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BofA Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, 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. Refer to important disclosures on page 216 to 220. Analyst Certification on Page 215. Link to Definitions on page 215. 11074055

European Banks

Data & drivers

Bi-annual data set; all investment cases updated We publish our bi-annual data set on the banks. Financial statistics are updated to end-2010, the last available full data set. We have attempted to update all bank investment cases to Friday 29th July, however. We provide comparative charts for key income statement and balance sheet metrics and ratios, as well as country by country comparative analysis.

We present our updated 1-pagers of our coverage universe. We have changed the format of this to make it more (we hope) user friendly.

Hard copies of this publication will also be available. Please contact us or your salesperson if you would like a hard copy.

How we classify the banks in terms of fundamental strength A List B List Grey List Watchlist Barclays ABN AMRO ↑ Banca MPS Alpha Bank BNP Paribas BBVA Banco Pastor Anglo Irish Bank Credit Suisse BPCE ↑ Banco Popolare Bank of Ireland HSBC Deutsche Bank Banco Popular Espanol BayernLB Nordea Deutsche Postbank ↑ Banco Sabadell EFG Eurobank Rabobank DNB NOR Bankinter Eurohypo Standard Chartered Erste Bank ↑ BES Millennium BCP ↓ Svenska Handelsbanken Intesa Sanpaolo BP Milano National Bank of Greece Lloyds Banking Group Caixa Geral ↓ Piraeus Bank RBS Commerzbank Spanish savings banks RZB ↑ Credit Agricole ↓ Santander Danske Bank SEB ↑ KBC Swedbank Societe Generale UBS ↑ UBI Banca Unicredit Source: BofA Merrill Lynch Global Research

High Grade Credit | Europe | Banks 01 August 2011

Richard Thomas +44 20 7996 0128 Research Analyst MLI (UK) [email protected]

TM2

European Banks 01 Augus t 2011

2

TM2


3

Sector Comparison Charts

TM2

4

TM2

01 August 2011

European Banks

5

Market Cap in €bn

619

816

1,02

9

1,22

5

1,49

8

1,63

5

2,02

1

2,34

7

2,56

0

2,96

3

2,99

3

3,61

4

4,52

2

5,00

8

5,00

8

5,04

1

5,73

0

6,73

7

8,77

5

11,5

17

12,5

16

12,5

35

13,3

67

13,5

65

13,9

79

16,4

16 21,3

28

23,6

55

25,8

23

26,7

13

29,7

25

29,9

29

30,8

06

33,8

52

34,9

03

35,5

30 42,2

78

43,6

05

44,6

93

54,3

72 61,5

13

1212

54

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Banc

a Po

polar

e di

Mila

no S

carl

Banc

o Pa

stor

SA

Pira

eus

Bank

SA

Allie

d Iri

sh B

anks

PLC

EFG

Euro

bank

Erg

asias

SA

Alph

a Ba

nk A

E

Bank

inter

SA

Banc

o Po

polar

e SC

Gove

rnor

& C

o of

the

Bank

of I

Union

e di

Banc

he It

alian

e SC

PA

Banc

o Es

pirito

San

to S

A

Banc

o de

Sab

adell

SA

Natio

nal B

ank

of G

reec

e SA

Deut

sche

Pos

tban

k AG

Deut

sche

Pos

tban

k AG

Banc

o Po

pular

Esp

anol

SA

Banc

a M

onte

dei

Pasc

hi di

Sien

Raiff

eisen

Ban

k In

tern

ation

al

KBC

Groe

p NV

Skan

dinav

iska

Ensk

ilda

Bank

en

Dans

ke B

ank

A/S

Erst

e Gr

oup

Bank

AG

Com

mer

zban

k AG

Sven

ska

Hand

elsba

nken

AB

Swed

bank

AB

DnB

NOR

ASA

Cred

it Ag

ricole

SA

UniC

redit

SpA

Inte

sa S

anpa

olo S

pA

Socie

te G

ener

ale S

A

Nord

ea B

ank

AB

Cred

it Su

isse

Grou

p AG

Barc

lays

PLC

Lloyd

s Ba

nking

Gro

up P

LC

BBVA

Deut

sche

Ban

k AG

Stan

dard

Cha

rtere

d PL

C

UBS

AG

Roya

l Ban

k of

Sco

tland

Gro

up P

BNP

Parib

as S

A

Banc

o Sa

ntan

der S

A

HSBC

Hold

ings

PLC

Source: Bloomberg

TM2

01 August 2011

European Banks

6 2010 Total Assets in €mn

1,998,158

1,905,630

1,833,898

1,737,522

1,695,451

1,593,529

1,217,501

1,156,572

1,132,072

1,053,007

1,048,442

929,488

824,985

754,299

658,757

652,536

580,839

552,738

431,304

385,909

379,599

316,354

276,723

244,279

242,679

239,752

239,299

238,846

229,010

214,684

205,938

191,007

186,517

167,473

145,222

135,156

131,173

130,559

130,140

125,862

120,745

100,010

97,099

87,852

87,188

83,655

72,183

70,667

66,798

56,591

54,152

41,795

31,135

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

BNP Paribas

Deutsche Bank

HSBC

Barclays

RBS

Credit Agricole

Santander

Lloyds Banking Group

Societe Generale

UBS

BPCE

Unicredito

Credit Suisse

Commerzbank

Intesa Sanpaolo

Rabobank

Nordea

BBVA

Danske Bank

Standard Chartered

ABN Amro

BayernLB

KBC Bank

Banca Monte dei Paschi

SEB

Svenska Handelsbanken

Median

DnB NOR

Eurohypo

Deutsche Postbank

Erste Bank

Swedbank

Caja Madrid

Bank of Ireland

AIB

Banco Popolare

Raiffeisen Bank International

Unione di Banche Italiane

Banco Popular

Caixa Geral

National Bank of Greece

Millennium bcp

Banco Sabadell

Bancaja

Eurobank EFG

Banco Espirito Santo

Anglo Irish Bank

CAM

Alpha Bank

Piraeus Bank

Bankinter

Banca Popolare di Milano

Banco Pastor

Source: Company reports, BofA Merrill Lynch Global Research

TM2

01 August 2011

European Banks

7

2010 Risk Weighted Assets in €m

824,136

666,131

604,885

601,000

473,992

464,263

454,850

399,016

371,700

346,204

334,795

332,158

313,327

267,500

219,568

215,000

183,097

174,830

158,981

131,944

124,107

116,328

113,293

111,711

109,238

103,950

101,359

98,768

94,878

94,361

93,856

89,042

79,045

76,989

75,601

68,802

68,198

66,363

62,300

60,525

60,266

59,564

59,243

49,000

47,968

37,900

36,668

30,964

30,412

18,407

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

HSBC

RBS

Santander

BNP Paribas


Barclays

Unicredito

BPCE

Credit Agricole

Deutsche Bank

Societe Generale

Intesa Sanpaolo

BBVA

Commerzbank

Rabobank

Nordea

Standard Chartered

Credit Suisse

UBS

DnB NOR

BayernLB

ABN Amro

Danske Bank

KBC Bank


Erste Bank

Median

AIB

Banco Popolare


Banco Popular

SEB

Bank of Ireland

Caixa Geral




Deutsche Postbank

Eurohypo

Banco Sabadell

Swedbank

Millennium bcp


Alpha Bank

Eurobank EFG

Piraeus Bank

Anglo Irish Bank

Bankinter


Banco Pastor


TM2

01 August 2011

European Banks

8 2010 Gross Customer Loans in €m

735,318

730,999

712,635

711,357

668,715

588,672

573,807

513,596

459,786

411,025

398,245

397,240

386,621

348,253

336,872

316,709

280,041

253,384

211,013

181,502

175,755

165,578

165,238

155,414

151,661

148,975

141,787

134,600

132,729

121,307

119,832

119,493

119,432

111,783

104,807

98,560

98,389

93,637

84,517

80,823

76,411

76,191

75,657

67,932

58,597

53,035

52,606

51,074

43,387

39,682

33,941

30,503

23,436

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Santander

HSBC


BNP Paribas

RBS

Unicredito

BPCE

Barclays

Rabobank

Deutsche Bank

Intesa Sanpaolo

Credit Agricole

Societe Generale

BBVA

Commerzbank

Nordea

ABN Amro

Danske Bank

UBS

Standard Chartered

Credit Suisse



BayernLB

DnB NOR

KBC Bank

Median

Swedbank

Erste Bank

SEB

Caja Madrid

Eurohypo

Bank of Ireland

Deutsche Postbank


Banco Popolare

Banco Popular

AIB

Caixa Geral


Millennium bcp

Banco Sabadell


Bancaja

Eurobank EFG

CAM


Alpha Bank

Bankinter

Piraeus Bank

Anglo Irish Bank


Banco Pastor


TM2

01 August 2011

European Banks

9

2010 Non-performing Loans in €m

75,356

67,336

45,021

37,245

37,187

35,600

28,522

23,100

21,769

21,682

20,987

20,003

17,493

16,874

16,564

15,472

13,836

12,895

11,381

10,486

10,225

9,284

8,808

8,460

7,465

7,142

6,966

6,790

6,531

6,265

6,055

5,379

5,146

4,816

4,534

4,074

3,863

3,819

3,689

3,552

3,352

3,090

2,609

2,478

2,383

2,290

1,821

1,543

1,489

1,330

1,213

1,135

1,107

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000


Unicredito

RBS

Intesa Sanpaolo

Barclays

BNP Paribas

Santander

Societe Generale

Credit Agricole

Commerzbank

HSBC

BPCE

AIB

Bank of Ireland

Anglo Irish Bank

BBVA

Danske Bank

Banco Popolare


Erste Bank

Caja Madrid

Rabobank

ABN Amro

Eurohypo



Median


KBC Bank

Deutsche Bank

Banco Popular

Alpha Bank

BayernLB

Nordea

Eurobank EFG

Banco Sabadell

Swedbank

Deutsche Postbank

Bancaja

DnB NOR

UBS

Standard Chartered

SEB

Caixa Geral

Piraeus Bank

Millennium bcp


Banco Pastor

Credit Suisse

Bankinter


CAM



TM2

01 August 2011

European Banks

10

2010 Loan Loss Reserves in €m

33,019

26,671

21,430

21,059

19,697

19,010

15,004

14,723

14,445

13,994

11,242

9,577

9,396

9,117

9,000

7,287

6,119

5,323

4,975

4,923

4,910

4,756

4,286

4,098

3,845

3,562

3,429

3,296

3,194

2,992

2,979

2,610

2,573

2,506

2,498

2,426

2,356

2,329

2,220

2,210

2,185

1,931

1,777

1,764

1,640

1,506

1,196

869

861

813

749

623

323

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Unicredito

BNP Paribas


RBS

Santander

Intesa Sanpaolo

HSBC

Societe Generale

Barclays

Credit Agricole

BPCE

Anglo Irish Bank

BBVA

Commerzbank


AIB

Erste Bank

Danske Bank

Bank of Ireland

Caja Madrid

KBC Bank


ABN Amro

Banco Popolare

Rabobank


Median

Deutsche Bank

Eurohypo


BayernLB

Caixa Geral

Bancaja

Millennium bcp

Nordea

Swedbank

Banco Popular

Eurobank EFG

Alpha Bank

Banco Sabadell

CAM

Standard Chartered


Deutsche Postbank

SEB

DnB NOR

Piraeus Bank

UBS

Bankinter

Credit Suisse

Banco Pastor




TM2

01 August 2011

European Banks

11

2010 Customer Deposits in €m

917,233

570,723

553,377

533,984

499,918

459,134

441,767

403,327

393,992

361,270

310,636

286,761

265,641

262,827

247,222

229,879

229,354

221,064

194,806

176,390

173,440

136,476

124,582

117,016

91,734

87,129

84,743

82,358

79,028

70,714

68,010

67,680

62,383

60,805

59,477

59,324

58,666

57,633

54,574

52,389

49,460

48,843

45,609

44,435

37,054

36,150

32,287

30,819

29,061

24,265

17,847

15,519

11,092

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

HSBC

Santander

BNP Paribas

Deutsche Bank

RBS


Credit Agricole

Barclays

BPCE

Unicredito

Societe Generale

Rabobank

UBS

Commerzbank

BBVA

Credit Suisse

Standard Chartered

Intesa Sanpaolo

ABN Amro

Nordea

KBC Bank

Deutsche Postbank

Danske Bank

Erste Bank

BayernLB

Caja Madrid

Median

DnB NOR


Bank of Ireland


Caixa Geral

SEB


Swedbank

Banco Popular



Banco Popolare

AIB

Bancaja

Banco Sabadell

Millennium bcp

Eurobank EFG

Alpha Bank

CAM

Eurohypo


Piraeus Bank

Bankinter


Banco Pastor

Anglo Irish Bank


TM2

01 August 2011

European Banks

12

2010 Total Equity in €m

115,737

89,639

80,914

75,708

67,703

63,365

54,706

54,600

50,392

49,314

44,603

42,615

41,458

37,475

34,451

34,386

29,036

24,538

17,129

15,526

14,267

14,143

14,056

13,911

12,112

11,942

11,941

11,940

11,480

11,082

10,580

10,490

10,404

9,841

8,252

7,407

7,282

6,606

5,712

5,627

5,247

5,224

4,870

4,353

4,349

3,654

3,535

3,515

3,362

2,580

2,012

1,606

986

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

HSBC

RBS

Santander

BNP Paribas

Unicredito

Barclays


Intesa Sanpaolo

Deutsche Bank

Credit Agricole

BPCE

Societe Generale

UBS

BBVA

Rabobank

Credit Suisse

Standard Chartered

Nordea

Erste Bank


DnB NOR

KBC Bank

Danske Bank

BayernLB

ABN Amro


Median

Banco Popolare

Commerzbank

SEB

Swedbank




Banco Popular

Bank of Ireland

Caixa Geral


Caja Madrid

Deutsche Postbank

Millennium bcp

Alpha Bank

Banco Sabadell

Eurobank EFG

AIB


Anglo Irish Bank

Eurohypo

Piraeus Bank

Bankinter

CAM

Banco Pastor

Bancaja


TM2

01 August 2011

European Banks

13

2010 Revenues in €m

52,204

43,879

41,914

36,739

30,947

29,006

28,082

25,841

25,430

25,090

24,750

23,359

21,696

20,162

16,483

12,716

12,671

12,031

9,334

7,802

6,797

6,688

6,304

6,053

5,456

5,080

4,860

4,641

4,152

4,106

3,805

3,485

3,484

3,462

3,456

3,228

3,106

2,971

2,968

2,924

2,878

2,370

2,331

2,258

2,249

1,705

1,448

1,331

1,125

1,061

752

730

459

-

10,000

20,000

30,000

40,000

50,000

60,000

HSBC

BNP Paribas

Santander

Barclays

RBS


Deutsche Bank

Unicredito

UBS

Credit Suisse

Societe Generale

BPCE

BBVA

Credit Agricole

Intesa Sanpaolo

Rabobank

Commerzbank

Standard Chartered

Nordea

Erste Bank

ABN Amro

KBC Bank

Danske Bank



DnB NOR

Median


Banco Popolare

SEB

Deutsche Postbank



Banco Popular

Swedbank

Bank of Ireland

Caixa Geral

BayernLB

Caja Madrid

Eurobank EFG

Millennium bcp


Banco Sabadell

AIB

Alpha Bank

Bancaja

CAM


Bankinter

Eurohypo

Banco Pastor

Piraeus Bank

Anglo Irish Bank


TM2

01 August 2011

European Banks

14

2010 Net Trading Income/Financial Gains in €m

18,337

11,143

7,097

6,777

5,561

5,447

5,422

5,374

5,268

3,555

2,968

2,502

2,066

1,946

1,942

1,925

1,894

1,837

829

804

678

675

634

469

456

429

405

381

344

336

283

263

252

225

220

209

173

172

144

128

124

120

38

34

15

-22

-64

-138

-181

-201

-242

-330

-441

-5,000

-

5,000

10,000

15,000

20,000


Barclays

HSBC

Credit Suisse

BNP Paribas

Credit Agricole

UBS

Societe Generale

RBS

Deutsche Bank

Santander

DnB NOR

Commerzbank

Standard Chartered

BayernLB

BPCE

BBVA

Nordea

Bancaja

Danske Bank

Unicredito

Caja Madrid

ABN Amro

Intesa Sanpaolo

Erste Bank

Millennium bcp

Median


SEB

Rabobank

CAM

Banco Sabadell

Swedbank

Bank of Ireland


Banco Popular

Eurobank EFG

Banco Popolare


Banco Pastor

Caixa Geral

Bankinter

Alpha Bank



Piraeus Bank

Anglo Irish Bank


KBC Bank

AIB

Deutsche Postbank


Eurohypo


TM2

01 August 2011

European Banks

15

2010 Net Interest Income in €m

29,786

29,224

24,060

16,571

15,756

15,583

14,894

14,631

14,604

13,320

12,182

11,970

10,621

8,614

7,054

6,397

5,391

5,280

5,159

4,905

4,833

4,747

4,510

4,148

3,578

3,541

3,234

2,927

2,731

2,452

2,254

2,239

2,219

2,147

1,942

1,844

1,819

1,805

1,713

1,680

1,676

1,517

1,459

1,415

1,338

1,164

742

616

591

586

552

550

469

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

HSBC

Santander

BNP Paribas

RBS

Unicredito

Deutsche Bank

Credit Agricole


Barclays

BBVA

BPCE

Societe Generale

Intesa Sanpaolo

Rabobank

Commerzbank

Standard Chartered

Erste Bank

KBC Bank

Nordea

ABN Amro

Danske Bank

Credit Suisse

UBS




Median

DnB NOR

Deutsche Postbank

Banco Popular

Eurobank EFG


Bank of Ireland


BayernLB

AIB

Alpha Bank

Banco Popolare

Swedbank

SEB

Caja Madrid

Millennium bcp

Banco Sabadell

Caixa Geral

Eurohypo


Anglo Irish Bank

Bancaja

Piraeus Bank

CAM


Bankinter

Banco Pastor


TM2

01 August 2011

European Banks

16 2010 Operating Expenses in €m

28,462

26,517

23,007

22,804

21,246

19,329

17,724

17,408

17,401

16,545

16,057

15,475

13,187

10,358

9,847

8,786

8,196

6,814

6,229

4,816

3,945

3,862

3,817

3,069

2,980

2,934

2,788

2,643

2,540

2,433

2,312

1,967

1,914

1,898

1,793

1,649

1,629

1,603

1,576

1,462

1,426

1,313

1,195

1,169

1,148

881

745

679

626

418

405

371

353

-

5,000

10,000

15,000

20,000

25,000

30,000

HSBC

BNP Paribas

Barclays

Deutsche Bank

RBS

Santander

UBS

Unicredito

Credit Suisse

Societe Generale

BPCE


Credit Agricole

Intesa Sanpaolo

BBVA

Commerzbank

Rabobank

Standard Chartered

ABN Amro

Nordea


KBC Bank

Erste Bank

Banco Popolare


Deutsche Postbank

Median



SEB

DnB NOR

Caixa Geral

Swedbank

Danske Bank

Bank of Ireland

AIB

Caja Madrid

Millennium bcp


BayernLB

Eurobank EFG

Banco Popular

Banco Sabadell


Alpha Bank


CAM

Bankinter

Bancaja

Piraeus Bank

Eurohypo

Banco Pastor

Anglo Irish Bank


TM2

01 August 2011

European Banks

17

2010 Pre-provision Profits in €m

24,308

22,585

17,362

13,726

13,526

11,849

9,696

8,433

8,205

7,302

6,975

6,125

5,376

5,361

5,348

5,278

4,520

4,518

3,986

3,885

2,826

2,636

2,633

2,477

2,149

2,108

2,105

2,102

1,708

1,509

1,498

1,437

1,435

1,343

1,339

1,275

1,200

1,139

1,136

1,100

1,083

1,079

871

842

703

656

609

568

450

446

382

312

106

-

5,000

10,000

15,000

20,000

25,000

30,000

HSBC

Santander

BNP Paribas

Barclays


BBVA

RBS

Unicredito

Societe Generale

BPCE

Credit Agricole

Intesa Sanpaolo

Credit Suisse

UBS

Standard Chartered

Deutsche Bank

Rabobank

Nordea

Erste Bank

Commerzbank

KBC Bank

Danske Bank

DnB NOR


Banco Popular


Median



BayernLB

Eurobank EFG

SEB

Bank of Ireland

Swedbank

Caja Madrid

Millennium bcp


Caixa Geral

Banco Sabadell

Alpha Bank

Banco Popolare

Bancaja

Deutsche Postbank


CAM

Eurohypo

AIB

ABN Amro


Bankinter

Banco Pastor

Piraeus Bank

Anglo Irish Bank


TM2

01 August 2011

European Banks

18

2010 Loan Loss Provisions in €m

12,561

10,794

10,602

10,267

7,767

6,708

6,615

6,015

4,802

4,563

4,160

3,398

2,818

2,499

2,284

2,031

1,856

1,654

1,485

1,407

1,365

1,362

1,274

1,234

1,194

1,126

1,116

1,106

885

879

837

782

713

707

696

667

561

396

374

369

352

295

283

267

216

208

200

193

181

158

112

48

-67

-2,000

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000


RBS

HSBC

Santander

Anglo Irish Bank

Unicredito

Barclays

AIB

BNP Paribas

BBVA

Societe Generale

Credit Agricole

Intesa Sanpaolo

Commerzbank

Bank of Ireland

Erste Bank

Danske Bank

BPCE

KBC Bank

Eurohypo


Eurobank EFG

Deutsche Bank

Rabobank



Median

Banco Popular

Alpha Bank

Nordea

ABN Amro

Banco Popolare

Millennium bcp


BayernLB

Standard Chartered

Deutsche Postbank

Banco Sabadell

DnB NOR

Caixa Geral


Swedbank

Banco Pastor

Piraeus Bank

Bankinter


CAM

SEB

Bancaja


Caja Madrid

UBS

Credit Suisse


TM2

01 August 2011

European Banks

19

2010 Pre-tax Profit

14,377

13,020

12,025

7,073

6,422

5,844

5,749

5,420

5,412

4,623

3,975

3,931

3,639

3,286

2,629

2,271

2,175

1,572

1,515

1,444

1,353

1,329

1,287

1,044

978

884

875

866

833

701

559

464

418

364

358

328

315

236

232

216

205

201

193

136

75

50

44

-269

-785

-950

-1,204

-11,872

-17,619

-20,000

-15,000

-10,000

-5,000

-

5,000

10,000

15,000

20,000

HSBC

BNP Paribas

Santander

Barclays

BBVA

Societe Generale

BPCE

Credit Suisse

UBS

Standard Chartered

Deutsche Bank

Intesa Sanpaolo

Nordea

Rabobank

Credit Agricole

DnB NOR

Unicredito


Erste Bank

KBC Bank

Commerzbank



Swedbank

SEB

BayernLB

Median

Danske Bank

Banco Popular



Banco Sabadell


Caixa Geral

Millennium bcp


Deutsche Postbank

Caja Madrid

Banco Popolare

Alpha Bank

Bankinter

CAM


Eurobank EFG

Bancaja

Banco Pastor

Piraeus Bank

ABN Amro

Eurohypo

Bank of Ireland

RBS

AIB

Anglo Irish Bank


TM2

01 August 2011

European Banks

20

2010 Net Income in €m

10,717

9,164

9,102

5,688

5,305

4,995

4,302

4,296

4,033

3,333

2,776

2,772

2,663

2,330

1,756

1,752

1,645

1,533

1,489

1,186

1,177

1,157

987

785

713

657

631

604

590

492

440

383

361

332

299

244

186

180

151

139

123

102

86

84

63

10

-301

-414

-609

-857

-1,943

-10,162

-17,651

-20,000

-15,000

-10,000

-5,000

-

5,000

10,000

15,000

HSBC

BNP Paribas

Santander

UBS

Barclays

BBVA

Societe Generale

Credit Suisse

BPCE

Standard Chartered

Intesa Sanpaolo

Rabobank

Nordea

Deutsche Bank

DnB NOR

Credit Agricole

Unicredito

KBC Bank

Commerzbank

Erste Bank




Swedbank

SEB


Median

Banco Popular

BayernLB

Danske Bank


Banco Sabadell

Millennium bcp

Banco Popolare

Caixa Geral

CAM


Caja Madrid

Bankinter

Deutsche Postbank


Bancaja

Alpha Bank

Eurobank EFG

Banco Pastor

Piraeus Bank


ABN Amro

Bank of Ireland

Eurohypo

RBS

AIB

Anglo Irish Bank


TM2

01 August 2011

European Banks

21

2010 Net Interest Margin as %

3.54

3.45

2.67

2.65

2.63

2.51

2.45

2.13

1.89

1.89

1.78

1.70

1.70

1.65

1.64

1.62

1.55

1.51

1.48

1.40

1.37

1.33

1.28

1.27

1.27

1.24

1.24

1.24

1.19

1.17

1.16

1.15

1.15

1.14

1.11

1.01

1.00

0.95

0.95

0.94

0.93

0.91

0.90

0.89

0.88

0.87

0.83

0.71

0.63

0.62

0.59

0.47

0.47

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00



Alpha Bank

Erste Bank

Eurobank EFG

Santander

BBVA

Piraeus Bank

KBC Bank

Banco Popular

Standard Chartered


Unicredito

Intesa Sanpaolo

HSBC

Banco Sabadell

Millennium bcp


Banco Pastor


Rabobank

Banco Popolare


Bank of Ireland

DnB NOR


Median

Deutsche Postbank

BNP Paribas

BPCE

ABN Amro

AIB

Caixa Geral

Danske Bank

Societe Generale

Bankinter


Nordea

Credit Agricole

Anglo Irish Bank

Swedbank

Deutsche Bank

RBS

Caja Madrid

Commerzbank

Barclays

CAM

SEB

Credit Suisse

Bancaja

BayernLB

Eurohypo

UBS


TM2

01 August 2011

European Banks

22

2010 Cost: Income Ratio as %

91.64

81.21

77.11

76.91

76.78

76.40

75.83

73.91

73.03

69.34

68.74

68.66

67.37

66.85

66.20

65.41

65.17

64.45

63.32

62.87

62.84

62.63

60.43

60.34

58.76

58.22

57.98

57.75

57.30

56.03

55.70

55.55

54.88

54.72

54.61

53.94

53.36

51.60

51.47

51.26

51.07

49.35

49.29

49.21

48.92

48.77

47.99

46.75

46.12

45.39

37.94

36.73

35.26

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

ABN Amro

Deutsche Bank

Deutsche Postbank

Anglo Irish Bank

UBS

Credit Suisse


Banco Popolare

AIB

Commerzbank

BPCE

RBS

Unicredito

Societe Generale


Credit Agricole


Rabobank

Caixa Geral

SEB

Intesa Sanpaolo

Barclays

BNP Paribas

Bankinter

Swedbank

Danske Bank

Median

KBC Bank

Piraeus Bank

Standard Chartered

Millennium bcp

Bank of Ireland

Caja Madrid



HSBC


Nordea

CAM

Banco Sabadell

Alpha Bank


Banco Pastor

BayernLB

Erste Bank

Eurobank EFG


DnB NOR

Santander

BBVA

Banco Popular

Bancaja

Eurohypo


TM2

01 August 2011

European Banks

23

2010 Revenues/ Average Assets as %

5.26

3.99

3.96

3.83

3.60

3.41

3.38

3.30

3.09

3.07

3.04

2.94

2.90

2.86

2.78

2.76

2.67

2.64

2.59

2.58

2.57

2.52

2.46

2.40

2.39

2.37

2.33

2.30

2.25

2.20

2.16

2.15

2.07

2.04

2.02

1.85

1.77

1.72

1.72

1.71

1.68

1.65

1.64

1.60

1.59

1.57

1.49

1.46

1.41

1.28

0.91

0.58

0.45

-

1.00

2.00

3.00

4.00

5.00

6.00


BBVA


Erste Bank

Santander

Eurobank EFG

Standard Chartered

Alpha Bank


Banco Popolare

Credit Suisse

Millennium bcp

HSBC


Unicredito


Banco Popular

Piraeus Bank

Banco Sabadell


Intesa Sanpaolo

Caixa Geral


KBC Bank

UBS

Banco Pastor

Median

Societe Generale

BPCE

Barclays

BNP Paribas

DnB NOR

Bankinter

CAM

Rabobank

Bank of Ireland

Swedbank

Deutsche Postbank

Nordea

Bancaja

RBS

Deutsche Bank

SEB

ABN Amro

Commerzbank

Caja Madrid

Danske Bank


AIB

Credit Agricole

BayernLB

Anglo Irish Bank

Eurohypo


TM2

01 August 2011

European Banks

24

2010 Noninterest Income/ Average Assets as %

2.41

1.93

1.81

1.81

1.73

1.60

1.54

1.45

1.39

1.37

1.32

1.26

1.22

1.21

1.19

1.18

1.09

1.09

1.09

1.08

1.07

1.06

1.06

0.98

0.97

0.93

0.92

0.91

0.89

0.88

0.84

0.78

0.78

0.78

0.77

0.73

0.70

0.68

0.65

0.63

0.58

0.50

0.50

0.49

0.47

0.45

0.42

0.35

0.33

0.31

0.26

-0.02

-0.36-0.50

-

0.50

1.00

1.50

2.00

2.50

3.00

Credit Suisse

UBS



Banco Popolare

Standard Chartered

BBVA


Millennium bcp

Caixa Geral

Barclays

HSBC


CAM

Societe Generale

Erste Bank

Bancaja

Santander

Unicredito

BPCE


Bankinter


BNP Paribas

Banco Sabadell

SEB

Median

Intesa Sanpaolo

Banco Pastor

DnB NOR

Swedbank

RBS

Eurobank EFG

Banco Popular

Nordea

Deutsche Bank

Commerzbank

Caja Madrid

Rabobank

Alpha Bank

Bank of Ireland

KBC Bank

Piraeus Bank

Deutsche Postbank


ABN Amro


Danske Bank

Credit Agricole

BayernLB

AIB

Eurohypo

Anglo Irish Bank


TM2

01 August 2011

European Banks

25

2010 Noninterest expense/ Average Assets as %

2.87

2.32

2.27

2.17

2.09

2.05

1.89

1.87

1.87

1.84

1.81

1.68

1.68

1.66

1.66

1.64

1.61

1.59

1.56

1.55

1.53

1.51

1.47

1.41

1.38

1.38

1.36

1.34

1.33

1.33

1.31

1.31

1.30

1.25

1.17

1.16

1.10

1.05

1.04

1.03

1.03

1.03

1.01

1.00

0.88

0.87

0.86

0.84

0.70

0.63

0.45

0.45

0.16

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50


Credit Suisse

Banco Popolare




Standard Chartered

Unicredito

Erste Bank

UBS

BBVA

Alpha Bank


Eurobank EFG

Santander

Millennium bcp

Intesa Sanpaolo

Caixa Geral

HSBC

BPCE

Societe Generale

Piraeus Bank

ABN Amro


KBC Bank

Barclays

Median

Deutsche Bank

Deutsche Postbank

Banco Sabadell


BNP Paribas

Rabobank

Bankinter

Banco Pastor

RBS

Commerzbank

CAM

Swedbank

SEB

AIB

Bank of Ireland

Banco Popular

DnB NOR

Nordea

Danske Bank

Caja Madrid

Credit Agricole


Bancaja

Anglo Irish Bank

BayernLB

Eurohypo


TM2

01 August 2011

European Banks

26

2010 Loan Loss Provisions/ Revenues as %

1,692.16

266.39

95.37

70.76

46.58

43.31

39.34

37.68

36.56

34.89

31.95

29.41

29.41

26.03

25.96

24.78

24.50

23.43

22.20

21.88

21.03

20.29

20.09

19.72

19.22

18.84

18.72

18.59

18.01

17.10

16.98

16.85

16.81

15.64

14.85

14.74

13.79

12.31

11.88

10.94

10.64

9.70

9.42

9.05

7.57

7.08

5.48

4.98

4.82

4.54

3.77

0.21

-0.30

-200.00

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

1,600.00

1,800.00

Anglo Irish Bank

AIB

Eurohypo

Bank of Ireland

Eurobank EFG


Alpha Bank

Banco Pastor

Piraeus Bank

RBS

Banco Popular

Danske Bank


Erste Bank

Unicredito

Millennium bcp

Santander

BayernLB

KBC Bank


BBVA


HSBC

Commerzbank

Bankinter

Banco Popolare

Median


Barclays

Intesa Sanpaolo

Banco Sabadell

Credit Agricole

Societe Generale



Deutsche Postbank

CAM

ABN Amro

Caixa Geral

BNP Paribas

Bancaja

Rabobank

Nordea

Swedbank

DnB NOR

BPCE

Standard Chartered

SEB


Deutsche Bank

Caja Madrid

UBS

Credit Suisse


TM2

01 August 2011

European Banks

27

2010 Net Income/ Average Assets (ROA) as %

1.13

0.93

0.92

0.79

0.78

0.76

0.59

0.59

0.58

0.57

0.55

0.52

0.49

0.47

0.45

0.44

0.43

0.43

0.43

0.42

0.40

0.39

0.38

0.37

0.34

0.32

0.31

0.30

0.29

0.28

0.24

0.24

0.20

0.19

0.18

0.18

0.15

0.14

0.13

0.12

0.11

0.10

0.10

0.10

0.06

0.04

-0.03

-0.10

-0.11

-0.33

-0.35

-6.36

-22.43

-25.00

-20.00

-15.00

-10.00

-5.00

-

5.00


Standard Chartered

BBVA


Santander

DnB NOR

UBS

HSBC

Erste Bank

Credit Suisse

KBC Bank


Nordea

Banco Popular

BNP Paribas

Rabobank

Intesa Sanpaolo

Swedbank

Banco Sabadell


Societe Generale

BPCE


Millennium bcp

CAM

Barclays

Median

SEB


Bankinter

Banco Popolare

Caixa Geral

Banco Pastor

Commerzbank

BayernLB

Unicredito


Deutsche Bank

Alpha Bank

Danske Bank

Credit Agricole

Bancaja

Eurobank EFG

Caja Madrid

Deutsche Postbank

Piraeus Bank


ABN Amro

RBS

Eurohypo

Bank of Ireland

AIB

Anglo Irish Bank


TM2

01 August 2011

European Banks

28

2010 ROE as %

19.69

18.56

18.01

16.60

16.49

16.25

15.48

15.43

14.22

14.02

13.50

13.06

12.91

12.30

12.01

11.36

11.01

10.47

10.45

10.01

9.87

9.56

9.39

9.07

8.11

7.52

7.50

7.49

7.44

6.82

6.18

5.97

4.89

4.51

4.50

4.31

4.03

3.96

3.92

3.63

3.26

2.79

2.36

2.25

1.68

0.67

-0.65

-2.39

-2.76

-9.45

-16.20

-138.17

-460.38

-500.00

-400.00

-300.00

-200.00

-100.00

-

100.00

UBS

BBVA

Santander

Standard Chartered

Commerzbank

Credit Suisse


BNP Paribas

DnB NOR


Societe Generale

Nordea


HSBC

KBC Bank

BPCE

CAM

Barclays


Erste Bank

Swedbank

Intesa Sanpaolo

Rabobank

Banco Sabadell

SEB

Millennium bcp

Median

Banco Popular

Deutsche Bank

Bankinter

Credit Agricole


Banco Popolare

Danske Bank

Deutsche Postbank

Caixa Geral

Unicredito

Banco Pastor

BayernLB


Bancaja


Caja Madrid

Eurobank EFG

Alpha Bank

Piraeus Bank


RBS

ABN Amro

Bank of Ireland

Eurohypo

AIB

Anglo Irish Bank


TM2

01 August 2011

European Banks

29

2010 Loans/ Customer Deposits as %

374.52

271.28

222.23

219.65

199.12

197.70

191.82

182.32

178.13

175.25

173.55

173.09

171.55

169.11

166.17

164.93

164.82

162.04

161.88

161.86

159.00

153.81

151.47

150.55

146.18

142.79

142.17

141.55

140.66

137.07

132.43

132.14

131.88

131.85

129.55

126.63

125.39

124.70

123.76

123.73

123.02

121.02

119.72

113.60

108.20

86.75

83.06

80.61

79.11

78.29

78.06

76.36

76.10

-

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

Eurohypo


Swedbank

Anglo Irish Bank

Danske Bank


SEB

DnB NOR

Nordea

Bankinter


Banco Popolare

Intesa Sanpaolo


BayernLB


AIB

Millennium bcp

Banco Popular

Bank of Ireland

Rabobank

Unicredito

Banco Sabadell


Banco Pastor

BPCE

Median

ABN Amro

CAM

BBVA

Piraeus Bank

Bancaja

Caja Madrid

Alpha Bank

RBS

Eurobank EFG

Santander

Commerzbank

Barclays

BNP Paribas


Caixa Geral

Societe Generale


Erste Bank

Credit Agricole

KBC Bank

Deutsche Postbank

UBS

Standard Chartered

HSBC

Deutsche Bank

Credit Suisse


TM2

01 August 2011

European Banks

30

2010 Loans/ Assets as %

78.53

77.98

76.19

74.40

73.90

73.79

73.14

72.86

72.64

72.21

71.96

69.89

69.87

69.20

68.80

68.34

68.01

65.08

64.54

63.99

63.96

62.87

61.61

61.48

61.31

60.76

60.27

59.78

59.76

59.46

58.78

57.57

57.51

54.10

54.05

53.66

52.06

51.25

50.65

49.31

48.18

46.53

43.45

39.04

38.20

34.27

33.75

32.85

28.73

24.05

21.40

21.21

19.96

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Bankinter


Banco Sabadell

Bancaja

Millennium bcp

Banco Popular

Alpha Bank

Banco Pastor

ABN Amro


CAM

Banco Popolare

Rabobank

Swedbank


Bank of Ireland

Piraeus Bank

Caixa Geral

Eurobank EFG



DnB NOR

Caja Madrid

Erste Bank

BBVA


Median

Unicredito


AIB

Santander

Intesa Sanpaolo

Danske Bank

Nordea


BPCE

KBC Bank

Deutsche Postbank

Eurohypo

SEB

BayernLB

Standard Chartered

Commerzbank

HSBC

RBS

BNP Paribas

Anglo Irish Bank

Societe Generale

Barclays

Credit Agricole

Deutsche Bank

Credit Suisse

UBS


TM2

01 August 2011

European Banks

31

2010 Tier 1 Ratio

17.80

17.20

15.70

14.00

13.50

13.10

12.90

12.80

12.75

12.40

12.30

12.10

11.90

11.80

11.80

11.60

11.48

11.40

11.20

11.00

10.90

10.70

10.63

10.60

10.60

10.60

10.55

10.50

10.10

10.10

10.00

9.80

9.70

9.70

9.63

9.46

9.40

9.36

9.20

8.90

8.80

8.80

8.60

8.37

8.10

7.80

7.47

7.31

7.20

4.30

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

UBS

Credit Suisse

Rabobank

Standard Chartered

Barclays


RBS

ABN Amro

SEB

KBC Bank

Deutsche Bank

HSBC

Commerzbank

Alpha Bank

Erste Bank


Danske Bank

BNP Paribas

BayernLB

Swedbank

Anglo Irish Bank


Banco Pastor

Eurobank EFG

Societe Generale

Credit Agricole

Median

BBVA

DnB NOR

BPCE

Santander

Nordea

Bank of Ireland


Banco Popular

Unicredito

Intesa Sanpaolo

Banco Sabadell

Millennium bcp

Caixa Geral

Piraeus Bank


Eurohypo


Deutsche Postbank



Bankinter

Banco Popolare

AIB


TM2

01 August 2011

European Banks

32

2010 Core Tier 1 ratio

15.30

12.20

12.00

11.80

10.93

10.90

10.80

10.70

10.50

10.50

10.40

10.20

10.10

10.00

9.70

9.60

9.43

9.20

9.20

9.20

9.10

9.00

8.90

8.90

8.80

8.80

8.75

8.70

8.58

8.50

8.46

8.40

8.20

8.10

7.90

7.90

7.90

7.72

7.60

7.30

7.10

6.95

6.70

5.70

5.67

4.00

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

UBS

Credit Suisse


Standard Chartered

SEB

Anglo Irish Bank

Barclays

RBS

KBC Bank

HSBC

ABN Amro


Swedbank

Commerzbank

Bank of Ireland

BBVA

Banco Popular

Erste Bank

BNP Paribas

DnB NOR

Eurobank EFG

Alpha Bank

Nordea


Santander

Caixa Geral

Median

Deutsche Bank

Unicredito

Societe Generale

Banco Pastor

Credit Agricole

Banco Sabadell

BPCE

Intesa Sanpaolo

Piraeus Bank



Danske Bank

BayernLB



Millennium bcp

Banco Popolare

Deutsche Postbank

AIB


TM2

01 August 2011

European Banks

33

2010 Adjusted Common Equity/ Assets as %

8.94

8.37

7.62

7.00

6.57

6.28

6.17

6.05

5.86

5.59

5.47

5.32

5.15

5.09

5.08

5.02

5.01

4.89

4.88

4.74

4.69

4.68

4.67

4.50

4.49

4.34

4.32

4.29

4.17

4.15

4.15

4.12

3.89

3.78

3.67

3.62

3.32

3.31

3.19

3.10

3.08

3.06

3.01

2.97

2.86

2.59

2.53

2.04

1.83

1.80

1.53

1.34

1.12

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00


Alpha Bank




Banco Popular

Standard Chartered

Erste Bank

Caixa Geral

DnB NOR

BBVA

Piraeus Bank


HSBC

Banco Pastor

Banco Popolare

Millennium bcp

KBC Bank

Anglo Irish Bank

Swedbank

Rabobank

BayernLB

Unicredito

Intesa Sanpaolo

Banco Sabadell

Santander

Median

RBS


Bank of Ireland

Eurobank EFG

Bankinter

SEB


Nordea

BPCE


Credit Suisse

UBS

BNP Paribas

ABN Amro

Barclays

Caja Madrid

Societe Generale

AIB

Danske Bank

CAM

Eurohypo

Deutsche Bank

Credit Agricole

Deutsche Postbank

Commerzbank

Bancaja


TM2

01 August 2011

European Banks

34

2010 Adjusted Common Equity/ Risk Weighted Assets as %

21.14

15.60

15.31

15.03

13.95

13.01

12.28

12.15

12.12

11.98

11.92

11.63

11.46

11.41

11.33

10.93

10.60

10.30

10.19

10.12

10.06

10.05

10.05

9.92

9.86

9.76

9.65

9.60

9.57

9.53

9.52

9.26

8.93

8.80

8.74

8.70

8.59

8.42

7.95

7.70

7.54

7.43

7.25

7.21

7.20

7.15

7.12

4.95

4.21

3.78

-

5.00

10.00

15.00

20.00

25.00

UBS

Credit Suisse


Swedbank

Rabobank

Standard Chartered



KBC Bank

Erste Bank

BayernLB


Barclays

Alpha Bank

HSBC

RBS

SEB

BNP Paribas


DnB NOR

ABN Amro

Societe Generale

Deutsche Bank

Nordea

Danske Bank

Median

BBVA

Anglo Irish Bank

Caixa Geral

Unicredito

BPCE


Intesa Sanpaolo

Bank of Ireland

Santander

Banco Popular

Banco Pastor

Millennium bcp

Piraeus Bank

Credit Agricole

Eurobank EFG


Bankinter

Banco Sabadell

Eurohypo

Banco Popolare


Deutsche Postbank

AIB

Commerzbank


TM2

01 August 2011

European Banks

35

2010 Equity/ Assets as %

9.15

8.83

8.74

8.69

8.32

8.29

7.93

7.90

7.82

7.52

7.28

6.78

6.65

6.36

6.34

6.31

5.97

5.94

5.79

5.54

5.29

5.28

5.25

5.16

5.11

5.02

5.00

4.99

4.90

4.76

4.73

4.57

4.42

4.40

4.25

4.22

4.17

4.10

3.94

3.79

3.76

3.65

3.26

3.19

3.09

3.06

2.99

2.85

2.64

2.62

1.54

1.52

1.12

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00


Banco Popolare



Erste Bank

Intesa Sanpaolo



Alpha Bank

Standard Chartered

Unicredito

BBVA

Santander


Banco Popular

HSBC

DnB NOR

Piraeus Bank

Caixa Geral

Swedbank

RBS

Rabobank

Millennium bcp

Banco Pastor

KBC Bank

Banco Sabadell

Median

Eurobank EFG

Anglo Irish Bank

Bankinter


SEB

Bank of Ireland

BayernLB

BPCE

Nordea

Credit Suisse


UBS

BNP Paribas

Societe Generale

Barclays

Danske Bank

ABN Amro

Credit Agricole

Caja Madrid

AIB

CAM

Deutsche Bank

Deutsche Postbank

Eurohypo

Commerzbank

Bancaja


TM2

01 August 2011

European Banks

36

2010 Adjusted Equity plus Total Reserves/ Loans as %

55.22

21.67

21.13

19.26

18.27

17.54

17.26

16.13

16.06

15.99

15.64

15.62

15.41

15.33

15.26

14.67

14.53

14.47

14.44

14.38

13.66

13.64

13.23

13.06

13.05

12.98

12.96

12.94

12.82

12.47

12.38

12.35

12.19

11.81

11.35

11.29

11.16

11.09

11.00

10.33

10.01

9.98

9.52

9.24

9.04

8.45

8.40

8.12

7.26

6.97

6.92

6.56

6.23

-

10.00

20.00

30.00

40.00

50.00

60.00

Anglo Irish Bank


Credit Suisse


UBS

Barclays

Standard Chartered

HSBC

Credit Agricole

Alpha Bank

RBS

Erste Bank



Societe Generale


Unicredito

Intesa Sanpaolo

KBC Bank

BNP Paribas

Eurobank EFG

AIB

BBVA

Caixa Geral

BayernLB

Millennium bcp

Median


Banco Popolare

Banco Pastor

Commerzbank

Deutsche Bank

Banco Popular

Caja Madrid

Piraeus Bank

DnB NOR

Santander

Bank of Ireland

SEB

Banco Sabadell


BPCE

Swedbank

Danske Bank

Rabobank

CAM

Nordea

Bankinter

Bancaja

ABN Amro

Eurohypo


Deutsche Postbank


TM2

01 August 2011

European Banks

37

2010 Loan Loss Provisions/ Average Loans

28.13

6.34

2.43

2.02

1.95

1.80

1.78

1.77

1.62

1.51

1.49

1.44

1.40

1.38

1.34

1.30

1.20

1.16

1.16

1.02

0.96

0.91

0.84

0.82

0.75

0.75

0.74

0.74

0.73

0.71

0.70

0.70

0.66

0.58

0.52

0.51

0.46

0.45

0.40

0.39

0.38

0.34

0.31

0.29

0.28

0.26

0.25

0.23

0.16

0.10

0.10

0.02

-0.04

-5.00

-

5.00

10.00

15.00

20.00

25.00

30.00

Anglo Irish Bank

AIB

Eurobank EFG


Bank of Ireland


Alpha Bank


Erste Bank

HSBC

Santander

RBS

Piraeus Bank

BBVA

Barclays

Banco Pastor

Unicredito

Societe Generale

Banco Popular

KBC Bank

Millennium bcp

Credit Agricole

Eurohypo

Banco Popolare

Danske Bank

Intesa Sanpaolo

Median

Commerzbank




BNP Paribas


Banco Sabadell

Bankinter

Deutsche Postbank

Caixa Geral

BayernLB

Standard Chartered

CAM

Deutsche Bank

ABN Amro

BPCE

Nordea

Rabobank

DnB NOR

Bancaja

Swedbank

SEB


Caja Madrid

UBS

Credit Suisse


TM2

01 August 2011

European Banks

38

2010 Loan Loss Reserves/ Total Loans as %

28.22

7.78

6.29

5.83

5.61

5.45

4.77

4.61

4.41

4.35

4.17

4.16

4.11

3.97

3.81

3.79

3.75

3.52

3.38

3.30

3.28

3.20

3.15

3.09

3.02

3.01

2.95

2.90

2.85

2.81

2.71

2.70

2.68

2.40

2.37

2.15

2.10

2.05

1.98

1.96

1.92

1.80

1.58

1.53

1.35

1.06

1.05

0.99

0.84

0.80

0.79

0.46

0.41

-

5.00

10.00

15.00

20.00

25.00

30.00

Anglo Irish Bank

AIB


CAM

Unicredito


Intesa Sanpaolo

Erste Bank


Alpha Bank

Bank of Ireland

Banco Popolare

Caja Madrid

Eurobank EFG

Societe Generale

Bancaja

BNP Paribas

Credit Agricole


KBC Bank

Millennium bcp

Banco Pastor

RBS

Caixa Geral

Piraeus Bank


Median

Banco Sabadell


Barclays

Commerzbank

BBVA

Santander

Banco Popular


Eurohypo

Danske Bank

HSBC

Bankinter

BPCE

BayernLB

Swedbank

Deutsche Postbank

ABN Amro

SEB

Standard Chartered


DnB NOR

Rabobank

Deutsche Bank

Nordea

Credit Suisse

UBS


TM2

01 August 2011

European Banks

39

2010 Loan Loss Reserves/ Risk Weighted Assets

26.12

8.24

7.38

7.26

6.29

6.29

5.89

5.72

5.22

4.86

4.70

4.53

4.52

4.44

4.40

4.40

4.32

4.21

4.07

4.03

3.92

3.76

3.68

3.65

3.41

3.40

3.39

3.26

3.17

3.16

3.16

3.11

3.00

2.82

2.78

2.66

2.58

2.51

2.40

1.84

1.82

1.75

1.16

1.14

1.06

1.05

0.95

0.73

0.55

0.47

-

5.00

10.00

15.00

20.00

25.00

30.00

Anglo Irish Bank


AIB

Unicredito

Bank of Ireland


Erste Bank

Intesa Sanpaolo


Eurobank EFG

Danske Bank

Alpha Bank


BNP Paribas

Societe Generale

KBC Bank

Banco Popolare

Millennium bcp

Banco Pastor

Swedbank

Eurohypo

Credit Agricole

ABN Amro

Banco Sabadell

Commerzbank

Median

Caixa Geral

Santander


RBS

Piraeus Bank

Barclays

BBVA

BPCE

Bankinter

Deutsche Postbank


Banco Popular

BayernLB

SEB

HSBC

Rabobank

Nordea

DnB NOR


Standard Chartered

Deutsche Bank


UBS

Credit Suisse


TM2

01 August 2011

European Banks

40

2010 Coverage Ratio as %

101.67

93.27

87.88

79.09

75.18

74.92

71.49

69.99

67.94

64.74

64.28

63.74

62.74

62.48

61.58

59.43

58.35

57.89

57.82

57.27

56.20

55.27

54.59

52.40

51.87

51.32

51.18

51.04

49.95

49.04

48.66

48.55

48.54

48.46

48.14

46.78

46.19

44.96

42.40

41.66

41.42

41.27

40.08

40.05

38.84

38.32

35.26

31.78

31.29

29.48

28.44

25.92

25.74

-

20.00

40.00

60.00

80.00

100.00

120.00


Millennium bcp

Caixa Geral


KBC Bank

BNP Paribas

HSBC


Bancaja

Bankinter

Credit Agricole

Societe Generale

Swedbank

Standard Chartered

SEB

CAM

Erste Bank

BayernLB

Anglo Irish Bank

Santander

BPCE

BBVA

Credit Suisse

Deutsche Bank

Nordea


Median

Intesa Sanpaolo

Banco Sabadell

Unicredito

ABN Amro

Banco Pastor


Eurobank EFG

Caja Madrid

RBS

Deutsche Postbank

Piraeus Bank

DnB NOR

AIB

Rabobank

Alpha Bank


Commerzbank

Barclays

Danske Bank

Eurohypo

Banco Popolare


Bank of Ireland


UBS

Banco Popular


TM2

01 August 2011

European Banks

41

2010 Non-performing Loans/ Total Loans as %

48.80

18.68

14.13

13.08

11.44

11.13

10.57

10.53

9.35

9.06

9.02

8.98

8.53

8.16

7.90

7.59

7.24

7.12

6.89

6.74

6.73

6.66

6.59

6.10

5.97

5.78

5.67

5.57

5.48

5.48

5.00

4.86

4.64

4.38

3.50

3.49

3.49

3.42

3.31

3.28

3.15

3.07

2.87

2.87

2.34

2.19

2.02

1.70

1.59

1.53

1.52

0.85

0.36

-

10.00

20.00

30.00

40.00

50.00

60.00

Anglo Irish Bank

AIB

Bank of Ireland

Banco Popolare

Unicredito

CAM


Alpha Bank

Intesa Sanpaolo


Banco Popular


Caja Madrid

Eurobank EFG

Erste Bank


Barclays



Commerzbank

RBS

Piraeus Bank

Banco Pastor

Eurohypo

Societe Generale

Banco Sabadell

Median

Bancaja

Danske Bank

Credit Agricole

BNP Paribas

BBVA

Santander

KBC Bank

Millennium bcp

Caixa Geral

BPCE

Deutsche Postbank

BayernLB


ABN Amro

Bankinter

Swedbank

HSBC

DnB NOR

SEB

Rabobank

Standard Chartered

UBS

Deutsche Bank

Nordea

Credit Suisse



TM2

01 August 2011

European Banks

42

2010 Non-performing Loans plus Other Real Estate/ Shareholders’ Funds

468.57

402.23

384.14

307.17

227.81

204.45

198.29

179.00

137.75

110.95

110.41

107.99

102.96

99.46

98.82

96.10

90.85

79.15

73.30

72.72

69.95

69.41

68.21

67.87

65.31

62.51

61.86

61.22

58.69

54.21

51.56

51.20

50.22

47.02

46.18

45.37

44.85

44.14

42.51

40.78

36.99

36.55

26.95

26.46

24.04

19.63

18.13

12.65

12.48

12.33

10.64

8.08

4.33

-

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

500.00

Anglo Irish Bank

AIB

Bancaja

CAM

Bank of Ireland

Eurohypo

Commerzbank

Caja Madrid


Banco Popular

Eurobank EFG

Banco Popolare

Alpha Bank

Unicredito

Danske Bank

Banco Pastor

Banco Sabadell

Piraeus Bank


ABN Amro



Intesa Sanpaolo

Deutsche Postbank



Median

Erste Bank

Barclays

Societe Generale

Bankinter

Millennium bcp

RBS

BNP Paribas

KBC Bank

BBVA

BPCE

Credit Agricole

Santander

Caixa Geral

BayernLB

Swedbank

Rabobank


SEB

Nordea

HSBC

DnB NOR

Deutsche Bank


Standard Chartered

UBS

Credit Suisse


TM2

01 August 2011

European Banks

43

Table 1: EBA Stress Tests - Greece Bank Greece Greece in EUR mn/% 2011 2010 Core Tier 1 Capital Exposure as a % of CT1 Piraeus 8,221 8,306 3,039 270.50% National Bank of Greece 18,796 19,756 8,153 230.55% EFG Eurobank 8,791 7,458 4,296 204.64% Alpha Bank 5,475 5,070 5,275 103.80% BCP 727 718 3,521 20.65% Commerzbank 3,065 2,900 26,728 11.47% Societe Generale 2,837 4,225 27,824 10.20% BNP Paribas 5,239 5,005 55,352 9.47% Banco Espirito Santo 309 464 4,520 6.85% Deutsche Bank 1,773 - 30,361 5.84% BPCE 1,335 1,540 31,943 4.18% KBC 444 909 11,705 3.79% Erste Bank 345 757 10,507 3.29% Banco Pastor 41 40 1,395 2.92% Intesa Sanpaolo 620 828 26,159 2.37% RBS 1,199 2,258 58,982 2.03% Unicredit 673 801 35,702 1.88% Banco Popolare 87 89 5,474 1.59% HSBC 1,319 1,427 86,900 1.52% Credit Agricole 655 854 46,277 1.42% Rabobank 377 637 27,725 1.36% SEB 122 151 9,604 1.27% BYLAN 145 198 11,501 1.26% Allied Irish 40 41 3,669 1.09% Caixa Geral 51 56 6,510 0.78% BBVA 127 293 24,939 0.51% Santander 177 513 41,998 0.42% Barlcays 192 436 46,232 0.42% Bankia 55 - 13,864 0.39% UBI 25 25 6,559 0.37% Monte Paschi 8 35 6,301 0.13% Raiffeisen Bank International 2 19 7,641 0.02% Danske 1 - 14,576 0.01% ABN Amro - - 11,574 0.00% Banco Popular - - 6,699 0.00% Banco Sabadell - - 3,507 0.00% Bank of Ireland - - 7,037 0.00% Bankinter - - 1,920 0.00% CAM - - 1,843 0.00% DnB NOR - - 9,746 0.00% LLOYDS - - 47,984 0.00% Nordea - 249 19,103 0.00% Svenska Handelsbanken - - 8,209 0.00% Swedbank - - 7,352 0.00% Source: BofA Merrill Lynch Global Research

TM2

01 August 2011

European Banks

44 Table 2: EBA Stress Tests - Portugal Bank Portugal Portugal in EUR mn/% 2011 2010 Core Tier 1 Capital Exposure as a % of CT1 BCP 6,455 953 3,521 183.36% Caixa Geral 6,530 6,765 6,510 100.31% Banco Espirito Santo 2,686 4,688 4,520 59.43% Banco Popular 643 657 6,699 9.60% Santander 3,682 5,118 41,998 8.77% Banco Pastor 116 115 1,395 8.31% Allied Irish 243 257 3,669 6.64% BNP Paribas 2,302 2,526 55,352 4.16% Commerzbank 989 1,100 26,728 3.70% Societe Generale 902 404 27,824 3.24% Monte Paschi 202 93 6,301 3.20% Barlcays 1,356 1,150 46,232 2.93% BBVA 661 646 24,939 2.65% Banco Sabadell 91 105 3,507 2.60% Credit Agricole 1,193 1,478 46,277 2.58% SEB 132 76 9,604 1.38% KBC 159 165 11,705 1.36% HSBC 1,006 515 86,900 1.16% BPCE 354 456 31,943 1.11% Erste Bank 105 270 10,507 1.00% Danske 112 - 14,576 0.77% Deutsche Bank 175 - 30,361 0.58% RBS 287 742 58,982 0.49% Rabobank 82 362 27,725 0.30% Intesa Sanpaolo 73 25 26,159 0.28% Unicredit 94 186 35,702 0.26% CAM 5 - 1,843 0.26% Raiffeisen Bank International 2 2 7,641 0.03% ABN Amro - 137 11,574 0.00% Alpha Bank - - 5,275 0.00% Banco Popolare - - 5,474 0.00% Bank of Ireland - - 7,037 0.00% Bankia - - 13,864 0.00% Bankinter - - 1,920 0.00% BYLAN - 3 11,501 0.00% DnB NOR - - 9,746 0.00% EFG Eurobank - - 4,296 0.00% LLOYDS - 161 47,984 0.00% National Bank of Greece - - 8,153 0.00% Nordea - - 19,103 0.00% Piraeus - - 3,039 0.00% Svenska Handelsbanken - - 8,209 0.00% Swedbank - - 7,352 0.00% UBI - - 6,559 0.00% Source: BofA Merrill Lynch Global Research

TM2

01 August 2011

European Banks

45

Table 3: EBA Stress Tests - Italy Bank Italy Italy in EUR mn/% 2011 2010 Core Tier 1 Capital Exposure as a % of CT1 Monte Paschi 32,473 27,756 6,301 515.38% Intesa Sanpaolo 60,152 63,681 26,159 229.95% Banco Popolare 11,770 8,284 5,474 215.01% UBI 10,544 6,303 6,559 160.76% Unicredit 49,071 38,832 35,702 137.45% BNP Paribas 27,988 23,196 55,352 50.56% KBC 5,569 7,641 11,705 47.58% Commerzbank 11,691 10,000 26,728 43.74% Societe Generale 8,815 5,149 27,824 31.68% Deutsche Bank 7,686 - 30,361 25.32% Credit Agricole 10,754 12,347 46,277 23.24% Allied Irish 816 671 3,669 22.23% Barlcays 9,379 884 46,232 20.29% BPCE 5,447 7,493 31,943 17.05% BBVA 4,166 6,230 24,939 16.71% RBS 7,029 4,403 58,982 11.92% HSBC 9,927 4,608 86,900 11.42% ABN Amro 1,311 1,858 11,574 11.33% Banco Pastor 103 103 1,395 7.37% Raiffeisen Bank International 449 251 7,641 5.88% Erste Bank 602 1,223 10,507 5.73% BYLAN 515 632 11,501 4.48% Danske 582 596 14,576 3.99% Banco Popular 210 209 6,699 3.13% SEB 289 146 9,604 3.00% EFG Eurobank 100 100 4,296 2.34% Santander 716 1,184 41,998 1.71% Rabobank 440 941 27,725 1.59% BCP 50 50 3,521 1.42% CAM 20 - 1,843 1.10% Nordea 97 709 19,103 0.51% Bank of Ireland 30 30 7,037 0.43% LLOYDS 32 106 47,984 0.07% Bankinter 1 69 1,920 0.06% Alpha Bank - - 5,275 0.00% Banco Espirito Santo - - 4,520 0.00% Banco Sabadell - - 3,507 0.00% Bankia - - 13,864 0.00% Caixa Geral - - 6,510 0.00% DnB NOR - - 9,746 0.00% National Bank of Greece - 4 8,153 0.00% Piraeus - - 3,039 0.00% Svenska Handelsbanken - - 8,209 0.00% Swedbank - - 7,352 0.00% Source: BofA Merrill Lynch Global Research

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European Banks

46 Table 4: EBA Stress Tests - Spain Bank Spain Spain in EUR mn/% 2011 2010 Core Tier 1 Capital Exposure as a % of CT1 CAM 5,589 - 1,843 303.28% BBVA 55,726 52,131 24,939 223.45% Banco Sabadell 7,296 4,869 3,507 208.04% Bankinter 3,594 1,735 1,920 187.18% Bankia 25,402 - 13,864 183.22% Banco Pastor 2,294 2,693 1,395 164.38% Banco Popular 8,874 7,574 6,699 132.47% Santander 46,019 50,642 41,998 109.57% Barlcays 8,800 4,916 46,232 19.03% Societe Generale 4,755 901 27,824 17.09% Commerzbank 4,043 3,600 26,728 15.12% KBC 1,419 1,707 11,705 12.12% Allied Irish 335 391 3,669 9.12% BNP Paribas 4,980 3,021 55,352 9.00% Deutsche Bank 2,647 - 30,361 8.72% Credit Agricole 3,892 2,286 46,277 8.41% BYLAN 662 697 11,501 5.76% Unicredit 1,940 560 35,702 5.43% Monte Paschi 284 116 6,301 4.51% Banco Popolare 198 151 5,474 3.62% BPCE 1,004 384 31,943 3.14% Intesa Sanpaolo 810 556 26,159 3.09% Caixa Geral 198 330 6,510 3.03% RBS 1,460 922 58,982 2.48% HSBC 2,032 74 86,900 2.34% Erste Bank 140 233 10,507 1.33% Banco Espirito Santo 55 59 4,520 1.23% ABN Amro 109 546 11,574 0.94% SEB 86 152 9,604 0.90% Danske 124 41 14,576 0.85% Rabobank 164 831 27,725 0.59% Nordea 64 37 19,103 0.34% LLOYDS 62 - 47,984 0.13% Raiffeisen Bank International 3 6 7,641 0.05% Alpha Bank - - 5,275 0.00% Bank of Ireland - - 7,037 0.00% BCP - - 3,521 0.00% DnB NOR - - 9,746 0.00% EFG Eurobank - - 4,296 0.00% National Bank of Greece - - 8,153 0.00% Piraeus - - 3,039 0.00% Svenska Handelsbanken - - 8,209 0.00% Swedbank - - 7,352 0.00% UBI - - 6,559 0.00% Source: BofA Merrill Lynch Global Research

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European Banks

47

Table 5: EBA Stress Tests - Ireland Bank Ireland Ireland in EUR mn/% 2011 2010 Core Tier 1 Capital Exposure as a % of CT1 Allied Irish 5,043 4,136 3,669 137.45% Bank of Ireland 5,570 1,186 7,037 79.16% BCP 213 200 3,521 6.04% Societe Generale 980 464 27,824 3.52% Danske 410 665 14,576 2.81% KBC 269 446 11,705 2.30% Deutsche Bank 530 - 30,361 1.75% Barlcays 532 164 46,232 1.15% BNP Paribas 629 559 55,352 1.14% ABN Amro 128 178 11,574 1.11% Banco Sabadell 38 - 3,507 1.10% BPCE 341 524 31,943 1.07% CAM 15 - 1,843 0.82% RBS 454 4,809 58,982 0.77% Intesa Sanpaolo 114 156 26,159 0.43% Erste Bank 40 105 10,507 0.38% Caixa Geral 23 231 6,510 0.35% Credit Agricole 157 929 46,277 0.34% HSBC 287 602 86,900 0.33% National Bank of Greece 18 - 8,153 0.22% Rabobank 60 222 27,725 0.22% BYLAN 20 193 11,501 0.17% Unicredit 58 80 35,702 0.16% Commerzbank 32 - 26,728 0.12% Nordea 1 - 19,103 0.01% Alpha Bank - - 5,275 0.00% Banco Espirito Santo - - 4,520 0.00% Banco Pastor - 1,395 0.00% Banco Popular - - 6,699 0.00% Banco Popolare - - 5,474 0.00% Bankia - - 13,864 0.00% Bankinter - - 1,920 0.00% BBVA 16 24,939 0.00% DnB NOR - - 9,746 0.00% EFG Eurobank - - 4,296 0.00% LLOYDS - - 47,984 0.00% Monte Paschi - 3 6,301 0.00% Piraeus - - 3,039 0.00% Raiffeisen Bank International - - 7,641 0.00% Santander - 16 41,998 0.00% SEB - 9,604 0.00% Svenska Handelsbanken - - 8,209 0.00% Swedbank - - 7,352 0.00% UBI - - 6,559 0.00% Source: BofA Merrill Lynch Global Research

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48

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49

Country Comparison Tables Austria

Benelux

France

Germany

Greece

Ireland

Nordics

Portugal

Spain

Switzerland

UK

TM2

50

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European Banks

51

Austrian Banks – FY2010 in EURm/% Erste Bank Raiffeisen Bank International Average Data Total assets 205,938 131,173 168,556 Risk weighted assets 103,950 75,601 89,776 Gross Customer Loans 132,729 75,657 104,193 NPLs 10,486 6,790 8,638 Loan Loss Reserves 6,119 4,756 5,437 Customer Deposits 117,016 57,633 87,325 Total equity 17,129 10,404 13,766 Revenues 7,802 5,456 6,629 Net trading income 456 381 419 Net interest income 5,391 3,578 4,485 Operating expenses 3,817 2,980 3,398 PPP 3,986 2,477 3,231 LLP 2,031 1,194 1,613 Pre tax profit 1,515 1,287 1,401 Net income 1,186 1,177 1,182 Profitability Net Interest Margin 2.65 3.45 3.05 Cost/Income Ratio 48.92 54.61 51.76 Revenues/average assets 3.83 5.26 4.54 Noninterest income/average assets 1.18 1.81 1.50 Noninterest expense/average assets 1.87 2.87 2.37 Net operating income before LLP/average assets 1.96 2.39 2.17 LLP/Revenues 26.03 21.88 23.96 Net income/average assets (ROA) 0.58 1.13 0.86 ROE 10.01 15.48 12.74 Liquidity Loans/customer deposits 108.20 123.02 115.61 Loans/assets 61.48 54.05 57.77 Capital Adequacy Tier 1 ratio 11.80 9.70 10.75 Core Tier 1 ratio 9.20 8.90 9.05 Adjusted common equity/assets 6.05 7.00 6.52 Adjusted common equity/ risk assets 11.98 12.15 12.06 Equity/assets 8.32 7.93 8.12 Adjusted equity plus total reserves/loans 15.62 21.67 18.64 Asset Quality LLP/average loans 1.62 2.02 1.82 LLR/Total Loans 4.61 6.29 5.45 LLR/RWA 5.89 6.29 6.09 Coverage Ratio 58.35 69.99 64.17 NPL/Total loans 7.90 8.98 8.44 NPL+ORE/shareholders funds 61.22 65.31 63.27 Source: BofA Merrill Lynch Global Research

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01 August 2011

European Banks

52 Benelux Banks – FY2010 in EURm/% ABN Amro KBC Bank Rabobank Average Data Total assets 379,599 276,723 652,536 436,286 Risk weighted assets 116,328 111,711 219,568 149,202 Gross Customer Loans 280,041 148,975 459,786 296,267 NPLs 8,808 6,531 9,284 8,208 Loan Loss Reserves 4,286 4,910 3,845 4,347 Customer Deposits 194,806 173,440 286,761 218,336 Total equity 12,112 14,143 34,451 20,235 Revenues 6,797 6,688 12,716 8,734 Net trading income 634 -181 336 263 Net interest income 4,905 5,280 8,614 6,266 Operating expenses 6,229 3,862 8,196 6,096 PPP 568 2,826 4,520 2,638 LLP 837 1,485 1,234 1,185 Pre tax profit -269 1,444 3,286 1,487 Net income -414 1,533 2,772 1,297 Profitability Net Interest Margin 1.16 1.89 1.37 1.47 Cost/Income Ratio 91.64 57.75 64.45 71.28 Revenues/average assets 1.60 2.40 2.02 2.01 Noninterest income/average assets 0.45 0.50 0.65 0.53 Noninterest expense/average assets 1.47 1.38 1.30 1.38 Net operating income before LLP/average assets 0.13 1.01 0.72 0.62 LLP/Revenues 12.31 22.20 9.70 14.74 Net income/average assets (ROA) -0.10 0.55 0.44 0.30 ROE -2.76 12.01 9.39 6.21 Liquidity Loans/customer deposits 141.55 83.06 159.00 127.87 Loans/assets 72.64 52.06 69.87 64.86 Capital Adequacy Tier 1 ratio 12.80 12.40 15.70 13.63 Core Tier 1 ratio 10.40 10.50 0.00 6.97 Adjusted common equity/assets 3.08 4.89 4.69 4.22 Adjusted common equity/ risk assets 10.06 12.12 13.95 12.04 Equity/assets 3.19 5.11 5.28 4.53 Adjusted equity plus total reserves/loans 6.97 14.44 9.04 10.15 Asset Quality LLP/average loans 0.34 1.02 0.28 0.55 LLR/Total Loans 1.53 3.30 0.84 1.89 LLR/RWA 3.68 4.40 1.75 3.28 Coverage Ratio 48.66 75.18 41.42 55.09 NPL/Total loans 3.15 4.38 2.02 3.18 NPL+ORE/shareholders funds 72.72 46.18 26.95 48.62 Source: BofA Merrill Lynch Global Research

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01 August 2011

European Banks

53

French Banks – FY2010 in EURm/% BNP Paribas BPCE Credit Agricole Societe Generale Average Data Total assets 1,998,158 1,048,442 1,593,529 1,132,072 1,443,050 Risk weighted assets 601,000 399,016 371,700 334,795 426,628 Gross Customer Loans 711,357 573,807 397,240 386,621 517,256 NPLs 35,600 20,003 21,769 23,100 25,118 Loan Loss Reserves 26,671 11,242 13,994 14,723 16,658 Customer Deposits 553,377 393,992 441,767 310,636 424,943 Total equity 75,708 44,603 49,314 42,615 53,060 Revenues 43,879 23,359 20,162 24,750 28,038 Net trading income 5,561 1,925 5,447 5,374 4,577 Net interest income 24,060 12,182 14,894 11,970 15,777 Operating expenses 26,517 16,057 13,187 16,545 18,077 PPP 17,362 7,302 6,975 8,205 9,961 LLP 4,802 1,654 3,398 4,160 3,504 Pre tax profit 13,020 5,749 2,629 5,844 6,811 Net income 9,164 4,033 1,752 4,302 4,813 Profitability Net Interest Margin 1.19 1.17 0.95 1.11 1.10 Cost/Income Ratio 60.43 68.74 65.41 66.85 65.36 Revenues/average assets 2.16 2.25 1.28 2.30 2.00 Noninterest income/average assets 0.98 1.08 0.33 1.19 0.89 Noninterest expense/average assets 1.31 1.55 0.84 1.53 1.31 Net operating income before LLP/average assets 0.86 0.70 0.44 0.76 0.69 LLP/Revenues 10.94 7.08 16.85 16.81 12.92 Net income/average assets (ROA) 0.45 0.39 0.11 0.40 0.34 ROE 15.43 11.36 6.18 13.50 11.62 Liquidity Loans/customer deposits 123.73 142.79 86.75 119.72 118.25 Loans/assets 34.27 53.66 24.05 32.85 36.21 Capital Adequacy Tier 1 ratio 11.40 10.10 10.60 10.60 10.68 Core Tier 1 ratio 9.20 8.10 8.40 8.50 8.55 Adjusted common equity/assets 3.10 3.62 1.80 2.97 2.87 Adjusted common equity/ risk assets 10.30 9.52 7.70 10.05 9.39 Equity/assets 3.79 4.25 3.09 3.76 3.73 Adjusted equity plus total reserves/loans 14.38 9.98 16.06 15.26 13.92 Asset Quality LLP/average loans 0.70 0.31 0.91 1.16 0.77 LLR/Total Loans 3.75 1.96 3.52 3.81 3.26 LLR/RWA 4.44 2.82 3.76 4.40 3.85 Coverage Ratio 74.92 56.20 64.28 63.74 64.79 NPL/Total loans 5.00 3.49 5.48 5.97 4.99 NPL+ORE/shareholders funds 47.02 44.85 44.14 54.21 47.55 Source: BofA Merrill Lynch Global Research

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01 August 2011

European Banks

54 German Banks – FY2010 in EURm/% BayernLB Commerzbank Deutsche Bank Deutsche Postbank Eurohypo Average Data Total assets 316,354 754,299 1,905,630 214,684 229,010 683,995 Risk weighted assets 124,107 267,500 346,204 66,363 62,300 173,295 Gross Customer Loans 155,414 336,872 411,025 111,783 119,493 226,917 NPLs 5,146 21,682 6,265 3,819 8,460 9,074 Loan Loss Reserves 2,979 9,117 3,296 1,764 3,194 4,070 Customer Deposits 91,734 262,827 533,984 136,476 32,287 211,462 Total equity 13,911 11,480 50,392 5,627 3,515 16,985 Revenues 2,971 12,671 28,082 3,805 1,061 9,718 Net trading income 1,942 2,066 3,555 -242 -441 1,376 Net interest income 1,942 7,054 15,583 2,731 1,338 5,730 Operating expenses 1,462 8,786 22,804 2,934 405 7,278 PPP 1,509 3,885 5,278 871 656 2,440 LLP 696 2,499 1,274 561 1,407 1,287 Pre tax profit 884 1,353 3,975 315 -785 1,148 Net income 590 1,489 2,330 139 -857 738 Profitability Net Interest Margin 0.59 0.88 0.91 1.24 0.47 0.82 Cost/Income Ratio 49.21 69.34 81.21 77.11 35.26 62.42 Revenues/average assets 0.91 1.59 1.65 1.72 0.45 1.26 Noninterest income/average assets 0.31 0.70 0.73 0.49 -0.02 0.44 Noninterest expense/average assets 0.45 1.10 1.34 1.33 0.16 0.87 Net operating income before LLP/average assets 0.46 0.49 0.31 0.39 0.29 0.39 LLP/Revenues 23.43 19.72 4.54 14.74 95.37 31.56 Net income/average assets (ROA) 0.18 0.19 0.14 0.06 -0.33 0.05 ROE 3.92 16.49 7.44 4.50 -16.20 3.23 Liquidity Loans/customer deposits 166.17 124.70 76.36 80.61 374.52 164.47 Loans/assets 48.18 43.45 21.40 51.25 50.65 42.99 Capital Adequacy Tier 1 ratio 11.20 11.90 12.30 8.10 8.60 10.42 Core Tier 1 ratio 7.30 10.00 8.70 5.67 0.00 6.33 Adjusted common equity/assets 4.68 1.34 1.83 1.53 2.04 2.28 Adjusted common equity/ risk assets 11.92 3.78 10.05 4.95 7.20 7.58 Equity/assets 4.40 1.52 2.64 2.62 1.54 2.55 Adjusted equity plus total reserves/loans 13.05 12.38 12.35 6.23 6.92 10.19 Asset Quality LLP/average loans 0.45 0.74 0.38 0.51 0.84 0.58 LLR/Total Loans 1.92 2.71 0.80 1.58 2.15 1.83 LLR/RWA 2.40 3.41 0.95 2.66 3.92 2.67 Coverage Ratio 57.89 40.05 52.40 46.19 35.26 46.36 NPL/Total loans 3.31 6.74 1.53 3.42 6.10 4.22 NPL+ORE/shareholders funds 36.99 198.29 12.48 67.87 204.45 104.02 Source: BofA Merrill Lynch Global Research

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01 August 2011

European Banks

55

Greek Banks – FY2010 in EURm/% Alpha Bank Eurobank EFG National Bank of Greece Piraeus Bank Average Data Total assets 66,798 87,188 120,745 56,591 82,831 Risk weighted assets 49,000 47,968 68,198 37,900 50,767 Gross Customer Loans 51,074 58,597 80,823 39,682 57,544 NPLs 5,379 4,534 7,142 2,383 4,860 Loan Loss Reserves 2,220 2,329 3,562 1,196 2,327 Customer Deposits 37,054 44,435 68,010 29,061 44,640 Total equity 5,224 4,353 10,490 3,362 5,857 Revenues 2,249 2,924 4,641 730 2,636 Net trading income 38 173 -138 -22 13 Net interest income 1,819 2,254 4,148 591 2,203 Operating expenses 1,148 1,426 2,540 418 1,383 PPP 1,100 1,498 2,102 312 1,253 LLP 885 1,362 1,365 267 970 Pre tax profit 216 136 559 44 239 Net income 86 84 440 10 155 Profitability Net Interest Margin 2.67 2.63 3.54 2.13 2.74 Cost/Income Ratio 51.07 48.77 54.72 57.30 52.96 Revenues/average assets 3.30 3.41 3.96 2.64 3.33 Noninterest income/average assets 0.63 0.78 0.42 0.50 0.58 Noninterest expense/average assets 1.68 1.66 2.17 1.51 1.76 Net operating income before LLP/average assets 1.61 1.75 1.80 1.13 1.57 LLP/Revenues 39.34 46.58 29.41 36.56 37.97 Net income/average assets (ROA) 0.13 0.10 0.38 0.04 0.16 ROE 1.68 2.25 5.97 0.67 2.64 Liquidity Loans/customer deposits 131.85 126.63 113.60 132.43 126.13 Loans/assets 73.14 64.54 63.99 68.01 67.42 Capital Adequacy Tier 1 ratio 11.80 10.60 13.10 8.80 11.08 Core Tier 1 ratio 9.00 9.10 12.00 7.90 9.50 Adjusted common equity/assets 8.37 4.15 6.57 5.32 6.10 Adjusted common equity/ risk assets 11.41 7.54 11.63 7.95 9.63 Equity/assets 7.82 4.99 8.69 5.94 6.86 Adjusted equity plus total reserves/loans 15.99 13.66 15.41 11.35 14.10 Asset Quality LLP/average loans 1.78 2.43 1.80 1.40 1.85 LLR/Total Loans 4.35 3.97 4.41 3.02 3.94 LLR/RWA 4.53 4.86 5.22 3.16 4.44 Coverage Ratio 41.27 48.46 48.54 44.96 45.81 NPL/Total loans 10.53 8.16 9.06 6.66 8.60 NPL+ORE/shareholders funds 102.96 110.41 69.95 79.15 90.62 Source: BofA Merrill Lynch Global Research

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01 August 2011

European Banks

56 Irish Banks – FY2010 in EURm/% AIB Anglo Irish Bank Bank of Ireland Average Data Total assets 145,222 72,183 167,473 128,293 Risk weighted assets 98,768 36,668 79,045 71,494 Gross Customer Loans 93,637 33,941 119,432 82,337 NPLs 17,493 16,564 16,874 16,977 Loan Loss Reserves 7,287 9,577 4,975 7,280 Customer Deposits 52,389 11,092 70,714 44,732 Total equity 4,349 3,535 7,407 5,097 Revenues 2,258 459 3,228 1,982 Net trading income -201 -64 225 -13 Net interest income 1,844 742 2,219 1,602 Operating expenses 1,649 353 1,793 1,265 PPP 609 106 1,435 717 LLP 6,015 7,767 2,284 5,355 Pre tax profit -11,872 -17,619 -950 -10,147 Net income -10,162 -17,651 -609 -9,474 Profitability Net Interest Margin 1.15 0.94 1.27 1.12 Cost/Income Ratio 73.03 76.91 55.55 68.49 Revenues/average assets 1.41 0.58 1.85 1.28 Noninterest income/average assets 0.26 -0.36 0.58 0.16 Noninterest expense/average assets 1.03 0.45 1.03 0.84 Net operating income before LLP/average assets 0.38 0.13 0.82 0.45 LLP/Revenues 266.39 1,692.16 70.76 676.43 Net income/average assets (ROA) -6.36 -22.43 -0.35 -9.71 ROE -138.17 -460.38 -9.45 -202.67 Liquidity Loans/customer deposits 164.82 219.65 161.86 182.11 Loans/assets 59.46 33.75 68.34 53.85 Capital Adequacy Tier 1 ratio 4.30 10.90 9.70 8.30 Core Tier 1 ratio 4.00 10.90 9.70 8.20 Adjusted common equity/assets 2.86 4.88 4.15 3.96 Adjusted common equity/ risk assets 4.21 9.60 8.80 7.53 Equity/assets 2.99 4.90 4.42 4.10 Adjusted equity plus total reserves/loans 13.64 55.22 11.09 26.65 Asset Quality LLP/average loans 6.34 28.13 1.95 12.14 LLR/Total Loans 7.78 28.22 4.17 13.39 LLR/RWA 7.38 26.12 6.29 13.26 Coverage Ratio 41.66 57.82 29.48 42.99 NPL/Total loans 18.68 48.80 14.13 27.20 NPL+ORE/shareholders funds 402.23 468.57 227.81 366.20 Source: BofA Merrill Lynch Global Research

TM2

01 August 2011

European Banks

57

Italian Banks – FY2010 in EURm/% Banca Popolare di Milano Banca Monte dei Paschi Banco Popolare Intesa Sanpaolo Unicredito Unione di Banche Italiane Average Data Total assets 54,053 244,279 135,156 658,757 929,488 130,559 358,715 Risk weighted assets 37,034 109,238 94,878 332,158 454,850 94,361 187,086 Gross Customer Loans 36,451 165,238 98,560 398,245 588,672 104,807 231,995 NPLs 2,765 11,381 12,895 37,245 67,336 7,465 23,181 Loan Loss Reserves 865 9,000 4,098 19,010 33,019 2,992 11,497 Customer Deposits 23,866 79,028 54,574 221,064 361,270 58,666 133,078 Total equity 3,984 15,526 11,940 54,600 67,703 11,942 27,616 Revenues 1,431 6,053 4,152 16,483 25,841 3,485 9,574 Net trading income 100 -330 172 469 678 34 187 Net interest income 736 3,541 1,805 10,621 15,756 2,147 5,768 Operating expenses 1,109 3,945 3,069 10,358 17,408 2,643 6,422 PPP 322 2,108 1,083 6,125 8,433 842 3,152 LLP 245 1,126 782 2,818 6,708 707 2,064 Pre tax profit 189 1,329 232 3,931 2,175 418 1,379 Net income 111 987 332 2,776 1,645 186 1,006 Profitability Net Interest Margin 1.50 1.51 1.33 1.65 1.70 1.70 1.56 Cost/Income Ratio 77.52 65.17 73.91 62.84 67.37 75.83 70.44 Revenues/average assets 2.91 2.58 3.07 2.57 2.78 2.76 2.78 Noninterest income/average assets 1.41 1.07 1.73 0.91 1.09 1.06 1.21 Noninterest expense/average assets 2.26 1.68 2.27 1.61 1.87 2.09 1.96 Net operating income before LLP/average assets 0.65 0.90 0.80 0.95 0.91 0.67 0.81 LLP/Revenues 17.09 18.59 18.84 17.10 25.96 20.29 19.65 Net income/average assets (ROA) 0.23 0.42 0.24 0.43 0.18 0.15 0.27 ROE 3.56 12.91 4.89 9.56 4.03 2.79 6.29 Liquidity Loans/customer deposits 149.11 197.70 173.09 171.55 153.81 173.55 169.80 Loans/assets 65.83 63.96 69.89 57.57 59.78 77.98 65.84 Capital Adequacy Tier 1 ratio 7.80 8.37 7.20 9.40 9.46 7.47 8.28 Core Tier 1 ratio 7.10 0.00 5.70 7.90 8.58 6.95 6.04 Adjusted common equity/assets 5.93 3.32 5.02 4.50 4.67 5.15 4.76 Adjusted common equity/ risk assets 8.65 7.43 7.15 8.93 9.53 7.12 8.14 Equity/assets 7.37 6.36 8.83 8.29 7.28 9.15 7.88 Adjusted equity plus total reserves/loans 12.72 14.67 12.82 14.47 14.53 10.01 13.20 Asset Quality LLP/average loans 0.71 0.73 0.82 0.75 1.20 0.71 0.82 LLR/Total Loans 2.37 5.45 4.16 4.77 5.61 2.85 4.20 LLR/RWA 2.34 8.24 4.32 5.72 7.26 3.17 5.17 Coverage Ratio 31.29 79.09 31.78 51.04 49.04 40.08 47.05 NPL/Total loans 7.59 6.89 13.08 9.35 11.44 7.12 9.24 NPL+ORE/shareholders funds 69.41 73.30 107.99 68.21 99.46 62.51 80.15 Source: BofA Merrill Lynch Global Research

TM2

01 August 2011

European Banks

58 Nordic Banks – FY2010 in EURm/% Danske Bank DnB NOR SEB Svenska Handelsbanken Swedbank Nordea Average Data Total assets 431,304 238,846 242,679 239,752 191,007 580,839 320,738 Risk weighted assets 113,293 131,944 89,042 59,243 60,266 215,000 111,465 Gross Customer Loans 253,384 151,661 121,307 165,578 134,600 316,709 190,540 NPLs 13,836 3,552 2,609 1,213 3,863 4,816 4,982 Loan Loss Reserves 5,323 1,506 1,640 623 2,426 2,498 2,336 Customer Deposits 124,582 82,358 62,383 60,805 59,477 176,390 94,332 Total equity 14,056 14,267 11,082 9,841 10,580 24,538 14,061 Revenues 6,304 5,080 4,106 3,484 3,456 9,334 5,294 Net trading income 804 2,502 344 144 252 1,837 980 Net interest income 4,833 2,927 1,680 2,239 1,713 5,159 3,092 Operating expenses 1,898 2,312 2,433 1,576 1,914 4,816 2,491 PPP 2,636 2,633 1,437 1,708 1,343 4,518 2,379 LLP 1,856 374 193 158 295 879 626 Pre tax profit 866 2,271 978 1,572 1,044 3,639 1,728 Net income 492 1,756 713 1,157 785 2,663 1,261 Profitability Net Interest Margin 1.14 1.27 0.71 1.00 0.93 0.95 1.00 Cost/Income Ratio 58.22 46.75 62.87 47.99 58.76 51.60 54.36 Revenues/average assets 1.49 2.15 1.64 1.46 1.77 1.72 1.70 Noninterest income/average assets 0.35 0.88 0.93 0.47 0.84 0.77 0.70 Noninterest expense/average assets 0.87 1.00 1.03 0.70 1.04 0.88 0.92 Net operating income before LLP/average assets 0.62 1.14 0.61 0.76 0.73 0.83 0.78 LLP/Revenues 29.41 7.57 4.98 4.82 9.05 9.42 10.87 Net income/average assets (ROA) 0.12 0.76 0.30 0.52 0.43 0.49 0.44 ROE 4.51 14.22 8.11 14.02 9.87 13.06 10.63 Liquidity Loans/customer deposits 199.12 182.32 191.82 271.28 222.23 178.13 207.48 Loans/assets 57.51 62.87 49.31 68.80 69.20 54.10 60.30 Capital Adequacy Tier 1 ratio 11.48 10.10 12.75 10.70 11.00 9.80 10.97 Core Tier 1 ratio 7.60 9.20 10.93 7.72 10.10 8.90 9.08 Adjusted common equity/assets 2.59 5.59 3.89 3.78 4.74 3.67 4.04 Adjusted common equity/ risk assets 9.86 10.12 10.60 15.31 15.03 9.92 11.81 Equity/assets 3.26 5.97 4.57 4.10 5.54 4.22 4.61 Adjusted equity plus total reserves/loans 9.24 11.29 11.00 6.56 9.52 8.40 9.33 Asset Quality LLP/average loans 0.75 0.26 0.16 0.10 0.23 0.29 0.30 LLR/Total Loans 2.10 0.99 1.35 1.05 1.80 0.79 1.35 LLR/RWA 4.70 1.14 1.84 0.73 4.03 1.16 2.27 Coverage Ratio 38.32 42.40 61.58 51.32 62.74 51.87 51.37 NPL/Total loans 5.48 2.34 2.19 0.36 2.87 1.52 2.46 NPL+ORE/shareholders funds 98.82 12.65 24.04 12.33 36.55 19.63 34.00 Source: BofA Merrill Lynch Global Research

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01 August 2011

European Banks

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Portuguese Banks – FY2010 in EURm/% Banco Espirito Santo Caixa Geral Millennium bcp Average Data Total assets 83,655 125,862 100,010 103,176 Risk weighted assets 68,802 76,989 59,564 68,452 Gross Customer Loans 52,606 84,517 76,411 71,178 NPLs 1,107 2,478 2,290 1,958 Loan Loss Reserves 1,777 2,610 2,506 2,298 Customer Deposits 30,819 67,680 45,609 48,036 Total equity 6,606 7,282 5,247 6,379 Revenues 2,370 3,106 2,878 2,785 Net trading income 220 124 429 258 Net interest income 1,164 1,415 1,517 1,365 Operating expenses 1,169 1,967 1,603 1,580 PPP 1,200 1,139 1,275 1,205 LLP 352 369 713 478 Pre tax profit 701 364 358 474 Net income 657 299 361 439 Profitability Net Interest Margin 1.40 1.15 1.55 1.37 Cost/Income Ratio 49.35 63.32 55.70 56.12 Revenues/average assets 2.86 2.52 2.94 2.77 Noninterest income/average assets 1.45 1.37 1.39 1.41 Noninterest expense/average assets 1.41 1.59 1.64 1.55 Net operating income before LLP/average assets 1.45 0.92 1.30 1.22 LLP/Revenues 14.85 11.88 24.78 17.17 Net income/average assets (ROA) 0.79 0.24 0.37 0.47 ROE 10.45 4.31 7.52 7.43 Liquidity Loans/customer deposits 164.93 121.02 162.04 149.33 Loans/assets 60.76 65.08 73.90 66.58 Capital Adequacy Tier 1 ratio 8.80 8.90 9.20 8.97 Core Tier 1 ratio 7.90 8.80 6.70 7.80 Adjusted common equity/assets 7.62 5.86 5.01 6.16 Adjusted common equity/ risk assets 9.26 9.57 8.42 9.08 Equity/assets 7.90 5.79 5.25 6.31 Adjusted equity plus total reserves/loans 19.26 13.06 12.98 15.10 Asset Quality LLP/average loans 0.70 0.46 0.96 0.71 LLR/Total Loans 3.38 3.09 3.28 3.25 LLR/RWA 2.58 3.39 4.21 3.39 Coverage Ratio 101.67 87.88 93.27 94.27 NPL/Total loans 3.28 3.49 3.50 3.42 NPL+ORE/shareholders funds 26.46 40.78 51.20 39.48 Source: BofA Merrill Lynch Global Research

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01 August 2011

European Banks

60 Spanish Banks – FY2010 in EURm/% Bancaja Banco Pastor Banco Popular Banco Sabadell Bankinter BBVA CAM Caja Madrid Santander Average Data Total assets 87,852 31,135 130,140 97,099 54,152 552,738 70,667 186,517 1,217,501 269,756 Risk weighted assets 0 18,407 93,856 60,525 30,964 313,327 0 0 604,885 124,663 Gross Customer Loans 67,932 23,436 98,389 76,191 43,387 348,253 54,000 119,832 735,318 174,082 NPLs 3,689 1,543 6,055 4,074 1,330 15,472 4,657 10,225 28,522 8,396 Loan Loss Reserves 2,573 749 2,356 2,210 861 9,396 3,151 4,923 19,697 5,102 Customer Deposits 49,460 15,519 59,324 48,843 24,265 247,222 36,150 87,129 570,723 126,515 Total equity 986 1,606 8,252 4,870 2,580 37,475 2,012 5,712 80,914 16,045 Revenues 1,705 752 3,462 2,331 1,125 21,696 1,448 2,968 41,914 8,600 Net trading income 829 128 209 263 120 1,894 283 675 2,968 819 Net interest income 616 469 2,452 1,459 550 13,320 586 1,676 29,224 5,595 Operating expenses 626 371 1,313 1,195 679 9,847 745 1,629 19,329 3,970 PPP 1,079 382 2,149 1,136 446 11,849 703 1,339 22,585 4,630 LLP 181 283 1,106 396 216 4,563 200 112 10,267 1,925 Pre tax profit 75 50 833 464 205 6,422 201 236 12,025 2,279 Net income 102 63 604 383 151 4,995 244 180 9,102 1,758 Profitability Net Interest Margin 0.69 1.48 1.89 1.62 1.01 2.45 0.83 0.89 2.51 1.49 Cost/Income Ratio 36.73 49.29 37.94 51.26 60.34 45.39 51.47 54.88 46.12 48.16 Revenues/average assets 1.92 2.37 2.67 2.59 2.07 3.99 2.04 1.57 3.60 2.54 Noninterest income/average assets 1.23 0.89 0.78 0.97 1.06 1.54 1.21 0.68 1.09 1.05 Noninterest expense/average assets 0.71 1.17 1.01 1.33 1.25 1.81 1.05 0.86 1.66 1.21 Net operating income before LLP/average assets 1.22 1.20 1.66 1.26 0.82 2.18 0.99 0.71 1.94 1.33 LLP/Revenues 10.64 37.68 31.95 16.98 19.22 21.03 13.79 3.77 24.50 19.95 Net income/average assets (ROA) 0.12 0.20 0.47 0.43 0.28 0.92 0.34 0.10 0.78 0.40 ROE 4.61 3.96 7.49 9.07 6.82 18.56 11.01 2.36 18.01 9.10 Liquidity Loans/customer deposits 132.14 146.18 161.88 151.47 175.25 137.07 140.66 131.88 125.39 144.66 Loans/assets 74.40 72.86 73.79 76.19 78.53 61.31 71.96 61.61 58.78 69.94 Capital Adequacy Tier 1 ratio 0.00 10.63 9.63 9.36 7.31 10.50 0.00 0.00 10.00 6.38 Core Tier 1 ratio 0.00 8.46 9.43 8.20 0.00 9.60 0.00 0.00 8.80 4.94 Adjusted common equity/assets 1.12 5.08 6.28 4.49 4.12 5.47 2.53 3.01 4.34 4.05 Adjusted common equity/ risk assets N.M. 8.59 8.70 7.21 7.25 9.65 0.00 N.M. 8.74 7.16 Equity/assets 1.12 5.16 6.34 5.02 4.76 6.78 2.85 3.06 6.65 4.64 Adjusted equity plus total reserves/loans 7.26 12.47 12.19 10.33 8.12 13.23 10.34 11.81 11.16 10.77 Asset Quality LLP/average loans 0.27 1.30 1.16 0.58 0.52 1.38 0.39 0.10 1.49 0.80 LLR/Total Loans 3.79 3.20 2.40 2.90 1.98 2.70 5.83 4.11 2.68 3.29 LLR/RWA N.M. 4.07 2.51 3.65 2.78 3.00 0.00 N.M. 3.26 2.75 Coverage Ratio 67.94 48.55 25.74 49.95 64.74 55.27 59.43 48.14 57.27 53.00 NPL/Total loans 5.57 6.59 9.02 5.78 3.07 4.86 11.13 8.53 4.64 6.58 NPL+ORE/shareholders funds 384.14 96.10 110.95 90.85 51.56 45.37 307.17 179.00 42.51 145.29 Source: BofA Merrill Lynch Global Research

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01 August 2011

European Banks

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Swiss Banks – FY2010 in EURm/% Credit Suisse UBS Average Data Total assets 824,985 1,053,007 938,996 Risk weighted assets 174,830 158,981 166,906 Gross Customer Loans 175,755 211,013 193,384 NPLs 1,489 3,352 2,421 Loan Loss Reserves 813 869 841 Customer Deposits 229,879 265,641 247,760 Total equity 34,386 41,458 37,922 Revenues 25,090 25,430 25,260 Net trading income 6,777 5,422 6,099 Net interest income 4,747 4,510 4,629 Operating expenses 17,401 17,724 17,562 PPP 5,376 5,361 5,369 LLP -67 48 -10 Pre tax profit 5,420 5,412 5,416 Net income 4,296 5,688 4,992 Profitability Net Interest Margin 0.63 0.47 0.55 Cost/Income Ratio 76.40 76.78 76.59 Revenues/average assets 3.04 2.39 2.72 Noninterest income/average assets 2.41 1.93 2.17 Noninterest expense/average assets 2.32 1.84 2.08 Net operating income before LLP/average assets 0.72 0.56 0.64 LLP/Revenues -0.30 0.21 -0.04 Net income/average assets (ROA) 0.57 0.59 0.58 ROE 16.25 19.69 17.97 Liquidity Loans/customer deposits 76.10 79.11 77.61 Loans/assets 21.21 19.96 20.58 Capital Adequacy Tier 1 ratio 17.20 17.80 17.50 Core Tier 1 ratio 12.20 15.30 13.75 Adjusted common equity/assets 3.31 3.19 3.25 Adjusted common equity/ risk assets 15.60 21.14 18.37 Equity/assets 4.17 3.94 4.05 Adjusted equity plus total reserves/loans 21.13 18.27 19.70 Asset Quality LLP/average loans -0.04 0.02 -0.01 LLR/Total Loans 0.46 0.41 0.44 LLR/RWA 0.47 0.55 0.51 Coverage Ratio 54.59 25.92 40.26 NPL/Total loans 0.85 1.59 1.22 NPL+ORE/shareholders funds 4.33 8.08 6.21 Source: BofA Merrill Lynch Global Research

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01 August 2011

European Banks

62 UK Banks – FY2010 in EURm/% Barclays Standard Chartered HSBC Lloyds Banking Group RBS Average Data Total assets 1,737,522 385,909 1,833,898 1,156,572 1,695,451 1,361,870 Risk weighted assets 464,263 183,097 824,136 473,992 666,131 522,324 Gross Customer Loans 513,596 181,502 730,999 712,635 668,715 561,489 NPLs 37,187 3,090 20,987 75,356 45,021 36,328 Loan Loss Reserves 14,445 1,931 15,004 21,430 21,059 14,774 Customer Deposits 403,327 229,354 917,233 459,134 499,918 501,793 Total equity 63,365 29,036 115,737 54,706 89,639 70,497 Revenues 36,739 12,031 52,204 29,006 30,947 32,185 Net trading income 11,143 1,946 7,097 18,337 5,268 8,758 Net interest income 14,604 6,397 29,786 14,631 16,571 16,398 Operating expenses 23,007 6,814 28,462 15,475 21,246 19,001 PPP 13,726 5,348 24,308 13,526 9,696 13,321 LLP 6,615 667 10,602 12,561 10,794 8,248 Pre tax profit 7,073 4,623 14,377 328 -1,204 5,039 Net income 5,305 3,333 10,717 -301 -1,943 3,422 Profitability Net Interest Margin 0.87 1.78 1.64 1.24 0.90 1.29 Cost/Income Ratio 62.63 56.03 53.94 53.36 68.66 58.92 Revenues/average assets 2.20 3.38 2.90 2.46 1.68 2.52 Noninterest income/average assets 1.32 1.60 1.26 1.22 0.78 1.24 Noninterest expense/average assets 1.38 1.89 1.56 1.31 1.16 1.46 Net operating income before LLP/average assets 0.82 1.49 1.34 1.15 0.53 1.06 LLP/Revenues 18.01 5.48 20.09 43.31 34.89 24.36 Net income/average assets (ROA) 0.32 0.93 0.59 -0.03 -0.11 0.34 ROE 10.47 16.60 12.30 -0.65 -2.39 7.27 Liquidity Loans/customer deposits 123.76 78.29 78.06 150.55 129.55 112.04 Loans/assets 28.73 46.53 39.04 59.76 38.20 42.45 Capital Adequacy Tier 1 ratio 13.50 14.00 12.10 11.60 12.90 12.82 Core Tier 1 ratio 10.80 11.80 10.50 10.20 10.70 10.80 Adjusted common equity/assets 3.06 6.17 5.09 4.17 4.29 4.56 Adjusted common equity/ risk assets 11.46 13.01 11.33 10.19 10.93 11.38 Equity/assets 3.65 7.52 6.31 4.73 5.29 5.50 Adjusted equity plus total reserves/loans 17.54 17.26 16.13 12.94 15.64 15.90 Asset Quality LLP/average loans 1.34 0.40 1.51 1.77 1.44 1.29 LLR/Total Loans 2.81 1.06 2.05 3.01 3.15 2.42 LLR/RWA 3.11 1.05 1.82 4.52 3.16 2.73 Coverage Ratio 38.84 62.48 71.49 28.44 46.78 49.61 NPL/Total loans 7.24 1.70 2.87 10.57 6.73 5.82 NPL+ORE/shareholders funds 58.69 10.64 18.13 137.75 50.22 55.09 Source: BofA Merrill Lynch Global Research

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Austria Erste Bank Raiffeisen Bank International

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Erste Bank (ERSTBK) Rationale Performance Performance has held up well, despite concerns about Erste Bank’s CEE focus, driven by improving margins and decent trading income. Diversification is key here.

Capital levels The group continues to emphasise that no capital raising is needed, and that the group will generate sufficient retained earnings to repay their participation capital. Overall we are becoming more comfortable with Erste’s capital position which does continue to improve. Levels remain adequate, rather than generous, in our view with a Tier 1 and core Tier 1 ratio were a reported 10.4% and 9.4% respectively. The bank has said in the past that its Basel 3 common equity ratio will be ‘comfortably above 7%’. We note the recent Austrian central bank stress test which found that the combined core Tier 1 of six main Austrian banks declined to 7.4% on average by the end of 2012 from 8.5%. EBA stress test showed 8.1% stressed CT1.

CEE exposure Exposure to Central and Eastern Europe remains a concern, despite relatively solid Group performance in the most recent quarters. As % of average risk weighted assets of €104bn (2Q11 numbers): Czech (12.7%), Romania (8.9%), Hungary (4.3%), Ukraine (0.7%).

Asset quality Asset quality remains a concern, especially in more troubled CEE regions such as Hungary and Romania. The NPL ratio for the second quarter remained one of the highest among our coverage universe at 7.9%. Coverage levels were broadly stable over the quarter at a reported 61%. Goodwill impairment charges are also a potential concern eventually

2Q results We thought the 2Q results were solid. Net income for the quarter was €236m (consensus was at €258m). The reason for the miss was that loan losses came in slightly higher than expected, though they did decline 13% in the half year versus 2011. NPLs actually have edged up to 7.9% with 61% coverage which is basically flat. However, looking at the half year result, the overwhelming picture is one of relative stability overall. There has been very little loan growth yoy which is telling for a bank exposed to Europe’s highest growth economies.

The 2Q was typified by somewhat stronger margins, stable fees and much lower trading gains. 2Q provisions came in 4% higher than 1Q.

Hungary, Ukraine and Romania are all loss-making for Erste which dragged the group’s ROE down to only 7%. Slovakia and Czech are extremely profitable however (though we understand that Czech was below expectations in 2Q).

The company is guiding to a stronger 2H versus 1H and to the repayment of the Government’s earlier injection into the bank.

B LIST

Company description Erste Group was founded in 1819 as the first Austrian savings bank. Starting in the late nineties, Erste expanded beyond its domestic market. The Group now serves more than 17 million clients in Central and Eastern Europe, in addition to 3 million clients in Austria (through the savings bank network). Reporting date: 3Q11 results – 28-Oct-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A1/A/A Area Ranking 1 World Ranking 63 Market Cap €13.6bn Market Share: Austria Deposits 19% Loans 19% Fund management 21.8% Market Share: Czech Deposits 29% Loans 26% Fund management 27.1% Source: Company, BofA Merrill Lynch Global Research

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Table 6: Erste Bank - financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 205,938 201,710 201,441 Profitability % change 2.1 0.1 0.5 Net Interest Margin 2.65 2.58 2.43 Risk weighted assets 103,950 106,383 103,663 Cost/Income Ratio 48.92 50.89 62.25 -2.3 2.6 9.0 Revenues/average assets 3.83 3.71 3.20 Gross Customer Loans 132,729 129,134 126,185 Noninterest income/average assets 1.18 1.13 0.76 2.8 2.3 10.7 Noninterest expense/average assets 1.87 1.89 1.99 NPLs 10,486 8,961 6,345 Net operating income before LLP/average assets 1.96 1.82 1.21 17.0 41.2 33.2 LLP/Revenues 26.03 27.49 16.67 Loan Loss Reserves 6,119 4,954 3,783 Net income/average assets (ROA) 0.58 0.48 0.52 23.5 31.0 14.8 ROE 10.01 11.13 17.71 Customer Deposits 117,016 112,042 109,305 4.4 2.5 9.2 Liquidity Total equity 17,129 16,123 11,095 Loans/customer deposits 108.20 110.83 111.98 6.2 45.3 -2.7 Loans/assets 61.48 61.56 60.76 Revenues 7,802 7,481 6,428 4.3 16.4 4.4 Capital Adequacy Net trading income 456 585 115 Tier 1 ratio 11.80 10.80 7.20 -22.0 410.1 -67.3 Core Tier 1 ratio 9.20 8.30 5.20 Net interest income 5,391 5,208 4,892 Adjusted common equity/assets 6.05 5.58 3.12 3.5 6.5 24.7 Adjusted common equity/ risk assets 11.98 10.58 6.07 Operating expenses 3,817 3,807 4,002 Equity/assets 8.32 7.99 5.51 0.2 -4.9 9.9 Adjusted equity plus total reserves/loans 15.62 14.00 9.26 PPP 3,986 3,674 2,426 8.5 51.4 -3.6 Asset Quality LLP 2,031 2,057 1,071 LLP/average loans 1.62 1.67 0.92 -1.2 91.9 135.6 LLR/Total Loans 4.61 3.84 3.00 Pre tax profit 1,515 1,261 1,216 LLR/RWA 5.89 4.66 3.65 20.1 3.7 -36.7 Coverage Ratio 58.35 55.29 59.62 Net income 1,186 977 1,039 NPL/Total loans 7.90 6.94 5.03 21.5 -6.0 -33.0 NPL+ORE/shareholders funds 61.22 55.58 57.19 Source: BofA Merrill Lynch Global Research

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Raiffeisen Bank International (RBIAV) Rationale Market position Leading position in Austria. There is a cross-guarantee among members of the Raiffeisen Banking (RZB) Group in the country. The guarantee covers all deposits, all securities issued (including subordinated liabilities) and interbank deposits and is legally binding. However, it doesn’t extend to RBI though we do believe inter-group solidarity to be very high.

Group restructuring RZB Group has transferred the spun-off principal business activities and liabilities of RZB into Raiffeisen Bank International (RBI), a listed entity. On a proforma basis, RBI’s assets increased to €148bn from around €78bn. RZB is now a holding as well as acting as the central bank of the group’s owners (i.e. the Raiffeisenlandesbanks in Austria). Securities Issued of €8bn will remain with RZB until maturity in 2020 but there is a guarantee from RBI for these. In the future, RBI will likely be the main issuing entity of the group. CDS will be split as a result of these changes. We think that the CDS of the old RZB may trade inside the new RBI CDS owing to perceived dwindling deliverables.

Capital levels The core Tier 1 at RBI was 8.9% at end-March. Capital rose by 12% during the year. Total group assets look like they declined in the FY by about €69bn largely due to a fall in interbank business. Recall that the group in this form is quite new as it was the result of the combination of the old Raiffeisen International and RZB principal corporate businesses last year. There was no update on any prospective capital raises in the quarterly statement however. We think RZB is a strong contender to raise more capital in the next few quarters. The capital shortfall remains in investor focus post 1Q11 - management only acknowledges the need to issue equity in a higher growth situation. Following the recent update on Basel III implementation, we now expect the bank to issue around EUR1.8bn of new equity this year to cover the capital shortfall of EUR2.7bn. That said, we note the recent Austrian central bank stress test which found that the combined core Tier 1 of six main Austrian banks declined to 7.4% on average by the end of 2012 from 8.5%. RBI’s stressed CT1 was 7.8% in the recent stress tests, a big improvement on the previous year’s result.

CEE exposure Concerns about the CEE businesses remain, especially after recent blip in Hungary (where the group has a €9bn total exposure). In 1Q11, NPLs have declined in absolute and relative terms in all geographies except SEE, which we view very positively. The 40bps decline to 8.6% was also accompanied by coverage improving by 2pp to 68%. While we cannot rule out jitters on volatile markets like Hungary, Romania or Belarus, we expect continued steady improvement, also helped by loan growth that totalled 1.9% QoQ in 1Q 11. Most recent purchase was Polbank, in Poland from EFG.

1Q11 results RBI reported net profit of EUR270m in 1Q11, delivering another beat after FY2010 and surpassing BofAMLe by 10%. Decreasing provision charges (109bps, down 39bps QoQ) and trading income (65% above expectations on interest swap revaluation) were the main drivers, partly offset by higher costs, less-than-expected NIM improvement and taxes. CEE has performed strongly: CE, SEE and RU have delivered a respective PBT beat of 19%, 22% and 31%.

B LIST

Company description Raiffeisen Zentralbank Oesterreich (RZB) is the central bank for Austria’s Raiffeisen cooperative banking sector and the largest bank in Austria. Austria accounts for 46% of the issuer’s assets, while Central Europe and South-eastern Europe and Russia account for 28% and 22% and 17% of RWA respectively. RBI is the listed entity of the group, comprising corporate banking and the CEE businesses. Reporting date: 2Q11 results 19th July 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A1/A(-)/A Area Ranking 3 World Ranking 83 Market Cap €7.0bn Market Share Deposits 29% Loans 25% Source: Company, BofA Merrill Lynch Global Research

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Table 7: RBI - financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 131,173 76,275 85,397 Profitability % change 72.0 -10.7 17.4 Net Interest Margin 3.45 3.63 4.09 Risk weighted assets 75,601 50,090 60,388 Cost/Income Ratio 54.61 51.88 54.46 50.9 -17.1 21.3 Revenues/average assets 5.26 5.41 6.11 Gross Customer Loans 75,657 50,515 57,902 Noninterest income/average assets 1.81 1.78 2.03 49.8 -12.8 18.5 Noninterest expense/average assets 2.87 2.81 3.33 NPLs 6,790 4,442 2,962 Net operating income before LLP/average assets 2.39 2.60 2.78 52.8 50.0 49.7 LLP/Revenues 21.88 39.72 16.14 Loan Loss Reserves 4,756 3,084 1,641 Net income/average assets (ROA) 1.13 0.36 1.36 54.2 87.9 48.8 ROE 15.48 4.95 19.51 Customer Deposits 57,633 42,578 44,206 35.4 -3.7 9.3 Liquidity Total equity 10,404 7,000 6,518 Loans/customer deposits 123.02 111.40 127.27 48.6 7.4 -1.6 Loans/assets 54.05 62.18 65.88 Revenues 5,456 4,375 4,835 24.7 -9.5 28.9 Capital Adequacy Net trading income 381 236 122 Tier 1 ratio 9.70 11.00 8.10 61.6 93.2 38.0 Core Tier 1 ratio 8.90 9.20 Net interest income 3,578 2,934 3,231 Adjusted common equity/assets 7.00 7.90 6.52 22.0 -9.2 33.6 Adjusted common equity/ risk assets 12.15 12.04 9.22 Operating expenses 2,980 2,270 2,633 Equity/assets 7.93 9.18 7.63 31.3 -13.8 20.6 Adjusted equity plus total reserves/loans 21.67 21.87 13.87 PPP 2,477 2,105 2,202 17.6 -4.4 40.4 Asset Quality LLP 1,194 1,738 780 LLP/average loans 2.02 3.35 1.50 -31.3 122.7 118.6 LLR/Total Loans 6.29 6.11 2.83 Pre tax profit 1,287 368 1,429 LLR/RWA 6.29 6.16 2.72 250.2 -74.3 15.5 Coverage Ratio 69.99 69.39 55.35 Net income 1,177 287 1,078 NPL/Total loans 8.98 8.80 5.12 310.0 -73.4 10.8 NPL+ORE/shareholders funds 65.31 63.49 45.49 Source: BofA Merrill Lynch Global Research

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Benelux ABN Amro KBC Bank NV Rabobank

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ABN Amro Bank NV (ABNANV) Rationale Government Support ABN Amro’s Dutch businesses are fully-owned by the Dutch State. Following the merger with Fortis, which took place on July 1 2010, we expect new ABN will have a good market position in Dutch banking, moderate credit risk profile, and sound capital. The Government has shown support for these operations by subscribing to a capital relief instrument (which boosted Tier 1 capital by €1.7bn) and three mandatory convertible notes which totalled €2.6bn and converted following the legal separation of the businesses on April 1. The bank is likely to be relisted by 2014.

Emerging clarity on earnings Though the headline 2010 loss was €414m, this was impacted by separation and integration-related items. The underlying net profit was €1bn as operating income rose 10% yoy and loan impairments nearly halved.

EC deferral The EC remedy for competition was complied with via disposal of a number of commercial activities and branches to Deutsche Bank. ABN must also defer coupons on the 4.31% since April 2011; it was also required to stop calling its Lower Tier 2 bonds. The deferral period originally stretched to 10 Mar 2013. Since that time, the EC agreed on a dividend policy which will enable the bank to pay ordinary dividends. This instrument has a ‘pusher’ if common dividends are paid, meaning that coupons will again be mandatory. This could mean that we return to coupon payments a year earlier than anticipated. The 4.31% have an ACSM moreover. We note that ABN is required to pay coupons if dividends exceed €100m pa via the dividend pusher.

1Q results 1Q11 results appear to be improving. Underlying profit was €583m, 86% higher than 1Q10. Much lower expenses were a big driver here (employees have fallen 12% in last year) and operating income had increased by 11% though some of this was non-recurrent. Loan impairments were up yoy at €125m (from €79m in 1Q10). Loans seem to be expanding but this is securities financing activity rather than industrial clients. Core Tier 1 was 11.3% (B2, would be more like 10.6% under B3). The liquidity buffer fell dramatically in the quarter to €31bn though this is expected to increase again (several securities apparently need to be restructured). ABN had no exposure to Greece.

Fitch upgraded the bank’s Individual Rating to C on June 29 reflecting the material progress of the ABN and Fortis merger, resulting in reduced operational risk. Also, improvements in the bank’s funding profile and its increasing, albeit still moderate, operating profitability.

ABN comfortably passed the EU stress tests with a stressed CT1 of 9.2%.

B LIST

Company description ABN AMRO is the combination of the Dutch businesses of the former ABN AMRO plus those of Fortis. Prior to the RBS takeover, ABN Amro was one of the largest banking groups under our coverage, with operations in over 60 countries across the globe. Reporting date: 26th August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A/A/A+ Area Ranking 3 World Ranking FOS Market Cap Not Listed Market Share Deposits 20% Mortgages 15% Source: Company, BofA Merrill Lynch Global Research

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Table 8: ABN AMRO - financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 379,599 469,345 666,817 Profitability % change -19.1 -29.6 -35.0 Net Interest Margin 1.16 0.82 0.68 Risk weighted assets 116,328 117,535 176,028 Cost/Income Ratio 91.64 124.59 -2290.04 -1.0 -33.2 -24.2 Revenues/average assets 1.60 1.21 -0.05 Gross Customer Loans 280,041 223,882 275,025 Noninterest income/average assets 0.45 0.40 -0.74 25.1 -18.6 -31.5 Noninterest expense/average assets 1.47 1.51 1.22 NPLs 8,808 10,763 7,306 Net operating income before LLP/average assets 0.13 -0.30 -1.28 -18.2 47.3 52.8 LLP/Revenues 12.31 40.53 -749.34 Loan Loss Reserves 4,286 5,636 4,518 Net income/average assets (ROA) -0.10 -0.77 0.42 -24.0 24.7 50.5 ROE -2.76 -25.53 15.81 Customer Deposits 194,806 196,648 209,004 -0.9 -5.9 -36.7 Liquidity Total equity 12,112 18,916 17,123 Loans/customer deposits 141.55 110.98 129.43 -36.0 10.5 -44.2 Loans/assets 72.64 46.50 40.57 Revenues 6,797 6,892 -452 -1.4 -1624.8 -103.0 Capital Adequacy Net trading income 634 -644 -9,324 Tier 1 ratio 12.80 19.89 10.88 -198.4 -93.1 -933.2 Core Tier 1 ratio 10.40 16.88 10.10 Net interest income 4,905 4,648 5,783 Adjusted common equity/assets 3.08 3.89 2.43 5.5 -19.6 25.9 Adjusted common equity/ risk assets 10.06 15.55 9.20 Operating expenses 6,229 8,587 10,351 Equity/assets 3.19 4.03 2.57 -27.5 -17.0 -14.0 Adjusted equity plus total reserves/loans 6.97 13.65 8.53 PPP 568 -1,695 -10,803 133.5 84.3 -452.7 Asset Quality LLP 837 2,793 3,387 LLP/average loans 0.34 1.14 1.01 -70.0 -17.5 372.4 LLR/Total Loans 1.53 2.52 1.64 Pre tax profit -269 -4,815 1,015 LLR/RWA 3.68 4.80 2.57 94.4 -574.4 -89.3 Coverage Ratio 48.66 52.36 61.84 Net income -414 -4,400 3,595 NPL/Total loans 3.15 4.81 2.66 90.6 -222.4 -64.0 NPL+ORE/shareholders funds 72.72 56.90 42.67 Source: BofA Merrill Lynch Global Research

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KBC Bank NV (KBC) Rationale Growth options In spite of the fact that KBC was one of the worst hit of any European bank by the structured credit crisis, it looks like its core Belgium/CEE franchise remains pretty intact. Growth options are largely in the East from now though. KBC is more involved in Czech (about 12% of loans), Poland (~4% of loans), Hungary (~4%) and Slovakia (~2%) which are better places to be in CEE than say Ukraine or Kazakhstan.

Manageable asset risks Remaining asset risks are probably manageable as remaining synthetic CDO exposure is largely protected by €20bn State Guarantee. Note that the synthetic nature of the exposure means that it cannot be transferred into the loan book as other European peers have done to ‘manage’ this risk.

State support Received €7bn recap from Belgium and the Flemish regional government which means that capital is satisfactory though there are still questions about how this will be repaid, we think. The bank says that the “redemption of the capital securities issued to the State will be based largely on retained earnings and on the release of capital tied up in non-core assets.” KBC did well in the EBA stress tests, with a stressed CT1 ratio of 10%.

Restructuring A number of disposals are in prospect: Centea (to CredAg, now finalised, €527m), which will free up 0.4% of capital to the Tier 1, and KBC Concord. . KBC announced in July that it had officially requested the EU to vary the terms of the approval of their state aid from 2009. KBC is asking not to list a minority of CSOB (we always got the impression that they were very reluctant to do this), as well as not to IPO K&H Bank. Instead, they are offering the divestment of Kredyt Bank in Poland, together with the sale of some ABS positions and unwinding of CDOs (which we would have thought they’d be doing in any case). The unwind will release both capital and liquidity according to the bank. Keeping the Czech operations intact within the Group is not a bad thing from the point of view of the KBC investment case, if it is approved.

Exposure to Ireland KBC has a long-standing presence in Ireland through its 100% subsidiary KBC Ireland (formerly IIB). KBCI’s loan book is €17.1bn and the local T1 ratio is 10%. 57% of loans are residential owner-occupied, 19% buy to let, 13% corporate. NPLs are 11%, coverage 42%. Ireland remains a large investment in the context of the group however, in our view, these charges are manageable given the group’s earnings power and we don’t view the Irish exposure as large enough to derail KBC.

GREY LIST

Company description KBC is a Regional bancassurer focused on Belgium and CEE. It has an above 20% share of the Belgian banking market and an above 15% share of the life insurance market. It also operates in Central Europe, where it has leading positions in the Czech Republic and Hungary, as well as significant share in Poland, Slovakia and Bulgaria. Benefiting from significant State aid in 2008 and 2009, KBC is currently in the middle of a major restructuring. Reporting date: 2Q11 Results: 5-August-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A1(-)/A-/A Area Ranking 3 World Ranking 52 Market Cap €9.4bn Market Share* Deposits 23% Loans 18% Investment funds 39% Life insurance 17% *Company estimates Source: Company, BofA Merrill Lynch Global Research

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1Q11 results KBC reported good results with net profit at €821m (+13% compared to 4Q10) which was much better than expectations. In our view, the big driver of the improving results was the much lower provisions, which have fallen 80% compared to last quarter (only 0.26% of loans which is much more of a normalised level for KBC historically. Lower provisions in Ireland are the driver here. A good performance from trading gains was also evident. We believe these results add to the bank’s recovery and growing credibility. As ever with KBC’s quarterly results, there were a number of exceptional items (positive mark-to-market valuation of ALM hedges and positive value adjustments to the CDO portfolio). On an ‘underlying’ basis, however, the net result was still improving qoq, at €658m compared to €543m the previous year. Total impact of the exceptionals was around +€0.2bn.

Table 9: KBC Bank NV – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 276,723 281,613 318,550 Profitability % change -1.7 -11.6 2.9 Net Interest Margin 1.89 1.64 1.28 Risk weighted assets 111,711 123,074 135,557 Cost/Income Ratio 57.75 118.23 115.84 -9.2 -9.2 5.5 Revenues/average assets 2.40 1.20 1.21 Gross Customer Loans 148,975 150,091 153,820 Noninterest income/average assets 0.50 -0.44 -0.07 -0.7 -2.4 10.4 Noninterest expense/average assets 1.38 1.41 1.40 NPLs 6,531 5,427 3,044 Net operating income before LLP/average assets 1.01 -0.22 -0.19 20.3 78.3 30.7 LLP/Revenues 22.20 53.00 19.96 Loan Loss Reserves 4,910 3,797 2,331 Net income/average assets (ROA) 0.55 -0.84 -0.41 29.3 62.9 15.7 ROE 12.01 -22.72 -11.67 Customer Deposits 173,440 159,164 159,257 9.0 -0.1 6.4 Liquidity Total equity 14,143 13,017 12,338 Loans/customer deposits 83.06 91.91 95.12 8.7 5.5 -11.3 Loans/assets 52.06 51.95 47.56 Revenues 6,688 3,587 3,808 86.5 -5.8 -47.4 Capital Adequacy Net trading income -181 -2,872 -1,980 Tier 1 ratio 12.40 10.90 9.60 -93.7 45.1 -195.1 Core Tier 1 ratio 10.50 9.00 7.12 Net interest income 5,280 4,920 4,020 Adjusted common equity/assets 4.89 4.26 3.17 7.3 22.4 26.5 Adjusted common equity/ risk assets 12.12 9.74 7.44 Operating expenses 3,862 4,241 4,411 Equity/assets 5.11 4.62 3.87 -8.9 -3.9 6.5 Adjusted equity plus total reserves/loans 14.44 12.56 11.01 PPP 2,826 -654 -603 532.1 -8.5 -119.5 Asset Quality LLP 1,485 1,901 760 LLP/average loans 1.02 1.28 0.53 -21.9 150.1 413.5 LLR/Total Loans 3.30 2.53 1.52 Pre tax profit 1,444 -2,747 -1,502 LLR/RWA 4.40 3.09 1.72 152.6 -82.9 -145.8 Coverage Ratio 75.18 69.96 76.58 Net income 1,533 -2,508 -1,283 NPL/Total loans 4.38 3.62 1.98 161.1 -95.5 -150.6 NPL+ORE/shareholders funds 46.18 41.69 24.67 Source: BofA Merrill Lynch Global Research

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Rabobank (RABOBK) Rationale AAA rating Still rated AAA by three rating agencies (out of four). The AAA reflects relative strength of market positioning, a relatively low risk signature and good capital cushion. Rabo is the central institution of the cooperative Rabobank banking group with particular skills in the Food & Agribusiness sector. 40% share of the savings market, 43% share of the SME market and 29% mortgage market share in the Netherlands. The group targets a T1 ratio of 12.5% (2010: 15.7%). In the adverse stress test scenario the stressed T1 was still strong at 10.8%.

Funding Rabo has remained one of the few institutions to retain access to (unguaranteed) market funding during the difficult last few years.

Structured credit exposures These legacy exposures continue to decline and do appear to be very manageable now. The overall portfolio is €5.8.bn (compare to loan book of €455bn), 11% of which was rated below A. Rabo’s exposure to monolines was €215m net (€1.3bn gross). Exposures to Greece and other peripherals totalled €1bn at year end. Stress test revealed €240m exposure to Greece, €19m to Portugal.

Profitability Not a hugely profitable bank but at least the returns indicators have proven to be remarkably stable (as well of course as positive). The 2010 ROE was 9.4%. Net profit was up 21% year-on-year as net interest and net commission income both rose. All business segments were however profitable.

FY10 results Rabobank reported another solid set of results for 2010. Full year profit was up 21% on the back of lower loan losses with a strong performance from the domestic retail business. Net interest income has remained pretty robust, with NIM stable to slightly improving at over 130bps over the last two years. Fee and commission income showed a marginal (4%) yearly improvement. Cost of credit for the half year was 29bps, slightly higher than the previous half’s level but down from the 39bps a year earlier. These levels compare well to the reported long term average of the group of 23bps. Loan losses remain highest in wholesale lending with a cost of credit of 63bps (representing around a third of the loan book).

A LIST

Company description The Rabobank group comprises 152 independent local cooperative banks and Rabobank Nederland, which is the central organisation of these banks. It was founded in the Netherlands over 100 years ago. It offers retail and wholesale banking, asset management, leasing and real estate services in the Netherlands and elsewhere, though the focus outside Netherlands has traditionally been on the food and agriculture sectors.. Reporting date: 24th August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aaa/AAA/AA+ Area Ranking 2 World Ranking 24 Market Cap (Private Company) Market Share (Netherlands) Mortgages 29% Savings 40% SME 43% Source: Company, BofA Merrill Lynch Global Research

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Table 10: Rabobank – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 652,536 607,698 612,120 Profitability % change 7.4 -0.7 7.3 Net Interest Margin 1.37 1.32 1.44 Risk weighted assets 219,568 233,372 238,080 Cost/Income Ratio 64.45 61.55 65.32 -5.9 -2.0 -10.7 Revenues/average assets 2.02 1.95 1.97 Gross Customer Loans 459,786 438,269 429,413 Noninterest income/average assets 0.65 0.63 0.53 4.9 2.1 14.4 Noninterest expense/average assets 1.30 1.20 1.29 NPLs 9,284 9,294 6,573 Net operating income before LLP/average assets 0.72 0.75 0.68 -0.1 41.4 89.4 LLP/Revenues 9.70 16.51 10.20 Loan Loss Reserves 3,845 4,399 3,130 Net income/average assets (ROA) 0.44 0.38 0.47 -12.6 40.5 37.2 ROE 9.39 8.26 10.64 Customer Deposits 286,761 273,338 281,214 4.9 -2.8 12.7 Liquidity Total equity 34,451 31,916 29,949 Loans/customer deposits 159.00 158.73 151.59 7.9 6.6 4.6 Loans/assets 69.87 71.40 69.64 Revenues 12,716 11,867 11,652 7.2 1.8 1.3 Capital Adequacy Net trading income 336 -88 -1,206 Tier 1 ratio 15.70 13.80 12.70 -481.8 -92.7 -4738.5 Core Tier 1 ratio 0.00 0.00 0.00 Net interest income 8,614 8,046 8,517 Adjusted common equity/assets 4.69 4.68 4.40 7.1 -5.5 25.8 Adjusted common equity/ risk assets 13.95 12.18 11.32 Operating expenses 8,196 7,304 7,611 Equity/assets 5.28 5.25 4.89 12.2 -4.0 -7.1 Adjusted equity plus total reserves/loans 9.04 9.08 8.18 PPP 4,520 4,563 4,041 -0.9 12.9 22.1 Asset Quality LLP 1,234 1,959 1,189 LLP/average loans 0.28 0.46 0.30 -37.0 64.8 353.8 LLR/Total Loans 0.84 1.00 0.73 Pre tax profit 3,286 2,604 2,852 LLR/RWA 1.75 1.88 1.31 26.2 -8.7 -6.4 Coverage Ratio 41.42 47.33 47.62 Net income 2,772 2,288 2,754 NPL/Total loans 2.02 2.12 1.53 21.2 -16.9 3.5 NPL+ORE/shareholders funds 26.95 29.12 21.95 Source: BofA Merrill Lynch Global Research

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France BNP Paribas Credit Agricole BPCE Societe Generale

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BNP Paribas (BNP) Rationale Diversification Group-level results have remained relatively resilient through the crisis, reflecting good diversification, we believe. Investment banking is however a key driver of group revenue and profitability (about a quarter of group revenues come from CIB and it contributes about the same amount in terms of profits as the retail banking businesses do). Probably one of the 28 systemically important banks (SIFIs) though.

Fortis businesses We expect the Fortis businesses to continue to contribute positively to the Group result in the coming quarters. BNP Paribas will benefit from guarantees and from capital support from the Belgian State, as it rebuilds Fortis’ Belgian banking operations. They are large in the context of the group (28% of total assets). Moreover, the Fortis acquisition has helped funding via additional retail deposits.

Repaid state aid In Oct-09, BNP Paribas repaid the €5.1bn in hybrids held by the French government using capital raised in through a rights issue.

Agency downgrades BNP Paribas was downgraded by Fitch to AA- in June 2010 owing to ‘structural issues related to its business mix which continues to show a relatively high contribution from corporate and investment banking, asset quality deterioration in 2009 and slightly below peer average capital ratios’. Fitch no longer believes that BNP looks like a AA-flat bank. Fitch believes that the bank ‘remains exposed to many of the asset portfolios which are currently proving to be vulnerable’. We would add that quarterly disclosure leaves something to be desired too.

Capital levels Concerns about capital levels linger. Last quarter’s Core Tier 1 was much better at 9.5%. We would like to see BNP sustain and even improve on this level – entirely possible given their organic capital generation, we think. Previously BNP estimated a EUR70bn increase in RWA from coming regulation (Basel 2.5 and 3), this equates to ‘only’ an 11% increase on Q3 levels. BNP performed satisfactorily in the recent EBA stress tests, reporting a stressed CT1 of 7.9%. However, the tests underline that BNP’s exposure to the periphery remains substantial e.g. €5.2bn to Greece, €2.3bn Portugal and €29bn in Italy owing to the BNL operations.

Q1 results Q1 numbers from BNP were quite strong and support its status as an A List bank. Numbers were comfortably ahead of consensus expectations on most lines. Operating income of just shy of €5bn was 6% ahead of consensus, for example. Net income for the quarter was €2.6bn up 15% compared to 1Q10. The annualised ROE was a stated 15% which is in line with the group’s target. We note however that 1Q is usually the seasonal highpoint for BNP earnings. Quarterly disclosure is still sketchy though for a bank of this status.

On review for downgrade by Moody’s because of its Greek (and, we think, other peripheral) exposures.

A LIST

Company description BNP Paribas is a leading commercial bank in France. The group also has strong positions in wholesale and investment banking and is one of the leading custodians in Europe, it is also the European leader in consumer lending. It has a very strong position in US retail banking particularly in California and Hawaii. Recent major acquisitions include Fortis Belgium/Luxembourg. Clearly a systemically important bank in France. Reporting date: 2Q11 Results – 02-Aug-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa2/AA(-)/AA- Area Ranking 1 World Ranking 8 Market Cap €61.8bn Market Share Housing loans 7% EMEA Equity Offerings 10 (3.4%) International Bonds 5 (5.4%) Source: Company, BofA Merrill Lynch Global Research

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Table 11: BNP Paribas – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,998,158 2,057,698 2,075,551 Profitability % change -2.9 -0.9 22.5 Net Interest Margin 1.19 1.02 0.72 Risk weighted assets 601,000 621,000 535,147 Cost/Income Ratio 60.43 58.36 67.06 -3.2 16.0 -1.0 Revenues/average assets 2.16 1.94 1.46 Gross Customer Loans 711,357 704,135 508,699 Noninterest income/average assets 0.98 0.92 0.74 1.0 38.4 11.2 Noninterest expense/average assets 1.31 1.13 0.98 NPLs 35,600 31,300 16,400 Net operating income before LLP/average assets 0.86 0.81 0.48 13.7 90.9 185.1 LLP/Revenues 10.94 20.93 13.79 Loan Loss Reserves 26,671 25,369 14,298 Net income/average assets (ROA) 0.45 0.31 0.18 5.1 77.4 14.4 ROE 15.43 14.33 9.89 Customer Deposits 553,377 541,810 402,857 2.1 34.5 18.4 Liquidity Total equity 75,708 70,060 46,199 Loans/customer deposits 123.73 125.28 122.72 8.1 51.6 -4.3 Loans/assets 34.27 32.99 23.82 Revenues 43,879 39,993 27,437 9.7 45.8 -12.2 Capital Adequacy Net trading income 5,561 6,521 3,157 Tier 1 ratio 11.40 10.10 7.80 -14.7 106.6 -69.5 Core Tier 1 ratio 9.20 8.00 5.40 Net interest income 24,060 21,021 13,498 Adjusted common equity/assets 3.10 2.76 1.61 14.5 55.7 39.0 Adjusted common equity/ risk assets 10.30 9.16 6.25 Operating expenses 26,517 23,340 18,400 Equity/assets 3.79 3.40 2.23 13.6 26.8 -1.9 Adjusted equity plus total reserves/loans 14.38 13.63 12.24 PPP 17,362 16,653 9,037 4.3 84.3 -27.6 Asset Quality LLP 4,802 8,369 3,783 LLP/average loans 0.70 1.43 0.81 -42.6 121.2 157.0 LLR/Total Loans 3.75 3.60 2.81 Pre tax profit 13,020 9,000 3,924 LLR/RWA 4.44 4.09 2.67 44.7 129.4 -64.5 Coverage Ratio 74.92 81.05 87.18 Net income 9,164 6,474 3,452 NPL/Total loans 5.00 4.45 3.22 41.6 87.5 -58.5 NPL+ORE/shareholders funds 47.02 44.68 35.50 Source: BofA Merrill Lynch Global Research

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Credit Agricole (ACAFP) Rationale Basics and performance Credit exposure (and CDS reference entity) is generally to Credit Agricole SA which is the listed entity of the group. However, as a result of a cross-guarantee, credit investors benefit from the strength of the whole Credit Agricole Group. For CASA, apart from the international business, other businesses (e.g. French retail (the regional banks and Credit Lyonnais), specialised financing and investment banking) continue to perform quite well and the group’s overall performance through the crisis was quite stable. At a recent investor day, CASA revealed new targets: notably ROE of 10-12% by 2014, RoTE of 15-18% by the same date, 60% cost-income ratio and up to €25bn of banking revenues.

Greek subsidiary a risk Continued concerns about Emporiki Bank (e.g. 2Q10 goodwill writedown of €418m, 1Q11 loss of €139m). Emporiki’s tangible equity is now €925m, which has continuously needed to be recapitalised by ACAFP (two rights issues of €1.8bn). It seems to us unlikely that the bank can be returned to profitability in the short term. CredAg’s direct exposure is its investment in the bank’s equity and the cross-border lending to Emporiki which was ‘only’ €8.4bn – about 19% of CASA’s equity. ACAFP also has exposure to Portugal. It owns c.24% of Banco Espirito Santo (directly and indirectly). Italy has also been an area of expansion (with, inter alia, Cariparma, CR Spezia, recent acquisition of 172 Intesa branches for €740m). Direct exposure to sovereign Greek bonds is said to be €655m.

Capital levels There has been a lot of noise about how CASA fares under Basel 3 – from the credit standpoint, recall, we have the benefit of the Group cross-guarantee (so this was less an issue for fixed income cf. to equity). Group Tier 1 capital at end-March was €59bn. Core Tier 1 was 9%. Based on current assessment the increase in Credit Agricole’s RWA under Basel 3 could be significant (e.g. as high as €35-45bn after mitigation effects). The group was explicit that there will be no rights issue but as peripheral concerns intensify, this becomes less credible. That said, CredAg Group did OK in the recent European stress tests, passing with an 8.5% ratio. Yet if the Greece situation deteriorates, we can’t imagine that this is an accurate reflection, given the exposure to Emporiki.

1Q11 results At the group level, which is the one that matters for credit investors, net income rose 61% to €1,527m yoy, mostly driven by better trading gains and a 22% decline in provisions (0.56% of loans). The ROE was 10%. Revenues overall grew by 8% to €9.3bn, 60% of which related to retail banking. The regional banks delivered a 6.5% growth in residential mortgages outstanding (total loans reached €878bn). The core Tier 1 ratio for the Group was OK at 9%. Credit Agricole SA, which is the listed entity, reported 1Q net of €1bn which is in line with consensus. International operations, which of course include Emporiki, were the black spot. The bank reports that it has covered 61% of its 2011 funding program by end-April. CASA’s core Tier 1 was 8.7%.

On June 15, Moody’s placed CredAg Group on review for possible downgrade, citing the group’s Greek exposure. At Aa1, though, this does look rather high. Fitch affirmed at AA- in July citing the renewed focus on French retail banking.

B LIST

Company description Credit Agricole SA (CASA) is the listed vehicle of the Credit Agricole Group and the usual reference entity in CDS contracts for CA Group. Its creditworthiness partly stems from that of the wider Credit Agricole Group via a cross-guarantee mechanism. CASA is the combination of minority stakes in the retail banks (directly through Credit Lyonnais and indirectly through the Regional Banks) and of product ‘engines’, e.g. insurance, asset management, CIB and consumer lending. Reporting date: 2Q11 results – 28-August-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa1/A+/AA- Area Ranking 2 World Ranking 13 Market Cap €24.3bn Market Share Loans 21.3% Deposits 28% Source: Company, BofA Merrill Lynch Global Research

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Table 12: Credit Agricole – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,593,529 1,557,342 1,653,220 Profitability % change 2.3 -5.8 16.9 Net Interest Margin 0.95 0.89 0.79 Risk weighted assets 371,700 326,400 356,500 Cost/Income Ratio 65.41 65.17 75.53 13.9 -8.4 3.3 Revenues/average assets 1.28 1.16 1.09 Gross Customer Loans 397,240 374,413 358,249 Noninterest income/average assets 0.33 0.27 0.30 6.1 4.5 15.3 Noninterest expense/average assets 0.84 0.76 0.82 NPLs 21,769 16,760 13,562 Net operating income before LLP/average assets 0.44 0.41 0.27 29.9 23.6 28.2 LLP/Revenues 16.85 23.28 15.85 Loan Loss Reserves 13,994 12,065 9,212 Net income/average assets (ROA) 0.11 0.09 0.08 16.0 31.0 9.8 ROE 6.18 5.60 5.33 Customer Deposits 441,767 411,887 386,411 7.3 6.6 4.0 Liquidity Total equity 49,314 49,241 44,563 Loans/customer deposits 86.75 87.97 90.33 0.1 10.5 1.8 Loans/assets 24.05 23.27 21.11 Revenues 20,162 18,693 16,728 7.9 11.7 -6.8 Capital Adequacy Net trading income 5,447 5,055 -8,630 Tier 1 ratio 10.60 9.50 8.60 7.8 -158.6 -199.3 Core Tier 1 ratio 8.40 9.30 7.60 Net interest income 14,894 14,290 12,113 Adjusted common equity/assets 1.80 1.81 1.42 4.2 18.0 53.2 Adjusted common equity/ risk assets 7.70 8.61 6.60 Operating expenses 13,187 12,182 12,635 Equity/assets 3.09 3.16 2.70 8.2 -3.6 -0.7 Adjusted equity plus total reserves/loans 16.06 16.91 15.71 PPP 6,975 6,511 4,093 7.1 59.1 -21.8 Asset Quality LLP 3,398 4,351 2,651 LLP/average loans 0.91 1.22 0.81 -21.9 64.1 41.2 LLR/Total Loans 3.52 3.22 2.57 Pre tax profit 2,629 1,657 1,200 LLR/RWA 3.76 3.70 2.58 58.7 38.1 -75.1 Coverage Ratio 64.28 71.99 67.93 Net income 1,752 1,446 1,266 NPL/Total loans 5.48 4.48 3.79 21.2 14.2 -72.2 NPL+ORE/shareholders funds 44.14 34.04 30.43 Source: BofA Merrill Lynch Global Research

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BPCE Rationale Systemic importance The merger of Groupe Caisse d’Epargne and Groupe Banques Populaires as of 31 July 2009 created the second largest banking group in France and a systemically important banking institution. We have no doubt that further government support would be forthcoming (as it has been) if required. The retail domestic franchise is impressive, though this is offset by historical problems at Natixis. In spite of the merger, the networks of GCE and GBP will remain competitors. Note that the group benefits from a cross-guarantee mechanism which includes Natixis.

Capital levels The core Tier 1 ratio was 8.2% at end 1Q11. Capital ratios still appear robust, in spite of the final repayment of State aid early in 2011 (final payment of €103m made in May). Note that the group received at total of €7bn capital injection from the French State (€3bn in non-voting preference shares and €4bn in deeply subordinated notes). The group is guiding that it still expects to have a core Tier 1 in excess of 8% even with the implementation of Basel 3 in 2013.

Improving performance Performance has improved dramatically since 2009. BPCE’s revenues grew 10% in 2010 to €23.4bn, whilst costs fell 2%. The cost-income ratio was 69% which we believe could still be trimmed, although it’s already down from 2009’s 75%. Loan growth for the year appeared to be relatively strong at 8% in the French ops. Provisions fell by nearly two-thirds to €1.7bn which resulted in an ROE for the group of 8%. However, the ROE for the ‘core’ business lines was 14% and it is management’s job over the next year to more closely align group returns with the core in our view. 4Q earnings included a €225m charge for the decline in the value of the group’s stake in Banca Carige. At around 3.5%, the NPL ratio is good and coverage is satisfactory at 58%.

Natixis In 2010, Natixis’ performance recovered too owing to sharply reduced loan loss provisions, and good revenue growth across the entity’s businesses. Net profit increased to €1.9bn, or 16% ROE. In 2010, the group followed a policy of reducing and running off assets, and RWA fell by around €7bn. The original size of the workout portfolio had been €30bn or so. Natixis is 72% owned by BPCE but no longer needs support from its parent. We still consider Natixis as a rather lop-sided investment bank but its recovery is now clear. In 1Q11, BPCE’s Natixis unit reported net income of €412m. Its bad bank reported net profit of €6m.

Strategic targets BPCE targets €25bn of net banking income in 2013 (2010: €23bn), a cost-income ratio of 66% (2010: 68%) and a ROI in core business operations of 14% which the group was able to achieve last year. The group was expected to raise €33bn in funding this year, 19% down on last year. As of mid-Feb 2011, the group had already raised 26% of its requirements or €8.6bn.

1Q results Net profit in 1Q11 was €989m or an 8.6% stated ROE. Provisions dropped 24% yoy but revenues were broadly flat (-1%) and costs unfortunately up 1.7%. RWA dropped a further 13% when compared with the previous quarter.

Exposure to Greece is €1.3bn.

Company description Groupe Caisse d’Epargne is a French semi-cooperative banking group founded in 1818. It has over 8,000 branches across the country and is active in both retail and private banking. Reporting date: N/A Sources: Company, BofA Merrill Lynch Global Research

B LIST

Statistics Rating Aa3/A+/A+ Area Ranking 3 World Ranking 18 Market Cap Not listed Market Share Loans 20% Deposits 22% Source: Company, BofA Merrill Lynch Global Research

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87

Table 13: BPCE – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,048,442 1,028,802 1,143,679 Profitability % change 1.9 -10.0 - Net Interest Margin 1.17 1.17 1.57 Risk weighted assets 399,016 411,135 - Cost/Income Ratio 68.74 77.07 101.50 -2.9 - - Revenues/average assets 2.25 1.95 2.81 Gross Customer Loans 573,807 528,301 521,446 Noninterest income/average assets 1.08 0.78 1.24 8.6 1.3 - Noninterest expense/average assets 1.55 1.51 2.86 NPLs 20,003 18,858 12,455 Net operating income before LLP/average assets 0.70 0.45 -0.04 6.1 51.4 - LLP/Revenues 7.08 19.53 19.55 Loan Loss Reserves 11,242 10,861 9,083 Net income/average assets (ROA) 0.39 -0.01 -0.47 3.5 19.6 - ROE 11.36 -0.25 -19.50 Customer Deposits 393,992 367,717 371,053 7.1 -0.9 - Liquidity Total equity 44,603 39,801 35,211 Loans/customer deposits 142.79 140.72 138.08 12.1 13.0 - Loans/assets 53.66 50.30 44.80 Revenues 23,359 21,227 16,096 10.0 31.9 - Capital Adequacy Net trading income 1,925 38 -3,632 Tier 1 ratio 10.10 9.10 0.00 4965.8 -101.0 - Core Tier 1 ratio 8.10 6.90 Net interest income 12,182 12,752 8,984 Adjusted common equity/assets 3.62 3.21 2.42 -4.5 41.9 - Adjusted common equity/ risk assets 9.52 8.03 - Operating expenses 16,057 16,359 16,337 Equity/assets 4.25 3.87 3.08 -1.8 0.1 - Adjusted equity plus total reserves/loans 9.98 10.05 8.47 PPP 7,302 4,868 -241 50.0 2119.9 - Asset Quality LLP 1,654 4,145 3,146 LLP/average loans 0.31 0.81 1.23 -60.1 31.8 - LLR/Total Loans 1.96 2.06 1.74 Pre tax profit 5,749 -368 -3,740 LLR/RWA 2.82 2.64 - 1662.2 90.2 - Coverage Ratio 56.20 57.59 72.93 Net income 4,033 -75 -2,696 NPL/Total loans 3.49 3.57 2.39 5477.3 97.2 - NPL+ORE/shareholders funds 44.85 47.38 35.37 Source: BofA Merrill Lynch Global Research

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Societe Generale (SOCGEN) Rationale Company guidance In mid-June 2010, SG announced it’s aiming for a net income of €6bn in 2012, driven by growth in Russia and its CIB division. This compared to net of €1.1bn in 2009. The group also targeted a 2012 ROE of 14-15% and a cost-income ratio below 60%.

CEE exposure CEE and Russia exposures were about 16% of group customer loans as of FY10, which was one reason behind higher group-level impairments. Largest CEE exposures are Czech (€16bn), Romania (€7bn) and Russia (€10bn). No exposure to Hungary though. Fitch has said it is ‘more hesitant’ about SG’s prospects owing to the continued development both of the CIB business and international: reference is made to the sizeable exposure to Russia but Rosbank’s nevertheless weak results.

Legacy assets SG has significant risk concentrations that it has to run off. Total net exposure to RMBS, CLOs etc was €13.4bn (unhedged) at YE2010; there was €1.3bn of exotic credit derivative portfolio cash assets (including RMBS/CMBS); the fair value of hedged exposures to monolines and CDPCs etc was €13.8bn and various other assets €4.4bn. An independent valuation from BlackRock Solutions disclosed in February provides comfort however as it estimates an overall gain, at maturity, of €1.6bn on current marks. Regular detailed disclosure is limited, however.

Peripheral Eurozone exposure As part of the EBA stress test disclosure the bank revealed gross exposure to Greece of €2.8bn. The bank’s Greek subsidiary, Geniki, would be in addition to this exposure. It has €3.6bn of loans that are consolidated into the parent. Under review by Moody’s (June 16) along with other French majors owing to Greek exposure. We expect a downgrade to A1 (2 notches) as SG already benefits from 3 notches of ratings uplift.

Capital levels A guided core Tier 1 of 7.5% by 2013 looks a little on the low side for a bank of SocGen’s risk profile, especially with any SIFI buffer. It remains to be seen whether the credit (and equity for that matter) markets remain happy with a capital position that looks like it will be at the bottom end of the systemically important bank sample. SocGen’s CDS are hardly placed at the very top end of European banks showing the credit market at least has its doubts. The core Tier 1 was 8.8% as of 1Q11. We are expecting SocGen to raise capital in the coming quarters. Its ‘stressed’ CT1 in the recent stress tests was ‘only’ 6.6%. SocGen expects to have a fully loaded CT1 at or above 9% in 2013.

1Q11 results SocGen’s Q1 net income of EUR916m came in 18% below consensus estimates mainly due to a EUR239m charge on their own debt. Excluding this one off performance would have been slightly ahead of expectations with only the international business disappointing on a divisional basis. The cost of risk is decreasing across all the group’s divisions, including international retail banking. Cost of credit here is now back at Q310 levels following the increase seen in Q4. A specific provisioning charge of EUR51m has been taken for countries in Sub-Saharan Africa. The group highlighted a stabilisation in Romania though difficulties continue in the group’s Greek business.

GREY LIST

Company description Societe Generale is one of France’s largest commercial banks with 2,600 domestic branches. The group has develop strong positions in wholesale and investment banking, with particular strength in equity derivatives, and is building up expertise in Eastern European retail banking. SocGen is systemically important bank. Reporting date: 2Q11 results – 03-Aug-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa2/A+/A+ Area Ranking 4 World Ranking 19 Market Cap €30.5bn Market Share International Bonds 14 (2.6%) Equity Issues in EMEA 10 (2.5%) Currency market 4.3% M&A advisory in EMEA 12 (9.2%) Source: Company, BofA Merrill Lynch Global Research

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89

Table 14: Societe Generale – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,132,072 1,023,701 1,130,003 Profitability % change 10.6 -9.4 5.4 Net Interest Margin 1.11 1.08 0.72 Risk weighted assets 334,795 324,100 345,518 Cost/Income Ratio 66.85 78.45 77.43 3.3 -6.2 5.8 Revenues/average assets 2.30 1.87 1.82 Gross Customer Loans 386,621 356,665 363,493 Noninterest income/average assets 1.19 0.79 1.10 8.4 -1.9 16.4 Noninterest expense/average assets 1.53 1.46 1.41 NPLs 23,100 20,700 14,900 Net operating income before LLP/average assets 0.76 0.40 0.41 11.6 38.9 30.7 LLP/Revenues 16.81 29.10 13.24 Loan Loss Reserves 14,723 12,122 8,880 Net income/average assets (ROA) 0.40 0.10 0.25 21.5 36.5 25.8 ROE 13.50 4.07 12.26 Customer Deposits 310,636 279,203 264,034 11.3 5.7 8.8 Liquidity Total equity 42,615 38,255 32,502 Loans/customer deposits 119.72 123.40 134.31 11.4 17.7 18.9 Loans/assets 32.85 33.66 31.38 Revenues 24,750 20,096 20,053 23.2 0.2 -1.2 Capital Adequacy Net trading income 5,374 947 4,770 Tier 1 ratio 10.60 10.70 8.78 467.5 -80.1 -53.5 Core Tier 1 ratio 8.50 8.40 6.70 Net interest income 11,970 11,635 7,948 Adjusted common equity/assets 2.97 2.94 2.16 2.9 46.4 217.7 Adjusted common equity/ risk assets 10.05 9.29 7.07 Operating expenses 16,545 15,766 15,528 Equity/assets 3.76 3.74 2.88 4.9 1.5 8.5 Adjusted equity plus total reserves/loans 15.26 14.74 11.75 PPP 8,205 4,330 4,525 89.5 -4.3 -24.5 Asset Quality LLP 4,160 5,848 2,655 LLP/average loans 1.16 1.67 0.80 -28.9 120.3 193.4 LLR/Total Loans 3.81 3.40 2.44 Pre tax profit 5,844 800 4,008 LLR/RWA 4.40 3.74 2.57 630.5 -80.0 112.5 Coverage Ratio 63.74 58.56 59.60 Net income 4,302 1,108 2,773 NPL/Total loans 5.97 5.80 4.10 288.3 -60.0 72.9 NPL+ORE/shareholders funds 54.21 54.11 45.84 Source: BofA Merrill Lynch Global Research

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90

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91

Germany BayernLB Commerzbank Deutsche Bank Deutsche Postbank Eurohypo

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92

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94

BayernLB (BYLAN) Rationale Government ownership and support As shown through €10bn of capital injections and the agreement to take on some of BYLAN’s exposure to structured finance investments. BayernLB is considered to be systemically important to both Bavaria and Germany. However, the support case is stronger for Senior and Lower Tier 2 bonds than for deeply subordinated securities, especially in the context of the new German Restructuring Law.

Restructuring progress Some progress with the Group’s restructuring programme. YTD, staff numbers have continued to fall (-1.3%) and expenses have been nudging down too. Cost-income was 54% which is average. The balance sheet continues to shrink even as the level of loans basically remains stable. The Restructuring Portfolio dropped a further €4.5bn in the quarter to €35bn), though it also looks like FX rates were a big driver of that fall. No plans to buy any WestLB businesses still less to merge with it. The bank’s core capital ratio seems quite comfortable at 11.7%.

Earnings sustainability The bank’s wholesale banking model still looks a bit sprawling, in our view. FY10 performance was driven by trading profits which may well not be sustainable. Net interest income was up 1% year on year though net commission income declined. Outlook is for continued high impairment and loss recognition, reflecting the bank’s corporate exposures and concentrations.

Replenishment of bank capital BayernLB expects not only to make good all capital losses suffered by profit participation holders (back up to their nominal amounts) but also pay back all back interest payments due out of the 2010 annual results under the German GAAP separate accounts; the bank also expects to be able to begin replenishing the silent partner contributions much earlier than planned; we’re not sure that they will make enough in 2011 to fully replenish however and enable the 6.2032% bonds to stop deferring . No update on that given with the 1Q report. BayernLB’s stressed core T1 was 7.1% under the EBA stress tests. Exposure to Greece was a relatively modest €145m.

1Q11 results BayernLB remained profitable in the quarter with pre-tax of €149m in spite of the recognition of the full year’s Hungarian bank levy of €70m in the 1Q. The stated ROE was 6.3%. The biggest contributor was Corporate Banking / Mittelstand which recorded earnings before tax of €141m (offset by FV losses in e.g. the Markets division). Provisions were €49m in the quarter, significantly lower than the run rate of the previous few years. The group noted in their outlook statement that they expect positive earnings for 2011, though these are expected to be lower than the 2010 result.

Individual rating upgraded by Fitch to C/D from D based on the bank’s improved financial profile and renewed focus on client services. Fitch believes asset quality is constrained through exposure to CEE viz MKB support. Fitch does not expect that the EC will require a change of ownership for the bank but restructuring measures instead, which are expected to be communicated in Q311.

WATCHLIST

Company description BayernLB, formed in 1972 from the merger of Landesbodenkreditanstalt and Bayerische Gemeindebank, offers a broad range of banking services both domestically and internationally, predominantly in corporate, public-sector, and interbank financing. The bank also acts as the central (clearing) institution for the Bavarian savings banks. The bank is owned by The Free State of Bavaria (94%) and the Association of Bavarian Savings Banks (6 %). Reporting date: 29th August (probably) Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A+ (Fitch) Area Ranking 5 World Ranking 54 Market Cap (Private Company) Source: Company, BofA Merrill Lynch Global Research

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95

Table 15: BayernLB – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 316,354 338,818 421,455 Profitability % change -6.6 -19.6 1.4 Net Interest Margin 0.59 0.67 0.64 Risk weighted assets 124,107 135,780 197,313 Cost/Income Ratio 49.21 83.76 -290.47 -8.6 -31.2 63.4 Revenues/average assets 0.91 0.67 -0.22 Gross Customer Loans 155,414 158,962 202,567 Noninterest income/average assets 0.31 -0.01 -0.85 -2.2 -21.5 15.4 Noninterest expense/average assets 0.45 0.56 0.63 NPLs 5,146 3,860 3,954 Net operating income before LLP/average assets 0.46 0.11 -0.84 33.3 -2.4 133.5 LLP/Revenues 23.43 129.17 -183.59 Loan Loss Reserves 2,979 2,820 3,439 Net income/average assets (ROA) 0.18 -0.81 -1.28 5.6 -18.0 49.1 ROE 3.92 -23.27 -48.13 Customer Deposits 91,734 92,197 91,307 -0.5 1.0 -1.4 Liquidity Total equity 13,911 14,062 11,088 Loans/customer deposits 166.17 169.36 218.09 -1.1 26.8 -14.0 Loans/assets 48.18 46.08 47.25 Revenues 2,971 2,537 -902 17.1 -381.3 -145.0 Capital Adequacy Net trading income 802 -450 -4,164 Tier 1 ratio 11.20 10.90 8.00 -278.2 -89.2 498.3 Core Tier 1 ratio 7.30 7.40 - Net interest income 1,942 2,562 2,670 Adjusted common equity/assets 4.68 4.53 2.67 -24.2 -4.0 22.0 Adjusted common equity/ risk assets 11.92 11.29 5.70 Operating expenses 1,462 2,125 2,620 Equity/assets 4.40 4.15 2.63 -31.2 -18.9 48.4 Adjusted equity plus total reserves/loans 13.05 13.14 9.22 PPP 1,509 412 -3,522 266.3 111.7 -1579.8 Asset Quality LLP 696 3,277 1,656 LLP/average loans 0.45 1.84 0.89 -78.8 97.9 1340.0 LLR/Total Loans 1.92 1.77 1.70 Pre tax profit 884 -2,765 -5,104 LLR/RWA 2.40 2.08 1.74 132.0 45.8 -2101.6 Coverage Ratio 57.89 73.06 86.98 Net income 590 -3,093 -5,354 NPL/Total loans 3.31 2.43 1.95 119.1 42.2 -3159.4 NPL+ORE/shareholders funds 36.99 27.45 35.66 Source: BofA Merrill Lynch Global Research

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96

Commerzbank (CMZB) Rationale Capital raising Commerzbank has raised €11bn in new capital through a mandatory exchangeable note (CoMEN) and a subsequent rights issue (€8bn from the market and €3bn swapped from SoFFin silent participations). SoFFin’s silent participation is reduced to a more manageable €1.9bn following the transactions reducing the burden of the coupon payments on the P&L. The German Government owns 25% plus 1 share of the bank. Together with the RWA shrinkage that we saw in 1Q11, the Basel 2 proforma core Tier 1 is 11.4% which is a much more respectable level. The virtue of the capital raising is that it has replaced the SoFFin contributions with much higher quality capital. Earlier this year, the bank had announced a 10% rights issue in order to tender a number of hybrid instruments leading to a core Tier 1 gain. The innovative structure of the deal allowed CMZB the benefits of an exchange, which have been difficult to achieve in Germany, given regulatory opposition to them.

Market position Following the acquisition of Dresdner Bank, CMZB has strengthened its market position, especially in Germany. As the 2nd largest bank in the country, we believe the probability of support remains high. Cost synergies from Dresdner of €2.4bn p.a. or €500m better than originally planned.

Balance sheet de-risking At end 1Q11, the Portfolio Restructuring Unit reported Structured Credit exposure of €15.8bn (€26.3bn nominal), which has been reducing with opportunistic sales and proactive management. The Leveraged Finance portfolio was €3.2bn. Overall, we feel Commerzbank has made good progress in derisking its balance sheet. Eurohypo, CMZB’s 100% mortgage subsidiary, continues to be a drag on group profitability (2010 pre-tax loss of €785m). The division will be disposed over the next 5 years. The exposure to the Greek sovereign at €2.9bn does look uncomfortably high however.

Coupon deferrals CMZB has issued c.€16.4bn in silent participations to the German government which they expect to begin repayment of by 2012 ‘at the latest.’ There is also €1.8bn of ordinary shares invested. The EC’s ruling on state aid means there are currently restrictions in place on distribution payments on certain Tier 1 and Upper Tier 2 instruments. However, these should start to expire this year and coupons should resume next, in our view.

1Q11 results The numbers were good. Operating profit of EUR1.1bn is a significant improvement on the EUR256m reported in the previous quarter, and up around 50% year on year. Loan losses for at the group are around half of the level reported in the previous quarter. Guidance is for loan losses in 2011 to be EUR2.3bn (close to the 2012 target of €2bn), around EUR300m of were taken in Q1. Capital looks strong and has been aided by the recent liability management exercise alone with EUR19bn in RWA reduction. The group reported a Tier 1 and core Tier 1 ratio of 12.7% (Q310: 11.9%) and 11.0% (Q410: 10.0%) respectively. Two-thirds of the 2011 funding plan was completed in Q1, definitely a positive.

Fitch upgraded the Individual rating to C after the capital increase.

GREY LIST

Company description Commerzbank is Germany’s second largest bank providing a broad range of retail, corporate and investment banking products. In January 2009, Commerzbank completed the takeover of its rival Dresdner Bank from Allianz providing the bank with a total branch network of 1,540 branches and has over 11 million private customers. Reporting date: 2Q11 results – 10-Aug-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A2/A/A+ Area Ranking 2 World Ranking 27 Market Cap €15.4bn Source: Company, BofA Merrill Lynch Global Research

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Table 16: Commerzbank – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 754,299 844,103 625,196 Profitability % change -10.6 35.0 1.4 Net Interest Margin 0.88 0.98 0.76 Risk weighted assets 267,500 280,000 222,000 Cost/Income Ratio 69.34 82.24 77.46 -4.5 26.1 -5.4 Revenues/average assets 1.59 1.49 1.03 Gross Customer Loans 336,872 361,483 290,148 Noninterest income/average assets 0.70 0.51 0.27 -6.8 24.6 0.3 Noninterest expense/average assets 1.10 1.23 0.80 NPLs 21,682 21,804 12,634 Net operating income before LLP/average assets 0.49 0.26 0.23 -0.6 72.6 12.3 LLP/Revenues 19.72 38.49 28.99 Loan Loss Reserves 9,117 9,289 5,333 Net income/average assets (ROA) 0.19 -0.63 0.01 -1.9 74.2 -10.2 ROE 16.49 -45.13 0.47 Customer Deposits 262,827 264,618 170,203 -0.7 55.5 6.9 Liquidity Total equity 11,480 9,398 11,704 Loans/customer deposits 124.70 133.10 167.34 22.2 -19.7 -27.4 Loans/assets 43.45 41.72 45.56 Revenues 12,671 10,948 6,398 15.7 71.1 -23.6 Capital Adequacy Net trading income 2,066 59 -1,115 Tier 1 ratio 11.90 10.50 10.10 3401.7 -105.3 -210.9 Core Tier 1 ratio 10.00 9.20 0.00 Net interest income 7,054 7,189 4,729 Adjusted common equity/assets 1.34 0.94 2.01 -1.9 52.0 18.0 Adjusted common equity/ risk assets 3.78 2.84 5.67 Operating expenses 8,786 9,004 4,956 Equity/assets 1.52 1.11 1.87 -2.4 81.7 -7.6 Adjusted equity plus total reserves/loans 12.38 10.93 10.28 PPP 3,885 1,944 1,442 99.8 34.8 -52.0 Asset Quality LLP 2,499 4,214 1,855 LLP/average loans 0.74 1.32 0.65 -40.7 127.2 287.3 LLR/Total Loans 2.71 2.57 1.84 Pre tax profit 1,353 -4,659 -403 LLR/RWA 3.41 3.32 2.40 129.0 -1056.1 -116.1 Coverage Ratio 40.05 37.65 40.04 Net income 1,489 -4,633 62 NPL/Total loans 6.74 6.77 4.58 132.1 -7572.6 -96.8 NPL+ORE/shareholders funds 198.29 262.52 113.79 Source: BofA Merrill Lynch Global Research

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Deutsche Bank (DB) Rationale Market position DB enjoys a top tier position globally in its capital markets sales and trading businesses which have recovered well following the recent financial crisis. Like most of its peers, the bank is in the middle of a multi-year process to reduce assets and risk-weighted assets, de-risk, deleverage and modify its risk appetite. According to its target definition, the bank has already achieved its target leverage ratio of 25x (currently 23x, not IFRS). Its asset management business remains an underperformer, however. DB has not issued any capital to the German state. So it is not subject to any European Commission restrictions.

New retail focus Deutsche Bank will have a majority stake in Deutsche Postbank. This will enable the bank to rebalance its activities in favour of more stable retail banking in due course. The purchase of Sal Oppenheim (German private banking) also is a move in the direction of more predictable earnings streams, in our view. Deutsche held an Investor Day for the Private & Business Client Division mid-June during which it raised its synergy targets for the bank to €1bn (aggressive).

Capital levels DB explained that with RWA reduction and core Tier 1 improvements in 1H11 the stressed EBA CT1 ratio would have been 7.5% not 6.5%. We doubt investors will be that convinced by this. Stated CT1 was 10.2%. The bank now seems to accept the logic of a core Tier 1 of 10% - but only by 2016.

Legacy assets Toxic asset overhang seems manageable for now. DB made a number of asset reclassifications under IAS 39 in 08/09 (not 2010/11 so far). Exposure to commercial real estate appeared to be €24.4bn including Postbank as of end June. Total exposures to monolines and other insurers was €18.8bn without CVA adjustments, €2.5bn with. Exposure to Leveraged Finance was €4.6bn. 2Q Problem loans (widely defined) have declined slightly since year end, at €10.7bn (Dec 2010: €8.4bn, up 27% in the half year). Reserve coverage is modest, in our view, at 38%. Exposure to Greece was €1.2bn at end-June. Total peripheral exposure was €3.7bn.

Non-call of LT2 Though DB’s liquidity management is sound, we do not believe DB has been left unscathed by its decisions not to call its subordinated securities (LT2 and T1). A new bullet LT2 was issued recently though. Encouragingly, DB says it has covered 80% of its funding requirement YTD.

2Q results Whilst people may focus on the headline miss from consensus, in our view, these were not ‘bad’ results from DB. Net profit for the quarter was €1bn which was down 44% on the previous quarter. The ROE was 9.3% for the quarter. 2Q results were impacted by a EUR 132mn impairment on Deutsche’s Greek Government Bonds in Private & Business Customers and a EUR 62 million accrual for the German bank levy. The FICC business came in line with expectations revenues-wise but there was a big miss in the Equities business. Deutsche confirmed its targets (€10bn IBIT) but the street is probably 10% below them.

B LIST

Company description Deutsche Bank is a major global financial services group, with a bulge bracket investment bank and over €800bn of FuM. In Germany the group has over 8mn retail clients, with a leading position in domestic Private Banking and 25% market share in mutual funds. Reporting date: 3Q11 results – 26th-Nov-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa3/A+/AA- Area Ranking 1 World Ranking 20 Market Cap USD54.5bn Market Share Global fixed income #1 (12%) Equities/Advisory #1 (15%, EU Cash) Corporate Finance #4 Asset Management 17% Source: Company, BofA Merrill Lynch Global Research

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99

Table 17: Deutsche Bank – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,905,630 1,500,664 2,202,423 Profitability % change 27.0 -31.9 14.4 Net Interest Margin 0.91 0.67 0.60 Risk weighted assets 346,204 273,476 307,732 Cost/Income Ratio 81.21 71.92 130.50 26.6 -11.1 -6.4 Revenues/average assets 1.65 1.48 0.66 Gross Customer Loans 411,025 261,448 271,219 Noninterest income/average assets 0.73 0.81 0.06 57.2 -3.6 35.2 Noninterest expense/average assets 1.34 1.06 0.86 NPLs 6,265 7,201 3,682 Net operating income before LLP/average assets 0.31 0.42 -0.20 -13.0 95.6 39.2 LLP/Revenues 4.54 9.60 7.88 Loan Loss Reserves 3,296 3,343 1,938 Net income/average assets (ROA) 0.14 0.27 -0.19 -1.4 72.5 13.7 ROE 7.44 19.90 -14.99 Customer Deposits 533,984 344,220 395,553 55.1 -13.0 -13.6 Liquidity Total equity 50,392 37,969 31,914 Loans/customer deposits 76.36 74.98 68.08 32.7 19.0 -18.8 Loans/assets 21.40 17.20 12.23 Revenues 28,082 27,410 13,657 2.5 100.7 -54.8 Capital Adequacy Net trading income 3,555 6,706 -9,326 Tier 1 ratio 12.30 12.60 10.10 -47.0 -171.9 -217.0 Core Tier 1 ratio 8.70 8.70 7.00 Net interest income 15,583 12,459 12,453 Adjusted common equity/assets 1.83 1.85 1.00 25.1 0.0 40.7 Adjusted common equity/ risk assets 10.05 10.17 7.16 Operating expenses 22,804 19,712 17,822 Equity/assets 2.64 2.53 1.45 15.7 10.6 -15.4 Adjusted equity plus total reserves/loans 12.35 16.16 12.52 PPP 5,278 7,698 -4,165 -31.4 284.8 -145.5 Asset Quality LLP 1,274 2,630 1,076 LLP/average loans 0.38 1.00 0.46 -51.6 144.4 75.8 LLR/Total Loans 0.80 1.28 0.71 Pre tax profit 3,975 5,202 -5,741 LLR/RWA 0.95 1.22 0.63 -23.6 190.6 -165.6 Coverage Ratio 52.40 46.08 50.83 Net income 2,330 4,958 -3,896 NPL/Total loans 1.53 2.77 1.41 -53.0 227.3 -159.8 NPL+ORE/shareholders funds 12.48 19.11 11.95 Source: BofA Merrill Lynch Global Research

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100

Deutsche Postbank (DPB) Rationale Takeover by DB The full takeover by Deutsche Bank must be considered a plus, in our view. We now consider DPB to be DB risk.

Funding Good funding profile, given that the loans/deposit ratio is below 100% and is expected to remain so.

Market share Postbank remains focussed on traditional banking in Germany. It has maintained leading market shares of savings and deposits. This underpins the bank’s credit profile, we feel, though we recognise the structurally weak profitability of retail banking in Germany owing to competitive pressures.

Profitability The fact does remain, however, that in spite of the benefits of a low-risk retail model, DPB’s structured credit exposures have weighed on the P&L. Some evidence that this is beginning to wane in 1Q11 with the negative impact of risk positions declining (much lower trading losses, lower provisioning). As of 1Q11, structured credit exposure was €3.1bn. CRE totalled €17.6bn at FYE10. These figures compare to equity of €5.6bn at year end.

Capital levels Tier 1 increased to 8.7% in the first quarter but we’d expect capital policy to be increasingly dictated by DB going forward (i.e. as a subsidiary we wouldn’t necessarily expect to see DPB aggressively capitalised).

1Q results 1Q pre-tax rose to €142m (depressed by a number of extraordinary factors). A major driver of the 1Q performance is stronger net interest income +7% yoy and the lack of a substantially negative trading loss. Expenses seemed to rise sharply but basically reflected the harmonisation of accounting of pensions. Risk charges are expected to fall this year, albeit gradually. The bank expects to improve regulatory capital ratios further this year as it further reduces its risk positions.

Individual rating upgraded to C by Fitch on May 30.

B LIST

Company description Deutsche Postbank was one of Germany’s largest banks and Germany’s largest private retail bank but it is now majority owned by Deutsche Bank. The bank operates in four business divisions: retail banking, corporate banking, transaction banking and financial markets. Reporting date: 2Q11 results – 03-August-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A(-)/A/A+ Area Ranking 12 World Ranking 130 Market Cap €5.0bn Market Share Savings deposits 6.4% Mortgage Loans 9.3% Transaction banking: domestic 20% Source: Company, BofA Merrill Lynch Global Research

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101

Table 18: Deutsche Postbank – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 214,684 226,609 231,219 Profitability % change -5.3 -2.0 13.9 Net Interest Margin 1.24 1.05 1.15 Risk weighted assets 66,363 74,001 76,165 Cost/Income Ratio 77.11 92.75 129.76 -10.3 -2.8 -16.4 Revenues/average assets 1.72 1.35 1.05 Gross Customer Loans 111,783 111,043 105,318 Noninterest income/average assets 0.49 0.30 -0.10 0.7 5.4 14.4 Noninterest expense/average assets 1.33 1.25 1.37 NPLs 3,819 4,133 1,917 Net operating income before LLP/average assets 0.39 0.10 -0.31 -7.6 115.6 2.1 LLP/Revenues 14.74 21.96 21.77 Loan Loss Reserves 1,764 1,641 1,323 Net income/average assets (ROA) 0.06 0.03 -0.41 7.5 24.0 14.6 ROE 4.50 2.82 -32.83 Customer Deposits 136,476 131,988 117,472 3.4 12.4 6.1 Liquidity Total equity 5,627 5,251 4,952 Loans/customer deposits 80.61 82.89 88.53 7.2 6.0 -5.2 Loans/assets 51.25 48.28 44.98 Revenues 3,805 3,088 2,288 23.2 35.0 -46.1 Capital Adequacy Net trading income -242 -646 -1,638 Tier 1 ratio 8.10 6.60 7.20 -62.5 -60.6 -384.9 Core Tier 1 ratio 5.67 4.45 0.00 Net interest income 2,731 2,405 2,495 Adjusted common equity/assets 1.53 1.27 1.12 13.6 -3.6 11.4 Adjusted common equity/ risk assets 4.95 3.90 3.39 Operating expenses 2,934 2,864 2,969 Equity/assets 2.62 2.32 2.14 2.4 -3.5 1.1 Adjusted equity plus total reserves/loans 6.23 5.68 5.41 PPP 871 224 -681 288.8 132.9 -152.1 Asset Quality LLP 561 678 498 LLP/average loans 0.51 0.64 0.51 -17.3 36.1 54.2 LLR/Total Loans 1.58 1.48 1.26 Pre tax profit 315 -398 -1,064 LLR/RWA 2.66 2.22 1.74 179.1 62.6 -207.3 Coverage Ratio 46.19 39.70 69.01 Net income 139 77 -885 NPL/Total loans 3.42 3.72 1.82 80.5 108.7 -203.3 NPL+ORE/shareholders funds 67.87 78.71 38.71 Source: BofA Merrill Lynch Global Research

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102

Eurohypo (EURHYP) Rationale Pfandbriefe issuer Major issuer of Pfandbriefe makes it an important institution in the context of German banks.

Ongoing restructuring The bank is currently undergoing a major restructuring program which should reduce its complexity as well as the size of some of its riskier portfolios. Of the banks we cover, the cost: income ratio (38% in FY10) is one of the lowest. Eurohypo has announced that they expect to beat their 2011 cost cutting target of EUR110m earlier than expected. We view this as positive as it supports previous statements from the issuer that they will return to profitability in 2011.

Commerzbank support For now, Eurohypo benefits from Commerzbank support, a clear positive, in our view. There is a profit-and-loss transfer agreement between the banks which obliges Commerzbank to offset Eurohypo’s losses which will likely stay in place for now. However, the EC has stated that Eurohypo should be sold within the next five years (by 2014) so obviously the commitment of Commerzbank will wane in the coming years. Commerzbank is likely to remain supportive of Eurohypo until any sale but this does increase uncertainty with respect to this name. Eurohypo’s viability without the support of its parent is obviously still an open question unless the restructuring program is very successful.

Low diversification Limited earnings and business diversification. The bank has highly concentrated exposures and a sizeable share of higher-risk development and corporate loans particularly in US, UK and Spain. There are also some public finance exposures in weaker sovereign countries.

Coupon deferrals Eurohypo has not paid distributions on the 6.445% (and CMS bonds) since 2009. The 6.445% bond coupons are currently subject to litigation. In this case, the deferral is driven by Eurohypo’s losses not the EC’s ruling on aid received by the Commerzbank group.

2010 results In spite of some positive comments at the half year, Eurohypo’s FY provisioning at €1.4bn continued to be rather high and drove the FY loss of €785m. The bank has put back for another year the achievement of what it was hoping to achieve in 2011 (to 2012). The bank maintains that it is able to see the light at the end of the tunnel: and it is true that NII has increased whereas loans have actually declined (by €3bn to €72bn). The bank says that it is basically profitable in the UK and Germany. The T1 ratio is 10.4%. The aim is to make a pre-tax ROE of 12% in the medium-term. For 2011, it will be derisking and portfolio reduction with the provisions still guided to be high.

WATCHLIST

Company description Eurohypo was created in 2002 through the merger of the mortgage banks of three major German banks. As of July 2008 the bank is 100% owned by Commerzbank who acquired a 98% stake in April 2006.Eurohypo is one of the largest European real estate lenders and covered bond issuers. The EU has asked Commerzbank to divest Eurohypo by 2014 as part of its review of state aid. For the moment, Commerzbank is the main driver of the bank’s credit quality, depending on what happens in terms of disposal. Reports only twice yearly. Reporting date: Interim 2011 report due 16th August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Ratings A3/A-/A- Source: Company, BofA Merrill Lynch Global Research

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103

Table 19: Eurohypo – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 229,010 256,061 291,600 Profitability % change -10.6 -12.2 36.1 Net Interest Margin 0.55 0.47 0.45 Risk weighted assets 62,300 72,700 81,600 Cost/Income Ratio 38.17 35.26 -686.57 -14.3 -10.9 -7.7 Revenues/average assets 0.44 0.45 -0.03 Gross Customer Loans 119,493 132,544 152,604 Noninterest income/average assets -0.11 -0.02 -0.48 -9.8 -13.1 16.3 Noninterest expense/average assets 0.17 0.16 0.18 NPLs 8,460 8,080 6,642 Net operating income before LLP/average assets 0.27 0.29 -0.21 4.7 21.7 23.7 LLP/Revenues 132.61 95.37 -1280.60 Loan Loss Reserves 3,194 2,849 2,341 Net income/average assets (ROA) -0.35 -0.33 -0.49 12.1 21.7 2.6 ROE -16.65 -16.20 -21.23 Customer Deposits 32,287 34,630 36,867 -6.8 -6.1 21.1 Liquidity Total equity 3,515 3,952 4,022 Loans/customer deposits 360.20 374.52 407.58 -11.1 -1.7 -27.8 Loans/assets 50.78 50.65 51.53 Revenues 1,061 1,231 -67 -13.8 -1937.3 -104.9 Capital Adequacy Net trading income -441 -203 -1,466 Tier 1 ratio 10.40 8.60 7.80 117.2 -86.2 5135.7 Core Tier 1 ratio 0.00 0.00 0.00 Net interest income 1,338 1,288 1,149 Adjusted common equity/assets 2.21 2.04 2.03 3.9 12.1 -2.5 Adjusted common equity/ risk assets 8.13 7.20 7.24 Operating expenses 405 434 460 Equity/assets 1.53 1.54 1.38 -6.7 -5.7 -15.1 Adjusted equity plus total reserves/loans 7.87 6.92 6.09 PPP 656 797 -527 -17.7 251.2 -163.2 Asset Quality LLP 1,407 1,174 858 LLP/average loans 1.14 0.84 0.61 19.8 36.8 231.3 LLR/Total Loans 2.67 2.15 1.53 Pre tax profit -785 -515 -1,409 LLR/RWA 5.13 3.92 2.87 -52.4 63.4 -339.6 Coverage Ratio 37.43 35.26 35.25 Net income -857 -902 -1,240 NPL/Total loans 7.14 6.10 4.35 5.0 27.3 -449.3 NPL+ORE/shareholders funds 242.79 204.45 165.14 Source: BofA Merrill Lynch Global Research

TM2


104

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105

Greece Alpha Bank EFG Eurobank National Bank of Greece Piraeus

TM2

106

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107TM2


108

Alpha Bank (ALPHA) Rationale EU/IMF rescue plan We see the EU/IMF rescue plans as providing reasonably comprehensive support to the Greek banks that should avert a default in the short-term (both of the sovereign and thus by the banks). We also note that the ECB has relaxed collateral rules for Greek Government bonds which will remain eligible for repo; and that there will be guarantees in the event of a selective default which should allow the Greek banks to borrow at the ECB window. Further, we understand that there will be an additional €10bn facility to protect bank solvency meaning total funds for recapitalising the banks will reach €20bn. There are also additional liquidity measures. The banks’ dependence on funding from the ECB is likely however to remain a feature for the foreseeable future. In 1Q11, 21% of the balance sheet is funded this way. Our view is that whatever happens the Greek banks are headed for an IMF sponsored bank restructuring program, probably within the next few years.

Sovereign concerns Gross exposure to Greek sovereign debt as per the stress tests was at €5.5bn. Alpha’s exposure is the lowest of the major Greek banks. Alpha Bank passed the recent stress tests with a 7.4% capital ratio.

SEE exposure There is also the possibility of problems in Romania (or Cyprus). The largest loan exposure is to Cyprus (€4.5bn) followed by Romania (€3.6bn). SEE operations swung into a loss of €15m in the first quarter as impairments rose to €60m. Alpha has €10.6bn loan book in the region. It is hard to see this unit as a credit positive for now. However, only in Albania (total loans of €438m) is the loan-to-deposit ratio at anything like equilibrium level (~100%). We think the SEE businesses provide financial flexibility (i.e. they could be sold), though up to now the bank has been implacably opposed to this.

1Q results Alpha Bank’s headline net income was €10m, in line with the previous quarter but down 80% yoy. Net profit was buoyed basically by higher than expected trading gains. Net interest and commissions were both down qoq and yoy reflecting balance sheet reduction and low levels of activity. However, the bank has been very strict on costs (cost-income of just below 50%). Liquidity remains very strained with the bank having lost €3.9bn of deposits in the last year and continued attrition. Alpha rejected an unsolicited takeover bid from National Bank of Greece earlier this year.

Downgraded to CCC by S&P mid-June. Affirmed at B- by Fitch end-July.

WATCHLIST

Company description Alpha is diversified financial services group including corporate/consumer banking, mutual funds, investment banking and leasing subsidiaries. Alpha has successfully grown its market share in retail lending in the last couple of years. Expansion in South Eastern Europe is currently on hold. Reporting date: 2Q11 Results – 31st August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating B3(-)/CCC/B- Area Ranking 2 World Ranking 115 Market Cap €1.8bn Market Share Deposits 7% Mortgages 15% Source: Company, BofA Merrill Lynch Global Research

TM2


109

Table 20: Alpha Bank – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 66,798 69,596 65,270 Profitability % change -4.0 6.6 19.4 Net Interest Margin 2.67 2.61 3.00 Risk weighted assets 49,000 50,600 49,900 Cost/Income Ratio 51.07 50.53 50.38 -3.2 1.4 23.2 Revenues/average assets 3.30 3.53 3.90 Gross Customer Loans 51,074 52,025 51,440 Noninterest income/average assets 0.63 0.91 0.90 -1.8 1.1 20.5 Noninterest expense/average assets 1.68 1.78 1.96 NPLs 5,379 3,534 2,349 Net operating income before LLP/average assets 1.61 1.74 1.93 52.2 50.4 41.7 LLP/Revenues 39.34 28.44 23.17 Loan Loss Reserves 2,220 1,643 1,276 Net income/average assets (ROA) 0.13 0.52 0.86 35.1 28.7 51.8 ROE 1.68 8.61 16.66 Customer Deposits 37,054 40,986 39,395 -9.6 4.0 39.1 Liquidity Total equity 5,224 5,390 3,053 Loans/customer deposits 131.85 122.93 127.33 -3.1 76.5 -10.3 Loans/assets 73.14 72.39 76.86 Revenues 2,249 2,378 2,338 -5.4 1.7 4.9 Capital Adequacy Net trading income 38 174 -4 Tier 1 ratio 11.80 11.70 8.00 -56.6 -4191.3 -105.5 Core Tier 1 ratio 9.00 9.00 6.50 Net interest income 1,819 1,763 1,799 Adjusted common equity/assets 8.37 8.33 5.79 106.4 -2.0 12.0 Adjusted common equity/ risk assets 11.41 11.45 7.58 Operating expenses 1,148 1,202 1,178 Equity/assets 7.82 7.74 4.68 91.1 2.0 17.7 Adjusted equity plus total reserves/loans 15.99 14.76 10.08 PPP 1,100 1,177 1,160 -6.5 1.4 -5.6 Asset Quality LLP 885 676 542 LLP/average loans 1.78 1.35 1.18 30.8 24.8 139.0 LLR/Total Loans 4.35 3.16 2.48 Pre tax profit 216 502 626 LLR/RWA 4.53 3.25 2.56 -56.9 -19.8 -41.3 Coverage Ratio 41.27 46.49 54.31 Net income 86 349 513 NPL/Total loans 10.53 6.79 4.57 -75.4 -32.0 -39.7 NPL+ORE/shareholders funds 102.96 65.57 76.94 Source: BofA Merrill Lynch Global Research

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110

EFG Eurobank (EUROB) Rationale EU/IMF rescue plan We see the EU/IMF rescue plans as providing reasonably comprehensive support to the Greek banks that should avert a default in the short-term (both of the sovereign and thus by the banks). We also note that the ECB has relaxed collateral rules for Greek Government bonds which will remain eligible for repo; and that there will be guarantees in the event of a selective default which should allow the Greek banks to borrow at the ECB window. Further, we understand that there will be an additional €10bn facility to protect bank solvency meaning total funds for recapitalising the banks will reach €20bn. There are also additional liquidity measures. The banks’ dependence on funding from the ECB is likely however to remain a feature for the foreseeable future. Our view is that whatever happens the Greek banks are headed for an IMF sponsored bank restructuring program, probably within the next few years.

Capital Increase? Unfortunately, Eurobank failed the recent EBA stress tests, coming in with a stressed CT1 ratio of 4.6%, below the 5% threshold.

Eurobank booked a handy €230m gain from the disposal of Polbank its insurance business in 1Q11 which brought its core Tier 1 ratio up to 11.9%, in line with the guided proforma number.

Asset quality Asset quality remains a concern. The level of NPL formation in Greece accelerated to an all time high in 1Q. NPLs for the group (excl. Poland) are now at 11.4%, up 110 bps q/q. Given the outlook we expect a similar level of formation, at least in the near term. This should also result in provisions to average loans remaining close to current levels.

Liquidity High ECB dependence is of course also a form of structural subordination for senior bondholders. That said, the liquidity provision from the ECB is the essential lifeline to ensure that senior bondholders get paid. In 1Q, Eurobank was able to reduce slightly its ECB exposure to €19.3bn (-€1bn) but it’s still funding ~20% of the balance sheet. Eligible collateral was €24bn.

1Q11 results Adjusted net income of €38m was impacted by one off gains. The gain on sale of Polbank was partly offset by a €130m collective provision for securities. The main challenges are asset quality and liquidity though and 1Q numbers don’t really change that. Deleveraging continued with a 2.5% drop in loans. Costs fell 6%. Deposits dropped €0.8bn in 1Q or -2%.

Expected to sell Turkish operations this year.

On review for downgrade at Moody’s after sovereign was downgraded.

WATCHLIST

Company description EFG Eurobank was established in 1990, but through M&A and strong organic growth has become the second largest Greek bank measured by its assets or loans. It offers retail and commercial banking, asset management, investment banking and insurance services in Greece. In addition it has a growing proportion of operations in the Balkan countries and Poland. 44.1% owned by the Luxembourg-incorporated European Financial Group EFG SRL which itself is fully owned by the Latsis family. Reporting date: 2Q11 results – 25-August-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating B3(-)/CCC/B- Area Ranking 3 World Ranking FOS Market Cap €1.8bn Market Share Loans 20% Mutual funds 24% Source: Company, BofA Merrill Lynch Global Research

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111

Table 21: EFG Eurobank – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 87,188 84,269 82,202 Profitability % change 3.5 2.5 20.2 Net Interest Margin 2.63 2.81 3.17 Risk weighted assets 47,968 47,827 48,375 Cost/Income Ratio 48.77 48.29 47.89 0.3 -1.1 4.4 Revenues/average assets 3.41 3.66 4.34 Gross Customer Loans 58,597 57,579 57,288 Noninterest income/average assets 0.78 0.85 1.18 1.8 0.5 22.8 Noninterest expense/average assets 1.66 1.77 2.08 NPLs 4,534 2,974 1,577 Net operating income before LLP/average assets 1.75 1.89 2.26 52.5 88.6 40.9 LLP/Revenues 46.58 38.64 27.09 Loan Loss Reserves 2,329 1,742 1,410 Net income/average assets (ROA) 0.10 0.38 0.90 33.7 23.5 36.8 ROE 2.25 8.96 19.25 Customer Deposits 44,435 46,808 45,656 -5.1 2.5 26.3 Liquidity Total equity 4,353 4,573 3,918 Loans/customer deposits 126.63 119.29 122.39 -4.8 16.7 -14.5 Loans/assets 64.54 66.26 67.98 Revenues 2,924 3,046 3,270 -4.0 -6.9 15.8 Capital Adequacy Net trading income 173 180 239 Tier 1 ratio 10.60 11.50 8.00 92.2 -24.7 58.3 Core Tier 1 ratio 9.10 9.80 8.00 Net interest income 2,254 2,341 2,385 Adjusted common equity/assets 4.15 4.58 3.88 92.6 -1.8 19.0 Adjusted common equity/ risk assets 7.54 8.08 6.59 Operating expenses 1,426 1,471 1,566 Equity/assets 4.99 5.43 4.77 93.9 -6.1 15.7 Adjusted equity plus total reserves/loans 13.66 13.16 9.49 PPP 1,498 1,575 1,704 -4.9 -7.6 15.8 Asset Quality LLP 1,362 1,177 886 LLP/average loans 2.43 2.11 1.75 15.7 32.8 120.9 LLR/Total Loans 3.97 3.03 2.46 Pre tax profit 136 398 818 LLR/RWA 4.86 3.64 2.91 -65.8 -51.3 -22.1 Coverage Ratio 48.46 55.51 84.08 Net income 84 316 677 NPL/Total loans 8.16 5.43 2.92 -73.4 -53.3 -18.5 NPL+ORE/shareholders funds 110.41 68.62 42.80 Source: BofA Merrill Lynch Global Research

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112

National Bank of Greece (ETEGA) Rationale Market leader Retains 25% overall deposit market share in Greece. SEE expansion has included Turkey, which is in our view better to have than most of the countries that the other Greek banks have expanded into, albeit it looks somewhat problematic right now. Turkey now accounts for 20% of loans but unfortunately 90% of total group profit. However, Finansbank is a profitable and well managed bank.

Government ownership NBG is still indirectly owned by the Greek Government. If there is one Greek bank that is likely to survive more or less in its current form, we think it is NBG. However, its large holdings of Greek government bonds are an obvious concern.

EU/IMF rescue plan We see the EU/IMF rescue plans as providing reasonably comprehensive support to the Greek banks that should avert a default in the short-term (both of the sovereign and thus by the banks). We also note that the ECB has relaxed collateral rules for Greek Government bonds which will remain eligible for repo; and that there will be guarantees in the event of a selective default which should allow the Greek banks to borrow at the ECB window. Further, we understand that there will be an additional €10bn facility to protect bank solvency meaning total funds for recapitalising the banks will reach €20bn. There are also additional liquidity measures. The banks’ dependence on funding from the ECB is likely however to remain a feature for the foreseeable future. Our view is that whatever happens the Greek banks are headed for an IMF sponsored bank restructuring program, probably within the next few years. As of Q1, NBG had a gross ECB use of €20.8bn, down from €24.2bn in Q4 2010. Of this amount, €4.1bn is excess cash and NBG also has a further €6.1bn of collateral (cash value).

Skips preference dividend NBG was obliged to do this because it lacked distributable reserves. NBG will not be able to resume payments on these instruments until 2012 at the earliest, since distributions are paid out of prior year profits. This will depend on the earnings from the domestic business.

1Q Results NBG reported net income of €156 mn, well ahead of consensus. The beat came mostly from non-core revenues (trading and other) and was driven by derivative positions in Turkey. We also saw a positive development on costs, down 1% y/y. Management indicated that cost control (in Greece and SEE) remains very high on the agenda. On a group level NBG reported NPL’s of 9.8%, adjusted for restructured loans. This is an increase of 80 bps from Q4. As expected Greece continued to worsen at an accelerating pace, with a 70 bps increase (9.2%). We don’t see this trend improving in the medium term. SEE was also poor, with a 120 bps q/q increase. The domestic and SEE trends were partially offset by a better than expected development in Turkey, where NPL formation was -42 bps, resulting in an NPL ratio of just 5.4%. We expect Turkey to continue to provide some offset to Greece and SEE in the coming quarters but it’s also important to note that it could be a good source of capital.

The stressed core T1 ratio for NBG was 7.7%.

Rating at B- by Fitch, recently affirmed. On review for downgrade by Moody’s.

WATCHLIST

Company description NBG is Greece's largest commercial bank and services consumers, corporates and the government. These services include commercial and retail banking, mortgage lending, investment banking and brokerage and leasing. NBG also has a significant presence in the Balkans and Eastern Europe as well as Turkey. Reporting date: 2Q10 Results –30 August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating B3(-)/CCC/B+ Area Ranking 1 World Ranking 100 Market Cap €4.6bn Market Share Deposits 23.7% Retail 25% Source: Company, BofA Merrill Lynch Global Research

TM2


113

Table 22: National Bank of Greece – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 120,745 113,394 101,839 Profitability % change 6.5 11.3 12.7 Net Interest Margin 3.54 3.66 3.72 Risk weighted assets 68,198 67,407 62,696 Cost/Income Ratio 54.72 49.72 49.41 1.2 7.5 18.4 Revenues/average assets 3.96 4.72 5.08 Gross Customer Loans 80,823 77,212 71,518 Noninterest income/average assets 0.42 1.06 1.35 4.7 8.0 27.1 Noninterest expense/average assets 2.17 2.35 2.51 NPLs 7,142 4,952 3,063 Net operating income before LLP/average assets 1.80 2.37 2.57 44.2 61.7 31.4 LLP/Revenues 29.41 20.50 10.66 Loan Loss Reserves 3,562 2,459 1,620 Net income/average assets (ROA) 0.38 0.90 1.65 44.8 51.8 4.0 ROE 5.97 17.26 37.80 Customer Deposits 68,010 71,171 67,508 -4.4 5.4 11.7 Liquidity Total equity 10,490 9,311 6,814 Loans/customer deposits 113.60 105.03 103.54 12.7 36.6 -2.4 Loans/assets 63.99 65.92 68.64 Revenues 4,641 5,077 4,878 -8.6 4.1 9.2 Capital Adequacy Net trading income -138 428 431 Tier 1 ratio 13.10 11.30 10.00 -132.3 -0.5 12.4 Core Tier 1 ratio 12.00 9.50 Net interest income 4,148 3,940 3,580 Adjusted common equity/assets 6.57 6.02 4.26 5.3 10.1 17.3 Adjusted common equity/ risk assets 11.63 10.12 6.92 Operating expenses 2,540 2,524 2,410 Equity/assets 8.69 8.21 6.69 0.6 4.7 4.0 Adjusted equity plus total reserves/loans 15.41 13.11 10.61 PPP 2,102 2,553 2,468 -17.7 3.5 14.8 Asset Quality LLP 1,365 1,041 520 LLP/average loans 1.80 1.44 0.83 31.1 100.2 57.4 LLR/Total Loans 4.41 3.18 2.27 Pre tax profit 559 1,204 1,937 LLR/RWA 5.22 3.65 2.58 -53.6 -37.8 1.8 Coverage Ratio 48.54 47.94 50.79 Net income 440 963 1,585 NPL/Total loans 9.06 6.63 4.45 -54.3 -39.2 -3.6 NPL+ORE/shareholders funds 69.95 55.09 46.82 Source: BofA Merrill Lynch Global Research

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114

Piraeus Bank (TPEIR) Rationale EU/IMF rescue plan We see the EU/IMF rescue plans as providing reasonably comprehensive support to the Greek banks that should avert a default in the short-term (both of the sovereign and thus by the banks). We also note that the ECB has relaxed collateral rules for Greek Government bonds which will remain eligible for repo; and that there will be guarantees in the event of a selective default which should allow the Greek banks to borrow at the ECB window. Further, we understand that there will be an additional €10bn facility to protect bank solvency meaning total funds for recapitalising the banks will reach €20bn. There are also additional liquidity measures. The banks’ dependence on funding from the ECB is likely however to remain a feature for the foreseeable future. Our view is that whatever happens the Greek banks are headed for an IMF sponsored bank restructuring program, probably within the next few years. In 1Q11 Piraeus’ core Tier 1 ratio was 9.3%. Whilst this would seem to suggest that bank bonds that mature in the short-term are highly likely to be redeemed on time and in full, we are more cautious.

Asset quality Asset quality continues to deteriorate quite quickly, and we expect this to continue given macroeconomic pressures. Piraeus reported an NPL ratio in Q1 of 8.6%. The q/q increase was 100 bps compared to around 80 bps last quarter. We expect that the asset quality, especially in Greece, will continue to worsen at a similar pace for the remainder of this year. Piraeus reported provisions to average loans of 177 bps, marginally below our 179 bps forecast. This resulted in a 2% percentage point drop in its coverage ratio to 47%. If the NPL formation remains at current levels, we would expect provisions to rise in future quarters.

Liquidity This remains one of the key issues for Greek banks, with the lack of available wholesale funding being worsened by persistent deposit outflows. Like peers, Piraeus is dependent on ECB funding (€17.2 bn) which was flat q/q (compared to a decline for peers). The government is providing further guarantees so we don’t expect Piraeus to run out of eligible collateral.

1Q results Operating results were marginally better than expectations but this still isn’t enough to change the investment case for Piraeus in our view.

Piraeus passed the EBA stress test – just. The stressed CT1 was 5.3%.

WATCHLIST

Company description Piraeus Bank Group was founded in 1916 and was fully privatised in 1991 after a period of state ownership. Since then it has grown at a very rapid pace, both organically and through acquisitions. Today the group has a universal product offering and a presence in the Balkans and Egypt outside its domestic market. Reporting date: 2Q11 results – 26th August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating B3(-)/CCC/B- Area Ranking 4 World Ranking 164 Market Cap €1.1bn Market Share Deposits 10.9% Loans 11% Source: Company, BofA Merrill Lynch Global Research

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Table 23: Piraeus Bank financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 57,680 54,280 54,890 Profitability % change 6.3 -1.1 18.2 Net Interest Margin 2.16 2.02 2.29 Risk weighted assets 38,124 37,394 37,502 Cost/Income Ratio 59.03 53.62 54.08 2.0 -0.3 21.4 Revenues/average assets 2.67 3.06 3.30 Gross Customer Loans 39,071 38,683 39,016 Noninterest income/average assets 0.52 1.04 1.01 1.0 -0.9 27.1 Noninterest expense/average assets 1.58 1.64 1.78 NPLs 2,629 1,691 1,153 Net operating income before LLP/average assets 1.09 1.42 1.51 55.4 46.7 64.5 LLP/Revenues 39.91 29.21 23.12 Loan Loss Reserves 1,433 995 703 Net income/average assets (ROA) -0.04 0.38 0.65 44.0 41.5 69.0 ROE -0.78 7.31 11.49 Customer Deposits 29,254 30,038 27,822 -2.6 8.0 31.3 Liquidity Total equity 2,904 3,244 3,025 Loans/customer deposits 128.66 125.47 137.71 -10.5 7.2 -8.6 Loans/assets 65.25 69.43 69.80 Revenues 1,495 1,671 1,671 -10.5 0.0 13.0 Capital Adequacy Net trading income 8 191 34 Tier 1 ratio 10.40 9.10 8.40 -96.0 468.8 -60.4 Core Tier 1 ratio 9.10 8.20 Net interest income 1,207 1,105 1,160 Adjusted common equity/assets 4.37 5.35 4.96 9.2 -4.7 26.5 Adjusted common equity/ risk assets 6.61 7.77 7.26 Operating expenses 883 896 903 Equity/assets 5.03 5.98 5.51 -1.5 -0.8 20.5 Adjusted equity plus total reserves/loans 11.91 11.75 9.47 PPP 613 775 767 -21.0 1.0 5.2 Asset Quality LLP 597 488 386 LLP/average loans 1.58 1.28 1.13 22.3 26.4 234.5 LLR/Total Loans 3.67 2.57 1.80 Pre tax profit 11 287 386 LLR/RWA 3.76 2.66 1.87 -96.2 -25.7 -50.9 Coverage Ratio 50.26 49.78 52.08 Net income -21 206 331 NPL/Total loans 7.26 5.13 3.44 -110.3 -37.9 -49.1 NPL+ORE/shareholders funds 98.20 61.61 44.62 Source: BofA Merrill Lynch Global Research

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Ireland Allied Irish Banks Anglo Irish Bank Bank of Ireland

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Allied Irish Banks (AIB) Rationale Senior won’t be haircut Following the SLO related to AIB's subordinated debt, we reinstated coverage of AIB's senior bonds maturing to end 2012 at Overweight-30%. We think investors will get par back for these bonds at maturity. We are sticking to bonds that mature before end 2012 however.

Burden sharing for subordinated though On 13 April, the Irish High Court passed an order amending the terms and conditions on a number of AIB subordinated securities. The changed terms involve extending the maturities on the bank’s Lower Tier 2 securities and rendering interest payments optional. Subsequently, the bank offered to buy back LT2 bonds at prices of between 22.5-25 and Tier 1 bonds at 10% but with no accrued interest; investors that did not participate found that their bonds were redeemed at €0.001. It raised €1.6bn for the bank. For a discussion on the implications of the tender on CDS, please see Allied Irish Banks, Sub tender update, 13th May 2011

The Central Bank of Ireland has prescribed a 10.5% core T1 ratio for AIB, which meant an increase in capital of around €14.8bn (of which €1.6bn in contingent capital) by July 31. The Minister has indicated that any portion of the capital raise that is not met either through a €5bn equity placing or via burden sharing with subordinated bondholders will be met by a capital contribution from the State to AIB. The liability management exercise has been completed. At time of writing the £12.5% and the €10.75% appear to have an uncertain future (other bonds having largely been eliminated) and it remains to be seen whether there will be an additional SLO for these bonds so that the bank can take the full quantum of capital that they potentially represent. AIB has also completed the raising of €5bn plus €1.6bn in contingent capital through an issue to the NPRFC. Therefore the Irish State probably needs to provide a further ~€6bn to the bank.

1H11 results The profit for the half year was €2.2bn but the driver of the whole income statement was the €3.3bn gain from liability management exercises of which there were two in the half year. Underlying revenues look very weak, whereas costs appear not to have changed much (the bank would not have broken even at the operating level from what we can see). Provisions remains substantial (€3bn) but of course have been offset by the various capital raising techniques in the past 6 months. Trends in funding are hard to discern but company reports that outflows stabilised in the last few weeks. Underlying deposits apparently fell by €5bn. Funding was boosted by the inclusion of Anglo Irish and EBS deposits. However, central bank funding dependence has also fallen owing to a €13bn drop in customer lending. There seems to be €6bn in headroom for repoing with central banks. Criticised loans (non-NAMA) rose to 34% of loans. Impaired loans are 17.8% of loans. The recapitalisation of the bank is ongoing (€5bn due) and we expect the Government to have recapped by the bank by the end of July

WATCHLIST

Company description Allied Irish Bank is one of the two major retail and commercial banks in Ireland (71% of assets) also operating in the UK. The bank is split into 5 divisions: AIB Bank Republic of Ireland, AIB Bank UK, Capital Markets, and Group. Reporting date: Not Available Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Ba2/BB*-/BBB Area Ranking 1 World Ranking 61 Market Cap € 1.5bn Source: Company, BofA Merrill Lynch Global Research

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Table 24: Allied Irish Banks – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 145,222 174,314 182,174 Profitability % change -16.7 -4.3 2.4 Net Interest Margin 1.15 1.81 2.15 Risk weighted assets 98,768 120,380 133,899 Cost/Income Ratio 73.03 47.74 46.13 -18.0 -10.1 -0.1 Revenues/average assets 1.41 2.23 2.84 Gross Customer Loans 93,637 106,328 131,781 Noninterest income/average assets 0.26 0.42 0.69 -11.9 -19.3 2.7 Noninterest expense/average assets 1.03 1.06 1.31 NPLs 17,493 11,281 11,866 Net operating income before LLP/average assets 0.38 1.17 1.53 55.1 -4.9 75.5 LLP/Revenues 266.39 134.75 35.66 Loan Loss Reserves 7,287 2,987 2,292 Net income/average assets (ROA) -6.36 -1.31 0.49 144.0 30.3 208.9 ROE -138.17 -23.23 8.86 Customer Deposits 52,389 83,953 92,604 -37.6 -9.3 13.9 Liquidity Total equity 4,349 11,335 10,313 Loans/customer deposits 164.82 123.09 139.83 -61.6 9.9 -7.7 Loans/assets 59.46 59.28 71.08 Revenues 2,258 3,974 5,110 -43.2 -22.2 2.3 Capital Adequacy Net trading income -201 11 -73 Tier 1 ratio 4.30 7.20 7.40 -1927.3 -115.1 -198.6 Core Tier 1 ratio 4.00 7.90 5.80 Net interest income 1,844 3,233 3,867 Adjusted common equity/assets 2.86 6.05 5.24 -43.0 -16.4 13.1 Adjusted common equity/ risk assets 4.21 8.77 7.12 Operating expenses 1,649 1,897 2,357 Equity/assets 2.99 6.50 5.66 -13.1 -19.5 -6.5 Adjusted equity plus total reserves/loans 13.64 13.42 10.34 PPP 609 2,077 2,753 -70.7 -24.6 11.2 Asset Quality LLP 6,015 5,355 1,822 LLP/average loans 6.34 4.60 1.42 12.3 193.9 1618.9 LLR/Total Loans 7.78 2.81 1.74 Pre tax profit -11,872 -2,656 1,034 LLR/RWA 7.38 2.48 1.71 -347.0 -356.9 -58.8 Coverage Ratio 41.66 26.48 19.32 Net income -10,162 -2,334 890 NPL/Total loans 18.68 10.61 9.00 -335.4 -362.2 -56.9 NPL+ORE/shareholders funds 402.23 99.52 115.06 Source: BofA Merrill Lynch Global Research

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Anglo Irish Bank Corp (ANGIRI) Rationale Run off Anglo Irish is now in run off. Its deposits have now been transferred to Allied Irish (causing a temporary spike in ECB shorter-term facilities). Anglo has been merged with Irish Nationwide. We believe the Irish Government is already in possession of wide powers to wind down and resolve banks in difficulties.

Haircuts Anglo Irish already completed a liability management exercise on their Lower Tier 2s, in the form of a subordinated to senior debt swap. The exchange was a particularly coercive one in our view as bondholders who did not participate in the exchange had the terms of their bonds amended so that the bank called the bonds at 1 cent per €1000. The Irish Finance Minister seems determined to press ahead and get senior bond haircuts on the debt of the former Anglo /Irish Nationwide. This makes the outcome for the bank’s bonds, even the relatively short-dated ones, rather difficult to predict, in our view.

Government guarantee The previous blanket guarantee has expired but there are still outstanding senior bonds that are still guaranteed. We don’t expect that these would be haircut. Though Anglo, given 100% Irish Government ownership, is effectively Irish sovereign risk, we suspect there are few investors who will be comforted by that these days.

FY10 results FY10 numbers were as grim as would be anticipated. Anglo Irish made a EUR17.7bn loss in 2010, this compares to a EUR12.7bn loss made over the 15 month period ending December 2009. The bank made a EUR1.8bn pre provision profit though this was mainly a result of recent liability management exercises on the bank’s subordinated bonds. The group noted that they remain compliant with Central Bank capital requirements due to continued support from the government with a core Tier 1 and Tier 1 ratio of 11% and 13% respectively. The promissory note that effectively provides the bank’s capital has now been increased by EUR6.4bn, brining total capital support for Anglo to EUR29bn. After NAMA transfers are completed the bank will have a loan book of around EUR36bn with EUR9bn of coverage. The bank also has a further EUR1.1bn of NAMA transfers to be completed.

Anglo will soon change its name to the Irish Bank Resolution Corporation Limited.

WATCHLIST

Company description Anglo Irish is Ireland’s third largest banks specialised in providing services to high net worth individuals, professionals and medium sized corporates in Ireland, the UK and US. Anglo is a severely stressed bank. Reporting date: Not available Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Caa1/CCC/BB-*- Area Ranking 4 World Ranking 132 Source: Company, BofA Merrill Lynch Global Research

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Table 25: Anglo Irish Bank Corp – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 72,183 85,212 101,321 Profitability % change -15.3 -15.9 4.8 Net Interest Margin 0.94 1.31 1.91 Risk weighted assets 36,668 73,055 85,798 Cost/Income Ratio 76.91 44.76 16.64 -49.8 -14.9 9.1 Revenues/average assets 0.58 0.73 1.99 Gross Customer Loans 33,941 35,698 73,065 Noninterest income/average assets -0.36 -0.58 0.08 -4.9 -51.1 10.3 Noninterest expense/average assets 0.45 0.33 0.33 NPLs 16,564 9,511 957 Net operating income before LLP/average assets 0.13 0.40 1.66 74.2 893.8 185.7 LLP/Revenues 1692.16 1723.67 36.73 Loan Loss Reserves 9,577 4,846 914 Net income/average assets (ROA) -22.43 -10.90 0.67 97.6 430.2 209.8 ROE -460.38 -246.18 16.37 Customer Deposits 11,092 27,916 53,080 -60.3 -47.4 -2.4 Liquidity Total equity 3,535 4,170 4,132 Loans/customer deposits 219.65 110.52 135.93 -15.2 0.9 1.6 Loans/assets 33.75 36.21 71.21 Revenues 459 849 1,971 -45.9 -65.5 11.8 Capital Adequacy Net trading income -64 -480 -124 Tier 1 ratio 10.90 6.60 8.40 -86.7 209.7 -1053.8 Core Tier 1 ratio 10.90 6.30 5.91 Net interest income 742 1,525 1,888 Adjusted common equity/assets 4.88 4.87 4.06 -51.3 -35.4 20.6 Adjusted common equity/ risk assets 9.60 5.68 4.79 Operating expenses 353 380 328 Equity/assets 4.90 4.89 4.08 -7.1 -7.3 -16.5 Adjusted equity plus total reserves/loans 55.22 31.31 10.90 PPP 106 469 1,643 -77.4 -77.2 19.9 Asset Quality LLP 7,767 14,634 724 LLP/average loans 28.13 22.73 1.05 -46.9 1517.0 385.9 LLR/Total Loans 28.22 13.57 1.25 Pre tax profit -17,619 -12,829 784 LLR/RWA 26.12 6.63 1.07 -37.3 -1409.1 -36.9 Coverage Ratio 57.82 50.95 95.51 Net income -17,651 -12,709 664 NPL/Total loans 48.80 26.64 1.31 -38.9 -1631.2 -34.1 NPL+ORE/shareholders funds 468.57 228.08 168.13 Source: BofA Merrill Lynch Global Research

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Bank of Ireland (BKIR) Rationale Funding The bank remains completely dependent on the ECB and Central Bank facilities for funding. Total deposits were down EUR20bn over 2010 to EUR65bn. The group noted that since Ireland succumbed to EU/IMF support at end November deposits have remained broadly stable. Prior to this however the bank suffered significant outflows bringing their loan to deposit ratio to 171%, up from 141% a year previously.

Capital raising The bank has been instructed to raise EUR5.2bn in capital, EUR1bn of which will be in the form of contingent capital which will be placed with the Irish Government. Of the €4.2bn that it now needs to be raised, just under €2bn was raised through a liability management exercise. The Government underwrote the balance but the rights issue take up was 60% (though this includes the Government) and a 35% stake was sold to a group of investors. The net result of all these transactions is that the Irish State’s shareholding will be around 15%. The 50% balance will also be held by private investors including bondholders who elected for equity in the bank’s liability management exercise.

Haircut Positively the government confirmed that there will be no haircuts for Senior bondholders in the banks included in the stress test. The base case for the near term maturities must be that they just mature. We cannot exclude some form of voluntary liability management for bonds maturing in 2012 and beyond given their low cash prices.

On Friday 8 July, Bank of Ireland announced the final results of its liability management exercise and the next steps in terms of the capital raising. 78.7% of investors accepted the bank’s offer, overwhelmingly for the debt for equity swaps (74%). So far, the LME will have raised €1.96bn in capital, including the squeeze out. The BKIR €10% bonds achieved only 72% adherence which means that the bank was not able to move to redeem the bonds at €0.01 per €1,000. A further €0.51bn will be raised via Further Equity Capital Raising Measures. Though it is not specified, we believe this could well be via a new Subordinated Liabilities Order. In the meantime, the Central Bank has extended the deadline for the capital raising to year end. Moreover, the bank has calculated the rights issue size at €1.91bn which includes the Further Equity Capital Raising Measures. We believe that the fate of the €10% bonds could now rest with the English and Irish courts. The offer ended July 7, though there is a delayed settlement security which ends Aug 9 to accommodate CDS settlement. CDS triggered under a Restructuring Event.

FY10 numbers At first glance there are no real surprises in the numbers post the guidance provided by the bank in February. Operating profit of EUR1.0bn is down 30% year on year, in line with February’s guidance. On an underlying basis the EUR3.5bn net loss was down around 5% year on year driven by loan losses and provisions on NAMA transfers. The Loss of EUR609m for 2010 compared to a EUR1.8bn loss a year previously. The improvement is driven by a number of one offs. The group’s guidance that losses on the non NAMA book peaked in 2009 was supported by these results. Provisions were down 34% year on year though we note that the level of impaired assets continues to climb.

WATCHLIST

Company description Bank of Ireland, incorporated under charter in 1783, is one of the two major retail and commercial banks in Ireland. Reporting date: 2Q11 results – 11th August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Ba1/BB+ *-/BBB Area Ranking 1 World Ranking 61 Market Cap € 0.6bn Market Share Loans 20% Source: Company, BofA Merrill Lynch Global Research

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Table 26: Bank of Ireland – financial statistics € mn/ % FY10 9M09/10 FY 08/09 FY10 9M09/10 FY 08/09 Total assets 167,473 181,106 194,116 Profitability % change -7.5 -6.7 -1.7 Net Interest Margin 1.27 1.55 1.87 Risk weighted assets 79,045 98,333 105,377 Cost/Income Ratio 55.55 54.33 54.25 -19.6 -6.7 -9.9 Revenues/average assets 1.85 1.81 2.00 Gross Customer Loans 119,432 122,436 135,521 Noninterest income/average assets 0.58 0.26 0.12 -2.5 -9.7 -0.6 Noninterest expense/average assets 1.03 0.98 1.08 NPLs 16,874 11,964 11,083 Net operating income before LLP/average assets 0.82 0.83 0.91 41.0 7.9 171.6 LLP/Revenues 70.76 159.52 36.70 Loan Loss Reserves 4,975 2,997 1,781 Net income/average assets (ROA) -0.35 -1.04 0.01 66.0 68.3 198.8 ROE -9.45 -31.82 0.30 Customer Deposits 70,714 89,862 87,203 -21.3 3.0 -5.1 Liquidity Total equity 7,407 6,437 6,913 Loans/customer deposits 161.86 132.91 153.37 15.1 -6.9 6.0 Loans/assets 68.34 65.95 68.90 Revenues 3,228 2,542 3,910 27.0 -13.3 -8.0 Capital Adequacy Net trading income 225 -28 -307 Tier 1 ratio 9.70 9.80 12.00 -903.6 -87.8 24.8 Core Tier 1 ratio 9.70 8.90 9.50 Net interest income 2,219 2,179 3,670 Adjusted common equity/assets 4.15 3.27 3.29 1.8 -20.8 12.5 Adjusted common equity/ risk assets 8.80 6.03 6.06 Operating expenses 1,793 1,381 2,121 Equity/assets 4.42 3.55 3.56 29.8 -13.2 -1.7 Adjusted equity plus total reserves/loans 11.09 8.75 8.63 PPP 1,435 1,161 1,789 23.6 -13.5 -14.5 Asset Quality LLP 2,284 4,055 1,435 LLP/average loans 1.95 4.27 1.07 -43.7 276.8 532.2 LLR/Total Loans 4.17 2.45 1.31 Pre tax profit -950 -1,813 -23 LLR/RWA 6.29 3.05 1.69 47.6 -10410.1 -101.2 Coverage Ratio 29.48 25.05 16.07 Net income -609 -1,469 18 NPL/Total loans 14.13 9.77 8.18 58.5 -10981.5 -98.9 NPL+ORE/shareholders funds 227.81 185.86 160.32 Source: BofA Merrill Lynch Global Research

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Italy Banca Popolare di Milano Banco Popolare Intesa Sanpaolo Monte dei Paschi Unicredit Unione di Banche Italiane

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Banca Popolare di Milano (PMIIM) Rationale Government aid In September 2009 the bank completed an agreement to receive €500m in capital from the State (Tremonti bonds) boosting Core Tier 1. At 1Q11 it was 7%. The bank has said it intends to repay the Government capital by 2013. The group recently announced plans for a EUR1.2bn capital hike with an aim to achieve an 8.6% core Tier 1 by end 2011 – definitely a positive, albeit that the market backdrop has become steadily less supportive. However, this has been somewhat overshadowed by the controversy over changes to the bank’s governance which would have made it more independent of the trade unions (see below). The capital increase is still pending and could hardly come at a worse moment

Trade union influence Highly influenced by trade unions which reduces the bank’s strategic flexibility – and probably is responsible for the unusually high cost base of the bank (the cost-income ratio exceeds 77%). Recently attempts have been made, so far unsuccessfully, to address this imbalance.

Asset quality We have become more cautious on the name as a result of asset quality concerns. A high proportion of the loan book is under water, if the 7.8% of gross impaired loans as of 1Q is anything to go by (though the level of impaired lending is flattish from year end). The deterioration reflects the group’s real estate exposures. Concentration risk is a perennial issue with BPM. The reserves to loans ratio is 2.4%.

Business Plan BPM is planning to deliver ~€300m earnings in 2013 (though this is in line with current estimates). This would be equivalent of an ROE of 7.1%, rising to 9.1% by 2015. The targets don’t look unrealistic but it does mean profitability will remain low for the foreseeable future. However, cost reduction doesn’t look as aggressive as peers, meaning that the bank is more dependent on economic recovery to achieve its goals in terms of revenue growth.

Failed to call Tier 1 bond BPM didn’t call its 8.393% €T1 bond and disappointingly didn’t offer any concession like e.g. UBI did for keeping it outstanding. However, the non-call was well trailed and the bank had previously offered liability management for the bonds (‘only’ around €71m remain outstanding). This bond will be grandfathered for regulatory capital purposes but will amortise out of T1 capital from 2013.

1Q11 results The big surprise in the numbers is the jump in net interest income of 16% to €209m which reflects the success of the bank’s policy of increasing securities (carry trade – AfS securities have increased from €1.8bn to €9.6bn in the space of a year). Other revenue lines were down so overall revenues fell 7% yoy. Net profit came in at €42m which was a beat to consensus.

GREY LIST

Company description Banco Popolare di Milano, founded 140 years ago in Milan, is the seventh largest in Italy.. The main credit strength of BPM would appear to be its positioning in the wealthy Milan/Lombardy region which gives the banks a number of advantages (e.g. in funding). Reporting date: 2Q11 results – 25th August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A1/A-/A- Area Ranking 7 World Ranking 182 Market Cap € 0.6bn Market Share Derivatives 4% Equities 5% Domestic 21% Source: Company, BofA Merrill Lynch Global Research

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Table 27: Banca Popolare di Milano – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 54,053 44,281 45,039 Profitability % change 22.1 -1.7 3.2 Net Interest Margin 1.50 1.98 2.41 Risk weighted assets 37,034 34,238 34,317 Cost/Income Ratio 77.52 69.58 71.71 8.2 -0.2 -2.0 Revenues/average assets 2.91 4.28 3.68 Gross Customer Loans 36,451 33,670 33,620 Noninterest income/average assets 1.41 2.30 1.27 8.3 0.1 11.3 Noninterest expense/average assets 2.26 2.98 2.64 NPLs 2,765 2,376 1,338 Net operating income before LLP/average assets 0.65 1.30 1.04 16.4 77.6 39.7 LLP/Revenues 17.09 17.61 12.57 Loan Loss Reserves 865 818 721 Net income/average assets (ROA) 0.23 0.23 0.19 5.8 13.4 60.7 ROE 3.56 3.64 3.02 Customer Deposits 23,866 22,162 20,518 7.7 8.0 -5.1 Liquidity Total equity 3,984 4,022 3,389 Loans/customer deposits 149.11 148.24 160.34 -1.0 18.7 -5.8 Loans/assets 65.83 74.19 73.05 Revenues 1,431 1,913 1,631 -25.2 17.3 -11.4 Capital Adequacy Net trading income 100 127 -210 Tier 1 ratio 7.80 8.62 7.66 -20.8 -160.4 215.0 Core Tier 1 ratio 7.10 7.85 6.47 Net interest income 736 885 1,068 Adjusted common equity/assets 5.93 6.86 5.83 -16.8 -17.1 3.9 Adjusted common equity/ risk assets 8.65 8.87 7.65 Operating expenses 1,109 1,331 1,170 Equity/assets 7.37 9.08 7.52 -16.7 13.8 0.5 Adjusted equity plus total reserves/loans 12.72 13.18 12.27 PPP 322 582 461 -44.7 26.1 -32.0 Asset Quality LLP 245 337 205 LLP/average loans 0.71 1.02 0.65 -27.4 64.3 60.9 LLR/Total Loans 2.37 2.43 2.14 Pre tax profit 189 217 213 LLR/RWA 2.34 2.39 2.10 -13.2 2.0 -61.6 Coverage Ratio 31.29 34.41 53.89 Net income 111 103 83 NPL/Total loans 7.59 7.06 3.98 8.0 24.1 -75.3 NPL+ORE/shareholders funds 69.41 59.08 39.49 Source: BofA Merrill Lynch Global Research

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Banco Popolare (BPIM) Rationale Market position In theory, BPIM should have deep retail roots in strong domestic geographies and a generally low risk profile. The group has strong market positions in wealthy northern Italian regions such as Verona, Novara, Bergamo, Lodi and elsewhere. High levels of deposits and no investments in toxic assets. Recently denied speculation that it would be merging with UBI Banca.

Capital still relatively weak BPIM recently completed a €2bn rights offering. The group hopes that a move to an internal model will help boost capital ratios by 80-100bps. Other capital improvements include planned disposal of non-core assets (+50/60bps) and the conversion of the SMCN (up to +105bps). These efforts are definitely a step in the right direction. However, used part of proceeds of recent rights issue to repay the €1.45bn in Government aid (Tremonti bond) received in July 2009. Although freedom from state ties would normally be a positive we don’t find this move particularly comforting given the weakness of the group’s capital position. The redemption of the Tremonti bond knocked 155bps off the group's Tier 1 capital. 1Q11 ratios taking into account the recent rights issue and Tremonti bond repayment were 6.5% and 7.9% for core Tier 1 though ‘optimisation’ measures were said to potentially be able to raise that to 7.5% which may be OK for a bank that isn’t systemically important. CT1 of 8.3% expected by 2015 under new Business Plan which seems low but we must recall that BPIM is not a systemically important bank in the way that ISPIM and UCGIM are. Stressed CT1 in recent tests was ‘only’ 5.7% but may increase by as much as 0.8% if Basel 2 Advanced was fully applied.

Asset quality still weak Total impaired loans continued on an upward trajectory in 1Q11 as they grew to €13.5bn (+4.5% YTD) or around 12% of loans. The bank says that net of Italease ‘92% of non-performing loans have been written down, derecognised or collateralised’. However, this number doesn’t of course compare with the coverage ratios seen at other banks. Coverage looks to be a low 27%.

Acquisition difficulties BPIM problems are all about its acquisitions – first, BPI and then Italease. A long term restructuring story with good management but the immediate outlook for an earnings recovery does seem pretty bleak.

1Q results These looked like relatively weak results. Net income was €60m as Italease contributed a bottom line loss of €20m. With net interest falling 6.6%, the bright spot amongst revenues was fees up 8% qoq reflecting loan fees and savings products distribution. Trading gains look low at €67m but reflect a negative fair value relating to the bank’s own debt of €115m. 2011 funding needs have already been covered. As we look at these results though, weak as they are, we start to think that the bank must by now have reached the bottom.

Placed on review for downgrade by Moody’s on June 23 owing to systemic risk fears.

New Business Plan was disclosed on June 30 which targets €603m of net profit in 2013 or ROTE of 9.3%; via the closure of 180 branches, elimination of 1,120 jobs and the sale of €500m in real estate assets.

GREY LIST

Company description Banco Popolare is the product of the merger between Banco Popolare di Verona e Novara and BPI in 2007 (together with Italease). The bank is mainly concentrated in Northern Italy with over 2,000 branches focusing on retail and SMEs with market shares of 7% to 11% through the northern Italian regions of Piedmont, Lombardy, the Veneto, Emilia Romagna and Tuscany. Reporting date: 2Q11 results – 9th August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A2/A-/BBB+ Area Ranking 4 World Ranking 102 Market Cap € 2.5bn Market Share Commercial 8.4% Source: Company, BofA Merrill Lynch Global Research

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Table 28: Banco Popolare – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 135,156 135,709 121,375 Profitability % change -0.4 11.8 -5.5 Net Interest Margin 1.33 1.53 1.81 Risk weighted assets 94,878 92,623 73,907 Cost/Income Ratio 73.91 69.02 78.21 2.4 25.3 -20.1 Revenues/average assets 3.07 3.15 3.25 Gross Customer Loans 98,560 99,486 83,698 Noninterest income/average assets 1.73 1.61 1.44 -0.9 18.9 -3.7 Noninterest expense/average assets 2.27 2.17 2.54 NPLs 12,895 13,307 5,492 Net operating income before LLP/average assets 0.80 0.97 0.71 -3.1 142.3 29.7 LLP/Revenues 18.84 20.36 28.11 Loan Loss Reserves 4,098 4,135 2,671 Net income/average assets (ROA) 0.24 0.20 -0.24 -0.9 54.8 15.1 ROE 4.89 4.43 -6.45 Customer Deposits 54,574 53,192 51,351 2.6 3.6 0.4 Liquidity Total equity 11,940 12,112 10,188 Loans/customer deposits 173.09 179.26 157.79 -1.4 18.9 -8.0 Loans/assets 69.89 70.26 66.76 Revenues 4,152 4,043 4,058 2.7 -0.4 2.8 Capital Adequacy Net trading income 172 -354 -295 Tier 1 ratio 7.20 7.69 6.39 -148.6 20.2 -182.0 Core Tier 1 ratio 5.70 6.20 5.68 Net interest income 1,805 1,969 2,258 Adjusted common equity/assets 5.02 5.00 4.01 -8.3 -12.8 34.7 Adjusted common equity/ risk assets 7.15 7.32 6.58 Operating expenses 3,069 2,791 3,173 Equity/assets 8.83 8.93 8.39 10.0 -12.1 28.4 Adjusted equity plus total reserves/loans 12.82 12.76 10.84 PPP 1,083 1,253 884 -13.5 41.7 -40.1 Asset Quality LLP 782 823 1,141 LLP/average loans 0.82 0.93 1.38 -4.9 -27.8 265.5 LLR/Total Loans 4.16 4.16 3.19 Pre tax profit 232 487 -442 LLR/RWA 4.32 4.46 3.61 -52.4 210.2 -138.8 Coverage Ratio 31.78 31.08 48.64 Net income 332 258 -302 NPL/Total loans 13.08 13.38 6.56 28.5 185.4 -145.8 NPL+ORE/shareholders funds 107.99 109.86 53.91 Source: BofA Merrill Lynch Global Research

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Intesa Sanpaolo (ISPIM) Rationale Size The largest bank in Italy but of course somewhat less diversified than comparable European peers as a consequence. However, the bank is well diversified in terms of business lines and we’d consider that it had a generally conservative outlook and profile. The bank is dominant in lending and asset management (retail/HNW rather than institutional).

Strong deposit base and liquidity Intesa had covered 100% of its wholesale funding maturities at the beginning of May. The bank reported a loans-to-deposits ratio of 96% and €45bn of central bank eligible collateral (net of haircut). Funding remains a strength. The Italian banks also benefit from their plentiful deposit bases.

Capital levels Capital levels much better following the announcement of the €5bn rights issue following which core Tier 1 is expected to be in the 10% range. Capital now a strength rather than a weakness. 8.9% stressed CT1 in recent tests.

Asset quality In 1Q11, provisions fell 20% qoq to €680m. Whilst the company states that the stock of net impaired loans has declined, note that this is really a function of the level of reserving against the loans (make less write-offs in any given quarter and the level of reserves stays high, making impaired loans optically look lower). In fact, gross non-performers rose 60bps to €37.3bn in 1Q or 9.2% of loans. Not as shocking as Unicredit’s book for sure but no room for complacency either, in our opinion. 44% coverage (in line with Unicredit’s). Italy and International’s asset quality is equally bad (with 12%+ NPLs). CEE is 7.5% of loans.

2010 results These results, delivered just about a month after the disclosure of the new Business Plan, were satisfactory in the context of other Italian banks and the early stages of the new strategy. Net income was €661m (stated) or €762m according to the bank if non-recurring items were included. Revenues actually fell 6% qoq mostly owing to lower trading gains (though that number was a beat compared to consensus). Net interest income and loan growth were basically flat (-1% each). Margins appear to be relatively stable. Fees were down 8% on Q4 as in Q4 performance fees are registered. The main advantage the bank has for credit investors is the recent €5bn rights issue, which on a proforma basis would bring the core Tier 1 to 9.8%. Actual profitability levels remain mediocre with ROE of only 4.8% this quarter (we are some way away from the targeted adjusted ROE target of 9.3% or ROTE target of 14.7%).

Total exposure to Greece = €1bn, plus €225m of loans, to Portugal €1.5bn with €334m of loans, and Ireland €305m plus €793m of loans.

Company description Intesa Sanpaolo, the banking group resulting from the merger between Banca Intesa and Sanpaolo IMI, is Italy’s second largest banking group with over 6,000 branches in Italy and over 1,900 abroad. Intesa holds leading market positions in retail and corporate banking, bancassurance and asset management. Reporting date: 2Q11 report due 5th August 2011 Sources: Company, BofA Merrill Lynch Global Research

B LIST

Statistics Rating Aa3/A+/AA- Area Ranking 2 World Ranking 25 Market Cap € 27.3bn Market Share Deposits 16.8% Loans 15.6% Factoring 33.0% Mutual funds 17.4% Source: Company, BofA Merrill Lynch Global Research

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Table 29: Intesa Sanpaolo – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 658,757 624,844 636,133 Profitability % change 5.4 -1.8 11.0 Net Interest Margin 1.65 1.78 2.06 Risk weighted assets 332,158 361,648 383,072 Cost/Income Ratio 62.84 59.70 70.52 -8.2 -5.6 3.1 Revenues/average assets 2.57 2.82 2.91 Gross Customer Loans 398,245 390,994 408,744 Noninterest income/average assets 0.91 1.04 0.85 1.9 -4.3 20.0 Noninterest expense/average assets 1.61 1.68 2.05 NPLs 37,245 34,403 22,578 Net operating income before LLP/average assets 0.95 1.14 0.86 8.3 52.4 191.4 LLP/Revenues 17.10 19.40 13.82 Loan Loss Reserves 19,010 16,961 13,555 Net income/average assets (ROA) 0.43 0.47 0.44 12.1 25.1 158.2 ROE 9.56 11.14 10.69 Customer Deposits 221,064 210,814 217,498 4.9 -3.1 5.3 Liquidity Total equity 54,600 53,771 50,054 Loans/customer deposits 171.55 177.42 181.70 1.5 7.4 -4.4 Loans/assets 57.57 59.86 62.12 Revenues 16,483 17,771 17,603 -7.2 1.0 2.1 Capital Adequacy Net trading income 469 1,211 -1,420 Tier 1 ratio 9.40 8.40 7.10 -61.3 -185.3 -417.0 Core Tier 1 ratio 7.90 7.10 6.30 Net interest income 10,621 11,237 12,454 Adjusted common equity/assets 4.50 4.55 3.82 -5.5 -9.8 22.5 Adjusted common equity/ risk assets 8.93 7.86 6.35 Operating expenses 10,358 10,610 12,414 Equity/assets 8.29 8.61 7.87 -2.4 -14.5 12.0 Adjusted equity plus total reserves/loans 14.47 13.80 10.34 PPP 6,125 7,161 5,189 -14.5 38.0 -15.7 Asset Quality LLP 2,818 3,448 2,433 LLP/average loans 0.75 0.90 0.67 -18.3 41.7 133.3 LLR/Total Loans 4.77 4.34 3.32 Pre tax profit 3,931 3,624 2,093 LLR/RWA 5.72 4.69 3.54 8.5 73.1 -76.5 Coverage Ratio 51.04 49.30 60.04 Net income 2,776 2,938 2,682 NPL/Total loans 9.35 8.80 5.52 -5.5 9.5 -63.5 NPL+ORE/shareholders funds 68.21 63.98 45.11 Source: BofA Merrill Lynch Global Research

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Monte dei Paschi (MONTE) Rationale Funding The bank’s funding position is solid, in our view. The bank has a low level of debt maturing in 2011 which can be met either through covered bond issuance or private placements. Retail demand in Italy is strong and the bank has a good retail network with over 3,000 branches nationwide. Our only concern here is with interbank funding which is still high in spite of its apparent drop in 1Q11.

Capital position Recently Monte has taken steps to sort itself out from a capital perspective. The group launch a EUR2bn recap (completed July) along with potentially a further EUR471m depending on the success of a tender offer (for the FRESHs). We have been waiting a long time for Monte to take actions to address its lowly capital position so this is positive. Core Tier 1 is expected to be 8.6% by 2013. Although this does fall short of the 10% sported by peers like Intesa it is a definite step forward from the sub 7% we have seen in recent quarters. In the meantime, the Tier 1 ratio was 9.1% (the bank had not disclosed the core T1 ratio). Marginal 6.3% stressed CT1 in recent stress tests.

Asset quality Monte has one of the highest impaired loan ratios out of the Italian banks. The group’s lending is mainly domestic and the focus on SMEs (35% of loanbook), makes it particularly sensitive to the economic environment. As the Italian economy has struggled, the loan book has come under increasing pressure and levels of non performing assets have risen sharply. The total stock of impaired loans still seems to be growing, remaining above 12%, one of the highest levels in our coverage universe.

Ownership structure Monte’s ownership structure is unusual. The group’s largest shareholder is the Foundation MPS: a private non-profit organisation holding 21.6% of the group’s ordinary shares.

1Q results Net profit was €140m which was a slight beat to consensus. The ROE was a bit weak at 3.2%. Though the capital increase and stabilisation of the balance sheet are the drivers of any positive investment case for Monte, it is hard to see in what direction the bank is going from this report. Net interest is flat yoy but down qoq. Fees are down qoq and yoy. There’s a large trading gain though of €104m that boosted overall revenues to €1.5bn, largely driven by the unwind of the bank’s ALM portfolio which previously had boosted margins. Loan to deposit ratio improved to 96% versus 99% in December – still a strength. The bank says that it has already completed its program of institutional funding for this year.

Since June 23, on review for downgrade by Moody’s as they reassess Italy’s support framework for banks.

GREY LIST

Company description Monte dei Paschi is an Italian domestically focused retail bank. The bank is the third largest in Italy benefitting from an extensive retail network. The bank has a retail network of over 3,000 branches domestically and over 600 in the relatively wealthy region of Tuscany where the bank has market share of more than 25%. Reporting date: 1Q11 results - 26th Aug 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A2*-/A-/A- Area Ranking 3 World Ranking 79 Market Cap €5.7bn Market Share Loans 7.9% Mortgages 10.7% Source: Company, BofA Merrill Lynch Global Research

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Table 30: Monte dei Paschi – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 244,279 224,815 213,796 Profitability % change 8.7 5.2 31.9 Net Interest Margin 1.51 1.68 2.00 Risk weighted assets 109,238 120,899 132,408 Cost/Income Ratio 65.17 76.65 80.02 -9.6 -8.7 16.8 Revenues/average assets 2.58 2.51 2.81 Gross Customer Loans 165,238 160,158 151,676 Noninterest income/average assets 1.07 0.84 0.82 3.2 5.6 38.7 Noninterest expense/average assets 1.68 1.93 2.25 NPLs 11,381 10,221 7,342 Net operating income before LLP/average assets 0.90 0.59 0.56 11.3 39.2 91.3 LLP/Revenues 18.59 26.37 18.96 Loan Loss Reserves 9,000 7,744 6,323 Net income/average assets (ROA) 0.42 0.10 0.50 16.2 22.5 114.3 ROE 12.91 3.18 13.21 Customer Deposits 79,028 77,240 75,935 2.3 1.7 33.3 Liquidity Total equity 15,526 15,556 15,103 Loans/customer deposits 197.70 197.32 191.42 -0.2 3.0 69.0 Loans/assets 63.96 67.80 67.99 Revenues 6,053 5,509 5,286 9.9 4.2 6.3 Capital Adequacy Net trading income -330 -279 -679 Tier 1 ratio 8.37 7.52 5.13 18.2 -58.9 299.4 Core Tier 1 ratio 0.00 0.00 0.00 Net interest income 3,541 3,675 3,751 Adjusted common equity/assets 3.32 3.19 3.24 -3.6 -2.0 28.7 Adjusted common equity/ risk assets 7.43 5.93 5.24 Operating expenses 3,945 4,223 4,230 Equity/assets 6.36 6.92 7.06 -6.6 -0.2 31.0 Adjusted equity plus total reserves/loans 14.67 13.58 11.83 PPP 2,108 1,286 1,056 63.9 21.7 -39.4 Asset Quality LLP 1,126 1,453 1,002 LLP/average loans 0.73 0.98 0.80 -22.5 44.9 63.3 LLR/Total Loans 5.45 4.84 4.17 Pre tax profit 1,329 255 1 LLR/RWA 8.24 6.41 4.78 420.9 20115.8 -99.9 Coverage Ratio 79.09 75.77 86.12 Net income 987 225 931 NPL/Total loans 6.89 6.38 4.84 339.4 -75.9 -35.9 NPL+ORE/shareholders funds 73.30 65.70 48.61 Source: BofA Merrill Lynch Global Research

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Unicredit (UCGIM) Rationale Market position Market leader in Italy. Probably the leading European bank in CEE - certainly it is represented just about everywhere in the region. The bull case is that Unicredit will benefit from an early recovery in CEE. In our view, Unicredit is somewhat more dependent on investment banking than generally appreciated by the market. Certainly, some change needs to be made in the domestic Italian operations which appear to be barely profitable.

Capital raising The rights issue at the beginning of 2010 was positive but questions linger with respect to its sufficiency. We understand the bank has been given an extension till year end to get to the newly required 10% core Tier 1 ratio on account of the Libyan presence on their board. The push from the Bank of Italy to raise capital is a positive, in our view. We also acknowledge the bank’s ability to generate pre-provision income, which is better than average. Note that UCG was able to place ‘new’ T1 securities recently and this probably means the bank remains committed to calling its bank capital instruments. CT1 is 9.06% (Basel 2). No mention of the supposed capital increase of course in the 1Q earnings release. The bank has announced that it will be restructuring with Mediobanca the €3bn CASHES bond, originally issued at the beginning of 2009. Unicredit passed the EBA stress tests but with a ratio of ‘only’ 6.7%.

Asset quality High 11% NPLs is a negative and coverage is 45%. Gross impairments continue to nudge up q-o-q. Loans in CEE total €65.5bn. The breakdown: Turkey (€11.2bn), Croatia (€9.5bn), Russia (€9.2bn), Ukraine (€2.7bn), Bulgaria (€3.9bn), Romania (€3bn), Kazakhstan (€3.5bn), Czech (€7.1bn), Slovakia (€2.7bn), Hungary (€4bn), Bosnia (€1.3bn), Slovenia (€2.3bn), Serbia (€1bn), Baltics (€0.7bn). Poland is the largest exposure (€20bn). The Group’s gross exposure to sovereign bonds of Greece, Spain, Ireland and Portugal was a reported €1.6bn under the CEBS stress test disclosure.

1Q11 results Net income for the 1Q11 was much better than expectations, at €810m but this is still equivalent to an ROE of ‘only’ 6.3%. One of the big drivers of the better revenue performance was a better trading line, which contributed €700m this quarter. Fixed Income and Currencies saw strong growth. Looking at pre-tax profits by division, it’s clear to us that Corporate & Investment Banking, which produced pre-tax of €1,268m, is the only driver here, with very modest performance being recorded by Italy (€173m pre-tax), Germany (€26m) and Austria (€28m). Poland and CEE contributed €430m but corporate centre gives a very large deduction of €737m. This is too lop-sided. We await management’s articulation of their new strategic direction.

Likely to be downgraded by Moody’s following their reassessment of the support framework of Italian banks (June 23).

GREY LIST

Company description Unicredito, created in 1998, originally consisted of seven Italian regional banks and is now one of Europe’s largest banks with operations in 22 countries in both Western and Eastern Europe. Unicredito has a network of over 10,000 branches, of which about 5,000 are in Italy and about 3,000 in CEE. Unicredito has expanded rapidly since 2003 with a series of acquisitions in CEE, Germany and Austria. Reporting date: 3rd August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa3*-/A/A Area Ranking 1 World Ranking 17 Market Cap € 23.8bn Market Share Loans 26% Source: Company, BofA Merrill Lynch Global Research

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Table 31: Unicredit – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 929,488 928,760 1,045,612 Profitability % change 0.1 -11.2 2.3 Net Interest Margin 1.70 1.73 1.75 Risk weighted assets 454,850 452,388 512,532 Cost/Income Ratio 67.37 62.16 67.22 0.5 -11.7 -8.3 Revenues/average assets 2.78 2.75 2.57 Gross Customer Loans 588,672 594,666 637,096 Noninterest income/average assets 1.09 1.03 0.83 -1.0 -6.7 7.0 Noninterest expense/average assets 1.87 1.71 1.73 NPLs 67,336 57,789 42,400 Net operating income before LLP/average assets 0.91 1.04 0.84 16.5 36.3 14.0 LLP/Revenues 25.96 30.01 13.47 Loan Loss Reserves 33,019 29,680 24,616 Net income/average assets (ROA) 0.18 0.21 0.44 11.2 20.6 21.3 ROE 4.03 5.77 13.48 Customer Deposits 361,270 360,590 358,009 0.2 0.7 -8.1 Liquidity Total equity 67,703 62,892 58,240 Loans/customer deposits 153.81 156.68 171.08 7.7 8.0 -6.7 Loans/assets 59.78 60.83 58.58 Revenues 25,841 27,166 26,587 -4.9 2.2 0.1 Capital Adequacy Net trading income 678 1,687 -2,657 Tier 1 ratio 9.46 8.63 6.81 -59.8 -163.5 -244.0 Core Tier 1 ratio 8.58 7.62 6.00 Net interest income 15,756 17,034 18,044 Adjusted common equity/assets 4.67 4.13 3.08 -7.5 -5.6 29.2 Adjusted common equity/ risk assets 9.53 8.47 6.27 Operating expenses 17,408 16,886 17,872 Equity/assets 7.28 6.77 5.57 3.1 -5.5 16.0 Adjusted equity plus total reserves/loans 14.53 12.91 10.00 PPP 8,433 10,280 8,715 -18.0 18.0 -21.8 Asset Quality LLP 6,708 8,152 3,582 LLP/average loans 1.20 1.38 0.60 -17.7 127.6 67.3 LLR/Total Loans 5.61 4.99 3.86 Pre tax profit 2,175 2,923 4,995 LLR/RWA 7.26 6.56 4.80 -25.6 -41.5 -45.7 Coverage Ratio 49.04 51.36 58.06 Net income 1,645 2,035 4,529 NPL/Total loans 11.44 9.72 6.66 -19.2 -55.1 -31.6 NPL+ORE/shareholders funds 99.46 91.89 72.80 Source: BofA Merrill Lynch Global Research

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Unione di Banche Italiane (UBIIM) Rationale Customer base UBI is now Italy’s largest cooperative bank and is the 5th largest domestic bank by customer funds and total loans, very much focused on the wealthier northern parts of Italy. One of the better Italian regionals, the bank is very well represented in Lombardy and Piemonte – regions which account for 30% of Italy’s GDP and 24% of its population. UBIIM has no exposure in E Europe and no plans to merge with Banco Popolare. Also has no exposure to Greece or Portugal.

Capital levels UBI surprised the market with its €1bn rights issue (compared to market cap at the time of just over €4bn). The issue was fully underwritten. We believe UBI is well positioned amongst its Italian bank peers now after the raise. Core Tier 1 is just over 8% after the increase. 1Q core Tier 1 was 6.94%. Passed the EBA stress tests with a stressed CT1 of 7.4%.

Asset quality Asset quality has continued to deteriorate. Total deteriorated loans at end March were €7.9bn or 7.5% of loans compared to December (€7.5bn or 7.1%). Coverage is an uninspiring 29%.

Funding Says has covered 90% of its 2011 funding requirement already

Non call of T1 Earlier failure to call the old Banca Lombarda T1 cannot be described as a positive. However, the bank did unilaterally raise the interest rate it pays on the back end in December and since the capital raise has said that it will consider calling its innovative capital securities from 2013 since they no longer qualify as T1 capital (though in fact its uncalled T1s . Moreover, in line with guidance, the bank has called its Lower Tier 2 bonds because these can, at least in theory, be replaced. The June 2015-11 bonds were called on June 10.

1Q11 results The bank swung back into profit in 1Q11 but still at a weak level with €65m net equating to an ROE of a measly 2.1%. Revenues are basically flat yoy but costs are slightly down. The bank also presented its new Business Plan in May which underwhelmed the market. It sees a core Tier 1 of 8.9% by 2015; 96% loans to deposits (from 105% at end-2010); both LCR and NSFR at less than 1 by 2015 (i.e. stable); €5bn of revenues (vs €3.5bn in 2010); 40bps cost of credit; and ROTE of 14% (from 2% in 2010 – a performance it would surely not be difficult to beat).

As part of its review of several Italian banks and systemic support, Moody’s placed UBI on negative outlook on June 23.

GREY LIST

Company description UBI was founded in 2007 through the merger of Banca Lombarda e Piemontese and the cooperative Banche Popolari Unite. The main focus of the group is on retail and SME clients with a presence across Italy but particularly strong in the northern regions of Lombardy and Piedmont where shares of deposits are around 12% and 6% respectively. Reporting date: 2Q11 Results – 29th August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A1(-)/A/A Area Ranking 5 World Ranking 109 Market Cap € 3.2bn Market Share Domestic 6% Source: Company, BofA Merrill Lynch Global Research

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Table 32: Unione di Banche Italiane – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 130,559 122,313 121,956 Profitability % change 6.7 0.3 0.4 Net Interest Margin 1.70 2.04 2.46 Risk weighted assets 94,361 85,677 89,892 Cost/Income Ratio 75.83 71.25 72.14 10.1 -4.7 -8.2 Revenues/average assets 2.76 3.13 3.29 Gross Customer Loans 104,807 100,341 98,106 Noninterest income/average assets 1.06 1.08 0.83 4.5 2.3 4.1 Noninterest expense/average assets 2.09 2.23 2.37 NPLs 7,465 6,374 3,608 Net operating income before LLP/average assets 0.67 0.90 0.92 17.1 76.7 35.0 LLP/Revenues 20.29 22.66 13.96 Loan Loss Reserves 2,992 2,334 1,737 Net income/average assets (ROA) 0.15 0.24 0.12 28.2 34.3 30.9 ROE 2.79 4.29 2.10 Customer Deposits 58,666 52,865 54,151 11.0 -2.4 7.9 Liquidity Total equity 11,942 12,350 12,264 Loans/customer deposits 173.55 185.39 177.96 -3.3 0.7 -4.9 Loans/assets 77.98 80.13 79.02 Revenues 3,485 3,819 4,006 -8.7 -4.7 1.4 Capital Adequacy Net trading income 34 127 -249 Tier 1 ratio 7.47 7.96 7.73 -73.1 -150.9 -399.2 Core Tier 1 ratio 6.95 7.59 7.21 Net interest income 2,147 2,496 2,996 Adjusted common equity/assets 5.15 5.39 5.58 -14.0 -16.7 16.5 Adjusted common equity/ risk assets 7.12 7.69 7.57 Operating expenses 2,643 2,721 2,890 Adjusted common equity/loans 6.60 6.73 7.06 -2.9 -5.9 5.1 Equity/assets 9.15 10.10 10.06 PPP 842 1,098 1,116 Adjusted equity plus total reserves/loans 10.01 10.41 9.49 -23.3 -1.6 -6.9 LLP 707 865 559 Asset Quality -18.3 54.7 70.5 LLP/average loans 0.71 0.89 0.59 Pre tax profit 418 524 340 LLR/Total Loans 2.85 2.33 1.77 -20.3 53.9 -76.4 LLR/RWA 3.17 2.72 1.93 Net income 186 287 148 Coverage Ratio 40.08 36.62 48.16 -35.3 94.6 -85.0 NPL/Total loans 7.12 6.35 3.68 NPL+ORE/shareholders funds 62.51 51.61 29.42 Source: BofA Merrill Lynch Global Research

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Nordics Danske Bank DnB NOR Nordea S E B Svenska Handelsbanken Swedbank

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Danske Bank (DANBNK) Rationale Market position Market-leading position in Denmark with a 30% market share of deposits. This compares with a market share of the nearest competitor, Nordea, at 23%. Danske also has a prominent position in the Nordic region as the fifth-largest bank in Sweden and the fourth in Norway.

State support Danske Bank has benefited from state support: a DKK26bn capital injection from the Danish government in May 2009. The March rights issue, which raised DKK20bn (about €2.7bn) is intended to repay this but cannot do so before May 2012. The core Tier 1 is now 12.4%. Whether more support would be available to the bank seems more questionable however.

Danish banking crisis Denmark is evidently going through its own banking crisis as asset price development and consumer confidence indicators show. This crisis has already claimed its fair share of victims including Amagerbanken, Roskilde, ebh bank and now Fjordbank Mors. In particular, Amagerbanken saw even depositors shouldering some of the burden of losses – a first for the European banking sector (it looks like this will be the case for Fjordbank too). Although it is tempting to say that Danske Bank – the largest in this market – is separate from the other smaller Danish banks that seem to be under so much pressure, in our view, the bank cannot be completely unscathed by developments in its main market. We are also watching developments in Denmark’s mortgage market very carefully. Danske recently discontinued its covered bond relationship with Moody’s over disagreements over methodology.

Asset quality Deteriorating economic conditions in Ireland, the Baltics and the bank’s domestic region have impacted asset quality metrics. Asset quality has deteriorated rapidly with the NPL ratio reaching 3.1% in FY10. Consequently loan impairment charges have been very high in recent quarters and could remain so. The situation has been particularly marked in the group’s Irish division whilst, as with Nordic peers, the Baltics business has shown improvements. Ireland represents 3.3% of loans but 21% of impaired loans.

1Q11 results After an OK 4Q, Danske’s 1Q missed estimates by a wide margin, with net profit of DKK 0.7bn (€95m). This is disappointing so soon after a rights issue. Total income fell by 3% as net interest was lower yoy (no loan or deposit growth in 1Q) while expenses grew by 14% mainly due to the payment of €114m to the Danish Guarantee Fund for Amagerbanken. Moreover, loan impairments were much higher than expected, in spite of the fact that charges are lower in the Baltics, owing to Ireland.

GREY LIST

Company description Danske Bank Group is a market leader in Denmark. In Sweden and Norway, Danske's market share of about 5% was achieved through acquisitions in the late 90s and some organic growth. In 2005 the group acquired significant banking operations in Northern Ireland and the Republic of Ireland and more recently also in Finland. Reporting date: 2Q11 results –9th-August-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A2/A/A+ Area Ranking 1 World Ranking 48 Market Cap € 11.9bn Market Share: Denmark Deposits 30% Lending 28% Market Share: Sweden Deposits 5% Lending 6% Source: Company, BofA Merrill Lynch Global Research

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Table 33: Danske Bank financial statistics DKKm / % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 3,213,886 3,098,477 3,543,974 Profitability % change 3.7 -12.6 5.8 Net Interest Margin 1.14 1.43 1.15 Risk weighted assets 844,209 834,242 960,079 Cost/Income Ratio 58.22 46.90 60.81 1.2 -13.1 0.6 Revenues/average assets 1.49 1.82 1.26 Gross Customer Loans 1,888,107 1,849,920 2,034,419 Noninterest income/average assets 0.35 0.38 0.12 2.1 -9.1 2.1 Noninterest expense/average assets 0.87 0.85 0.77 NPLs 103,100 88,100 43,700 Net operating income before LLP/average assets 0.62 0.96 0.50 17.0 101.6 361.5 LLP/Revenues 29.41 42.59 27.76 Loan Loss Reserves 39,661 34,305 15,125 Net income/average assets (ROA) 0.12 0.05 0.03 15.6 126.8 228.1 ROE 4.51 2.22 1.38 Customer Deposits 928,330 912,713 916,517 1.7 -0.4 -5.9 Liquidity Total equity 104,742 100,659 98,247 Loans/customer deposits 199.12 198.93 220.32 4.1 2.5 -5.9 Loans/assets 57.51 58.60 56.98 Revenues 46,977 60,290 43,552 -22.1 38.4 -5.3 Capital Adequacy Net trading income 5,984 14,101 -10,694 Tier 1 ratio 11.48 11.23 6.89 -57.6 -231.9 -279.5 Core Tier 1 ratio 7.60 7.32 5.83 Net interest income 35,983 47,542 39,546 Adjusted common equity/assets 2.59 2.55 2.13 -24.3 20.2 21.5 Adjusted common equity/ risk assets 9.86 9.47 7.85 Operating expenses 14,136 14,451 13,248 Equity/assets 3.26 3.25 2.77 -2.2 9.1 5.9 Adjusted equity plus total reserves/loans 9.24 8.78 5.45 PPP 19,628 32,016 17,069 -38.7 87.6 -14.4 Asset Quality LLP 13,817 25,677 12,088 LLP/average loans 0.75 1.34 0.60 -46.2 112.4 1659.5 LLR/Total Loans 2.10 1.85 0.74 Pre tax profit 6,450 4,755 2,229 LLR/RWA 4.70 4.11 1.58 35.6 113.3 -88.5 Coverage Ratio 38.32 38.85 34.59 Net income 3,664 1,713 1,036 NPL/Total loans 5.48 4.77 2.15 113.9 65.3 -93.0 NPL+ORE/shareholders funds 98.82 87.72 44.51 Source: BofA Merrill Lynch Global Research

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DnB NOR (DNBNOR) Rationale Capital levels Capital levels are strong following the bank’s NOK14bn rights issue last year, which was nearly 40% oversubscribed. The Tier 1 and core Tier 1 ratio were a reported 8.6% and 8.8% respectively as of Q2. The bank is well equipped to meet the new capital requirements under Basel III, in our view. 9% ‘stressed’ CT1 under the stress tests.

Market leader Clear market-leader position in Norway with a 30% market share of deposits. Around 80% of the bank’s earnings derive from this relatively stable market. However, there is likely to be more growth opportunities outside the main Oslo metropolitan area that the bank can continue to exploit to grow. We note that the bank is a world leader in shipping finance, often considered a risky segment, though the portfolio has proven to be fairly resilient in the last few years. Three quarters of the bank’s lending refers to Norway.

Government ownership The bank benefits from 34% ownership by Norwegian Government. This Government subscribed to DnB NOR’s 2009 rights issue, maintaining its stake in the bank. This, we think, shows the sovereign is willing to support DnB NOR if need be. Added to this, Norway is, of course, one of the strongest sovereigns in Europe, with vast oil reserves. As such, this sovereign is not only willing but is able to support DnB NOR.

Recent strategy day/targets The Capital Markets Day in mid-June raised ROE guidance to above 14% by 2015 and lifted the cost reduction program to NOK 1 bn by year end 2014 equivalent to a cost-income ratio of below 45%. Operating profit before writedowns guided to be NOK 30bn by 2015. Consensus seems to be that these targets are achievable.

DnB NORD DnB NOR is now the sole owner of DnB NORD after paying €160m for NordLB’s 49% stake of the joint venture. Asset quality at DnB NORD is significantly worse than at DnB NOR’s Norwegian operations. In 4Q10 for instance, the cost of credit for the retail business was 5bps. At DnB NORD, this figure was 49bp. DnB NORD is about 5% of DNB NOR’s loan book. Its Polish business is for sale.

2Q results After the 1Q11 miss, net income was NOK3.5bn equivalent to an ROE of 12.8% on our numbers which is good by DnB’s standards and according to the bank is their best performance since the financial crisis (ex the 4Q10). It was slightly higher than expectations. We note that loan balances were up 2.5% qoq, supporting the good margin performance. The loan quality number – provisions of only 0.15% of loans – was also good and reflected lower Norwegian provisions (though DNB NORD, the Baltic operations, do appear to be behaving as well, with a much reduced loss of NOK49m compared to NOK906m the previous year). Funding was on track with the bank having issued already 80% of its total 2010 volume and at only 5bps higher than the previous year. The outlook is quite bullish with the bank highlighting its Norwegian roots and Norway’s high expected GDP growth. The group appeared to be well on track towards its 2012 targets on the basis of these results (e.g. ROE of 14%). In spite of the turmoil on the financial markets, the group still believes it will be able to make its recently disclosed targets.

B LIST

Company description DnB NOR is Norway's largest financial services group with total assets of around NOK2 billion. The Group includes the strong brands DnB NOR, Vital, Nordlandsbanken, Cresco and Postbanken. The Group has over 2,3 million retail customers and over 200 thousand corporate customers in Norway, its primary market of operation. DnB NOR also operates an international network of 13 branches and representative offices and operates in the Baltic States and Poland via DnB NORD. Reporting date: 3Q11results – 27th Oct 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa3/A+/A+ Area Ranking 1 World Ranking 60 Market Cap NOK129bn Market Share: Norway Deposits 30% Source: Company, BofA Merrill Lynch Global Research

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Affirmed by Moody’s but with a stable outlook June 14. Agency much more comfortable with the group’s exposure to volatile sectors such as shipping, CRE and Baltics. Oddly, NPLs at 2.4% are considered to be a ratings constraint.

Table 34: DNB NOR financial statistics NOKm / % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,861,620 1,823,453 1,831,699 Profitability % change 2.1 -0.5 24.3 Net Interest Margin 1.27 1.24 1.33 Risk weighted assets 1,028,404 1,052,566 1,200,590 Cost/Income Ratio 46.75 50.26 54.50 -2.3 -12.3 21.1 Revenues/average assets 2.15 2.06 2.08 Gross Customer Loans 1,182,078 1,126,135 1,197,993 Noninterest income/average assets 0.88 0.82 0.75 5.0 -6.0 23.1 Noninterest expense/average assets 1.00 1.03 1.13 NPLs 27,682 26,876 16,292 Net operating income before LLP/average assets 1.14 1.02 0.95 3.0 65.0 161.8 LLP/Revenues 7.57 20.49 10.22 Loan Loss Reserves 11,737 11,249 6,358 Net income/average assets (ROA) 0.76 0.38 0.54 4.3 76.9 108.3 ROE 14.22 8.44 12.65 Customer Deposits 641,914 590,745 597,242 8.7 -1.1 11.0 Liquidity Total equity 111,197 101,403 81,276 Loans/customer deposits 182.32 188.73 199.52 9.7 24.8 7.0 Loans/assets 62.87 61.14 65.06 Revenues 39,592 37,627 34,347 5.2 9.5 8.7 Capital Adequacy Net trading income 20,035 19,748 2,638 Tier 1 ratio 10.10 9.30 6.70 1.5 648.6 -90.3 Core Tier 1 ratio 9.20 8.50 5.80 Net interest income 23,436 22,633 21,909 Adjusted common equity/assets 5.59 5.14 3.97 3.5 3.3 22.6 Adjusted common equity/ risk assets 10.12 8.91 6.06 Operating expenses 18,510 18,911 18,720 Equity/assets 5.97 5.56 4.44 -2.1 1.0 13.8 Adjusted equity plus total reserves/loans 11.29 10.91 8.30 PPP 21,082 18,716 15,627 12.6 19.8 3.2 Asset Quality LLP 2,997 7,710 3,509 LLP/average loans 0.26 0.67 0.32 -61.1 119.7 1495.0 LLR/Total Loans 0.99 1.00 0.53 Pre tax profit 18,183 11,112 12,170 LLR/RWA 1.14 1.07 0.53 63.6 -8.7 -30.1 Coverage Ratio 42.40 41.86 39.03 Net income 14,062 7,026 8,918 NPL/Total loans 2.34 2.39 1.36 100.1 -21.2 -40.6 NPL+ORE/shareholders funds 12.65 6.93 10.97 Source: BofA Merrill Lynch Global Research

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Nordea (NBHSS) Rationale Diversification Only truly integrated pan-Nordic bank, with strong market shares in Sweden, Norway, Finland and Denmark. Earnings have proven to be extremely resilient. Denmark accounts for 28% of total lending or €93bn as of end-March. Denmark has the highest loan balances of the four major countries in which the bank operates. In recent quarters, Danish bank failures have continued to impact quarterly earnings as a levy has been applied across the banking sector.

Market access We consider Nordea to be one of a handful of European banks who have demonstrated near-continuous market access for funding throughout the recent crisis. Local Nordic covered bond markets are an important source of funding for the group. Household deposits up 4% in local currencies in 2Q in spite of fierce competition. Nordea issued €10bn in 2Q of which €7bn in Swedish, Norwegian and Finnish coverage bonds. The liquidity buffer was €58bn at end-June.

Capital strength At end-Mar, the CT1 was 10.7%. We see the group’s capital as relatively strong and believe the internal capital generation to be solid. This capital strength was also demonstrated in this year’s EU stress tests where the bank had a stressed Tier 1 ratio of 9.5%.

M&A risk Relatively solid position amongst its Scandinavian peers means there is a risk that Nordea could merge with one of its weaker peers. So far, though, transactions have not been transformational. For instance, Nordea paid €121mn for Fionia Bank, which had €874mn in loans on its books.

Selling of government stake The Swedish government sold part of its stake this year though is unlikely to sell more before August. Sampo, the insurance company, owns 23%. The head supervisor of the group is Sweden.

Baltics exposures The group expanded rapidly into Eastern European markets in 2006 and 2007. We note however that businesses in the Baltics are much less significant at Nordea than at other Scandinavian banks, accounting for only 3% of total lending at June 2011. The group enjoyed write-backs from its Baltics division in the first quarter but made 0.05% of provisions in the second.

2Q results The 2Q showed solid, if unexciting, results from Nordea in our view. Net profit came in at €698m, 5% lower than the previous quarter but +30% yoy, the same as the consensus number. The ROE was 11.5%, though the bank affirmed its target is to be in the top league in terms of returns, which is around 15%. The big difference in the revenue lines was lower trading gains in the quarter, down 35% qoq which reflected the more volatile market conditions in the quarter, according to the bank. Costs are higher (cost-income at 54%), said to reflect investment in IT rather than staff but the bank is guiding now to stable costs for a prolonged period of time. Provisions improved to only 14bps of loans as NPLs decreased to 1.36% of loans. Net loan losses decreased in all Nordic markets and net reversals were reported for Sweden. Core Tier 1 was 11%. Shipping loans totalled €12.8bn, the loan losses for the quarter on this book were €24m or 0.71%.

A LIST

Company description Nordea is the largest financial services group in the Nordic region. The group is active in retail banking, corporate banking and long-term savings. Nordea has almost 11 million customers, more than 1,100 branch offices and an internet banking position with 4.4 million e-customers. Nordea was formed in 2001 as a result of the merger of 3 Nordic banks. The Nordea share is listed on the stock exchanges in Stockholm, Helsinki and Copenhagen. Reporting date: 2Q11 Results: 19-Jul-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa2/AA-/AA- Area Ranking 2 World Ranking FOS Market Cap € 29.7bn Market Share: Norway Deposits 17% Lending 14% Mortgages 12% Market Share: Sweden Deposits 19% Lending 17% Mortgages 15% Source: Company, BofA Merrill Lynch Global Research

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Table 35: Nordea – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 580,839 507,544 474,074 Profitability % change 14.4 7.1 21.9 Net Interest Margin 0.95 1.08 1.18 Risk weighted assets 215,000 192,000 213,000 Cost/Income Ratio 51.60 49.73 52.90 12.0 -9.9 3.9 Revenues/average assets 1.72 1.85 1.90 Gross Customer Loans 316,709 284,529 266,247 Noninterest income/average assets 0.77 0.77 0.72 11.3 6.9 8.4 Noninterest expense/average assets 0.88 0.92 1.01 NPLs 4,816 4,067 2,191 Net operating income before LLP/average assets 0.83 0.93 0.89 18.4 85.6 53.9 LLP/Revenues 9.42 16.38 5.68 Loan Loss Reserves 2,498 2,118 1,147 Net income/average assets (ROA) 0.49 0.47 0.62 17.9 84.7 21.1 ROE 13.06 13.34 17.99 Customer Deposits 176,390 153,577 148,591 14.9 3.4 4.4 Liquidity Total equity 24,538 22,420 17,803 Loans/customer deposits 178.13 183.89 178.41 9.4 25.9 3.7 Loans/assets 54.10 55.64 55.92 Revenues 9,334 9,073 8,200 2.9 10.6 4.0 Capital Adequacy Net trading income 1,837 1,946 1,028 Tier 1 ratio 9.80 10.20 7.40 -5.6 89.3 -15.0 Core Tier 1 ratio 8.90 9.30 6.70 Net interest income 5,159 5,281 5,093 Adjusted common equity/assets 3.67 3.84 3.22 -2.3 3.7 18.9 Adjusted common equity/ risk assets 9.92 10.14 7.17 Operating expenses 4,816 4,512 4,338 Equity/assets 4.22 4.42 3.76 6.7 4.0 6.7 Adjusted equity plus total reserves/loans 8.40 8.50 6.92 PPP 4,518 4,561 3,862 -0.9 18.1 1.1 Asset Quality LLP 879 1,486 466 LLP/average loans 0.29 0.54 0.18 -40.8 218.9 876.7 LLR/Total Loans 0.79 0.74 0.43 Pre tax profit 3,639 3,075 3,396 LLR/RWA 1.16 1.10 0.54 18.3 -9.5 -12.5 Coverage Ratio 51.87 52.08 52.35 Net income 2,663 2,318 2,672 NPL/Total loans 1.52 1.43 0.82 14.9 -13.2 -14.6 NPL+ORE/shareholders funds 19.63 18.14 12.31 Source: BofA Merrill Lynch Global Research

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S E B (SEB) Rationale Solid capital ratios Relatively solid capital ratios. The core Tier 1 and Tier 1 ratios were 11.4% and 13.2% respectively at the end of the last quarter. These ratios have been boosted by the SEK15bn rights issue (completed in April 2009) and a SEK1.4bn capital gain from SEB’s tender offer for some of its bank capital securities. Additionally, the bank recently sold its retail German operations to Santander.

Position in Nordic market The group has demonstrated solid performance in its Nordic operations, which all reported profits in 2Q11 generating more than 80% of operating income. The group has a dominant position in the Nordics region as the third largest financial services group in the region and is the region’s leading provider of capital markets and investment banking services. The group is also one of the largest asset managers in the Nordics with more than SEK1.4bn in AuM as of 1Q11.

Baltics exposures Historic concerns related largely to asset quality deterioration in the Baltic division (SEB is the largest lender in Lithuania). However, this is looking much better these days. The improvement in the Baltics however has been marked in the last two quarters. In Q1 the group reported a profit here for the third quarter in a row. Performance, mainly the improvement in the provisioning line, was the main driver of the group’s beat versus consensus. Non performing loans also stabilised in all three countries. The Baltic region accounts for only 7% of group credit exposure (though 70% of total impairments).

Merchant banking and capital markets What distinguishes SEB from Nordic peers is its greater emphasis on corporate and institutional banking and its merchant banking franchise. These businesses account for about half of the group’s preprovision profit.

2Q results We thought these results from SEB were OK from the credit perspective as they didn’t really move the dial in terms of the investment case. 2Q net income was SEK3.4bn which was 8% ahead of consensus. Stated ROE was 13.5%. Revenues were basically flat, as other income grew and financial gains declined but interest and fees were flat – swings and roundabouts, as it were. Expectations had been for a stronger revenue performance. The bottom line was boosted by a significant (SEK0.6bn) provision reversal (Baltic NPLs have dropped by SEK 1bn this quarter) which together with a very low tax rate boosted the bottom line. Core Tier 1 improved by 50bps to 13.5%. NPLs were 1.9% which is a low number but the coverage also fell: it’s still a satisfactory 61%.

On June 8, Moody’s upgraded the junior subordinated and Tier 1 instruments of the group to Baa2 and Ba1 reflecting underlying improvements in the bank’s credit strength.

B LIST

Company description The SEB Group is a North European financial group for corporate customers, institutions and private individuals with ten home markets in the Nordic and Baltic countries, Germany, Poland and the Ukraine. SEB has 680 branch offices and 5 million customers, of whom approximately 2 million use the internet for their banking transactions. The Group is represented in some 20 countries around the world and has a staff of about 20,000. Reporting date: 3Q11 results – 27 Oct 11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A1/A/A+ Area Ranking 2 World Ranking 72 Market Cap € 11.7bn Market Share: Sweden Lending 18.5% Source: Company, BofA Merrill Lynch Global Research

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Table 36: SEB financial statistics SEKm / % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 2,179,821 2,308,227 2,510,702 Profitability % change -5.6 -8.1 7.1 Net Interest Margin 0.71 0.81 0.77 Risk weighted assets 799,798 795,177 986,034 Cost/Income Ratio 62.87 64.23 61.76 0.6 -19.4 17.1 Revenues/average assets 1.64 1.83 1.69 Gross Customer Loans 1,089,612 1,205,748 1,305,840 Noninterest income/average assets 0.93 1.03 0.92 -9.6 -7.7 21.6 Noninterest expense/average assets 1.03 1.18 1.05 NPLs 23,436 28,573 13,911 Net operating income before LLP/average assets 0.61 0.66 0.65 -18.0 105.4 65.8 LLP/Revenues 4.98 28.15 7.94 Loan Loss Reserves 14,733 17,911 9,063 Net income/average assets (ROA) 0.30 0.05 0.41 -17.7 97.6 42.6 ROE 8.11 1.59 15.99 Customer Deposits 560,345 665,474 730,295 -15.8 -8.9 12.9 Liquidity Total equity 99,543 99,669 83,729 Loans/customer deposits 191.82 178.49 177.57 -0.1 19.0 9.1 Loans/assets 49.31 51.46 51.65 Revenues 36,879 44,213 41,140 -16.6 7.5 1.7 Capital Adequacy Net trading income 3,275 4,415 4,206 Tier 1 ratio 12.75 12.78 8.36 -25.8 5.0 8.1 Core Tier 1 ratio 10.93 10.74 7.11 Net interest income 16,010 19,490 18,710 Adjusted common equity/assets 3.89 3.59 2.61 -17.9 4.2 17.0 Adjusted common equity/ risk assets 10.60 10.41 6.66 Operating expenses 23,187 28,397 25,407 Equity/assets 4.57 4.32 3.33 -18.3 11.8 9.5 Adjusted equity plus total reserves/loans 11.00 10.47 7.83 PPP 13,692 15,816 15,733 -13.4 0.5 -8.8 Asset Quality LLP 1,837 12,448 3,268 LLP/average loans 0.16 1.00 0.28 -85.2 280.9 221.7 LLR/Total Loans 1.35 1.49 0.69 Pre tax profit 9,319 3,378 12,471 LLR/RWA 1.84 2.25 0.92 175.9 -72.9 -26.7 Coverage Ratio 61.58 62.21 64.66 Net income 6,798 1,178 10,050 NPL/Total loans 2.19 2.39 1.07 477.1 -88.3 -26.3 NPL+ORE/shareholders funds 24.04 28.89 16.74 Source: BofA Merrill Lynch Global Research

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Svenska Handelsbanken (SHBASS) Rationale Predictable Svenksa has one of the most predictable profit performances amongst European banks and has been able to continue to deliver stable positive returns even during this crisis. The outlook for Sweden appears relatively positive.

Solid capital ratios Capital levels are impressive, in our view. The Tier 1 was a reported 17.2% as of 1Q11.

Asset quality Asset quality is a strength at Handelsbanken and one of the best in our coverage universe. Cost of credit in Q1 was down over the quarter to 6bps, the lowest level since Q308 and continuing the downward trend seen since the start of 2009. The NPL ratio remained stable at 0.23%. This masks somewhat diverging trends however, with asset quality improving in Sweden whilst it has continued to deteriorate in UK and Norway.

Ultra-conservative profile Svenska has preferred to expand organically in the UK market, a sign of the group’s conservatism. Though it is early days, the UK operations are still a relative underperformer in the context of the group.

Funding The loans/deposit ratio remains very high at 239%. However, this is broadly in line with many of its domestic peers. The bank have financed their wholesale maturities up to April 2012. Furthermore, access to the Swedish covered bond market – which has continued to function through this crisis – mitigates this risk.

2Q results We thought the 2Q results from Svenska were quite good. Net profit was SEK 3,136m or an ROE of 14.1% on a group basis. The bottom line is up 22% yoy which is a good performance; net interest income is up 12% after the disappointing performance e.g. from Nordea which reported earlier. Revenues are up 3% qoq and 7% yoy. The cost-income ratio at 47% - so far this year the ratio appears to be 2 percentage points lower than 2010’s run rate. Svenska continues to report an extremely low provisioning rate (4bps of loans, which it seems hard to imagine improving, given that NPLs are 0.23% of loans). Our only critique continues to be the non-Swedish branch operations (8% ROE versus the 19% achieved by the Swedish network) but we accept this is a slow growth story, given that the expansion is organic. As of the beginning of July, the bank reported that it has prefinanced all bonds maturing up to 2Q12. The liquidity reserve exceeds SEK 600bn covering liquidity requirements over 2 years

A LIST

Company description Handelsbanken is a universal banking group based in Sweden which is the bank’s main focus market, accounting for 68% of loans at end 2Q11. Outside of Sweden the focus is on the other Nordic countries which represented around 23% of total group lending. The group operates through a decentralised organisational structure of regional banks and branches, with each branch responsible for individual customer relationships in their specific area. Reporting date: 2Q11 results – 26-Oct-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa2/AA-/AA- Area Ranking 3 World Ranking 88 Market Cap € 13.0bn Market Share: Sweden Mortgages 25% Deposits 18% Source: Company, BofA Merrill Lynch Global Research

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Table 37: Svenska Handelsbanken financial statistics SEKm / % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 2,153,530 2,122,843 2,158,784 Profitability % change 1.4 -1.7 16.1 Net Interest Margin 1.00 1.03 0.96 Risk weighted assets 532,136 602,330 722,002 Cost/Income Ratio 47.99 47.07 44.26 -11.7 -16.6 -32.5 Revenues/average assets 1.46 1.51 1.49 Gross Customer Loans 1,487,270 1,482,554 1,484,216 Noninterest income/average assets 0.47 0.48 0.53 0.3 -0.1 14.6 Noninterest expense/average assets 0.70 0.71 0.66 NPLs 10,896 10,134 7,076 Net operating income before LLP/average assets 0.76 0.80 0.83 7.5 43.2 115.5 LLP/Revenues 4.82 10.49 5.37 Loan Loss Reserves 5,592 5,371 2,741 Net income/average assets (ROA) 0.52 0.48 0.60 4.1 96.0 46.7 ROE 14.02 14.26 17.82 Customer Deposits 546,173 549,748 543,760 -0.7 1.1 6.0 Liquidity Total equity 88,391 83,088 74,963 Loans/customer deposits 271.28 268.70 272.45 6.4 10.8 0.6 Loans/assets 68.80 69.59 68.63 Revenues 31,296 32,335 29,890 -3.2 8.2 10.2 Capital Adequacy Net trading income 1,377 2,457 3,169 Tier 1 ratio 10.70 10.30 10.50 -44.0 -22.5 3.8 Core Tier 1 ratio 7.72 7.18 0.00 Net interest income 21,337 22,000 19,223 Adjusted common equity/assets 3.78 3.57 3.15 -3.0 14.4 23.2 Adjusted common equity/ risk assets 15.31 12.58 9.41 Operating expenses 15,018 15,220 13,229 Equity/assets 4.10 3.91 3.47 -1.3 15.1 7.0 Adjusted equity plus total reserves/loans 6.56 6.31 5.60 PPP 16,278 17,115 16,661 -4.9 2.7 12.9 Asset Quality LLP 1,507 3,392 1,605 LLP/average loans 0.10 0.23 0.12 -55.6 111.3 5844.4 LLR/Total Loans 1.05 0.89 0.38 Pre tax profit 14,987 13,763 15,513 LLR/RWA 0.73 0.68 0.48 8.9 -11.3 -20.0 Coverage Ratio 51.32 53.00 38.74 Net income 11,025 10,244 12,131 NPL/Total loans 0.36 0.32 0.29 7.6 -15.6 -21.8 NPL+ORE/shareholders funds 12.33 12.20 9.44 Source: BofA Merrill Lynch Global Research

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Swedbank (SWED) Rationale A bank transformed The new management team at Swedbank appears to have transformed the bank and appears to be well prepared to address credit investor concerns.

Government support Support from the Swedish government, not just for its domestic activities, but for operations in the Baltics as well. This reflects the group’s important domestic market position in Sweden (#1 in loans, mortgages and deposits domestically) and large number of retail customers, especially in more rural areas.

Capital raising In all since late 2008, the group has raised SEK 27.5bn in rights. Whilst the group will target a core Tier 1 of 13% by end 2013, the long-term target is 10%. We recall that in stress tests recently carried out by the Swedish supervisory authority, all four major banks – including SWEDA –retained ‘adequate buffers’ even under the most extreme scenarios. This confidence was mirrored in the recent EU stress test where Swedbank comfortably passed with a stressed Tier 1 ratio of 9.9%. Current core Tier 1 (fully phased) is reported to be 11% as of end June. We are not bothered by the announced share buyback of the Group.

Funding A key part of the recovery in Swedbank’s metrics includes the group’s funding – solid 9% growth in total retail deposits was witnessed in 2010 (-2% in 1Q11). In Estonia (the strongest Baltic country), Swedbank is a dominant player. Covered bonds are the group’s key funding instrument and will likely replace the Government-guaranteed bonds that are maturing. The group have issued SEK91bn in funding so far this year. Funding is also much more long-term.

Baltics exposure Exposure to the Baltics and the impact of this on Group asset quality and on earnings. We note the Baltics business has shown improvements in recent quarters mainly on the back of lower loan losses whilst net interest income has also been improving. Also, the Baltics have shrunk as a percentage of overall lending (to 11% of loans) so are less weighty in the overall risk profile. They are set for recovery now in any case.

Q1 results Swedbank’s 2Q results were strong. Net profit nearly doubled to 3.5bn SEK on revenues which grew 7.5% and costs which fell. ROE was over 14%. Net interest income has grown 25% yoy and very few trading gains so the quality of the results was also good. In terms of asset quality, the group was able to report net reversals of provisions. The NPL ratio was a relatively low 2.2% with 60% coverage.

Recently announced a further buyback program of subordinated (T2) bonds with calls during 2011 and 2012. No intention to issue new T2 bonds as the focus is on core capital measures.

B LIST

Company description Swedbank is one of the leading banks in Sweden, Estonia, Latvia and Lithuania with 16 000 employees serving 8.7 million private and 430,000 corporate customers. The group is active in retail banking, corporate banking as well as asset management and insurance. Reporting date: 2Q11 – 26-Oct-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A2/A/A Area Ranking 4 World Ranking 94 Market Cap € 12.9bn Market Share: Sweden Retail deposits 24% Retails loans 26% Retails mortgages 27% Corporate deposits 17% Corporate loans 17% Source: Company, BofA Merrill Lynch Global Research

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Table 38: Swedbank financial statistics SEKm / % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,715,681 1,794,687 1,811,690 Profitability % change -4.4 -0.9 12.7 Net Interest Margin 0.93 1.15 1.27 Risk weighted assets 541,327 603,431 696,505 Cost/Income Ratio 58.76 52.60 51.43 -10.3 -13.4 16.0 Revenues/average assets 1.77 1.93 2.06 Gross Customer Loans 1,209,017 1,316,684 1,293,798 Noninterest income/average assets 0.84 0.78 0.79 -8.2 1.8 13.6 Noninterest expense/average assets 1.04 1.01 1.06 NPLs 34,703 39,951 10,578 Net operating income before LLP/average assets 0.73 0.91 1.00 -13.1 277.7 244.0 LLP/Revenues 9.05 70.84 8.98 Loan Loss Reserves 21,791 26,017 6,374 Net income/average assets (ROA) 0.43 -0.58 0.64 -16.2 308.2 72.6 ROE 9.87 -15.68 19.78 Customer Deposits 534,237 504,424 508,456 5.9 -0.8 10.9 Liquidity Total equity 95,035 89,974 86,462 Loans/customer deposits 222.23 255.87 253.20 5.6 4.1 26.5 Loans/assets 69.20 71.92 71.06 Revenues 31,044 34,782 35,163 -10.7 -1.1 7.0 Capital Adequacy Net trading income 2,400 2,770 2,351 Tier 1 ratio 11.00 10.40 8.40 -13.4 17.8 39.0 Core Tier 1 ratio 10.10 9.20 7.40 Net interest income 16,329 20,765 21,702 Adjusted common equity/assets 4.74 3.92 3.47 -21.4 -4.3 13.3 Adjusted common equity/ risk assets 15.03 11.65 9.04 Operating expenses 18,242 18,297 18,085 Equity/assets 5.54 5.01 4.77 -0.3 1.2 8.2 Adjusted equity plus total reserves/loans 9.52 8.58 6.58 PPP 12,802 16,485 17,078 -22.3 -3.5 5.8 Asset Quality LLP 2,810 24,641 3,156 LLP/average loans 0.23 1.91 0.26 -88.6 680.8 409.9 LLR/Total Loans 1.80 1.98 0.49 Pre tax profit 9,955 -9,461 13,819 LLR/RWA 4.03 4.31 0.92 205.2 -168.5 -11.3 Coverage Ratio 62.74 65.12 60.13 Net income 7,483 -10,442 10,939 NPL/Total loans 2.87 3.03 0.82 171.7 -195.5 -9.9 NPL+ORE/shareholders funds 36.55 44.40 12.26 Source: BofA Merrill Lynch Global Research

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158

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159

Portugal Banco Espirito Santo Caixa Geral de Depositos Millennium BCP

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160 TM2


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162

Banco Espirito Santo (BESPL) Rationale Strong balance sheet Decent coverage and capital ratios compared to its domestic peers. Core Tier 1 now at 7.9% which is okay but we expect further strengthening (around 30bps) from the sale of the voting capital of Bradesco. The bank states that it expects to continue to pay ‘moderate’ dividends. The doubtfuls coverage ratio was 116% at end of Mar. NPLs at 3.00%. Bank of Portugal has stipulated that core Tier 1 must be 9% by end-2011, 10% by end-2012. Plans must be submitted by the end of June as to how the banks will make this. We are concerned about the potential for asset quality deterioration owing to exposure to Angola and Mozambique together with inevitable concentration risk. However, BES’s track record is actually rather good so far in terms of asset risk and coverage levels remain very comforting.

Funding concerns For the Portuguese banks, total ECB financing stood at €48bn in April , 20% higher than FYE. Over the first quarter, BES’ ECB dependence rose to €5.7bn against the €3.9bn at year end. The bank had intended to make asset sales of €2.6bn this year but had sold only €1.1bn by end March. We understand that there has been a subsequent sale of €300m which will have helped but there is still over a billion to go. We expect the funding markets to remain difficult for the Portuguese banks for the foreseeable future. The bank says its ECB funding will be below 5% of assets by year end.

Sovereign risk To a certain extent the Portuguese banks are at the mercy of the sovereign which Moody’s now rates Portugal Ba2. At time of writing, we were expecting a downgrade to the same level for BES.

Ownership structure Mention needs to be made about the unusual ownership of the bank – still basically controlled by the Espirito Santo family (43% voting interest) via Espirito Santo Financial Group (ESFG), and which holds the interests in Tranquilidade Vida, an insurance company). This was more of an issue in the past than now. ESFG was able to subscribe to its rights in the recent capital increase.

Q1 results Q1 numbers were weaker that what we have seen in previous quarters. Net profits halved to €60m on lower trading gains, higher costs and not notably lower provisioning. Net profit is basically being driven by the international operations of the group, which recorded €56m of profits against the €5m of the Portuguese operations. Costs were driven higher by the inclusion of Execution Noble but would have been flat without it. There was also an extra €7.6m of taxes on the banking sector this quarter.

GREY LIST

Company description Banco Espirito Santo, created in 1920, is Portugal’s third largest banking group with operations in Spain, Brazil and a number of other counties. In Portugal the bank services a wide variety of customers through a retail network of 733 branches and also owns the leading investment bank, Banco Espírito Santo de Investimento (BESI). Reporting date: 2Q11 – 2nd August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Baa2/BBB-/NR Area Ranking 3 World Ranking 123 Market Cap € 2.8 Source: Company, BofA Merrill Lynch Global Research

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163

Table 39: Banco Espirito Santo – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 83,655 82,297 75,187 Profitability % change 1.7 9.5 10.0 Net Interest Margin 1.40 1.53 1.51 Risk weighted assets 68,802 65,097 55,705 Cost/Income Ratio 49.35 46.05 52.98 5.7 16.9 15.7 Revenues/average assets 2.86 2.91 2.63 Gross Customer Loans 52,606 50,531 48,198 Noninterest income/average assets 1.45 1.39 1.12 4.1 4.8 11.7 Noninterest expense/average assets 1.41 1.34 1.40 NPLs 1,107 893 637 Net operating income before LLP/average assets 1.45 1.57 1.24 23.9 40.3 25.5 LLP/Revenues 14.85 23.55 14.52 Loan Loss Reserves 1,777 1,552 1,148 Net income/average assets (ROA) 0.79 0.73 0.60 14.5 35.2 15.9 ROE 10.45 11.35 9.87 Customer Deposits 30,819 25,446 26,387 21.1 -3.6 11.0 Liquidity Total equity 6,606 6,339 4,053 Loans/customer deposits 164.93 192.48 178.31 4.2 56.4 -15.8 Loans/assets 60.76 59.51 62.58 Revenues 2,370 2,292 1,891 3.4 21.3 -5.3 Capital Adequacy Net trading income 220 196 142 Tier 1 ratio 8.80 8.30 7.10 11.9 38.7 -56.5 Core Tier 1 ratio 7.90 8.00 6.10 Net interest income 1,164 1,201 1,086 Adjusted common equity/assets 7.62 7.53 5.23 -3.1 10.6 13.9 Adjusted common equity/ risk assets 9.26 9.53 7.05 Operating expenses 1,169 1,056 1,002 Equity/assets 7.90 7.70 5.39 10.8 5.4 3.4 Adjusted equity plus total reserves/loans 19.26 18.74 14.09 PPP 1,200 1,237 889 -2.9 39.1 -13.5 Asset Quality LLP 352 540 274 LLP/average loans 0.70 1.12 0.62 -34.8 96.7 28.7 LLR/Total Loans 3.38 3.07 2.38 Pre tax profit 701 685 511 LLR/RWA 2.58 2.38 2.06 2.3 34.1 -35.2 Coverage Ratio 101.67 118.03 124.69 Net income 657 575 427 NPL/Total loans 3.28 2.58 1.90 14.2 34.6 -32.7 NPL+ORE/shareholders funds 26.46 20.75 22.72 Source: BofA Merrill Lynch Global System

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Caixa Geral de Depositos (CXGD) Rationale State ownership Caixa Geral’s credit strengths derive from its 100% ownership by the Portuguese state, a comparative rarity in European banking; its dominant position in domestic deposit taking and its generally low risk business profile, which favours domestic mortgages. In our view, it is in effect a state run savings bank. This matters because at difficult times such as we now see in the peripheral countries, CXGD may act to protect the national interest which may not be in the bondholders’ interest. Support from the Portuguese government is on-going and we have recently seen a number of capital injections from the government (though several of these have only been quite small). We see CXGD as quasi-sovereign risk. Moreover, this is set to continue as the EU/IMF Program for Portugal does not require that the bank be privatised.

Capital improvement Capital ratios have improved significantly in the last year. The core Tier 1 ratio at end Mar-11 was 8.8%. The last capital increase was of €1bn and was completed in June 2009. Like other Portuguese banks, CXGD will be required to have a 9% core Tier 1 by the end of this year and a 10% ratio by end-2012.

Equity investments CXGD has a rather large portfolio of equity holdings which are not always disclosed on a quarterly basis but which consists of a number of Portuguese blue-chips. Recognised and unrecognised losses (through the P&L) topped €1bn over the last two years. A €33m loss was recognised in 1H10 through the P&L as a result of the equity investment in Cimpor. FV reserves were negative to the tune of €881m at end June versus €331m in December. There has also been recent talk that CXGD will sell its insurance unit as it is merely a financial investment.

Sovereign risk Concerns about the State’s financial profile undoubtedly extend to CXGD. The Group’s ratings tend to track those of the Sovereign. Moody’s appears to believe that the bank may be accepting weaker internal capital generation (e.g. with weak margins) with the implicit backstop of government support to offset some of this standalone weakening. The banks is now rated Baa1↓, BBB-(-) an BBB-↓ at Moody’s, S&P and Fitch respectively. After Moody’s downgrade of the sovereign, surely junk ratings across the board are in prospect.

Low profitability Profitability levels remain challenged as a result of the crisis. However, we believe the low profitability at least partly reflects the structural issues that the bank has in terms of its large deposit base.

1Q11 results Caixa Geral’s reported net income of €83.5m (-16.6%) resulting from a sizeable tax charge that included the banking levy, lower trading gains and an increase in credit impairment. ROE was 5.5%. Funding from the ECB was €7.2bn down from its June 2010 peak of €10.1bn, though there is still capacity of €10.7bn compared to redemptions this year of €2.5bn. Continued stability of customer deposits (at €60.4bn) remains a positive factor. NPL ratio was 2.73% with 115% coverage. We note that in the last 12 months by far the largest amount of loan growth was to the Portuguese public sector, up €2.1bn to €5.4bn or +65%.

GREY LIST

Company description Caixa Geral de Depositos is Portugal’s market leader in deposits and residential mortgages. The insurance activities of the group are held through the holding company Caixa Seguros SGPS. Caixa Geral de Depositos owns 99.7% of their investment banking arm, Caixa BI, and also has other subsidiaries in the businesses of asset management, leasing and factoring. Reporting date: N/A Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Baa1*-/BBB-/BBB-*- Area Ranking 2 World Ranking 113 Market Cap Market Share Deposits 28.5% Lending 20.9% Insurance 34.5% Leasing: property 21.8% Leasing: equipment 19.4% Source: Company, BofA Merrill Lynch Global Research

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165

Table 40: Caixa Geral de Depositos – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 125,862 120,985 111,060 Profitability % change 4.0 8.9 7.2 Net Interest Margin 1.15 1.32 1.94 Risk weighted assets 76,989 71,041 66,851 Cost/Income Ratio 63.32 64.65 51.19 8.4 6.3 1.3 Revenues/average assets 2.52 2.58 3.35 Gross Customer Loans 84,517 79,267 77,432 Noninterest income/average assets 1.37 1.26 1.41 6.6 2.4 12.9 Noninterest expense/average assets 1.59 1.67 1.71 NPLs 2,478 2,283 1,842 Net operating income before LLP/average assets 0.92 0.91 1.63 8.5 23.9 29.3 LLP/Revenues 11.88 13.92 12.46 Loan Loss Reserves 2,610 2,045 2,121 Net income/average assets (ROA) 0.24 0.26 0.47 27.6 -3.6 22.7 ROE 4.31 5.13 10.62 Customer Deposits 67,680 64,256 60,128 5.3 6.9 11.3 Liquidity Total equity 7,282 6,585 4,884 Loans/customer deposits 121.02 120.18 125.25 10.6 34.8 -1.1 Loans/assets 65.08 63.83 67.81 Revenues 3,106 2,995 3,592 3.7 -16.6 13.7 Capital Adequacy Net trading income 124 199 247 Tier 1 ratio 8.90 8.50 7.00 -37.6 -19.1 192.4 Core Tier 1 ratio 8.80 8.30 6.80 Net interest income 1,415 1,533 2,081 Adjusted common equity/assets 5.86 5.38 4.83 -7.7 -26.3 7.3 Adjusted common equity/ risk assets 9.57 9.16 8.02 Operating expenses 1,967 1,936 1,839 Equity/assets 5.79 5.44 4.40 1.6 5.3 5.9 Adjusted equity plus total reserves/loans 13.06 12.04 11.37 PPP 1,139 1,059 1,753 7.6 -39.6 23.1 Asset Quality LLP 369 417 448 LLP/average loans 0.46 0.55 0.63 -11.5 -6.9 79.4 LLR/Total Loans 3.09 2.58 2.74 Pre tax profit 364 374 662 LLR/RWA 3.39 2.88 3.17 -2.7 -43.4 -38.4 Coverage Ratio 87.88 76.05 99.29 Net income 299 304 505 NPL/Total loans 3.49 3.38 2.75 -1.6 -39.8 -43.7 NPL+ORE/shareholders funds 40.78 40.84 43.74 Source: BofA Merrill Lynch Global System

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Millennium BCP (BCPPL) Rationale Strategy change In response to the sovereign crisis, BCP has changed its strategy. It will emphasise Portugal and other affinity geographies (especially African) but looks set to exit Poland, probably by a trade sale and ensure its Greek subsidiary (total assets of €7bn) joins forces with another bank during the upcoming expected banking consolidation in Greece. The bank is determined to ensure core T1 of 10% by end-2012 (currently 8.5%); reduce the loan-to-deposit ratio to 120% by 2014 (currently around 150%); it aims for a 10% ROE in Portugal and will refocus the international businesses. There’s evidence of some though not all of these actions coming through in the 2Q numbers. We were encouraged by this set of results and accompanying statements, as we found a realism and a decisiveness in management actions that we have so far seen almost completely absent from other peripheral banks

Sovereign risk The main driver for the banks. In terms of the EU/IMF package for Portugal, the comments on the banking sector are generally supportive but we note that the €12bn package set aside for Portuguese banks is likely to come with conditions if it ever needs to be deployed. We note too that there are a number of recommendations to strengthen the banks’ bad asset recognition and resolution and to better align the Portuguese banks with international best practice in this respect.

Capital levels Portuguese banks are required to raise their core Tier 1 ratios to 9% by end-2011 – BCP says it is at 8.5% end 2Q11. The bank would seem to still have a number of options in terms of capital raising, including liability management.

Funding BCP had €20bn of ECB funding capacity at quarter end of which €5bn had been utilised. There are €4.3bn of redemptions between now and end-2012. We expect the bank to delever and shrink from here, as well as to exit certain businesses.

2Q11 results Net profit for the second quarter was only €11m, as provisions moved up sharply (up 1.4x on the previous quarter). The Portuguese operations swung deeply into the red in 2Q, mostly owing to €496m of loan loss provisions, giving a loss before tax of -€175m in that division. However, even this can be seen as the bank strengthening its balance sheet ahead of what promises to be a difficult period. At the bottom line though, on a consolidated basis, the bank was able to benefit from €221.5m of deferred tax income which prevented a negative result. Cost control was patchy. 90 days past due loans rose to 3.8% (2Q10: 2.7%) with 101.5% coverage. The group has €20bn in repo capacity with the ECB, an amount that has remained stable owing to the various actions the bank has taken that have mitigated the effect e.g. of the downgrades of Portugal.

On June 9, Moody’s placed BCP’s stand alone ratings (D/Ba2) on review for downgrade. The review reflects the increasingly challenging environment for earnings, funding and asset quality and the pressure on the sovereign itself.

GREY LIST

Company description BCP is Portugal's largest banking group with strong positions in non-domestic markets. BCP's international strategy focuses on Poland (4% market share) and Greece (1-3%), and smaller operations in other affinity markets. BCP has a broad range of activities with the main focus on retail and commercial banking which represent more than 80% of profits. Reporting date: 3Q11 results – N/A Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Baa3*-/BBB-/BBB-*- Area Ranking 1 World Ranking 112 Market Cap €2.5bn Market Share Portugal 21% Source: Company, BofA Merrill Lynch Global Research

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167

Table 41: Millennium BCP – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 100,010 95,550 94,424 Profitability % change 4.7 1.2 7.1 Net Interest Margin 1.55 1.40 1.89 Risk weighted assets 59,564 65,769 67,426 Cost/Income Ratio 55.70 64.12 63.84 -9.4 -2.5 9.3 Revenues/average assets 2.94 2.53 2.84 Gross Customer Loans 76,411 77,348 76,474 Noninterest income/average assets 1.39 1.12 0.96 -1.2 1.1 14.4 Noninterest expense/average assets 1.64 1.62 1.81 NPLs 2,290 1,813 700 Net operating income before LLP/average assets 1.30 0.91 1.03 26.3 159.1 44.2 LLP/Revenues 24.78 23.32 21.01 Loan Loss Reserves 2,506 2,157 1,309 Net income/average assets (ROA) 0.37 0.26 0.28 16.2 64.8 7.1 ROE 7.52 5.49 6.76 Customer Deposits 45,609 46,307 44,907 -1.5 3.1 14.4 Liquidity Total equity 5,247 5,221 5,248 Loans/customer deposits 162.04 162.37 167.38 0.5 -0.5 34.6 Loans/assets 73.90 78.69 79.60 Revenues 2,878 2,402 2,593 19.8 -7.4 -6.9 Capital Adequacy Net trading income 429 225 55 Tier 1 ratio 9.20 9.30 7.10 90.4 310.4 -86.9 Core Tier 1 ratio 6.70 6.40 5.80 Net interest income 1,517 1,334 1,721 Adjusted common equity/assets 5.01 4.81 4.76 13.7 -22.5 12.0 Adjusted common equity/ risk assets 8.42 6.98 6.66 Operating expenses 1,603 1,540 1,655 Equity/assets 5.25 5.46 5.56 4.1 -6.9 -7.9 Adjusted equity plus total reserves/loans 12.98 11.80 9.94 PPP 1,275 862 938 48.0 -8.1 -4.9 Asset Quality LLP 713 560 545 LLP/average loans 0.96 0.74 0.77 27.4 2.8 109.3 LLR/Total Loans 3.28 2.79 1.71 Pre tax profit 358 296 342 LLR/RWA 4.21 3.28 1.94 21.1 -13.6 -50.3 Coverage Ratio 93.27 96.49 115.22 Net income 361 249 258 NPL/Total loans 3.50 2.87 1.48 44.8 -3.4 -58.3 NPL+ORE/shareholders funds 51.20 42.82 21.65 Source: BofA Merrill Lynch Global System

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168

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169

Spain Banco Pastor Banco Popular Banco Sabadell Bankinter BBVA CAM Santander

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170 TM2


171TM2


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Banco Pastor (PASTOR) Rationale Capital OK? Somewhat controversially, Pastor did not pass the EBA stress tests – its stressed core Tier 1 ratio was 3.3%. The bank explains this is because the EBA test excludes a mandatory convert which the bank had issued to strengthen capital (€251.8m which converts in 2014). If we include this as part of the bank’s T1 capital, which the Bank of Spain does, then the core Tier 1 ratio was 9.1% at end-June. Tier 1 was a reported 10.8% as of end June. Recent actions on capital have included e.g. sale and leaseback of its branches, sale of its stakes e.g. in Union Fenosa, buying back its bonds at a discount.

Limited short-term refinancing risk The bank has little exposure to international institutional funding (unsecured). However, the loan to deposit ratio remains a concern at +146%.

Asset quality With an NPL ratio of 7.2%, asset quality remains a key concern especially in the context of weak growth in Spain. The stock of non-performing loans was €1.7bn as of end June, up 3.8% over the quarter. Coverage levels declined further over the second quarter to 42% (Q410: 49%).

Downgraded by Moody’s to junk We were actually very surprised by the Moody’s downgrade to Ba1 which probably reflected Moody’s view that Pastor is not a systemic bank, in our opinion. We still see Pastor as investment grade, albeit low investment grade. Recent earnings reports have not been entirely helpful to a more constructive view on the credit however.

2Q results Pastor revealed that it is aiming to deliver double digits ROEs by 2012 which would be an incredible turnaround from dreadfully weak 2Q results. Net profit was only €10m and even this low result was achieved with the bank making next to no provisions in the 2Q, which seems unsustainabe level when asset quality problems are still unresolved and the bank’s NPL stock is still rising in spite of much higher recoveries and write-offs in the quarter. The fall in net interest income (-16% in the quarter) is a concern but we don’t see any particular turnaround in any of the core revenue lines and there needs to be more discipline on costs. Overall we regard this as an unimpressive set of numbers from a bank that appears to be struggling to maintain profitability.

GREY LIST

Company description Banco Pastor is the seventh largest banking group in Spain with a strong position in Galicia, where it has a market share of 10%. Banco Pastor is predominantly a retail bank with a customer base mainly consisting of SMEs and individuals. Reporting date: 3Q11 results – N/A Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Ba1/NR/N/A Area Ranking 17 World Ranking 243 Market Cap € 0.8bn Market Share Loans & Deposits 10% Source: Company, BofA Merrill Lynch Global Research

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173

Table 42: Banco Pastor – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 31,135 32,325 27,121 Profitability % change -3.7 19.2 7.1 Net Interest Margin 1.48 1.84 2.01 Risk weighted assets 18,407 18,712 19,755 Cost/Income Ratio 49.29 34.74 39.96 -1.6 -5.3 -4.5 Revenues/average assets 2.37 3.66 3.41 Gross Customer Loans 23,436 21,794 21,262 Noninterest income/average assets 0.89 1.81 1.40 7.5 2.5 1.2 Noninterest expense/average assets 1.17 1.27 1.36 NPLs 1,543 1,512 999 Net operating income before LLP/average assets 1.20 2.39 2.05 2.1 51.3 380.6 LLP/Revenues 37.68 54.12 25.64 Loan Loss Reserves 749 795 474 Net income/average assets (ROA) 0.20 0.35 0.62 -5.7 67.7 -1.6 ROE 3.96 6.67 10.77 Customer Deposits 15,519 14,588 14,221 6.4 2.6 9.8 Liquidity Total equity 1,606 1,610 1,507 Loans/customer deposits 146.18 143.95 146.17 -0.3 6.8 -4.0 Loans/assets 72.86 64.96 76.65 Revenues 752 1,087 894 -30.8 21.6 16.0 Capital Adequacy Net trading income 128 349 179 Tier 1 ratio 10.63 10.55 7.46 -63.2 95.1 300.5 Core Tier 1 ratio 8.46 8.30 6.30 Net interest income 469 547 526 Adjusted common equity/assets 5.08 4.91 5.49 -14.2 4.0 1.7 Adjusted common equity/ risk assets 8.59 8.48 7.54 Operating expenses 371 378 357 Equity/assets 5.16 4.98 5.56 -1.8 5.7 7.0 Adjusted equity plus total reserves/loans 12.47 14.17 12.10 PPP 382 709 537 -46.2 32.2 23.0 Asset Quality LLP 283 588 229 LLP/average loans 1.30 2.81 1.11 -51.8 156.6 80.5 LLR/Total Loans 3.20 3.65 2.23 Pre tax profit 50 131 221 LLR/RWA 4.07 4.25 2.40 -61.5 -40.9 -25.2 Coverage Ratio 48.55 52.55 47.43 Net income 63 103 164 NPL/Total loans 6.59 6.94 4.70 -38.8 -37.3 -21.6 NPL+ORE/shareholders funds 96.10 93.92 66.29 Source: BofA Merrill Lynch Global System

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174

Banco Popular Espanol (POPSM) Rationale Capital raisings Core Tier 1 ratio now 9.8% following a number of capital raising exercises in 2009 (a €1.2bn rights issue, €426m of domestic prefs, sale and leaseback of branches, buyback of a number of its Tier 1 securities). We note a small capital raise in connection with the Credit Mutuel JV as well as a €400m issue of convertible bonds (retail). Popular performed less well in this year’s stress tests when compared to last with a stressed Tier 1 capital ratio of ‘only’ 5.3% (the bank says this would be 7.4% with recognised supervisory additions). However, the bank has used quite a lot of its contingency resources to date, leaving it with potentially fewer options should it need to cope with further deterioration.

Management We are very encouraged by the new management who exhibit, we think, a greater sense of realism than we had been used to seeing from the bank hitherto. Visibility is improving.

Asset quality One of the worst hit Spanish banks from the real estate crisis with an extremely rapid deterioration of asset quality observed. Headline NPL ratio now 5.6% NPL ratio, up from the 5.3% reported at year end. Total exposure to construction and real estate was €18bn at end June of which €2.9bn was non-performing; the portfolio has yet to stabilise in terms of deterioration. There is ORE (Owned Real Estate, or foreclosed assets) of about €3.7bn net (probably just shy of €5bn gross) at 2Q11 which is 35% reserved. We believe that concerns will linger on Popular with respect to asset quality for a while.

Funding Like many Spanish banks, there remain lingering concerns about funding. Yet deposits grew 25% yoy. The loans to deposits ratio has now improved to 119%, largely as a result of an extremely competitive domestic deposit offering. There’s about €11.1bn of collateral available for central bank funding.

2Q11 results 2Q numbers were weaker than the already depressed Q1 results were okay. Net income of €120m was 35% down on the previous quarter in spite of a more than halving of provisions to €169m (versus €409m in 1Q) – though there was an additional impairment charge of €95m as well in the quarter which puts that into a broader context. In 2Q11, the net interest income line showed some stabilisation after several quarters of successive falls, as it grew some 3% and margins remained basically stable. Trading gains were down to €23m as the bank basically bought back less of its bonds.

FY 2011 profit has been guided to be within the consensus range.

Downgraded to A- by Fitch on July 6 owing to weak economic outlook in Spain and real estate exposure concentrations at Popular. Fitch says real estate exposure including loans and foreclosed assets accounted for 18% of total assets and is concentrated by name.

GREY LIST

Company description Banco Popular is a listed bank primarily focusing on domestic retail banking for SMEs and individuals. The bank has a large branch network with 2,377 branches domestically however non-domestic presence is small with 251 branches. At end Q4 Portuguese operations accounted for 8.6% of total assets. Reporting date: 2Q11 - 28th Oct 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A2/A-/A- Area Ranking 5 World Ranking 86 Market Cap € 5.2bn Market Share Deposits 5% Source: Company, BofA Merrill Lynch Global Research

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Table 43: Banco Popular Espanol – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 130,140 129,290 110,376 Profitability % change 0.7 17.1 3.0 Net Interest Margin 1.89 2.36 2.30 Risk weighted assets 93,856 92,574 92,129 Cost/Income Ratio 37.94 31.88 36.51 1.4 0.5 3.7 Revenues/average assets 2.67 3.38 3.37 Gross Customer Loans 98,389 97,508 93,717 Noninterest income/average assets 0.78 1.03 1.07 0.9 4.0 5.9 Noninterest expense/average assets 1.01 1.08 1.23 NPLs 6,055 5,512 3,043 Net operating income before LLP/average assets 1.66 2.30 2.14 9.9 81.1 264.6 LLP/Revenues 31.95 37.49 29.65 Loan Loss Reserves 2,356 2,551 2,015 Net income/average assets (ROA) 0.47 0.65 1.02 -7.6 26.6 10.6 ROE 7.49 10.77 17.59 Customer Deposits 59,324 52,908 44,973 12.1 17.6 14.1 Liquidity Total equity 8,252 8,448 7,058 Loans/customer deposits 161.88 179.47 203.90 -2.3 19.7 6.3 Loans/assets 73.79 73.44 83.08 Revenues 3,462 4,054 3,664 -14.6 10.7 5.5 Capital Adequacy Net trading income 209 412 144 Tier 1 ratio 9.63 9.13 8.12 -49.4 185.9 15.8 Core Tier 1 ratio 9.43 8.57 7.17 Net interest income 2,452 2,823 2,502 Adjusted common equity/assets 6.28 6.17 5.90 -13.1 12.8 10.4 Adjusted common equity/ risk assets 8.70 8.62 7.07 Operating expenses 1,313 1,293 1,338 Equity/assets 6.34 6.53 6.39 1.6 -3.4 8.0 Adjusted equity plus total reserves/loans 12.19 12.37 9.78 PPP 2,149 2,762 2,326 -22.2 18.7 4.2 Asset Quality LLP 1,106 1,520 1,086 LLP/average loans 1.16 1.63 1.22 -27.2 39.9 237.8 LLR/Total Loans 2.40 2.62 2.15 Pre tax profit 833 1,073 1,501 LLR/RWA 2.51 2.76 2.19 -22.4 -28.5 -22.9 Coverage Ratio 25.74 30.94 42.85 Net income 604 780 1,111 NPL/Total loans 9.02 8.23 4.93 -22.5 -29.7 -17.2 NPL+ORE/shareholders funds 110.95 97.62 66.64 Source: BofA Merrill Lynch Global System

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Banco Sabadell (BANSAB) Rationale Capital raising efforts Core Tier 1 stood at 9.3% at end June, improvement mostly driven by RWA optimisation. Track record of capital raising has been good e.g. in connection with the Banco Guipuzcoano acquisition (€749m of which €348m ordinary and €401m convertible). The bank’s stressed CT1 in the recent EBA stress tests was 5.7%, which is towards the low end of the scale. We believe that the bank would be able to raise more capital if required from the markets.

Acquisition appetite We saw the agreed offer to buy Banco Guipuzcoano for €732m as a sign of confidence and it has consolidated Sabadell’s position as the fourth largest bank. The bank has about €10bn in assets so it’s not huge. We wait to see whether the bank will buy a savings bank but the new business plan “Crea” seems rather designed to take market share from the troubled cajas organically, rather than purchase one. The guidance is for a ‘double digit’ ROE by 2013 which may seem ambitious in the light of 2Q11’s ~6.1%.

Funding Patchy track record with respect to calls of subordinated debt. Funding redemptions over the next few years appear to be relatively modest. €10bn is available as collateral for repoing with central banks.

Asset quality Asset quality metrics continue to deteriorate quite rapidly. The NPL ratio increased over 2Q to 6.9% (Q410: 5.5%) and coverage stood at 51% at the end of the quarter (4Q10: 57%). Around 15% of Sabadell’s loan book is focused on the real estate and construction sectors and not unsurprisingly it is these parts of the loan book that are a drag on asset quality. NPL ratios here are between 7-15%. As of June 2011, Banco Sabadell had real estate assets worth €3.6bn (€498mn from Banco Guipuzcuano) of which rural land amounts €0.8bn and properties under construction and land €1.4bn and finished properties €1.4bn. The average coverage decreased to 29% as of end June. The NPA ratio, including ORE, is about 12%.

2Q11 results The net profit number for the half year was €164.3m, a 30% drop when compared with the previous year but in line with estimates. The picture is one of decline with the bank still in deleveraging mode excluding the effect of acquisitions. For the quarter, the net profit was €80m. The positive surprise in the quarter was the cost line, which was better than estimates. The negative surprise was provisions which whilst they declined yoy in the half year, were higher than expected. NPLs continue to rise (up to 5.5%) whilst coverage has declined to 45% reflecting generic provisions write-backs. Core Tier 1 was OK at 9.3%.

Downgraded by Fitch to A- at end June. Downgrade reflected the bank’s concentration in the real estate sector in Spain. Outlook still negative.

GREY LIST

Company description Banco de Sabadell is Spain’s fifth largest bank (excluding saving banks). The bank operates mainly in Spain through a network of 1,196 branches under brands such as Sabadell Atlántico, Banco Herrero, Solbank, Urquijo and ActivoBank. Sabadell's core business is banking for SMEs, but it is also present in businesses such as retail banking for individuals, bancassurance, asset management, public authorities. Reporting date: 2Q11 results – 21st Oct 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A3/A/A- Area Ranking 7 World Ranking 124 Market Cap € 3.7bn Source: Company, BofA Merrill Lynch Global Research

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Table 44: Banco Sabadell – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 97,099 82,823 80,378 Profitability % change 17.2 3.0 4.7 Net Interest Margin 1.62 1.96 1.85 Risk weighted assets 60,525 59,036 58,809 Cost/Income Ratio 51.26 47.09 49.95 2.5 0.4 -4.1 Revenues/average assets 2.59 3.07 2.83 Gross Customer Loans 76,191 65,013 64,704 Noninterest income/average assets 0.97 1.11 0.99 17.2 0.5 2.3 Noninterest expense/average assets 1.33 1.45 1.42 NPLs 4,074 2,712 1,698 Net operating income before LLP/average assets 1.26 1.62 1.42 50.2 59.7 423.8 LLP/Revenues 16.98 9.00 25.64 Loan Loss Reserves 2,210 1,780 1,698 Net income/average assets (ROA) 0.43 0.64 0.86 24.2 4.8 39.2 ROE 9.07 13.15 17.49 Customer Deposits 48,843 37,407 36,442 30.6 2.6 18.1 Liquidity Total equity 4,870 4,797 4,448 Loans/customer deposits 151.47 169.04 172.89 1.5 7.9 -3.4 Loans/assets 76.19 76.35 78.39 Revenues 2,331 2,505 2,227 -6.9 12.5 0.0 Capital Adequacy Net trading income 263 297 119 Tier 1 ratio 9.36 9.10 7.28 -11.7 149.7 -20.4 Core Tier 1 ratio 8.20 7.66 6.67 Net interest income 1,459 1,601 1,453 Adjusted common equity/assets 4.49 4.93 4.88 -8.8 10.2 12.5 Adjusted common equity/ risk assets 7.21 6.92 6.67 Operating expenses 1,195 1,180 1,112 Equity/assets 5.02 5.79 5.53 1.3 6.1 -4.8 Adjusted equity plus total reserves/loans 10.33 10.46 9.32 PPP 1,136 1,325 1,115 -14.3 18.9 5.2 Asset Quality LLP 396 226 571 LLP/average loans 0.58 0.36 0.91 75.6 -60.5 168.8 LLR/Total Loans 2.90 2.74 2.62 Pre tax profit 464 571 688 LLR/RWA 3.65 3.01 2.89 -18.7 -17.0 -30.5 Coverage Ratio 49.95 64.52 99.15 Net income 383 526 676 NPL/Total loans 5.78 4.24 2.65 -27.2 -22.1 -14.2 NPL+ORE/shareholders funds 90.85 57.50 38.50 Source: BofA Merrill Lynch Global System

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Bankinter (BKTSM) Rationale Low CRE exposure Bankinter is one of the Spanish banks least impacted by the real estate crisis, given its relatively low exposure to this sector (only 4.4% of the loan portfolio is to trouble real estate). Focus is instead on upscale retail clients (private banking) and SMEs where asset quality has proven to be more resilient

Asset Quality Compared with Spanish peers asset quality remains impressive. The NPL ratio was 3.13% as of end 2Q, broadly stable versus 1Q. Coverage remains reasonable at 61%, though it has declined marginally. Foreclosed assets were €453m which would have added another 0.8% to this ratio.We would be cautious on calling the end of this decline just yet though. We note that in last year’s EU stress test the bank had a stressed Tier 1 ratio of 6.8%.

Shareholders We note the major shareholdings of Credit Agricole (20%), Jaime Botin (24%) and Caja Madrid (5%). The first two have permission to take their stakes higher but not so high that they would trigger a mandatory bid for the bank. Cartival (Botin) recently got permission from the Bank of Spain to raise its shareholding to 29.99% (from the current 24%). The apparent rivalry between the two major shareholders complicates the outlook for future ownership of the bank.

Change of strategy? On October 20, the Board decided to change the bank’s CEO to Ms Dancausa. This may presage a change of strategy – the bank is in any case rebalancing its book away from mortgages. At the April shareholders’ meeting, she stated that the bank is obliged to ‘transform our current size’ because the cost of not being big enough is ‘huge’. This may suggest that the bank intends to consolidate, with a medium-sized caja being the obvious candidate.

Small size This bank is small, with €56bn of assets which reduces financial flexibility. The loans-to-deposit ratio of over 171% remains a clear weakness in terms of the bank’s credit profile and in our view and capital could be strengthened (2Q10 Tier 1: 8.7%). The bank says that all its 2011 maturities have been fully financed. It has €3.6bn to go in 2012, most of which it expects to meet from deposit growth. It ahs €7.6bn in available liquid assets. However, the risk signature of this bank does appear to be lower than peers. We’d like to see the bank raise more capital. Its stressed core T1 ratio under the EBA tests was 5.3% (6.8% according to the bank if we add back generic reserves and convertibles). Stated Basel 2 core capital was 8.6%.

2Q results Results for the 2Q were satisfactory coming in ahead of expectations but mostly because of a large extraordinary profit (€17m). We thought the growth in net interest income was unexpectedly good (+18.7% qoq to €136.5m). Cost control was also very tough with costs declining about 4% - a good performance. Provisions rose by 75% qoq though. NPLs were 3.1% with 61% coverage

GREY LIST

Company description Bankinter, founded in 1965, is Spain’s fifth largest banking group but remains relatively small in comparison with the country’ largest players. Bankinter is a pure retail bank operating in Spain with a 2.2% market share but only 0.7% share of branches and 1.2% in employees. Bankinter has a high productivity based on superior staff, IT and the intensive use of alternative distribution channels Internet, phone, agents, etc. The credit portfolio is geared to mortgages. To diversify its revenue mix, the bank is currently developing its SME and asset management businesses. Credit Agricole has a 20% stake in the bank. Reporting date: 2Q11 – 22nd July 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A2/A/BBB+ Area Ranking 15 World Ranking 210 Market Cap €2.0bn Source: Company, BofA Merrill Lynch Global Research

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Table 45: Bankinter – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 54,152 54,467 53,470 Profitability % change -0.6 1.9 7.7 Net Interest Margin 1.01 1.47 1.31 Risk weighted assets 30,964 31,786 27,753 Cost/Income Ratio 60.34 52.22 52.16 -2.6 14.5 -7.8 Revenues/average assets 2.07 2.37 2.09 Gross Customer Loans 43,387 40,667 41,593 Noninterest income/average assets 1.06 0.90 0.79 6.7 -2.2 9.1 Noninterest expense/average assets 1.25 1.24 1.09 NPLs 1,330 1,094 605 Net operating income before LLP/average assets 0.82 1.13 1.00 21.6 80.8 293.6 LLP/Revenues 19.22 17.10 17.22 Loan Loss Reserves 861 784 696 Net income/average assets (ROA) 0.28 0.47 0.49 9.9 12.6 28.6 ROE 6.82 12.33 13.57 Customer Deposits 24,265 22,061 23,519 10.0 -6.2 4.3 Liquidity Total equity 2,580 2,583 1,965 Loans/customer deposits 175.25 180.79 173.88 -0.1 31.4 12.6 Loans/assets 78.53 73.22 76.49 Revenues 1,125 1,279 1,078 -12.0 18.6 10.6 Capital Adequacy Net trading income 120 87 96 Tier 1 ratio 7.31 7.21 7.39 38.0 -9.3 2.7 Core Tier 1 ratio 0.00 0.00 0.00 Net interest income 550 793 673 Adjusted common equity/assets 4.12 4.07 3.65 -30.6 17.7 18.4 Adjusted common equity/ risk assets 7.25 6.85 7.02 Operating expenses 679 668 562 Equity/assets 4.76 4.74 3.67 1.6 18.8 3.3 Adjusted equity plus total reserves/loans 8.12 8.30 7.31 PPP 446 611 516 -27.0 18.4 19.9 Asset Quality LLP 216 219 186 LLP/average loans 0.52 0.54 0.47 -1.1 17.8 145.6 LLR/Total Loans 1.98 1.93 1.67 Pre tax profit 205 346 337 LLR/RWA 2.78 2.47 2.51 -40.7 2.7 -30.4 Coverage Ratio 64.74 71.64 115.08 Net income 151 254 252 NPL/Total loans 3.07 2.69 1.45 -40.8 0.8 -30.3 NPL+ORE/shareholders funds 51.56 42.36 30.80 Source: BofA Merrill Lynch Global System

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BBVA (BBVASM) Rationale Profitability Still one of the most profitable European banks. Has consistently outperformed its peers in terms of relative profitability and growth. High pre-provision profits are a major positive credit driver.

Diversification A highly diversified business model, with operations in Spain and Portugal, in 2Q11 or 38% of profits, Latam (23%), Mexico (38%), US (6%) and a JV with CITIC and investment in Turkey. With the exception of the US, BBVA tends to be very strongly positioned in its key markets, though in our view the overweight position in Mexico from the point of view of profitability is particularly notable.

Capital levels Capitalisation could be somewhat more generous in our view (though the group still probably enjoys latent capital gains of €892m or so) and it cannot be denied that the group’s internal capital generation is strong. The Tier 1 and core Tier 1 ratio were a reported 9.8% (FY10: 10.5%) and 9.0% (FY10: 9.6%) at 2Q11.

Macroeconomic pressures We can’t get away from the fact that troubled Spain is a major part of the overall business. However, the consensus view is that BBVA is less exposed than peers to the risky real estate developer segment. There is always concern of course when a bank revisits the valuation of the book and makes much heftier provisions as it did in 4Q09. The total stock of NPLs however was broadly flat in 1Q11 results in an unchanged NPL ratio of 4.0% (Q410: 4.1%). 61% coverage. In spite of the blip in 4Q09, BBVA’s track record in terms of risk management has been very sound. In their 1H11 results the bank disclosed exposure to developers of EUR15.7bn, of which €6.2bn non-performing. The NPL ratio in this segment is a hefty 39% which compares with total equity at the bank of €37bn. This detail is broadly reassuring

Turkish acquisition BBVA recently acquired a near 25% stake in the Turkish bank, Garanti, for $5.8bn. BBVA purchased shares both from GE and from Dogus Holdings, the Turkish owner of the bank. Garanti is a very good bank, in our view, and has dominant market shares in Turkey in loans (14%) and credit cards (18%). We would, however, also question what BBVA can add to Garanti in the short-term. Note that BBVA will not control the bank (at least not initially) and the price is quite high, in our opinion, with BBVA paying 2x NAV. This is not a bad deal for BBVA but it does look expensive and unimaginative, in our view. BBVA is very unlikely to make any acquisitions in ‘old’ Europe, in our view.

2Q11 results Net profit for the quarter was €1.189bn 11% better than expected but it looks as though the consolidated beat is almost entirely a result of lower tax – a rate of 12.7% However, each division appears to have put in better than expected numbers, a big contrast to Santander which on a divisional basis turned out to be very disappointing. in 2Q versus 22% the previous. Pre-tax profit is 11% down qoq. Stated ROE of 12.9% remained amongst the best performance in European banking. Core T1 was 9%, little changed from the previous quarter. Provisions have dropped 6% this quarter to €962m

A LIST

Company description BBVA is the second largest bank in Spain and top 20 globally by market cap. Business areas are Spain and Portugal retail banking, LatAm, AM&PB and wholesale banking. In LatAm, the group holds top shares in Mexico 30%, Chile 7.5%, Puerto Rico 7.1% and Venezuela 14.5%. The group has recently expanded into the US sunbelt with the acquisition of Compass Bank for US$9.6bn. Reporting date: 2Q11 Results: 28th-July-2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa2/AA/AA- Area Ranking 2 World Ranking 30 Market Cap € 34.2 Market Share Spain 12% share Mutual funds 15.6% Pension funds 18% Source: Company, BofA Merrill Lynch Global Research

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Table 46: BBVA – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 552,738 535,065 542,650 Profitability % change 3.3 -1.4 8.2 Net Interest Margin 2.45 2.58 2.24 Risk weighted assets 313,327 291,026 287,364 Cost/Income Ratio 45.39 43.06 46.97 7.7 1.3 7.0 Revenues/average assets 3.99 3.99 3.77 Gross Customer Loans 348,253 332,162 342,691 Noninterest income/average assets 1.54 1.41 1.53 4.8 -3.1 7.0 Noninterest expense/average assets 1.81 1.72 1.77 NPLs 15,472 15,311 8,540 Net operating income before LLP/average assets 2.18 2.27 2.00 1.1 79.3 153.7 LLP/Revenues 21.03 24.21 14.21 Loan Loss Reserves 9,396 8,720 7,431 Net income/average assets (ROA) 0.92 0.85 1.03 7.8 17.3 4.1 ROE 18.56 21.49 29.39 Customer Deposits 247,222 242,582 239,007 1.9 1.5 18.2 Liquidity Total equity 37,475 30,763 26,705 Loans/customer deposits 137.07 133.33 140.27 21.8 15.2 -4.4 Loans/assets 61.31 60.45 61.78 Revenues 21,696 21,479 19,690 1.0 9.1 11.8 Capital Adequacy Net trading income 1,894 1,544 1,559 Tier 1 ratio 10.50 9.40 7.90 22.7 -1.0 -20.3 Core Tier 1 ratio 9.60 8.00 6.20 Net interest income 13,320 13,882 11,686 Adjusted common equity/assets 5.47 4.41 3.54 -4.0 18.8 21.4 Adjusted common equity/ risk assets 9.65 8.10 6.68 Operating expenses 9,847 9,248 9,249 Equity/assets 6.78 5.75 4.92 6.5 0.0 10.6 Adjusted equity plus total reserves/loans 13.23 11.59 9.57 PPP 11,849 12,231 10,441 -3.1 17.1 12.8 Asset Quality LLP 4,563 5,199 2,797 LLP/average loans 1.38 1.58 0.86 -12.2 85.9 47.1 LLR/Total Loans 2.70 2.63 2.17 Pre tax profit 6,422 5,736 6,926 LLR/RWA 3.00 3.00 2.59 12.0 -17.2 -18.5 Coverage Ratio 55.27 53.30 82.71 Net income 4,995 4,595 5,385 NPL/Total loans 4.86 4.91 2.62 8.7 -14.7 -16.1 NPL+ORE/shareholders funds 45.37 53.18 33.64 Source: BofA Merrill Lynch Global System

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CAM (CAJAME) Rationale Size CAM was formerly the fourth largest savings bank (on a stand alone basis) and is headquartered in Alicante. Total assets on an individual basis at end-2010 were €70.7bn. After the four way merger between CAM, Caja Extremadura, Cajastur, and Caja Santander Cantabria was called off, and owing to the extent of the bank’s non-performer problem, the bank has now been nationalised. Banking assets and liabilities have been transferred to a new entity, Banco CAM, as of 22 July 2011. We think investors are in the same position in this new institution versus the old one. The State Fund FROB has taken control of the bank and has replaced the board of directors and management. It has also agreed to inject €2.8bn of capital and has extended a liquidity line to the bank of €3bn. The expectation now must be that CAM will be sold off in whole or in part to a private bidder. We cannot be certain as to whether a sale would be positive or negative from the credit point of view, but we understand from press specuation that both BBVA and Santander have looked at the bank as a possible target.

Real estate exposure CAM operations are situated in the ‘eye of the storm’ in terms of the troubled real estate sector but the bank is very realistic about this, in our view. The bank’s focus is mainly on the regions of Valencia, Cataluña and Murcia where the real estate boom has been most active. As an indication, at the end June 2010 lending to real estate developers represented 29.5% of total private sector lending. Asset quality has been deteriorating sharply. Given that we do not have updated financial statements on a consolidated basis, Fitch has reported that the bank has an NPL ratio of about 8.7% which the agency estimates would rise to about 14.5% if gross foreclosed assets were included in the ratio. Impaired loans and foreclosed assets’ coverage ratios are 62% and 28% respectively.

2010 individual results CAM did not publish a 4Q10 consolidated earnings report (not on its website – the consolidation was to take place at the level of Banco Base which has now been abandoned). Instead, we have the FY10 individual (unconsolidated) accounts, which show a net profit for the year of €201m, compared to FY09’s €274m. Consolidated income was lower, at €166.5m, according to Moody’s but the fall in recurrent income was the same in both sets of accounts. Moreover, unconsolidated balance sheet equity has fallen rather precipitately during the year, from €2.8bn to €2bn, reflecting the transfer of equity reserves to build up loan loss reserves. Net interest income fell by over 50% in the year which is concerning, owing to higher non-performers, subdued lending volumes and higher funding costs. At end-September, the bank had stated that its liquidity reserves were sufficient to allow it to meet all maturities for the next 4 years. ECB dependence was 3.6% of assets (probably around €2.5bn).

WATCHLIST

Company description CAM (Caja de Ahorros del Mediterraneo) is Spain’s fourth largest savings bank boasting a strong regional presence with 36% market share in Alicante and 17% market share in the neighbouring Autonomous Community of Murcia. CAM is focused mainly on retail banking with 963 branches at end 2010. CAM also has strategic alliances in bancassurance and consumer finance. Reporting date: 3Q11 results – NA Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Ba1/NR/BB+ Area Ranking 8 World Ranking 133 Market Cap € 0.2bn Source: Company, BofA Merrill Lynch Global Research

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Table 47: CAM – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 70,667 71,442 75,473 Profitability % change -1.1 -5.3 3.6 Net Interest Margin 0.83 1.79 1.63 Risk weighted assets NA NA 51,083 Cost/Income Ratio 51.47 35.54 66.10 5.0 Revenues/average assets 2.04 2.75 2.81 Gross Customer Loans 54,000 54,684 59,688 Noninterest income/average assets 1.21 0.96 1.18 -1.3 -8.4 0.9 Noninterest expense/average assets 1.05 0.98 1.86 NPLs 4,657 2,513 2,380 Net operating income before LLP/average assets 0.99 1.77 0.95 85.3 5.6 482.5 LLP/Revenues 13.79 42.64 47.13 Loan Loss Reserves 3,151 2,255 1,192 Net income/average assets (ROA) 0.34 0.38 0.58 39.7 89.1 44.8 ROE 11.01 9.14 11.92 Customer Deposits 36,150 37,364 34,181 -3.2 9.3 -2.3 Liquidity Total equity 2,012 2,837 3,576 Loans/customer deposits 140.66 140.32 171.13 -29.1 -20.7 -9.4 Loans/assets 71.96 73.39 77.51 Revenues 1,448 2,020 2,083 -28.3 -3.1 -0.3 Capital Adequacy Net trading income 283 195 -54 Tier 1 ratio NA NA 7.38 189.4 -464.3 -144.0 Core Tier 1 ratio NA NA NA Net interest income 586 1,316 1,206 Adjusted common equity/assets 2.53 3.70 4.52 -10.9 9.1 6.9 Adjusted common equity/ risk assets NA NA 6.67 Operating expenses 745 718 1,377 Adjusted common equity/loans 3.52 5.05 5.83 107.6 -47.9 12.1 Equity/assets 2.85 3.97 4.74 PPP 703 1,302 706 Adjusted equity plus total reserves/loans 10.34 9.96 9.33 -46.0 84.4 -17.9 LLP 200 861 982 Asset Quality -76.8 -12.3 71.2 LLP/average loans 0.39 1.55 1.68 Pre tax profit 201 274 387 LLR/Total Loans 5.83 4.12 2.00 -26.7 -29.1 -35.8 LLR/RWA NA NA 2.33 Net income 244 277 432 Coverage Ratio 59.43 59.35 50.09 -11.7 -36.0 -1.7 NPL/Total loans 11.13 7.02 3.99 NPL+ORE/shareholders funds 307.17 138.88 66.56 Source: BofA Merrill Lynch Global System. Note that 2010 and 2009 data are unconsolidated

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Santander (SANTAN) Rationale Diversification Appears to have done well out of the crisis. Highly diversified. 1H11 attributable profit distribution: SAN branch network and Banesto (12%), Portugal (2.3%), Poland (1.7%), Santander Consumer Finance (12%), UK (17%), Sovereign (4.6%), Latam ex-Brazil (18%), Brazil (25%). Gross customer loan distribution: Spain (31%), Portugal (4%), Continental Europe ex-Spain and Portugal (10%), UK (32%), Latam ex-Brazil (15%) and Brazil (10%). Note the UK is asset heavy and (comparatively speaking) profits light. Santander is however better diversified than BBVA because of its strong UK presence. UK operations set to be partly listed in 2011.

Resilient profitability The Chairman guided at the June Shareholders’ meeting that recurrent 2011 profits were likely to be in line with 2010’s. This does leave room for unexpected charges such as those relating to the UK PPI in 2Q, however.

Deposits and funding Strength of network underlined by its ability to raise around €42bn domestically last year (Santander widely credited with starting a ‘deposit war’). The ability to attract deposits puts into context its redemption schedule, which undoubtedly is quite heavy – but the bank has already funded significant volumes this year across markets. We are not anticipating any problems. In 1H deposits of EUR624bn were up around 1% over the half year.

Convertible bond Santander sold $2.7bn in convertible bonds to Qatar Holding which will mandatorily be exchanged after three years for shares representing 5% of Santander’s Brazilian unit. The bonds are exchangeable into new or existing shares, and provide the Brazilian unit with new strategic partners, as well as possibly a capital increase.

Asset quality NPLs overall were 3.8% and 4.8% for Spain. 69% coverage. Historically, Santander’s underwriting has been proven to be conservative, though the bank has also been able to a certain extent to grow out of its problems.

M&A risk Tends to be quite acquisitive – it has made some good calls especially in the UK recently but needs time to digest now, in our view. Bought AIB’s Zachodni Bank and recently acquired RBS’s Williams & Glyn’s assets. Also bought out minorities from its Mexican business recently for $2.5bn. However, disposals could also offset this (e.g. Spanish, LatAm insurance). Likely to participate in domestic consolidation, we think.

2Q results 1H net profit was a wide headline miss at €3.5bn (vs. €4.2bn expected) as the bank made a €620m provision against UK PPI. This appears not to have been anticipated in many analyst forecasts. Obviously numbers are more in line when we add the reserve back. However, the market took the results badly as the group fell short of expectations in practically every division. 2Q revenues exceeded €11bn. Santander says that it is able to generate more than €2bn of profits a quarter, to underline how quickly it can move on solvency. Its core T1 is 9.2%.

B LIST

Company description Santander is the largest bank in Spain and top 10 globally based on market cap. The group also has a significant presence in Latin America with top shares in Mexico 14% Brazil 11% Chile 22% and Puerto Rico 11%. Santander has made a number of acquisitions in recent years, expanding its global profile. Reporting date: 3Q11 Results: 27-Oct-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa2/AA/AA Area Ranking 1 World Ranking 9 Market Cap € 61.5bn Market Share Spain 15% UK mortgage lending 18% UK deposits 11% Source: Company, BofA Merrill Lynch Global Research

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Table 48: Santander – financial statistics € mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,217,501 1,110,529 1,049,632 Profitability % change 9.6 5.8 15.0 Net Interest Margin 2.51 2.43 1.85 Risk weighted assets 604,885 561,684 514,003 Cost/Income Ratio 46.12 45.46 47.29 7.7 9.3 -0.2 Revenues/average assets 3.60 3.71 3.22 Gross Customer Loans 735,318 682,019 629,697 Noninterest income/average assets 1.09 1.27 1.37 7.8 8.3 10.5 Noninterest expense/average assets 1.66 1.69 1.52 NPLs 28,522 24,554 14,191 Net operating income before LLP/average assets 1.94 2.02 1.70 16.2 73.0 130.0 LLP/Revenues 24.50 27.68 18.87 Loan Loss Reserves 19,697 17,873 12,466 Net income/average assets (ROA) 0.78 0.87 0.95 10.2 43.4 -58.8 ROE 18.01 21.49 23.07 Customer Deposits 570,723 468,283 378,749 21.9 23.6 6.6 Liquidity Total equity 80,914 73,871 60,001 Loans/customer deposits 125.39 141.83 162.97 9.5 23.1 4.2 Loans/assets 58.78 59.80 58.80 Revenues 41,914 40,064 31,606 4.6 26.8 17.4 Capital Adequacy Net trading income 2,968 4,682 4,096 Tier 1 ratio 10.00 10.10 9.10 -36.6 14.3 20.3 Core Tier 1 ratio 8.80 8.60 7.50 Net interest income 29,224 26,299 18,172 Adjusted common equity/assets 4.34 4.34 3.75 11.1 44.7 21.5 Adjusted common equity/ risk assets 8.74 8.59 7.66 Operating expenses 19,329 18,213 14,948 Equity/assets 6.65 6.65 5.72 6.1 21.8 12.3 Adjusted equity plus total reserves/loans 11.16 11.12 9.80 PPP 22,585 21,851 16,658 3.4 31.2 22.3 Asset Quality LLP 10,267 11,088 5,964 LLP/average loans 1.49 1.73 1.03 -7.4 85.9 70.6 LLR/Total Loans 2.68 2.62 1.98 Pre tax profit 12,025 10,619 11,217 LLR/RWA 3.26 3.18 2.43 13.2 -5.3 -6.3 Coverage Ratio 57.27 67.30 81.46 Net income 9,102 9,412 9,332 NPL/Total loans 4.64 3.88 2.43 -3.3 0.9 -3.2 NPL+ORE/shareholders funds 42.51 35.95 25.51 Source: BofA Merrill Lynch Global System

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Switzerland Credit Suisse UBS

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Credit Suisse (CS) Rationale Crisis performance perhaps cracking a little Received no direct assistance from the Swiss government. Of the three European investment banks we cover, we believe CS currently should still be best able to weather the current crisis, owing to its world class private banking operations and its careful navigation through the financial crisis (though we have not forgotten that the bank was a sharp underperformer in the last financial crisis in the early 2000s). The stability of private banking and wealth management in effect is something of an offset to the necessarily more volatile capital markets activities of the group, though CS is a leader in these too. Total assets under management at end FY10 were CHF1,253bn. In line with like institutions, CS has been reducing its risk appetite especially in proprietary activities and focusing more on customer flow business. In 2Q11, though, we saw the limits of this strategy.

Capital levels The bank’s capital levels continue to compare well with peers with a Tier 1 ratio of 18.2% (Basel 2): probably the highest in our coverage universe at present. We note also that the Swiss National Bank has recently published capital adequacy guidelines that are far more onerous than those imposed under the 12th September press release from BIS. The guidelines suggest a 10% core Tier 1 with a further 9% in contingent capital, i.e. a 19% total capital ratio. Completion is due for end 2018. The group recently placed CHF6bn in contingent capital, which is sufficient to satisfy the 50% high trigger contingent capital requirement under new proposed Swiss capital rules.

Tax issues We believe there are still some concerns about the potential read-across to Credit Suisse of US IRS-related issues. However, CS is already taking steps to address this, repositioning its wealth management franchise in the US. We were heartened however by the dismissal of fraud claims brought by MBIA at the beginning of June.

2Q results After a good first quarter came a horrible second quarter. Credit Suisse reported a big miss on estimates, with its net coming in at CHF768m versus estimates of over CHF 1bn. We see ROE at 7.6%. The numbers are bad enough to suggest a rather broad misalignment in resources and market read. Even Wealth Management showed weak assets under management and weak margins. FICC revenues were down some 70% (in USD after adjusting for exceptionals) which is even worse than the Goldman performance (which was down 64%).

Following the results, CS has announced a relatively short and sharp cost cutting exercise to take out of CHF 1bn, or just under 5% of the cost base. It looks lower than the UBS in terms of cost take out but the phase in period is faster.

Updated Basel 3 guidance: fully phased in CT1 of 8.8% by 2012 is much better than expected.

Outlook is cautious.

A LIST

Company description Credit Suisse is a 150 year old Swiss based investment and private bank. Credit Suisse is structured into three global divisions: Investment banking, private banking, and asset management. In recent years increasing management focus has been placed on more closely integrating Credit Suisse's business units. Reporting date: 3Q11 results – 1-Nov-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating (P)Aa2/A/AA- Area Ranking 1 World Ranking 31 Market Cap € 38.4 Market Share Debt underwriting 3.0% (12th) Equity underwriting 7.7% (5th) M&A 7.5% (4th) Source: Company, BofA Merrill Lynch Global Research

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Table 49: Credit Suisse financial statistics CHFm / % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,032,005 1,031,427 1,170,350 Profitability % change 0.1 -11.9 -14.0 Net Interest Margin 0.63 0.63 0.67 Risk weighted assets 218,702 221,609 257,467 Cost/Income Ratio 76.40 74.22 252.02 -1.3 -13.9 -17.1 Revenues/average assets 3.04 3.02 0.73 Gross Customer Loans 219,859 238,575 237,436 Noninterest income/average assets 2.41 2.40 0.06 -7.8 0.5 -1.8 Noninterest expense/average assets 2.32 2.24 1.85 NPLs 1,863 2,297 2,725 Net operating income before LLP/average assets 0.72 0.78 -1.11 -18.9 -15.7 40.0 LLP/Revenues -0.30 0.95 6.31 Loan Loss Reserves 1,017 1,395 1,639 Net income/average assets (ROA) 0.57 0.58 -0.86 -27.1 -14.9 32.8 ROE 16.25 16.83 -25.21 Customer Deposits 287,564 286,694 296,986 0.3 -3.5 -11.5 Liquidity Total equity 43,015 48,328 47,221 Loans/customer deposits 76.10 82.73 79.40 -11.0 2.3 -21.1 Loans/assets 21.21 23.00 20.15 Revenues 31,386 33,294 9,268 -5.7 259.2 -76.4 Capital Adequacy Net trading income 9,338 12,151 -9,880 Tier 1 ratio 17.20 16.30 13.30 -23.2 -223.0 -260.8 Core Tier 1 ratio 12.20 11.20 Net interest income 6,541 6,891 8,536 Adjusted common equity/assets 3.31 3.76 3.20 -5.1 -19.3 1.1 Adjusted common equity/ risk assets 15.60 17.48 14.55 Operating expenses 23,978 24,711 23,357 Equity/assets 4.17 4.69 4.03 -3.0 5.8 -7.8 Adjusted equity plus total reserves/loans 21.13 22.06 21.73 PPP 7,408 8,583 -14,089 -13.7 160.9 -200.8 Asset Quality LLP -93 315 585 LLP/average loans -0.04 0.13 0.25 -129.5 -46.2 1362.5 LLR/Total Loans 0.46 0.58 0.69 Pre tax profit 7,468 8,246 -15,433 LLR/RWA 0.47 0.63 0.64 -9.4 153.4 -212.3 Coverage Ratio 54.59 60.73 60.15 Net income 5,920 6,411 -10,837 NPL/Total loans 0.85 0.96 1.15 -7.7 159.2 -186.7 NPL+ORE/shareholders funds 4.33 4.75 5.77 Source: BofA Merrill Lynch Global System

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UBS (UBS) Rationale Recovery story The Swiss government no longer has a direct stake in the group which we think indicates that the authorities believe the Group is now able to ‘go it alone’ following the settlement with the US IRS last year. We do not believe the stake sale indicates that the probability of support from the authorities for UBS has declined. We had seen a gradual recovery of investment banking, asset management and wealth management businesses at UBS in recent quarters, but the 2Q performance which was poor appears to have changed that.

Capital Basel 2 core Tier 1 is an impressive 18%. We note also that the Swiss National Bank has recently published capital adequacy guidelines that are far more onerous than those imposed under the 12th September press release from BIS. The guidelines suggest a 10% core Tier 1 with a further 9% in contingent capital, i.e. a 19% total capital ratio. UBS looks likely to need to raise significant amounts of contingent capital at some point. Completion is due for end 2018.

Stringent regulatory environment More stringent regulatory requirements have already been imposed in Switzerland. As such, like Credit Suisse, UBS already has a relatively high Tier 1 ratio (17.9%) and its leverage ratio compare well with peers.

Wealth management troubles The rebuilding of the wealth management business is far from complete. UBS has undoubtedly lost some ground in wealth management, over the last c.2 years. We do not expect the next few quarters to be easy for the Group, but believe that with the current management and solid capital base. The bank noted that “For the full year [2011], we believe that net new money will strengthen noticeably”. There was positive news for the wealth management business in the first quarter. The group reported CHF22bn in net inflows, the largest level since end 2007.

Investment banking volatility Though the bank has made progress, it’s clear to us that the restoration of its investment banking franchise is a long process. In recent quarters, there has been a small uptick in the bank’s risk appetite, though 2Q results were an overall disappointment and raise the question as to whether the bank will ever be able to compete on a bulge bracket basis again.

2Q11 results Net profit was CHF 1bn, a 20% miss, down 49% yoy. Whilst the investment bank reported modest profits, wealth management and retail delivered increased profitability. Net new money was CHF 8.7bn. With the cost-income ratio at 77%, the bank has said that it will eliminate up to CHF2bn of costs over the next 2-3 years. The dropping of the targets was widely expected in the market ahead of these numbers. Consensus was already 27% below their medium-term target (was CHF 15bn in pretax by 2014). The bank says it will come back with new targets in the autumn which rather leaves the market in a vacuum up until then. Outlook seems to be for more of the same – a bit depressing.

Fitch upgraded the bank’s Individual rating to B/C from C on June 29.

GREY LIST

Company description A result of the merger between SBC and Union Bank of Switzerland in 1998, UBS has become one of the biggest banking groups in Europe. The Group is predominantly an asset manager with its strong traditional private banking franchise. UBS is also a leading investment bank, albeit one that has suffered recently. Reporting date: 3Q11 results – 25 Oct-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa3/A+/A+ Area Ranking 2 World Ranking 35 Market Cap € 54.3 Market Share Debt Offerings 4.2% (8th) Equity Offerings 6.3% (7th) M&A 3.04% (11th) Source: Company, BofA Merrill Lynch Global Research

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Table 50: UBS financial statistics CHFm / % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,317,247 1,340,538 2,014,815 Profitability % change -1.7 -33.5 -11.4 Net Interest Margin 0.47 0.38 0.28 Risk weighted assets 198,875 206,525 302,273 Cost/Income Ratio 76.78 97.95 741.16 -3.7 -31.7 -19.3 Revenues/average assets 2.39 1.45 0.18 Gross Customer Loans 263,964 309,476 343,213 Noninterest income/average assets 1.93 1.07 -0.10 -14.7 -9.8 1.9 Noninterest expense/average assets 1.84 1.42 1.31 NPLs 4,193 6,865 9,145 Net operating income before LLP/average assets 0.56 0.03 -1.13 -38.9 -24.9 282.3 LLP/Revenues 0.21 7.53 79.30 Loan Loss Reserves 1,087 2,648 2,905 Net income/average assets (ROA) 0.59 -0.13 -0.97 -59.0 -8.8 189.6 ROE 19.69 -6.52 -72.96 Customer Deposits 332,301 410,475 474,774 -19.0 -13.5 -26.0 Liquidity Total equity 51,862 48,634 40,533 Loans/customer deposits 79.11 74.75 71.68 6.6 20.0 -7.5 Loans/assets 19.96 22.89 16.89 Revenues 31,811 24,337 3,778 30.7 544.2 -87.9 Capital Adequacy Net trading income 7,471 -324 -25,820 Tier 1 ratio 17.80 15.40 11.00 -2405.9 -98.7 209.1 Core Tier 1 ratio 15.30 11.90 8.54 Net interest income 6,215 6,445 5,992 Adjusted common equity/assets 3.19 2.80 1.37 -3.6 7.6 12.3 Adjusted common equity/ risk assets 21.14 18.20 9.12 Operating expenses 24,423 23,839 28,001 Equity/assets 3.94 3.63 2.01 2.4 -14.9 -20.4 Adjusted equity plus total reserves/loans 18.27 15.47 11.12 PPP 7,388 498 -24,223 1383.5 102.1 -525.1 Asset Quality LLP 66 1,832 2,996 LLP/average loans 0.02 0.57 0.89 -96.4 -38.9 1158.8 LLR/Total Loans 0.41 0.86 0.85 Pre tax profit 7,457 -2,568 -27,560 LLR/RWA 0.55 1.28 0.96 390.4 90.7 -666.2 Coverage Ratio 25.92 38.57 31.77 Net income 7,838 -2,125 -20,724 NPL/Total loans 1.59 2.22 2.66 468.8 89.7 -340.2 NPL+ORE/shareholders funds 8.08 14.12 22.56 Source: BofA Merrill Lynch Global System

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UK Barclays HSBC Lloyds Banking Group RBS Standard Chartered

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Barclays (BACR) Rationale Diversification Large, well diversified banking franchise. Relative resilience during the crisis should leave the bank much better positioned in the upturn than more troubled UK peers who are subject to significant restructuring. The bank remained optically profitable throughout the crisis. Much more dependent on more volatile income streams than in the past – BarCap is now providing 60%+ of the group’s pre-tax profit (this number would have been much higher were it not for a £351m mark against the group’s own credit in 1Q). At the time of writing, there was much speculation with respect to any future acquisition in Spain where there are currently modest total loans of about €26bn. The signals are confusing since Barclays announced the closure of over 100 branches recently. But it all depends on the price of the savings banks, in our view. The range is 0.3x to 0.7x book value for caja assets arguably which is obviously cheap – a once in a lifetime entry point? To get a sense of perspective, we note that CAM is the biggest available (and most troubled) and has total assets of ~€73bn. Barclays total assets are about £1.5 trillion.

Capital strength Capital has been strengthened considerably and its quality has improved. The core Tier 1 ratio was 11% at the end March. The bank says it can ‘mitigate’ some £50bn of previously reported £150bn of RWA growth under Basel 3. The bank expects to mitigate the 2.6pts decrease in core Tier 1 expected under Basel II.5 and III mainly through retained earnings leaving the bank with an 11.5% core Tier 1 ratio in 2013. Any acquisition would likely need to be accompanied by a substantial capital raise. The liquidity pool at end Mar was £161bn. Called its 7.5% Tier 1 (RCI) last December. BACR has not received capital from the UK Government.

Legacy assets There has been a high degree of controversy with respect to Barclays marks on certain of its assets, which seems to be dissipating now somewhat. Concerns centred on an off balance structure named Protium. Recently however the group announced that going forward, Protium will be brought on balance sheet and changes in its value will run through the P&L. Barclays has about £35bn of credit market assets including £3.8bn in US residential mortgages (CDO, sub-prime, Alt-A), £11.2 in commercial mortgages, £7.4bn of leveraged loans, £2.0bn (net) of monolines, £10.2bn loan to Protium. Marks on these look less alarming following the recovery in markets in 2009 and are more manageable now as a % of total capital resources.

1Q11 Results Barclays released their Q1 IMS with a net income of just over £1bn a 17% miss versus expectations. However, on an underlying basis, pre-tax was exactly in line with BofAML expectations albeit the quality was somewhat lower. As would be expected, corporate and investment banking was down some 29% on a pre-tax basis, though Barcap's top line revenue fell 'only' 15%. Excluding own credit, ROE moved to 10.1% but it is still somewhat shy of CS's 13% (and with broadly a higher capital base at CS).

ICB Proposals on ‘ring fencing’ retail banking operations are potentially negative for Barclays but it’s still rather early to say, given that we don’t know the scope of what actually will be included in the ring fence.

A LIST

Company description Barclays, based in the UK, is one of the world’s largest banks with both retail and commercial operations. Barclays is divided into two main business lines, Global Retail and Commercial Banking (GRCB), and Investment Banking and Investment Management (IBIM), each of which has a number of Business Units. The bank is broadly diversified in terms of geography with operations across the globe. Reporting date: 1H11 results – 2nd August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa3/AA-/AA- Area Ranking 3 World Ranking 10 Market Cap 28.5% Market Share Mortgage 36% Equity Offerings 2.2% (13th) Debt Offerings 7.0% (2nd) M&A 5.21% (8th) Source: Company, BofA Merrill Lynch Global Research

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Barclays held an Investor Seminar on June 15. The bank reaffirmed its target ROE of 13% by 2013 and a number of new targets including generating additional income of between £4.3bn and £6.4bn by 2013 relative to 2010.

Table 51: Barclays financial statistics £ mn / % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,489,645 1,378,929 2,052,980 Profitability % change 8.0 -32.8 67.3 Net Interest Margin 0.87 0.69 0.70 Risk weighted assets 398,031 382,653 433,302 Cost/Income Ratio 62.63 57.33 62.11 4.0 -11.7 22.4 Revenues/average assets 2.20 1.70 1.41 Gross Customer Loans 440,326 430,959 468,338 Noninterest income/average assets 1.32 1.00 0.71 2.2 -8.0 34.1 Noninterest expense/average assets 1.38 0.97 0.88 NPLs 31,882 22,331 15,652 Net operating income before LLP/average assets 0.82 0.73 0.53 42.8 42.7 77.0 LLP/Revenues 18.01 27.68 21.24 Loan Loss Reserves 12,384 10,735 6,523 Net income/average assets (ROA) 0.32 0.60 0.32 15.4 64.6 73.1 ROE 10.47 29.46 23.22 Customer Deposits 345,788 322,429 335,505 7.2 -3.9 13.7 Liquidity Total equity 54,325 50,051 38,990 Loans/customer deposits 123.76 130.33 137.65 8.5 28.4 54.5 Loans/assets 28.73 30.47 22.49 Revenues 31,498 29,157 23,129 8.0 26.1 0.4 Capital Adequacy Net trading income 9,555 7,057 2,009 Tier 1 ratio 13.50 13.00 8.60 35.4 251.3 -59.6 Core Tier 1 ratio 10.80 10.00 5.60 Net interest income 12,523 11,918 11,469 Adjusted common equity/assets 3.06 2.99 1.39 5.1 3.9 19.3 Adjusted common equity/ risk assets 11.46 10.78 6.60 Operating expenses 19,728 16,715 14,366 Equity/assets 3.65 3.63 1.90 18.0 16.4 6.7 Adjusted equity plus total reserves/loans 17.54 16.32 12.39 PPP 11,770 12,442 8,763 -5.4 42.0 -8.5 Asset Quality LLP 5,672 8,071 4,913 LLP/average loans 1.34 1.83 1.22 -29.7 64.3 76.6 LLR/Total Loans 2.81 2.49 1.39 Pre tax profit 6,065 11,362 6,077 LLR/RWA 3.11 2.81 1.51 -46.6 87.0 -14.1 Coverage Ratio 38.84 48.07 41.68 Net income 4,549 10,288 5,287 NPL/Total loans 7.24 5.18 3.34 -55.8 94.6 3.8 NPL+ORE/shareholders funds 58.69 44.62 40.14 Source: BofA Merrill Lynch Global System

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HSBC (HSBC) Rationale Diversification HSBC’s conservatism and quite diversified profile are key credit positives. Total assets at YE10 broke down as follows: Europe (51%), Hong Kong (17.5%), Other Asia (11%), North America (20%) and LatAm (5.7%). 30% of RWA are in North America. HSBC did appear to weather the storms of the recent crisis well. North America was profitable at the pre-tax level in 2010 for the first time since 2006.

Liquidity Liquidity is a major strength – in spite of its size, the group’s emphasis on deposit taking gives it a loan-to-deposit ratio of 78% which is one of the best of any European banks. Total group deposits are well over $1.2 trillion.

Capital levels Capital remains a positive especially after the recent bumper rights issue which raised $17.8bn equivalent. Core Tier 1 is now 10.5%. Recent bumper issue of Tier 1 notes (over $3bn) also a positive. Previously they have been guiding towards a 250-300bps impact of Basel 3; however, now the bank says this can be reduced down to 120bps. They still should be able to achieve a 9.3% core Tier 1 by 2018 but it will not drop below 10% before the end of 2013 .

Low loan losses 1Q11 saw provisions fall to ‘only’ $2.4bn (-37%) especially driven by lower impairments in the US.

Profitability ROE target remains 12-15% which should be supported by their presence in higher growth areas.

HSBC Finance Going into the strategy day (May 11), there had been some speculation about what they would do in terms of the US. To address this, the bank has produced a strategic filter which basically analyses businesses on the basis of profits and high(er) growth. The group has thus announced a review of the US card business. However, this is still some distance from an announcement of a disposal. The Household business is of course in run off and we don’t detect any particular news there.

1Q IMS HSBC’s 1Q11 PBT was $4.9bn which was well shy of forecasts. Driving the miss was a disappointing revenue performance, though we are not altogether sure why (the bank highlights margin compression owing to more secured lending and lower GBM revenues). At its strategy day subsequent to the IMS, the bank announced its intention of cutting $2.5-3bn of costs or a target cost-income ratio of 48-52% which we saw as encouraging. Loan growth in the quarter was 4%. Our assumption is that there will be strategic moves in the US announced at the investor day tomorrow. Net profit was $4.4bn which was actually a 52% increase. Leaving aside expectations, we believe that these numbers are satisfactory from the credit perspective. The group will take a $440m provision against UK PPI.

The ICB proposals to ‘ring fence’ the retail activities of HSBC could have a negative impact on bondholders, as potentially they could be outside of the ring fence. However, given the difficulty in terms of the definition of the scope of what’s in or out of the ring fence, we’d be reluctant to become too cautious on HSBC vis-à-vis peers for the moment. HSBC would likely be one of the most impacted of the UK banks from this change.

A LIST

Company description HSBC Hldgs is the UK's largest banking company, the leading int'l banking group in Asia (ex Japan), and has a strong presence in the Middle East & North/South America. With over 9,500 offices in 79 countries, regional franchises largely focus on retail banking/insurance, but the group also has strong FX and treasury capabilities. Reporting date: 8th August 2011 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating Aa2/AA-/AA Area Ranking 2 World Ranking 5 Market Cap € 109.6 Market Share UK Current accounts 9% Source: Company, BofA Merrill Lynch Global Research

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Table 52: HSBC financial statistics $ mn / % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 2,454,689 2,364,452 2,527,465 Profitability % change 3.8 -6.4 7.4 Net Interest Margin 1.64 1.67 1.74 Risk weighted assets 1,103,113 1,133,168 1,147,974 Cost/Income Ratio 53.94 51.39 48.16 -2.7 -1.3 -1.4 Revenues/average assets 2.90 2.74 3.28 Gross Customer Loans 978,449 921,773 956,777 Noninterest income/average assets 1.26 1.07 1.53 6.1 -3.7 -4.4 Noninterest expense/average assets 1.56 1.41 1.58 NPLs 28,091 30,606 25,352 Net operating income before LLP/average assets 1.34 1.33 1.70 -8.2 20.7 29.5 LLP/Revenues 20.09 39.58 30.16 Loan Loss Reserves 20,083 25,542 23,909 Net income/average assets (ROA) 0.59 0.27 0.27 -21.4 6.8 24.5 ROE 12.30 7.50 7.71 Customer Deposits 1,227,725 1,159,034 1,115,327 5.9 3.9 1.8 Liquidity Total equity 154,915 135,661 100,229 Loans/customer deposits 78.06 77.33 83.64 14.2 35.4 -26.0 Loans/assets 39.04 37.90 36.91 Revenues 69,875 66,929 80,017 4.4 -16.4 1.0 Capital Adequacy Net trading income 9,398 6,852 10,609 Tier 1 ratio 12.10 10.80 8.30 37.2 -35.4 -33.2 Core Tier 1 ratio 10.50 9.40 7.00 Net interest income 39,441 40,730 42,563 Adjusted common equity/assets 5.09 4.47 2.88 -3.2 -4.3 12.6 Adjusted common equity/ risk assets 11.33 9.32 6.35 Operating expenses 37,688 34,395 38,535 Equity/assets 6.31 5.74 3.97 9.6 -10.7 -1.3 Adjusted equity plus total reserves/loans 16.13 15.85 11.26 PPP 32,187 32,534 41,482 -1.1 -21.6 3.3 Asset Quality LLP 14,039 26,488 24,131 LLP/average loans 1.51 2.90 2.52 -47.0 9.8 40.5 LLR/Total Loans 2.05 2.77 2.50 Pre tax profit 19,037 7,079 9,307 LLR/RWA 1.82 2.25 2.08 168.9 -23.9 -61.6 Coverage Ratio 71.49 83.45 94.31 Net income 14,191 6,694 6,498 NPL/Total loans 2.87 3.32 2.65 112.0 3.0 -68.2 NPL+ORE/shareholders funds 18.13 22.56 25.29 Source: BofA Merrill Lynch Global System

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Lloyds Banking Group (LLOYDS) Rationale Recovery? In 2010, Lloyds returned to profitability but a substantial loss in 1Q11 badly dented sentiment, especially after the RBS report. We did see the 1Q as difficult to read however in the context of a new CEO who may have wanted to kitchen sink e.g. the provisioning for the PPI mis-selling. However, at end-June, the new CEO announced the new strategic plan for the business which we think has put the investment case back on track.

Market position Leading position in savings and mortgages in the UK which should be a positive for the Group in the medium term. Under the new strategic plan, the bank will refocus its energies on the UK business, invest in the Halifax brand and deemphasise international. Big emphasis on costs, with 15,000 job cuts and £1.5-2bn being taken out of the business and so a cost-income ratio of 42-44% planned.

Capital raising In order to avoid participation in the Government’s Asset Protection Scheme, Lloyds had a large and successful capital raising. This exercise included a GBP13.5bn rights issue as well as contingent capital as a buffer. LLOYDS has passed the FSA’s stress test requirements as a result of the exercise. The bank performed well in last year’s EU stress tests with a stressed Tier 1 ratio of 9.2%.We now see Lloyds as adequately capitalised. Core Tier 1 is to be ‘in excess of 10%’ by 2013.

Funding concerns overdone We continue to believe that funding concerns are overdone. Funding was successful in 2010 with the group completing its 2010 funding program of £25bn by end of September ’10. We continue to believe that the funding position is being far better managed than the market is giving the bank credit for. Guidance is for 2011 funding to be in the region of £20-25bn. Loan-to-deposit ratio fell to 154% (119% in core business). Public issuance this year is guided at £20-25bn but then is guided to fall to between £15-20bn thereafter. The LTD ratio is guided down to ~130%. We see the funding guidance as supportive for spreads.

Potential impairments The decision to not participate in the APS means LLOYDS will have to bear all incremental losses on its legacy assets. The issuer has stated that group-level impairments have peaked, but these charges could well remain high in the near term, especially in the Wealth & International business (e.g. because of Ireland). Ireland continues to weigh on the bank’s investment story. The strategy day was encouraging on the impairments front as the new management did not announce any further maxi-provisions, underlining that they are happy with the existing level of reserving.

B LIST

Company description Lloyds Banking Group is one of the largest providers of retail financial services, including insurance, in the UK, with leading market shares in its core areas of operation. The Company also operates internationally with a banking business in 40 countries, though this is likely to halve under new strategic plan. Services are offered through a number of brands, including Lloyds TSB, Halifax, Bank of Scotland, Scottish Widows, Clerical Medical and Cheltenham & Gloucester. Lloyds Banking Group acquired HBOS plc in late 2008. Several of the brands are now up for sale under the Verde disposal of around 600 branches. Capital injections in 2008 have resulted in the combined Group being 43% owned by the UK government. Reporting date: 2Q11 – 04-August-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A1/A/AA- Area Ranking 4 World Ranking 12 Market Cap € 30.7 Market Share New mortgage lending 24% Current accounts 5% Source: Company, BofA Merrill Lynch Global Research

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1Q IMS/ Results These were a chilly set of 1Q results from Lloyds. However, they are the first set of numbers released under the new CEO, which made them, in our view, difficult to predict. The Group reported a statutory loss of £2.4bn but this largely reflected an unexpected £3.2bn provision for PPI or Payment Protection Insurance which refers to the payment insurance that retail customers take when they borrow from the bank and which the Competition Commission in the UK has found to be sold unfairly - an industry wide not Lloyds specific phenomenon. The Group also made about £500m of extra provisions (versus its own expectations) to reflect a further 10% fall in CRE prices in Ireland. Whilst we think the loss is notable - it certainly continues to underline the currently high level of credit and regulatory risks that the group faces - it would be a shame to focus only on this, because the balance sheet appears to have been significantly strengthened this past quarter.

The first round of expressions of interest in Verde, the sale of around ~600 branches has now completed with several potential expressions of interest.

Table 53: Lloyds Banking Group financial statistics £ mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 991,574 1,027,255 436,033 Profitability % change -3.5 135.6 23.4 Net Interest Margin 1.24 1.23 1.96 Risk weighted assets 406,372 493,307 170,490 Cost/Income Ratio 53.36 59.86 61.79 -17.6 189.3 19.6 Revenues/average assets 2.46 3.08 2.50 Gross Customer Loans 610,970 641,770 246,304 Noninterest income/average assets 1.22 1.85 0.55 -4.8 160.6 16.1 Noninterest expense/average assets 1.31 1.84 1.55 NPLs 64,606 58,833 31,304 Net operating income before LLP/average assets 1.15 1.24 0.96 9.8 87.9 595.2 LLP/Revenues 43.31 71.15 29.13 Loan Loss Reserves 18,373 14,801 3,569 Net income/average assets (ROA) -0.03 0.40 0.20 24.1 314.7 48.2 ROE -0.65 13.05 9.30 Customer Deposits 393,633 406,741 170,938 -3.2 137.9 9.2 Liquidity Total equity 46,902 44,107 9,699 Loans/customer deposits 150.55 154.14 142.00 6.3 354.8 -21.9 Loans/assets 59.76 61.03 55.67 Revenues 24,868 22,526 9,872 10.4 128.2 -7.8 Capital Adequacy Net trading income 15,724 19,098 -9,186 Tier 1 ratio 11.60 9.60 8.00 -17.7 -307.9 -394.1 Core Tier 1 ratio 10.20 8.10 5.60 Net interest income 12,546 9,026 7,718 Adjusted common equity/assets 4.17 3.70 1.66 39.0 16.9 26.5 Adjusted common equity/ risk assets 10.19 7.70 4.25 Operating expenses 13,270 13,484 6,100 Equity/assets 4.73 4.29 2.22 -1.6 121.0 9.6 Adjusted equity plus total reserves/loans 12.94 11.42 8.71 PPP 11,598 9,042 3,772 28.3 139.7 -26.6 Asset Quality LLP 10,771 16,028 2,876 LLP/average loans 1.77 3.69 1.27 -32.8 457.3 67.1 LLR/Total Loans 3.01 2.31 1.45 Pre tax profit 281 1,042 760 LLR/RWA 4.52 3.00 2.09 -73.0 37.1 -81.0 Coverage Ratio 28.44 25.16 11.40 Net income -258 2,953 798 NPL/Total loans 10.57 9.17 12.71 -108.7 270.1 -76.0 NPL+ORE/shareholders funds 137.75 133.39 322.75 Source: BofA Merrill Lynch Global System

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Royal Bank of Scotland Group (RBS) Rationale Delivering on the strategic plan Significant progress is visible in terms of derisking the bank and reshaping its business. Non-core assets have halved to £125bn by 1Q11 and will likely be below £100bn by end-2011. Though asset quality problems do appear to be largely behind us, two issues still stand out as likely problematic: the UK CRE portfolio and Ireland (Ulster Bank is around 7% of group assets). It is clear that, in spite of everything, RBS still has some very good businesses with high levels of sustainable profitability. GBM has done well in recent quarters.

Better balance sheet RBS has managed to reduce its loans-to-deposit ratio quite sharply and for its core operations, this is now below the targeted 100%. With over £150bn of available liquidity at end-March, the balance sheet is also very liquid. Capital ratios are also very strong (CT1 of 11.2% as of 1Q11).

APS participation RBS wishes to exit the Government Asset Protection Scheme by 2012, showing that the worst concerns about the level of losses at the bank do not now seem likely to materialise.

Government ownership RBS is currently c.70%-owned by the UK government. The exit strategy is unclear and will likely take a number of years – but sooner rather than later. Concerns remain about the Government’s influence on the Group’s activities.

EC state aid ruling The EC’s ruling on state aid requires the issuer to sell RBS Insurance, Global Merchant Services and RBS Sempra Commodities. RBS completed the sales of the latter two in 2010. RBS Insurance contributed £4.1bn to group income in 2010. In addition to this, the UK Retail Markets (Williams & Glyn) and UK Corporate businesses have been partly sold. In addition, RBS will be required to skip dividend and coupon payments on existing hybrid capital instruments (including preference shares and B shares) and will not call bank capital securities for a two-year period from April 2010 ‘unless there is a legal obligation to do so’. T1s can’t be called for a further year, until Apr 2013.

Regulatory environment There are lingering concerns about the regulatory environment for all the UK banks, especially the implications of ring-fencing arrangements for the banks, and any other recommendations from the ICB. Whilst we see some of the concerns, we mostly believe they are overdone. It’s also simply too soon to be too definitively negative about any outcome for bondholders here. RBS in particular will take a £850m charge relating to PPI in 2Q11.

B LIST

Company description The Royal Bank of Scotland Group is one of the largest banking groups in the world. Its primary operating subsidiaries include RBS plc, NatWest and Citizens. The group’s current structure, which only came into effect in 2008, following the acquisition of ABN AMRO, consists of three main operational elements; Global Markets, Regional Markets and RBS Insurance. Reporting date: 2Q11 results – 05-Aug-11 Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A1/A/AA- Area Ranking 1 World Ranking 4 Market Cap €44.5bn Market Share Mortgage lending 12% Italian Insurance 30% Source: Company, BofA Merrill Lynch Global Research

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Q1 results Q1 were a good set numbers from RBS, in our view. 1Q11 operating profit expanded to just over £1bn (ahead of consensus) and ‘core’ ROE was 15% (group ROE was 11%) which we see as good performances. The headline loss was however £528m reflecting a £469m fair value change in the APS CDS and a £480m charge for fair value of own debt. Strong results from GBM drove a 6% recovery in Group income in the quarter to just over £8bn. GBM’s ROE was 21% as the credit businesses revenue doubled from 4Q to £885m and down only 8% from the 1Q10 performance. Impairments continued to decline – down 9% qoq but of course remain relatively elevated. At just shy of £2bn, impairments were 1.5% of loans and advances. There was a 23% increase in provisions at Ulster Bank to £461m, driven by mortgages and CRE. Coverage at Ulster Bank is 47%. RBS reports that in general CRE trends are improving however.

Individual rating upgraded by Fitch to C from C/D on Jun 29.

Table 54: RBS financial statistics £ mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 1,453,576 1,696,486 2,401,652 Profitability % change -14.3 -29.4 30.5 Net Interest Margin 0.90 0.81 0.88 Risk weighted assets 571,100 668,600 695,800 Cost/Income Ratio 68.66 70.28 100.85 -14.6 -3.9 9.8 Revenues/average assets 1.68 1.47 1.01 Gross Customer Loans 573,315 745,519 885,738 Noninterest income/average assets 0.78 0.66 0.13 -23.1 -15.8 6.1 Noninterest expense/average assets 1.16 1.03 1.02 NPLs 38,598 34,989 19,350 Net operating income before LLP/average assets 0.53 0.44 -0.01 10.3 80.8 87.2 LLP/Revenues 34.89 49.76 37.65 Loan Loss Reserves 18,055 17,126 11,016 Net income/average assets (ROA) -0.11 -0.11 -1.63 5.4 55.5 70.7 ROE -2.39 -3.39 -67.76 Customer Deposits 428,599 545,849 581,369 -21.5 -6.1 6.2 Liquidity Total equity 76,851 94,631 80,498 Loans/customer deposits 129.55 133.44 150.46 -18.8 17.6 -12.0 Loans/assets 38.20 42.94 36.42 Revenues 26,532 30,043 21,438 -11.7 40.1 -16.7 Capital Adequacy Net trading income 4,517 3,881 -8,477 Tier 1 ratio 12.90 14.40 10.00 16.4 -145.8 -756.1 Core Tier 1 ratio 10.70 11.00 6.60 Net interest income 14,209 16,504 18,675 Adjusted common equity/assets 4.29 4.53 2.52 -13.9 -11.6 54.7 Adjusted common equity/ risk assets 10.93 11.48 8.69 Operating expenses 18,218 21,115 21,621 Equity/assets 5.29 5.58 3.35 -13.7 -2.3 55.1 Adjusted equity plus total reserves/loans 15.64 14.69 10.34 PPP 8,314 8,928 -183 -6.9 4978.7 -101.6 Asset Quality LLP 9,256 14,950 8,072 LLP/average loans 1.44 1.87 0.95 -38.1 85.2 310.2 LLR/Total Loans 3.15 2.30 1.24 Pre tax profit -1,032 -2,694 -36,865 LLR/RWA 3.16 2.56 1.58 61.7 92.7 -477.9 Coverage Ratio 46.78 48.95 56.93 Net income -1,666 -2,323 -34,542 NPL/Total loans 6.73 4.69 2.18 28.3 93.3 -547.9 NPL+ORE/shareholders funds 50.22 36.97 24.04 Source: BofA Merrill Lynch Global System

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Standard Chartered (STANLN) Rationale Diversification Credit strengths include the group’s very good diversification across Asian markets, its very good track record at dealing with stress situations in the markets including the recent structured credit crisis and its strong liquidity and funding profile. Since 2007, with the exception of Dubai, most of the markets that SC operates in have proven to be more stable and resilient that Western Europe. In 2010, pre-tax profits broke down as follows: Hong Kong (18%), India (20%), Middle East (14%), Singapore (12%), Other Asia (18%), Korea (6%), Africa (9%). Note however the importance of Wholesale Banking to the group in terms of business lines. We like Standards but whichever way one looks at it, it could not be claimed that the bank has a dominant position in many of the markets in which it operates, with the possible exception of Hong Kong. We cannot exclude that Standards makes a large acquisition that would materially alter its risk profile in a relatively unexpected way.

Capital raising Standard Chartered announced a $5bn rights issue in October to bolster its core Tier 1 ratio ahead of the implementation of Basel 3 rules. The current core T1 ratio is thus 11.8%. Needless to say, we consider this positive for the credit. We view capitalisation as a relative strength for the group. Standards was eligible for but did not need to take any assistance from the UK Government’s financial safety net and programs.

Asset quality Risk management has been quite good with NPLs of under 2% and coverage levels relatively high. At the recent preclose comments on the loan book were encouraging. Asset quality in the Consumer Banking business has continued to improve since year end with the cost of credit lower than that seen in the second half 2010. The Wholesale Banking book does not seem to present any new concerns, asset quality here described as ‘good’.

Funding The group requires very low levels of refinancing over the next few years. Loans to deposits a relatively low 78% also a plus. This ratio is one of the lowest in our coverage universe.

Preclose We thought this was a generally strong pre close from Standard Chartered which showed that the group is generally performing in line with market expectations. As of end May, the group appeared to be on target for delivering strong double digit growth in income and pretax profit compared to 1H10. As expected, cost growth is still in line with income growth at the group level. There are however positive jaws in retail. East Asia is the main driver of the growth with India and Africa more muted. Loan impairment is said to be below the 2H of 2010 but with impairments also low, it's hard to see how they can fall much further. No direct exposure to sovereign debt in Southern Europe. This guidance supports a long position in StanChart vis-a-vis the other European banks as much for the growth outlook as anything else.

In general, Standards enjoys better spreads than its credit ratings would suggest.

A LIST

Company description Standard Chartered is an international UK based bank with operations in over 70 counties. Hong Kong is the bank’s most important market followed by India and Korea. The bank focuses on consumer (and private) banking, corporate and institutional banking and treasury services. Reporting date: 3rd Aug 2011 – 1H11 results Sources: Company, BofA Merrill Lynch Global Research

Statistics Rating A2/A/AA- Area Ranking 5 World Ranking 42 Market Cap €43.7bn Source: Company, BofA Merrill Lynch Global Research

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Table 55: Standard Chartered financial statistics $ mn/ % FY10 FY09 FY08 FY10 FY09 FY08 Total assets 516,542 436,653 435,068 Profitability % change 18.3 0.4 31.9 Net Interest Margin 1.78 1.75 1.93 Risk weighted assets 245,077 213,923 188,821 Cost/Income Ratio 56.03 53.22 56.63 14.6 13.3 1.9 Revenues/average assets 3.38 3.43 3.51 Gross Customer Loans 242,942 201,019 176,136 Noninterest income/average assets 1.60 1.68 1.58 20.9 14.1 12.9 Noninterest expense/average assets 1.89 1.82 1.99 NPLs 4,136 3,790 2,673 Net operating income before LLP/average assets 1.49 1.60 1.52 9.1 41.8 23.6 LLP/Revenues 5.48 13.38 9.83 Loan Loss Reserves 2,584 2,727 1,958 Net income/average assets (ROA) 0.93 0.80 0.92 -5.2 39.3 8.4 ROE 16.60 18.48 22.35 Customer Deposits 306,992 251,244 234,008 22.2 7.4 30.2 Liquidity Total equity 38,865 27,920 22,695 Loans/customer deposits 78.29 78.92 74.43 39.2 23.0 5.8 Loans/assets 46.53 45.41 40.03 Revenues 16,104 14,943 13,439 7.8 11.2 21.4 Capital Adequacy Net trading income 2,577 2,890 2,405 Tier 1 ratio 14.00 11.50 9.90 -10.8 20.2 90.7 Core Tier 1 ratio 11.80 8.90 7.50 Net interest income 8,470 7,623 7,387 Adjusted common equity/assets 6.17 4.88 3.75 11.1 3.2 17.9 Adjusted common equity/ risk assets 13.01 9.96 8.65 Operating expenses 9,023 7,952 7,611 Equity/assets 7.52 6.39 5.22 13.5 4.5 22.5 Adjusted equity plus total reserves/loans 17.26 15.69 14.21 PPP 7,081 6,991 5,828 1.3 20.0 20.1 Asset Quality LLP 883 2,000 1,321 LLP/average loans 0.40 1.07 0.80 -55.9 51.4 73.6 LLR/Total Loans 1.06 1.36 1.11 Pre tax profit 6,122 5,151 4,801 LLR/RWA 1.05 1.27 1.04 18.9 7.3 19.0 Coverage Ratio 62.48 71.95 73.25 Net income 4,414 3,477 3,511 NPL/Total loans 1.70 1.89 1.52 26.9 -1.0 17.5 NPL+ORE/shareholders funds 10.64 13.57 11.78 Source: BofA Merrill Lynch Global System

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Ratio Definitions and Glossary

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Methodology for our classification of the banks Our classification of the banks is designed to split the banks up into quartiles according to our view of their underlying financial strength. This involves an assessment by us of their fundamentals: profitability, asset quality, liquidity (including their access to markets), market perception and capital. It does not necessarily reflect the credit ratings of the banks. Additionally, this classification of the banks do not in any way reflect the attractiveness or otherwise of their debt securities and no inference can be drawn as to our opinion of their debt securites from this list. We are merely classifying the banks by fundamentals not relative value. The A List represents the best banks; the B List the second quartile, the Grey List the third quartile and the Watchlist those banks where there may be some particular concerns. Fundamental strength of any corporation is determined by analysis of its public financial statements and our view of its outlook.

Ratio Definitions and Glossary Profitability Net Interest Margin Net interest income / average total assets * 100

an indicator of the group’s lending margins. Bigger is better.

Cost/Income Ratio Non-interest expense / gross revenues * 100

the most famous efficiency measure for a bank, which shows how much of a bank’s revenues get paid away in costs. Naturally the lower the better

Revenues/average assets Gross revenues / average assets * 100

an overall asset yield measure showing how much total revenue all a bank’s business lines generate with respect to the average level of assets for the period. The higher the better

Non-interest income/average assets Non-interest income (i.e. fees, commissions, trading etc) / average assets * 100

an indicator of the strength of a bank’s non-lending businesses. High is good; note that banks who have non-balance sheet intensive businesses (e.g. asset management) often do well on this measure (as do banks with extensive trading businesses)

Non-interest expense/average assets Non-interest expense / average assets * 100

an alternative efficiency ratio which looking at the costs of running the bank with respect to the average level of assets for the period

LLP/Revenues Loan loss provisions / gross revenues * 100

- shows how much of a bank’s overall revenue base gets eaten up by its loan loss provisioning.

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ROA Net income / average total assets * 100

an asset yield based measure, showing the return made on the average level of assets for the period. ROAs in excess of 1% are good.

ROE Net income / average adjusted common equity * 100

(Adjusted common equity = total shareholders funds – revaluation reserve – intangible assets)

the core profitability measure for a bank. An indicator of how much well a bank is investing shareholders’ money. Classically, we would be looking for ROEs in excess of 15%. Note that our analysis uses pre-minority profitability in our returns analysis, so our numbers may differ from some banks’ stated numbers which use profits post-minorities (the reason is that, analytically speaking, it is incorrect to deduct minorities from profits if you are still including minorities in your shareholders’ funds)

Liquidity Loans/customer deposits Customer loans / customer deposits * 100

a ratio of increased importance since the financial crisis, it shows how dependent a bank is on internal vs. external funding. Put another way, it shows how much of a bank’s loan book is self-funding. Less than 100% is good (if rare). The higher the ratio, however, the more the bank is dependent on wholesale funding – not necessarily a good thing.

Loans/assets Total customer loans / total assets * 100

a measure of how “loaned up” a bank is and a type of leverage indicator. Therefore, lower is better. A higher ratio implies that a bank has lower liquidity.

Capital Adequacy Tier 1 ratio Tier 1 capital / risk-weighted assets

the classic regulatory ratio of core capital compared to risk-weighted assets, as stated by the banks. Tier 1s in excess of 10% now look increasingly likely to be the norm.

Adjusted common equity/assets Adjusted common equity / assets * 100

our definition of adjusted common equity is merely a form of core (tangible) capital, which excludes preference instruments, goodwill and revaluation reserves. This is then compared to the total assets of the bank. For credit investors, high is good.

Adjusted common equity/risk assets Adjusted common equity / risk assets * 100

our definition of core capital, compared to the stated period-end risk assets of the bank

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Adjusted common equity/loans Adjusted common equity / loans * 100

a measure of adjusted equity against loans illustrating how much of an equity buffer is available against the total lending portfolio.

Equity/assets Equity / total assets * 100

a basic measure of the capital adequacy and leverage of the bank (no adjustments)

Adjusted equity plus total reserves/loans Adjusted equity plus total reserves / loans * 100

a measure of the total capital cushion for loan losses, including equity, preference shares and perpetual instruments, compared to the total lending portfolio. This ratio provides an easy indicator as to the proportion of loans going bad the bank can handle becoming insolvent. Obviously, the higher the better.

Asset Quality LLP/average loans Loan loss provisions / average loans * 100

an indicator cost of credit showing how much is being charged through the income statement each period as a percentage of the total lending portfolio. An indicator of the quality of a bank’s underwriting. Useful because it’s always available (some banks are less forthcoming with the data needed for the asset quality ratios below, for example)

LLR/Total Loans Loan loss reserves / total loans * 100

a measure of how much of the total lending portfolio is covered by reserves providing an indication as to what level of impairment a bank can withstand on its loan book

LLR/RWA Loan loss reserves / risk-weighted assets * 100

similar to the above but using risk weighted assets vs loan loss reserves instead of lending.

Coverage Ratio Loan-loss reserves/nonperforming assets (gross)+ORE * 100

a key indicator of the level of coverage of the impaired lending portfolio. In our analysis, we include “Other Real Estate” which is basically foreclosed property that has been taken on to the bank’s balance sheet usually due to the actual or impending non-performance of the relative loan. Of course a level of 100% or more is ideal but at present rather uncommon. Note that NPLs plus ORE is often referred to under the more generic term, Non-performing Assets (NPAs). ORE is not always available unfortunately. Banks somewhat unsurprisingly like to hide it

NPL/Total loans Non-performing loans / total loans * 100

a key indicator of the quality of the lending portfolio showing the percentage of impaired loans to total lending.

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NPL+ORE/shareholders funds Non-performing loans + other real estate / total equity * 100

a measure that looks at the percentage of equity absorbed by current NPAs. High is not good; over 100% not good at all.

Please Note: averages are average of period start and end

loan loss reserves includes both general and specific allowances

we use the widest definition of NPLs where we can e.g. for Italian banks this will include both watchlisted loans as well as ‘sofferenze’ to make the banks more comparable with other European banks. However, we recognise that this may appear to penalise some banks too.

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Link to Definitions Credit Click here for definitions of commonly used terms.

Financials Click here for definitions of commonly used terms.

Analyst Certification I, Richard Thomas, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.

Special Disclosures BofA Merrill Lynch is currently acting as financial advisor to Banco Santander in connection with the forming of a strategic alliance with Zurich Financial Services Group to strengthen insurance distribution in certain markets, which was announced on 22 February 2011.

BofA Merrill Lynch is currently acting as financial advisor to KBC Groep NV in connection with its proposed disposal of Kredyt Bank, which was announced on 13th Jul 2011.

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Important Disclosures BofA Merrill Lynch Credit Opinion Key The BofA Merrill Lynch Global Research Credit Opinion Key is designed to allow BofA Merrill Lynch Global Credit Research to provide recommendations on an issuer’s bonds, capital securities, equity preferreds and CDS as described below. An issuer level recommendation may also be provided in respect of an issuer as explained below. BofA Merrill Lynch Global Research credit recommendations are assigned using a three-month time horizon. Issuer Recommendations: If an issuer credit recommendation is provided, it is applicable to all bonds of the issuer except bonds specifically referenced in the report with a different credit recommendation. Where there is no issuer credit recommendation, only individual bonds with specific recommendations are covered. Issuer credit recommendations do not cover equity preferreds or CDS related to the issuer. Issuer credit recommendations do not cover capital securities of the issuer unless a statement to that effect is provided in the relevant research report. CDS Recommendations: CDS are recommended on an individual basis under the Credit Opinion Key. Issuer credit recommendations do not apply to CDS. Capital Securities: Capital securities are recommended individually unless the research report specifically states that the issuer credit recommendation applies to such securities. In cases where the issuer credit recommendation applies to capital securities of the issuers, it is not applicable to capital securities that we classify as equity preferreds. Equity Preferreds: Equity preferreds are recommended on an individual basis under the Credit Opinion Key. Issuer credit recommendations do not apply to equity preferreds.

Recommendation Investor Action Points (Cash and/or CDS) Primary Investment Return Driver Overweight-100% Up to 100% Overweight of investor's guidelines Compelling spread tightening potential Overweight-70% Up to 70% Overweight of investor's guidelines Carry, plus some spread tightening expected Overweight-30% Up to 30% Overweight of investor's guidelines Good carry, but little spread tightening expected Underweight-30% Down to 30% Underweight of investor's guidelines Unattractive carry, but spreads unlikely to widen Underweight-70% Down to 70% Underweight of investor's guidelines Expected spread underperformance Underweight-100% Down to 100% Underweight of investor's guidelines Material spread widening expected Time horizon – our recommendations have a 3 month trade horizon

FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster*

Buy ≥ 10% ≤ 70% Neutral ≥ 0% ≤ 30%

Underperform N/A ≥ 20% * Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster.

INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock’s coverage cluster is included in the most recent BofA Merrill Lynch Comment referencing the stock.

Price charts for the securities referenced in this research report are available at http://pricecharts.ml.com, or call 1-800-MERRILL to have them mailed. Credit Opinion History Tables for the securities referenced in this research report are available at http://pricecharts.ml.com, or call 1-800-MERRILL to have them

mailed. MLPF&S or an affiliate was a manager of a public offering of securities of this company within the last 12 months: ABN AMRO, Banco Sabadell S, Bank Of

Ireland, BNP Paribas, BPCE, Commerzbank, Credit Agricole, CS Group, Den Danske Bank, Deutsche Bank, Handelsbanken, HSBC, Intesa, Nordea AB, Rabobank Ned, RBoS, SocGen, StanChart, UniCredit, Union Bank of No, Unione Di Banche.

The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: ABN AMRO, Alpha Bank, Anglo Irish Bank, Banco Popolare, Banco Sabadell S, Bank Of Ireland, BBVA, BES, BNP Paribas, BPCE, Caixa Geral, Commerzbank, Credit Agricole, CS Group, Den Danske Bank, Deutsche Bank, Eurobank, Eurohypo AG, Handelsbanken, HSBC, Intesa, KBC, Lloyds Banking Group, Natl Bank Greece, Nordea AB, Piraeus Bank S.A, Postbank, Rabobank Ned, RBoS, S E B, Santander, SocGen, StanChart, Swedbank, UBS, UniCredit, Union Bank of No, Unione Di Banche.

MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: ABN AMRO, Allied Irish Bks, Alpha Bank, Anglo Irish Bank, Banca Pop di Milano, Banco Pastor SA, Banco Popolare, Banco Popular, Banco Sabadell S, Bank Of Ireland, Bankinter, Barclays, Bayerische Landes, BBVA, BCP, BES, BNP Paribas, BPCE, Caixa Geral, Caja de Ahorros, Commerzbank, Credit Agricole, CS Group, Den Danske Bank, Deutsche Bank, Erste Bank, Eurobank, Eurohypo AG, Handelsbanken, HSBC, Intesa, KBC, Lloyds Banking Group, Monte Dei Paschi, Natl Bank Greece, Nordea AB, Piraeus Bank S.A, Postbank, Rabobank Ned, Raiffeisen Intl, RBoS, S E B, Santander, SocGen, StanChart, Swedbank, UBS, UniCredit, Union Bank of No, Unione Di Banche.

The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: ABN AMRO, Allied Irish Bks, Alpha Bank, Anglo Irish Bank, Banca Pop di Milano, Banco Pastor SA, Banco Popolare, Banco Popular, Banco Sabadell S, Bank Of Ireland, Bankinter, Barclays, Bayerische Landes, BBVA, BCP, BES, BNP Paribas, BPCE, Caixa Geral, Caja de Ahorros, Commerzbank, Credit Agricole, CS Group, Den Danske Bank, Deutsche Bank, Erste Bank, Eurobank, Eurohypo AG, Handelsbanken, HSBC, Intesa, KBC, Lloyds Banking Group, Monte Dei Paschi, Natl Bank Greece, Nordea AB, Piraeus Bank S.A, Postbank, Rabobank Ned, Raiffeisen Intl, RBoS, S E B, Santander, SocGen, StanChart, Swedbank, UBS, UniCredit, Union Bank of No, Unione Di Banche.

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In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale: ABN AMRO, Alpha Bank, Anglo Irish Bank, Banca Pop di Milano, Banco Pastor SA, Banco Popular, Banco Sabadell S, Bank Of Ireland, Bankinter, Barclays, Bayerische Landes, BBVA, BCP, BES, BNP Paribas, Caixa Geral, Caja de Ahorros, Commerzbank, Credit Agricole, CS Group, Den Danske Bank, Erste Bank, Eurobank, Eurohypo AG, Handelsbanken, HSBC, Intesa, KBC, Lloyds Banking Group, Monte Dei Paschi, Nordea AB, Piraeus Bank S.A, Postbank, Raiffeisen Intl, RBoS, S E B, SocGen, StanChart, UniCredit, Union Bank of No, Unione Di Banche.

MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: ABN AMRO, Alpha Bank, Anglo Irish Bank, Banco Popolare, Banco Sabadell S, Bank Of Ireland, BBVA, BES, BNP Paribas, BPCE, Caixa Geral, Commerzbank, Credit Agricole, CS Group, Den Danske Bank, Deutsche Bank, Eurobank, Eurohypo AG, Handelsbanken, HSBC, Intesa, KBC, Lloyds Banking Group, Natl Bank Greece, Nordea AB, Piraeus Bank S.A, Postbank, Rabobank Ned, RBoS, S E B, Santander, SocGen, StanChart, Swedbank, UBS, UniCredit, Union Bank of No, Unione Di Banche.

MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company within the next three months: ABN AMRO, Allied Irish Bks, Anglo Irish Bank, Banco Popolare, Banco Popular, Banco Sabadell S, Bank Of Ireland, Bankinter, Barclays, Bayerische Landes, BBVA, BCP, BES, BNP Paribas, BPCE, Caixa Geral, Caja de Ahorros, Commerzbank, Credit Agricole, CS Group, Den Danske Bank, Deutsche Bank, Erste Bank, Eurobank, Eurohypo AG, Handelsbanken, HSBC, Intesa, KBC, Lloyds Banking Group, Monte Dei Paschi, Natl Bank Greece, Nordea AB, Piraeus Bank S.A, Postbank, Rabobank Ned, Raiffeisen Intl, RBoS, S E B, Santander, SocGen, StanChart, Swedbank, UBS, UniCredit, Union Bank of No, Unione Di Banche.

MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this company. If this report was issued on or after the 8th day of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 8th day of a month reflect the ownership position at the end of the second month preceding the date of the report: Anglo Irish Bank, Banca Pop di Milano, Barclays, BBVA, Commerzbank, Deutsche Bank, Erste Bank, HSBC, Natl Bank Greece, Santander.

The company is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates: ABN AMRO, Allied Irish Bks, Alpha Bank, Anglo Irish Bank, Banca Pop di Milano, Banco Pastor SA, Banco Popolare, Banco Popular, Banco Sabadell S, Bank Of Ireland, Bankinter, Barclays, Bayerische Landes, BBVA, BCP, BES, BNP Paribas, BPCE, Caixa Geral, Caja de Ahorros, Commerzbank, Credit Agricole, CS Group, Den Danske Bank, Deutsche Bank, Erste Bank, Eurobank, Eurohypo AG, Handelsbanken, HSBC, Intesa, KBC, Lloyds Banking Group, Monte Dei Paschi, Natl Bank Greece, Nordea AB, Piraeus Bank S.A, Postbank, Rabobank Ned, Raiffeisen Intl, RBoS, S E B, Santander, SocGen, StanChart, Swedbank, UBS, UniCredit, Union Bank of No, Unione Di Banche.

BofA Merrill Lynch Research personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking revenues.

MLPF&S is affiliated with an NYSE Designated Market Maker (DMM) that specializes in one or more securities issued by the subject companies. This affiliated NYSE DMM makes a market in, and may maintain a long or short position in or be on the opposite side of orders executed on the Floor of the NYSE in connection with one or more of the securities issued by these companies: Allied Irish Bks, CS Group, Deutsche Bank.

BofA Merrill Lynch Global Credit Research analysts regularly interact with sales and trading desk personnel in connection with their research, including to ascertain pricing and liquidity in the fixed income markets.

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Other Important Disclosures

MLPF&S or one of its affiliates has a significant financial interest in the fixed income instruments of the issuer. If this report was issued on or after the 8th day of a month, it reflects a significant financial interest on the last day of the previous month. Reports issued before the 8th day of a month reflect a significant financial interest at the end of the second month preceding the date of the report: ABN AMRO, BNP Paribas, Den Danske Bank, Handelsbanken, HSBC, Intesa, Lloyds Banking Group, Nordea AB, Rabobank Ned, RBoS, SocGen, StanChart, Swedbank, UniCredit.

Rule 144A securities may be offered or sold only to persons in the U.S. who are Qualified Institutional Buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended.

SECURITIES DISCUSSED HEREIN MAY BE RATED BELOW INVESTMENT GRADE AND SHOULD THEREFORE ONLY BE CONSIDERED FOR INCLUSION IN ACCOUNTS QUALIFIED FOR SPECULATIVE INVESTMENT.

Recipients who are not institutional investors or market professionals should seek the advice of their independent financial advisor before considering information in this report in connection with any investment decision, or for a necessary explanation of its contents.

The securities discussed in this report may be traded over-the-counter. Retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale.

Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments.

This report, and the securities discussed herein, may not be eligible for distribution or sale in all countries or to certain categories of investors. Information relating to Affiliates of MLPF&S and Distribution of Affiliate Research Reports: BofA Merrill Lynch includes Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and its affiliates. Investors should contact their BofA

Merrill Lynch representative or Merrill Lynch Global Wealth Management financial advisor if they have questions concerning this report. MLPF&S distributes, or may in the future distribute, research reports of the following non-US affiliates in the US (short name: legal name): Merrill Lynch

(France): Merrill Lynch Capital Markets (France) SAS; Merrill Lynch (Frankfurt): Merrill Lynch International Bank Ltd., Frankfurt Branch; Merrill Lynch (South Africa): Merrill Lynch South Africa (Pty) Ltd.; Merrill Lynch (Milan): Merrill Lynch International Bank Limited; MLI (UK): Merrill Lynch International; Merrill Lynch (Australia): Merrill Lynch Equities (Australia) Limited; Merrill Lynch (Hong Kong): Merrill Lynch (Asia Pacific) Limited; Merrill Lynch (Singapore): Merrill Lynch (Singapore) Pte Ltd.; Merrill Lynch (Canada): Merrill Lynch Canada Inc; Merrill Lynch (Mexico): Merrill Lynch Mexico, SA de CV, Casa de Bolsa; Merrill Lynch (Argentina): Merrill Lynch Argentina SA; Merrill Lynch (Japan): Merrill Lynch Japan Securities Co., Ltd.; Merrill Lynch (Seoul): Merrill Lynch International Incorporated (Seoul Branch); Merrill Lynch (Taiwan): Merrill Lynch Securities (Taiwan) Ltd.; DSP Merrill Lynch (India): DSP Merrill Lynch Limited; PT Merrill Lynch (Indonesia): PT Merrill Lynch Indonesia; Merrill Lynch (Israel): Merrill Lynch Israel Limited; Merrill Lynch (Russia): Merrill Lynch CIS Limited, Moscow; Merrill Lynch (Turkey): Merrill Lynch Yatirim Bankasi A.S.; Merrill Lynch (Dubai): Merrill Lynch International, Dubai Branch; MLPF&S (Zürich rep. office): MLPF&S Incorporated Zürich representative office; Merrill Lynch (Spain): Merrill Lynch Capital Markets Espana, S.A.S.V.; Merrill Lynch (Brazil): Bank of America Merrill Lynch Banco Múltiplo S.A.

This research report has been approved for publication and is distributed in the United Kingdom to professional clients and eligible counterparties (as each is defined in the rules of the Financial Services Authority) by Merrill Lynch International and Banc of America Securities Limited (BASL), which are authorized and regulated by the Financial Services Authority and has been approved for publication and is distributed in the United Kingdom to retail clients (as defined in the rules of the Financial Services Authority) by Merrill Lynch International Bank Limited, London Branch, which is authorized by the Central Bank of Ireland and is subject to limited regulation by the Financial Services Authority – details about the extent of its regulation by the Financial Services Authority are available from it on request; has been considered and distributed in Japan by Merrill Lynch Japan Securities Co., Ltd., a registered securities dealer under the Financial Instruments and Exchange Act in Japan; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Limited, which is regulated by the Hong Kong SFC and the Hong Kong Monetary Authority; is issued and distributed in Taiwan by Merrill Lynch Securities (Taiwan) Ltd.; is issued and distributed in India by DSP Merrill Lynch Limited; and is issued and distributed in Singapore by Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd. (Company Registration No.’s F 06872E and 198602883D respectively) and Bank of America Singapore Limited (Merchant Bank). Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd. are regulated by the Monetary Authority of Singapore. Merrill Lynch Equities (Australia) Limited (ABN 65 006 276 795), AFS License 235132 provides this report in Australia in accordance with section 911B of the Corporations Act 2001 and neither it nor any of its affiliates involved in preparing this research report is an Authorised Deposit-Taking Institution under the Banking Act 1959 nor regulated by the Australian Prudential Regulation Authority. No approval is required for publication or distribution of this report in Brazil. Merrill Lynch (Dubai) is authorized and regulated by the Dubai Financial Services Authority (DFSA). Research reports prepared and issued by Merrill Lynch (Dubai) are prepared and issued in accordance with the requirements of the DFSA conduct of business rules.

Merrill Lynch (Frankfurt) distributes this report in Germany. Merrill Lynch (Frankfurt) is regulated by BaFin. This research report has been prepared and issued by MLPF&S and/or one or more of its non-US affiliates. MLPF&S is the distributor of this research report in

the US and accepts full responsibility for research reports of its non-US affiliates distributed to MLPF&S clients in the US. Any US person receiving this research report and wishing to effect any transaction in any security discussed in the report should do so through MLPF&S and not such foreign affiliates.

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General Investment Related Disclosures: This research report provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer,

to buy or sell any securities or other financial instrument or any derivative related to such securities or instruments (e.g., options, futures, warrants, and contracts for differences). This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person. Investors should seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Any decision to purchase or subscribe for securities in any offering must be based solely on existing public information on such security or the information in the prospectus or other offering document issued in connection with such offering, and not on this report.

Securities and other financial instruments discussed in this report, or recommended, offered or sold by Merrill Lynch, are not insured by the Federal Deposit Insurance Corporation and are not deposits or other obligations of any insured depository institution (including, Bank of America, N.A.). Investments in general and, derivatives, in particular, involve numerous risks, including, among others, market risk, counterparty default risk and liquidity risk. No security, financial instrument or derivative is suitable for all investors. In some cases, securities and other financial instruments may be difficult to value or sell and reliable information about the value or risks related to the security or financial instrument may be difficult to obtain. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. Past performance is not necessarily a guide to future performance. Levels and basis for taxation may change.

BofA Merrill Lynch is aware that the implementation of the ideas expressed in this report may depend upon an investor's ability to "short" securities or other financial instruments and that such action may be limited by regulations prohibiting or restricting "shortselling" in many jurisdictions. Investors are urged to seek advice regarding the applicability of such regulations prior to executing any short idea contained in this report.

This report may contain a trading idea or recommendation which highlights a specific identified near-term catalyst or event impacting a security, issuer, industry sector or the market generally that presents a transaction opportunity, but does not have any impact on the analyst’s particular “Overweight” or “Underweight” rating (which is based on a three month trade horizon). Trading ideas and recommendations may differ directionally from the analyst’s rating on a security or issuer because they reflect the impact of a near-term catalyst or event.

Foreign currency rates of exchange may adversely affect the value, price or income of any security or financial instrument mentioned in this report. Investors in such securities and instruments effectively assume currency risk.

UK Readers: The protections provided by the U.K. regulatory regime, including the Financial Services Scheme, do not apply in general to business coordinated by BofA Merrill Lynch entities located outside of the United Kingdom. BofA Merrill Lynch Global Research policies relating to conflicts of interest are described at http://www.ml.com/media/43347.pdf.

Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments.

MLPF&S or one of its affiliates is a regular issuer of traded financial instruments linked to securities that may have been recommended in this report. MLPF&S or one of its affiliates may, at any time, hold a trading position (long or short) in the securities and financial instruments discussed in this report.

BofA Merrill Lynch, through business units other than BofA Merrill Lynch Global Research, may have issued and may in the future issue trading ideas or recommendations that are inconsistent with, and reach different conclusions from, the information presented in this report. Such ideas or recommendations reflect the different time frames, assumptions, views and analytical methods of the persons who prepared them, and BofA Merrill Lynch is under no obligation to ensure that such other trading ideas or recommendations are brought to the attention of any recipient of this report.

In the event that the recipient received this report pursuant to a contract between the recipient and MLPF&S for the provision of research services for a separate fee, and in connection therewith MLPF&S may be deemed to be acting as an investment adviser, such status relates, if at all, solely to the person with whom MLPF&S has contracted directly and does not extend beyond the delivery of this report (unless otherwise agreed specifically in writing by MLPF&S). MLPF&S is and continues to act solely as a broker-dealer in connection with the execution of any transactions, including transactions in any securities mentioned in this report.

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Copyright, User Agreement and other general information related to this report: Copyright 2011 Merrill Lynch, Pierce, Fenner & Smith Incorporated. All rights reserved. This research report is prepared for the use of BofA Merrill Lynch clients

and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of BofA Merrill Lynch. BofA Merrill Lynch Global Research reports are distributed simultaneously to internal and client websites and other portals by BofA Merrill Lynch and are not publicly-available materials. Any unauthorized use or disclosure is prohibited. Receipt and review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets) without first obtaining express permission from an authorized officer of BofA Merrill Lynch.

Materials prepared by BofA Merrill Lynch Global Research personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of BofA Merrill Lynch, including investment banking personnel. BofA Merrill Lynch has established information barriers between BofA Merrill Lynch Global Research and certain business groups. As a result, BofA Merrill Lynch does not disclose certain client relationships with, or compensation received from, such companies in research reports. To the extent this report discusses any legal proceeding or issues, it has not been prepared as nor is it intended to express any legal conclusion, opinion or advice. Investors should consult their own legal advisers as to issues of law relating to the subject matter of this report. BofA Merrill Lynch Global Research personnel’s knowledge of legal proceedings in which any BofA Merrill Lynch entity and/or its directors, officers and employees may be plaintiffs, defendants, co-defendants or co-plaintiffs with or involving companies mentioned in this report is based on public information. Facts and views presented in this material that relate to any such proceedings have not been reviewed by, discussed with, and may not reflect information known to, professionals in other business areas of BofA Merrill Lynch in connection with the legal proceedings or matters relevant to such proceedings.

This report has been prepared independently of any issuer of securities mentioned herein and not in connection with any proposed offering of securities or as agent of any issuer of any securities. None of MLPF&S, any of its affiliates or their research analysts has any authority whatsoever to make any representation or warranty on behalf of the issuer(s). BofA Merrill Lynch Global Research policy prohibits research personnel from disclosing a recommendation, investment rating, or investment thesis for review by an issuer prior to the publication of a research report containing such rating, recommendation or investment thesis.

Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional.

The information herein (other than disclosure information relating to BofA Merrill Lynch and its affiliates) was obtained from various sources and we do not guarantee its accuracy. This report may contain links to third-party websites. BofA Merrill Lynch is not responsible for the content of any third-party website or any linked content contained in a third party website. Content contained on such third-party websites is not part of this report and is not incorporated by reference into this report. The inclusion of a link in this report does not imply any endorsement by or any affiliation with BofA Merrill Lynch. Access to any third-party website is at your own risk, and you should always review the terms and privacy policies at third-party websites before submitting any personal information to them. BofA Merrill Lynch is not responsible for such terms and privacy policies and expressly disclaims any liability for them.

All opinions, projections and estimates constitute the judgment of the author as of the date of the report and are subject to change without notice. Prices also are subject to change without notice. BofA Merrill Lynch is under no obligation to update this report and BofA Merrill Lynch’s ability to publish research on the subject company(ies) in the future is subject to applicable quiet periods. You should therefore assume that BofA Merrill Lynch will not update any fact, circumstance or opinion contained in this report.

Certain outstanding reports may contain discussions and/or investment opinions relating to securities, financial instruments and/or issuers that are no longer current. Always refer to the most recent research report relating to a company or issuer prior to making an investment decision.

In some cases, a company or issuer may be classified as Restricted or may be Under Review or Extended Review. In each case, investors should consider any investment opinion relating to such company or issuer (or its security and/or financial instruments) to be suspended or withdrawn and should not rely on the analyses and investment opinion(s) pertaining to such issuer (or its securities and/or financial instruments) nor should the analyses or opinion(s) be considered a solicitation of any kind. Sales persons and financial advisors affiliated with MLPF&S or any of its affiliates may not solicit purchases of securities or financial instruments that are Restricted or Under Review and may only solicit securities under Extended Review in accordance with firm policies.

Neither BofA Merrill Lynch nor any officer or employee of BofA Merrill Lynch accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.

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