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Fixed Income Research

Financial Special 26 November 2015

Outlook 2016 Senior Unsecured Bonds

Financial Special 26 November 2015

NORD/LB Fixed Income Research Page 2 of 14

Financials Outlook 2016 – senior unsecured bonds

Analysts:

Michaela Hessmert

Melanie Kiene, CIIA

European banking market is

in good shape

The environment for senior unsecured bonds was largely constructive over

the course of 2015. Once the ECB’s comprehensive assessment and the

EBA’s stress test confirmed there were no serious problems facing banks in

the eurozone, this exercise in transparency helped maintain or engender

confidence in the market and the banks in many areas. This is definitely not

the case for Greek banks. During the year, the situation in Greece was also

the trigger for increasing risk aversion, which depressed the market as a

whole intermittently. However, there was scarcely any sign of this spilling over

to banks in the periphery, which lends weight to the fact that the European

banking market is fundamentally in good shape. We focus on the various

factors affecting the senior financials asset category in the following review

and outlook. The opinions presented are the personal assessments of the

bank’s analysts. The database for the maturities and issues presented is a

Bloomberg search based on the following criteria: currency: EUR, collateral

type: senior unsecured; coupon type: fixed or floating; sector: banks; maturity

type: bullet; amount issued: 500MM; country of domicile: Australia, Canada,

Denmark, eurozone countries, New Zealand, Norway, Sweden, Switzerland,

United Kingdom and USA.

Economic environment – review of 2015 Economic environment – outlook for 2016

The economic situation in the eurozone has im-

proved continuously over the course of the year,

which has indirectly had a positive impact on banks.

Accordingly, the latest Bank Lending Survey by the

ECB (October 2015) also reports a moderate in-

crease in demand for credit. As far as asset quality is

concerned, we seem to be past the point at which

non-performing loans, which are the Achilles’ heel for

some banks in the periphery, in particular, peaked.

Asset quality is extremely fragmented within the eu-

rozone. In 2015, Asia was the primary source of

headwinds with regard to the fundamental assess-

ment of the economy. Here, fears among market

participants of a “hard-landing” in China led to a

surge in risk aversion in some cases. In Europe,

banks from France, Germany and the UK are most

heavily exposed to China; however, the sums in-

volved are still negligible in terms of total lending.

We expect recurring phases of uncertainty because

of the prospects for global growth in 2016. Similarly

to the situation this year, attention is likely to remain

focused primarily on China and the emerging mar-

kets. We interpret the continuing weakness in crude

oil and metals as an indicator that growth momentum

will continue to splutter without falling dramatically in

2016. The impact on European banks will be man-

ageable because of the low level of direct China ex-

posure (see Moody’s Analysis dated 3 November

2015 “European Banks – Broadly Resilient to Direct

Impact of China Economic Slowdown”). Political risks

have increased and are likely to generate uncertainty

in 2016. This is true of both the countries in the pe-

riphery (Catalonia’s aspirations for independence,

the collapse of the Portuguese government) and in

the European core (France in a state of emergency

because of the terrorist attacks; in Germany, the

refugee crisis is splitting society). Spreads on senior

bonds will respond in line with the prevailing appetite

for risk.

Financial Special 26 November 2015

NORD/LB Fixed Income Research Page 3 of 14

European banks: foreign claims on china

Data as at June 2015 with the exception of Spain and Portugal (December 2014)

Source: BIS (Consolidated Banking Statistic), central banks, NORD/LB Fixed Income Research

Central bank policy – review of 2015 Central bank policy – outlook for 2016

From the perspective of the credit market, the ECB

has created an environment with its low interest rate

policy and the purchase programmes from which

spreads on senior unsecured bonds have profited

indirectly. The absence of alternative investments

and the “search for yield” were dominant factors and

encouraged a greater appetite for risk among inves-

tors. This also allowed banks from the European

periphery (excluding Greece) cheap access to

wholesale funding. However, the banks preferred

secured funding to unsecured funding. However, the

low level of interest rates tests the business models

of many banks severely, as their traditional business

of maturity transformation is only possible to a limited

extent.

The ECB is not expected to renounce its ultra-

expansionary monetary policy in 2016. The purchase

programme, which was initially set to run until au-

tumn 2016, is likely to be extended and only expire in

2017 when the ECB will start tapering its purchases.

As a result, interest rates will remain low for the fore-

seeable future. Investors will remain under pressure

to incur higher risks to achieve a reasonably ade-

quate return. The credit market will benefit generally

from this dilemma. We consider that “central bank

policy” will be the dominant factor affecting the pric-

ing of senior bonds in 2016 as well. Any normalisa-

tion of interest rates will pose the greatest risk for

senior unsecured bonds in future. However, we do

not anticipate this in the longer term (two to three

years).

Financial Special 26 November 2015

NORD/LB Fixed Income Research Page 4 of 14

Regulatory environment – review of 2015 Regulatory environment – outlook for 2016

Overall, the large number of regulatory measures

introduced in recent years has led to eurozone banks

becoming far more crisis-resistant. Most notably,

future market distortions and contagion effects are

supposed to be reduced or eliminated by more strin-

gent capital adequacy requirements and also the

requirement to hold sufficient borrowed capital in the

event of a bail-in (total loss absorbing capacity,

TLAC, and minimum requirements for eligible liabili-

ties, MREL). As a result, 2015 was characterised by

the banks continuing to strengthen their capital re-

sources and politically motivated protection of tax-

payers to the extent of bailing in senior bondholders.

In our opinion, the regulatory discrimination, which

results from senior unsecured bonds not qualifying

for the liquidity coverage ratio in addition to the bail-

in, was not sufficiently reflected in the risk spreads

this year. As the main cause responsible for this, we

have identified the other factors overlaying ECB poli-

cy, which resulted in tighter spreads. Taken from the

iTraxx Senior Financials Index, phases during which

risk spreads widened over the course of the year can

be more greatly attributed to geopolitical influences,

such as the Greek crisis in the summer or concerns

about global growth momentum in the autumn. Fol-

lowing the specification of the TLAC for banks of

global systemic relevance by the Financial Stability

Board in November 2015, a great deal of uncertainty

was removed from the market. In designing the

MREL for European banks, the ECB and the Single

Supervisory Mechanism (SSM) intends that it should

be largely consistent with the TLAC requirements.

However, the MREL ratio to be stipulated at individu-

al bank level has not so far been transmitted by the

regulatory authority to the banks. Reports indicate

that the MREL ratios will be stipulated in January

2016. In November, the EBA published the result of

the Transparency Exercise (database June 2015;

105 banks from 21 EU countries and Norway). While

capitalisation, leverage ratios and lending have im-

proved, the EBA believes that asset quality remains

a problem for some European banks.

The bail-in regime will apply in the eurozone from

January 2016, which will change the risk profile of

senior unsecured bonds. Investors will want to be

paid more for this risk and, in our view, they will want

to have more information on the bank’s specific bail-

in cushion, which means that they will expect publi-

cation of a share of equity and subordinate capital

that will protect senior bonds from being bailed in.

The more substantial this cushion is, the less the

bail-in risk for senior unsecured bonds is likely to be

reflected in the risk spread. However, we believe that

the possibility that the regulatory authorities may

intervene in business processes at an early stage

(keyword: SREP) is particularly relevant. Preventive

action may reveal undesirable developments in good

time and ensure countermeasures are taken. The

regular stress tests will also contribute to increased

transparency. As a result, there should be fewer re-

structurings or bank liquidations. This factor is likely

to constitute a certain counterweight and limit the

potential for spreads on senior bonds widening be-

cause of the change in their risk profile. The two re-

quirements TLAC and MREL demand that the banks

in question hold sufficient loss-absorbing equity in

future, which can be used in the event of a bail-in to

offset losses. As senior bonds must fulfil certain pre-

conditions, the national governments had to imple-

ment the required “subordination” in some way.

Three different routes are possible: legal subordina-

tion (DE and IT), structural subordination (CH, UK,

USA and certain holding structures in BeNeLux) or

contractual subordination (ES). With the “German

route” all outstanding senior bonds are covered by

the new bail-in regime. This does not apply to con-

tractual subordination and in the case of structural

subordination, there is the problem in some cases

that the holding company did not issue “sufficient”

senior bonds in the past. This means that the banks

of global systemic relevance have ground to make up

in this regard. For a final assessment of the MREL

ratios, we must wait until these are stipulated, which

is likely to be in January 2016. The ECB and EBA

have announced a stress test for 2016, the results of

which will be published in the third quarter 2016.

Financial Special 26 November 2015

NORD/LB Fixed Income Research Page 5 of 14

Bank Nonperforming loans to total gross loans CET 1 ratio European banks

0

2

4

6

8

10

12

14

16

18

20

%

2011

2012

2013

2014

0

2

4

6

8

10

12

14

16

18

20

%

H1/2015

Source: World Bank, NORD/LB Fixed Income Research Source: SNL, NORD/LB Fixed Income Research

Key figures – review of 2015 Key figures – outlook for 2016

Based on their annual reports, the eurozone banks

have mainly performed well in 2015. The rating

agencies have rewarded the improved economic

environment and developments at individual bank

level by tending to upgrade the banking markets. The

trend towards reducing balance sheet totals, which

was still apparent in the majority of banks up to 2014,

seems to have slowed and total assets have stabi-

lised in 2015. While banks have made very good

progress in terms of capital adequacy, the thumb-

screws have been tightened again with regard to cost

cutting. Many strategy papers adjusted in 2015

specify the savings measures by cutting staff num-

bers and shedding business areas. The regulatory

cost block has been rising for years and will also

remain high in future against the background of fu-

ture requirements. For some banks, legal costs again

represent another enormous cost block in 2015.

Profitability is likely to be the major issue for many

bank in 2016, as 2016 is a transitional year. Cost

cutting programmes have been initiated but are not

yet complete and margins are meagre because of

fierce competition and the flat yield curve. Low inter-

est rates are having an increasing impact on net

interest income. In some banking markets, such as

Italy, we will see more and more mergers, which will

be facilitated by converting cooperative banks into

joint stock companies. In Austria, as well, mergers of

the Raiffeisenbanks are under consideration while in

Germany, DZ and WGZ want to merge by August

2016. We assume that, for the moment at least, the

issue of asset quality will not become any less im-

portant in Italy, although the establishment of an

Italian bad bank is certainly a step in the right direc-

tion. The World Bank estimates the NPL level of Ital-

ian banks at 17.3% of all loans as at December

2014. Portugal and Spain also have an increased

portfolio of non-performing exposure. We are expect-

ing more transactions to reduce the NPLs.

Financial Special 26 November 2015

NORD/LB Fixed Income Research Page 6 of 14

Outlook of eurozone banking markets

Banking Market NORD/LB Outlook Moody’s Outlook Outlook Moody’s (old) Date of last change

(Moody’s)

Belguim Neutral Negative Negative 15 December 2014

Ireland Positive Stable Negative 2 March 2015

Greece NA Negative Stable 19 May 2015

Spain Positive Positive Negative 18 June 2015

France Negative Stable Negative 22 July 2015

Austria Negative Negative Negative 28 July 2015

Germany Neutral Stable Negative 8 October 2015

Portugal Neutral Stable Negative 15 October 2015

Italy Neutral Stable Negative 10 November 2015

Source: Moody’s, NORD/LB Fixed Income Research

Funding – review of 2015 Funding – outlook for 2016

The longstanding trend of maturing bonds not being

completely replaced by new issues in the senior un-

secured asset category also continued in 2015. As at

19 November, maturing benchmark bonds (≥EUR

500m) of EUR 133bn were matched by new issuance

of EUR 86bn. In addition to the regulatory discrimina-

tion against senior unsecured bonds, it has been

noticeable for years that banks’ trading portfolios

were being massively reduced. The politically moti-

vated demonisation of own-account trading led to a

separate banking system, although this is ap-

proached very differently around the world (USA:

Volcker Rule; UK: Vickers Report, Germany: German

Law on shielding credit institutions and financial

groups against risks and planning their restructuring

and winding-up [Gesetz zur Abschirmung von

Risiken und zur Planung der Sanierung und Abwick-

lung von Kreditinstituten], etc.). Consequently, liquidi-

ty has been diminishing in the financials asset cate-

gory for some time. In 2015, banks focused more on

secured funding, although there were no indications

for restrictions in the case of unsecured funding. Our

interpretation is that the reduction in the use of unse-

cured funding is due to the regulatory framework

conditions and the ECB’s covered bond purchase

programme, which is having a massive impact on

spreads in this segment. Fundamentally, banks are

trying to obtain a high proportion of customer depos-

its, which will reduce their dependence on capital

market funding with the aim of also complying with

the structural liquidity ratio (Net Stable Funding Ra-

tio).

In principle, the same regulatory framework condi-

tions will apply in 2016 as in previous years. Howev-

er, the supervisory authority has created a new in-

centive for banks to issue more senior unsecured

bonds. Specifically, these are the requirements for

the total loss absorbing capacity (TLAC) for institu-

tions of global systemic relevance and the minimum

requirements for eligible liabilities (MREL) for Euro-

pean banks. Since the MREL requirements are un-

likely to be announced at individual institution level

before January 2016, it is difficult to anticipate a

statement on the potential issuance requirement

based on this ratio. We surmise that both require-

ments should lead to a slight upward trend in issu-

ance volumes. Given the uncertainty prevailing at the

current time, we have opted for a range in our fore-

cast. With maturing bonds of approximately EUR

110bn in 2016, we expect a new issuance volume of

senior unsecured bonds in euro benchmark format

with a fixed or variable coupon of EUR 75bn to EUR

90bn in 2016. Banks outside Europe (e.g. Canada

and the USA) use the euro benchmark format primar-

ily because of the favourable euro-dollar basis swap.

The partial substitution of senior funding by subordi-

nated funding is also due to the regulators, with the

background being provided by the bail-in regime,

which will apply to the eurozone from January 2016,

and the resulting need – driven by investors – for

banks to build up a bail-in cushion.

Financial Special 26 November 2015

NORD/LB Fixed Income Research Page 7 of 14

Issuance and maturities EUR-benchmark senior unsecured bonds

-

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

Jan Feb March Apr May Jun Jul Aug Sep Oct Nov Dec

EU

R B

ln

Issued 2014 Issued 2015 Matured 2014 Matured 2015 Matured 2016

Source: Bloomberg, NORD/LB Fixed Income Research

Maturities in 2015 by country clusters Issues in 2015 by country clusters

5%

25%

16%

54%

Nordics

EU-Periphery

OtherCountries

CoreEurope

9%

35%

45%

11%

Nordics

OtherCountries

CoreEurope

EU-Periphery

Source: Bloomberg, NORD/LB Fixed Income Research Source: Bloomberg, NORD/LB Fixed Income Research

Maturities in 2016 by country clusters Issues in 2016 by country clusters

6%

44%

28%

22%

Nordics

CoreEurope

EU-Periphery

OtherCountries

5%

45%

30%

20%

Nordics

CoreEurope

EU-Periphery

OtherCountries

Source: Bloomberg, NORD/LB Fixed Income Research Source: Bloomberg, NORD/LB Fixed Income Research

Financial Special 26 November 2015

NORD/LB Fixed Income Research Page 8 of 14

Conclusion –

banking market

In 2015, the European banking market continued to stabilise as a result of the

sound economic environment. Among other matters, the banks continued to

work on strengthening their capitalisation and profitability. Consequently, the

banking market has become more crisis-resistant. With regard to some

banks, particularly from the European periphery, asset quality is and will re-

main problematic. However, there are signs of an improving trend in this area

as well, stemming from both fundamental framework conditions and the ef-

forts to spin off or sell problem loans. Among other aspects, as part of the

SREP, the ECB will next year be examining business models, which is likely

to accelerate not just the trend towards divesting unprofitable business seg-

ments, which is already apparent, but also once again that for mergers. The

topics covered by the key word Basel IV are likely to illustrate the fact that the

flood of regulation has not stopped but is, at best, abating. Above all, this is

true of the revision of the standardised approach to credit risk (CAR), which

would radically change banks’ RWA requirements (taking account of risk

drivers instead of external ratings, no internal modelling, reduction in national

options and introduction of binding floor regulations). Another topic emerging

from the haze of Basel IV is the Fundamental Review of the Trading Book,

which constitutes a comprehensive revision of trading book requirements and

should in turn lead to higher capital adequacy requirements. This means that

the regulatory pressure on banks remains high, which is also true of the as-

sociated costs. The supervisory authorities also seem to want to look at the

topic of “zero weighting sovereign bonds” again. The introduction of large

exposure limits is under consideration in this regard. Consequently, 2016 will

also be characterised by a large number of regulatory projects.

ASW Spread: iBoxx € Financials – Senior Bonds ASW Spread: iBoxx € Financials - Subordinated Bonds

Source: Bloomberg, NORD/LB Fixed Income Research Source: Bloomberg, NORD/LB Fixed Income Research

20

30

40

50

60

70

80

90

01

.201

4

02

.201

4

03

.201

4

04

.201

4

05

.201

4

06

.201

4

07

.201

4

08

.201

4

09

.201

4

10

.201

4

11

.201

4

12

.201

4

01

.201

5

02

.201

5

03

.201

5

04

.201

5

05

.201

5

06

.201

5

07

.201

5

08

.201

5

09

.201

5

10

.201

5

AS

W i

n b

p

SEN Banks SEN Insurance SEN Financial Services

50

100

150

200

250

300

350

400

01

.201

4

02

.201

4

03

.201

4

04

.201

4

05

.201

4

06

.201

4

07

.201

4

08

.201

4

09

.201

4

10

.201

4

11

.201

4

12

.201

4

01

.201

5

02

.201

5

03

.201

5

04

.201

5

05

.201

5

06

.201

5

07

.201

5

08

.201

5

09

.201

5

10

.201

5

AS

W i

n b

p

SUB Banks SUB Insurance SUB Financial Services

Financial Special 26 November 2015

NORD/LB Fixed Income Research Page 9 of 14

ASW Spread: iBoxx € Financials- Seniors, Subs, T1, LT2 iTraxx € Senior Financial vs Subordinated Financial

0

50

100

150

200

250

Nov. 13 Feb. 14 Mai. 14 Aug. 14 Nov. 14 Feb. 15 Mai. 15 Aug. 15 Nov. 15

BP

Markit iTraxx € Senior Financials Markit iTraxx € Subordinated Financials

Source: Bloomberg, NORD/LB Fixed Income Research Source: Bloomberg, NORD/LB Fixed Income Research

Conclusion – senior unse-

cured bonds

Looking at senior unsecured bonds, we can say that banks were not subject

to any “access restrictions” on the primary market in 2015. With the exception

of wider spreads in the summer (Greece) and the autumn (Chinese growth

momentum), the environment was constructive and banks made use of this

for issuing purposes. We are expecting a similarly benign environment in

2016, meaning that our forecast issuance volume of EUR 75bn to EUR 90bn

is likely to be placed without any difficulty. As a result, maturing bonds (EUR

110bn) will not be completely refinanced in 2016 either. Despite the funda-

mentally favourable environment based on low risk spreads, banks are very

cautious, which is affecting the senior unsecured funding source. This is pri-

marily due to the regulatory environment, which discriminates against senior

bonds. Discriminatory factors include, for example, the fact that senior bonds

do not qualify for the LCR and that they are taken into account in the liability

cascade if there is a bail-in, which leads to a deterioration in their risk profile.

Liquidity is also suffering in this segment, as European banks, in particular,

have massively reduced their trading books. Banks outside Europe (e.g.

Canada and the USA) use the euro benchmark format primarily because of

the favourable euro-dollar basis swap. The partial substitution of senior fund-

ing by subordinated funding is also due to the regulators, with the background

being provided by the bail-in regime which will apply in the eurozone from

January 2016 and the resulting need – driven by investors – for banks to build

up a bail-in cushion. There is still some uncertainty regarding the future mini-

mum requirement for eligible liabilities (MREL) ratios for European banks,

because these will only be notified to the individual banks by the ECB or Sin-

gle Supervisory Mechanism (SSM) in January 2016. The application of total

loss absorbing capacity (TLAC) is likely to make the issue of additional senior

unsecured bonds necessary at some banks, especially those that do not

adopt the “German route”, which ensures all outstanding tradable senior

bonds qualify for TLAC through statutory subordination. For the iTraxx Senior

Financials, we are expecting a trend towards moderately higher spreads as,

in our view, the regulatory discrimination against senior bonds is not yet suffi-

ciently priced-in on the cash market either. In our view, this is primarily due to

all the other factors overlaying ECB policy, which will also be dominant in

2016.

0

50

100

150

200

250

300

24

. Jan

.

24

. F

eb.

24

. M

rz.

24

. A

pr.

24

. M

ai.

24

. Jun

.

24

. Jul.

24

. A

ug.

24

. S

ep.

24

. O

kt.

24

. N

ov.

24

. D

ez.

24

. Jan

.

24

. F

eb.

24

. M

rz.

24

. A

pr.

24

. M

ai.

24

. Jun

.

24

. Jul.

24

. A

ug.

24

. S

ep.

24

. O

kt.

AS

W i

n b

p

SEN Banks SUB Banks T1 Banks LT2 Banks

Financial Special 26 November 2015

NORD/LB Fixed Income Research

Page 10 of 14

Appendix Contacts

Fixed Income Research

Michael Schulz Head +49 511 361-5309 michael.schulz@nordlb.de

Kai Niklas Ebeling Covered Bonds +49 511 361-9713 kai.niklas.ebeling@nordlb.de

Fabian Gerlich Public Issuers +49 511 361-9787 fabian.gerlich@nordlb.de

Michaela Hessmert Banks +49 511 361-6915 michaela.hessmert@nordlb.de

Christopher Kief Corporates / Retail Products +49 511 361-4711 christopher.kief@nordlb.de

Melanie Kiene Banks +49 511 361-4108 melanie.kiene@nordlb.de

Jörg Kuypers Corporates / Retail Products +49 511 361-9552 joerg.kuypers@nordlb.de

Matthias Melms Covered Bonds +49 511 361-5427 matthias.melms@nordlb.de

Sascha Remus Corporates / Retail Products +49 511 361-2722 sascha.remus@nordlb.de

Norman Rudschuck Public Issuers +49 511 361-6627 norman.rudschuck@nordlb.de

Martin Strohmeier Corporates / Retail Products +49 511 361-4712 martin.strohmeier@nordlb.de

Kai Witt Corporates / Retail Products +49 511 361-4639 kai.witt@nordlb.de

Markets Sales

Carsten Demmler Head +49 511 361-5587 carsten.demmler@nordlb.de

Institutional Sales (+49 511 9818-9440)

Uwe Tacke (Head) uwe.tacke@nordlb.de Uwe Kollster uwe.kollster@nordlb.de

Julia Bleser julia.bleser@nordlb.de Gabriele Schneider gabriele.schneider@nordlb.de

Thorsten Bock thorsten.bock@nordlb.de Dirk Scholden dirk.scholden@nordlb.de

Christian Gorsler christian.gorsler@nordlb.de

Sales Savings Banks / Regional Banks (+49 511 9818-9400)

Christian Schneider

(Head) christian.schneider@nordlb.de Stefan Krilcic stefan.krilcic@nordlb.de

Oliver Bickel oliver.bickel@nordlb.de Martin Koch martin.koch@nordlb.de

Tobias Bohr tobias.bohr@nordlb.de Bernd Lehmann bernd.lehmann@nordlb.de

Kai-Ulrich Dörries kai-ulrich.doerries@nordlb.de Jörn Meissner joern.meissner@nordlb.de

Marc Ehle marc.ehle@nordlb.de Lutz Schimanski lutz.schimanski@nordlb.de

Sascha Goetz sascha.goetz@nordlb.de Brian Zander brian.zander@nordlb.de

Fixed Income / Structured Products Sales Europe (+352 452211-515)

René Rindert (Head) rene.rindert@nordlb.lu Patricia Lamas patricia.lamas@nordlb.lu

Morgan Kermel morgan.kermel@nordlb.lu Laurence Payet laurence.payet@nordlb.lu

Corporate Sales

Shipping / Aircraft +49 511 9818-8150 Corporate Clients +49 511 9818-4003

Real Estate / Structured Finance

+49 511 9818-8150 FX/MM +49 511 9818-4006

Syndicate / DCM (+49 511 9818-6600)

Thomas Cohrs (Head) thomas.cohrs@nordlb.de Julien Marchand julien.marchand@nordlb.de

Annika Haß annika_a.hass@nordlb.de Andreas Raimchen andreas.raimchen@nordlb.de

Axel Hinzmann axel.hinzmann@nordlb.de Udo A. Schacht udo.schacht@nordlb.de

Thomas Höfermann thomas.hoefermann@nordlb.de Marco da Silva marco.da.silva@nordlb.de

Alexander Malitsky alexander.malitsky@nordlb.de Lutz Ulbrich lutz.ulbrich@nordlb.de

Financial Markets Trading

Jumbos / Covered Bonds +49 511 9818-8040 Frequent Issuers +49 511 9818-9640

Collateral Mgmt / Repos +49 511 9818-9200 Governments +49 511 9818-9660

Financials +49 511 9818-9490 Structured Products +49 511 9818-9670

Customer Exec. & Trading

+49 511 9818-9480

Financial Special 26 November 2015

NORD/LB Fixed Income Research

Page 11 of 14

Disclaimer

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Financial Special 26 November 2015

NORD/LB Fixed Income Research

Page 12 of 14

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Financial Special 26 November 2015

NORD/LB Fixed Income Research

Page 13 of 14

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Time of going to press

26 November 2015

Disclosure of NORD/LB’s potential conflicts of interest according to § 34b Abs. 1 WpHG and

§ 5 FinAnV

None.

Financial Special 26 November 2015

NORD/LB Fixed Income Research

Page 14 of 14

Additional disclosures

Sources and price indications

Depending on the issuer, we use information from financial data suppliers, our own estimates, company data and the public media for the

preparation of our financial analyses. Unless otherwise stated in the report, prices indicated relate to the closing price on the previous

day. Fees and commissions apply to securities (buy, sell, hold) and these may reduce the yield on investments.

Analytical methods and updates

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should be noted that the results of analyses provide a snapshot overview and that past developments do not constitute a reliable indica-

tor for future profits. The basis of the valuations is subject to unforeseen change at any time, potentially leading to different conclusions.

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Recommendation system and history of last 12 months

Positive: Positive expectations for the issuer, a security type or a specific security of an issuer.

Neutral: Neutral expectations for the issuer, a security type or a specific security of an issuer.

Negative: Negative expectations for the issuer, a security type or a specific security of an issuer.

Relative value (RV): Relative value recommendation in comparison to a market segment, an issuer or a maturity.

Issuer / security Date Recommendation Bond type Cause