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Global Equity ResearchJune 28, 2006

Global GambitsThe Right Moves for Right Now

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The following is a chapter from Global Gambits � The Right Moves for Right Now, dated June 28, 2006. This chapter is presented forconvenience, and should be read in conjunction with the full report and its analyst certifications and important disclosures. The full report isavailable on MorganMarkets.

Bankingchapter

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June 28, 2006

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Banks Best Risk-Reward: OW 'Hybrid' EM Exposed vs. UW Credit Lending Exposed Banks Key Drivers• Despite the recent market sell-off, we remain Underweight

banks globally. In our view, an environment of slowing US growth, declining profitability, rising inflation and the likelihood that US policy rates will move outright ‘tight’, looks set to have a negative impact on the banking sector.

• We are growing more concerned about the credit cycle considering increasing leverage in a liquidity-driven market environment. Although there are no clear signs of an asset quality deterioration, with historically low global default rates, our credit research team now expects high-grade industrials credit spreads to widen by 10-15bps in 2006 and 20bps in 2007. Historically, periods of asset quality deterioration have had a significant effect on banks’ share prices, and in our view are the biggest earnings risk factor in the banking sector.

• Within credit, we prefer local emerging markets- exposed banks for structural growth exposure and M&A targets, to outperforming, over lending and trading asset-exposed banks. Emerging markets-exposed banks will benefit from strong macro-economic trends (we forecast 2.9% GDP growth for developed markets in 2007 compared to 5.5% for emerging markets). Within emerging markets, we prefer Asian and CEE exposure due to higher growth expectations: 6.7% in 2007E compared to 5.4% for Emerging Europe and 4.0% for Latin America—preferring Mexico.

• Within capital markets, we expect fixed income-exposed banking growth to slow down over 2006-08, due to increasing interest rate expectations making yield-enhancing credit derivatives less attractive, and credit event risk increasing in one of the lowest credit spread environments ever. Hence, for

capital markets’ exposure, we prefer ‘stick’ equity derivatives exposed banks, such as Société Genéralé and BNP Paribas, where we continue to see high structural growth in ‘sticky’ retail products.

Non-Consensus Views

1) We are Underweight on credit lending-exposed banks in highly leveraged market environments or ones that show limited signs of bad credit book restructuring, such as the UK Banks (Lloyds and HBOS) and regional US Banks (Fifth Third), and Chinatrust, where we see asset quality problems in the unsecured consumer lending business and where we believe recent efforts to restructure problem loans are likely to fail.

2) We also take a cautious stance on pure capital market-exposed banks such as the US IBs, and European traditional IBs, where we believe the market still discounts peak earnings, and we see potential downside from the current perfect conditions, particularly within fixed income.

Within the sector our Top Picks are:

(1) Hybrid EM universal banks such as BBVA, HSBC and Société Genéralé, where we see valuation support combined with exposure to high structural growth areas.

(2) Emerging markets-exposed banks, particularly in Asia, which we would access through Kookmin and HSBC.

(3) Japanese banks for continued restructuring potential and benefits of recent NPL ‘clean-up’, with our top pick being Mitsubishi UFJ Bank.

Global Sector Coordinator

Kian Abouhossein (44-20) 7325-1523 [email protected] J.P. Morgan Securities Ltd. Full sector coverage details on page 9

June 28, 2006


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Banks: Top Picks Company Key Financials Rationale and Catalysts Mitsubishi UFJ Financial Group Rating: Overweight Fiscal EPS (Local): Year-end Mar. Ticker: 8306 JP / 8306.T 2005 2006 2007E 113,205 95,888 104,701 Exchange: Tokyo Stock Exchange P/E (Calendar) Price (Local): ¥1,430,000 2006E 2007EMkt Cap (US$): 137.5 bn 14.9 13.7 Analyst: Katsuhito Sasajima P/B Phone: (81-3) 6736-8679 2006E 2007EEmail: [email protected] 1.9 1.7

• Management expects a consolidated net profit of ¥750.0 billion in FY06, down 36.5% Y/Y mainly because of an absence of gains on the reversal of loan loss reserves. However, we see room for such gains, considering the slightly high NPL ratio of 2.07% and UFJ’s massive NPL disposals in the past. Unrealized stock gains totaled ¥2.1 trillion, leaving room for realized gains. Management’s initial FY05 consolidated net profit target was ¥540 billion. But we think this is quite conservative.

• Using the model case EPS of ¥116,136.7 and the banking sector’s average projected P/E ratio of 16.9x, our theoretical share price is ¥1,962,711. In calculating the EPS, we use a value of 20bps for cost of credit, based on the strong chance of reversals of loan-loss reserves.

• As potential risk factors, we would cite the possibility of an economic slowdown, causing sluggishness in the bank’s main business and a rekindling of the non-performing loan problem.

HSBC Holdings plc Rating: Overweight Fiscal EPS (US$): Year-end Dec. Ticker: 5 HK / 0005.HK 2005 2006E 2007E 1.34 1.49 1.66 Exchange: Hong Kong Stock Exchange P/E (Calendar) Price (Local): HK$133.30 2006E 2007EMkt Cap (US$): 199.6 bn 11.5 10.3 Analyst: Sunil Garg P/B Phone: (852) 2800-8518 2006E 2007EEmail: [email protected] 1.9 1.8

• HSBC’s North American business (one-third) of pre-tax, is benefiting from a de-risking exercise that the group started two years ago. Hence, credit costs are declining and risk-adjusted revenues have started to revive. With tougher bankruptcy laws, credit costs could well be structurally lower in the HFC business.

• Emerging markets (15% of group pre-tax), of which Asia-Pacific is 12 percentage points, provide exceptional growth opportunities in the backdrop of strongly performing economies, relatively favorable demographics and relatively young credit cycles.

• The stock, having declined recently, discounts a very low future growth, which we see as too bearish a scenario. HSBC is trading at 1.9x book and 11.5x forward earnings.

• Our June 2007 target price of HK$155 is based on DDM. The key risk to target price is a slowdown in the US economy.

Source: Company data, Bloomberg, Datastream, JPMorgan estimates, JPMorgan SaVanT. Prices as of cob June 15, 2006.

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Banks: Top Picks (cont’d) Company Key Financials Rationale and Catalysts Kookmin Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: 060000 KS / 060000.KS 2005 2006E 2007E 6,974 9,076 9,301 Exchange: Korea Stock Exchange P/E (Calendar) Price (Local): W72,900 2006E 2007EMkt Cap (US$): 26.8 bn 7.8 7.6 Analyst: Scott YH Seo P/B Phone: (82-2) 758-5759 2006E 2007EEmail: [email protected] 1.5 1.4

• The proposed acquisition of KEB is expected to leverage Kookmin’s surplus capital to boost shareholder value. • Kookmin’s positioning as the leading consumer bank makes it well placed to benefit from a rising wealth management

business trend. The group’s strong consumer franchise also provides a steady source of cheap deposits, in our view. • With the CEO’s incentive plan strongly linked to stock performance and ROEs, we see the prospect of ongoing capital

management initiatives, in addition to the leveraging up of excess capital through the KEB deal. • We rate Kookmin as one of our top picks in Asia. • Our June 2007 target price of W120,000 for KMB has been derived from our discount dividend model. Risks to target

price: (1) The Korean government may be able to nullify the KEB transaction, if there were sizeable irregularities regarding Lone Star’s acquisition of KEB stake in 2003; (2) Unforeseen regulatory changes could negatively affect our view on the company; (3) Unforeseen corporate bankruptcies could negatively affect our view and earnings forecast on the company; (4) If the domestic economy deteriorates more than our estimates, our forecast for provisions and earnings could be negatively affected.

BBVA Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: BBVA SM / BBVA.MC 2005 2006E 2007E 1.26 1.46 1.66 Exchange: Madrid Stock Exchange P/E (Calendar) Price (Local): €15.32 2006E 2007EMkt Cap (US$): 65.7 bn 9.8 8.6 Analyst: Ignacio Cerezo Olmos P/B Phone: (44-2) 7325-4425 2006E 2007EEmail: [email protected] 2.6 2.2

• Given management’s encouraging M&A track record and strict financial discipline, we believe the market has failed to accurately reflect the high quality of BBVA’s local franchises (with special emphasis on Mexico) and has overplayed the risk of a “bad deal" happening.

• Despite the recent volatility, strong earnings momentum remains intact (15% EPS CAGR 05/08E) and we see Latam-related upside to our forecasts, following our recent trip to the region. BBVA’s Mexican franchise is the best in class and will continue to drive earnings growth in the medium term, due to the virtuous combination of expanding volumes, resilient margins and solid fee performance offsetting rising provisioning charges. We remain comfortable about BBVA’s earnings prospects from its more defensive domestic businesses.

• BBVA’s valuation is now very compelling in our view, and the stock is trading at an FY07E P/E of 8.6x cash, RONAV of 28%, with P/B of 2.2x and dividend yield is c.4%.

• Our sum-of-the-parts based Dec-06 target price is €19.5/share. The main risks to our estimates and price target include: (1) material deterioration of the economic situation and property market in Spain; (2) economic slowdown in Mexico or larger-than-expected interest rate declines, which could depress volumes and margins; (3) volatility of Latam currencies, which could have a negative impact on the region’s earnings and capital base.


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Banks: Top Picks (cont’d) Company Key Financials Rationale and Catalysts Société Genéralé Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: GLE FP / SOGN.PA 2005 2006E 2007E 11.10 12.10 12.90 Exchange: Paris Stock Exchange P/E (Calendar) Price (Local): €108.70 2006E 2007EMkt Cap (US$): 59.6 bn 9.3 9.4 Analyst: Kian Abouhossein P/B Phone: (44-20) 7325-1523 2006E 2007EEmail: [email protected] 1.8 1.6

• Société Genéralé trades at a low multiple and offers an excellent risk-reward equation in our opinion, generating 50% of pre-provision profits from high-growth segments (Europe consumer finance, equity derivatives, unit-linked, etc.) and geographical growth areas (CEE, Morocco, etc.) underestimated by the market.

• We believe the group offers better growth potential than traditional investment banks—within equity derivatives, the sweetspot for IB over the next two years, in our view—being the global leader, generating an estimated €2.8 billion of revenues in 2007E and net ROE of 40%. The main profit driver is retail structured products sold in European and Asian private banking.

• In addition, despite the acquisition risk and potential for a small rights issue, the group operates with a strong management team, and has so far shown an acquisition discipline with a focus on ROI rather than cash accretion on M&A.

• Our March 2007 sum-of-the-parts-based target price is €145. Risks to target price include capital markets development and interest rate levels, as well as potential M&A.

Erste Bank Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: EBS.AV 2005 2006E 2007E 2.93 3.62 4.64 Exchange: Vienna Stock Exchange P/E (Calendar) Price (Local): €42.05 2006E 2007EMkt Cap (US$): 16.6 bn 11.6 9.1 Analyst: Paul Formanko P/B Phone: (44-20) 7325-6028 2006E 2007EEmail: [email protected] 1.7 1.5

• Erste Bank’s share price performance has been negatively affected by the recent emerging market sell-off, despite the fact that virtually all of its business comes from EU members’ economies. The bank is a CEE/SEE regional retail champion, with 15.3 million retail customers, mostly in Czech Republic, Slovakia, Hungary, Croatia and Romania following the acquisition of BCR (62% stake pending to close in July), by far the leading retail franchise in EU-converging (lower risk), higher growth EU members (Romania is expected to join the EU in 2007 or 2008 latest).

• We expect Erste to generate over 70% of its profits from outside of Austria, with the Czech Republic accounting for (29%), Slovakia (11%), Hungary (10%), Croatia (4%) and Romania (15% assuming 62% stake) of total group profits. Given its #1 retail position in Czech Republic and Slovakia, #2 in Hungary, #1 in Romania, we expect Erste to also deliver a highly profitable revenue stream ahead of its core competitors lagging similar franchise power in the CEE. In addition, following several years of restructuring in its domestic market—Austria—its profitability is now improving.

• Investors are likely to benefit from several factors in our view: (1) potential P/E multiple expansion reflecting higher non-Austrian contribution from Converging European markets; (2) significant extension of Erste Bank’s growth ‘life cycle’ (following the BCR acquisition) well beyond 2008, which in our view, will boost growth rates; and (3) management targeting more than 20% net income growth between 2005 and 2009.

• With an average of 19% ROE and 26% EPS growth until 2008E, we rank the stock among the most attractive European banking stocks, currently trading at 9.1x FY07E, 7.3x FY08E earnings, offering some 31% upside potential.

• Our March 2007 sum-of-the-parts based price target is €55. Risks to our price target: (1) Broader economic slowdown in EB core markets—Czech Republic, Slovakia, Hungary and Romania—could negatively impact EPS growth, profitability and potentially asset quality; (2) Significant delay in the closing of the BCR-Romania deal, (expected to close in July 2006) and potential delay of Romania joining the EU (expected in January 2007); (3) Further acceleration in Erste’s core markets could negatively affect profitability and asset growth; (4) Another sizeable acquisition in Central Europe or Austria, delaying the integration of BCR (Romania) and/or diluting the CEE growth franchise.


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Banks: Stocks to Underweight Company Key Financials Rationale and Catalysts Fifth Third Bancorp Rating: Underweight Fiscal EPS (Local): Year-end Dec. Ticker: FITB US / FITB 2005 2006E 2007E 2.79 2.72 3.05 Exchange: NASDAQ P/E (Calendar) Price (Local): US$37.98 2006E 2007EMkt Cap (US$): 21.1 bn 14.0 12.5 Analyst: Vivek Juneja P/B Phone: (1-212) 622-6465 2006E 2007EEmail: [email protected] 2.2 2.1

• Relatively still overvalued versus peers in our view, as FITB’s stock still trades at a 15% premium to the peer average, despite no difference in performance.

• FITB is likely not a seller, but would be interested in continuing as an acquirer. • While interest rate risk issues are abating, they are not fully over in our opinion. Although expense growth is slowing,

the key issue is credit risk, due to rapid growth in commercial loans and weak economic conditions in its geographic market focus area.

• FITB’s securities portfolio is no longer declining; we believe it may grow again. • Net chargeoffs keep rising—the C&I NCO ratio doubled Y/Y despite the strong loan growth. Home equity NCOs have

also been well above its peers for the past five years. • Also, there has been a lot of management turnover.

National Australia Bank Rating: Underweight Fiscal EPS (Local): Year-end Sept. Ticker: NAB AU / NAB.AX 2005 2006E 2007E 2.10 2.36 2.53 Exchange: Sydney Stock Exchange P/E (Calendar) Price (Local): A$33.95 2006E 2007EMkt Cap (US$): 41.3 bn 14.4 13.4 Analyst: Brian Johnson P/B Phone: (61-2) 9220-1605 2006E 2007EEmail: [email protected] 2.0 1.9

• Growth and execution risk. Based on FY06E normalized P/Es, NAB is trading around 6% more expensive relative to its peers. While we believe that the 1H06 result marks a major positive turning point for NAB, there remains significant execution risk in our view, and we calculate that NAB’s valuation more than fully reflects its recovery potential.

• NAB’s sub-peer group organic capital generation. NAB’s current profile of capital intensity and profitability on an IFRS basis sees the bank’s profile of surplus “organic” capital generation well below its peer group. Over time, we believe this should manifest itself in NAB not being able to match its peers in terms of either additional investment activity to deploy accumulating surplus capital or increasing dividends/share buybacks to absorb surplus capital.

• NAB has specifically stated that its historical cost base had been distorted by “previous expense holidays”. NAB’s restructuring spend will generate negligible cost efficiencies, instead of reflecting the need for an element of “vanilla” capex from which it will derive little in way of “better than peer group” revenue growth or cost constraints.


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Banks: Stocks to Underweight (cont’d) Company Key Financials Rationale and Catalysts Deutsche Bank Rating: Underweight Fiscal EPS (Local): Year-end Dec. Ticker: DBK GR / DBKGn.DE 2005 2006E 2007E 8.60 8.45 8.50 Exchange: Frankfurt Electronic P/E (Calendar) Price (Local): €83.77 2006E 2007EMkt Cap (US$): 54.5 bn 9.9 9.0 Analyst: Kian Abouhossein P/B Phone: (44-20) 7325-1523 2006E 2007EEmail: [email protected] 1.2 1.1

• Deutsche Bank (DB) is an investment bank accounting for two-thirds of group profits. More importantly, the main money machine is fixed income, generating an estimated 50% of group profits. Within fixed income, its credit derivative franchise has been the main earnings growth driver, which we expect to slow down with fixed income. We also expect volatility to decline in the long term, with higher interest rates driving less yield-enhancing derivative demand by insurance companies and pension funds.

• We remain of the view that the Scudder turnaround is very difficult and not important enough in the group earnings context. In addition, there seems to be a more open approach to potential acquisitions in emerging markets, although DB has limited retail expertise in running a local EM bank—potentially leading to execution risk.

• Although not expensive on an absolute basis, relative to European IB peers, we note that the franchise is less attractive: CSG, for example, at cheaper valuation, will generate half the profits from wealth management and asset management in 2007E compared to DB’s 11% and offers IB restructuring potential. We also would be willing to pay a premium for better-cost-managed IBs with constant expense ratios even in more difficult revenue environments, compared to DB’s relatively inflexible cost base.

• Our March 2007 sum-of-the-parts based target price is €97. Risks include capital markets development and interest rate levels, as well as potential M&A.

Lloyds TSB Rating: Underweight Fiscal EPS (Pence): Year-end Dec. Ticker: LLOY LN / LLOY.L 2005 2006E 2007E 44.20 46.00 51.40 Exchange: London Stock Exchange P/E (Calendar) Price (Local): 527p 2006E 2007EMkt Cap (US$): 55.7 bn 11.5 10.2 Analyst: Carla Antunes da Silva P/B Phone: (44-20) 7325-8215 2006E 2007EEmail: [email protected] 3.5 3.1

• On an operational level, we believe Lloyds TSB’s large consumer credit book (£111 billion, 63% of total loans) is likely to suffer from the generalized uptick in credit losses at the bottom end of the socio-economic scale. We also believe Lloyds TSB is likely to be impacted by margin erosion from the onset of Basel II in its large mortgage book (50% of the book). We believe the impact of these factors could see as much as a 5% reduction in earnings.

• In addition, we believe the group faces large structural issues arising both from its sizable pension scheme deficit (a £2.9 billion deficit with £17 billion of liabilities) and also the loss of 50% of its double leverage benefit under Basel II, with a negative impact on Tier I capital of at least £3 billion. We also believe that these two factors make Lloyds TSB significantly less attractive as an acquisition target.

• Our December 2007 sum-of-the parts based price target is 470p. Key risks to our investment case include Lloyds TSB’s highly UK-centric customer focus, the progress of its development in wholesale banking and its ability to continue cross-selling into its retail customer base. Lloyds TSB is one of the few UK banks with a share price that is positively correlated to UK rate expectations; it is also highly geared to the equity markets through its insurance and investments division and its large pension scheme; accordingly risks arising from these elements are present in either direction.


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Banks: Stocks to Underweight (cont’d) Company Key Financials Rationale and Catalysts HBOS Rating: Underweight Fiscal EPS (Local): Year-end Dec. Ticker: HBOS LN / HBOS.L 2005 2006E 2007E 86.40 91.70 99.90 Exchange: London Stock Exchange P/E (Calendar) Price (Local): 941.50p 2006E 2007EMkt Cap (US$): 66.2 bn 10.3 9.5 Analyst: Carla Antunes da Silva P/B Phone: (44-20) 7325-8215 2006E 2007EEmail: [email protected] 2.0 1.8

• Like Lloyds TSB, HBOS is largely UK-centric and particularly exposed to margin pressure in the UK mortgage market resulting from Basel II. We believe it will continue to suffer from rising impairments in consumer credit and mortgage books—the latter is already seeing impairments at 7bps of loans. Furthermore, in 2H05, HBOS reported 9% UK net mortgage market share versus 17% in 1H05 and we believe this heralded the start of a slowdown in its rapid domestic growth. We are also concerned about both the sustainability of wholesale earnings and also the returns on capital in this business. We believe the sum of these two effects could see HBOS’ 2007E earnings at risk by c7%.

• On the capital and balance sheet side, we are particularly concerned about the low level of the group’s NPL coverage (35%) and also note that HBOS offers one of the lowest ROEs of the UK banks, propped up by its buyback program.

• Our December 2007 sum-of-the-parts based price target is 950p. With 62% of its loan book in UK mortgages, HBOS has a high exposure to the relatively low risk but highly competitive UK mortgage market. Risks include a significant variation to our spread, market share and lending growth assumptions, which could alter our earnings forecasts either way. In addition, HBOS is exposed to the Irish and Australian retail and wholesale markets, and also to the UK general and life insurance markets. Finally, better-than-expected credit quality in the loan book would reduce our increasing provisioning charge assumptions.

Chinatrust Financial Holdings Rating: Underweight Fiscal EPS (Local): Year-end Dec. Ticker: 2891 TT/2891.TW 2005 2006E 2007E 2.32 1.31 1.98 Exchange: Taiwan Stock Exchange P/E (Calendar) Price (Local): NT$26.50 2006E 2007EMkt Cap (US$): 6.0 bn 20.0 13.4 Analyst: Sunil Garg P/B Phone: (852) 2800-8518 2006E 2007EEmail: [email protected] 1.7 1.6

• We see more problems ahead in the unsecured consumer credit business. Our analysis suggests that recent efforts at restructuring problem loans are likely to fail and banks such as Chinatrust would face another lumpy provisioning charge after what is likely to be a temporary respite.

• Quite apart from a continuing deterioration in credit quality, we expect the knock-on effect on underlying revenues and pre-provision profitability to be severe and lasting. This requires a structural de-rating of the stock.

• We see the stock’s current valuations as stretched and believe that the market is trying to bargain the hunt too soon. • Our June 2007 DDM and P/E-based target price is NT$20. Risks to rating and target price is a better-than-expected

outcome from the company's consumer credit exposure.


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JPMorgan Global Banking Team – Research Equity Research Credit Research Banks Brokers and Asset Managers Mortgage Finance Specialty Finance

Americas Americas Americas Americas Americas United States

Vivek Juneja Jeanne Sun John Pancari Richard Xu Grace Lee Marco Villegas

United States Patra Chakshuvej Daniel Harris Ken Worthington

United States George Sacco

United States George Sacco

United States Kabir Caprihan (HG/HY) Anne Devries (HG/HY)

Latin America Yolanda C. Courtines, CFA Juan Partida

` Latin America Victoria Miles Tatiana Tchembarova

EMEA EMEA Pan Europe Roger Doig

Hubert Lam Christian Leukers Delphine Lee

Pan Europe

Iberia

Carla Antunes da Silva Ashley Stuart Ignacio Cerezo

Austria, Greece, CEEMEA

Paul Formanko

Italy Francesca Tondi France, Switzerland, Germany and the Netherlands

Kian Abouhossein Delphine Lee Jacob Kruse

CEEMEA

Ben Ashby (HG) Roberto Henriques (HG) Victoria Miles Tatiana Tchembarova

CEEMEA Yolanda C. Courtines, CFA Asia Pacific Asia Pacific Asia Pacific Asia Pacific Asia Pacific Pan Asia

Sunil Garg Jimmy Wong

Australia Shane Fitzgerald

Inida Sachin Sheth Pan Asia

Sunil Garg Jimmy Wong

Australia, New Zealand Allison Bellows Tiernan

Australia Brian Johnson Ed Henning

Japan Natsumu Tsujino, CFA Australia

Brian Johnson Shane Fitzgerald

Ex-Japan Asia Andrea Cheng, CFA

China Sunil Garg Joseph Zeng, CFA

Malaysia Chris Oh, CFA

Hong Kong Michael Chan

Hong Kong Michael Chan South Korea Sokmo Yun India Sachin Sheth

India Sachin Sheth Japan Natsumu Tsujino, CFA

Japan

Indonesia Rizal B. Prasetijo Singapore Chris Oh, CFA

Japan Katsuhito Sasajima Akito Kono

South Korea Scott Seo

Taiwan, Thailand

Sunil Garg

Mana Nakazora

Malaysia, Singapore South Korea

Chris Oh, CFA Scott Seo

Kian Abouhoessein Global Sector Coordinator

Thailand Sunil Garg

June 28, 2006


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Analyst Certification: The research analyst who is primarily responsible for this research and whose name is listed first on the front cover certifies (or in a case where multiple research analysts are primarily responsible for this research, the research analyst named first in each group on the front cover or named within the document individually certifies, with respect to each security or issuer that the research analyst covered in this research) that: (1) all of the views expressed in this research accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research.

Important Disclosures

Lead or Co-manager: JPMSI or its affiliates acted as lead or co-manager in a public offering of equity and/or debt securities for Kookmin Bank within the past 12 months. Analyst Position: The covering analyst, research associate, or member(s) of their respective household(s) have a long position in the securities of Kookmin Bank. Client of the Firm: Chinatrust Financial Holdings is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services, non-investment banking securities-related service and non-securities-related services. HSBC Holdings plc is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services, non-investment banking securities-related service and non-securities-related services. Kookmin Bank is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services, non-investment banking securities-related service and non-securities-related services. Mitsubishi UFJ Financial Group (8306) is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services. Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking services from Chinatrust Financial Holdings, HSBC Holdings plc, Kookmin Bank, Mitsubishi UFJ Financial Group (8306). Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment banking services in the next three months from Chinatrust Financial Holdings, HSBC Holdings plc, Kookmin Bank, Mitsubishi UFJ Financial Group (8306). Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other than investment banking from Chinatrust Financial Holdings, HSBC Holdings plc, Kookmin Bank. An affiliate of JPMSI has received compensation in the past 12 months for products or services other than investment banking from Chinatrust Financial Holdings, HSBC Holdings plc, Kookmin Bank.

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Chinatrust Financial Holdings (2891.TW) Price Chart

UW NT$29

UW NT$32 UW NT$20

N OW OW NT$32UW NT$23

Source: Reuters and JPMorgan; price data adjusted for stock splits and dividends.This chart shows JPMorgan's continuing coverage of this stock; the current analyst may or may not have covered it overthe entire period. As of Aug. 30, 2002, the firm discontinued price targets in all markets where they were used. Theywere reinstated at JPMSI as of May 19th, 2003, for Focus List (FL) and selected Latin stocks. For non-JPMSI coveredstocks, price targets are required for regional FL stocks and may be set for other stocks at analysts' discretion.JPMorgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Date Rating Share Price (NT$)

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05-Sep-03 N 21.46 - 08-Jun-04 OW 27.99 - 23-Sep-05 UW 24.85 32.00

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HSBC Holdings plc (0005.HK) Price Chart

OW HK$138 OW HK$15

UW UW HK$138 N OW HK$144OW HK$150


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02-Mar-04 UW 127.50 - 03-Aug-04 OW 115.00 138.00 01-Mar-05 N 133.50 - 15-Nov-05 OW 124.50 144.00

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Kookmin Bank (060000.KS) Price Chart

N W47,901 OW W54,000 OW W54,500 OW W72,000

OW W47,901 N W54,000 OW W52,000 OW W65,300 OW W120,00

OW W52,079 N W48,520 OW W48,200OW W47,300 OW W53,500 OW W91,000OW W105,000


Date Rating Share Price (W)

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19-Aug-03 OW 38500 52079 14-Nov-03 N 48100 47901 23-Apr-04 OW 47000 54000

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Mitsubishi UFJ Financial Group (8306) (8306.T) Price Chart

N OW Y1,140,000

OW N OW OW

Source: Reuters and JPMorgan; price data adjusted for stock splits and dividends.Break in coverage Mar 28, 2005 - Jun 29, 2005. This chart shows JPMorgan's continuing coverage of this stock; thecurrent analyst may or may not have covered it over the entire period. As of Aug. 30, 2002, the firm discontinued pricetargets in all markets where they were used. They were reinstated at JPMSI as of May 19th, 2003, for Focus List (FL) andselected Latin stocks. For non-JPMSI covered stocks, price targets are required for regional FL stocks and may be setfor other stocks at analysts' discretion.JPMorgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Date Rating Share Price (Y)

Price Target (Y)

08-Jul-03 OW 592000 - 30-Jan-04 N 817000 - 02-Jul-04 OW 981000 - 25-Aug-04 N 1040000 - 29-Jun-05 OW 926000 -

Important Disclosures for Equity Research Compendium Reports: Important disclosures, including price charts for all companies under coverage for at least one year, are available through the search function on JP Morgan’s website https://mm.jpmorgan.com/disclosures/company or by calling this U.S. toll-free number (1-800-477-0406)

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: JPMorgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

Coverage Universe: Kian Abouhossein: ABN Amro (AAH.AS), BNP Paribas (BNPP.PA), Credit Agricole (CAGR.PA), Credit Suisse Group (CSGN.VX), Deutsche Bank (DBKGn.DE), Société Générale (SOGN.PA), UBS (UBSN.VX)

JPMorgan Equity Research Ratings Distribution, as of April 3, 2006

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13

*Percentage of investment banking clients in each rating category. For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Overweight (buy)

Neutral (hold)

Underweight (sell)

JPM Global Equity Research Coverage 40% 42% 18%

IB clients* 45% 47% 39%

JPMSI Equity Research Coverage 35% 50% 15%

IB clients* 63% 57% 46%

Valuation and Risks: Equity Research company notes and reports include a discussion of valuation methods used, including methods used to determine a price target (if any), and a discussion of risks to the price target.

Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

Other Disclosures

Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of Standardized Options, please contact your JPMorgan Representative or visit the OCC’s website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf.

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June 28, 2006


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(Malaysia) Sdn Bhd (18146-x) (formerly known as J.P. Morgan Malaysia Sdn Bhd) which is a Participating Organization of Bursa Malaysia Securities Bhd and is licensed as a dealer by the Securities Commission in Malaysia

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General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively JPMorgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMSI distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a JPMorgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

Revised April 3, 2006.

Copyright 2006 JPMorgan Chase & Co. All rights reserved.

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