no.
Even in utility-type sectors, excess earnings growth and cash flow can be
generated, whether from cost-cutting plans, consolidation (M&A) activity,
growth opportunities outside Europe, or gearing to global growth. Banks will
also be more cyclical than true utilities, leaving them with some downside in
an economic slowdown, and early-cyclical recovery potential. These are all
issues that we aim to cover in the rest of this report, along with the basics of
banks analysis and valuation.

But for the next decade or so, we expect the sector overall to continue in its
lower growth, more utility-like model. This should lead, we think, to bank
investment being dominated by (1) cash returns and (2) finding the exceptions
to the low-growth rule (whether restructuring or M&A stories).

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The basics of banks

Chapter summary
 In this chapter we visit the basics of banks.
 We first cover the main purposes and types of banks. The sector
provides a number of economic functions, including risk
intermediation (liquidity and credit), a safe store of money, payment
infrastructure, and acting as part of the monetary policy transmission
mechanism.
 Although there are many types of banks (retail banks, investment
banks, mutual banks), all provide these basic functions, but with
different ownership structures and different means of risk
intermediation.
 We also look at banks and the economic cycle; banks are cyclical, and
see the strongest share price performance in the recovery phase of the
economic cycle. This is also the phase when yield curves are typically
at their steepest, as short rates are cut and long rates rise. During the
mid-cycle growth phase, bank earnings grow, but typically this is
offset by multiple compression. And in the downturn phase, banks
underperform, as revenues decline against a fixed cost base and asset
losses increase.
 We finish this introductory chapter with a brief summary of the main
revenue, cost, and balance sheet items in a “typical” bank’s report and
accounts.

The purposes and types of banks

The role of banks in a modern economy

In our eyes, banks have four primary roles
 The first role of the banking sector is to intermediate risk. This is
conventionally both liquidity risk and credit risk. Banks take in short-
term deposits, and make longer-term loans, providing long-dated
financing for SMEs, large companies and individuals.
 The second is to provide a safe store of money. As well as banks
providing physical security for deposits, most countries also have a
deposit guarantee scheme (usually run as an insurance policy paid for
via levies on other banks in the system) for depositors, up to a certain
level.
 The third is to facilitate the movement of money. Banks provide secure
payment systems on a large scale, retail payments, ATMs and so on.
 The fourth is to act as part of the monetary policy transmission
mechanism. In a fractional banking system, banks creating loans are
creating money and pricing money.
During the two European financial markets crises (the 2007 to 2009 financial
markets crisis, followed by the 2010 to 2012 Euro zone crisis), banks failed in
the first two purposes. Instead of intermediating risk, depositors were exposed
to losses from excess risks on the asset side of the balance sheet. This

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required government intervention (guarantees of liabilities), due to there being

insufficient capital in the system to cover the write-downs incurred on toxic
assets, especially US mortgage trading books and loan portfolios. The collapse
in bank confidence has indirectly led to a possible breakdown in the fourth role
of banks, at least in Europe, as credit creation has been weak despite
accommodative central bank policy.

As we will see in later chapters, a large part of the regulatory backlash against
banks has been due to policymakers wanting to avoid a breakdown in banks’
ability to perform these roles.

A simple taxonomy of banks

Not all banks are the same. The description of banks varies, but there are a
number of labels that are commonly used. The majority of banks in Europe
combine retail banking with commercial banking.

 Retail banks predominantly take deposits from, and make loans to,
retail customers and small and medium-sized enterprises (SMEs).
Mutual banks, for example Building Societies in the UK or Credit
Unions, are usually a subset of retail banks.
 Development banks specialise in generating economic growth. These
may be supported by NGOs, and may specialise in providing or
encouraging micro-finance.
 Commercial or wholesale banks predominantly provide banking
services to corporates. Pure wholesale banks without retail arms are
unusual; an example would be Germany’s three pillar system, where
the Landesbanken provide only wholesale banking services, and the
Sparkassen provide retail banking services, with the commercial /
listed banks being universal banks.
 Investment banks are those that principally provide capital market
services. In Europe, investment banking services are provided by
wholesale banks, but in the US, under Glass-Steagall (now repealed)
these activities were separated, hence a small number of “broker /
dealer” pure plays.
 Private banks are solely active in asset gathering from wealthy clients.
The largest private banks are domiciled in tax-advantaged economies
with strong banking secrecy laws, like Switzerland. Although these
advantages are under threat from the OECD model tax convention and
pressure to reduce tax evasion, scale and expertise gives the “legacy”
private banks a head-start.
 Bancassurers sell insurance products and banking products through
retail banking networks, aiming to cross-sell the full range of financial
services products.
 Universal banks are those that provide most or all of the banking
services described above.

Many large European banks combine these operations within different

divisions, with the exception of bancassurance. After a phase in the late 1990s
and early 2000s when bancassurance was seen as a key trend in financial
services, most of the banking / insurance conglomerates have now split apart
again (Credit Suisse / Winterthur, Allianz / Dresdner, and so on). In 2016,

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however, there are fewer of these European universal banks than before, as a
banks have trended towards focus and away from large conglomerate style
strategies (which were a source of risk in the crisis period).

European Banks and the economic cycle

When in the economic cycle do banks perform best?

So how do banks interact with the economy? This is a big subject and the
answer differs subtly between the major business areas. But we can make
some overarching comments.

Banks are cyclicals, and like all cyclicals, banks experience the sharpest
recovery in earnings (and share prices) in the recovery phase for the economy.
Revenues recover, and asset losses (bad debts) fall. Any cost-cutting
programmes put in place during the downturn phase will also bite in the
recovery phase. This adds operational leverage to the recovery.

Figure 5: Banks and the economic cycle: revenue, cost and bad debt
behaviour in each phase
Phase 2: Mid-cycle
growth Revenues
Focus moves on to
earnings and Costs
earnings growth, Bad debts
costs pick up

Phase 1: Recovery Phase 3: Downturn

High leverage banks Credit quality declines,
outperf orm (recovery deteriorating client
plays, investment banks) activity and f ixed costs
driven by liquidity squeeze prof its

Revenues
Revenues
Costs
Costs
Bad debts
Bad debts

Source: Deutsche Bank

In the mid-cycle period, multiples typically compress, offsetting revenue

growth. During the mid-cycle period, bank share price performance tends to
depend more on growth and on growth surprises. In the European cycle
between 2005 and 2007, for example, growth in emerging markets was
perceived as most valuable, and Standard Chartered (Asia), Austrian banks
(CEE) and Greek banks (SEE) all performed better than domestic retail banks,
despite domestic retail banks continuing to see earnings growth.

What has changed versus previous cycles is banks’ ability to gear themselves
into the cycle. Leverage ratio requirements mean it is no longer possible to
grow assets faster than equity.

This means banks have become rather weak “upside” cyclicals, compared
with the past. Our view is that this is unique to this cycle – banks are
struggling to outperform in the upswing because the market is adjusting to the
“new normal”, and in future cycles, some cyclical upside will still be available.
But to a much lesser extent than previously.

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Figure 6: 2000 to 2015: the economic (and banking) cycle in action

SX7P (banks index) relative performance versus the wider market, indexed
Recovery phase after the Mid-cycle growth phase; Sharp downturn phase over five The new world:
mid-early 2000s earnings grow but banks years, initially post-financial crisis, Banks show no cyclical
1.6
downturn, banks only perform in-line then following a very brief rally, outperformance in the
outperform and TMT de- straight into the Euro zone crisis recovery, because they are
rates now low growth utility stocks
1.4

1.2

1.0

0.8

0.6

0.4
EARLY CYCLE MID CYCLE LATE CYCLE THE NEW WORLD:
0.2
OUTPERFORM IN-LINE UNDERPERFORM IN-LINE AT BEST

0.0
01/2002
01/1999

01/2000

01/2001

01/2003

01/2004

01/2005

01/2006

01/2007

01/2008

01/2009

01/2010

01/2011

01/2012

01/2013

01/2014

01/2015
Source: Deutsche Bank annotation over Reuters data

Finally, in the downturn phase, banks underperform substantially, as happened

in 2008. During 2009, the banks performed better as Europe experienced a
mild recovery, only to turn down again in 2011. At the time of writing (early
2016), banks are again selling off, over fears of a return to global recession.

Banks and interest rates: a steeper yield curve is good, but mainly for cyclical
reasons
One of the common misconceptions around banks is that because they lend
long (loans) and borrow short (deposits), a steep yield curve is good for banks,
because they make money from the maturity mismatch. Similarly, cuts in
short-term interest rates must be good. Rate cuts also steepen the yield curve
by boosting growth expectations, and higher growth expectations (other things
equal) mean higher long yields. Conversely, a sharp rise in the interest rate
means reduced future growth and inflation fighting by the central bank, and
may drive an inverted yield curve.

This simple analysis is supported by the fact that banks often perform better in
a rate-cutting environment, and worse in a rate-lifting environment. But this is
a case of confusing cause and effect. There are two reasons why this simple
explanation (that the banks are playing the yield curve) doesn’t work.
 First, banks use interest rate swaps to manage their asset and liability
risk. Some banks may leave some mismatch to try to make additional
profits, and indeed treasury departments often do this, but not
sufficiently to drive the whole P&L. This would be irresponsible – a
bank funded entirely short and loaned long would implode on a sharp
surprise rise in interest rates. Furthermore, any short-term opportunity
to do so will still be competed away over time. At best, the yield curve
might influence short-term NIMs for banks choosing to play it, but this
is not sustainable over time.
 Second, the conventional idea of banks borrowing overnight and
lending long is outdated – in some countries the reverse is actually
true. For example, in the UK, funding is a mix of short-term (deposits)
and long-term (debt funding), but as of today, most mortgages are
variable rate, not fixed, and so are most consumer loans.

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All that being said, a positive yield curve can have some influence, especially
when a banking system is naturally positioned with short funding and long
lending. This is true in the US market, for example. Below, we show
empirically the US net interest margin versus the steepness of the yield curve.
The relationship is positive, but weakly so. Banks generate positive interest
margins even during extended periods of yield curve inversion. And the US is
one of the countries most strongly-geared to the yield curve, as it is not a large
issuer of term debt by banks, and tends to convert mortgages to long-dated
securities.

Figure 7: US AIEA NIM % (based on FDIC data) versus Figure 8: US AIEA NIM % (based on FDIC data) versus
US yield curve steepness US yield curve steepness
There is a relationship between NIM and steepness... But in absolute terms it explains a small amount of the NIM

5.0% 4.6% 5.0% 4.6%

4.4% 4.4%
3.0% 4.2% 3.0% 4.2%
4.0% 4.0%
1.0% 3.8% 1.0% 3.8%
3.6% 3.6%
-1.0% 3.4% -1.0% 3.4%
3.2% 3.2%
-3.0% 3.0% -3.0% 3.0%
1985

1988

1991

1994

1997

2000

2003

2006

2009

2012
1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

1yr-10yr Steepness (% LHS) AIEA NIM (%, RHS) 1yr-10yr Steepness (% LHS) AIEA NIM (%, RHS)

Source: Deutsche Bank Source: Deutsche Bank

The stronger relationship between a steep yield curve / bank outperformance is

the same relationship that makes all cyclicals perform well in a steeper interest
rate environment. A steep yield curve is an indicator of accelerating economic
growth. For banks, accelerating economic growth means rising revenue
growth and falling bad debts, on a largely fixed cost base.

A simplified bank income statement

Below, we show a simple bank income statement. We expand on the basic

income statement later in the report, looking at retail banking and investment
banking as separate industries. But for this chapter, we use the summary
version to provide a basic framework for understanding how banks earn
money.

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Figure 9: Profit and loss statement (Euro m): aggregate of European banks
Year Ending 31December 2012 2013 2014 2015 2016E 2017E
Earnings & Book Value Growth Rates
No. of Banks 45 45 45 45 45 45
Earnings - St at ed -116% -940% 35% 92% 23% 26%
Earnings - adj., f ully dilut ed, core -39% 28% 45% 20% 5% 14%
Dividends 28% 21% 18% 21% 13% 23%
Book Value - St at ed 5% -1% 8% 7% 4% 5%
Tangible NAV (incl. holdings) 7% 2% 10% 8% 4% 5%
Tot al Market Cap 878,901 1,133,773 1,434,784 1,334,144 943,672 948,278
Valuation & Profitability M easures
P/ E (st at ed) -240.2 38.4 35.9 17.4 10.0 8.0
P/ E (adj) 20.0 19.9 17.3 13.3 9.0 7.9
P/ E (adj ex holdings) 20.0 19.9 17.3 13.3 9.0 7.9
P/ B (st at ed) 0.80 1.03 1.20 0.88 0.71 0.68
P/ Tangible equit y 1.00 1.25 1.42 1.04 0.83 0.79
P/ Tangible equit y (DB Core) 1.00 1.25 1.42 1.04 0.83 0.79
ROE (st at ed) (%) -0.3% 2.7% 3.5% 6.1% 7.2% 8.7%
ROTE (ret urn on t angible equit y) 5.0% 6.3% 8.6% 9.5% 9.4% 10.2%
ROTE (ex holdings) 5.0% 6.2% 8.2% 9.1% 9.2% 9.9%
ROIC (ret urn on invest ed capit al) 4.1% 5.4% 7.4% 8.1% 8.3% 9.0%
Dividend yield (%) 2.8% 2.6% 2.4% 3.2% 5.1% 6.2%
Dividend cover (x) 1.8 1.9 2.4 2.4 2.2 2.0

Profit & Loss (EUR m)

Net int erest revenue 283,192 272,089 283,757 304,107 304,335 314,086
Non-int erest income 223,793 217,017 206,952 228,357 224,535 231,016
Commissions 132,077 128,018 129,755 136,214 137,570 143,398
Trading revenue 48,796 52,636 44,525 53,717 49,772 50,547
Ot her revenue 42,920 36,364 32,672 38,426 37,193 37,071
Tot al revenue 506,985 489,107 490,709 532,465 528,870 545,102
Tot al Operat ing Cost s 334,924 325,748 322,889 348,558 326,200 314,608
Employee cost s 150,701 140,505 141,485 149,556 148,259 145,659
Ot her cost s 147,067 142,252 140,075 156,241 144,502 136,675
Pre-Provision prof it / (loss) 182,864 176,241 175,729 199,051 210,155 231,881
Bad debt expense 128,117 105,505 78,731 58,614 54,851 52,119
Operat ing Prof it 43,945 57,855 89,088 125,293 147,819 178,375
Pre-t ax associat es -972 6,814 1,880 4,002 3,631 4,069
Pre-t ax prof it 42,972 64,669 90,969 129,295 151,449 182,444
Tax 16,813 17,780 24,470 31,649 42,303 49,729
Ot her post t ax it ems -30,469 -18,600 -17,972 -21,824 -14,574 -13,904
St at ed net prof it -3,659 29,525 39,982 76,843 94,600 118,813
Reconciliat ion t o DB adjust ed core earnings
Goodwill 3,558 2,342 2,166 422 286 256
Ext raordinary & Ot her it ems 43,242 25,074 39,690 22,985 9,835 565
Bad Debt Provisioning 0 0 8 6 0 0
Invest ment reval, cap gains / losses 1,543 277 1,287 -95 458 138
DB adj. core earnings 44,684 57,218 83,133 100,160 105,178 119,772
Source: Deutsche Bank estimates

Net interest income and net interest margin

The largest component of a bank’s revenue is net interest income (NII) – which
accounts for about 55-60% of revenues on average (see Figure 9 above). This
is slightly less than the 60-65% that we see in the US, with European banks
being more “universal” providers of financial services than the US model. NII is
the difference between the interest earned on a bank’s interest earning assets
(i.e., loans, securities and other interest-earning investments) and the funding
cost of a bank’s liabilities – which consists of deposits (customer and
interbank) and term debt. NII is driven by volumes (i.e., assets) and the net
interest margin.

A bank’s net interest margin (NIM) is a key profitability metric, representing the
spread between interest income and interest expense, divided by an asset
measure. In the UK and the US, the asset measure used is average interest
earning assets; euro zone banks do not typically disclose this number and
average total assets are used instead.

There are a variety of reasons as to why certain banks have higher NIMs than
others. Differences are driven by a combination of higher asset yields, lower
funding costs and equity capital levels. NIMs also need to be considered in
context with credit / interest rate risk; higher NIMs can be driven by higher
credit and / or liquidity risk, and this shows up with widely different NIMs by
different operations. Lastly, while non-interest bearing (and low-cost) deposits

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are a cheaper source of funding (increasing NIM), one has to factor in the
amount of additional operating expenses (e.g. branch expenses, etc.) relative
to minimal operating expenses from wholesale borrowings.

Overall, NIMs are usually best used as a time-series, to track improvements or

deteriorations. Comparisons of absolute NIMs between banks are difficult,
because different business mixes can lead to very different NIMs.

Because NIMs represent a core and stable source of revenue for all banks, we
look at margins in detail in their own chapter, immediately following this one.

Non-interest Income
Non-interest income accounts for about 40-45% of revenues for European
banks, more than for US banks, for example. Within this, fee and commission
income represents the largest part, at 26% of total revenues. These
percentages are based on the latest data for our aggregate coverage universe.
Whilst in the 2000s banks were keen to push clients into fee generating
products, recently we have seen the trend reverse. This is because many banks
(especially in Spain, Italy and France) are seeking deposits to improve their
funding situation. This has the effect of driving clients out of fee-generating
mutual funds and back into deposits.

Trading income
Trading income, in principle, represents the gains and losses a bank makes
from positions in financial instruments. This can be a very broad category,
covering positions in bonds, traded loans, or interest rate positioning. On
average, trading income has accounted for about 10% of total income for our
European banks coverage universe since 1990.

Unfortunately, the accounting for trading income versus interest income

(coupons vs. gains on bonds) is not well suited to understanding business
purpose, and what common sense would think of as trading income is
sometimes booked in interest income. For example, in 2010 and 2011, around
40% of UBS’s reported net interest income was earned on its trading portfolio
plus its repo portfolio. Over time, this number can be very volatile and
disruptive to trend analysis.

Figure 10: European Banks coverage Figure 11: European Banks coverage
universe: commission as % total universe: trading as % total

31% 31% 13%

29%
11% 12%
26% 26% 26% 26% 26% 26% 11% 11% 10%
25% 10% 10% 9%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -4%

Source: UBS Source: Deutsche Bank aggregations

For this reason, large investment banks typically disclose their revenues by
business classification (fixed income trading, equities trading) and not by
interest income versus trading income. Trading income needs to be treated
with caution, as a consequence (and so does net interest income).

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Other income
Other income is, naturally, a catch-all. Within the European banks, we see
revenues in this line item related to gains and losses on investments or
industrial portfolios 1 . For asset management companies with large private
equity businesses, these revenues may be consolidated (as under direct
management control) but then paid away (to the fund investors). Other income
always warrants close analysis during results season.

Non-interest expense
Having dealt with revenues, how about costs? The largest portion is typically
personnel expenses (wages, salaries and other employee benefits), which
represent just under half of non-interest expenses, similar to the split in the US.
This varies a lot by type of bank, however, with capital markets-driven banks
(investment banks, private banks) seeing closer to two-thirds of expenses
being personnel expenses. The accounting for investment banking staff costs
is also complex, but we deal with this in our chapter on market structure in the
Investment Banking section later in this report.

One item that does not feature heavily (any more) is goodwill amortisation.
Prior to IFRS, many banks amortised goodwill through their income
statement2. By convention analysts would add this back as a non-cash item.
Today, under IAS 36 – Impairment of assets – goodwill is not amortised, but
instead subjected to an annual impairment test. Non-goodwill-acquired
intangible assets are still amortised through the P&L, however; but these are
typically small amounts related to software, brand names and so on.

Litigation and conduct costs

One cost item that has been a major feature of bank cost bases in recent years
is lumpy litigation or conduct costs. Litigation costs are those awarded in court
(or settled out of court), and conduct costs include fines and other penalties.

In general, conduct costs are a cost of doing business – an operational risk.

Banks are large, and statistically, some wrong-doing or control failure is
inevitable in a very large industry (with a lot of money at stake). These are not
really non-recurring items. Sometimes, however, litigation costs are very large
and relate to a practice that does not exist any more within the bank, such as
PPI mis-selling in the UK, or RMBS practices in the US. For businesses that a
bank no longer does, we generally adjust for non-recurring items.

1
European banks in several countries have a history of close involvement with industry, in some cases
leading to their holding large equity stakes in major domestic industrial companies. This has been
particularly true in Spain, Italy, France and Germany, although less so over time.
2
IFRS was made mandatory in Europe in 2005, although Deutsche Bank financial models typically are
IFRS-based from 2004 onwards, as banks provided restated IFRS accounts back to 2004.

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Figure 12: Summary of global conduct costs at major banks

70

60

50

40
US$ bn

30

20

10

0
2009 2010 2011 2012 2013 2014 9M15

-10

US Banks European Banks UK Banks

Source: Deutsche Bank

The cost:income ratio and operational gearing

The cost:income ratio (also known as the efficiency ratio) is a measure of how
lean a bank is. The ratio is calculated simply as costs (excluding amortization
of intangibles and goodwill impairments) divided by total revenue (excluding
one-time gains etc). The average cost:income ratio for the European banking
sector under our coverage has been 63% over the last 20 years. Banks in the
unquoted sector typically have higher cost:income ratios.

Because banks have quite large fixed cost bases, the sector also experiences a
high level of operational gearing. That is to say, when revenues grow cyclically,
revenue growth typically exceeds cost growth, pre-provision profit expands
faster than revenues, and the cost:income ratio falls. And the converse is true.
We illustrate this point in the figure below.

The difference between the revenue growth rate and the cost growth rate is
sometimes referred to as the “jaws”; positive jaws means that revenues are
growing faster than costs, and negative jaws the opposite.

The chart below illustrates that the trend for cost:income ratios has been for
modest improvement during times of recovery / growth. Should our forecasts
be met, we anticipate aggregate cost:income ratios falling to the mid-50s by
2017E.

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Figure 13: European Banks aggregate cost:income ratio since 1994:

European banks
68%
suffer (or benefit) 68% 68%
from operating 67%
66%
leverage, because of a 66% 66% 66%
65%
high level of fixed 64%
costs 64% 64% 64%
62%
Cyclicaly generated 61% 61%
revenue growth tends 60%
60% 60%
to lead to efficiency
58% 58%
ratios gradually 58%
improving; recessions 57%
lead to sharp 56%
deterioration

Overall, however, the

trend has been for
greater cost efficiency
over time, in
aggregate 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016E

Source: Deutsche Bank data from R1 database

Provisions for bad debts and other write-offs

The final main operating item for banks is provisioning against bad debts, and
write-offs. These are mainly taken against the loan book, but in principle can
be incurred against any credit exposure (sovereign bonds included). The bad
debt charge is very cyclical, rising as the economy slows, and falling as the
economy recovers. This is so for several reasons:

 Declining cash-flow at counterparties as economies slow. This can be

expressed in many ways – rising unemployment reduces income for
retail customers and increases default. Reduced sales for corporates
means less cashflow to service interest payments.
 Declining value of collateral. In a recessionary environment,
confidence falls, and the value of assets declines. Banks lend against
security, be it residential mortgages, commercial mortgages, or loans
backed by securities. Even conservative loan-to-value (LTV) ratios can
be overwhelmed by a sufficiently large downturn.
 Interest rates. One driver of a slowdown in an economy is the central
bank pushing interest rates up to fight inflation. This slows the
economy (via the monetary transmission mechanism), but also
increases the burden of paying interest costs for borrowers.

Although in the 2007-2009 banking crisis non-traditional losses caused the

biggest problems for European banks, these losses were still credit-related at
heart (US mortgage-related securities, sovereign risk). Credit and loan losses
are sufficiently important that we cover them in detail in a subsequent chapter.

A simplified bank balance sheet

Bank balance sheets are, in our experience, analysed less thoroughly than
income statements, even though balance sheets drive the bulk of earnings
volatility during recessions, either via large trading losses on securities, or large
credit losses on loan books. A large part of the 2007-2012 crisis (initially
subprime then euro sovereign) was caused by banks’ balance sheets having
grown too large. Below, we show the long-run growth rates in the euro zone
balance sheet.

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Figure 14: Breakdown and growth rate of euro zone bank assets
30,000
Other Assets CAGR
9.9%
25,000
Fixed Assets
-0.8%
20,000 External Assets
6.1%
15,000 Shres / Eqs
7.4%
Other Secs
10,000 11.2%
Govt Secs
3.1%
5,000
Loans to non-MFIs non
Govt 4.9%
0
Loans to Govt
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
1.7%

Source: Deutsche Bank graphic based on ECB data

On the asset side of the balance sheet, the largest item for the European banks
is their loan book. Loans to non-bank euro area residents amount to Euro 11tr.
Over the long-run (since 1997), this has grown at a compound annual growth
rate of 5%, i.e., in excess of nominal GDP. External assets (Euro 5tr) and
securities holdings (Euro 4tr) have also grown rapidly, with other assets
growing the fastest (Euro 4tr). Not for nothing are banks considered to be
opaque! Other assets include repo books and derivative positions.

Figure 15: Breakdown and growth rate of euro zone bank liabilities
30,000
CAGR
25,000
Other Liabilities 7.1%

External liabilities 5.8%

20,000
Capital & Reserves 7.4%
15,000
Debt Issued 3.2%

10,000 Money Mkt Funds 4.0%

5,000 Non-bk deposits 5.3%

Govt Deposits 3.9%

0
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15

Currency 6.9%

Source: Deutsche Bank graphic based on ECB data

On the other side of the balance sheet lie euro zone bank liabilities. As on the
asset side, the largest item is driven by the retail and corporate sector, with
deposits of Euro 12tr. For the euro zone as a whole, loans and deposits are
quite well-matched, although there are big discrepancies for certain countries
(essentially, the periphery). Debt in issue also accounts for a large part of
banks’ funding, around Euro 2tr for euro zone banks. The other large item is
external liabilities, of around Euro 4tr, representing funding (deposits, debt
issued) outside the euro zone.

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Bank balance sheets are crucial to understanding:

 Asset quality and credit risk,
 Capital adequacy and leverage, and
 Funding.

Each of these topics is sufficiently important that we have given them their
own full chapters, later in this report.

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Valuing bank stocks

Chapter summary

This chapter looks at the fundamentals of how stocks in the banking sector are
valued. Valuations for banks can be confusing, because by convention, banks
do not use the same metrics as other industries (EV to EBITDA). Bank
valuations tend to be more focused on earnings power. In this chapter we
cover:
 The key valuation metrics for banks. The most commonly used metrics
are:
 Price to Tangible Book Value (PTBV)
 Price to Earnings (PE)
 Price to Pre-Provision Profits (PPPP)
 Implied cost of equity
 Each metric tends to receive more attention at different stages of the
cycle. But all four are influenced by earnings revisions. Better earnings
means lower PE, a better PTBV to RoTE relationship, and for earnings
revisions due to revenues or bad debts, cheaper PPP multiples.
 We also look at the importance of earnings revisions. Although
valuation measures are important, buying cheap banks per se does not
work as a means of outperformance. Banks that become cheaper
thanks to positive earnings revisions, however, do tend to outperform.
 Dealing with conglomerates. Banks are not well suited to sum-of-the-
parts valuations in the general sense. Unlike an industrial
conglomerate, it is rarely straightforward to break up a bank. But sum-
of-the-parts valuations can be useful for calculating weighted average
target multiples, and can be helpful in identifying group level capital
surpluses or deficits.
 Derivation of formulae. Although simple, the calculation of basic
valuation formulae is still helpful in understanding the common ground
between all valuation approaches.

Why are banks valued differently to other industries?

For anyone coming to the banking industry fresh, a reasonable question is:
“Why are banks not valued using EV / EBITDA?” The answer is that enterprise
value methodologies are trying to look at valuation excluding the influence of
debt in the capital structure. But for banks, interest-paying debt is not
exclusively a form of capital, it is also an operating item.

Deposits, certificates of deposits, senior unsecured bonds, covered bonds, and

so on, are all forms of debt that pay interest. It doesn’t make much sense to
look at a bank’s earnings before the payment of interest, because unlike an
industrial concern, a bank can’t pay back all of its debt.

Consequently, we tend to look at a bank’s valuation based on earnings after

interest (and after tax as well).

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What valuation metrics do we use for banks?

In this section, we look at the key valuation metrics for banks: price to
earnings, price to (tangible) book value, and price to pre-provision profits. All of
these, however, are to some extent earnings dependent. Price to earnings is
obviously earnings dependent, price to tangible book value (PTBV) is indirectly
earnings dependent because the multiples of book depend on the return on
book the bank can generate (the RoTBV or RoTE), and price to pre-provision
earnings is also dependent on earnings, being explicitly dependent on pre-
provision earnings per share, and implicitly dependent on post-provision
earnings normalising in the near future.

Calculating underlying earnings

At Deutsche Bank, we take a simple approach to underlying earnings. We add
back non-cash items like goodwill or intangible amortisation. Pre-IFRS, this
item was typically very large, but post-IFRS this is generally small. We also add
back non-recurring non-operational items like restructuring charges or major
litigation charges. But we do not add back operational non-recurring items.
This might include large non-recurring losses on toxic assets, because these
are (however regrettably) part of the operational performance of the group.
Finally, we deduct any earnings related to industrial holdings (especially in
Southern Europe, banks may own part-stakes in industrial concerns).

Figure 16: Calculating adjusted earnings

Start with Stated net profit
Add back Goodwill and intangibles amortisation
Add back Non-recurring non-operational charges
Deduct Capital gains
Deduct Earnings from industrial holdings
Deduct Earnings from businesses sold during the reporting period
Deduct Any other items that reduce attributable shareholder profits, for example
payments to preference shareholders or other minority capital holders
Equals DB Adjusted net profit
Source: Deutsche Bank

PE ratios
The simplest of all valuation measures, price to (DB-adjusted) earnings is a key
multiple, especially in the steady-growth mid-cycle phase of economic growth.
Higher ratios mean higher-quality earnings or higher expected growth rates.
Low ratios mean low-quality earnings, or a sector that cannot grow.

The chart below shows one-year forward PE multiples. The sector in mid-cycle
typically trades in a 8x to 12x forward earnings range. In our view this reflected
a high cost of equity (10% plus) and a low assumed growth rate, or lower
sustainable earnings.

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Figure 17: 2017E PE ratios

14.0
80% of banks trade in
12.0
a +-2x multiple range
10.0

8.0

6.0

4.0

2.0

0.0
Lloyds Banking Group

Monte dei Paschi

Standard Chartered

Banco Popolare
Danske Bank

BBVA
ING
RBS

ABN AMRO
Swedbank

Bank of Ireland

Aareal Bank
Permanent tsb

Bankia

DNB

Barclays
SEB

UBS
Bankinter

Credem

KBC

CaixaBank

Erste Bank

Banco Santander

Credit Suisse Group

Liberbank
HSBC
Julius Baer

Banca Popolare di Milano

Banco Popular
Commerzbank

Raiffeisen Bank Intern.

Nordea

Banco de Sabadell
Cembra Money Bank

Societe Generale
Aldermore

UBI Banca
Intesa SanPaolo

BNP Paribas

UniCredit
Svenska Handelsbanken

Credit Agricole

Deutsche Pfandbriefbank
Source: Deutsche Bank estimates, pricing from Datastream

Don’t buy banks on cheap PE ratios; buy banks for earnings revisions instead
Having identified trading ranges for the sector for PE, and being able to do so
at the individual stock level, should we conclude that investing in banks means
buying them when they are cheap? In fact, this does not work. Last year
(2015), buying cheap banks did not correlate with outperformance by the end
of the year.

As we show below, the largest single predictor for outperformance is positive

earnings revisions, which consistently explain 50% to 70% of performance in
the sector.

Figure 18: 2015: relationship between EPS revisions and Performance

100% y = 1.2731x + 0.1908
R² = 0.5988

80%

60%
Share price
performance
40%

20%

0%
-60% -40% -20% 0% 20% 40% 60%

-20%
1yr Forward
-40%
EPS revision

-60%

-80%

-100%

Source: Deutsche Bank estimates, 2012 data, pricing from Datastream

In conclusion, if a stock appears cheap to an analyst because his or her

earnings estimates are above consensus, i.e., the analyst expects the stock to
surprise positively, this cheapness can lead to outperformance. If estimates are

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in line with consensus and the stock appears cheap, there is no statistical
evidence that this will lead to outperformance; the statistical evidence is that
on average this will lead to underperformance. Buying cheap PE stocks does
not work.

P/TBV ratios
PTBV is the second most commonly referenced valuation metric, and in a
recessionary or downturn environment, will often be the most useful. Book
value is used interchangeably with shareholder equity and net asset value; for
our purposes, we treat TNAV, TBV and TE as all identical, but for the avoidance
of confusion, it’s usually best to spell out definitions.

Price to tangible book value is useful in two ways.

 First, how much an investor pays for a unit of book value (we prefer
tangible book value, because banks have a poor track record at
realising value from goodwill) will depend on how much return is
generated for that unit of book value. Or, put simply, PTBV ratios tend
to be higher when returns on tangible equity are higher. When used in
this way, PTBV ratios are just rearranged PE ratios (see the end of this
section for the algebra behind this statement).
 Second, this metric provides a liquidation valuation if the business
were to be wound up (i.e., broken up and sold). A lower ratio suggests
investors have more pessimistic expectations of what they could
recover from the bank in such a scenario. In practice, though,
extracting tangible book value in a true wind-up is impossible, so this
justification for using PTBV is rather over-rated, in our view.

Tangible book value of equity per share is calculated by stripping out all
intangible assets (e.g. goodwill) from the reported book value of equity per
share that appears in the company’s accounts.

Below we show tangible book value over time.

Figure 19: Long-run PTBV ratios

dark line: tangible book
light line: stated book
3.50

3.25

3.00

2.75

2.50

2.25

2.00

1.75

1.50

1.25

1.00

0.75

0.50

0.25
Jan-80
Jan-81
Jan-82
Jan-83
Jan-84
Jan-85
Jan-86
Jan-87
Jan-88
Jan-89
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16

Source: Deutsche Bank estimates

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There is also a strong correlation between PTBV multiples and returns on

tangible equity. We can see this in Figure 20 below. The line of best fit
represents the PE multiple that the market is paying for sector earnings at any
given time.

There is some additional information, of course, in comparing RoTE to PTBV,

as opposed to just looking at the PE.

 A bank earning 10% RoTE and trading on 100% PTBV is trading on

10x earnings. This is a “normal” bank.
 But a bank earning on 5% RoTE and trading on 50% PTBV is also on
10x earnings, and the lower RoTE bank might be a recovery play.
 Similarly, a bank earning a 30% RoTE and trading on 300% PBTV is
also trading on 10x earnings, but questions should be raised about
sustainability of this RoTE.

But again, it is the change in earnings that drives the actual outperformance,
be it rising earnings (normalising RoTE) or falling earnings (high RoTE was not
sustainable).

Figure 20: Link between RoTE and PTBV: Deutsche Bank European Banks
under coverage
25.0%

y = -0.0229x2 + 0.1186x + 0.0177

R² = 0.7869
20.0%

15.0%

10.0%

5.0%

-
0.00 0.50 1.00 1.50 2.00 2.50 3.00

Source: Deutsche Bank estimates, 2012 data, pricing from Datastream

P/PPP ratios: looking at the earnings power of the franchise

PPP is pre-provision profit. This shows how much investors would be paying
for earnings before bad debt charges (and also tax, albeit tax is reasonably
predictable) are deducted. This is useful when PE and RoTBV is depressed, but
only cyclically, by elevated bad debt charges. A bank that is very expensive on
PE, and has a low RoTE, but looks very cheap on P/PPP, may have a cyclically
elevated bad debt charge.

Of course, the bank may also just have a high bad debt charge because it is in
the business of lending to higher risk individuals.

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Figure 21: Price to PPP profit

12.0
The range of PPP
10.0 multiples is much
greater than PE
8.0
multiples
6.0

4.0

2.0

0.0
Lloyds Banking Group

Monte dei Paschi

Standard Chartered

Banco Popolare
Danske Bank

BBVA
ING
RBS

ABN AMRO
Swedbank

Bank of Ireland

Aareal Bank
DNB

Barclays
SEB

Permanent tsb

Bankia
UBS

Bankinter

Credit Suisse Group

KBC

Credem

CaixaBank

Erste Bank

Banco Santander
Liberbank
HSBC
Julius Baer

Banca Popolare di Milano

Commerzbank

Banco Popular

Raiffeisen Bank Intern.

Banco de Sabadell

Societe Generale
Nordea

Aldermore
Svenska Handelsbanken
Cembra Money Bank

Intesa SanPaolo

BNP Paribas

UBI Banca

UniCredit
Credit Agricole
Deutsche Pfandbriefbank

Source: Deutsche Bank estimates, 2012 data, pricing from Datastream

PPP is most useful at the turning point of a cycle, when bad debts start to fall.
As a reasonable rule of thumb, if the ratio is below 2x PPP, a stock is cheap on
this metric. A bank can still fall further, but for example in the 2007 to 2011
ongoing European sovereign crisis, the banks that were consistently below 2x
PPP (the Irish and Greek banks) in many cases turned out to be failing
institutions.

Solving for different variables

Another popular approach to valuing banks is to look at the implied cost of

equity, or implied growth rate. This is just a different way of looking at the
same thing. To solve for the cost of equity, one can take an assumed growth
rate, the forecast RoTE, the observed PTBV multiple, and solve for the implied
cost of equity. Similarly, one could solve for the implied rate of growth
forecast.

Sometimes it is helpful to solve for these variables to compare the implied cost
of equity with other variables, for example the cost of sovereign debt in a given
country. But this approach requires that all the other variables be fixed, which
is, in our view, too much of a heroic leap.

We track the sector-wide implied cost of equity as part of our data collection,
but we do not track it for individual stocks.

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Figure 22: Implied cost of equity for European Banks

24.0%

22.0%

20.0%

18.0%

16.0%

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%
Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15
Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15
Dec-04

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15
Mar-04

Mar-05

Dec-05
Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15
Banks ERP EUR 10 year swap
Source: Deutsche Bank estimates

Sum-of-the-parts valuations and dealing with

conglomerates

Why do we use SOTP valuations?

Many banks have multiple divisions, in different countries, or different
business lines, with different risk and growth prospects. In Europe, those
banks that aim to provide the full range of business lines are generally known
as universal banks. How should we value a bank that is made up of very
different businesses?

The answer is to apply a sum-of-the-parts valuation. In industrial

conglomerates, this can be used to calculate some sort of break-up value. For
banks, this does not really work, as divisions are often too interconnected, and
breaking up a group can lead to big dis-synergies (a group of small banks
might have higher funding costs than one large bank). But a SOTP is still useful
because:

 A SOTP allows different methodologies to be applied to different

divisions, especially non-banking businesses like insurance or asset
management;
 SOTP valuations make calculating “average” target PEs and PTBVs
much easier;
 Any capital surplus or deficit can easily be identified with a SOTP,
once the “right” amount of capital has been allocated to each
operating division.

One other ill-considered use of a SOTP is to “solve” for implied valuations of

individual divisions. That is to say, we can take a target valuation, deduct using
a SOTP the fair value of some divisions, and see what the implied multiple is of
the remaining division.

This makes the remaining division look very cheap, because effectively this
calculation concentrates any group level risks or discounts into a single

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division, making it look good value, when actually the discount might be due
to distrust of management at the group level or some other issue.

A brief numerical example of how to implement SOTP

Below we show an example SOTP for UBS, the Swiss investment bank / retail
bank / private bank / asset manager.

Figure 23: An example SOTP for UBS, as at early Q1 2016

(2017E, CHFm) Net profit Equity Alloc FuM (bn) P/E (x) P/BV (x) P/AuM (x) Value (bn) Val PS (CHF)
Private banking 2,652 3,978 1,059 13.0x 8.7x 3.3x 34.5 9.0
Business Banking 1,200 4,300 na 11.0x 3.1x na 13.2 3.4
Investment Banking & Securities 1,715 9,021 na 8.0x 1.5x na 13.7 3.6
UBS Asset Management 481 1,600 684 12.0x 3.6x 0.8x 5.8 1.5
WM USA 1,014 2,950 1,070 13.0x 4.5x 1.2x 13.2 3.4
Corporate Centre -590 8.0x -4.7 -1.2
Corporate Legacy -2.7 -0.7
Capital Surplus/Deficit 2.7 0.7
Plus DTA 6.9 1.8
Minus minorities and hybrids -80 8.0x -0.6 -0.2
Total fair value at end-2015 6,443 2,813 12.7x 81.9 21.3
Less conglomerate discount 8.2 2.1
Fair value net 73.7 19.2
12-month target 20.8
Shares in issue 3,838
Normalised tax rate 25%

Source: Deutsche Bank estimates

Valuing the divisions

For UBS, or indeed for any sum-of-the-parts valuation, we can make the
following comments about valuing divisional banking businesses.
 Banking businesses can most easily be valued using the simple
equation, fair price to book value equals (RoE – growth rate) /
(discount rate – growth rate). The discount rate is the cost of equity
(not the WACC). This is sometimes known as the Gordon Growth
Model, but is just a growing annuity formula (in general we think that
calling this approach the Gordon Growth Model is pretentious, and we
try to avoid it).
 Where businesses are valued more on PE ratios by convention in the
market, a target PE ratio can be used instead.
 Care should be taken that the amount of capital allocated to the
business is “appropriate“, i.e., that the bank is not under-allocating
capital versus what the business would need on a standalone basis

Similarly, we can make the following comments about valuing divisional asset
gathering businesses.
 Asset gatherers in principle are trickier, because they do not have
“equity” requirements in the same way that banks do. Furthermore,
most of their businesses do not have reinvestment requirements, or
rather advertising, hiring and brand building is generally expensed up
front.

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 But this actually makes things easier. If we take a standard value = d /

(r-g) formula, and assume that the profit can be paid out in full
(because investment in intangible capital is already paid for), and
divide through by AuM, we get:
 Value in % of AuM = Profit in bp of AuM / (r-g)
 If there is a capital reinvestment requirement, e.g., to fund leverage,
then this needs to be expressed in bp of AuM and deducted from
profit above.

How should we value surplus cash, industrial portfolios, DTAs and other non-
operational items?
These are all non-operating items, and whether in a sum-of-the-parts, or on a
group basis, need to be stripped out of the valuation, the share price, and
earnings. This is so that our PE relates to the earnings and the price of the
operating business, not surplus cash or industrial holdings.

 Surplus Cash: In normal market conditions, banks have plenty of cash.

Indeed, banks can have as much cash as they like – they can just raise
it on the interbank market or from the central bank. Banks that cannot
do this are generally banks in extreme distress. A better measure of
how much surplus cash they have is the excess of Common Equity
Tier 1 capital over target. This can be stripped out of the share price,
and the return on cash can be stripped out of earnings, when looking
at unleveraged companies. Conversely, surplus cash (defined as
shareholders equity left over once all the divisions have been
capitalised) can be valued in a SOTP. By convention, a 10-20% haircut
is applied to this.
 Industrial Portfolios: Similarly, banks can have as large a portfolio of
industrial assets as they wish, by raising interbank funding and buying.
This means that it is not correct to strip out an industrial portfolio from
a share price. We strip capital gains on industrial portfolios out of
earnings, and any unrealised gains out of the share price (i.e., any
increases in value since the holding‘s acquisition). This is still not quite
a perfect solution, but it is the best available.
 DTAs: The final non-operating item that we have to take account of is
tax-loss carry-forwards (also known as deferred tax assets or DTAs).
Banks that make losses are allowed to create tax loss carry-forwards
as assets, because in the future, they can reduce their tax bill by
netting off future profits against past losses. Typically, however, banks
do not recognise all of their tax-loss carry-forwards. UBS for example
only recognises in its investment bank half of its tax loss carry-
forwards, for reasons of prudence. But these are still a possible source
of value, even if it is only option value. So we can add a final item to
our SOTP for “hidden value” from tax-loss carry-forwards.
 In general, this approach can be used for any hidden asset.

Derivation of formulae

PE and P/TBV ratios – rearranged but fundamentally identical

PTBV ratios have some use when compared to RoTE, in that returns well above
the cost of capital are unlikely to be sustainable. But fundamentally, the P/TBV
ratio is just a rearranged PE ratio. The PE ratio is driven by the payout ratio

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divided by a growth adjusted discount rate. As we show in the figure below,

by dividing both sides of this equation by the RoE, we derive the PTBV ratio.
Again, it is forecasting earnings that drives bank valuations, more than any
other factor.

Figure 24: The PTBV ratio is just a rearranged PE ratio

Price = dividend / earnings = (RoE – g) / (RoE)

Earnings (discount rate – g) (discount rate – g)

Now we can multiply left and right hand side by RoE or earnings / book value

Price x Earnings = (RoE – g) = Price

Earnings x BV (discount rate – g) BV

Source: Deutsche Bank

A post-script: where do annuity formulae come from?

This last section can be safely skipped if you are not interested in algebra. All
annuity formulae come from the same basic constant or growing perpetuity
formula. The equation below shows Value as the discounted sum of future
Dividends (D) or any other cash flow. The discount rate (which for equities
would be the cost of equity) is r. The end result (the Value) is the difference
between two geometric progressions.

Figure 25: Deriving basic PE ratios

(1) Value = D + D + D + D + D
r+1 (r+1)^2 (r+1)^3 (r+1)^4 (r+1)^n

(2) Value * (r+1) = D + D + D + D + D + D

r+1 (r+1)^2 (r+1)^3 (r+1)^4 (r+1)^n
Formula (2) minus Formula (1) gives us

(3) Value * (r+1) - Value = D

(4) Value * ((r+1) -1) = D

(5) Value = D
r

And if we add a growth component

(1) Value = D + D (1+g) + D + (1+g)^2 + D * (1+g)^3 + D * (1+g)^n
r+1 (r+1)^2 (r+1)^3 (r+1)^4 (r+1)^n
Multiply both sides of the equation by (1+g)

(2) Value * (1+g) = D (1+g) + D + (1+g)^2 + D * (1+g)^3 + D * (1+g)^4 + D * (1+g)^n

r+1 (r+1)^2 (r+1)^3 (r+1)^4 (r+1)^n

(3) Value * (r+1) = D + D (1+g) + D + (1+g)^2 + D * (1+g)^3 + D * (1+g)^4 + D

r+1 (r+1)^2 (r+1)^3 (r+1)^4 (r+1)^n

Formula (3) minus Formula (2) gives us

(4) Value * (r+1) - Value * (1+g) = D

(5) Value * ((r+1) -(1+g) = D

(6) Value = D
r-g

Source: Deutsche Bank

Another post-script: ignore different valuation methodologies, they are all the
same.
Below we show a very simple rearrangement of an Economic Value Added or
EVA calculation to yield the standard fair-value price to book calculation.
Economic Value Added is intended to show the “excess” returns above what
should be earned just by earning the cost of capital. The value of a firm can be
summarised under EVA as the value of the capital (Tangible Book Value for

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example) plus the present value of future EVA. But when we rearrange the
formulae, we find the same underpinnings.

In conclusion, no meaningful new information is created by using different

valuation methodologies. What counts is the effort put into forecasting
earnings, and the risks to those earnings (upside and downside).

Figure 26: Equivalence of EVA to fair value price to book multiples

EVA = Profit – CoE * TBV Fair Value = TBV + (Profit – CoE * TBV)

(CoE - g)

Fair = TBV * (CoE-g) + (Profit – CoE * TBV) / TBV

Multiply TBV term by (CoE – g) / (CoE – g), i.e. by 1 P / TBV
(CoE - g) (CoE - g)

Add both numerators as they have a common denominator Fair = (Profit – CoE * TBV + (CoE – g) * TBV) / TBV
P / TBV
(CoE - g)

Take the TBV division inside the brackets Fair = (Profit / TBV – CoE + CoE – g)
P / TBV
(CoE - g)

Restate profit / TBV as RoE, and net off the CoE Fair (RoE – g)
terms, we arrive at the RoE – g / CoE – g standard P / TBV
equation (CoE - g)

Source: Deutsche Bank

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Interest Margins
Chapter summary
 The biggest part of banks’ revenues is net interest income or NII – the
difference between interest income on assets and interest expense on
funding. In Europe NII usually accounts for 55-60% of the banking
sector’s revenue base.
 In this chapter we look at key terminology in analysing NII, especially
the difference between customer spreads and net interest margins.
 We also look at how best to analyse differences between the front
book (the margin on new business) and the back book (the margin on
the average business, which takes time to reprice). Back book margins
will converge on front book margins, but generally with a lag,
depending on the country.
 We offer some thoughts on how to think about sources of NIM and
profitability. Is it the deposit base that provides the profit, or the
lending? And how do deposits behave in a low interest rate
environment?
 Finally, we shamelessly highlight Deutsche Bank’s Margin Monitor
product, which tracks margin trends by country for the front book and
the back book. Front book spreads provide a strong leading indicator
(with R-squared as high as 80%) with future NIM trends and form a
key part of our forecasting arsenal.

Margins, and How To Monitor Them

Intermediation and net interest income

Banks make money from – amongst other things – intermediating risk, and the
most long-standing means of doing this is to take deposits and make loans.
Banks then charge an interest spread for three reasons:
 To compensate the bank for the credit risk they take on (the risk that
the borrower does not repay the money). For the European banking
sector as a whole, the through-cycle bad debt charge is in the region
of 60bp, although this varies a great deal by bank.
 To compensate the bank for the maturity transformation that is
undertaken (the risk that depositors want their money back overnight,
but loans are made for longer duration). Banks will mitigate this risk
with interest rate swaps, but banks will still have some overall
positioning on the yield curve.
 To compensate the bank for the overall costs of customer service and
of course to make a profit (the residual NII after credit and maturity
mismatch risk is what the bank earns to cover its costs, e.g. branch
and ATM networks, and make a profit).

This three-way split helps us to understand why banks often generate some
benefit from the steepness of the yield curve, but only a small part usually
(unless the treasury department is taking active positions, which can also

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increase a bank’s sensitivity to the yield curve). The bulk of the NIM is to cover
credit risk and the costs of running the bank, and not a play on the yield curve.

The difference between the average rate received on loans and the average
rate paid on deposits is the customer spread. But the customer spread is not
the same as the overall net interest margin, which is calculated as net interest
income divided by average interest earning assets (or just average assets). The
overall net interest income will include the yield on non-customer assets
(liquidity holdings etc) and also the cost of non-customer liabilities (wholesale
debt issued etc).

Figure 27: Customer spread versus net interest income

Customer Customer Customer

Loan Rate minus Deposit Rate equals Spread

Interest Income on Interest Expense on

Customer Loans Customer
Deposits
Net Interest Income, or
when divided by asset
minus equals
volumes:
Net Interest Margin
Interest Expense on Other
Funding (debt, repo)

Some funding is interest

free (Equity)
Interest Income on Other
Assets (repo, treasury
assets)

Source: Deutsche Bank

Front book versus back book

In banking analysis, a key differentiation in margin analysis is between the
front book, and the back book. The front book margins are those on new
business written (the flow). The back book margins are those on the average
book of business (the stock).

Naturally, the back book will tend towards the front book. The time this takes
depends on the maturity of the assets and liabilities, and on any hedging
strategies employed by the bank. A book of one-year car loans reprices much
faster than a book of ten-year fixed rate mortgages.

Below we show an example of a relatively short-dated correlation, for Finland,

where household back-book margins change with a ten month lag, and for
overall margins, where a seven month lag dominates.

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Figure 28: Finland margins, household – 10 month lag Figure 29: Finland margins , total – 7 month lag
0.30% 0.70% 0.30% 0.60%
0.20% 0.60% 0.20% 0.50%
0.10% 0.50% 0.10% 0.40%
0.00% 0.40% 0.00% 0.30%
-0.10% 0.30% -0.10% 0.20%
-0.20% 0.20% -0.20% 0.10%
-0.30% 0.10% -0.30% 0.00%
-0.40% 0.00% -0.40% -0.10%
-0.50% -0.10% -0.50% -0.20%
-0.60% -0.20% -0.60% -0.30%
Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16
Jul-12

Jul-13

Jul-14

Jul-15
Jan-12

Oct-12
Jan-13

Oct-13
Jan-14

Oct-14
Jan-15

Oct-15
Jan-16

Jul-12

Jul-13

Jul-14

Jul-15
Jan-12

Oct-12
Jan-13

Oct-13
Jan-14

Oct-14
Jan-15

Oct-15
Jan-16
12 month back book change (LHS) Front vs back gap (RHS) 12 month back book change (LHS) Front vs back gap (RHS)

Source: Deutsche Bank estimates Source: Deutsche Bank estimates

In general in Europe, repricing happens with around a twelve month lag. But
this does vary by country, with the result that different countries have very
different “gaps” between their front books and back books, and very different
amounts of latent margin pressure. Below we show a summary of gaps
between front book and back book at the time of writing (February 2016).

Figure 30: Customer Spread difference between front and back books in
Europe (total household + NFC) in bps

97

62
49

19
9

-26 -28
-45
-64
-77
-98
-107
Spain

France
Sweden

UK

Germany
Portugal

Belgium

Italy
Ireland

Austria
Finland

Netherlands

Source: Deutsche Bank graphic based on ECB data

Apportioning margin and profit to deposits and loans

Interest margins can be measured most sensibly with reference to a central
money market rate.
 If the prevailing repo rate is 1.0%, and a bank funds at 1.0%, it isn’t
really making money on the marginal deposit, because it could fund
via repo at that rate. There is no advantage to the bank in borrowing at
this level from retail depositors, because its treasury department can
borrow easily at that rate without branches or advertising campaigns.
 Similarly, a bank lending at 1.0% isn’t making money, because it could
lend into the repo market at that rate. There is no advantage to the

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bank in lending at this level to its retail borrowers, because its treasury
department can lend easily at that rate without taking on credit risk.
 As a worked example, if a bank is borrowing from retail customers at
0.5% and lending at 2.0%, we can say that its interest margin on
deposits is 0.5% versus its treasury borrowing rate, and its interest
margin on loans is 1.0% versus its opportunity cost, or the rate that
the treasury department could achieve. The overall customer spread is
1.5%.

Figure 31: Splitting NII between loans and deposits

6.00%

5.00%

4.00%

3.00%

2.00%
loan rate

1.00% loan spread

reference rate
deposit spread
0.00% deposit rate
Jan-15
Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13
May-04

May-06

May-08

May-10

May-12

May-14
Sep-03

Sep-05

Sep-07

Sep-09

Sep-11

Sep-13

Sep-15

Blended deposit pricing (flow) Loan pricing (flow)

Source: Deutsche Bank

Of course, life isn’t this simple! Banks face multiple binding constraints. They
must maintain certain mixes of funding (to keep to the right Net Stable
Funding Ratio) and assets (to keep to the right Liquidity Coverage Ratio). So a
bank may be forced to compete for deposits at interest rates that don’t make
sense. But the above analysis still holds – the bank would be earning a
negative interest margin to receive some other benefit, whether regulatory
compliance, or customer acquisition.

Deutsche Bank’s Margin Monitor

‘Margin Monitor' is our monthly publication tracking trends in lending and

funding across European banking markets. Figure 32 below gives an overview
of 1) what data is included, 2) how it is presented, 3) what each component is
most useful for, and 4) how the tables are feed into to the long-run charts.

Our Margin Monitor underpins our retail banking NIM forecasts, and also
underlies the key charts in this section of our Banks 101 report.

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Figure 32: How to use Margin Monitor

Customer spread by
Deposits: split by Customer spread by
Loans: split by weighted average cost
household and non- segment: mortgages
mortgages, and non- of funding mortgages
financial corporates minus household
financial corporates minus average total
(NFCs). Weighted deposits; NFC loans
Reference month Used (NFCs). Note NFC deposits; NFC loans
average of demand, minus NFC deposit
throughout report, typically shorter minus average total
sight and time deposits costs
typically 2 month lag duration deposit costs

Stock of MFI system balances,

% of system gives indication of mix
Gross lending by type, annualised
% of stock gives approx indication of churn,
though distorted if duration sub 1 yr
Front & back book pricing & spreads
Useful for seeing gap between new and
old business pricing / spreads

Front book pricing changes

versus the current month. Good
indicator of competition or
potential future pricing
opportunities / pressures; but
generally quite volatile

Back book pricing changes

versus the current month. Good
indicator of movement in actual
pricing / spreads on the balance
sheet in recent months. Most
useful for underlying NIM
movement

Charts of components of
customer spread
Shows the long run performance
of loan & deposit pricing and
customer spread.

Example shown is for household

new business

Source: Deutsche Bank graphic, example used is for Ireland in September 2015

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Credit risk and the cycle

Chapter summary
 In this chapter we take a detailed look at credit risk.
 Banks are cyclicals because their revenues are cyclical (loan demand,
commission payments), but especially because of their cyclical credit
losses. Most cyclical sectors see earnings reduced by declining
revenues. Few see systematic losses from transactions undertaken in
previous years, but for banks, earnings take a double-hit from
declining revenues and rising bad debts.
 For banks, this cyclicality is most commonly seen in the form of rapid
loan growth leading to borrowers taking on too much debt, and then
defaulting when interest rates rise to slow the economy. This often
happens when central banks raise rates to fight the inflationary
consequences of credit expansion. Deregulation can play much the
same role as too-loose monetary policy.
 Over the past 20 years or so, aggregate European banking sector loan
loss provisioning charges have peaked at 264bp, and averaged 91bp.
But Europe is not homogenous, so there is natural diversification at
work here.
 Individual country peak loan losses have been much higher, for
example over 300bp in the UK in the early 1990s. In other
countries, loan losses have been spread over multiple years
(delayed recognition), especially in Spain during the Euro zone
crisis. This loan loss spreading prevented total failure of the
banking sector.
 Individual bank peak annual loan losses reached 379bp at Bank of
Ireland in 2010 (with the NPL ratios well over 10%), and 355bp at
Lloyds Banking Group in 2009 (with the NPL ratio again over
10%). And individual loan portfolio loss rates will be even higher
again.
 We also look at the hedging of credit risk. Banks often hold large
hedge portfolios of CDS. Typically, however, these hedges are used to
eliminate concentration risk (very large exposures to large
counterparties) and to create well-diversified portfolios. Banks do not
often hedge credit risk more extensively than this, not least because
hedging credit risk means paying away the credit spread.

Credit risk: still the most important driver of the P&L

Credit risk is the risk that a bank will not be repaid in full – or on time – on its
loan and counterparty exposures. While banks are primarily exposed to credit
risk through their loan books, credit losses can also be incurred on securities
and on derivative contracts. Indeed, one of the bigger changes in Basel III was
the introduction of much larger counterparty credit risk charges for investment
banking exposures.
Aggregate industry credit losses relative to pre-provision earnings were high in
Europe in 2009 and again in 2012, but not as high as in the early 1990s. This
was because large amounts of credit risk were absorbed through trading
income, as banks suffered credit-related losses on US mortgage-related bond

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holdings (sub-prime, Alt-A, CDOs, monoline exposures, and so on). If we were

to very simply re-state credit losses in 2008 and 2009 for our coverage
universe into the loan loss line, loan losses would have exceeded the early
1990s peak.

Figure 33: Loan loss provisions as a percentage of loan book: 1990 to 2017E
European banks saw
twin peaks in credit 264
losses in recent years
- once in 2009 and
again in 2012.

Both peaks were 183 178

lower than the sharp 172

peak seen in 1992,

when Europe suffered 138
127
a widespread real- 116 115
estate related series 107
93
of writedowns.
77 78 75
73
65 64 66 60
In part, this was due 56 57 58 56
49 51
43 40 46
to loan loss delayed 37
recognition, and in
part due to ~150bp of
losses being taken as
trading losses 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016E

Source: Deutsche Bank estimates

We can also express loan losses as a percentage of pre-provision pre-tax

earnings. Again, we can see that credit losses can account for close to 100%
of pre-provision earnings. The swing factor is very large. Based on this
measure, the 2008-2009 and also the 2012 crises were actually worse than the
early 1990s crisis. This is because of the markedly higher leverage in the
system and lower revenues on assets / loans.

Figure 34: Loan loss provisions as a percentage of pre-provision profit: 1990 to

2017E
When expressed as a
% of pre-provision 78%
profits, rather than 74%
relative to loans, the 68% 69%
recent cycle was 65%
worse than the early
58%
1990s cycle
49%50%
47% 47%
Including losses
43%
through the trading
line, bad debts 35% 35%
accounted for 100% 32%
30% 29%
plus of pre-provision 25% 24%
26%
24%
profits 22% 23% 22%
20%
16%15%16%
13%
Increased leverage
and lower revenues
per asset drove this
increased sensitivity
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016E

Source: Deutsche Bank estimates

But these aggregate statistics tend to conceal where the real risks lie. These
are invariably in the asset classes or regions seeing the most rapid growth.
Below we also show in simple format what happens when banks pursue
“growth”.

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Figure 35: Relationship between loan growth pre-crisis and bad debts during
the crisis

300

250 Ireland
Bad debt experience 2008-2012

Spain
200

150
Portugal
Italy
100 Austria UK
Netherlands BelgiumDenmark
France
50
Germany
Sweden
-
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Loan Growth Pre-Crisis 2005-2007

Source: Deutsche Bank graphic based on ECB data

There is a very strong correlation (80%) between rate of growth in the three
years before a crisis and the subsequent depth of the credit cycle. This is for
two reasons:
 In a fast growing credit economy, at the point where the downturn
hits, far more loans are recently originated. The most recent loans are
the least seasoned and carry the greatest risk
 In a fast growing credit economy there is a much higher likelihood of
asset price bubbles

Spain and Ireland saw the fastest mid-2000s growth, and consequently the
highest bad debt charges. One interesting point is that the correlation is less
strong at the individual bank level. A bank in a problem country will tend to see
higher bad debts, even if that bank grows more slowly than the market!

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Figure 36: Relationship between loan growth pre-crisis and bad debts during the crisis
450.00

BKIR
400.00 LBG

Bank of Ireland and HSBC are outliers; they did not grow Lloyds Banking Group's loan growth was via acquisition,
loan books exceptionally fast, but were hit hard by not organic (through the HBOS transaction). Still,
350.00 system-wide issues (HSBC in the US via Household, BKIR acquiring assets seems as risky as growing them
via CRE in Ireland. A good bank in a bad banking market organically
can suffer irrespective of its own decisions

300.00
RBI
HSBC

250.00
RBS

200.00 Swedbank
Banco Popular
SocGen Barclays
Erste BBVA
150.00 Danske
UniCredit
Santander
Sabadell Popolare
KBC BNP CredAg Commerzbank
SEB
100.00 BCP Banca Popolare Milano Intesa SanPaolo
UBS Monte dei Paschi StanChart
UBI Banca

Aareal DNB
Credem Bankinter Nordic banks are the obvious outlier in terms of generating loan growth without credit losses.
50.00 Nordea This is also somewhat true of the Swiss banks. The more interesting outliers are Intesa,
CSG Bankinter and Credem, all of which achieved similar loan growth as domestic peers without
Handelsbanken suffering the same level of subsequent bad debts

-
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

Source: Deutsche Bank graphic based on DB calculations

Measuring credit risk

The most commonly-watched metrics in Europe include loan loss provisions

(flow) as a percentage of loans, non-performing loans as a percentage of loans,
and loan loss provisions (stock) relative to non-performing loans, also known
as the coverage ratio. US banks also report net charge-offs (NCOs), the charge
taken when the loan is actually written down on the balance sheet, as opposed
to just being provided for. European banks do not generally disclose NCOs.

A bank takes a provision against a loan when it is deemed that the full
principal and interest owed by the borrower is uncollectible. When a bank
takes the provision it reduces its P&L, and reduces the value of the loan. The
bank will generally not take a provision against the full loan, but instead will
take account of collateral, or other net realisable value. Loan loss provisions
reported are the net result of the gross provisions made and the provisions
written back, for example through recoveries on a bad loan exceeding the
provision originally made.

Non-performing loans (NPLs)

Generally, when a loan is 90-days past due, a bank will classify it as non-
performing (or non-accruing) unless it is well-secured and in the collection
process. A bank may also place loans on non-accrual status when payment is
not past due if management has doubts about the borrower’s ability to comply
with repayment terms. When a loan is placed on non-accrual status the bank

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will stop accruing interest on the loan, and any interest that has been accrued,
but not collected is reversed out and charged against the bank’s loan loss
reserve balance. Any subsequent payments are generally applied to the loan’s
principal balance.

NPLs / loans
Given most non-performing loans will eventually lead to charge-offs, this ratio
is typically used to help gauge potential future credit losses at banks. However,
this ratio can be misleading when comparing it across different banks, given
that not all NPLs will have the same loss content. For example, some non-
accrual loans will return to performing status, some non-accrual loans are
written down more than others (which in part depends on management’s
judgment), while other non-accrual loans could be well enough collateralised
to the point where a bank may not take any losses after repossessing and
selling the underlying collateral.

Loan restructurings
A bank will restructure a loan (i.e., modify the terms of a loan) in order to
minimise an eventual loss caused by: 1) a borrower defaulting on a loan; or 2)
prepayment of a loan resulting from a decrease in market interest rates
(refinancing). In the first case, a bank believes that by modifying a loan it can
maximise recovery of its investment. In the second case, failing to restructure
a loan could lead to losing a customer who can refinance elsewhere.

LLP methodologies are pro-cyclical – magnifying the financial impact of credit

cycles
Current accounting standards are considered to be pro-cyclical, in that they
require banks to increase provisions at the point in a credit cycle when it is
most difficult to do so (i.e., when credit losses are high). As a result, this
magnifies the financial impact of a credit-down cycle, further pressuring bank
earnings and capital at a time when both are most needed. On the other hand,
during long periods of positive economic trends and low credit losses, bank
loan loss provisions are lower, given lower credit losses and the release of
credit reserves. The reason for this pro-cyclicality as it relates to bank
provisioning methodology is that banks take a provision expense only when a
loss has been “incurred” or if it can be documented that a loss is probable and
it can be reasonably estimated. This is typically determined by using historical
loss rates and recent loss experience with a particular loan type.

Credit risk hedging and CDS markets

Hedging – and CDS usage – is a very contentious part of a bank’s credit risk
management. In theory, credit risk hedging ought to mean the elimination of
credit risk. But in practice, credit risk hedging is about eliminating
concentration risk as much as credit risk.

Banks may have strong relationships with a large counterparty, across a

number of products. This may lead to the bank having – in aggregate – an
unacceptably large exposure to this counterparty. In this situation, especially if
the counterparty is investment grade, the bank will simply buy in enough credit
risk protection to cut down the excessively large exposures. But a bank will
not, by and large, hedge away its credit risk on a large scale, because :1)
especially under Basel III the hedges will carry counterparty risk charges, and
2) buying in CDS in an efficient market will be slightly more costly than the
credit spread the bank would have received, leaving the bank with operational
risks and basis risks and no revenues.

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Investment banks
Chapter summary
 There are many different types of banks: retail banks, investment banks,
development banks, and so on. This report focuses on traditional banking –
retail and commercial banking – because in practice, this is the large
majority of banking business in Europe.
 Although it takes up a lot of air time, investment banking is a small
proportion of overall PBT of European banks, partly because there are few
strong European investment banks left, and partly because the profitability
profile of investment banking is so poor.
 Nonetheless, the volatility of investment banking profitability means that in
any given earnings season, it can account for a disproportionately large
part of earnings revisions and relative performance within the European
banks.
 We have included a short chapter on investment banking to provide some
basic understanding; our recent FITT reports on the industry provide
additional reading.

Figure 37: Breakdown of European Banks 2017E PBT:

DB coverage universe

IB PBT represents about a third of pre-tax profit at the major universal banks in
Europe, which in turn represent a third of PBT in our coverage universe. In
turn, our coverage universe represents roughly half of the total European
banking sector by assets

IB PBT Other PBT

Retail and Commercial Banks Major Universal Banks

Source: Deutsche Bank graphic based on DB estimates

Investment banks: the vanishing breed

Most banks are retail and commercial banks. Within our European coverage
universe, there are no major dedicated investment banking businesses, and
only a handful of investment banking divisions within conglomerate banks,
which in general have lost share since the financial crisis to their US peers.

In fact, the investment banking divisions of the major European universal

banks contribute just 11% of our coverage universe’s PBT of around
Euro 178bn (2017E estimates). As a consequence, we will only briefly deal with

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the nature of investment banking in this chapter, although we have written in

depth on the topic in a series of FITT reports (see Further Reading section at
the front of this report).

Investment banking is a different business to retail banking, although there are

parallels. Where retail banking is about intermediating risk through deposits
and loans, and charging fees and commissions for money transfer and similar
activities, investment banking is about intermediating risk (either through
enabling trading or taking on positions itself) and charging fees and
commissions for origination of debt and equity, for advice, and for money
transfer. But the scale and complexity of this risk intermediation and money
transfer is completely different.

Below we summarise the mix of revenues in the ten largest investment banks
over time.

Figure 38: Investment banking PBT within our coverage universe

300
Commodities

250 Emerging Markets (EM)

Securitisation

200 G10 FX

G10 Credit

150 G10 Rates

F&O
100 Prime brokerage

Equity derivatives
50 Cash equities

Bond u/w
0 Eq u/w
2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E
Advisory
-50

Source: Deutsche Bank

Since 2007, the contribution from Equities and Investment Banking Issuance /
Advisory has been quite stable (albeit in spite of global liquidity surges and
generally strong economic growth, these businesses have also been unable to
deliver cyclical growth. The big variation in revenues has come from the
collapse in FICC revenues, from USD 120bn in 2007 and USD 142bn in 2009,
to USD 61bn in 2015E and USD 55bn in 2016E.

Each of these business lines has slightly different cost structures, but as FICC
(based on leverage) has lost balance sheet, its productivity advantage versus
Equities has largely disappeared.

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Figure 39: Differences in cost structure

72%
71%

67% 67%

65% 65% 2014

64% 64% 2015

2016
62%

FICC EQ IBD

Source: Deutsche Bank graphic compiled using CoalitionInd4ex data

Investment banks in Europe have lost market share particularly in FICC. The
reasons are contentious, but in our view, it is mostly due to European banks
having a higher-leverage balance-sheet-intensive FICC business model
historically, which made converting into a post-regulatory change
lower-leverage model more difficult. The European banks also lack the bulwark
of a highly profitable single market in the US, which is a natural profit
advantage for the US banks.

We should also point out that a decline in the share of investment banking
earnings is not necessarily a bad thing for investors. These businesses are
unpredictable, and post-crisis struggle to earn their cost of equity. This has
been since in recent financial results (late 2015 and early 2016, at the time of
writing), and of course during the financial crisis itself. This has led to
investment banking type entities having especially low valuations. This is even
true for “winning” US investment banks.

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Figure 40: Earnings based valuation metrics

Bank Mkt. Cap Rec. Target Priced at Adjusted Net Profit (€'m) Adjusted EPS (€) Adjusted P/E
(€'m) Price (€) 07/03/2016 (€) 2015 2016e 2015 2016e 2015 2016e
Pure plays and capital markets heavy universal banks (>75% capital markets PBT or capital allocated)
Goldman Sachs 76,885 Hold 163.9 141.4 4,885 5,939 11.0 13.6 15.7 12.9
Morgan Stanley 61,720 Hold 26.4 23.8 4,252 3,924 2.2 2.1 14.5 15.7
Credit Suisse Group 27,784 Hold 16.4 14.1 2,530 1,939 1.4 1.0 11.0 14.3
UBS 58,336 Hold 19.1 15.0 4,736 4,968 1.2 1.3 12.3 11.7
Mcap wt. ave. 16,403 16,771 4.9 5.7 13.9 13.6
Diversified universal banks (>25% capital markets PBT or capital allocated)
Barclays 57,721 Hold 2.3 2.2 1,239 3,031 0.1 0.2 46.6 19.0
RBS 34,575 Hold 3.2 3.0 3,255 1,073 0.3 0.1 10.6 32.2
SEB 19,934 Hold 0.1 0.1 1,802 1,816 0.8 0.8 11.1 11.0
Citigroup 144,202 Hold 42.8 38.8 14,382 12,777 4.9 4.5 10.0 11.3
Bank of America 155,318 Buy 15.5 12.3 11,833 11,616 1.1 1.2 13.1 13.4
JPMorgan Chase 210,696 Buy 63.7 54.6 20,014 17,949 5.5 5.0 10.5 11.7
BNP Paribas 67,273 Buy 61.0 45.6 7,221 7,280 5.8 5.8 9.3 9.2
Societe Generale 33,737 Buy 40.0 34.5 3,580 3,270 4.5 4.1 9.4 10.3
HSBC Holdings 151,774 Hold 5.7 5.8 11,940 10,843 0.6 0.5 12.7 14.0
Mcap wt. ave. 75,266 69,656 3.1 2.9 13.5 13.4
Industry average 91,669 86,427 3.4 3.5 13.6 13.4

Source: Deutsche Bank estimates

Figure 41: Book based valuation metrics

Bank TNAV per share (€) Price to Tangible equity Dividends (€'m) DPS (€) Dividend yield (%)
2015 2016e 2015 2016e 2015 2016e 2015 2016e 2015 2016e
Pure plays and capital markets heavy universal banks (>75% capital markets PBT or capital allocated)
Goldman Sachs 146.97 157.60 1.0 0.9 1,027 1,109 2.32 2.55 1.3% 1.4%
Morgan Stanley 26.09 27.60 0.9 0.9 262 288 0.14 0.15 0.4% 0.5%
Credit Suisse Group 19.26 18.74 0.7 0.8 1,246 1,274 0.64 0.64 4.5% 4.6%
UBS 11.56 11.94 1.3 1.3 2,634 2,805 0.68 0.73 4.5% 4.8%
Mcap wt. ave. 62.83 66.92 1.0 1.0 5,168 5,476 1.09 1.18 2.3% 2.4%
Diversified universal banks (>25% capital markets PBT or capital allocated)
Barclays 3.97 4.00 0.6 0.6 NA NA 0.08 0.04 NA NA
RBS 4.56 3.88 0.7 0.8 - - - - - -
SEB 0.06 0.06 1.5 1.4 1,235 1,235 0.56 0.56 6.2% 6.2%
Citigroup 55.20 59.88 0.7 0.6 430 1,044 0.15 0.36 0.3% 0.7%
Bank of America 14.20 15.36 0.9 0.8 1,894 2,205 0.18 0.22 1.2% 1.4%
JPMorgan Chase 43.82 46.96 1.2 1.2 5,737 5,892 1.57 1.66 2.7% 2.8%
BNP Paribas 54.72 58.01 0.8 0.8 2,871 3,150 2.31 2.53 4.3% 4.7%
Societe Generale 54.02 55.64 0.6 0.6 1,612 1,663 2.00 2.06 4.8% 4.9%
HSBC Holdings 6.81 6.81 0.9 0.9 5,962 6,436 0.46 0.47 3.9% 4.2%
Mcap wt. ave. 30.08 32.10 0.9 0.9 19,740 21,624 0.79 0.87 2.4% 2.6%
Industry average 36.77 39.21 0.9 0.9 39,481 43,249 0.85 0.93 2.4% 2.6%

Source: Deutsche Bank estimates

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Banks and Funding

Chapter Summary
 In this section of the report we look at the funding of banks.
 In their simplest form, banks take deposits and make loans. In a
closed fractional banking system, deposits and loans will stay in
balance, as each time a bank creates a loan it debits the loan asset
and credits the deposit account, prior to the funds being deployed.
And as they funds are spent, the recipient of the funds will also place
these on deposit.
 But banking systems are not closed; savings and investments flow
into and out of countries and imbalances are generated, usually when
credit growth is very rapid. This has put much greater focus on the
quality of banks’ funding.
 The first and best form of funding for banks is high quality and stable
deposit base. Unfortunately, as retail investors have become more
sophisticated, retail depositors are not as sticky as they used to be.
During the 2007 to 2011 crisis, for some banks operating with very
competitive deposit rates attracting “hot money”, retail deposits were
not very stable at all.
 The next form of funding is to issue long-term debt. The preferred
form of debt issuance is long-term senior unsecured debt. This does
not give lenders claim on the bank’s assets, and once the funds have
been committed, do not have to be returned until maturity (or call
date).
 Some banks in some countries may find unsecured debt difficult to
place. As an alternative to straight senior debt issuance, many banks
have used instead asset backed bond issuance. This includes ABS
(asset-backed securities), RMBS (residential mortgage-backed
securities, a subset of ABS) and covered bonds (a bond backed by
mortgages, but where the bond holder has a claim on the originating
bank as well as having a claim on the mortgages backing the bond).
The covered bond market in particular has grown rapidly post-crisis.
 Banks also fund themselves in the interbank market. During the 2007-
2011 crisis, this proved to be the segment that was quickest to break
down.
 Finally in this chapter, we also look at the recent role of the ECB in
providing emergency funding to the banks. In effect, the ECB acts as
all central banks do, as a lender of last resort to its banking system. It
is also now acting as a de facto clearing house, with many Northern
European banks placing surplus cash with the ECB, and the ECB
providing funding to Southern European banks via its repo operations.

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Bank funding: an overview

Banks are in the business of intermediating risk. They take short-term deposits,
and make loans, leaving themselves exposed to liquidity risks, and (maturity
and interest rate) mismatch risks. This is the nature of banking, and some risk
cannot be avoided. But banks should still aim to have as high a quality funding
base as possible, and Basel III will establish rules on liquidity coverage and
stable funding.

Before even starting, however, we need to understand that overall in a

fractional banking system funding will always be available to the system as a
whole. When a bank makes a loan, it credits its deposits and debits its loans.
Or, in the real world, a bank makes a loan to a person and the funds are put in
that person’s deposit account. These funds can then be spent, but provided
the recipient deposits their funds into a bank account, the banking system will
be self-funding. The problem of course arises because even if the global
system is (in theory) self funding, individual countries and banks will not be.
Funding leaks out of countries and banks.

In this section, we briefly review the types of funding available to banks, some
of the issues around funding in the 2007 to 2012 crisis, and the role of the
central bank in providing funding, as the lender of last resort. And as a starting
point, we show below the aggregate Euro zone banking balance sheet, to give
a basic idea of the sizes involved. On the asset side of the balance sheet, the
largest single area is the “domestic” (here defined as euro zone) loan book, as
might be expected. Banks’ securities holdings and external assets (loans and
securities outside the euro zone) are also large.

Figure 42: Breakdown of the euro area balance sheet

30,000 30,000

ASSETS LIABILITIES
25,000 25,000
4,013
5,400

20,000 205 20,000 3,706

4,539
2,451
791
15,000 15,000 2,366
1,225
536
1,857
10,000 LOANS AND 10,000
DEPOSITS
BROADLY
10,797
MATCHED 11,516
5,000 5,000

1,105 1,034
298
0 0

Loans to Govt Loans to non-MFIs non Govt Cash / Currency Govt Deposits Non-bk deposits
Govt Secs Other Secs
Money Mkt Funds Debt Issued Capital & Reserves
Shres / Eqs External Assets

Fixed Assets Other Assets External liabilities Other Liabilities

Source: Deutsche Bank graphic using ECB data

On the liability side of the balance sheet, again, the largest part of the balance
sheet is “domestic” funding, i.e., euro zone deposits, with securities issued
and external liabilities the next biggest item. As discussed above, the actual
mismatch for Europe as a whole in funding the core business is quite small.
The deficit of funding of external assets and customer loans, versus what is
funded with external liabilities and customer deposits, is Euro 829bn. This is
~3% of balance sheet footings.

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So, the aggregated euro zone consolidated balance sheet looks quite well
funded, with deposits and loans growing at quite a similar rate. This is a
misleading analysis, in the same way that analysing the balance of payments
for the region is misleading. The problem is not in the aggregates. The problem
is in regional differences, because weaker countries and weaker banks both
leak funding.

In recent years, this has been resolved by the ECB channeling additional
funding to the least well-resourced banking systems as the “lender of last
resort”, a subject we will return to later.

Debt market funding: senior bonds and covered bonds

After deposits, banks will issue debt. This can be through a number of
instruments, but the bulk of term funding will be from senior debt, RMBS or
from covered bonds. Below we show debt issuance by banks by asset class
over time. The trend since 2007 has been volatile, with frequent near-closures.
But the overall direction for bank debt issuance has been down, as banks seek
a more sustainable and less leverage driven business model. We can also see
the weight of covered bonds increasing.

Figure 43: European Bank debt issuance: rolling four quarter average has
declined from Euro 150bn to Euro 100bn
300

270

240

210

180

150

120

90

60

30

0
1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

IG HY Cov. Bonds MTN

Source: Deutsche Bank graphic using Dealogic data

Of course, issued debt has to be replaced as and when it matures. Below we

show a maturity schedule, both historic and forward looking. The scale of bank
redemptions in 2012 combined with the sovereign crisis created a buyers
strike in H2 2011 (as can be seen in the issuance chart above).

Banks have delevered since then, reducing reliance on wholesale funding to

some extent and leading to less issuance. Nonetheless, in extreme market
conditions, both deposits and term debt issuance will break down, which leads
us neatly to the lender of last resort.

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Figure 44: European Bank debt maturities: ~Euro 100bn per quarter

200 NB the decline in volumes of maturing

debt in the future is overstated; as
180 new debt is issued, forward maturities
160
tend to rise

140

120

100

80

60

40

20

0
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
3Q22
1Q23
3Q23
1Q24
3Q24
1Q25
3Q25
1Q26
3Q26
1Q27
3Q27
1Q28
3Q28
1Q29
3Q29
1Q30
3Q30
IG HY Cov. Bonds MTN

Source: Deutsche Bank graphic using Dealogic data

The Lender of Last Resort: the ECB

When all else fails, banks have no choice but to turn to their central bank.
Central banks can provide liquidity to the financial system through a number of
mechanisms. This can be direct secured lending (repo agreements against
collateral), or just purchasing securities direct from the banks for cash. In
Europe, the ECB conducts liquidity provision mainly by secured lending. This
can be under its Main Refinancing Operation (MRO) which provides short-term
funding, or its Long Term Refinancing Operation, which up until 2011 provided
secured funding up to three months maturity, and post-Lehman twelve
months, maturity.

Over the course of 2011 and the escalation of the sovereign crisis, liquidity and
funding continued to be a problem for the European banks. In December 2011,
the ECB launched three-year LTRO and also loosened its collateral
requirements in response.

Figure 45: ECB lending to European banks

1,600
1,400
1,200
1,000
800
600
400
200
0
Jan-02

Jan-07

Jan-11

Jan-16
Jan-99
Jan-00
Jan-01

Jan-03
Jan-04
Jan-05
Jan-06

Jan-08
Jan-09
Jan-10

Jan-12
Jan-13
Jan-14
Jan-15

MROs LTROs MLF CB Programme ELA ABS

Source: Deutsche Bank graphic using ECB data

Above, we show the aggregate of ECB unsterilized lending to the banks,

across all the mechanisms on offer. As a lender of last resort, the ECB is a
powerful actor in the financial system. But we have seen a large normalization

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of the amount of lending to banks since 2012. Interestingly, the ECB balance
sheet itself has not contracted since 2012, as the ECB has replaced emergency
funding for banks, with Quantitative Easing. Indeed, since the launch of QE in
Europe, the ECB balance sheet has once again expanded towards Euro 3tn,
although this time it is sovereigns rather than banks that are the primary
beneficiaries of the ECB’s balance sheet.

Figure 46: ECB total balance sheet

3,500

3,000

2,500

2,000

1,500

1,000

500

0
Dec-99

Dec-10
Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-11

Dec-12

Dec-13

Dec-14

Nov-15
Jan-99

Source: ECB

We believe that European bank funding is in much better shape than in the
previous two crises. At the time of writing, we can see that the market is more
concerned that we are, however, with bank CDS moving to indicate moderate
stress levels (but OIS spreads showing very little strain).

We show both of these indicators below. These charts are also useful, to give
an indicator of just how bad things were during the twin crises for European
banks.

Figure 47: Itraxx Senior Financial CDS Figure 48: 3M Euribor - OIS Spread

400 2.5
350 2.0
300
1.5
250
200 1.0

150 0.5
100 0.0
50
-0.5
0
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Dec-07

Dec-14
Mar-06

Mar-13
Feb-09
May-07

Sep-09

May-14

Feb-16
Oct-06

Jul-08

Apr-10
Nov-10

Oct-13

Jul-15
Jan-05

Jan-12
Aug-05

Jun-11

Aug-12

Source: Bloomberg Source: Bloomberg

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Prudential Regulation
Chapter Summary
 In this, the final chapter of the report, we look at the regulation of
banks. Following the 2007 crisis, this has become one of the most
important issues facing a bank, after a decade or more of “light touch”
regulation.
 In this chapter, we only focus on bank regulation, not product
regulation. In many markets, individual products, especially in retail
banking, will be subject to their own regulations to prevent mis-selling
and so on. This type of regulation is important, but beyond the scope
of this publication.
 The basics of bank regulation are as established by the Basel
Committee. These rules are then implemented into local law. In
Europe this implementation is done via European Capital
Requirements Directives. Basel III will be implemented through CRD4.
The two main components of Basel III and CRD4 are Capital and
Liquidity.
 The Basel III / CRD4 framework on Capital is based on three pillars.
 Pillar One relates to the quality and amount of capital that the
banks have. It is mainly measured through the common equity
Tier 1 ratio, which measures how much capital (common equity)
the banks have relative to their risks (risk weighted assets). Pillar
One also now includes a leverage ratio (equity to assets).
 Pillar Two relates to risk management and supervision of broader
risks than just the minimum amount of capital a bank should
have.
 Pillar Three relates to market discipline, or the goal that by
requiring banks to disclose more information, markets will also
exert pressure on banks.
 An additional issue we need to consider is regulation of systematic
risks. This is the regulatory problem that occurs if failing banks can
take down other banks, or the whole financial system. A bank that
poses risks to the whole system necessarily needs to be regulated and
supervised more closely than one that does not. This is dealt with by
Basel through the “too big to fail” concept, or Globally Significant
Financial Institutions (or GSIFI). GSIFIs (GSIBs are the same thing).
GSIFIs face an additional capital surcharge.
 The Basel / CRD4 framework on Liquidity covers both liquidity and
funding.
 The first component of Basel’s global liquidity standard is the
liquidity coverage ratio (LCR)
 The second component of Basel’s global liquidity standard is the
net stable funding ratio (NSFR).

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Capital ratios, funding and liquidity

Bank capital gets a lot of attention for regulatory purposes, but has a broader
role than just making regulators happy, including:
 Source of funds: bank capital is used to expand operations through
acquisitions, originations and through capital expenditures.
 Absorbs losses and reduces risk of insolvency: capital is net of loan
loss reserves (a contra asset), which is an estimate of expected losses
on a bank’s loan portfolio. Any losses exceeding what a bank has
reserved for will reduce capital accordingly. This occurs as banks incur
additional provision expense or other credit-related costs
 Alleviates moral hazard: banks’ activities are funded largely through
customer deposits. Given deposits are insured under the common
European Union deposit insurance rules, there is little incentive for
depositors to monitor the health of banks, which reduces the
incentives for banks to maintain adequate capital. The higher a bank’s
capital levels, the more equity holders have at risk, therefore aligning
the interest of regulators, customers and shareholders, to conduct
business in a responsible way.
 Public confidence: in times of economic crisis (e.g. 2007-2009),
depositors increasingly focused on the capital strength of banks.

There has always been a push and pull relationship with regulators and
shareholders, with increased capital requirements resulting in lower returns on
equity (ROE) or more risk being taken on (e.g. by making higher yielding risky
loans) to maintain returns. Additionally, while higher capital levels may reduce
the risk of insolvency, they may also reduce banks competitiveness vs. other
lenders, acting as a constraint on lending and potentially leading to higher
interest rates on loans and lower deposit rates (both making them
uncompetitive).

This leads us to Basel II and Basel III. Basel II is already in-force, and Basel III
will be legally implemented in Europe via CRD4, deals with inter alia the
regulation of banks capital relative to their assets. The simplest measure of this
is tangible equity to tangible assets, as a percentage. This is being re-
introduced as a simple measure, as we discuss later in this section. But at least
in Europe, the simple leverage ratio is still subordinated to an adjusted
leverage ratio called the Tier 1 ratio, which is the primary form of European
bank regulation.

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Figure 49: From a simple leverage ratio to the Tier 1 ratio

Simple leverage ratio Basel III CET1 ratio

Various deductions are applied, like

DTAs, cross-holdings in other financial
Tangible Shareholders institutions. Prior to Basel III banks were
Common Equity Tier 1
Equity allowed to include hybrid debt Capital
instruments in Tier 1 up to certain limits,
but this will no longer be the case under
Basel III

Balance sheet assets are weighted at

different percentages, and risk
Tangible Assets weighted equivalent charges are made
Risk Weighted Assets
for the trading book and also
operational risk. Basel III particularly
increases capital requirements for
trading books, especially for stressed
VaR and counterparty credit risk
Source: Deutsche Bank

This adjusted leverage ratio measures common equity capital relative to assets
that have been weighted for their riskiness, i.e., risk-weighted assets. The
result of dividing Common Equity Tier 1 into RWAs is the Common Equity Tier
1 ratio. In this section we will look at both the numerator (the amount of CET1
the banks are expected to target) and the denominator (the RWAs).

First, we will look at the calculation of the minimum level of CET1. This is set
out by CRD4, which is based around three “pillars” of capital requirements and
supervision.
 Pillar One of the Basel Accord sets out the means by which banks
calculate their minimum capital requirements. Pillar One captures the
amount of capital that banks need to back credit risks, operational
risks, and market risks. In crude terms, Pillar One deals with a bank’s
capital ratios, i.e., their Common Equity Tier 1 ratio.
 Pillar Two of the Basel Accord captures the supervisory process for
risks not captured under Pillar One. For example, Pillar Two can
capture local regulatory requirements, allowing a national regulator to
set higher capital ratios than are required by the implementation of
Pillar One. Pillar Two can also deal with risk factors that are not
directly related to capital, like funding risks.
 The Third Pillar deals with market disclosure. Whilst the “light touch”
model of regulation has been discredited, the regulatory world still
believes that markets can exert discipline over banks, provided
disclosure is good enough. The additional disclosure required by banks
is covered by Pillar Three. Many banks have separate Pillar Three
filings on their investor relations websites.

Pillar One of the Basel III Accord, and by implementation CRD4, deals with
banks having enough capital. This capital has to be high quality and loss
absorbing, and Basel refers to this type of capital as Tier 1. Prior to Basel III,
capital was loosely defined, and could include hybrid instruments. Under Basel
III, there is a greater focus on common tangible equity.

Capital ratios
Throughout this section, the amount of capital (Tier 1) is expressed as a target
percentage of risk weighted assets. We will come on to risk weighted assets
later, but this is just a process of weighting the balance sheet by risk, such that
the Tier 1 ratio is really just a modified leverage ratio.

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As well as introducing a greater focus on common equity to form the bedrock

of capital adequacy, with a baseline target of 4.5% common equity Tier 1
(CET1) relative to RWAs, Basel III also introduced a large number of buffers
and add-ons. These are:
 The capital conservation buffer: “Comprising common equity of 2.5%
of risk-weighted assets, bringing the total common equity standard to
7%. Constraint on a bank’s discretionary distributions3 will be imposed
when banks fall into the buffer range.”
 Countercyclical buffer: “Imposed within a range of 0-2.5% comprising
common equity, when authorities judge credit growth is resulting in
an unacceptable build up of systematic risk.”
 G-SIFI buffer: this relates to systemic risks posed by the largest global
banks.

Adding the Capital Conservation Buffer and the Countercyclical Buffer creates
a CET1 requirement of between 7.0% and 9.5%.

Risk Weighted Assets (RWAs)

Under Basel III, the capital component of the CET1 ratio is non-contentious,
because it is made up of common equity (under Basel II it included excessive
amounts of hybrid debt, which turned out not to be loss absorbing). The more
controversial part of the equation is the calculation of risk weighted assets.
 Under the standardised approach, credit risk is converted into risk
weighted assets using a series of percentage weightings. These
percentage risk weightings are applied to the face value of the credits,
to generate RWAs.
 Following Basel II, however, and continued in Basel III, banks can use
their own internal ratings based calculations to calculate credit risk. In
theory this allows more customization; in practice it makes RWA
calculation opaque.
 As regards trading risk, banks also use internal ratings based models.
These models have to be recognised by the bank’s regulator, and will
include inter alia a charge against Value at Risk (VaR), a charge against
stressed VaR, and a charge against counterparty risks.

The Liquidity Coverage Ratio

One of the key risks for a bank is liquidity, or having enough liquid assets to
sell for cash. This is important because a bank takes risk on whenever it takes
a deposit and makes a loan. The balance sheet is matched, but what if the
depositor demands their funds back? The bank cannot get the loan funds back
before the maturity date. Banking works because not all depositors are likely to
want their monies back at the same time, but for this assumption to hold,
depositors and debt investors need confidence that a mini-run will not develop
into a full-blown run. To create this confidence, banks need a large enough
stock of liquid assets that they can sell that they will not be unable to cope
with depositor, interbank or debt investor withdrawals of funding.

Prior to Basel III liquidity risk management was done only at the national level.
Basel III created an international framework for liquidity risk, which we expect
to be implemented in CRD4, albeit the technical definitions and timings are still

3
This means that banks would be prevented from paying bonuses or distributing dividends if the bank
breached its regulatory minima.

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not fixed. The basic framework is as set out below; it forces the banks to hold
a proportion of their balance sheet in highly liquid assets.

Figure 50: The Liquidity Coverage Ratio (LCR)

Stock of Liquid Assets Government bonds, cash,

Liquidity some corporate / covered
Coverage bonds (haircut)
= =
Ratio
(targeted > 30 day cash stressed Stressed outflows of:
100%) outflows, NET of modelled
7.5% stable retail deposits
cash inflows from wholesale
counterparties etc 15% less stable deposits
25% corporate deposits
100% net wholesale funding

The new ratio will essentially force banks to hold somewhat less than 10% of their
deposit base in high quality assets, including government bonds and covered bonds
Source: Deutsche Bank

This ratio has been very controversial with the banks, especially because of
fears that banks will be forced to hold a very narrow collection of liquid assets.
A political consensus is emerging on a broader LCR buffer, i.e. more covered
bonds (good for Nordic banks in particular, and also good for the development
of the wider covered bond market).

The Net Stable Funding Ratio

Another key risk for the banks is that their funding simply matures, because
the funding is much shorter dated than the assets. To regulate this risk Basel III
proposes banks calculate a Net Stable Funding Ratio, which should be held
above 100%.

Figure 51: The Net Stable Funding ratio (NSFR)

Stable Tier 1 plus term debt plus

Stable Funding weighted deposits
Funding
= =
Ratio
(targeted >
100%) Stable Funding Weighted loans, trading
Requirement book assets and other
assets
Inter-bank and cash zero
weighted

The new ratio is most similar to an inverted loan to deposit ratio, and must be above
100% (i.e. loans and trading assets must be less than core funding)
Source: Deutsche Bank

MDA and SREP

“Banks should base their dividend policies on conservative and prudent
assumptions, so that after any pay-out they can still fully cover their current
capital requirements and prepare themselves to meet more demanding capital
standards.” Daniele Nouy, 29 Jan 2015
In this section, we briefly highlight both the ECB recommendation on banks’
dividend distribution as well as the recent EBA call for more certainty and
consistency in the application of restrictions to profit pay-outs to restore
capital adequacy.

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ECB’s differentiated view on banks’ ability to pay dividends

In 2015, the ECB issued a recommendation to banks on their dividend
distribution policies for the 2014 financial year (for payment of dividends in
2015). We believe that the broad principles are likely to hold as we look
towards dividends for the 2015 financial year. Then, the ECB adopted a risk-
based approach by distinguishing between 3 categories of banks:
 Category 1 banks: Banks that already fulfil their capital requirements
as of 31 December 2014 and have already reached their “fully loaded”
capital ratios (January 2019 requirements) should distribute dividends
conservatively so as to continue fulfilling all requirements even if
economic and financial conditions deteriorate.
 Category 2 banks: Banks that already fulfil their capital requirements
as of 31 December 2014 but do not yet have fully loaded capital ratios
(January 2019 requirements) should likewise distribute dividends
conservatively, but only to the extent that the path towards the
required fully loaded ratios is secured.
 Category 3 banks: Banks coming out of the comprehensive
assessment in 2014 with a residual capital shortfall or in breach of
their capital requirements should, in principle, not distribute any
dividends.
Some earnings dilution – for example, via disposals – cannot be ruled out to
meet payout ratio commitments. However, most of the sector has a positive
buffer above either assumed or company-guided SREP requirements which
should be supportive for dividend progression over the coming years.

EBA MDA guidance likely to drive more conservative management buffers

In a recent paper (EBA MDA opinion) , the EBA clarified that the MDA should
take into account both minimum (Pillar 1) and additional (Pillar 2) capital
requirements which should be met at all times, as well as the combined buffer
requirement. Under CRD IV, an issuer is prohibited from making distributions
on common equity when doing so would decrease CET1 capital to a level such
that it no longer meets the Combined Buffer Requirement (eg capital
conservation buffer, G-SIB). It would be required to calculate its MDA
(Maximum Distributable Amount) or the amount of profits payable to
shareholders, AT1 investors and employees not to be exceeded in order to
restore capital buffers.
As Combined Buffer Requirement are phased-in from 2016, issuers will need to
meet increasing CET1 capital requirements and maintain management buffers
to avoid distribution restrictions. Moreover, the uncertainty around Basel 4
RWA inflation – even if potentially reflecting within Pillar 2 requirements – calls
for more conservative management buffers.
The MDA is the sum of interim and year-end profits not included in CET1
capital minus the taxes that would be payable on these profits if they were
retained multiplied by a factor between 0 and 0.6. If the issuer is in the first
quartile of its combined buffer requirement (i.e. meets 75-100% of the
requirement), then 60% of profits can be distributed. If the issuer is in the
second quartile, 40% of profits can be distributed; if in the third quartile, 20%
can be distributed and if in the fourth quartile, 0%.

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Banks
European Banks 101

Glossary
Commonly used bank terms
Herein, we define some commonly used bank terms with short definitions.

Alt−A Mortgage: An alternative−A mortgage is a type of US mortgage that, for

various reasons, is considered riskier than A−paper, or “prime”, and less risky
than “subprime”, the riskiest category. Therefore, Alt−A interest rates, which
are determined by credit risk, tend to be between those of prime and subprime
home loans. Typically, Alt−A mortgages are characterised by borrowers with
less than full documentation, lower credit scores and higher loan-to-values
(LTVs). European banks suffered heavy losses from investments in Alt-A loans
during the 2007-09 subprime crisis.

Assets under management (AUM): Assets over which a bank has sole or
shared investment authority.

Cash recoveries: Cash recoveries used in the context of purchased impaired

loans represent cash payments from customers that exceed the recorded
investment on the designated impaired loan.

Write-offs (in the US called charge-offs): The process of removing a loan or

portion of a loan from the balance sheet given that it is deemed uncollectible.

Adjusted average total assets: Primarily composed of total average quarterly

(or annual) assets plus (less) unrealised losses (gains) on investment securities,
less goodwill and certain other intangible assets (net of eligible deferred taxes).

Credit spread: The difference in yield between debt issues of a similar maturity.
The excess of yield attributable to credit spread is often used as a measure of
relative creditworthiness, with a reduction in the credit spread reflecting an
improvement in the borrower’s perceived creditworthiness.

Derivatives: Financial contracts whose value is derived from changes in

publicly traded securities, interest rates, currency exchange rates or market
indices. Derivatives cover a wide assortment of financial contracts, including
but not limited to forward contracts, futures, options and swaps.

Duration of equity: An estimate of the interest rate sensitivity of the economic

value of equity. A negative duration of equity is associated with asset
sensitivity (i.e., positioned for rising interest rates), while a positive value
implies liability sensitivity (i.e., positioned for declining interest rates). For
example, if the duration of equity is +1.5 years, the economic value of equity is
expected to decline by 1.5% for each 100bp increase in interest rates.

Interest-earning assets: Assets that generate net interest income, which

include, but are not limited to loans, repo agreements, trading securities,
interest-earning deposits with other banks, investment securities, and certain
other assets.

Effective duration: A measurement, expressed in years, that, when multiplied

by a change in interest rates, would approximate the percentage change in the
value of on- and off- balance sheet positions. Duration is often used as a
barometer of the sensitivity of a given asset to a change in rates

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Banks
European Banks 101

Cost:income ratio: Noninterest costs divided by total revenue; also sometimes

referred to as the efficiency ratio.

Federal funds rate: The rate at which US banks borrow overnight from the
Federal Reserve to maintain their bank reserves. The European equivalent is
the Marginal Lending Facility, which is the rate at which European banks can
borrow overnight from the Eurosystem central banks. However, in practise, the
European banks take most central bank liquidity from the longer-dated Main
Refinancing Operation instead, which in normal market conditions has a
variable rate tender, but during the crisis has been made available in unlimited
quantities at a fixed rate.

Investment securities: Collectively, the total securities available for sale and
securities held to maturity held by a bank. These can include securities in the
discretionary portfolio (which is designated to provide additional yield above
those securities that are matched up to certain liabilities). Investment securities
can include MBS, Treasuries, etc.

Leverage ratio: Tier 1 risk-based capital divided by adjusted average total

assets (leverage exposure assets).

LIBOR: Acronym for London InterBank Offered Rate. LIBOR is the average
interest rate charged when banks in the London wholesale money market (or
interbank market) borrow unsecured funds from each other. LIBOR rates are
used as a benchmark for interest rates on a global basis.

Living wills: A plan that provides for the winding down of a bank before the
point of failure, especially for banks that are systemically important and / or too
big to fail.

Loan loss provision: An expense incurred to account for expected credit losses
on a bank’s loans. A provision expense increases a bank’s allowance for bad
loans (customer defaults, or terms of a loan have to be renegotiated, etc),
which is reduced when banks incur the actual losses through write-offs.

Loan loss reserves: Valuation reserve against a bank's total loans on the
balance sheet, representing the amount thought to be adequate to cover
estimated losses in the loan portfolio. When a loan is charged off, it is removed
from the loan portfolio, and its book value is deducted from loan loss reserves.
Lenders also set aside reserves for nonaccrual loans, in which interest and
principal payments are no longer being collected.

Loan-to-value ratio (LTV): A calculation of a loan’s collateral coverage that is

used in underwriting and assessing credit risk in a lending portfolio. LTV is the
sum total of loan obligations secured by collateral divided by the market value
of that collateral. Market values are based on an independent valuation of the
collateral. For example, an LTV of less than 90% is better secured and has less
credit risk than an LTV of greater than or equal to 90%.

MLF: The minimum liquidity facility, which is used to provide overnight

liquidity to European banks by national central banks in the euro zone. On the
other side, banks can place surplus liquidity back to national central banks in
the euro zone using the Deposit Facility.

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Banks
European Banks 101

LTRO: Longer-Term Refinancing Operations, which provide central bank

funding to the European banking system. They are conducted by the ECB,
which defines them as “liquidity-providing reverse transactions that are
regularly conducted with a monthly frequency and a maturity of three months.
LTROs that are conducted at irregular intervals or with other maturities, e.g.,
the length of one maintenance period, six months, twelve months or thirty-six
months are also possible.” See also MRO.

Mortgage servicing right (MSR): The value a bank places on its right to service
a mortgage loan when the underlying loans are sold or securitised (in a
situation where the bank maintains the rights to service those loans). Servicing
includes collections of principal, interest and escrow payments from borrowers
and accounting for and remitting these payments to investors. This is mainly
found in the US mortgage market where large specialised mortgage servicing
businesses exist.

MRO: Main refinancing operations, which provide central bank funding to the
European banking system. They are conducted by the ECB, which defines
them as “regular liquidity-providing reverse transactions with a frequency and
maturity of one week. They are executed by the NCBs on the basis of standard
tenders and according to a pre-specified calendar.” See also LTRO, a longer-
dated variant of MRO.

Net interest income: Net interest income (NII) is the difference between
revenues generated by a bank’s interest-bearing assets (loans and securities)
and the cost of funding those assets through its liabilities (deposits and
borrowings).

Net interest margin: Annualised taxable-equivalent net interest income divided

by average earning assets.

Nonperforming assets: Nonperforming assets include nonaccrual loans

(nonperforming loans), certain troubled debt restructured loans (if not accruing
interest), foreclosed assets and other assets that do not accrue interest
income.

Nonperforming loans: Troubled loans that banks designate and for which they
do not accrue interest income. Nonperforming loans do not include loans held
for sale or foreclosed and other assets. Nonperforming loans do not include
purchased impaired loans as a bank accretes interest income for them over the
expected life of the loans.

Operating jaws (or operating leverage): The period to period change in total
revenue less the percentage change in costs. A positive value indicates that
revenue growth exceeded cost growth (i.e., jaws were positive, or there was
positive operating leverage) while a negative variance implies expense growth
exceeded revenue growth (i.e., jaws were negative, or there was negative
operating leverage).

Pre-tax, pre-provision profits (PPP): Total net revenue less noninterest costs,
but before credit costs are taken out).

Purchase accounting accretion: Accretion of the discounts and premiums on

acquired assets and liabilities. Purchase accounting accretion is recognized in
net interest income over the weighted average life of the financial instruments
using the constant effective yield method.

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Banks
European Banks 101

Recovery: Cash proceeds received on a loan that a bank had previously written
off. A bank credits the amount received to the allowance for loan and lease
losses. Net write-offs are gross write-offs in a given period less any credit
recoveries.

Return on average assets (ROA): Annualised net income divided by average

assets.

Return on average equity (RoE): Annualised net profit less preferred stock
dividends / minority interests, including preferred stock discount accretion and
redemptions, divided by average common shareholders’ equity.

Risk-weighted assets (RWA): A regulatory measurement of risk-adjusted

assets, as computed by the assignment of specific risk-weights (as defined by
Europe’s CRD laws, which in turn are based on the Basel Committee risk
weightings) to assets and off-balance sheet instruments.

Securitisation: The process of legally transforming financial assets into

securities, which can be a source of financing for banks.

SREP: This refers to banks’ Supervisory Review and Evaluation Process (SREP)
and Pillar 2 capital requirement, as set by its regulator. The ECB does not
require banks to publish their SREP target capital ratios, although many banks
do.

Subprime loans: Mainly a US product, although it also describes some loans

made in the UK in the mid-2000s. Although a standard industry definition for
subprime loans (including subprime mortgage loans) does not exist, most
banks define subprime loans as specific product offerings for higher risk
borrowers, including individuals with one or a combination of high credit risk
factors, high debt to income ratios and inferior payment history.

Common equity Tier 1 capital: Tier 1 risk-based capital, less preferred equity,
less hybrid capital securities, and less non-controlling interests.

Tier 1 common equity ratio (also CET1 ratio): Tier 1 common capital divided by
period-end risk-weighted assets.

TLAC: Total Loss Absorbing Capital. This refers to the sum total of capital
instruments (debt and equity) available to absorb operational losses.

Value-at-risk (VaR): A statistically based measure of risk that describes the

amount of potential loss that may be incurred due to severe and adverse
market movements. The measure is of the maximum loss which should not be
exceeded on 99 out of 100 days.

Yield curve: A graph showing the relationship between the yields on financial
instruments or market indices of the same credit quality with different
maturities. For example, a “normal” or “positive” yield curve exists when long-
term bonds have higher yields than short-term bonds. A “flat” yield curve
exists when yields are the same for short-term and long-term bonds. A “steep”
yield curve exists when yields on long-term bonds are significantly higher than
on short-term bonds. An “inverted” or “negative” yield curve exists when
short-term bonds have higher yields than long-term bonds.

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Banks
European Banks 101

Annex
Deutsche Bank’s Running the Numbers product

Deutsche Bank’s European Banks research team publishes long runs of bank
data twice per year, back to 1989 for those banks that have been under
Deutsche Bank’s uninterrupted coverage. We include in this twice-yearly
report key questions for management. This document is also available on
request, and we show an example set of long-run data, as follows.
 CSG Running The Numbers Page

We also set out below our standardised valuation sheets and key banks data.
We publish these valuation and data sheets regularly; please do not hesitate to
contact your Deutsche Bank representative if you would like to be added to our
Valuation Monitor mailing lists.

 Summary valuation metrics

 Earnings and dividend per share
 Credit quality gearing
 Cost saving gearing
 Yields
 Book value
 Tangible book value
 Capital building blocks
 Capital ratios
 Leverage ratios
 Performance
 Growth ratios

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European Banks 101

Banks
4 April 2016
Figure 52: Deutsche Bank Running the Numbers page for Credit Suisse Group
Model updat ed: 03 February 2016 Year Ending 31December 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
D A TA P ER S H A R E Price and Price Relative
Running the Numbers
EPS (st at ed) (CHF) -0.55 -3.75 0.65 4.68 4.83 9.33 6.53 -7.05 5.56 4.21 1.62 0.93 1.51 1.15 1.20 0.13 1.37
Europe 800 120
EPS (DB) (CHF) 1.27 -1.27 2.88 4.50 4.99 6.51 6.51 -6.54 6.11 4.16 1.62 3.37 3.21 2.67 1.52 1.05 1.89
Growt h Rat e - EPS (DB) (%) -77.3 -200.2 326.7 56.3 11.1 30.4 0.0 -200.5 193.5 -31.9 -61.2 108.8 -5.0 -16.8 -43.2 -30.9 80.7 700
Switzerland 100
DPS (CHF) 2.00 0.10 0.50 1.50 2.00 2.70 2.50 0.10 2.00 1.30 0.75 0.75 0.70 0.70 0.70 0.70 0.70 600
Banks BVPS (st at ed) (CHF) 37.16 28.75 28.47 29.90 34.55 37.39 37.66 27.28 30.35 28.06 27.50 27.54 26.50 27.63 25.60 24.93 25.53 80
Invest ment capit al gains p. sh. (%) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 500

Credit Suisse Group Tang. NAV p. sh. (CHF)

Market Capit alisat ion Y/ E (CHF m)
18.41 10.70
83,940 35,560
14.75
54,029
17.33
57,981
21.98 28.85
81,338 103,494
27.79
78,111
19.04
33,744
22.59
63,283
20.56
44,677
20.25
27,020
20.87
28,800
21.48
43,384
22.07
40,115
21.13
30,168
20.55
30,843
21.25
31,534
400 60

Shares in issue (m) 1,186 1,189 1,194 1,213 1,214 1,214 1,147 1,184 1,236 1,186 1,224 1,294 1,591 1,600 1,953 1,996 2,041 300
Reuters: CSGN.VX Bloomberg: CSGN VX 40
200
Hold VA LU A TI ON R A TI OS & P R OFI TA B I LI TY M EA S U R ES
P/ E (st at ed) -128.3 -8.0 70.0 10.2 13.9 9.1 10.4 -4.0 9.2 8.9 13.6 24.0 18.0 21.8 12.9 119.9 11.3 100
20

Price as of 08 M arch CHF 15.45 P/ E (core DB) 55.9 -23.6 15.7 10.6 13.4 13.1 10.5 -4.4 8.4 9.0 13.7 6.6 8.5 9.4 10.2 14.7 8.2 0 0
Target price CHF 18.00 P/ B (st at ed) 1.9 1.0 1.6 1.6 1.9 2.3 1.8 1.0 1.7 1.3 0.8 0.8 1.0 0.9 0.6 0.6 0.6 03/11 03/12 03/13 03/14 03/15 03/16
P/ Tangible equit y (DB) 3.8 2.8 3.1 2.8 3.0 3.0 2.5 1.5 2.3 1.8 1.1 1.1 1.3 1.1 0.7 0.8 0.7
Company website ROE (st at ed) (%) -1.6 -11.4 2.3 16.0 15.0 25.9 17.4 -21.8 19.3 14.4 5.8 3.5 6.0 4.3 4.7 0.5 5.6 Credit Suisse Group (L.H.S.)

http://www.creditsuisse.com RoTE (core t angible equit y) (%) 6.4 -8.7 22.6 28.0 25.4 25.6 23.0 -28.0 29.3 19.3 7.9 17.3 16.1 12.5 7.3 5.2 9.3
ROIC (invest ed capit al) (%) 3.3 -3.8 10.1 15.4 15.5 18.1 17.3 -20.2 21.2 14.2 5.8 12.9 12.7 10.1 5.9 4.3 7.7 Rel. to SPI (R.H.S.)
Company description Dividend yield (%) 3.2 0.2 1.3 3.4 3.7 3.7 3.0 0.2 4.4 2.8 2.4 3.5 2.6 2.6 4.5 4.5 4.5
Credit Suisse Group provides universal banking services Dividend cover (x) -0.3 -37.5 1.3 3.1 2.4 3.5 2.6 -70.5 2.8 3.2 2.2 1.2 2.2 1.6 1.7 0.2 2.0
Simple f ree cash f low yield (%) 3.3 -0.1 8.0 10.4 3.9 5.8 2.0 -5.2 20.4 9.7 -1.7 3.9 16.2 5.8 6.0 7.2 13.7 Profitability
including invest ment , t rust and management services, and
insurance in Swit zerland and int ernat ionally. The Company P R OFI T & LOS S ( C H F m ) 18 16
Net int erest revenue 10,089 11,009 11,727 11,969 10,705 6,566 8,442 8,536 9,409 6,541 6,606 7,143 8,115 9,034 9,252 9,029 9,119 16
has a net work of of f ices in Swit zerland and around t he 14
Non-int erest income 23,251 12,194 12,352 16,863 22,078 32,037 30,879 732 23,885 24,845 19,364 16,468 17,741 17,208 14,615 13,480 14,609
world. 14 12
Commissions 18,992 15,344 12,948 13,585 14,944 17,647 18,929 14,812 13,996 14,078 14,782 12,724 13,226 13,051 12,022 11,421 11,992
12
Trading revenue 9,728 3,443 3,528 4,559 11,691 9,428 6,146 -9,880 14,298 9,338 3,081 1,196 2,739 2,026 2,989 1,800 2,342 10
Ot her revenue -5,469 -6,593 -4,124 -1,281 -4,556 4,962 5,804 -4,200 -4,410 1,429 1,500 2,548 1,776 2,131 -396 260 275 10
8
Tot al revenue 33,340 23,203 24,079 28,832 32,783 38,603 39,321 9,268 33,294 31,386 25,970 23,611 25,856 26,242 23,867 22,509 23,729 8
6
Tot al Operat ing Cost s 32,536 24,948 21,700 20,445 23,648 24,414 25,391 23,357 24,711 23,978 22,349 21,371 21,593 22,429 20,417 21,251 19,099 6
Employee cost s 18,177 13,495 11,042 11,951 13,971 14,548 16,098 13,254 15,018 13,992 12,163 10,982 11,256 11,334 10,759 10,593 10,519 4 4
Ot her cost s 14,359 11,453 10,658 8,494 9,677 9,866 9,293 10,103 9,693 9,986 10,186 10,389 10,337 11,095 9,658 10,658 8,580 2
2
Pre-Provision prof it / (loss) 804 -1,745 2,379 8,387 9,135 14,189 13,930 -14,089 8,583 7,408 3,621 2,240 4,263 3,813 3,450 1,258 4,630
0 0
Bad debt expense 1,672 2,506 615 78 -156 -112 241 813 506 -79 187 170 167 186 281 370 405 01 03 05 07 09 11 13 15E 17E
Operat ing Prof it -868 -4,251 1,764 8,309 9,291 14,301 13,689 -14,902 8,077 7,487 3,434 2,070 4,096 3,627 3,169 888 4,225
Other inc/ARWA (%)
Pre-t ax associat es 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Int income/ARWA (%)
Research Team Pre-t ax prof it -868 -4,251 1,764 8,309 9,291 14,301 13,689 -14,902 8,077 7,487 3,434 2,070 4,096 3,627 3,169 888 4,225
Tax -206 -109 -13 1,440 1,356 2,389 1,248 -4,596 1,835 1,548 645 465 1,276 1,405 985 626 1,388 Costs / ARWA (%)

Kinner Lakhani Minorit y shareholders 146 -193 -31 1,127 2,079 3,630 4,738 -2,619 -313 822 837 336 639 449 -15 0 0
+44 20 75414140 [email protected] Ot her post t ax it ems 149 -501 -1,038 -114 9 3,046 6 -531 169 -19 1 -40 145 102 0 0 0
S t a t e d ne t pr of i t - 659 ### 770 5,628 5 , 8 6 5 # # # # 7 , 7 0 9 - 8 , 2 18 6,724 5,098 1, 9 5 3 1, 2 2 9 2,326 1, 8 7 5 2 , 19 9 262 2,838 Credit Quality
Omar Keenan Reconciliat ion t o DB adjust ed core earnings
[email protected] Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 120 140
+44 20-7541-4647
Ext raordinary & Ot her it ems 2,171 2,944 2,657 -218 194 -3,427 -28 600 673 -392 1,341 3,579 2,634 2,901 577 1,620 820 120
100
Bad Debt Provisioning 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 100
Invest ment reval, cap gains / losses 0 0 0 0 0 0 0 0 0 336 -1,345 -331 -37 -430 -1 245 269 80
80
D B a dj . c or e e a r ni ngs 1, 5 12 # # # 3 , 4 2 7 5 , 4 10 6 , 0 5 9 7 , 9 0 1 7 , 6 8 1 - 7 , 6 18 7,397 5,042 1, 9 4 9 4,477 4,923 4,346 2,775 2 , 12 7 3,926
60 60
K EY B A LA N C E S H EET I TEM S ( GB P m ) & C A P I TA L R A TI OS
40
Risk weight ed asset s # # # # # # # # 199,897 199,249 232,891 253,676 312,068 257,467 221,609 218,702 241,753 284,075 266,103 284,248 292,978 293,687 294,158 40
20
Int erest -earnings asset s # # # # # # # # 896,129 967,212 # # # # # ##### ##### 1,010,952 946,652 936,798 954,797 837,118 794,868 837,370 777,899 783,393 794,178
20
Tot al loans # # # # # # # # 177,179 180,723 209,157 190,833 240,534 235,797 237,180 218,842 233,413 242,223 247,065 272,551 276,126 281,619 286,724 0
Tot al deposit s # # # # # # # # 261,989 299,341 303,831 307,598 335,505 296,986 286,694 287,564 313,401 308,312 333,089 369,058 358,760 358,760 365,935 0 -20
St at ed Shareholder Equit y 44,061 34,178 33,991 36,273 41,941 45,386 43,199 32,302 37,517 33,282 33,674 35,632 42,164 44,189 49,994 49,764 52,098 01 03 05 07 09 11 13 15E 17E
Tangible shareholders equit y 21,827 12,720 17,610 21,020 26,688 35,022 31,873 22,549 27,922 24,385 24,795 27,000 34,165 35,296 41,259 41,029 43,363 Prov./ NPL's (LHS) (%)
Tier 1capit al 21,155 19,544 22,925 24,596 26,348 35,261 34,700 34,208 36,207 37,725 38,455 44,357 33,964 39,892 47,499 47,257 51,166
Bad debt exp/ Loans (bp)
Tier 1rat io (%) 9.5 9.7 11.5 12.3 11.3 13.9 11.1 13.3 16.3 17.2 15.9 15.6 12.8 14.0 16.2 16.1 17.4
o/ w core t ier 1capit al rat io (%) 6.0 6.7 8.8 11.3 10.4 13.1 9.8 8.6 10.8 12.2 11.3 8.0 10.0 10.1 12.3 12.2 13.5
Tangible equit y / t ot al asset s (%) 1.9 1.2 1.8 1.9 2.0 2.9 2.3 1.9 2.7 2.4 2.4 2.9 3.9 3.8 4.9 4.8 5.0
-8 7 14 1 1 9 -11 -3 0 0 -2 8 11 -3 0 2 2
Absolute Price Return (%) Capital Adequacy
C R ED I T QU A LI TY
-40% -30% -20% -10% 0% 10% Gross NPLs / Tot al Loans (%) 10.50 5.01 3.93 2.52 2.06 1.78 1.34 1.30 0.96 0.85 0.73 0.71 0.60 0.51 0.70 0.69 0.71 350 20
Risk Provisions / NPLs (%) 50 84 88 95 52 54 38 62 61 55 53 53 58 55 46 50 50 18
300
3% Bad debt chg / Avg loans (%) 0.95 1.33 0.34 0.04 -0.07 -0.06 0.10 0.34 0.21 -0.04 0.08 0.07 0.07 0.07 0.10 0.13 0.14 16
1m 250 14
3m -27% GR OWTH R A TES & K EY R A TI OS 12
200
-33% Growt h in revenues (%) -13 -30 4 20 14 18 2 -76 259 -6 -17 -9 10 1 -9 -6 5 10
12m 150
Growt h in cost s (%) 6 -23 -13 -6 16 3 4 -8 6 -3 -7 -4 1 4 -9 4 -10 8
Growt h in bad debt s (%) 61 50 -75 -87 -300 -28 -315 237 -38 -116 -337 -9 -2 11 51 32 9 100 6
52-week Range: CHF 12.31- 28.70
4
Market Cap (m) CHF 30,843 Growt h in RWA (%) -7 -10 -1 0 17 9 23 -17 -14 -1 11 18 -6 7 3 0 0 50
2
Deutsche Bank AG/London

USD 30,885 Growt h in loans (%) -1 8 -2 2 16 -9 26 -2 1 -8 7 4 2 10 1 2 2 0 0

Growt h in deposit s (%) 7 -8 7 14 1 1 9 -11 -3 0 9 -2 8 11 -3 0 2 01 02 03 04 05 06 07 08 09 10 11 12 13 1415E16E17E
Company ident if iers Net int . margin (%) 1.00 1.15 1.30 1.28 0.98 0.57 0.75 0.78 0.96 0.69 0.70 0.80 0.99 1.11 1.15 1.16 1.16
Risk-weighted Assets (CHF bn) (LHS)
Cusip H3698D419 Cost income rat io (%) 97.6 107.5 90.1 70.9 72.1 63.2 64.6 252.0 74.2 76.4 86.1 90.5 83.5 85.5 85.5 94.4 80.5
Tier 1 Ratio (%)
SEDOL 7171589 Tot al loans / Tot al deposit s (%) 62 74 68 60 69 62 72 79 83 76 74 79 74 74 77 78 78

Source: Company dat a, Deut sche Bank est imat es

Source: Deutsche Bank

Deutsche Bank AG/London Provided for the exclusive use of [email protected] on 2023-11-23T17:20+00:00. DO NOT REDISTRIBUTE

European Banks 101

Banks
4 April 2016
Figure 53: Summary valuation metrics
Geography Stock DB Rec. Priced at Target Upside / Mkt Cap Adjusted P/E Dividend Yield Price : Tangible Book Return on Avg. Tangible Equity
31/03/2016 price (downside) E'm 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 29.0 17% 10,139 11.1 9.2 9.3 8.9 1.7% 2.8% 3.6% 4.9% 1.24 0.98 0.92 0.87 11.9% 11.1% 10.2% 10.0%
Austria Raiffeisen Bank Intern. Hold 13.3 12.0 (10%) 3,892 9.9 17.5 7.8 5.1 0.0% 0.0% 0.0% 3.9% 0.54 0.53 0.48 0.42 5.6% 3.0% 6.4% 8.8%
Benelux ING Buy 10.6 13.7 29% 41,273 11.5 9.9 9.0 8.2 5.2% 6.6% 7.1% 7.5% 1.04 0.86 0.83 0.79 8.7% 8.8% 9.4% 9.8%
Benelux KBC Hold 45.3 55.0 21% 18,942 11.1 10.5 9.8 9.3 0.0% 5.7% 6.1% 6.5% 1.79 1.33 1.26 1.19 17.1% 13.1% 13.2% 13.2%
Benelux ABN AMRO Hold 18.0 21.5 19% 16,929 11.0 9.1 8.9 8.6 3.9% 4.9% 5.6% 5.8% 1.24 0.99 0.93 0.87 11.7% 11.3% 10.8% 10.4%
France BNP Paribas Buy 44.2 58.0 31% 54,978 9.0 8.2 7.2 6.6 4.4% 5.3% 6.1% 6.7% 0.95 0.77 0.72 0.68 11.0% 9.6% 10.3% 10.6%
France Credit Agricole Buy 9.5 12.5 31% 25,121 8.8 9.6 8.9 8.0 5.5% 6.0% 5.7% 6.3% 0.82 0.73 0.70 0.67 9.8% 7.7% 8.0% 8.5%
France Societe Generale Hold 32.5 35.0 8% 25,878 9.5 9.1 8.1 7.2 4.7% 5.5% 6.2% 7.0% 0.79 0.59 0.56 0.54 8.7% 6.5% 7.1% 7.6%
Germany Aareal Bank Buy 28.5 33.0 16% 1,705 7.8 7.9 9.6 9.2 5.7% 6.7% 7.7% 8.4% 0.70 0.66 0.64 0.62 9.8% 8.5% 6.8% 6.9%
Germany Comdirect Hold 9.8 10.5 7% 1,396 23.0 21.1 20.8 17.5 3.7% 5.7% 4.1% 4.9% 2.56 2.18 2.22 2.14 11.2% 10.6% 10.6% 12.5%
Germany Commerzbank Buy 7.6 14.0 83% 9,618 9.2 7.9 6.7 5.8 2.1% 3.9% 6.5% 8.7% 0.46 0.35 0.34 0.33 5.3% 4.5% 5.1% 5.8%
Germany Deutsche Pfandbriefbank Buy 9.00 13.00 44% 1,210 5.9 7.5 7.2 6.5 3.8% 7.3% 8.3% 9.2% 0.56 0.44 0.43 0.42 9.8% 5.9% 6.1% 6.5%
Iberia Banco Popular Hold 2.3 3.0 31% 5,006 27.7 16.4 7.1 7.1 2.5% 4.0% 7.9% 8.0% 0.64 0.44 0.42 0.41 2.3% 2.8% 6.0% 5.9%
Iberia Banco de Sabadell Hold 1.58 1.80 14% 8,206 12.5 10.5 9.0 7.7 4.0% 4.7% 5.6% 6.5% 0.82 0.76 0.73 0.70 6.5% 7.4% 8.4% 9.3%
Iberia Banco Santander Hold 3.87 4.80 24% 55,660 10.0 8.4 7.6 6.9 4.4% 5.4% 5.7% 5.9% 1.10 0.89 0.84 0.79 12.0% 10.9% 11.5% 11.9%
Iberia Bankia Buy 0.83 1.30 57% 9,559 11.6 9.2 8.1 7.8 2.7% 6.9% 6.9% 6.9% 0.99 0.74 0.72 0.70 8.5% 8.2% 9.1% 9.1%
Iberia Bankinter Hold 6.21 6.40 3% 5,582 16.1 11.7 12.4 11.9 3.1% 5.1% 4.8% 5.1% 1.67 1.52 1.46 1.40 10.6% 13.3% 12.0% 12.1%
Iberia BBVA Hold 5.84 7.10 22% 37,318 18.5 9.7 7.9 7.6 5.5% 6.3% 6.3% 6.3% 1.06 0.88 0.84 0.80 5.7% 9.3% 10.9% 10.8%
Iberia CaixaBank Hold 2.6 3.4 31% 15,498 16.9 10.7 8.8 7.7 5.0% 6.2% 7.7% 7.7% 0.88 0.62 0.60 0.59 5.2% 5.9% 7.0% 7.8%
Iberia Liberbank Hold 1.1 1.8 65% 950 3.3 7.4 6.4 6.0 9.7% 5.0% 7.8% 8.4% 0.21 0.38 0.36 0.35 6.3% 5.2% 5.9% 5.9%
Ireland Bank of Ireland Hold 0.3 0.4 45% 8,248 17.5 10.8 9.4 10.2 0.0% 2.5% 8.3% 7.4% 1.33 0.93 0.91 0.89 8.2% 8.9% 9.7% 8.8%
Ireland Permanent tsb Hold 2.7 4.8 76% 1,236 23.2 12.5 11.2 9.4 0.0% 0.0% 3.9% 6.8% 1.53 0.63 0.60 0.58 6.2% 4.9% 5.5% 6.3%
Italy Banca Popolare di Milano Hold 0.6 0.9 38% 2,699 17.7 11.3 8.9 8.1 2.9% 4.9% 6.2% 6.8% 0.90 0.58 0.57 0.55 5.1% 5.2% 6.5% 6.9%
Italy Banco Popolare Buy 6.0 14.0 132% 2,189 11.4 6.7 5.3 4.3 1.2% 5.7% 7.4% 9.3% 0.72 0.34 0.33 0.32 6.5% 5.0% 6.4% 7.7%
Italy Credem Buy 6.0 7.2 20% 1,977 12.6 13.4 10.6 9.2 2.2% 3.7% 4.7% 5.4% 1.08 0.91 0.88 0.84 8.8% 6.9% 8.5% 9.3%
Italy Intesa SanPaolo Buy 2.4 3.5 44% 40,872 15.4 10.0 8.6 7.9 4.5% 7.4% 9.7% 10.5% 1.21 0.93 0.92 0.91 8.1% 9.4% 10.8% 11.6%
Italy Monte dei Paschi Hold 0.5 0.9 79% 1,475 6.6 7.8 4.2 2.9 0.0% 0.0% 0.0% 0.0% 0.39 0.16 0.15 0.14 7.5% 2.0% 3.6% 4.9%
Italy UBI Banca Hold 3.3 5.0 54% 2,932 24.0 9.8 7.2 5.7 1.8% 4.7% 6.6% 8.5% 0.68 0.35 0.34 0.33 2.9% 3.6% 4.8% 5.8%
Italy UniCredit Buy 3.2 6.1 92% 18,924 13.3 7.6 5.5 4.6 2.3% 5.0% 7.1% 8.4% 0.69 0.44 0.42 0.40 5.2% 5.7% 7.8% 8.9%
Nordics Danske Bank Buy 185.0 230.0 24% 24,552 10.8 10.0 9.6 9.4 4.3% 5.0% 5.3% 5.4% 1.28 1.20 1.14 1.07 12.1% 12.0% 12.1% 11.7%
Nordics DNB Buy 97.9 140.0 43% 16,907 8.9 7.3 7.0 6.3 4.1% 5.6% 7.1% 7.9% 1.06 0.87 0.81 0.75 12.6% 12.4% 11.9% 12.3%
Nordics Nordea Buy 8.4 12.0 42% 33,920 10.9 9.5 8.9 8.5 6.3% 7.8% 8.1% 8.3% 1.46 1.17 1.13 1.08 13.7% 12.6% 13.0% 13.0%
Nordics SEB Hold 77.6 100.0 29% 18,390 11.7 10.0 9.6 9.1 5.9% 6.8% 6.8% 7.1% 1.56 1.30 1.24 1.18 13.8% 13.2% 13.2% 13.2%
Nordics Svenska Handelsbanken Hold 103.3 117.0 13% 21,321 13.5 12.5 12.0 11.6 5.3% 5.9% 4.5% 4.6% 1.79 1.59 1.53 1.44 13.4% 12.9% 13.0% 12.8%
Nordics Swedbank Buy 174.9 235.0 34% 20,903 13.1 11.0 10.2 9.9 5.7% 7.6% 7.3% 7.6% 1.88 1.65 1.59 1.52 14.8% 15.5% 15.8% 15.7%
Switzerland Cembra Money Bank Hold 67.2 61.0 (9%) 1,736 12.2 13.1 13.9 14.8 5.2% 5.0% 5.4% 5.4% 2.32 2.28 2.17 2.11 18.3% 18.0% 16.1% 14.5%
Switzerland Credit Suisse Group Hold 13.6 16.0 18% 24,339 54.4 15.0 8.2 6.4 3.2% 5.1% 5.1% 5.9% 1.07 0.70 0.71 0.64 2.1% 4.7% 8.7% 10.6%
Switzerland Julius Baer Hold 43.3 44.0 2% 8,277 15.2 13.7 13.4 12.5 2.3% 2.7% 2.8% 3.0% 4.06 3.10 2.71 2.38 25.1% 24.3% 21.5% 20.2%
Switzerland UBS Hold 15.5 18.0 16% 54,592 14.7 13.8 10.8 9.3 4.4% 5.5% 5.8% 7.7% 1.54 1.16 1.12 1.06 11.0% 8.6% 10.6% 11.7%
UK Aldermore Hold 210.0 240.0 14% 914 16.2 8.5 8.4 7.9 0.0% 0.0% 2.0% 2.0% 2.75 1.42 1.25 1.11 20.5% 18.1% 16.0% 15.1%
UK Barclays Hold 150.0 180.0 20% 31,761 38.4 11.0 7.8 6.8 3.0% 2.0% 2.0% 6.4% 0.71 0.48 0.46 0.44 1.9% 4.5% 6.1% 6.7%
UK HSBC Hold 433.9 437.0 1% 107,676 11.9 10.5 10.1 9.4 9.5% 8.3% 8.5% 8.7% 0.91 0.72 0.73 0.71 7.5% 6.9% 7.2% 7.7%
UK Lloyds Banking Group Buy 68.0 83.0 22% 61,451 9.8 9.5 8.9 8.7 3.8% 8.1% 10.3% 11.0% 1.40 1.17 1.17 1.17 14.0% 12.9% 13.2% 13.5%
UK Standard Chartered Hold 472.6 400.0 (15%) 19,538 n/a 143.6 11.5 7.9 2.4% 3.0% 3.0% 3.0% 0.66 0.56 0.55 0.53 (2.5%) 0.4% 4.9% 6.9%
UK RBS Hold 222.7 248.0 11% 32,665 13.9 31.7 10.9 9.6 0.0% 0.0% 4.5% 26.9% 0.86 0.74 0.74 0.86 6.0% 2.2% 6.9% 8.3%

Austria 10% 14,031 9.9 10.6 8.8 7.4 1.2% 2.0% 2.6% 4.6% 0.94 0.79 0.73 0.67 9.1% 7.6% 8.6% 9.5%
Benelux 25% 77,144 11.1 9.8 9.1 8.5 3.6% 6.0% 6.5% 6.9% 1.19 0.95 0.91 0.87 10.7% 10.0% 10.2% 10.4%
France 25% 105,977 9.1 8.7 7.8 7.0 4.7% 5.5% 6.0% 6.7% 0.87 0.70 0.67 0.64 10.0% 8.3% 8.8% 9.3%
Germany 64% 13,929 9.6 8.5 7.6 6.6 2.8% 4.7% 6.6% 8.3% 0.52 0.42 0.40 0.39 5.8% 5.0% 5.4% 6.0%
Iberia 25% 137,780 12.9 9.4 8.0 7.4 4.5% 5.8% 6.2% 6.4% 1.00 0.81 0.77 0.74 8.0% 8.8% 9.9% 10.3%
Ireland 49% 9,484 17.5 11.0 9.6 10.1 0.0% 2.2% 7.7% 7.4% 1.33 0.87 0.85 0.83 7.8% 8.1% 8.9% 8.3%
Italy 60% 71,068 14.1 9.1 7.2 6.2 3.5% 6.2% 8.3% 9.3% 0.86 0.59 0.58 0.56 6.3% 6.5% 8.2% 9.1%
Nordics 32% 135,993 11.3 9.9 9.4 8.9 5.4% 6.6% 6.6% 6.9% 1.46 1.25 1.19 1.13 13.3% 12.9% 13.0% 13.0%
Switzerland 15% 88,945 19.3 14.1 10.1 8.4 3.9% 5.1% 5.3% 6.7% 1.42 1.04 1.02 0.94 7.7% 7.5% 10.2% 11.6%
UK 8% 254,005 14.6 12.2 9.6 8.7 5.5% 6.0% 7.2% 10.8% 0.91 0.73 0.72 0.72 6.1% 6.0% 7.6% 8.3%
UK ex HSBC, STAN 19% 126,791 14.1 12.2 9.0 8.3 2.6% 4.4% 6.7% 13.9% 0.96 0.78 0.75 0.77 6.7% 6.4% 8.5% 9.2%
Euro zone banks 32% 429,412 11.5 9.3 8.0 7.3 4.0% 5.6% 6.5% 7.1% 0.95 0.74 0.71 0.68 8.5% 8.1% 9.0% 9.5%
Nordic+Swiss+UK banks 16% 478,943 14.3 11.7 9.6 8.7 5.2% 6.0% 6.7% 9.0% 1.09 0.88 0.86 0.84 7.7% 7.6% 9.1% 9.8%
DB Universe 24% 908,355 12.4 10.4 8.8 8.0 4.6% 5.8% 6.6% 8.1% 1.02 0.81 0.78 0.75 8.1% 7.9% 9.1% 9.7%

Source: DB estimates, company data, Datastream

Page 61
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European Banks 101

Banks
4 April 2016
Figure 54: Earnings and dividend per share
Geography Stock DB Rec. Priced at DB Adjusted EPS Adjusted P/E DPS Dividend Yield Dividend Cover
31/03/2016 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 2.61 2.68 2.67 2.77 11.1 9.2 9.3 8.9 0.50 0.70 0.90 1.20 1.7% 2.8% 3.6% 4.9% 5.2 3.8 3.0 2.3
Austria Raiffeisen Bank Intern. Hold 13.3 1.38 0.76 1.71 2.61 9.9 17.5 7.8 5.1 0.00 0.00 0.00 0.52 0.0% 0.0% 0.0% 3.9% n/a n/a n/a 5.0
Benelux ING Buy 10.6 1.08 1.08 1.18 1.29 11.5 9.9 9.0 8.2 0.65 0.70 0.75 0.80 5.2% 6.6% 7.1% 7.5% 1.7 1.5 1.6 1.6
Benelux KBC Hold 45.3 5.19 4.32 4.62 4.89 11.1 10.5 9.8 9.3 0.00 2.59 2.77 2.93 0.0% 5.7% 6.1% 6.5% n/a 1.7 1.7 1.7
Benelux ABN AMRO Hold 18.0 1.88 1.97 2.03 2.08 11.0 9.1 8.9 8.6 0.81 0.89 1.02 1.04 3.9% 4.9% 5.6% 5.8% 2.3 2.2 2.0 2.0
France BNP Paribas Buy 44.2 5.81 5.42 6.13 6.75 9.0 8.2 7.2 6.6 2.31 2.34 2.70 2.97 4.4% 5.3% 6.1% 6.7% 2.5 2.3 2.3 2.3
France Credit Agricole Buy 9.5 1.25 1.00 1.08 1.20 8.8 9.6 8.9 8.0 0.60 0.57 0.54 0.60 5.5% 6.0% 5.7% 6.3% 2.1 1.7 2.0 2.0
France Societe Generale Hold 32.5 4.52 3.58 4.02 4.52 9.5 9.1 8.1 7.2 2.00 1.79 2.01 2.26 4.7% 5.5% 6.2% 7.0% 2.3 2.0 2.0 2.0
Germany Aareal Bank Buy 28.5 3.74 3.60 2.98 3.10 7.8 7.9 9.6 9.2 1.65 1.90 2.20 2.40 5.7% 6.7% 7.7% 8.4% 2.3 1.9 1.4 1.3
Germany Comdirect Hold 9.8 0.47 0.47 0.47 0.56 23.0 21.1 20.8 17.5 0.40 0.56 0.40 0.48 3.7% 5.7% 4.1% 4.9% 1.2 0.8 1.2 1.2
Germany Commerzbank Buy 7.6 1.07 0.96 1.13 1.33 9.2 7.9 6.7 5.8 0.20 0.30 0.50 0.66 2.1% 3.9% 6.5% 8.7% 5.4 3.2 2.3 2.0
Germany Deutsche Pfandbriefbank Buy 9.00 1.89 1.20 1.25 1.38 5.9 7.5 7.2 6.5 0.43 0.66 0.75 0.83 3.8% 7.3% 8.3% 9.2% 4.4 1.8 1.7 1.7
Iberia Banco Popular Hold 2.3 0.11 0.14 0.31 0.31 27.7 16.4 7.1 7.1 0.08 0.09 0.18 0.18 2.5% 4.0% 7.9% 8.0% 1.5 1.5 1.7 1.7
Iberia Banco de Sabadell Hold 1.58 0.13 0.14 0.17 0.20 12.5 10.5 9.0 7.7 0.07 0.08 0.09 0.10 4.0% 4.7% 5.6% 6.5% 2.0 1.9 1.9 1.9
Iberia Banco Santander Hold 3.87 0.46 0.46 0.51 0.56 10.0 8.4 7.6 6.9 0.20 0.21 0.22 0.23 4.4% 5.4% 5.7% 5.9% 2.3 2.2 2.3 2.4
Iberia Bankia Buy 0.83 0.09 0.09 0.10 0.11 11.6 9.2 8.1 7.8 0.03 0.06 0.06 0.06 2.7% 6.9% 6.9% 6.9% 3.2 1.6 1.8 1.9
Iberia Bankinter Hold 6.21 0.41 0.53 0.50 0.52 16.1 11.7 12.4 11.9 0.20 0.32 0.30 0.31 3.1% 5.1% 4.8% 5.1% 2.0 1.7 1.7 1.7
Iberia BBVA Hold 5.84 0.37 0.61 0.75 0.77 18.5 9.7 7.9 7.6 0.37 0.37 0.37 0.37 5.5% 6.3% 6.3% 6.3% 1.0 1.6 2.0 2.1
Iberia CaixaBank Hold 2.6 0.19 0.23 0.30 0.34 16.9 10.7 8.8 7.7 0.16 0.16 0.20 0.20 5.0% 6.2% 7.7% 7.7% 1.2 1.4 1.5 1.7
Iberia Liberbank Hold 1.1 0.16 0.14 0.17 0.18 3.3 7.4 6.4 6.0 0.06 0.06 0.09 0.09 9.7% 5.0% 7.8% 8.4% 2.9 2.5 2.0 2.0
Ireland Bank of Ireland Hold 0.3 0.02 0.02 0.03 0.03 17.5 10.8 9.4 10.2 0.00 0.01 0.02 0.02 0.0% 2.5% 8.3% 7.4% n/a 3.6 1.3 1.3
Ireland Permanent tsb Hold 2.7 0.01 0.22 0.24 0.29 23.2 12.5 11.2 9.4 0.00 0.00 0.11 0.19 0.0% 0.0% 3.9% 6.8% n/a n/a 2.3 1.6
Italy Banca Popolare di Milano Hold 0.6 0.05 0.05 0.07 0.08 17.7 11.3 8.9 8.1 0.03 0.03 0.04 0.04 2.9% 4.9% 6.2% 6.8% 1.9 1.8 1.8 1.8
Italy Banco Popolare Buy 6.0 1.12 0.90 1.14 1.41 11.4 6.7 5.3 4.3 0.15 0.35 0.45 0.56 1.2% 5.7% 7.4% 9.3% 7.5 2.6 2.5 2.5
Italy Credem Buy 6.0 0.54 0.45 0.57 0.65 12.6 13.4 10.6 9.2 0.15 0.22 0.28 0.33 2.2% 3.7% 4.7% 5.4% 3.6 2.0 2.0 2.0
Italy Intesa SanPaolo Buy 2.4 0.19 0.23 0.27 0.29 15.4 10.0 8.6 7.9 0.14 0.18 0.24 0.25 4.5% 7.4% 9.7% 10.5% 1.3 1.3 1.1 1.2
Italy Monte dei Paschi Hold 0.5 0.19 0.06 0.12 0.17 6.6 7.8 4.2 2.9 0.00 0.00 0.00 0.00 0.0% 0.0% 0.0% 0.0% n/a n/a n/a n/a
Italy UBI Banca Hold 3.3 0.26 0.33 0.45 0.57 24.0 9.8 7.2 5.7 0.11 0.15 0.22 0.28 1.8% 4.7% 6.6% 8.5% 2.3 2.2 2.1 2.1
Italy UniCredit Buy 3.2 0.39 0.42 0.58 0.69 13.3 7.6 5.5 4.6 0.12 0.16 0.22 0.27 2.3% 5.0% 7.1% 8.4% 3.2 2.6 2.6 2.6
Nordics Danske Bank Buy 185.0 17.13 18.42 19.36 19.61 10.8 10.0 9.6 9.4 8.00 9.30 9.80 10.00 4.3% 5.0% 5.3% 5.4% 2.1 2.0 2.0 2.0
Nordics DNB Buy 97.9 12.39 13.45 13.90 15.51 8.9 7.3 7.0 6.3 4.50 5.50 6.90 7.70 4.1% 5.6% 7.1% 7.9% 2.8 2.4 2.0 2.0
Nordics Nordea Buy 8.4 0.93 0.89 0.95 1.00 10.9 9.5 8.9 8.5 0.64 0.66 0.68 0.70 6.3% 7.8% 8.1% 8.3% 1.5 1.3 1.4 1.4
Nordics SEB Hold 77.6 7.66 7.72 8.10 8.48 11.7 10.0 9.6 9.1 5.25 5.25 5.27 5.51 5.9% 6.8% 6.8% 7.1% 1.5 1.5 1.5 1.5
Nordics Svenska Handelsbanken Hold 103.3 8.36 8.25 8.61 8.89 13.5 12.5 12.0 11.6 6.00 6.10 4.70 4.80 5.3% 5.9% 4.5% 4.6% 1.4 1.4 1.8 1.9
Nordics Swedbank Buy 174.9 14.27 15.95 17.07 17.61 13.1 11.0 10.2 9.9 10.75 13.33 12.81 13.21 5.7% 7.6% 7.3% 7.6% 1.3 1.2 1.3 1.3
Switzerland Cembra Money Bank Hold 67.2 5.16 5.14 4.84 4.54 12.2 13.1 13.9 14.8 3.35 3.39 3.63 3.63 5.2% 5.0% 5.4% 5.4% 1.5 1.5 1.3 1.2
Switzerland Credit Suisse Group Hold 13.6 0.44 0.92 1.68 2.16 54.4 15.0 8.2 6.4 0.70 0.70 0.70 0.80 3.2% 5.1% 5.1% 5.9% 0.6 1.3 2.4 2.7
Switzerland Julius Baer Hold 43.3 3.21 3.15 3.22 3.46 15.2 13.7 13.4 12.5 1.10 1.15 1.20 1.30 2.3% 2.7% 2.8% 3.0% 2.9 2.7 2.7 2.7
Switzerland UBS Hold 15.5 1.32 1.13 1.44 1.67 14.7 13.8 10.8 9.3 0.85 0.85 0.90 1.20 4.4% 5.5% 5.8% 7.7% 1.6 1.3 1.6 1.4
UK Aldermore Hold 210.0 21.81 24.73 25.22 26.88 16.2 8.5 8.4 7.9 0.00 0.00 4.27 4.22 0.0% 0.0% 2.0% 2.0% n/a n/a 5.9 6.4
UK Barclays Hold 150.0 5.62 13.51 18.93 21.91 38.4 11.0 7.8 6.8 6.50 3.00 3.00 9.60 3.0% 2.0% 2.0% 6.4% 0.9 4.5 6.3 2.3
UK HSBC Hold 433.9 67.19 59.89 62.37 66.83 11.9 10.5 10.1 9.4 51.00 52.00 53.00 54.00 9.5% 8.3% 8.5% 8.7% 1.3 1.2 1.2 1.2
UK Lloyds Banking Group Buy 68.0 7.40 7.07 7.59 7.72 9.8 9.5 8.9 8.7 2.75 5.50 7.00 7.50 3.8% 8.1% 10.3% 11.0% 2.7 1.3 1.1 1.0
UK Standard Chartered Hold 472.6 (41.08) 4.79 59.73 87.08 n/a 143.6 11.5 7.9 13.70 14.00 14.00 14.00 2.4% 3.0% 3.0% 3.0% (3.0) 0.3 4.3 6.2
UK RBS Hold 222.7 21.74 7.08 20.69 23.38 13.9 31.7 10.9 9.6 0.00 0.00 10.00 60.00 0.0% 0.0% 4.5% 26.9% n/a n/a 2.1 0.4

Austria 9.9 10.6 8.8 7.4 1.2% 2.0% 2.6% 4.6% 5.2 3.8 3.0 3.1
Benelux 11.1 9.8 9.1 8.5 3.6% 6.0% 6.5% 6.9% 1.9 1.7 1.7 1.7
France 9.1 8.7 7.8 7.0 4.7% 5.5% 6.0% 6.7% 2.3 2.1 2.1 2.1
Germany 9.6 8.5 7.6 6.6 2.8% 4.7% 6.6% 8.3% 4.5 2.7 2.0 1.8
Iberia 12.9 9.4 8.0 7.4 4.5% 5.8% 6.2% 6.4% 1.8 1.9 2.0 2.1
Ireland 17.5 11.0 9.6 10.1 0.0% 2.2% 7.7% 7.4% n/a 3.6 1.4 1.4
Deutsche Bank AG/London

Italy 14.1 9.1 7.2 6.2 3.5% 6.2% 8.3% 9.3% 2.2 1.8 1.7 1.7
Nordics 11.3 9.9 9.4 8.9 5.4% 6.6% 6.6% 6.9% 1.7 1.6 1.7 1.7
Switzerland 19.3 14.1 10.1 8.4 3.9% 5.1% 5.3% 6.7% 1.4 1.5 1.9 1.9
UK 14.6 12.2 9.6 8.7 5.5% 6.0% 7.2% 10.8% 1.3 1.6 2.2 1.6
UK ex HSBC, STAN 14.1 12.2 9.0 8.3 2.6% 4.4% 6.7% 13.9% 2.1 2.4 2.7 1.2
Euro zone banks 11.5 9.3 8.0 7.3 4.0% 5.6% 6.5% 7.1% 2.2 2.0 2.0 2.0
Nordic+Swiss+UK banks 14.3 11.7 9.6 8.7 5.2% 6.0% 6.7% 9.0% 1.4 1.6 2.0 1.7
DB Universe 12.4 10.4 8.8 8.0 4.6% 5.8% 6.6% 8.1% 1.8 1.8 2.0 1.8

Source: DB estimates, company data

Deutsche Bank AG/London Provided for the exclusive use of [email protected] on 2023-11-23T17:20+00:00. DO NOT REDISTRIBUTE

European Banks 101

Banks
4 April 2016
Figure 55: Credit quality gearing
Geography Stock DB Rec. Priced at Pre-provision profits (E'm) Market cap to PPP Bad debt charge / Avg. Loans
31/03/2016 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 2,368 2,706 2,718 2,849 5.0 3.7 3.7 3.6 56bps 53bps 55bps 57bps
Austria Raiffeisen Bank Intern. Hold 13.3 1,975 1,666 1,787 1,850 2.0 2.3 2.2 2.1 186bps 174bps 144bps 101bps
Benelux ING Buy 10.6 7,305 7,417 7,765 8,185 6.6 5.6 5.3 5.0 26bps 30bps 25bps 21bps
Benelux KBC Hold 45.3 3,257 2,898 3,087 3,282 7.4 6.5 6.1 5.8 54bps 27bps 28bps 30bps
Benelux ABN AMRO Hold 18.0 3,268 3,071 3,403 3,672 5.9 5.5 5.0 4.6 18bps 18bps 26bps 33bps
France BNP Paribas Buy 44.2 13,684 13,690 15,033 16,148 4.7 4.0 3.7 3.4 58bps 54bps 49bps 46bps
France Credit Agricole Buy 9.5 5,611 5,614 7,022 7,543 5.1 4.7 3.8 3.5 71bps 60bps 57bps 56bps
France Societe Generale Hold 32.5 8,748 7,669 8,157 8,599 3.9 3.4 3.2 3.0 82bps 65bps 63bps 58bps
Germany Aareal Bank Buy 28.5 598 430 398 424 2.9 4.0 4.3 4.0 40bps 32bps 30bps 30bps
Germany Comdirect Hold 9.8 94 127 91 109 16.3 11.0 15.2 12.8 114bps 21bps 42bps 42bps
Germany Commerzbank Buy 7.6 2,628 2,506 2,791 3,127 4.6 3.8 3.4 3.1 30bps 29bps 28bps 27bps
Germany Deutsche Pfandbriefbank Buy 9.0 194 218 239 293 7.8 5.6 5.1 4.1 0bps 7bps 9bps 13bps
Iberia Banco Popular Hold 2.3 1,677 1,484 1,534 1,561 4.0 3.4 3.2 3.2 127bps 94bps 45bps 45bps
Iberia Banco de Sabadell Hold 1.6 2,809 2,240 2,068 2,249 3.0 3.7 4.0 3.6 176bps 80bps 49bps 45bps
Iberia Banco Santander Hold 3.9 23,887 23,511 24,701 25,880 2.7 2.4 2.3 2.2 132bps 126bps 123bps 122bps
Iberia Bankia Buy 0.8 2,212 1,991 2,009 2,082 5.6 4.8 4.8 4.6 56bps 43bps 35bps 35bps
Iberia Bankinter Hold 6.2 777 865 789 823 7.6 6.5 7.1 6.8 59bps 42bps 32bps 32bps
Iberia BBVA Hold 5.8 11,305 12,479 13,068 13,560 3.8 3.1 2.9 2.9 108bps 92bps 87bps 87bps
Iberia CaixaBank Hold 2.6 3,227 2,882 2,896 3,196 5.9 4.8 4.8 4.4 107bps 55bps 44bps 42bps
Iberia Liberbank Hold 1.1 458 337 329 320 1.1 2.8 3.0 3.1 113bps 73bps 51bps 38bps
Ireland Bank of Ireland Hold 0.3 1,461 1,326 1,312 1,327 7.5 6.2 6.3 6.2 32bps 31bps 23bps 36bps
Ireland Permanent tsb Hold 2.7 61 134 183 214 50.4 9.2 6.7 5.8 -34bps 2bps 18bps 21bps
Italy Banca Popolare di Milano Hold 0.6 624 647 714 745 6.5 4.2 3.8 3.6 103bps 75bps 62bps 56bps
Italy Banco Popolare Buy 6.0 1,280 1,221 1,339 1,450 3.6 1.8 1.6 1.5 108bps 84bps 80bps 74bps
Italy Credem Buy 6.0 389 324 370 404 5.8 6.1 5.3 4.9 51bps 35bps 28bps 23bps
Italy Intesa SanPaolo Buy 2.4 8,498 9,183 9,817 10,351 5.8 4.2 3.9 3.7 96bps 81bps 70bps 64bps
Italy Monte dei Paschi Hold 0.5 2,717 1,753 1,880 2,032 1.3 0.8 0.8 0.7 172bps 124bps 113bps 104bps
Italy UBI Banca Hold 3.25 1,219 1,158 1,317 1,454 4.6 2.5 2.2 2.0 94bps 73bps 69bps 63bps
Italy UniCredit Buy 3.17 8,787 9,084 9,993 10,865 3.5 2.1 1.9 1.7 87bps 77bps 66bps 63bps
Nordics Danske Bank Buy 185.00 2,427 3,114 3,296 3,441 10.1 7.4 6.9 6.6 0bps 4bps 8bps 12bps
Nordics DNB Buy 97.85 3,599 3,487 3,573 3,738 5.6 4.8 4.7 4.5 11bps 23bps 26bps 21bps
Nordics Nordea Buy 8.45 5,183 5,272 5,525 5,784 7.9 6.4 6.1 5.9 14bps 15bps 16bps 16bps
Nordics SEB Hold 77.55 2,348 2,402 2,549 2,675 8.9 7.7 7.2 6.9 7bps 8bps 10bps 10bps
Nordics Svenska Handelsbanken Hold 103.3 2,359 2,351 2,452 2,601 9.8 9.1 8.7 8.2 9bps 9bps 9bps 12bps
Nordics Swedbank Buy 174.9 2,276 2,811 2,726 2,888 9.7 7.4 7.7 7.2 7bps 7bps 10bps 14bps
Switzerland Cembra Money Bank Hold 67.2 213 206 197 185 8.0 8.4 8.8 9.4 107bps 101bps 101bps 96bps
Switzerland Credit Suisse Group Hold 13.6 -1,966 743 2,799 6,212 (20.2) 33.7 9.2 4.3 12bps 13bps 14bps 13bps
Switzerland Julius Baer Hold 43.3 618 690 741 804 16.1 12.6 11.7 10.8 149bps 0bps 0bps 0bps
Switzerland UBS Hold 15.5 5,253 4,219 5,967 7,974 13.4 12.9 9.2 6.8 4bps 10bps 9bps 9bps
UK Aldermore Hold 210.0 147 193 202 220 11.1 4.8 4.6 4.3 29bps 39bps 40bps 40bps
UK Barclays Hold 150.0 10,372 6,824 10,040 11,627 4.9 4.8 3.3 2.9 51bps 58bps 60bps 61bps
UK HSBC Hold 433.9 18,062 12,889 16,326 20,832 7.8 8.5 6.9 5.5 39bps 48bps 51bps 54bps
UK Lloyds Banking Group Buy 68.0 3,149 8,976 11,701 12,484 22.8 6.8 5.3 4.9 12bps 20bps 28bps 35bps
UK Standard Chartered Hold 472.6 3,711 3,379 4,332 5,125 6.7 5.9 4.7 4.1 181bps 138bps 67bps 50bps
UK RBS Hold 222.7 5,067 4,468 5,137 6,016 9.5 7.4 6.6 5.7 -21bps 6bps 4bps 10bps

Austria 3.6 3.2 3.1 3.0 101bps 92bps 83bps 71bps

Benelux 6.7 5.8 5.4 5.1 28bps 25bps 25bps 25bps
France 4.5 4.0 3.6 3.3 68bps 59bps 55bps 52bps
Germany 4.6 4.1 3.9 3.5 31bps 29bps 28bps 27bps
Iberia 3.5 3.0 2.9 2.8 120bps 97bps 88bps 86bps
Ireland 9.2 6.5 6.3 6.2 22bps 26bps 22bps 34bps
Italy 4.2 2.9 2.7 2.5 100bps 82bps 72bps 67bps
Nordics 8.3 6.9 6.7 6.3 8bps 11bps 13bps 15bps
Switzerland 29.5 15.4 9.4 6.0 16bps 12bps 11bps 11bps
UK 8.4 7.0 5.5 4.7 38bps 45bps 41bps 43bps
UK ex HSBC, STAN 9.2 6.3 4.8 4.3 16bps 29bps 32bps 37bps
Euro zone banks 4.4 3.6 3.4 3.2 82bps 69bps 63bps 60bps
Nordic+Swiss+UK banks 9.7 7.8 6.3 5.3 27bps 31bps 29bps 30bps
DB Universe 5.9 5.0 4.5 4.1 57bps 53bps 48bps 48bps
Page 63

Source: DB estimates, company data

Page 64 Provided for the exclusive use of [email protected] on 2023-11-23T17:20+00:00. DO NOT REDISTRIBUTE

European Banks 101

Banks
4 April 2016
Figure 56: Cost saving gearing
Geography Stock DB Rec. Priced at Cost:income ratio Costs (E'm) Market cap to costs
31/03/2016 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 62.0% 58.9% 58.9% 57.9% 3,869 3,876 3,892 3,918 3.1 2.6 2.6 2.6
Austria Raiffeisen Bank Intern. Hold 13.3 59.6% 63.3% 61.3% 60.5% 2,914 2,867 2,825 2,834 1.4 1.4 1.4 1.4
Benelux ING Buy 10.6 55.9% 55.8% 55.0% 54.1% 9,246 9,372 9,483 9,628 5.2 4.4 4.4 4.3
Benelux KBC Hold 45.3 54.4% 57.5% 56.1% 54.8% 3,890 3,924 3,952 3,971 6.2 4.8 4.8 4.8
Benelux ABN AMRO Hold 18.0 61.6% 64.3% 61.2% 58.7% 5,238 5,523 5,359 5,229 3.7 3.1 3.2 3.2
France BNP Paribas Buy 44.2 68.1% 67.7% 65.6% 64.1% 29,254 28,703 28,675 28,889 2.2 1.9 1.9 1.9
France Credit Agricole Buy 9.5 67.4% 67.0% 61.9% 60.2% 11,583 11,414 11,402 11,410 2.5 2.3 2.3 2.3
France Societe Generale Hold 32.5 65.9% 68.8% 67.7% 66.9% 16,893 16,898 17,099 17,355 2.0 1.5 1.5 1.5
Germany Aareal Bank Buy 28.5 48.0% 55.9% 55.2% 51.5% 553 545 490 450 3.2 3.1 3.5 3.8
Germany Comdirect Hold 9.8 74.8% 69.5% 76.3% 73.5% 281 289 295 300 5.5 4.8 4.7 4.6
Germany Commerzbank Buy 7.6 73.1% 74.1% 71.9% 69.5% 7,157 7,158 7,131 7,125 1.7 1.3 1.3 1.3
Germany Deutsche Pfandbriefbank Buy 9.0 51.5% 49.2% 47.2% 42.4% 206 211 214 216 7.3 5.7 5.6 5.6
Iberia Banco Popular Hold 2.3 50.6% 52.8% 51.2% 50.3% 1,716 1,659 1,610 1,577 3.9 3.0 3.1 3.1
Iberia Banco de Sabadell Hold 1.6 48.0% 57.6% 59.1% 56.7% 2,597 3,038 2,991 2,946 3.3 2.7 2.7 2.8
Iberia Banco Santander Hold 3.9 47.1% 46.9% 45.9% 44.8% 21,248 20,726 20,995 20,987 3.1 2.7 2.7 2.7
Iberia Bankia Buy 0.8 42.8% 43.9% 42.4% 41.0% 1,658 1,558 1,480 1,448 7.5 6.1 6.5 6.6
Iberia Bankinter Hold 6.2 49.4% 50.9% 53.2% 52.4% 758 897 897 906 7.8 6.2 6.2 6.2
Iberia BBVA Hold 5.8 52.2% 49.7% 48.6% 48.3% 12,363 12,319 12,353 12,646 3.5 3.1 3.1 3.1
Iberia CaixaBank Hold 2.6 58.8% 57.8% 57.2% 54.2% 4,607 3,942 3,863 3,786 4.2 3.5 3.6 3.7
Iberia Liberbank Hold 1.1 48.7% 54.8% 54.2% 54.3% 435 409 388 381 1.2 2.3 2.5 2.6
Ireland Bank of Ireland Hold 0.3 55.4% 58.1% 59.1% 59.1% 1,817 1,840 1,895 1,919 6.0 4.5 4.4 4.3
Ireland Permanent tsb Hold 2.7 83.5% 68.0% 59.3% 55.8% 311 286 268 270 10.0 4.3 4.6 4.6
Italy Banca Popolare di Milano Hold 0.6 62.5% 61.6% 59.3% 58.4% 1,040 1,039 1,042 1,045 3.9 2.6 2.6 2.6
Italy Banco Popolare Buy 6.0 62.8% 64.0% 61.8% 59.8% 2,165 2,168 2,162 2,157 2.1 1.0 1.0 1.0
Italy Credem Buy 6.0 68.0% 71.8% 69.1% 67.3% 826 826 828 833 2.7 2.4 2.4 2.4
Italy Intesa SanPaolo Buy 2.4 50.9% 49.0% 47.4% 46.0% 8,816 8,832 8,833 8,823 5.6 4.4 4.4 4.4
Italy Monte dei Paschi Hold 0.50 49.2% 59.7% 57.9% 55.7% 2,629 2,598 2,582 2,552 1.4 0.6 0.6 0.6
Italy UBI Banca Hold 3.25 64.9% 65.9% 62.6% 59.8% 2,258 2,241 2,203 2,167 2.5 1.3 1.3 1.4
Italy UniCredit Buy 3.17 60.8% 59.8% 56.9% 54.2% 13,618 13,496 13,189 12,833 2.2 1.4 1.4 1.5
Nordics Danske Bank Buy 185.00 59.3% 47.5% 45.9% 44.8% 3,543 2,822 2,796 2,796 6.9 8.2 8.1 8.1
Nordics DNB Buy 97.85 40.5% 39.5% 38.5% 37.6% 2,445 2,273 2,239 2,254 8.2 7.4 7.6 7.5
Nordics Nordea Buy 8.45 48.9% 47.6% 46.5% 45.5% 4,957 4,796 4,803 4,832 8.2 7.1 7.1 7.0
Nordics SEB Hold 77.6 50.3% 50.0% 48.6% 48.0% 2,372 2,401 2,411 2,472 8.8 7.7 7.6 7.4
Nordics Svenska Handelsbanken Hold 103.3 45.3% 45.9% 45.4% 44.5% 1,953 1,993 2,037 2,082 11.8 10.7 10.5 10.2
Nordics Swedbank Buy 174.9 43.4% 38.0% 38.9% 38.1% 1,746 1,726 1,738 1,780 12.6 12.1 12.0 11.7
Switzerland Cembra Money Bank Hold 67.2 41.5% 42.1% 43.4% 45.1% 151 150 151 152 11.2 11.6 11.5 11.4
Switzerland Credit Suisse Group Hold 13.6 108.8% 96.4% 87.3% 73.5% 24,262 19,886 19,161 17,214 1.6 1.3 1.3 1.5
Switzerland Julius Baer Hold 43.3 75.5% 73.1% 72.6% 71.8% 1,906 1,879 1,960 2,046 5.2 4.6 4.4 4.2
Switzerland UBS Hold 15.5 81.8% 84.2% 78.5% 72.3% 23,532 22,445 21,834 20,785 3.0 2.4 2.5 2.6
UK Aldermore Hold 210.0 52.4% 43.9% 43.9% 43.0% 162 151 158 166 10.1 6.1 5.9 5.7
UK Barclays Hold 150.0 69.3% 72.7% 62.2% 57.9% 23,416 18,164 16,522 15,998 2.2 1.8 2.0 2.1
UK HSBC Hold 433.9 66.5% 72.9% 66.9% 58.8% 35,892 34,683 32,953 29,787 3.9 3.2 3.4 3.9
UK Lloyds Banking Group Buy 68.0 86.9% 59.9% 50.5% 48.5% 20,896 13,433 11,915 11,759 3.4 4.6 5.2 5.2
UK Standard Chartered Hold 472.6 73.1% 73.3% 66.8% 62.8% 10,074 9,289 8,729 8,664 2.5 2.2 2.4 2.4
UK RBS Hold 222.7 71.8% 71.0% 65.9% 60.1% 12,888 10,933 9,907 9,050 3.8 3.0 3.4 3.8

Austria 61.0% 60.7% 59.9% 59.0% 2.3 2.1 2.1 2.1

Benelux 57.0% 58.3% 56.7% 55.2% 5.0 4.1 4.1 4.1
France 67.3% 67.9% 65.4% 64.1% 2.2 1.9 1.9 1.9
Germany 70.6% 72.3% 70.7% 68.3% 1.9 1.6 1.6 1.6
Iberia 49.5% 49.3% 48.5% 47.4% 3.6 3.1 3.1 3.1
Deutsche Bank AG/London

Ireland 58.3% 59.3% 59.1% 58.7% 6.0 4.5 4.4 4.3

Italy 57.1% 57.2% 54.8% 52.7% 3.2 2.2 2.2 2.3
Nordics 48.3% 45.2% 44.3% 43.4% 8.9 8.4 8.4 8.3
Switzerland 92.4% 88.3% 81.6% 72.6% 2.4 2.0 2.1 2.3
UK 71.8% 70.2% 62.7% 57.3% 3.3 3.0 3.3 3.5
UK ex HSBC, STAN 75.5% 67.7% 58.8% 55.0% 3.0 3.0 3.3 3.5
Euro zone banks 58.4% 58.7% 57.0% 55.6% 3.1 2.5 2.5 2.6
Nordic+Swiss+UK banks 73.0% 70.3% 64.2% 58.7% 3.6 3.3 3.5 3.7
DB Universe 64.9% 63.6% 60.1% 56.9% 3.3 2.9 3.0 3.1

Source: DB estimates, company data

Deutsche Bank AG/London Provided for the exclusive use of [email protected] on 2023-11-23T17:20+00:00. DO NOT REDISTRIBUTE

European Banks 101

Banks
4 April 2016
Figure 57: Yields
Geography Stock DB Rec. Priced at Target Upside / Income yield Dividend Yield Payout ratio FCF Yield
31/03/2016 price (downside) 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 29.0 17% 8.2% 11.6% 10.8% 11.2% 1.7% 2.8% 3.6% 4.9% 19% 26% 34% 43% 10.1% 9.2% 8.0% 8.6%
Austria Raiffeisen Bank Intern. Hold 13.3 12.0 (10%) 9.5% 5.7% 12.8% 19.6% 0.0% 0.0% 0.0% 3.9% n/a n/a n/a 20% 23.2% 4.8% 7.0% 16.5%
Benelux ING Buy 10.6 13.7 29% 8.3% 11.4% 11.2% 12.2% 5.2% 6.6% 7.1% 7.5% 60% 65% 63% 62% 3.8% 8.5% 7.9% 8.6%
Benelux KBC Hold 45.3 55.0 21% 6.6% 9.5% 10.2% 10.8% 0.0% 5.7% 6.1% 6.5% n/a 60% 60% 60% 7.5% 7.9% 8.5% 9.2%
Benelux ABN AMRO Hold 18.0 21.5 19% 9.8% 11.0% 11.3% 11.6% 3.9% 4.9% 5.6% 5.8% 43% 45% 50% 50% 7.9% 8.7% 8.9% 8.6%
France BNP Paribas Buy 44.2 58.0 31% 9.8% 11.7% 13.6% 14.9% 4.4% 5.3% 6.1% 6.7% 40% 43% 44% 44% 7.7% 9.4% 11.1% 12.5%
France Credit Agricole Buy 9.5 12.5 31% 11.0% 12.0% 11.2% 12.5% 5.5% 6.0% 5.7% 6.3% 48% 57% 50% 50% 6.6% 14.1% 8.3% 9.6%
France Societe Generale Hold 32.5 35.0 8% 10.5% 11.0% 12.3% 13.8% 4.7% 5.5% 6.2% 7.0% 44% 50% 50% 50% 9.5% 9.7% 8.2% 9.7%
Germany Aareal Bank Buy 28.5 33.0 16% 20.4% 11.9% 11.0% 11.8% 5.7% 6.7% 7.7% 8.4% 44% 53% 74% 77% 13.3% 14.9% 13.0% 12.1%
Germany Comdirect Hold 9.8 10.5 7% 4.4% 6.7% 4.8% 5.7% 3.7% 5.7% 4.1% 4.9% 85% 120% 85% 85% 3.8% 6.3% 4.3% 5.2%
Germany Commerzbank Buy 7.6 14.0 83% 9.1% 12.6% 14.8% 17.3% 2.1% 3.9% 6.5% 8.7% 19% 31% 44% 50% 23.8% 13.8% 16.2% 19.5%
Germany Deutsche Pfandbriefbank Buy 9.0 13.0 44% 15.3% 13.4% 13.9% 15.3% 3.8% 7.3% 8.3% 9.2% 23% 55% 60% 60% 29.8% 7.9% 8.3% 8.3%
Iberia Banco Popular Hold 2.29 3.00 31% 5.0% 8.0% 15.9% 16.0% 2.5% 4.0% 7.9% 8.0% 68% 65% 58% 58% 9.0% 4.9% 9.6% 9.4%
Iberia Banco de Sabadell Hold 1.58 1.80 14% 8.0% 9.5% 11.2% 13.0% 4.0% 4.7% 5.6% 6.5% 49% 53% 53% 53% -12.3% 6.9% 7.4% 9.7%
Iberia Banco Santander Hold 3.87 4.80 24% 10.0% 11.8% 13.2% 14.5% 4.4% 5.4% 5.7% 5.9% 43% 46% 43% 41% 10.2% 8.8% 10.6% 12.6%
Iberia Bankia Buy 0.83 1.30 57% 8.6% 10.8% 12.3% 12.9% 2.7% 6.9% 6.9% 6.9% 32% 64% 56% 54% 12.4% 12.4% 11.1% 11.6%
Iberia Bankinter Hold 6.21 6.40 3% 6.2% 8.6% 8.1% 8.4% 3.1% 5.1% 4.8% 5.1% 50% 60% 60% 60% 4.1% 3.4% 5.9% 6.8%
Iberia BBVA Hold 5.84 7.10 22% 5.9% 10.9% 13.3% 13.7% 5.5% 6.3% 6.3% 6.3% 100% 61% 50% 48% -5.6% 9.4% 9.7% 9.4%
Iberia CaixaBank Hold 2.6 3.4 31% 5.9% 9.3% 11.4% 13.0% 5.0% 6.2% 7.7% 7.7% 83% 70% 67% 59% -0.7% 9.7% 10.0% 10.3%
Iberia Liberbank Hold 1.1 1.8 65% 30.6% 13.5% 15.6% 16.7% 9.7% 5.0% 7.8% 8.4% 35% 40% 50% 50% 49.8% 13.5% -10.5% 9.5%
Ireland Bank of Ireland Hold 0.3 0.4 45% 8.3% 10.1% 11.1% 9.9% 0.0% 2.5% 8.3% 7.4% n/a 27% 79% 76% 7.3% 7.6% 8.4% 7.2%
Ireland Permanent tsb Hold 2.7 4.8 76% 5.6% 6.7% 9.7% 11.4% 0.0% 0.0% 3.9% 6.8% n/a n/a 43% 64% 16.1% 11.6% 13.0% 10.6%
Italy Banca Popolare di Milano Hold 0.6 0.9 38% 7.1% 8.9% 11.3% 12.4% 2.9% 4.9% 6.2% 6.8% 52% 55% 55% 55% 3.9% 4.9% 7.0% 7.9%
Italy Banco Popolare Buy 6.0 14.0 132% 9.3% 14.4% 18.6% 23.2% 1.2% 5.7% 7.4% 9.3% 13% 39% 39% 40% 16.1% 14.0% 13.5% 17.5%
Italy Credem Buy 6.0 7.2 20% 7.4% 7.4% 9.5% 10.8% 2.2% 3.7% 4.7% 5.4% 28% 50% 50% 50% 22.8% 5.2% 6.4% 7.6%
Italy Intesa SanPaolo Buy 2.4 3.5 44% 5.6% 9.8% 11.4% 12.6% 4.5% 7.4% 9.7% 10.5% 74% 78% 88% 87% 2.6% 8.9% 11.0% 12.1%
Italy Monte dei Paschi Hold 0.5 0.9 79% 10.7% 19.0% 30.2% 40.9% 0.0% 0.0% 0.0% 0.0% n/a n/a n/a n/a 25.7% 11.8% 23.0% 33.5%
Italy UBI Banca Hold 3.3 5.0 54% 2.1% 9.4% 13.3% 16.9% 1.8% 4.7% 6.6% 8.5% 43% 46% 48% 48% 2.9% 7.6% 10.3% 11.0%
Italy UniCredit Buy 3.2 6.1 92% 5.5% 12.5% 17.6% 21.1% 2.3% 5.0% 7.1% 8.4% 31% 38% 39% 39% 11.6% 11.9% 12.1% 15.0%
Nordics Danske Bank Buy 185.0 230.0 24% 7.4% 10.3% 10.8% 11.0% 4.3% 5.0% 5.3% 5.4% 47% 50% 51% 51% 9.1% 8.3% 9.9% 10.0%
Nordics DNB Buy 97.9 140.0 43% 12.7% 13.9% 14.1% 15.7% 4.1% 5.6% 7.1% 7.9% 36% 41% 50% 50% 11.5% 14.7% 11.8% 13.3%
Nordics Nordea Buy 8.4 12.0 42% 9.0% 10.8% 11.3% 11.8% 6.3% 7.8% 8.1% 8.3% 69% 74% 71% 70% 9.5% 10.0% 10.2% 10.8%
Nordics SEB Hold 77.6 100.0 29% 8.6% 10.0% 10.4% 10.9% 5.9% 6.8% 6.8% 7.1% 69% 68% 65% 65% 10.9% 8.9% 9.2% 9.6%
Nordics Svenska Handelsbanken Hold 103.3 117.0 13% 8.1% 8.0% 8.3% 8.6% 5.3% 5.9% 4.5% 4.6% 72% 74% 55% 54% 8.4% 6.8% 7.1% 7.5%
Nordics Swedbank Buy 174.9 235.0 34% 7.6% 10.2% 9.8% 10.1% 5.7% 7.6% 7.3% 7.6% 75% 84% 75% 75% 8.8% 9.6% 9.4% 9.3%
Switzerland Cembra Money Bank Hold 67.2 61.0 (9%) 8.0% 7.6% 7.2% 6.8% 5.2% 5.0% 5.4% 5.4% 65% 66% 75% 80% 7.9% 7.4% 6.9% 6.5%
Switzerland Credit Suisse Group Hold 13.6 16.0 18% -7.0% 0.0% 5.5% 14.5% 3.2% 5.1% 5.1% 5.9% 160% 76% 42% 37% -8.3% -0.3% 5.7% 12.7%
Switzerland Julius Baer Hold 43.3 44.0 2% 1.2% 6.5% 6.8% 7.4% 2.3% 2.7% 2.8% 3.0% 34% 37% 37% 38% -0.8% 5.5% 5.7% 6.3%
Switzerland UBS Hold 15.5 18.0 16% 8.3% 5.7% 8.2% 11.4% 4.4% 5.5% 5.8% 7.7% 64% 75% 63% 72% 9.4% 4.0% 6.4% 9.5%
UK Aldermore Hold 210.0 240.0 14% 5.8% 11.7% 11.9% 12.7% 0.0% 0.0% 2.0% 2.0% n/a n/a 17% 16% -1.8% 2.7% 2.3% 3.0%
UK Barclays Hold 150.0 180.0 20% -1.1% 2.3% 7.8% 14.5% 3.0% 2.0% 2.0% 6.4% 116% 22% 16% 44% 10.8% 3.9% 21.5% 10.8%
UK HSBC Hold 433.9 437.0 1% 8.0% 5.8% 7.9% 10.6% 9.5% 8.3% 8.5% 8.7% 76% 87% 85% 81% 15.5% 11.5% 9.7% 8.4%
UK Lloyds Banking Group Buy 68.0 83.0 22% 1.0% 7.5% 10.8% 11.2% 3.8% 8.1% 10.3% 11.0% 37% 78% 92% 97% 4.3% 10.0% 10.9% 9.7%
UK Standard Chartered Hold 472.6 400.0 (15%) -8.6% -1.6% 8.7% 12.7% 2.4% 3.0% 3.0% 3.0% -33% 292% 23% 16% 5.5% -1.0% 9.8% 6.8%
UK RBS Hold 222.7 248.0 11% -5.6% -19.7% 6.4% 10.4% 0.0% 0.0% 4.5% 26.9% n/a n/a 48% 257% 26.7% -12.2% 13.2% 12.3%

Austria 10% 8.5% 10.0% 11.4% 13.5% 1.2% 2.0% 2.6% 4.6% 19% 26% 34% 37% 13.4% 8.0% 7.7% 10.8%
Benelux 25% 8.3% 10.9% 11.0% 11.8% 3.6% 6.0% 6.5% 6.9% 55% 59% 60% 59% 6.0% 8.4% 8.3% 8.7%
France 25% 10.3% 11.6% 12.7% 14.1% 4.7% 5.5% 6.0% 6.7% 43% 48% 47% 47% 7.9% 10.6% 9.7% 11.1%
Germany 64% 9.9% 11.9% 13.2% 15.3% 2.8% 4.7% 6.6% 8.3% 29% 45% 53% 58% 20.6% 13.1% 14.5% 17.0%
Iberia 25% 7.9% 10.9% 12.8% 13.8% 4.5% 5.8% 6.2% 6.4% 64% 55% 50% 48% 3.5% 8.9% 9.8% 10.9%
Ireland 49% 7.7% 9.7% 10.9% 10.1% 0.0% 2.2% 7.7% 7.4% n/a 27% 74% 74% 9.3% 8.1% 9.0% 7.6%
Italy 60% 5.8% 10.8% 13.8% 16.0% 3.5% 6.2% 8.3% 9.3% 57% 63% 69% 68% 7.4% 9.6% 11.3% 13.2%
Nordics 32% 8.8% 10.4% 10.7% 11.3% 5.4% 6.6% 6.6% 6.9% 62% 66% 62% 62% 10.5% 9.9% 9.6% 10.1%
Switzerland 15% 2.7% 4.2% 7.3% 11.8% 3.9% 5.1% 5.3% 6.7% 88% 72% 55% 59% -2.1% 4.2% 6.1% 10.0%
UK 8% 2.0% 1.9% 8.5% 11.4% 5.5% 6.0% 7.2% 10.8% 61% 93% 68% 98% 2.3% 11.2% 11.9% 9.4%
UK ex HSBC, STAN 19% -1.5% -0.9% 8.9% 11.9% 2.6% 4.4% 6.7% 13.9% 64% 59% 61% 124% 11.6% 2.7% 14.1% 10.6%
Euro zone banks (6%) 8.2% 11.0% 12.5% 13.8% 4.0% 5.6% 6.5% 7.1% 53% 54% 54% 54% 6.7% 9.4% 9.8% 11.0%
Nordic+Swiss+UK banks (2%) 3.8% 4.7% 8.9% 11.4% 5.2% 6.0% 6.7% 9.0% 66% 82% 64% 80% 3.8% 9.5% 10.2% 9.7%
DB Universe 24% 5.9% 7.7% 10.6% 12.5% 4.6% 5.8% 6.6% 8.1% 60% 68% 59% 68% 5.2% 9.5% 10.0% 10.3%
Page 65

Source: DB estimates, company data, Datastream

Page 66 Provided for the exclusive use of [email protected] on 2023-11-23T17:20+00:00. DO NOT REDISTRIBUTE

European Banks 101

Banks
4 April 2016
Figure 58: Book value
Geography Stock DB Rec. Priced at Book value (E'm) Book value per share Price : Stated Book Return on Avg. Stated Equity Return on Avg. RWAs
31/03/2016 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 11,005 11,816 12,541 13,186 26.81 28.78 30.55 32.12 1.08 0.86 0.81 0.77 10.3% 9.7% 9.0% 8.8% 1.1% 1.1% 1.1% 1.1%
Austria Raiffeisen Bank Intern. Hold 13.3 7,965 8,031 8,806 9,834 27.24 27.46 30.11 33.63 0.50 0.48 0.44 0.40 5.1% 2.8% 5.9% 8.2% 0.6% 0.4% 0.8% 1.1%
Benelux ING Buy 10.6 47,832 49,828 51,549 53,487 12.32 12.83 13.28 13.78 1.01 0.83 0.80 0.77 8.5% 8.6% 9.1% 9.5% 1.4% 1.3% 1.4% 1.4%
Benelux KBC Hold 45.3 14,411 15,181 16,002 16,868 34.49 36.31 38.28 40.35 1.67 1.25 1.18 1.12 15.7% 12.2% 12.4% 12.4% 2.4% 2.0% 2.1% 2.1%
Benelux ABN AMRO Hold 18.0 15,991 17,435 18,545 19,608 17.01 18.55 19.73 20.86 1.22 0.97 0.91 0.86 11.5% 11.1% 10.6% 10.3% 1.6% 1.6% 1.6% 1.6%
France BNP Paribas Buy 44.2 81,433 85,387 89,931 94,936 65.51 68.58 72.23 76.25 0.80 0.64 0.61 0.58 9.1% 8.1% 8.7% 9.1% 1.2% 1.1% 1.2% 1.3%
France Credit Agricole Buy 9.5 49,952 51,512 52,978 54,604 18.93 18.57 19.10 19.68 0.57 0.51 0.50 0.48 6.8% 5.4% 5.7% 6.1% 1.1% 0.9% 1.0% 1.1%
France Societe Generale Hold 32.5 49,016 50,095 52,119 53,879 61.52 62.88 65.42 67.63 0.69 0.52 0.50 0.48 7.6% 5.7% 6.2% 6.8% 1.0% 0.8% 0.9% 1.0%
Germany Aareal Bank Buy 28.5 2,593 2,698 2,772 2,841 43.32 45.08 46.31 47.47 0.67 0.63 0.62 0.60 9.4% 8.1% 6.5% 6.6% 1.4% 1.3% 1.1% 1.2%
Germany Comdirect Hold 9.8 602 639 626 649 4.27 4.52 4.43 4.60 2.56 2.18 2.22 2.14 11.2% 10.6% 10.6% 12.5% 2.3% 2.2% 2.2% 2.6%
Germany Commerzbank Buy 7.6 29,565 30,522 31,566 32,600 23.61 24.37 25.21 26.03 0.41 0.31 0.30 0.29 4.7% 4.0% 4.6% 5.2% 0.6% 0.6% 0.7% 0.9%
Germany Deutsche Pfandbriefbank Buy 9.00 2,720 2,779 2,823 2,908 20.23 20.67 21.00 21.62 0.55 0.44 0.43 0.42 9.7% 5.9% 6.0% 6.5% 1.8% 1.2% 1.2% 1.2%
Iberia Banco Popular Hold 2.3 12,833 13,846 14,143 14,445 5.86 6.35 6.56 6.67 0.52 0.36 0.35 0.34 1.9% 2.3% 4.9% 4.9% 0.3% 0.4% 0.9% 0.8%
Iberia Banco de Sabadell Hold 1.58 12,364 12,753 13,192 13,726 2.26 2.33 2.41 2.51 0.69 0.64 0.62 0.60 5.5% 6.2% 7.1% 7.9% 0.9% 0.9% 1.0% 1.2%
Iberia Banco Santander Hold 3.87 89,087 93,071 97,630 102,835 6.20 6.41 6.66 6.94 0.74 0.60 0.58 0.56 7.7% 7.3% 7.9% 8.3% 1.1% 1.1% 1.2% 1.3%
Iberia Bankia Buy 0.83 12,596 12,901 13,299 13,780 1.09 1.12 1.15 1.20 0.98 0.74 0.72 0.69 8.5% 8.1% 9.0% 9.1% 1.2% 1.2% 1.4% 1.5%
Iberia Bankinter Hold 6.21 3,796 3,951 4,102 4,259 4.22 4.40 4.56 4.74 1.55 1.41 1.36 1.31 9.8% 12.3% 11.2% 11.3% 1.4% 1.7% 1.5% 1.5%
Iberia BBVA Hold 5.84 50,593 53,394 55,845 58,485 7.92 8.17 8.47 8.79 0.85 0.71 0.69 0.66 4.6% 7.6% 9.0% 8.9% 0.6% 1.0% 1.2% 1.2%
Iberia CaixaBank Hold 2.6 25,559 26,216 26,876 27,395 4.28 4.88 5.00 5.10 0.75 0.53 0.52 0.51 4.5% 5.0% 6.0% 6.7% 0.8% 0.8% 1.0% 1.1%
Iberia Liberbank Hold 1.1 2,600 2,631 2,909 2,952 2.98 3.02 3.21 3.26 0.20 0.36 0.34 0.33 6.0% 4.9% 5.6% 5.6% 1.0% 0.8% 0.9% 0.9%
Ireland Bank of Ireland Hold 0.3 8,676 9,315 9,544 9,749 0.27 0.29 0.30 0.30 1.26 0.89 0.86 0.85 7.8% 8.5% 9.3% 8.4% 1.2% 1.4% 1.6% 1.4%
Ireland Permanent tsb Hold 2.7 2,031 1,970 2,051 2,117 4.47 4.34 4.52 4.66 1.53 0.63 0.60 0.58 6.2% 4.9% 5.5% 6.3% 1.0% 0.9% 1.0% 1.2%
Italy Banca Popolare di Milano Hold 0.6 4,627 4,735 4,872 5,022 1.05 1.08 1.11 1.14 0.87 0.57 0.55 0.54 5.0% 5.1% 6.3% 6.8% 0.7% 0.7% 0.8% 0.9%
Italy Banco Popolare Buy 6.0 8,494 8,456 8,586 8,780 23.45 23.35 23.71 24.24 0.55 0.26 0.25 0.25 4.9% 3.8% 4.9% 5.9% 0.9% 0.7% 0.9% 1.1%
Italy Credem Buy 6.0 2,480 2,553 2,647 2,754 7.55 7.77 8.05 8.38 0.91 0.77 0.75 0.72 7.4% 5.9% 7.2% 7.9% 1.2% 1.1% 1.3% 1.5%
Italy Intesa SanPaolo Buy 2.4 47,776 48,617 49,125 49,759 2.85 2.90 2.93 2.96 1.03 0.79 0.79 0.78 6.9% 8.0% 9.2% 9.9% 1.1% 1.4% 1.6% 1.7%
Italy Monte dei Paschi Hold 0.5 9,596 9,906 10,379 11,008 3.27 3.38 3.54 3.75 0.38 0.15 0.14 0.13 7.1% 1.9% 3.5% 4.8% 0.7% 0.3% 0.5% 0.7%
Italy UBI Banca Hold 3.3 9,982 10,120 10,315 10,563 11.07 11.22 11.44 11.71 0.56 0.29 0.28 0.28 2.4% 3.0% 4.0% 4.9% 0.4% 0.5% 0.7% 0.8%
Italy UniCredit Buy 3.2 50,087 52,172 55,127 58,670 8.39 8.74 9.23 9.83 0.61 0.36 0.34 0.32 4.6% 4.9% 6.4% 7.2% 0.6% 0.6% 0.9% 1.0%
Nordics Danske Bank Buy 185.0 20,046 20,135 20,706 21,950 151.20 160.80 169.30 179.48 1.22 1.15 1.09 1.03 11.4% 11.5% 11.6% 11.2% 2.0% 2.0% 2.0% 2.0%
Nordics DNB Buy 97.9 19,639 20,194 21,629 23,094 107.75 116.89 125.20 133.68 1.02 0.84 0.78 0.73 12.1% 12.0% 11.5% 12.0% 1.8% 1.9% 2.0% 2.1%
Nordics Nordea Buy 8.4 31,032 32,160 33,275 34,541 7.72 8.00 8.28 8.59 1.31 1.06 1.02 0.98 12.3% 11.3% 11.7% 11.8% 2.6% 2.5% 2.6% 2.6%
Nordics SEB Hold 77.6 15,265 16,043 16,719 17,481 65.15 67.62 70.47 73.69 1.37 1.15 1.10 1.05 12.1% 11.6% 11.7% 11.8% 2.8% 2.9% 3.0% 3.0%
Nordics Svenska Handelsbanken Hold 103.3 13,712 14,326 14,843 15,707 67.26 69.40 71.91 76.09 1.68 1.49 1.44 1.36 12.5% 12.1% 12.2% 12.0% 3.3% 3.2% 3.2% 3.2%
Nordics Swedbank Buy 174.9 13,185 14,188 14,635 15,208 111.70 118.71 122.45 127.25 1.68 1.47 1.43 1.37 13.1% 13.8% 14.2% 14.1% 3.9% 4.5% 4.7% 4.7%
Switzerland Cembra Money Bank Hold 67.2 749 777 814 838 28.34 30.06 31.51 32.41 2.27 2.24 2.13 2.07 18.1% 17.6% 15.7% 14.2% 4.0% 3.9% 3.6% 3.4%
Switzerland Credit Suisse Group Hold 13.6 41,584 40,232 41,198 46,413 22.74 21.84 21.72 23.76 0.95 0.62 0.63 0.57 1.8% 4.1% 7.7% 9.5% 0.3% 0.6% 1.2% 1.6%
Switzerland Julius Baer Hold 43.3 4,624 4,850 5,193 5,567 22.57 24.20 25.91 27.77 2.16 1.79 1.67 1.56 13.7% 13.5% 12.9% 12.9% 3.8% 3.5% 3.4% 3.5%
Switzerland UBS Hold 15.5 51,826 53,177 54,656 57,680 14.38 15.09 15.51 16.39 1.36 1.03 1.00 0.95 9.6% 7.6% 9.4% 10.5% 2.4% 2.0% 2.4% 2.7%
UK Aldermore Hold 210.0 624 679 772 873 131.33 154.64 173.93 194.74 2.61 1.36 1.21 1.08 19.3% 17.3% 15.3% 14.6% 2.3% 2.2% 1.9% 1.8%
UK Barclays Hold 150.0 82,392 77,321 80,971 85,418 355.91 357.50 367.03 379.60 0.62 0.42 0.41 0.40 1.6% 3.9% 5.3% 6.0% 0.3% 0.7% 1.0% 1.2%
UK HSBC Hold 433.9 155,031 151,722 154,881 161,025 8.73 8.61 8.60 8.75 0.91 0.72 0.73 0.71 7.5% 6.9% 7.2% 7.7% 1.1% 1.1% 1.2% 1.4%
UK Lloyds Banking Group Buy 68.0 56,803 57,090 57,364 57,412 57.71 63.29 63.51 63.47 1.27 1.07 1.07 1.07 12.7% 11.8% 12.1% 12.3% 2.3% 2.4% 2.6% 2.6%
UK Standard Chartered Hold 472.6 41,660 39,840 41,226 43,483 14.09 13.51 13.64 14.04 0.59 0.50 0.50 0.48 (2.3%) 0.3% 4.4% 6.3% (0.3%) 0.1% 0.7% 1.0%
UK RBS Hold 222.7 65,407 52,865 54,219 48,511 408.45 355.12 357.07 313.22 0.74 0.63 0.62 0.71 5.1% 1.9% 5.8% 7.0% 0.8% 0.4% 1.2% 1.4%

Austria 18,970 19,846 21,347 23,020 0.84 0.71 0.66 0.61 8.0% 6.8% 7.7% 8.6% 0.9% 0.8% 1.0% 1.1%
Benelux 78,234 82,444 86,097 89,963 1.15 0.92 0.88 0.84 10.3% 9.6% 9.9% 10.1% 1.6% 1.5% 1.5% 1.6%
France 180,401 186,994 195,028 203,419 0.71 0.57 0.55 0.53 8.1% 6.7% 7.2% 7.7% 1.1% 0.9% 1.0% 1.1%
Germany 35,481 36,638 37,787 38,998 0.47 0.37 0.36 0.35 5.2% 4.5% 4.8% 5.4% 0.7% 0.7% 0.8% 0.9%
Iberia 209,427 218,765 227,995 237,876 0.77 0.63 0.61 0.59 6.1% 6.8% 7.8% 8.1% 0.9% 1.0% 1.2% 1.2%
Ireland 10,707 11,285 11,595 11,866 1.31 0.84 0.82 0.80 7.4% 7.8% 8.6% 8.0% 1.2% 1.3% 1.5% 1.4%
Deutsche Bank AG/London

Italy 133,042 136,559 141,051 146,557 0.75 0.50 0.49 0.47 5.5% 5.6% 6.9% 7.7% 0.8% 0.8% 1.0% 1.2%
Nordics 112,879 117,046 121,807 127,982 1.34 1.15 1.10 1.05 12.2% 11.9% 12.0% 12.0% 2.5% 2.5% 2.6% 2.7%
Switzerland 98,782 99,035 101,862 110,497 1.23 0.91 0.89 0.83 6.5% 6.6% 8.9% 10.2% 1.3% 1.3% 1.8% 2.1%
UK 401,916 379,517 389,432 396,723 0.84 0.68 0.67 0.67 5.7% 5.6% 7.1% 7.8% 0.9% 1.0% 1.3% 1.5%
UK ex HSBC, STAN 205,225 187,955 193,325 192,214 0.84 0.68 0.67 0.68 5.8% 5.6% 7.5% 8.1% 1.0% 1.0% 1.5% 1.7%
Euro zone banks 666,261 692,531 720,900 751,699 0.79 0.62 0.60 0.57 7.1% 6.8% 7.6% 8.0% 1.0% 1.0% 1.1% 1.2%
Nordic+Swiss+UK banks 613,578 595,599 613,100 635,201 1.00 0.81 0.79 0.77 7.0% 7.0% 8.4% 9.0% 1.2% 1.3% 1.6% 1.8%
DB Universe 1,279,839 1,288,130 1,334,001 1,386,900 0.89 0.71 0.69 0.67 7.0% 6.9% 7.9% 8.5% 1.1% 1.1% 1.3% 1.4%

Source: DB estimates, company data

Deutsche Bank AG/London Provided for the exclusive use of [email protected] on 2023-11-23T17:20+00:00. DO NOT REDISTRIBUTE

European Banks 101

Banks
4 April 2016
Figure 59: Tangible book value
Geography Stock DB Rec. Priced at Tangible book value (E'm) Tangible book value per share Price : Tangible Book Return on Avg. Tangible Equity
31/03/2016 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 9,541 10,351 11,077 11,721 23.24 25.22 26.98 28.55 1.24 0.98 0.92 0.87 11.9% 11.1% 10.2% 10.0%
Austria Raiffeisen Bank Intern. Hold 13.3 7,344 7,410 8,185 9,213 25.11 25.34 27.99 31.51 0.54 0.53 0.48 0.42 5.6% 3.0% 6.4% 8.8%
Benelux ING Buy 10.6 46,265 48,261 49,982 51,920 11.92 12.43 12.87 13.37 1.04 0.86 0.83 0.79 8.7% 8.8% 9.4% 9.8%
Benelux KBC Hold 45.3 13,452 14,222 15,043 15,909 32.20 34.02 35.98 38.05 1.79 1.33 1.26 1.19 17.1% 13.1% 13.2% 13.2%
Benelux ABN AMRO Hold 18.0 15,731 17,175 18,285 19,348 16.73 18.27 19.45 20.58 1.24 0.99 0.93 0.87 11.7% 11.3% 10.8% 10.4%
France BNP Paribas Buy 44.2 68,013 71,967 76,511 81,516 54.72 57.80 61.45 65.48 0.95 0.77 0.72 0.68 11.0% 9.6% 10.3% 10.6%
France Credit Agricole Buy 9.5 34,828 36,388 37,854 39,480 13.20 13.12 13.65 14.23 0.82 0.73 0.70 0.67 9.8% 7.7% 8.0% 8.5%
France Societe Generale Hold 32.5 43,038 44,117 46,141 47,901 54.02 55.37 57.91 60.12 0.79 0.59 0.56 0.54 8.7% 6.5% 7.1% 7.6%
Germany Aareal Bank Buy 28.5 2,483 2,588 2,662 2,731 41.49 43.24 44.47 45.63 0.70 0.66 0.64 0.62 9.8% 8.5% 6.8% 6.9%
Germany Comdirect Hold 9.8 602 639 626 649 4.27 4.52 4.43 4.60 2.56 2.18 2.22 2.14 11.2% 10.6% 10.6% 12.5%
Germany Commerzbank Buy 7.6 26,305 27,262 28,306 29,340 21.00 21.77 22.60 23.43 0.46 0.35 0.34 0.33 5.3% 4.5% 5.1% 5.8%
Germany Deutsche Pfandbriefbank Buy 9.00 2,697 2,756 2,800 2,885 20.06 20.50 20.82 21.45 0.56 0.44 0.43 0.42 9.8% 5.9% 6.1% 6.5%
Iberia Banco Popular Hold 2.3 10,340 11,353 11,650 11,952 4.72 5.21 5.40 5.52 0.64 0.44 0.42 0.41 2.3% 2.8% 6.0% 5.9%
Iberia Banco de Sabadell Hold 1.58 10,343 10,742 11,181 11,715 1.99 2.07 2.16 2.26 0.82 0.76 0.73 0.70 6.5% 7.4% 8.4% 9.3%
Iberia Banco Santander Hold 3.87 59,310 63,226 67,515 72,446 4.13 4.36 4.60 4.89 1.10 0.89 0.84 0.79 12.0% 10.9% 11.5% 11.9%
Iberia Bankia Buy 0.83 12,527 12,832 13,230 13,711 1.09 1.11 1.15 1.19 0.99 0.74 0.72 0.70 8.5% 8.2% 9.1% 9.1%
Iberia Bankinter Hold 6.21 3,513 3,669 3,820 3,977 3.91 4.08 4.25 4.42 1.67 1.52 1.46 1.40 10.6% 13.3% 12.0% 12.1%
Iberia BBVA Hold 5.84 40,796 43,597 46,048 48,688 5.87 6.17 6.48 6.82 1.06 0.88 0.84 0.80 5.7% 9.3% 10.9% 10.8%
Iberia CaixaBank Hold 2.6 21,887 22,508 23,130 23,613 3.67 4.19 4.30 4.39 0.88 0.62 0.60 0.59 5.2% 5.9% 7.0% 7.8%
Iberia Liberbank Hold 1.1 2,466 2,497 2,775 2,818 2.83 2.86 3.06 3.11 0.21 0.38 0.36 0.35 6.3% 5.2% 5.9% 5.9%
Ireland Bank of Ireland Hold 0.3 8,243 8,882 9,111 9,316 0.25 0.27 0.28 0.29 1.33 0.93 0.91 0.89 8.2% 8.9% 9.7% 8.8%
Ireland Permanent tsb Hold 2.7 2,031 1,970 2,051 2,117 4.47 4.34 4.52 4.66 1.53 0.63 0.60 0.58 6.2% 4.9% 5.5% 6.3%
Italy Banca Popolare di Milano Hold 0.6 4,519 4,627 4,763 4,914 1.03 1.05 1.08 1.12 0.90 0.58 0.57 0.55 5.1% 5.2% 6.5% 6.9%
Italy Banco Popolare Buy 6.0 6,451 6,429 6,570 6,773 17.81 17.75 18.14 18.70 0.72 0.34 0.33 0.32 6.5% 5.0% 6.4% 7.7%
Italy Credem Buy 6.0 2,088 2,162 2,255 2,363 6.36 6.58 6.86 7.19 1.08 0.91 0.88 0.84 8.8% 6.9% 8.5% 9.3%
Italy Intesa SanPaolo Buy 2.4 40,581 41,422 41,930 42,564 2.42 2.47 2.50 2.53 1.21 0.93 0.92 0.91 8.1% 9.4% 10.8% 11.6%
Italy Monte dei Paschi Hold 0.5 9,196 9,506 9,979 10,608 3.14 3.24 3.40 3.62 0.39 0.16 0.15 0.14 7.5% 2.0% 3.6% 4.9%
Italy UBI Banca Hold 3.3 8,224 8,464 8,703 8,986 9.16 9.42 9.69 10.00 0.68 0.35 0.34 0.33 2.9% 3.6% 4.8% 5.8%
Italy UniCredit Buy 3.2 44,329 43,255 44,943 47,431 7.43 7.25 7.53 7.95 0.69 0.44 0.42 0.40 5.2% 5.7% 7.8% 8.9%
Nordics Danske Bank Buy 185.0 19,174 19,262 19,832 21,077 144.63 153.83 162.16 172.34 1.28 1.20 1.14 1.07 12.1% 12.0% 12.1% 11.7%
Nordics DNB Buy 97.9 18,936 19,528 20,962 22,428 103.89 113.03 121.34 129.82 1.06 0.87 0.81 0.75 12.6% 12.4% 11.9% 12.3%
Nordics Nordea Buy 8.4 27,824 28,952 30,067 31,333 6.92 7.20 7.48 7.80 1.46 1.17 1.13 1.08 13.7% 12.6% 13.0% 13.0%
Nordics SEB Hold 77.6 13,441 14,195 14,872 15,634 57.36 59.84 62.69 65.90 1.56 1.30 1.24 1.18 13.8% 13.2% 13.2% 13.2%
Nordics Svenska Handelsbanken Hold 103.3 12,829 13,432 13,949 14,813 62.93 65.08 67.58 71.76 1.79 1.59 1.53 1.44 13.4% 12.9% 13.0% 12.8%
Nordics Swedbank Buy 174.9 11,722 12,706 13,154 13,727 99.30 106.31 110.05 114.85 1.88 1.65 1.59 1.52 14.8% 15.5% 15.8% 15.7%
Switzerland Cembra Money Bank Hold 67.2 733 761 799 822 28.34 30.06 31.51 32.41 2.32 2.28 2.17 2.11 18.3% 18.0% 16.1% 14.5%
Switzerland Credit Suisse Group Hold 13.6 36,895 35,646 36,612 41,827 20.18 19.35 19.30 21.41 1.07 0.70 0.71 0.64 2.1% 4.7% 8.7% 10.6%
Switzerland Julius Baer Hold 43.3 2,454 2,795 3,206 3,647 11.99 13.96 16.01 18.22 4.06 3.10 2.71 2.38 25.1% 24.3% 21.5% 20.2%
Switzerland UBS Hold 15.5 45,672 47,157 48,577 51,539 12.67 13.38 13.78 14.64 1.54 1.16 1.12 1.06 11.0% 8.6% 10.6% 11.7%
UK Aldermore Hold 210.0 592 651 744 846 124.71 148.23 167.73 188.74 2.75 1.42 1.25 1.11 20.5% 18.1% 16.0% 15.1%
UK Barclays Hold 150.0 71,066 66,948 71,859 76,307 306.98 309.54 325.73 339.11 0.71 0.48 0.46 0.44 1.9% 4.5% 6.1% 6.7%
UK HSBC Hold 433.9 155,031 151,722 154,881 161,025 7.48 7.48 7.50 7.67 0.91 0.72 0.73 0.71 7.5% 6.9% 7.2% 7.7%
UK Lloyds Banking Group Buy 68.0 51,493 52,228 52,318 52,366 52.31 57.90 57.92 57.90 1.40 1.17 1.17 1.17 14.0% 12.9% 13.2% 13.5%
UK Standard Chartered Hold 472.6 37,474 35,820 37,258 39,569 12.68 12.15 12.33 12.77 0.66 0.56 0.55 0.53 (2.5%) 0.4% 4.9% 6.9%
UK RBS Hold 222.7 56,402 44,618 45,972 40,264 352.21 299.72 302.76 259.97 0.86 0.74 0.74 0.86 6.0% 2.2% 6.9% 8.3%

Austria 16,884 17,761 19,262 20,934 0.94 0.79 0.73 0.67 9.1% 7.6% 8.6% 9.5%
Benelux 75,448 79,658 83,311 87,177 1.19 0.95 0.91 0.87 10.7% 10.0% 10.2% 10.4%
France 145,879 152,472 160,506 168,897 0.87 0.70 0.67 0.64 10.0% 8.3% 8.8% 9.3%
Germany 32,088 33,245 34,394 35,605 0.52 0.42 0.40 0.39 5.8% 5.0% 5.4% 6.0%
Iberia 161,182 170,426 179,348 188,919 1.00 0.81 0.77 0.74 8.0% 8.8% 9.9% 10.3%
Ireland 10,274 10,852 11,162 11,433 1.33 0.87 0.85 0.83 7.8% 8.1% 8.9% 8.3%
Italy 115,390 115,866 119,143 123,638 0.86 0.59 0.58 0.56 6.3% 6.5% 8.2% 9.1%
Nordics 103,925 108,076 112,836 119,011 1.46 1.25 1.19 1.13 13.3% 12.9% 13.0% 13.0%
Switzerland 85,754 86,359 89,193 97,835 1.42 1.04 1.02 0.94 7.7% 7.5% 10.2% 11.6%
UK 372,059 351,987 363,032 370,376 0.91 0.73 0.72 0.72 6.1% 6.0% 7.6% 8.3%
UK ex HSBC, STAN 179,553 164,445 170,893 169,782 0.96 0.78 0.75 0.77 6.7% 6.4% 8.5% 9.2%
Euro zone banks 557,145 580,279 607,126 636,604 0.95 0.74 0.71 0.68 8.5% 8.1% 9.0% 9.5%
Nordic+Swiss+UK banks 561,738 546,422 565,062 587,223 1.09 0.88 0.86 0.84 7.7% 7.6% 9.1% 9.8%
DB Universe 1,118,882 1,126,701 1,172,188 1,223,826 1.02 0.81 0.78 0.75 8.1% 7.9% 9.1% 9.7%
Page 67

Source: DB estimates, company data

Page 68 Provided for the exclusive use of [email protected] on 2023-11-23T17:20+00:00. DO NOT REDISTRIBUTE

European Banks 101

Banks
4 April 2016
Figure 60: Capital building blocks
Geography Stock DB Rec. Priced at 2019 basis B3 CET1 (E'm) 2019 basis AT1 (E'm) 2019 basis B3 RWAs (E'm)
31/03/2016 2014 2015 2016e 2017e 2018e 2014 2015 2016e 2017e 2018e 2014 2015 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 10,811 12,036 12,923 13,648 14,293 5 6 6 6 7 100,591 98,300 100,670 103,541 106,201
Austria Raiffeisen Bank Intern. Hold 13.3 6,877 7,271 7,528 8,026 8,637 0 0 0 0 0 68,721 63,272 63,634 65,906 67,135
Benelux ING Buy 10.6 33,668 42,177 45,759 47,480 49,418 - 2,061 2,061 2,061 2,061 296,319 318,202 330,239 344,098 359,186
Benelux KBC Hold 45.3 13,076 13,247 13,969 14,742 15,560 1,400 1,400 1,400 1,400 1,400 91,236 89,067 92,117 95,305 98,248
Benelux ABN AMRO Hold 18.0 15,435 16,282 17,851 18,961 20,024 - 993 993 1,500 1,500 109,647 113,394 117,186 121,199 126,217
France BNP Paribas Buy 44.2 63,700 68,900 72,454 76,558 81,083 6,700 8,000 10,000 12,000 14,000 620,000 634,000 646,753 660,142 673,556
France Credit Agricole Buy 9.5 30,363 32,813 34,373 35,839 37,465 4,100 4,400 5,900 5,900 5,900 293,000 305,600 299,855 307,447 315,078
France Societe Generale Hold 32.5 35,829 38,857 40,130 41,694 43,454 8,900 9,200 8,500 9,500 10,500 353,200 356,700 359,992 370,697 381,492
Germany Aareal Bank Buy 28.5 2,003 2,197 2,271 2,311 2,353 0 0 0 0 0 15,492 16,725 16,215 15,872 15,822
Germany Comdirect Hold 9.8 389 399 436 423 446 0 0 0 0 0 2,850 2,930 2,995 3,062 3,132
Germany Commerzbank Buy 7.6 19,902 23,700 24,531 25,325 26,155 NA NA NA NA NA 215,178 197,454 196,346 194,997 192,906
Germany Deutsche Pfandbriefbank Buy 9.00 2,090 2,420 2,497 2,569 2,644 999 - - 250 250 15,489 13,300 13,965 14,636 15,486
Iberia Banco Popular Hold 2.3 8,470 8,297 9,087 9,434 9,736 500 1,250 1,250 1,250 1,250 79,939 77,263 78,808 81,960 85,239
Iberia Banco de Sabadell Hold 1.58 7,888 9,871 10,270 10,708 11,243 - - - - - 68,592 85,842 88,003 91,133 93,856
Iberia Banco Santander Hold 3.87 48,743 58,537 62,521 67,080 72,285 4,799 6,299 8,299 10,299 10,299 585,153 584,203 601,369 615,933 626,876
Iberia Bankia Buy 0.83 9,388 10,065 10,679 11,379 12,108 - - - - - 88,565 83,873 82,373 83,514 84,693
Iberia Bankinter Hold 6.21 2,981 3,156 3,334 3,502 3,674 - - - - - 25,704 26,938 29,841 31,052 31,957
Iberia BBVA Hold 5.84 36,484 40,000 41,140 44,439 47,778 2,735 4,376 4,381 4,429 4,429 350,803 400,108 405,697 419,679 436,680
Iberia CaixaBank Hold 2.6 16,668 16,652 17,312 17,832 18,575 - - - - - 144,019 156,768 156,314 158,260 162,106
Iberia Liberbank Hold 1.1 1,809 1,933 2,014 2,091 2,173 - - - - - 16,258 15,283 15,283 17,869 18,584
Ireland Bank of Ireland Hold 0.3 4,776 6,503 7,299 7,766 8,164 75 750 750 1,000 1,000 51,600 52,632 54,737 56,927 59,204
Ireland Permanent tsb Hold 2.7 1,843 1,622 1,593 1,681 1,758 - 125 125 125 125 14,830 11,559 10,959 10,559 10,665
Italy Banca Popolare di Milano Hold 0.6 4,186 4,274 4,593 4,730 4,880 6 8 10 10 10 33,677 35,000 36,064 37,209 38,412
Italy Banco Popolare Buy 6.0 5,426 5,555 5,917 6,052 6,214 - - - - - 47,987 44,800 44,885 45,988 47,216
Italy Credem Buy 6.0 1,740 1,764 1,838 1,931 2,038 - - - - - 16,733 13,263 13,712 14,311 14,943
Italy Intesa SanPaolo Buy 2.4 35,173 35,624 36,700 37,444 38,060 - - - - - 269,790 284,319 287,690 289,328 291,257
Italy Monte dei Paschi Hold 0.5 5,335 8,287 8,597 9,070 9,698 - 598 - - - 76,220 70,828 71,888 72,958 74,060
Italy UBI Banca Hold 3.3 7,103 7,124 7,452 7,695 7,967 - - - - - 61,763 61,337 61,872 62,749 64,499
Italy UniCredit Buy 3.2 41,004 42,732 43,711 45,409 47,764 3,502 3,545 4,045 5,045 6,045 409,223 390,599 391,852 402,361 413,879
Nordics Danske Bank Buy 185.0 16,053 17,172 17,156 17,693 18,913 769 1,520 1,522 1,522 1,522 116,144 111,763 116,568 118,628 120,770
Nordics DNB Buy 97.9 17,009 17,844 18,146 19,335 20,662 - 912 865 865 865 134,136 127,780 119,836 123,720 127,742
Nordics Nordea Buy 8.4 22,821 23,575 24,709 25,806 26,992 2,561 2,941 2,941 2,941 2,941 145,475 143,294 146,039 149,689 153,048
Nordics SEB Hold 77.6 11,054 11,495 12,226 12,899 13,603 939 990 1,002 1,500 1,500 67,767 61,023 63,770 66,144 68,659
Nordics Svenska Handelsbanken Hold 103.3 10,781 10,747 11,325 12,130 12,974 - 1,069 1,082 1,292 1,292 52,803 50,578 53,653 56,170 58,445
Nordics Swedbank Buy 174.9 9,663 10,041 10,696 11,205 11,730 - 695 704 1,150 1,150 45,529 41,595 43,200 43,973 45,680
Switzerland Cembra Money Bank Hold 67.2 626 687 717 748 772 NA NA NA NA NA 3,038 3,470 3,434 3,479 3,521
Switzerland Credit Suisse Group Hold 13.6 23,529 30,861 29,730 33,891 36,187 9,318 10,928 10,689 10,689 10,423 234,049 271,665 266,554 266,227 271,105
Switzerland Julius Baer Hold 43.3 2,234 2,460 2,504 2,914 3,356 0 0 0 0 0 14,167 18,078 18,568 19,496 20,471
Switzerland UBS Hold 15.5 23,830 28,150 28,775 31,033 33,863 385 5,766 6,098 6,556 7,015 181,888 198,917 203,898 213,694 224,029
UK Aldermore Hold 210.0 349 591 650 743 845 93 103 95 95 95 3,353 4,964 5,375 6,274 7,194
UK Barclays Hold 150.0 51,439 56,123 51,474 53,459 56,178 5,708 7,439 7,570 8,200 8,831 498,786 493,686 446,769 401,644 414,165
UK HSBC Hold 433.9 102,498 117,992 115,024 116,603 121,168 4,582 8,448 8,221 8,221 8,221 919,635 994,510 905,020 885,188 910,630
UK Lloyds Banking Group Buy 68.0 38,082 39,267 35,998 36,273 36,321 6,645 7,377 6,756 6,756 6,756 297,485 306,983 266,229 266,118 275,713
UK Standard Chartered Hold 472.6 27,561 34,427 32,775 34,140 36,376 - 2,366 2,302 2,302 2,302 257,576 273,131 264,596 262,367 274,598
UK RBS Hold 222.7 49,535 51,807 40,595 42,624 37,678 - 2,751 2,523 6,308 6,308 441,704 334,197 281,191 258,176 251,561

Austria 17,688 19,307 20,450 21,675 22,930 5 6 6 6 7 169,312 161,572 164,304 169,446 173,336
Benelux 64,269 74,125 80,076 83,753 87,646 2,399 4,454 4,454 5,211 5,211 512,691 533,962 553,506 575,238 599,138
France 129,892 140,570 146,957 154,091 162,002 19,700 21,600 24,400 27,400 30,400 1,266,200 1,296,300 1,306,600 1,338,286 1,370,126
Germany 22,294 26,296 27,238 28,059 28,953 0 0 0 0 0 233,520 217,109 215,556 213,931 211,860
Iberia 132,431 148,512 156,358 166,465 177,571 8,034 11,925 13,930 15,977 15,977 1,359,033 1,430,277 1,457,687 1,499,402 1,539,991
Deutsche Bank AG/London

Ireland 6,619 8,125 8,892 9,447 9,922 75 875 875 1,125 1,125 66,430 64,191 65,696 67,486 69,868
Italy 99,967 105,359 108,807 112,330 116,621 3,508 4,151 4,055 5,055 6,055 915,392 900,145 907,961 924,904 944,264
Nordics 87,382 90,875 94,257 99,067 104,873 4,269 8,127 8,116 9,269 9,269 561,855 536,033 543,066 558,324 574,343
Switzerland 50,219 62,158 61,725 68,587 74,177 9,702 16,694 16,787 17,245 17,438 433,141 492,130 492,454 502,896 519,126
UK 269,464 300,208 276,517 283,842 288,565 17,029 28,484 27,467 31,882 32,513 2,418,540 2,407,472 2,169,180 2,079,766 2,133,860
UK ex HSBC, STAN 139,056 147,198 128,068 132,356 130,176 12,353 17,567 16,849 21,264 21,895 1,237,975 1,134,867 994,189 925,938 941,438
Euro zone banks 473,160 522,295 548,779 575,820 605,646 33,721 43,010 47,720 54,775 58,775 4,522,577 4,603,556 4,671,310 4,788,693 4,908,583
Nordic+Swiss+UK banks 407,065 453,241 432,499 451,496 467,615 31,000 53,305 52,369 58,396 59,220 3,413,535 3,435,634 3,204,699 3,140,986 3,227,329
DB Universe 880,225 975,536 981,278 1,027,316 1,073,261 64,722 96,316 100,089 113,171 117,994 7,936,112 8,039,190 7,876,010 7,929,679 8,135,912

Source: DB estimates, company data

Deutsche Bank AG/London Provided for the exclusive use of [email protected] on 2023-11-23T17:20+00:00. DO NOT REDISTRIBUTE

European Banks 101

Banks
4 April 2016
Figure 61: Capital ratios
Geography Stock DB Rec. Priced at 2019 basis B3 CET1 ratio (%) 2019 basis Total T1 ratio (%) Transitional CET1 ratio (%)
31/03/2016 2014 2015 2016e 2017e 2018e 2014 2015 2016e 2017e 2018e 2014 2015 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 10.6% 12.0% 12.6% 12.9% 13.2% 10.6% 12.0% 12.6% 12.9% 13.2% 10.6% 12.3% 12.9% 13.3% 13.6%
Austria Raiffeisen Bank Intern. Hold 13.3 10.0% 11.5% 11.8% 12.2% 12.9% 10.0% 11.5% 11.8% 12.2% 12.9% 10.9% 12.1% 12.4% 12.7% 13.4%
Benelux ING Buy 10.6 11.4% 13.3% 13.9% 13.8% 13.8% 11.4% 13.9% 14.5% 14.4% 14.3% 11.2% 12.8% 13.9% 13.8% 13.8%
Benelux KBC Hold 45.3 14.3% 14.9% 15.2% 15.5% 15.8% 15.9% 16.4% 16.7% 16.9% 17.3% 14.3% 14.9% 15.2% 15.5% 15.8%
Benelux ABN AMRO Hold 18.0 14.1% 14.4% 15.2% 15.6% 15.9% 14.1% 15.2% 16.1% 16.9% 17.1% 14.1% 14.5% 15.2% 15.6% 15.9%
France BNP Paribas Buy 44.2 10.3% 10.9% 11.2% 11.6% 12.0% 11.4% 12.1% 12.7% 13.4% 14.1% 10.3% 10.9% 11.2% 11.6% 12.0%
France Credit Agricole Buy 9.5 10.4% 10.7% 11.5% 11.7% 11.9% 11.8% 12.2% 13.4% 13.6% 13.8% 10.4% 10.7% 11.5% 11.7% 11.9%
France Societe Generale Hold 32.5 10.1% 10.9% 11.1% 11.2% 11.4% 12.7% 13.5% 13.5% 13.8% 14.1% 10.1% 10.9% 11.1% 11.2% 11.4%
Germany Aareal Bank Buy 28.5 12.9% 13.1% 14.0% 14.6% 14.9% 12.9% 13.1% 14.0% 14.6% 14.9% 12.9% 13.1% 14.0% 14.6% 14.9%
Germany Comdirect Hold 9.8 13.6% 13.6% 14.5% 13.8% 14.2% 13.6% 13.6% 14.5% 13.8% 14.2% 13.6% 13.6% 14.5% 13.8% 14.2%
Germany Commerzbank Buy 7.6 9.3% 12.0% 12.5% 13.0% 13.6% 9.3% 12.0% 12.5% 13.0% 13.6% 11.7% 13.1% 13.3% 13.6% 13.8%
Germany Deutsche Pfandbriefbank Buy 9.00 13.5% 18.2% 17.9% 17.6% 17.1% 19.9% 18.2% 17.9% 19.3% 18.7% 13.5% 18.2% 17.9% 17.6% 17.1%
Iberia Banco Popular Hold 2.3 10.4% 10.7% 11.5% 11.5% 11.4% 11.0% 12.4% 13.1% 13.0% 12.9% 11.5% 12.8% 13.5% 13.4% 13.3%
Iberia Banco de Sabadell Hold 1.58 11.5% 11.5% 11.7% 11.9% 12.1% 11.5% 11.5% 11.7% 11.9% 12.1% 13.3% 11.7% 11.8% 11.9% 12.1%
Iberia Banco Santander Hold 3.87 8.3% 10.0% 10.4% 10.9% 11.5% 9.2% 11.1% 11.8% 12.6% 13.2% 11.0% 13.1% 13.7% 14.4% 15.0%
Iberia Bankia Buy 0.83 10.6% 12.1% 13.1% 13.7% 14.4% 10.6% 12.1% 13.1% 13.7% 14.4% 12.3% 13.9% 14.8% 15.3% 15.8%
Iberia Bankinter Hold 6.21 11.5% 11.6% 11.1% 11.2% 11.4% 11.5% 11.6% 11.1% 11.2% 11.4% 12.8% 12.9% 12.2% 12.3% 12.5%
Iberia BBVA Hold 5.84 10.4% 10.0% 10.1% 10.6% 10.9% 11.2% 11.1% 11.2% 11.6% 12.0% 11.9% 11.9% 11.5% 11.9% 12.2%
Iberia CaixaBank Hold 2.6 12.1% 11.7% 12.3% 12.4% 12.4% 12.1% 11.7% 12.3% 12.4% 12.4% 12.7% 12.1% 12.6% 12.9% 12.9%
Iberia Liberbank Hold 1.1 11.1% 11.9% 12.4% 12.7% 12.8% 11.1% 11.9% 12.4% 12.7% 12.8% 12.4% 13.9% 14.4% 15.3% 15.1%
Ireland Bank of Ireland Hold 0.3 9.3% 12.4% 13.3% 13.6% 13.8% 9.4% 13.8% 14.7% 15.4% 15.5% 14.8% 18.2% 16.0% 16.1% 15.9%
Ireland Permanent tsb Hold 2.7 12.4% 14.0% 14.5% 15.9% 16.5% 12.4% 15.1% 15.7% 17.1% 17.7% 12.4% 14.0% 14.5% 15.9% 16.5%
Italy Banca Popolare di Milano Hold 0.6 12.4% 12.2% 12.7% 12.7% 12.7% 12.4% 12.2% 12.8% 12.7% 12.7% 11.6% 11.5% 11.5% 11.5% 11.5%
Italy Banco Popolare Buy 6.0 11.3% 12.4% 13.2% 13.2% 13.2% 11.3% 12.4% 13.2% 13.2% 13.2% 11.9% 13.2% 13.9% 14.0% 14.0%
Italy Credem Buy 6.0 10.4% 13.3% 13.4% 13.5% 13.6% 10.4% 13.3% 13.4% 13.5% 13.6% 11.2% 13.8% 13.9% 14.0% 14.1%
Italy Intesa SanPaolo Buy 2.4 13.3% 13.1% 13.1% 13.1% 13.1% 13.3% 13.1% 13.1% 13.1% 13.1% 13.5% 13.0% 13.0% 13.0% 13.0%
Italy Monte dei Paschi Hold 0.5 7.0% 11.7% 12.0% 12.4% 13.1% 7.0% 12.5% 12.0% 12.4% 13.1% 7.3% 12.0% 12.3% 12.7% 13.4%
Italy UBI Banca Hold 3.3 11.5% 11.6% 12.0% 12.3% 12.4% 11.5% 11.6% 12.0% 12.3% 12.4% 12.3% 12.1% 12.2% 12.3% 12.4%
Italy UniCredit Buy 3.2 10.0% 10.9% 11.2% 11.3% 11.5% 10.9% 11.8% 12.2% 12.5% 13.0% 10.4% 10.7% 11.0% 11.2% 11.5%
Nordics Danske Bank Buy 185.0 13.8% 15.4% 14.7% 14.9% 15.7% 14.5% 16.7% 16.0% 16.2% 16.9% 15.1% 16.1% 15.4% 15.6% 16.4%
Nordics DNB Buy 97.9 12.7% 14.0% 15.1% 15.6% 16.2% 12.7% 14.7% 15.9% 16.3% 16.9% 12.7% 13.8% 15.1% 15.6% 16.2%
Nordics Nordea Buy 8.4 15.7% 16.5% 16.9% 17.2% 17.6% 17.4% 18.5% 18.9% 19.2% 19.6% 15.7% 16.5% 16.9% 17.2% 17.6%
Nordics SEB Hold 77.6 16.3% 18.8% 19.2% 19.5% 19.8% 17.7% 20.5% 20.7% 21.8% 22.0% 16.3% 18.8% 19.2% 19.5% 19.8%
Nordics Svenska Handelsbanken Hold 103.3 20.4% 21.2% 21.1% 21.6% 22.2% 20.4% 23.4% 23.1% 23.9% 24.4% 20.4% 21.2% 21.1% 21.6% 22.2%
Nordics Swedbank Buy 174.9 21.2% 24.1% 24.8% 25.5% 25.7% 21.2% 25.8% 26.4% 28.1% 28.2% 21.2% 24.1% 24.8% 25.5% 25.7%
Switzerland Cembra Money Bank Hold 67.2 20.6% 19.8% 20.9% 21.5% 21.9% 20.6% 19.8% 20.9% 21.5% 21.9% 20.6% 19.8% 20.9% 21.5% 21.9%
Switzerland Credit Suisse Group Hold 13.6 10.1% 11.4% 11.2% 12.7% 13.3% 14.0% 15.4% 15.2% 16.7% 17.2% 10.1% 11.4% 11.2% 12.7% 13.3%
Switzerland Julius Baer Hold 43.3 16.0% 13.6% 13.5% 14.9% 16.4% 16.0% 13.6% 13.5% 14.9% 16.4% 20.4% 17.1% 16.9% 18.2% 19.5%
Switzerland UBS Hold 15.5 13.4% 14.5% 14.4% 14.6% 15.2% 13.6% 17.4% 17.5% 17.7% 18.3% 19.2% 19.0% 19.3% 19.1% 19.6%
UK Aldermore Hold 210.0 10.4% 11.9% 12.1% 11.8% 11.7% 13.2% 14.0% 13.9% 13.4% 13.1% 10.4% 11.9% 12.1% 11.8% 11.7%
UK Barclays Hold 150.0 10.3% 11.4% 11.5% 13.3% 13.6% 11.5% 12.9% 13.2% 15.4% 15.7% 10.2% 11.4% 11.5% 13.3% 13.6%
UK HSBC Hold 433.9 11.1% 11.9% 12.7% 13.2% 13.3% 11.6% 12.7% 13.6% 14.1% 14.2% 10.9% 11.9% 12.7% 13.2% 13.3%
UK Lloyds Banking Group Buy 68.0 12.8% 12.8% 13.5% 13.6% 13.2% 15.0% 15.2% 16.1% 16.2% 15.6% 12.8% 12.8% 13.5% 13.6% 13.2%
UK Standard Chartered Hold 472.6 10.7% 12.6% 12.4% 13.0% 13.2% 10.7% 13.5% 13.3% 13.9% 14.1% 10.5% 12.6% 12.4% 13.0% 13.2%
UK RBS Hold 222.7 11.2% 15.5% 14.4% 16.5% 15.0% 11.2% 16.3% 15.3% 19.0% 17.5% 11.1% 15.5% 14.4% 15.9% 14.1%

Austria 10.4% 11.8% 12.3% 12.6% 13.1% 10.4% 11.8% 12.3% 12.6% 13.1% 10.7% 12.3% 12.7% 13.1% 13.5%
Benelux 12.5% 13.9% 14.5% 14.6% 14.6% 13.0% 14.7% 15.3% 15.5% 15.5% 12.5% 13.6% 14.5% 14.6% 14.6%
France 10.3% 10.8% 11.2% 11.5% 11.8% 11.8% 12.5% 13.1% 13.6% 14.0% 10.3% 10.8% 11.2% 11.5% 11.8%
Germany 9.6% 12.1% 12.6% 13.1% 13.7% 9.6% 12.1% 12.6% 13.1% 13.7% 11.8% 13.1% 13.4% 13.6% 13.9%
Iberia 9.8% 10.5% 10.8% 11.2% 11.6% 10.4% 11.3% 11.8% 12.3% 12.7% 11.7% 12.6% 12.9% 13.4% 13.7%
Ireland 10.0% 12.7% 13.5% 14.0% 14.2% 10.1% 14.0% 14.9% 15.7% 15.8% 14.3% 17.5% 15.8% 16.1% 16.0%
Italy 11.0% 11.9% 12.1% 12.2% 12.4% 11.4% 12.3% 12.5% 12.7% 13.0% 11.3% 11.8% 12.0% 12.2% 12.3%
Nordics 15.6% 17.0% 17.4% 17.7% 18.3% 16.3% 18.5% 18.9% 19.4% 19.9% 15.8% 17.1% 17.5% 17.9% 18.4%
Switzerland 11.7% 12.7% 12.6% 13.7% 14.3% 14.0% 16.2% 16.1% 17.1% 17.7% 14.3% 14.7% 14.8% 15.7% 16.3%
UK 11.1% 12.5% 12.7% 13.6% 13.5% 11.8% 13.7% 14.0% 15.2% 15.0% 11.0% 12.5% 12.7% 13.6% 13.4%
UK ex HSBC, STAN 11.2% 13.0% 12.9% 14.3% 13.8% 12.2% 14.5% 14.6% 16.6% 16.2% 11.1% 13.0% 12.9% 14.1% 13.6%
Euro zone banks 10.5% 11.4% 11.8% 12.1% 12.4% 11.2% 12.3% 12.8% 13.2% 13.6% 11.3% 12.2% 12.5% 12.8% 13.1%
Nordic+Swiss+UK banks 11.9% 13.2% 13.5% 14.4% 14.5% 12.8% 14.8% 15.1% 16.2% 16.3% 12.2% 13.5% 13.9% 14.7% 14.8%
DB Universe 11.1% 12.2% 12.5% 13.0% 13.2% 11.9% 13.4% 13.8% 14.4% 14.7% 11.7% 12.7% 13.1% 13.5% 13.7%
Page 69

Source: DB estimates, company data

Page 70 Provided for the exclusive use of [email protected] on 2023-11-23T17:20+00:00. DO NOT REDISTRIBUTE

European Banks 101

Banks
4 April 2016
Figure 62: Leverage ratios
Geography Stock DB Rec. Priced at Tang Eq / Tang Assets Loan to Deposit ratio Leverage Exposure (E'm) B3 Leverage Ratio
31/03/2016 2014 2015 2016e 2017e 2018e 2014 2015 2016e 2017e 2018e 2014 2015 2016e 2017e 2018e 2014 2015 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 4.3% 5.0% 5.2% 5.5% 5.6% 105% 103% 103% 104% 104% 205,287 209,743 208,810 214,667 219,886 5.3% 5.7% 6.2% 6.4% 6.5%
Austria Raiffeisen Bank Intern. Hold 13.3 5.8% 6.5% 6.6% 7.2% 7.9% 109% 93% 88% 86% 86% 121,624 134,427 132,654 133,577 137,556 5.7% 5.4% 5.7% 6.0% 6.3%
Benelux ING Buy 10.6 6.0% 5.5% 5.6% 5.6% 5.6% 104% 104% 102% 103% 103% 828,602 838,527 857,936 892,040 927,606 4.1% 5.3% 5.6% 5.6% 5.5%
Benelux KBC Hold 45.3 4.9% 5.4% 5.5% 5.7% 5.9% 80% 79% 80% 81% 82% 226,669 233,675 239,059 244,580 249,714 6.4% 6.3% 6.4% 6.6% 6.8%
Benelux ABN AMRO Hold 18.0 3.8% 3.8% 4.1% 4.2% 4.4% 121% 113% 113% 112% 111% 421,053 502,639 511,466 517,371 525,016 3.7% 3.4% 3.7% 4.0% 4.1%
France BNP Paribas Buy 44.2 3.1% 3.4% 3.6% 3.7% 3.9% 102% 97% 97% 97% 97% 1,963,278 1,884,317 1,921,224 1,959,093 1,997,950 3.6% 4.1% 4.3% 4.5% 4.8%
France Credit Agricole Buy 9.5 2.0% 2.3% 2.4% 2.5% 2.5% 66% 65% 64% 63% 62% 950,000 917,391 930,455 943,773 957,352 3.6% 4.1% 4.3% 4.4% 4.5%
France Societe Generale Hold 32.5 3.0% 3.2% 3.3% 3.4% 3.4% 98% 107% 107% 108% 108% 1,173,000 1,195,000 1,214,108 1,234,877 1,256,331 3.8% 4.0% 4.0% 4.1% 4.3%
Germany Aareal Bank Buy 28.5 4.2% 4.8% 5.2% 5.5% 5.7% 109% 109% 104% 103% 103% 49,657 51,307 49,532 48,160 47,289 4.0% 4.3% 4.6% 4.8% 5.0%
Germany Comdirect Hold 9.8 3.9% 3.7% 3.8% 3.6% 3.7% 2% 2% 1% 1% 1% 15,170 16,211 16,713 17,179 17,695 2.6% 2.5% 2.6% 2.5% 2.5%
Germany Commerzbank Buy 7.6 4.1% 5.0% 5.2% 5.4% 5.6% 94% 90% 91% 93% 93% 582,057 529,000 525,296 523,499 527,187 3.4% 4.5% 4.7% 4.8% 5.0%
Germany Deutsche Pfandbriefbank Buy 9.00 3.3% 4.0% 4.0% 4.0% 4.1% 2,588% 1,598% 1,386% 1,456% 1,500% 67,200 62,197 62,689 63,776 64,560 4.6% 3.9% 4.0% 4.4% 4.5%
Iberia Banco Popular Hold 2.3 6.4% 6.5% 7.1% 7.1% 7.1% 105% 111% 113% 118% 122% 150,614 152,015 152,934 156,829 160,927 6.0% 6.3% 6.8% 6.8% 6.8%
Iberia Banco de Sabadell Hold 1.58 6.5% 5.1% 5.2% 5.2% 5.3% 113% 106% 108% 112% 116% 163,346 203,595 209,393 215,296 221,385 4.8% 4.8% 4.9% 5.0% 5.1%
Iberia Banco Santander Hold 3.87 4.1% 4.4% 4.6% 4.7% 5.0% 113% 111% 111% 111% 112% 1,391,933 1,449,655 1,475,524 1,504,542 1,531,271 3.8% 4.5% 4.8% 5.1% 5.4%
Iberia Bankia Buy 0.83 5.3% 6.0% 6.3% 6.4% 6.5% 106% 102% 102% 101% 100% 233,649 208,015 204,294 207,125 210,049 4.0% 4.8% 5.2% 5.5% 5.8%
Iberia Bankinter Hold 6.21 5.9% 6.1% 5.7% 5.7% 5.8% 152% 153% 157% 160% 160% 53,155 52,761 58,243 59,257 60,308 5.6% 6.0% 5.7% 5.9% 6.1%
Iberia BBVA Hold 5.84 6.3% 5.4% 5.7% 5.9% 6.0% 106% 114% 113% 112% 112% 647,650 757,290 768,881 791,712 817,130 6.1% 5.9% 5.9% 6.2% 6.4%
Iberia CaixaBank Hold 2.6 6.4% 6.4% 6.6% 6.7% 6.7% 105% 109% 108% 110% 115% 289,336 293,228 292,379 296,019 303,213 5.8% 5.7% 5.9% 6.0% 6.1%
Iberia Liberbank Hold 1.1 5.8% 5.8% 5.9% 6.4% 6.4% 90% 81% 79% 78% 78% 45,293 44,683 44,722 45,406 46,622 4.0% 4.3% 4.5% 4.6% 4.7%
Ireland Bank of Ireland Hold 0.3 5.4% 6.2% 6.5% 6.4% 6.3% 110% 110% 115% 119% 121% 129,800 132,396 137,692 143,200 148,927 3.7% 5.5% 5.8% 6.1% 6.2%
Ireland Permanent tsb Hold 2.7 6.9% 7.8% 8.0% 8.7% 8.9% 138% 117% 110% 117% 123% 40,956 34,246 30,017 30,258 31,113 4.5% 5.1% 5.7% 6.0% 6.1%
Italy Banca Popolare di Milano Hold 0.6 9.2% 9.0% 8.8% 8.9% 8.9% 87% 91% 93% 93% 93% 43,995 46,715 49,692 51,767 54,329 9.5% 9.2% 9.3% 9.2% 9.0%
Italy Banco Popolare Buy 6.0 5.0% 5.4% 5.4% 5.4% 5.4% 92% 95% 98% 102% 107% 125,199 124,274 127,255 131,416 135,650 4.3% 4.5% 4.6% 4.6% 4.6%
Italy Credem Buy 6.0 5.8% 5.6% 5.9% 5.9% 6.0% 101% 103% 101% 100% 99% 32,829 35,527 35,338 36,499 37,722 5.3% 5.0% 5.2% 5.3% 5.4%
Italy Intesa SanPaolo Buy 2.4 5.9% 6.1% 6.5% 6.4% 6.4% 96% 96% 97% 100% 103% 519,225 575,014 561,241 600,451 638,872 6.8% 6.2% 6.5% 6.2% 6.0%
Italy Monte dei Paschi Hold 0.5 3.0% 5.5% 5.4% 5.7% 6.1% 97% 93% 95% 97% 100% 206,832 194,671 204,203 204,620 205,557 2.6% 4.6% 4.2% 4.4% 4.7%
Italy UBI Banca Hold 3.3 6.7% 7.1% 7.3% 7.5% 7.8% 166% 153% 175% 184% 197% 133,071 128,894 129,996 129,732 115,010 5.3% 5.5% 5.7% 5.9% 6.9%
Italy UniCredit Buy 3.2 5.2% 5.2% 5.4% 5.6% 5.8% 84% 81% 79% 78% 78% 877,048 923,526 891,280 927,063 961,727 5.1% 5.0% 5.4% 5.4% 5.6%
Nordics Danske Bank Buy 185.0 4.0% 4.3% 4.2% 4.2% 4.4% 209% 201% 202% 202% 202% 467,287 467,317 482,102 491,744 501,579 3.6% 4.0% 3.9% 3.9% 4.1%
Nordics DNB Buy 97.9 5.8% 6.0% 6.3% 6.6% 6.8% 153% 153% 153% 153% 153% 283,490 284,427 277,368 286,358 295,666 6.0% 6.6% 6.9% 7.1% 7.3%
Nordics Nordea Buy 8.4 4.0% 4.3% 4.4% 4.5% 4.6% 176% 176% 176% 176% 176% 590,759 576,317 587,355 602,039 615,546 4.3% 4.6% 4.7% 4.8% 4.9%
Nordics SEB Hold 77.6 4.5% 5.1% 5.1% 5.2% 5.2% 144% 153% 153% 153% 153% 275,359 263,346 275,202 285,445 296,300 4.4% 4.7% 4.8% 5.0% 5.1%
Nordics Svenska Handelsbanken Hold 103.3 4.2% 4.1% 4.7% 4.7% 4.8% 177% 253% 248% 248% 248% 309,601 272,551 245,631 257,154 267,569 3.5% 4.3% 5.1% 5.2% 5.3%
Nordics Swedbank Buy 174.9 4.9% 5.1% 5.3% 5.3% 5.3% 208% 189% 189% 189% 189% 227,872 224,734 235,389 244,317 253,803 4.2% 4.8% 4.8% 5.1% 5.1%
Switzerland Cembra Money Bank Hold 67.2 17.5% 16.5% 17.9% 18.6% 18.9% 210% 181% 172% 165% 161% NA NA NA NA NA n/a n/a n/a n/a n/a
Switzerland Credit Suisse Group Hold 13.6 3.9% 4.8% 4.7% 4.8% 5.4% 74% 80% 82% 82% 82% 946,622 925,359 890,318 884,127 880,805 3.5% 4.5% 4.5% 5.0% 5.3%
Switzerland Julius Baer Hold 43.3 3.7% 3.2% 3.7% 4.2% 4.7% 55% 58% 58% 58% 58% 65,953 77,259 87,427 87,007 86,795 3.4% 3.2% 2.9% 3.3% 3.9%
Switzerland UBS Hold 15.5 4.2% 5.2% 5.5% 5.6% 5.9% 77% 80% 80% 77% 74% 845,134 841,014 828,523 870,649 870,649 2.9% 4.0% 4.2% 4.3% 4.7%
UK Aldermore Hold 210.0 5.1% 6.1% 6.1% 6.0% 6.0% 108% 106% 104% 100% 96% 6,966 9,863 10,760 12,498 14,317 6.3% 7.0% 6.9% 6.7% 6.6%
UK Barclays Hold 150.0 3.8% 4.6% 5.2% 6.1% 6.8% 118% 111% 117% 115% 114% 1,530,026 1,416,137 1,387,751 1,387,751 1,387,751 3.7% 4.5% 4.3% 4.4% 4.7%
UK HSBC Hold 433.9 6.7% 7.1% 7.8% 7.9% 8.0% 72% 72% 71% 71% 73% 2,227,088 2,519,195 2,311,366 2,311,035 2,374,850 4.8% 5.0% 5.3% 5.4% 5.4%
UK Lloyds Banking Group Buy 68.0 4.6% 4.7% 5.2% 5.1% 4.9% 108% 109% 107% 107% 108% 917,853 981,102 895,509 904,943 920,797 4.9% 4.8% 4.8% 4.8% 4.7%
UK Standard Chartered Hold 472.6 5.7% 6.5% 6.1% 6.1% 6.3% 70% 73% 72% 73% 73% 605,637 657,497 652,603 672,181 692,346 4.6% 5.6% 5.4% 5.4% 5.6%
UK RBS Hold 222.7 4.1% 5.1% 4.4% 4.7% 4.1% 95% 88% 87% 87% 88% 1,165,823 967,739 891,129 864,710 869,608 4.2% 5.6% 4.8% 5.7% 5.1%

Austria 4.9% 5.5% 5.7% 6.1% 6.4% 106% 99% 98% 97% 97% 326,911 344,170 341,464 348,244 357,442 5.4% 5.6% 6.0% 6.2% 6.4%
Benelux 5.1% 5.0% 5.1% 5.2% 5.3% 108% 105% 105% 105% 105% 1,543,524 1,637,038 1,671,152 1,717,766 1,766,896 4.3% 4.8% 5.1% 5.2% 5.3%
France 2.7% 3.0% 3.1% 3.2% 3.3% 90% 89% 89% 89% 88% 4,086,278 3,996,708 4,065,787 4,137,743 4,211,633 3.7% 4.1% 4.2% 4.4% 4.6%
Germany 4.1% 4.9% 5.1% 5.4% 5.5% 90% 87% 88% 89% 89% 646,884 596,518 591,540 588,837 592,171 3.4% 4.4% 4.6% 4.8% 4.9%
Iberia 5.3% 5.2% 5.4% 5.5% 5.7% 110% 111% 111% 111% 113% 2,974,976 3,161,241 3,206,369 3,276,187 3,350,907 4.7% 5.1% 5.3% 5.6% 5.8%
Ireland 5.7% 6.5% 6.7% 6.7% 6.6% 116% 112% 114% 118% 121% 170,756 166,642 167,709 173,458 180,040 3.9% 5.4% 5.8% 6.1% 6.1%
Italy 5.4% 5.7% 6.0% 6.1% 6.2% 93% 91% 92% 93% 94% 1,938,199 2,028,622 1,999,003 2,081,547 2,148,866 5.3% 5.4% 5.6% 5.6% 5.7%
Deutsche Bank AG/London

Nordics 4.4% 4.7% 4.9% 4.9% 5.0% 176% 184% 184% 184% 184% 2,154,368 2,088,692 2,103,046 2,167,057 2,230,462 4.3% 4.7% 4.9% 5.0% 5.1%
Switzerland 4.0% 5.0% 5.1% 5.2% 5.6% 74% 78% 79% 78% 76% 1,857,709 1,843,633 1,806,268 1,841,783 1,838,249 3.2% 4.3% 4.3% 4.7% 5.0%
UK 5.0% 5.7% 6.0% 6.3% 6.4% 90% 88% 88% 88% 88% 6,453,395 6,551,533 6,149,119 6,153,117 6,259,671 4.4% 5.0% 4.9% 5.1% 5.1%
UK ex HSBC, STAN 4.1% 4.8% 5.0% 5.3% 5.3% 107% 103% 104% 103% 104% 3,613,703 3,364,977 3,174,390 3,157,404 3,178,157 4.2% 4.9% 4.6% 4.9% 4.8%
Euro zone banks 4.2% 4.4% 4.6% 4.7% 4.8% 100% 99% 99% 99% 100% 11,687,528 11,930,939 12,043,025 12,323,784 12,607,955 4.3% 4.7% 5.0% 5.1% 5.3%
Nordic+Swiss+UK banks 4.7% 5.4% 5.6% 5.8% 5.9% 102% 101% 102% 102% 102% 10,465,472 10,483,858 10,058,433 10,161,958 10,328,382 4.2% 4.8% 4.8% 5.0% 5.1%
DB Universe 4.5% 4.9% 5.0% 5.2% 5.3% 101% 100% 100% 100% 101% 22,152,999 22,414,797 22,101,457 22,485,741 22,936,338 4.3% 4.8% 4.9% 5.1% 5.2%

Source: DB estimates, company data

Deutsche Bank AG/London Provided for the exclusive use of [email protected] on 2023-11-23T17:20+00:00. DO NOT REDISTRIBUTE

European Banks 101

Banks
4 April 2016
Figure 63: Performance
Geography Stock DB Rec. Priced at Absolute Performance Performance relative to the market Performance relative to the sector, DB universe
31/03/2016 1w 1m 3m YTD 1w 1m 3m YTD 1w 1m 3m YTD
Austria Erste Bank Hold 24.7 0% 4% (15%) (15%) (0%) 2% (8%) (8%) 2% 4% 3% 3%
Austria Raiffeisen Bank Intern. Hold 13.3 (4%) 7% (3%) (3%) (4%) 5% 4% 4% (2%) 8% 15% 15%
Benelux ING Buy 10.6 (2%) (0%) (14%) (13%) (2%) (2%) (7%) (6%) (0%) 1% 5% 5%
Benelux KBC Hold 45.3 (1%) (5%) (20%) (20%) (1%) (7%) (13%) (13%) 1% (4%) (2%) (2%)
Benelux ABN AMRO Hold 18.0 0% (2%) (14%) (13%) (0%) (4%) (6%) (6%) 2% (1%) 5% 5%
France BNP Paribas Buy 44.2 0% 3% (15%) (15%) (0%) 1% (8%) (8%) 2% 4% 3% 3%
France Credit Agricole Buy 9.5 (3%) (0%) (12%) (12%) (3%) (2%) (5%) (5%) (1%) 1% 6% 6%
France Societe Generale Hold 32.5 (4%) 1% (23%) (23%) (4%) (1%) (16%) (16%) (2%) 2% (5%) (5%)
Germany Aareal Bank Buy 28.5 (0%) 5% (1%) (1%) (0%) 3% 6% 5% 2% 6% 17% 17%
Germany Comdirect Hold 9.8 (0%) 4% (7%) (7%) (1%) 2% (0%) (1%) 1% 5% 11% 11%
Germany Commerzbank Buy 7.6 (3%) 3% (20%) (20%) (3%) 1% (13%) (13%) (1%) 4% (1%) (2%)
Germany Deutsche Pfandbriefbank Buy 9.00 (3%) 10% (19%) (19%) (3%) 8% (11%) (12%) (1%) 11% (0%) (1%)
Iberia Banco Popular Hold 2.3 (4%) 7% (22%) (21%) (4%) 5% (15%) (14%) (2%) 8% (4%) (3%)
Iberia Banco de Sabadell Hold 1.58 (4%) 11% (1%) (1%) (4%) 9% 6% 6% (2%) 12% 17% 17%
Iberia Banco Santander Hold 3.87 (3%) 6% (14%) (13%) (3%) 4% (6%) (6%) (1%) 7% 5% 5%
Iberia Bankia Buy 0.83 (3%) 10% (19%) (19%) (4%) 8% (11%) (13%) (2%) 11% (0%) (1%)
Iberia Bankinter Hold 6.21 (1%) 3% (5%) (4%) (2%) 1% 2% 3% 0% 4% 13% 14%
Iberia BBVA Hold 5.84 (3%) 2% (13%) (12%) (3%) (0%) (6%) (5%) (1%) 3% 5% 6%
Iberia CaixaBank Hold 2.6 (3%) 1% (17%) (16%) (3%) (1%) (10%) (10%) (1%) 2% 1% 2%
Iberia Liberbank Hold 1.1 (8%) 3% (37%) (37%) (8%) 1% (30%) (31%) (6%) 4% (19%) (19%)
Ireland Bank of Ireland Hold 0.3 (1%) (1%) (24%) (23%) (1%) (3%) (16%) (16%) 1% 0% (5%) (5%)
Ireland Permanent tsb Hold 2.7 5% 7% (37%) (36%) 4% 5% (30%) (30%) 6% 7% (19%) (18%)
Italy Banca Popolare di Milano Hold 0.6 (10%) 0% (31%) (31%) (10%) (2%) (23%) (24%) (8%) 1% (12%) (13%)
Italy Banco Popolare Buy 6.0 (11%) (15%) (50%) (50%) (12%) (17%) (42%) (43%) (9%) (14%) (31%) (32%)
Italy Credem Buy 6.0 (2%) 4% (11%) (11%) (2%) 2% (4%) (4%) 0% 4% 7% 7%
Italy Intesa SanPaolo Buy 2.4 (1%) 3% (22%) (22%) (2%) 1% (14%) (15%) 0% 4% (3%) (4%)
Italy Monte dei Paschi Hold 0.5 (12%) 7% (57%) (57%) (12%) 5% (50%) (51%) (10%) 8% (39%) (39%)
Italy UBI Banca Hold 3.3 (11%) (5%) (45%) (45%) (11%) (7%) (38%) (39%) (9%) (4%) (27%) (27%)
Italy UniCredit Buy 3.2 (9%) (5%) (36%) (36%) (9%) (7%) (29%) (30%) (7%) (4%) (18%) (18%)
Nordics Danske Bank Buy 185.0 1% (1%) 0% 0% 0% (3%) 8% 7% 2% (0%) 19% 18%
Nordics DNB Buy 97.9 (3%) (2%) (10%) (10%) (3%) (4%) (3%) (4%) (1%) (1%) 8% 8%
Nordics Nordea Buy 8.4 (1%) (8%) (16%) (16%) (1%) (10%) (8%) (9%) 1% (7%) 3% 2%
Nordics SEB Hold 77.6 (3%) (6%) (11%) (11%) (3%) (8%) (4%) (5%) (1%) (5%) 7% 7%
Nordics Svenska Handelsbanken Hold 103.3 0% (5%) (8%) (8%) 0% (7%) (0%) (1%) 2% (4%) 11% 10%
Nordics Swedbank Buy 174.9 (0%) 1% (6%) (6%) (1%) (1%) 1% 0% 1% 2% 12% 12%
Switzerland Cembra Money Bank Hold 67.2 (1%) 2% 2% 2% (1%) (0%) 10% 9% 1% 3% 21% 20%
Switzerland Credit Suisse Group Hold 13.6 (5%) 2% (37%) (37%) (5%) 0% (29%) (30%) (3%) 3% (18%) (19%)
Switzerland Julius Baer Hold 43.3 (1%) 3% (15%) (15%) (1%) 2% (7%) (8%) 1% 4% 4% 3%
Switzerland UBS Hold 15.5 (2%) 3% (19%) (19%) (2%) 1% (12%) (12%) 0% 4% (1%) (1%)
UK Aldermore Hold 210.0 (2%) 10% (6%) (5%) (2%) 8% 2% 2% 0% 11% 13% 13%
UK Barclays Hold 150.0 (3%) (12%) (31%) (31%) (3%) (14%) (24%) (24%) (1%) (11%) (13%) (13%)
UK HSBC Hold 433.9 (2%) (5%) (19%) (18%) (3%) (7%) (11%) (12%) (1%) (4%) (0%) (1%)
UK Lloyds Banking Group Buy 68.0 (2%) (6%) (8%) (7%) (2%) (8%) (1%) (0%) 0% (5%) 11% 11%
UK Standard Chartered Hold 472.6 (1%) 10% (17%) (16%) (1%) 8% (9%) (9%) 1% 11% 2% 2%
UK RBS Hold 222.7 (2%) (0%) (26%) (26%) (2%) (2%) (19%) (19%) (0%) 1% (8%) (8%)

Austria (1%) 5% (12%) (12%) (1%) 3% (4%) (5%) 1% 6% 7% 6%

Benelux (1%) (1%) (12%) (12%) (1%) (3%) (7%) (6%) 0% (1%) 2% 2%
France (2%) 2% (17%) (16%) (2%) 0% (9%) (9%) 0% 3% 2% 2%
Germany (2%) 3% (18%) (18%) (2%) 1% (11%) (11%) 0% 4% 1% 0%
Iberia (3%) 5% (14%) (13%) (3%) 3% (6%) (6%) (1%) 6% 5% 5%
Ireland (1%) (1%) (20%) (20%) (1%) (2%) (14%) (14%) 1% 0% (4%) (4%)
Italy (4%) 0% (28%) (28%) (5%) (2%) (21%) (21%) (3%) 1% (10%) (10%)
Nordics (1%) (4%) (9%) (9%) (1%) (6%) (2%) (2%) 1% (3%) 10% 9%
Switzerland (2%) 3% (23%) (23%) (3%) 1% (16%) (16%) (1%) 4% (5%) (5%)
UK (2%) (4%) (18%) (18%) (2%) (6%) (11%) (11%) (0%) (3%) (0%) (0%)
UK ex HSBC, STAN (2%) (6%) (18%) (18%) (2%) (8%) (11%) (11%) (0%) (5%) (0%) (0%)
Euro zone banks (2%) 2% (17%) (16%) (3%) 0% (10%) (10%) (1%) 3% 1% 1%
Nordic+Swiss+UK banks (2%) (3%) (17%) (16%) (2%) (5%) (9%) (10%) (0%) (2%) 2% 2%
European Banks, DB Coverage Universe (2%) (1%) (17%) (16%) (2%) (3%) (11%) (11%) 0% 0% 0% 0%
Page 71

Source: DB estimates, company data, Datastream

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European Banks 101

Banks
4 April 2016
Figure 64: Growth ratios
Geography Stock DB Rec. Priced at Income Growth Cost Growth Operating "jaws" Op. Profit growth Adj. EPS Growth
31/03/2016 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e
Austria Erste Bank Hold 24.7 5.5% 0.4% 2.4% 0.2% 0.4% 0.7% 5.4% 0.0% 1.7% nm (1.9%) 3.9% 2.9% (0.7%) 3.9%
Austria Raiffeisen Bank Intern. Hold 13.3 (7.3%) 1.8% 1.5% (1.6%) (1.5%) 0.3% (5.7%) 3.2% 1.2% (20.7%) 56.8% 36.0% nm 124.2% 53.0%
Benelux ING Buy 10.6 1.4% 2.7% 3.3% 1.4% 1.2% 1.5% 0.1% 1.6% 1.7% nm 9.9% 8.8% (0.7%) 10.0% 8.9%
Benelux KBC Hold 45.3 (4.5%) 3.2% 3.0% 0.9% 0.7% 0.5% (5.4%) 2.5% 2.6% (0.3%) 6.6% 5.5% (16.7%) 7.0% 5.7%
Benelux ABN AMRO Hold 18.0 1.0% 2.0% 1.6% 5.4% (3.0%) (2.4%) (4.4%) 4.9% 4.0% (7.1%) 4.2% 2.4% 4.9% 2.8% 2.6%
France BNP Paribas Buy 44.2 (1.3%) 3.1% 3.0% (1.9%) (0.1%) 0.7% 0.6% 3.2% 2.3% 1.5% 15.9% 10.7% (6.8%) 13.3% 10.0%
France Credit Agricole Buy 9.5 (1.0%) 8.2% 2.9% (1.5%) (0.1%) 0.1% 0.5% 8.3% 2.8% 8.3% 40.8% 10.5% (19.5%) 7.6% 11.0%
France Societe Generale Hold 32.5 (4.2%) 2.8% 2.8% 0.0% 1.2% 1.5% (4.2%) 1.6% 1.3% (12.6%) 10.2% 10.4% (20.9%) 12.3% 12.5%
Germany Aareal Bank Buy 28.5 (15.3%) (8.9%) (1.7%) (1.4%) (10.1%) (8.2%) (13.8%) 1.2% 6.5% (30.8%) (6.7%) 10.0% (3.8%) (17.2%) 3.9%
Germany Comdirect Hold 9.8 10.7% (7.1%) 6.0% 2.8% 2.0% 2.0% 7.9% (9.1%) 4.0% 37.5% (28.4%) 19.0% (1.6%) 1.3% 19.0%
Germany Commerzbank Buy 7.6 (1.2%) 2.7% 3.3% 0.0% (0.4%) (0.1%) (1.2%) 3.0% 3.4% (5.6%) 16.1% 16.0% (10.3%) 17.7% 16.9%
Germany Deutsche Pfandbriefbank Buy 9.00 7.1% 5.8% 12.2% 2.2% 1.7% 0.8% 4.9% 4.1% 11.5% (2.0%) 4.5% 17.0% (36.4%) 4.0% 10.2%
Iberia Banco Popular Hold 2.3 (7.4%) 0.0% (0.2%) (3.3%) (3.0%) (2.0%) (4.1%) 3.0% 1.8% nm 102.3% 0.8% 25.0% 125.4% (0.1%)
Iberia Banco de Sabadell Hold 1.58 (2.4%) (4.1%) 2.7% 17.0% (1.6%) (1.5%) (19.4%) (2.6%) 4.2% 85.1% 22.4% 15.8% 6.7% 17.6% 16.6%
Iberia Banco Santander Hold 3.87 (2.0%) 3.3% 2.6% (2.5%) 1.3% (0.0%) 0.5% 2.0% 2.6% (2.0%) 8.4% 6.7% (0.9%) 11.3% 9.8%
Iberia Bankia Buy 0.83 (8.3%) (1.7%) 1.2% (6.0%) (5.0%) (2.2%) (2.3%) 3.3% 3.3% (4.3%) 6.5% 4.2% (2.9%) 13.9% 4.2%
Iberia Bankinter Hold 6.21 14.7% (4.3%) 2.5% 18.3% 0.0% 1.0% (3.5%) (4.3%) 1.5% 29.3% (6.7%) 4.5% 30.6% (5.7%) 4.5%
Iberia BBVA Hold 5.84 4.8% 2.5% 3.1% (0.4%) 0.3% 2.4% 5.1% 2.2% 0.7% 19.4% 8.6% 3.9% 64.3% 22.5% 3.4%
Iberia CaixaBank Hold 2.6 (12.9%) (1.0%) 3.3% (14.4%) (2.0%) (2.0%) 1.5% 1.0% 5.3% 56.1% 12.9% 15.7% 19.5% 29.0% 14.0%
Iberia Liberbank Hold 1.1 (16.4%) (3.9%) (2.3%) (6.0%) (5.0%) (2.0%) (10.4%) 1.1% (0.3%) (10.9%) 23.3% 8.4% (14.5%) 23.9% 6.8%
Ireland Bank of Ireland Hold 0.3 (3.4%) 1.3% 1.2% 1.3% 3.0% 1.3% (4.7%) (1.7%) (0.1%) (12.0%) 4.8% (11.5%) 21.8% 14.9% (7.1%)
Ireland Permanent tsb Hold 2.7 12.9% 7.2% 7.3% (8.0%) (6.5%) 0.9% 20.9% 13.7% 6.4% nm 14.5% 16.1% 2904.7% 12.2% 18.8%
Italy Banca Popolare di Milano Hold 0.6 1.3% 4.2% 1.9% (0.1%) 0.3% 0.2% 1.4% 3.9% 1.7% 28.1% 27.0% 9.9% 4.7% 27.1% 10.0%
Italy Banco Popolare Buy 6.0 (1.6%) 3.3% 3.0% 0.1% (0.3%) (0.2%) (1.8%) 3.6% 3.3% nm 27.1% 23.4% nm 27.5% 23.7%
Italy Credem Buy 6.0 (5.4%) 4.2% 3.2% (0.1%) 0.3% 0.6% (5.3%) 3.9% 2.6% (12.0%) 26.9% 14.6% (17.6%) 26.9% 14.6%
Italy Intesa SanPaolo Buy 2.4 4.0% 3.5% 2.8% 0.2% 0.0% (0.1%) 3.9% 3.5% 2.9% 35.0% 15.8% 9.3% 22.2% 16.0% 9.4%
Italy Monte dei Paschi Hold 0.5 (18.6%) 2.6% 2.7% (1.2%) (0.6%) (1.2%) (17.4%) 3.2% 3.9% nm nm 44.4% nm nm 44.0%
Italy UBI Banca Hold 3.3 (2.2%) 3.6% 2.9% (0.8%) (1.7%) (1.6%) (1.5%) 5.2% 4.5% 21.1% 34.8% 24.3% 28.4% 37.3% 25.5%
Italy UniCredit Buy 3.2 0.8% 2.7% 2.2% (0.9%) (2.3%) (2.7%) 1.7% 4.9% 4.9% 30.3% 33.6% 17.3% 8.3% 38.0% 19.0%
Nordics Danske Bank Buy 185.0 (0.7%) 2.6% 2.4% (20.4%) (1.0%) 0.0% 19.8% 3.6% 2.4% 24.4% 2.7% 1.3% 7.5% 5.2% 1.3%
Nordics DNB Buy 97.9 0.5% 0.9% 3.1% (2.0%) (1.5%) 0.7% 2.5% 2.4% 2.4% (4.1%) 0.9% 7.4% 8.5% 3.3% 11.6%
Nordics Nordea Buy 8.4 (0.7%) 2.6% 2.8% (3.2%) 0.1% 0.6% 2.5% 2.4% 2.2% 0.9% 4.8% 4.4% (4.3%) 7.3% 4.4%
Nordics SEB Hold 77.6 0.5% 3.2% 3.8% 0.0% 0.4% 2.5% 0.5% 2.9% 1.2% 0.4% 4.9% 4.6% 0.8% 4.9% 4.6%
Nordics Svenska Handelsbanken Hold 103.3 (0.5%) 3.3% 4.3% 0.8% 2.2% 2.2% (1.3%) 1.1% 2.1% (2.1%) 4.3% 3.3% (1.4%) 4.3% 3.3%
Nordics Swedbank Buy 174.9 11.4% (1.6%) 4.6% (2.4%) 0.7% 2.4% 13.8% (2.3%) 2.2% 22.3% (4.7%) 3.4% 11.8% 7.1% 3.1%
Switzerland Cembra Money Bank Hold 67.2 (0.2%) (2.2%) (2.9%) 1.1% 0.9% 0.9% (1.3%) (3.1%) (3.8%) (0.1%) (5.8%) (6.3%) (0.3%) (5.7%) (6.3%)
Switzerland Credit Suisse Group Hold 13.6 (5.4%) 6.5% 6.7% (16.2%) (3.6%) (10.2%) 10.8% 10.1% 16.8% 118.2% 503.4% 141.2% 110.7% 81.6% 29.0%
Switzerland Julius Baer Hold 43.3 4.0% 5.1% 5.5% 0.8% 4.3% 4.4% 3.3% 0.8% 1.1% 442.4% 7.4% 8.5% (1.9%) 2.4% 7.3%
Switzerland UBS Hold 15.5 (5.3%) 4.3% 3.4% (2.5%) (2.7%) (4.8%) (2.8%) 7.0% 8.3% (22.0%) 45.3% 35.2% (14.8%) 27.8% 15.9%
UK Aldermore Hold 210.0 21.3% 4.9% 7.2% 1.6% 5.0% 5.0% 19.6% (0.1%) 2.2% 39.5% 1.5% 7.3% 13.4% 2.0% 6.6%
UK Barclays Hold 150.0 (19.2%) 6.3% 4.0% (15.3%) (9.0%) (3.2%) (3.9%) 15.3% 7.2% (21.6%) 147.5% 70.0% 140.6% 40.1% 15.7%
UK HSBC Hold 433.9 (9.4%) 3.6% 2.7% (0.7%) (5.0%) (9.6%) (8.7%) 8.6% 12.3% (36.1%) 36.2% 34.0% (10.9%) 4.1% 7.2%
UK Lloyds Banking Group Buy 68.0 1.8% 5.4% 2.7% (29.8%) (11.3%) (1.3%) 31.6% 16.7% 4.0% 293.2% 31.3% 3.3% (4.5%) 7.4% 1.7%
UK Standard Chartered Hold 472.6 (5.6%) 3.1% 5.6% (5.2%) (6.0%) (0.7%) (0.3%) 9.1% 6.3% 93.1% 5315.3% 42.2% 111.7% 1147.3% 45.8%
UK RBS Hold 222.7 (6.3%) (2.3%) 0.1% (7.4%) (9.4%) (8.7%) 1.0% 7.1% 8.8% nm nm 49.5% (67.4%) 192.0% 13.0%

Austria (0.1%) 1.0% 2.0% (0.6%) (0.4%) 0.5% 0.5% 1.4% 1.5% nm 11.1% 13.9% (10.0%) 20.3% 19.3%
Benelux 0.1% 2.7% 2.9% 2.4% (0.1%) 0.2% (2.3%) 2.8% 2.7% (2.9%) 7.7% 6.8% (4.5%) 7.5% 6.8%
France (2.1%) 4.0% 2.9% (1.2%) 0.3% 0.8% (0.8%) 3.8% 2.1% (1.5%) 19.2% 10.6% (12.3%) 11.8% 10.8%
Germany (2.3%) 1.3% 3.0% 0.0% (1.0%) (0.5%) (2.3%) 2.2% 3.5% (8.8%) 10.4% 15.4% (6.7%) 11.9% 15.6%
Iberia (1.5%) 1.8% 2.6% (1.8%) 0.1% 0.2% 0.3% 1.7% 2.4% 9.5% 10.7% 6.5% 16.6% 18.9% 8.6%
Ireland (1.8%) 2.0% 1.9% (0.1%) 1.7% 1.2% (1.7%) 0.3% 0.7% (12.0%) 5.9% (8.2%) 13.3% 14.6% (4.2%)
Italy (0.5%) 3.1% 2.6% (0.5%) (1.2%) (1.4%) (0.1%) 4.3% 4.0% nm 25.4% 14.8% nm 26.9% 15.5%
Deutsche Bank AG/London

Nordics 0.7% 2.0% 3.3% (5.9%) 0.1% 1.2% 6.6% 1.9% 2.1% 5.0% 2.3% 4.1% 1.5% 5.1% 4.8%
Switzerland (7.0%) 5.2% 4.9% (11.0%) (2.8%) (6.7%) 4.1% 8.0% 11.6% 63.2% 74.3% 60.8% 1.8% 40.1% 20.9%
UK (14.2%) 3.7% 3.0% (16.1%) (7.5%) (5.9%) 1.9% 11.1% 8.9% (3.4%) 130.9% 32.7% (8.6%) 29.0% 12.2%
UK ex HSBC, STAN (17.1%) 3.9% 2.6% (25.6%) (9.8%) (4.0%) 8.5% 13.7% 6.6% 343.1% 239.4% 30.6% (14.2%) 36.6% 9.6%
Euro zone banks (1.3%) 2.8% 2.7% (0.7%) (0.1%) 0.1% (0.6%) 2.9% 2.6% 5.8% 14.7% 9.3% 0.8% 16.1% 10.4%
Nordic+Swiss+UK banks (10.2%) 3.8% 3.5% (13.6%) (5.2%) (5.4%) 3.4% 9.0% 8.9% 6.5% 62.0% 28.2% (4.0%) 22.8% 11.6%
DB Universe (5.3%) 3.2% 3.0% (7.2%) (2.5%) (2.4%) 1.9% 5.7% 5.4% 6.0% 30.6% 17.2% (1.5%) 19.3% 11.0%

Source: DB estimates, company data

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Appendix 1
Important Disclosures
Additional information available upon request

*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from
local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank,
subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on
securities other than the primary subject of this research, please see the most recently published company report or
visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the
subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive
any compensation for providing a specific recommendation or view in this report. Kinner Lakhani/Omar Keenan

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total 350 55 %
share-holder return (TSR = percentage change in 300
share price from current price to projected target price 250 40 %
plus pro-jected dividend yield ) , we recommend that 200
investors buy the stock. 150 49 % 38 %
100
Sell: Based on a current 12-month view of total share- 5 % 28 %
50
holder return, we recommend that investors sell the
0
stock
Buy Hold Sell
Hold: We take a neutral view on the stock 12-months
out and, based on this time horizon, do not Companies Covered Cos. w/ Banking Relationship
recommend either a Buy or Sell.
European Universe
Newly issued research recommendations and target
prices supersede previously published research.
Regulatory Disclosures
1.Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2.Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are
consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the
SOLAR link at http://gm.db.com.

Deutsche Bank AG/London Page 73

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Additional Information

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively
"Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources
believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness.

If you use the services of Deutsche Bank in connection with a purchase or sale of a security that is discussed in this
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Bank may act as principal for its own account or as agent for another person.

Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own
account or with customers, in a manner inconsistent with the views taken in this research report. Others within
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Opinions, estimates and projections constitute the current judgment of the author as of the date of this report. They do
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purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any
particular trading strategy. Target prices are inherently imprecise and a product of the analyst’s judgment. The financial
instruments discussed in this report may not be suitable for all investors and investors must make their own informed
investment decisions. Prices and availability of financial instruments are subject to change without notice and
investment transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is
denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the
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current as of the end of the previous trading session, and are sourced from local exchanges via Reuters, Bloomberg and
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Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise
to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash
flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a
loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the
loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse
macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation
(including changes in assets holding limits for different types of investors), changes in tax policies, currency
convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and
settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed
income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to
FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the
index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended
to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon
rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is
also important to acknowledge that funding in a currency that differs from the currency in which coupons are
denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to
the risks related to rates movements.

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Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk.
The appropriateness or otherwise of these products for use by investors is dependent on the investors' own
circumstances including their tax position, their regulatory environment and the nature of their other assets and
liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar
to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can
be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be
incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable
for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized
Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the
website please contact your Deutsche Bank representative for a copy of this important document.

Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i)
exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by
numerous market factors, including world and national economic, political and regulatory events, events in equity and
debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed
exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are
affected by the currency of an underlying security, effectively assume currency risk.

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Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are
not disclosed according to the Financial Instruments and Exchange Law of Japan.

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Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the
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Copyright © 2016 Deutsche Bank AG

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David Folkerts-Landau
Chief Economist and Global Head of Research

Raj Hindocha Marcel Cassard Steve Pollard

Global Chief Operating Officer Global Head Global Head
Research FICC Research & Global Macro Economics Equity Research

Michael Spencer Ralf Hoffmann Andreas Neubauer

Regional Head Regional Head Regional Head
Asia Pacific Research Deutsche Bank Research, Germany Equity Research, Germany

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