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Standard Chartered Bank [26-Jun-2002]

Publication Date: 26-Jun-2002 Reprinted from RatingsDirect Research Standard Chartered Bank Analyst: Walter Pompliano, CFA, London (44) 20-7847-7220; Peter Dutton, London (44) 20-7847-7208; Oliver Judd, London (44) 20-7847-7216 CREDIT RATING

A/Stable/A-1 Outstanding Rating(s)

Counterparty Credit A/Stable/A-1 Certificate of deposit A/A-1 Senior unsecured Foreign currency A Subordinated A- Junior subordinated BBB+ Preferred stock Local currency BBB+ Short-Term debt Foreign currency A-1 Credit Rating History Sept. 7, 1995 A/A-1 Aug. 9, 1994 A-/A-2 Sovereign Rating United Kingdom AAA/Stable/A-1+ Related Entities Standard Chartered PLC Counterparty Credit A-/Stable Preference stock BBB Standard Chartered Capital Trust 1 Preferred stock Foreign currency BBB

Rationale The ratings on Standard Chartered Bank reflect the bank's reasonable profitability, good risk management, and satisfactory asset quality. The ratings also reflect the risks present in the bank's main operating environments, which primarily are emerging markets, although it has shown itself to be adept at managing these risks. Asset quality and risk


management are stronger than at local banks in its operating markets, and the bank was able to withstand the strains of the Asian financial crisis. Credit quality remains satisfactory, despite concentrations and continuing global economic pressures. Market risk is modest and liquidity remains strong, benefiting from a wide customer base. Initiatives instigated before the onset of the Asian financial crisis in 1998 have alleviated the impact of poorer credit environments on the balance sheet. These included ending a large number of low-quality customer relationships, tighter credit policies, and improvements in risk management. Strategically, Standard Chartered is poised to maintain its momentum for higher growth in its consumer bank, with lending and wealth management businesses expecting to grow through the targeting of the upper middle classes and small business sectors in its markets. Standard Chartered has embarked on repositioning its wholesale operations to be more cohesive and focused on those clients, typically selected multinationals, financial institutions, and larger national entities that add value on an economic profit basis. While revenue growth was 9% in 2001, going forward the focus is not on revenue growth but on shareholder return: a better balancing of risk, rewards, and managing costs. Cost savings are starting to emanate from its investments in operational hubs located in Chennai and Kuala Lumpur. A third hub supporting Hong Kong is currently being planned for in China. Standard Chartered is prepared to use acquisitions to augment organic growth, but any significant acquisition will entail raising new equity. Its last major acquisitions occurred in 2000; purchasing the Hong Kong consumer banking operations of the then Chase Manhattan Bank (Chase HK) and Grindlays' operations in the Middle East and South Asia. Standard & Poor's considers Standard Chartered's capitalization to be only reasonably satisfactory. While the bank has demonstrated its commitment to building regulatory capital up again by raising common equity to help finance these acquisitions, at year-end 2001 the Tier 1 ratio was a more sensible 8.8%. Standard & Poor's measure of core capital, adjusted common equity (ACE) continues to decline as measured against assets and risk assets.

Outlook The stable outlook take into consideration the likely efficiency gains from Standard Chartered's productivity initiatives, which should help the bank in the face of a more uncertain international economic environment and also provide some protection against increased competition in some markets. At the same time, Standard & Poor's anticipates that the integration strategies for both Grindlays and Chase HK will continue to proceed well, with synergies realized on schedule. Strategically the bank is more focused on value creation than growth and is further focused on maintaining business relationships that create sufficient economic profit. Standard Chartered's balance sheet proved resilient during the Asian financial crisis. This resilience resulted from satisfactory capitalization, strong liquidity, and proactive risk management procedures. Standard & Poor's expects these management policies to continue and the present outlook anticipates Standard Chartered not to exhibit any significant deterioration in its asset quality in the wake of an economic slowdown. In addition, failure to rebuild core capitalization could put pressure on the ratings.

Profile Standard Chartered had total reported assets of $107.4 billion at year-end 2001. The bank has more than 500 offices in more than 50 countries and employs about 27,000 staff worldwide. Standard Chartered is an international bank, formed in 1969 when Chartered Bank of India, Australia, and China (founded in 1853) merged with Standard Bank of South Africa (founded in 1863). The bank has its origins in former colonial territories of the U.K., where it developed local franchises. In many locations, Standard Chartered was the principal bank, enjoying a virtual monopoly. Although it is a U.K.-incorporated bank headquartered in London, Standard Chartered does not have a presence in the U.K. financial services market. Its U.K. presence is limited to its group head office and the provision of services to multinational and international clients operating in emerging markets. Its last operating subsidiary in the UK, Chartered Trust, a consumer finance company, was sold in late 2000. Standard Chartered is an international rather than a U.K. bank, and is among the most internationally focused banking groups in the world. Standard Chartered's assets are spread globally, although it still derives much of its earnings from the Asia Pacific region (see table 1).


Table 1 Geographic Zone as % of Total Assets Employed* 2001 2000

Hong Kong 29.1 30.2

Singapore 11.1 11.2

Malaysia 4.6 4.9

Other Asia Pacific 10.7 10.7

India 4.4 3.5

Middle East and other south Asia 7.1 7.4

Africa 2.6 2.3

Americas, U.K. & group head office 30.4 29.8

Total (%) 100.0 100.0

Functionally, Standard Chartered's operations are divided into two main business divisions, namely wholesale and consumer banking. The main wholesale banking activities undertaken are global market operations, trade finance and lending, cash management, and custodial services. Standard Chartered is one of leading providers of foreign exchange and interest rate management solutions in emerging markets and the strongest sub-custodian in Asia. In 2001, the wholesale bank represented 49% of group operating profits, 67% of assets, and 25% of staff. The consumer banking division offers a wide range of banking, credit card, mortgage, consumer finance, and investment services to the group's main markets in Asia. Consumer banking accounted for 51% of Standard Chartered's reported trading profit in 2001 (before goodwill and a group restructuring charge--see chart 1). Despite declining as a proportion of total group profits during the year, consumer banking is nonetheless considered the main driver of future profits.


Geographically, Hong Kong remains the most important contributor to trading income, accounting for 41% of the group total in 2001 (see chart 2). Standard Chartered is becoming less reliant on the competitive Hong Kong mortgage market as it develops other consumer banking activities, including credit cards, wealth management products, such as unit trusts, and bancassurance propositions--the latter through agreements with CGNU International and Prudential Asia. Cards are a significant contributor to revenue growth and Standard Chartered is the number one card issuer in Hong Kong. Other Asia Pacific countries accounted for 17% of group pretax income in 2001, totaling $217 million or a 42% reduction over the year due to difficult market conditions, most significantly in Malaysia and Singapore. The bank's focus in these countries is on exporters, treasury, and mortgages, with little exposure to commercial real estate.

The Middle East and South Asia region contribution grew to 15% of group pretax profits in 2001, reflecting the Grindlays acquisition, which made India a new "core market" for the group. Africa accounted for only 9% of total group pretax profits in 2001, down from nearly 21% in 1999, reflecting continued volatility, as well as the evolution of other geographic regions. Performance in Africa is largely driven by trade finance, consumer banking, fixed income, and foreign exchange. Finally, the group's activities in the U.S. and U.K. focus on providing banking and treasury services to multinational and other clients with emerging markets operations. These operations, when combined with the group head office, represented 9% of group pretax profits in 2001; a reduced contribution compared to recent years due to the sale of Chartered Trust.

Ownership and Legal Status Standard Chartered PLC (A-/Stable/--), the holding company for the Standard Chartered group, is publicly quoted on the London Stock Exchange. Substantial shareholders as at Feb. 20, 2002, were Tan Sri Khoo Teck Puat, a Malaysian financier, holding 13.91% of the issued ordinary share capital, and Prudential PLC, 3.59%. As a publicly quoted institution, Standard Chartered has demonstrated its ability to raise capital to fund expansion. The holding company has no significant operations or assets other than its 100% interest in Standard Chartered. Standard Chartered is an authorized institution under the Banking Act 1987 and is therefore supervised by the U.K.'s Financial Services Authority (FSA). The group is subject to consolidated supervision by the FSA, which acts as the group lead regulator. Subsidiaries in other countries are also subject to local regulations and supervision.


Strategy Standard Chartered's aim is to be the world's leading emerging markets bank, and the bank of choice in its principal markets. The organization is better focused, concentrating on its key strengths in consumer banking, institutional banking, treasury, trade finance, and cash management, and its competitive advantages in particular regions. In consumer banking, Standard Chartered's aim is to selectively build market share and to build on success in credit cards, personal loans, mortgages, and wealth management deposits. In the wholesale bank, Standard Chartered wants to leverage off its extensive network and expertise, within its overriding objective to increase the return on economic capital, targeting multinational, financial institutions and larger domestic corporations. As such Standard Chartered reaffirmed its efforts to reposition the wholesale bank by committing to drive the business based on economic profit returns at the customer level. Other key strategic tasks include better risk management and the rationalization of costs at both the central level and in smaller markets through the continued investment in technology. Geographically, the bank aims to further build on positions in a number of markets that hold the greatest potential, specific markets including India, Thailand, and the United Arab Emirates (UAE). In addition, Standard Chartered believes China holds a very core strategic growth opportunity to be realized over the ensuing decade. Reengineering projects help identify ways of improving productivity and quality of service, as well as upgrading management information systems with a view to achieving a better measure of economic profit. Processing and support functions are now centralized at hubs in India and Malaysia. Currently a third hub is being planned in China, to support Hong Kong. The bank also continues to develop its sales and service culture and to maintain rigorous controls and effective compliance. Investment in technology, as appropriate, will continue, although greater use of outsourcing to maintain and develop operating efficiencies will feature. Standard & Poor's views this program positively, but the full benefits will take time to realize. Expansion, whether organic or through acquisitions, will build on its competitive advantages in chosen product areas and markets. The integration of its last significant acquisitions, Grindlays and Chase HK, is continuing and as a result of these acquisitions its corporate banking is strengthened by a wider trade finance product range. Standard Chartered also continues to look at parts of Asia for acquisitions to potentially provide a platform to roll out its high quality consumer banking products, or to add to its ability to serve larger corporate clients. Its recent bid for Bank Central Asia (BCA) in Indonesia, however, was made with the strategic objective of leaving it as a stand-alone investment. Standard & Poor's understands that BCA is no longer a viable acquisition. Standard Chartered has a wide geographic reach, but economic conditions are relatively fragile in many of its markets. Standard & Poor's expects that the emergence of larger middle classes in Standard Chartered's core markets will, over time, provide the group's consumer banking and wealth management activities with significant growth opportunities. Changeable market conditions continue to be a challenge for the group, even though it has good experience of coping with such volatility.

Asset Quality Standard Chartered's net loans totaled $53.0 billion at year-end 2001, representing annual growth of 2.2%. This growth was driven by the consumer book, 68% of which comprises credit cards, personal, auto, and mortgage loans. The wholesale book actually shrank over 2001, by a gross 4.3%. Exposure to credit risk is concentrated in the Asia Pacific region, which accounted for almost 71% of gross lending at year-end 2001 (see table 2). While undoubtedly affected by economic conditions in its core markets, Standard Chartered withstood past problems in Asia relatively well compared with other operators in these markets, by terminating riskier business relationships and cautious credit management.


Table 2 Net Loans* by Geographic Zone as % of Total Loans 2001 2000

Consumer banking

Wholesale banking

Total loans and advances to customers

Consumer banking

Wholesale banking

Total loans and advances to customers

Hong Kong 58.1 20.0 39.9 60.8 19.7 39.7

Singapore 15.2 10.2 12.9 14.8 9.5 12.1

Malaysia 8.4 5.4 7.0 7.4 8.2 7.9

Other Asia Pacific 6.6 15.5 11.0 6.2 14.5 10.6

India 3.1 4.1 3.6 3.0 3.7 3.4

Middle East and other south Asia 5.5 10.0 7.8 5.0 11.0 8.2

Africa 0.6 3.1 1.8 0.6 3.4 2.1

Americas, U.K. & group head office 2.4 31.8 16.0 2.3 30.0 16.0

Total (%) 100.0 100.0 100.0 100.0 100.0 100.0

*Net of loan loss provisions

Notwithstanding its good credit risk management framework, asset quality is impacted by potential economic problems in key markets. In addition, the largest exposures continue to be more concentrated than for Western peers, as measured by ACE. However, somewhat mitigating the concentration risk is the high investment-grade ratings of these, and management efforts to continue reviewing and reducing its commitments. New provisions totaled $994 million in 2001, compared with $705 million in 2000. This was due to a rise in new provisioning requirements associated with increased personal bankruptcies in Hong Kong (which led to the single largest charge, at $257 million) impacting primarily credit cards for the consumer bank, as well as the economic downturn in Malaysia, the situation in Argentina, and Enron, causing higher provisions in the wholesale bank. In addition, 2001 witnessed a worsened recoveries performance compared with 2000. The improvement to risk management in this area of unsecured lending is an ongoing process, with further upgrades to systems rolling out globally during 2003. Overall in 2001, the number of credit cards grew by 1.5 million to total 6 million, while personal lending increased by 41%. Gross nonperforming loans (NPLs) fell to $3.2 billion at year-end 2001 from $3.4 billion at year-end 2000. With total provisions for bad and doubtful debts of $1.4 billion at year-end 2001, loan loss reserves were 44.4% of gross NPLs at Dec. 31, 2001. This is below the 48.2% coverage at year-end 2000 and 62.8% at year-end 1998 (see chart 3). Although headline provision coverage looks weaker than in the past, growth in residential mortgages has boosted collateral levels. In addition, Standard Chartered has a rigorous charge-off practice, which write-offs claims before final settlement. This practice deflates the provision coverage ratio: if NPLs and provisions are adjusted to include cumulative write-offs, the effective would be 67% and 69% of adjusted gross NPLs for 2001 and 2000, respectively. Also, there is additional non-provision cover against the portfolio of Standard Chartered Nakornthon Bank, acquired in September 1999, provided by an agency of the Thai government. Provision coverage against the corporate book remains satisfactory.


Standard & Poor's expects that provision charges will be pushed upward by uncertainties in the international economy, to the extent that this feeds through to the Standard Chartered's operating environments. Standard & Poor's believes Standard Chartered's asset quality will benefit from its cautious risk management and improved collections and control procedures. The bank continues to manage its exposures in this region with great care, however.

Profitability In 2001, Standard Chartered achieved operating profit after goodwill and provisions but before restructuring charges and taxes of $1.1 billion, down from the $1.2 billion reported in 2000. This slight decline was due to higher provisions expenses, despite higher total operating revenues. Total revenues grew by 9% during 2001, to $4.5 billion. Net profit of $700 million declined by 27% and is considerably less than the $1.0 billion achieved in 2000; however, 2000 results were enhanced by $532 million profit from the disposal of Chartered Trust, which more than offset a $323 million restructuring charge. Group net interest income grew by 9% in 2001, but the overall reported net interest income to average earning assets improved to almost 3.2% up from less than 3.0% for 2000. The high margins reflect the relatively underdeveloped and riskier nature of many of the markets in which Standard Chartered operates. Underlying operating expenses, excluding the $323 million special restructuring charge incurred in 2000, increased by 8% to $2.6 billion in 2001. On this underlying basis, Standard Chartered met its objective for revenue growth to outstrip that of costs. Operating costs continue to be tightly controlled, despite the underlying increase, in line with the group's efficiency program. Cost increases are nonetheless incurred through investments in new products, technology, service quality, and risk control. At year-end 2001, the group's cost-to-income ratio, measured on the basis of noninterest expenses-to-revenues, was 57.9%, slightly improved from 58.5% one year previously, but down from 66.4% at year-end 2000 if the special restructuring charge taken in that year is included as a normal expense (see chart 4).


Standard & Poor's expects that more efficient allocation of staff, improvements in operating processes, and strengthening revenues will improve the bank's efficiency ratios. Revenue and cost synergies from recent acquisitions will help. The group's restructuring and reengineering initiatives are expected to have a greater positive impact over time. Standard Chartered aims to pace cost growth in line with revenue growth in the future, which includes investments in systems and products.

Asset-Liability Management Liquidity remains robust, and a favorable rating factor. Standard Chartered remains primarily deposit funded, with a wide customer deposit base drawn from its large international retail and corporate networks in many of the countries in which it operates. In addition, Standard Chartered derives substantial funding from central banks and other public sector sources. In many countries of operation, Standard Chartered is the principal bank, acts as a banknote issuer, and has a very strong position in the local market, although individually these markets tend to be small. The bank's substantial retail deposit base in the Asia-Pacific region has been further strengthened by a "flight to quality" as customers seek safer locations for their deposits in times of volatility. As a result of these factors, Standard Chartered has a cheap and relatively stable funding base, and a strong liquidity position. Customer deposits grew by 4.3% during 2001 to $67.9 billion at year-end. Reliance on interbank funding is minimal, at $11.7 billion at Dec. 31, 2001. Standard Chartered's debt issuance program provides additional funding flexibility, with a growing diversification of investors. The implementation of asset-liability management policies is managed by the group asset and liability committee (GALCO), which consists of the bank's CEO and executive directors and is chaired by the group's finance director. GALCO is responsible for overseeing the management of capital, the size of the group's balance sheet, market risk, and liquidity. There are also committees at the regional and local level. Country activities are supervised by asset and liability committees that are chaired by local CEOs operating within guidelines set by GALCO. All businesses in the group operate within market risk management policies set by group market risk committee (GMRC). Limits exist for exposures to movements in interest and exchange rates, and to movements in prices and volatilities arising from trading, lending, deposit taking, and investment decisions. These exposures are controlled at each business location by product type, and within an overall risk management framework, using limits set down by GMRC. In general, these limits are conservative and are reviewed frequently. Standard Chartered's reported value-at-risk (VAR) measure is calculated for expected movements over a minimum of one business day and to a confidence


level of 97.5%. No correlation offsets are allowed between exchange rate and interest rate exposures. The bank emphasizes the importance of meaningful stress testing, close monitoring, and strict limits. Standard Chartered generally does not hedge the value of its foreign currency-denominated investments in subsidiaries and branches, as it considers reserves to be sufficient to absorb any foreseeable adverse currency depreciation arising on these investments. The effect of exchange rate fluctuations on the risk-to-assets ratio is mitigated by the fact that movements in the risk-weighted value of assets and contingents are substantially matched by proportionate changes in the capital base. The underlying business continues to be exposed to events in the many operating regions, however.

Capital Standard & Poor's view's Standard Chartered's core capitalization as measured by ACE as only reasonable given its operating markets. At year-end 2001 Standard Chartered's ACE-to-risk assets ratio stood at 5.6%, down from 5.8% and 8.4% at years-end 2000 and 1999, respectively (see chart 5). Standard & Poor's believes that it is appropriate for Standard Chartered to maintain higher core capital ratios because of the nature of many of its operations in less-developed economies (even if these operations are often in the most attractive segments of the markets). Standard & Poor's expects ACE ratios to improve over time through retained earnings growth and, potentially, through selective issues of new capital. In addition, the allocation of capital resources is managed centrally and funds are regularly transferred between the head office and the group's different operations. In most regions, the group is required to maintain deposits with central banks, generally based on the level of local deposits. Although Standard Chartered reduced the impact of exchange rate movements on its capital ratios, (due primarily through a dollar-denominated balance sheet), there is some vulnerability to exchange rate fluctuations. Total regulatory capital is a strong 16%, of which the regulatory Tier 1 capital ratio strengthened to 8.8% at year-end 2001, from 7.0% a year earlier. Standard Chartered expects to maintain its Tier 1 ratio within a range of 7%-9%. Standard Chartered has demonstrated its ability to raise capital related instruments. In 2001 group regulatory capital was boosted by three new issues: 1) £300 million through the issue of tax-deductible preferred securities; 2) $1 billion in perpetual preference shares; and 3) $700 million in the form of 30-year capital notes. The first two issues represent innovative forms of hybrid capital that qualify as part of the regulatory Tier 1 base. Standard & Poor's puts less analytical weight on such hybrid capital instruments, however, and excludes preferred securities and preference shares from its ACE measure. The preferred instruments do give Standard Chartered more flexibility over its regulatory capital requirements, however.


Table 3 Balance Sheet Statistics

--Year ended Dec. 31-- Breakdown as a % of assets (adj.)

(Mil. $) 2000* 1999 1998 1997 1996 - 2000* 1999 1998 1997 1996

ASSETS Cash and money market instruments 11,523 8,429 6,065 6,695 7,781 17.19 15.68 12.71 14.19 18.47

Securities 9,330 7,815 6,372 5,823 5,932 13.92 14.54 13.36 12.34 14.08

Nontrading securities 9,330 7,815 6,372 5,823 5,932 13.92 14.54 13.36 12.34 14.08

Loans to banks (net) 5,013 3,581 3,911 2,665 3,105 7.48 6.66 8.20 5.65 7.37

Customer loans (gross) 35,880 29,997 26,982 26,204 20,949 53.52 55.79 56.56 55.54 49.72

All other loans 35,880 29,997 26,982 26,204 20,949 53.52 55.79 56.56 55.54 49.72

Loan loss reserves 1,083 1,200 891 556 502 1.62 2.23 1.87 1.18 1.19

Customer loans (net) 34,797 28,797 26,091 25,648 20,447 51.91 53.56 54.69 54.36 48.52

Earning assets 61,145 49,213 42,882 41,112 37,517 91.21 91.53 89.89 87.14 89.03

Equity interests/participations (nonfinancial) N.A. N.A. N.A. 3 16 N.A. N.A. N.A. 0.01 0.04

Intangibles (nonservicing) 1,561 366 153 0 0 2.33 0.68 0.32 0.00 0.00

Fixed assets 655 599 439 310 325 0.98 1.11 0.92 0.66 0.77

Derivatives credit amount 3,106 2,110 N.A. N.A. N.A. 4.63 3.92 N.A. N.A. N.A.

Accrued receivables 900 691 767 627 390 1.34 1.29 1.61 1.33 0.93

All other assets 1,714 1,744 4,060 5,410 4,142 2.56 3.24 8.51 11.47 9.83

Total reported assets 68,599 54,132 47,858 47,181 42,138 102.33 100.68 100.32 100.00 100.00

Less nonservicing intangibles (1,561) (366) (153) 0 0 Adjusted assets 67,038 53,766 47,705 47,181 42,138 100.00 100.00 100.00 100.00 100.00

2000* 1999 1998 1997 1996 2000* 1999 1998 1997 1996

LIABILITIES Breakdown as a % of liabilities + equity

Total deposits 51,067 40,704 35,202 34,310 31,219 74.44 75.19 73.56 72.72 74.09

Noncore deposits 7,447 5,555 4,930 6,767 7,212 10.86 10.26 10.30 14.34 17.12

Core/customer deposits 43,620 35,149 30,272 27,543 24,007 63.59 64.93 63.25 58.38 56.97

Other borrowings 4,554 3,610 3,174 2,354 1,918 6.64 6.67 6.63 4.99 4.55

Other liabilities 7,121 5,429 5,674 6,992 5,715 10.38 10.03 11.86 14.82 13.56

*Data as of fiscal year end. N.A.--Not available


Table 3 Balance Sheet Statistics Cont… --Year ended Dec. 31-- Breakdown as a % of assets (adj.)

(Mil. $) 2000* 1999 1998 1997 1996 - 2000* 1999 1998 1997 1996

LIABILITIES Cont… Breakdown as a % of liabilities + equity

Total liabilities 62,742 49,743 44,050 43,656 38,852 91.46 91.89 92.04 92.53 92.20

Total shareholders' equity 5,857 4,389 3,808 3,525 3,286 8.54 8.11 7.96 7.47 7.80

Preferred stock and other capital 1,419 1,154 1,132 1,136 1,114 2.07 2.13 2.37 2.41 2.64

Minority interest-equity 377 69 56 36 33 0.56 0.13 0.12 0.08 0.08

Common shareholders equity (reported) 4,061 3,166 2,620 2,353 2,139 5.92 5.85 5.47 4.99 5.08

Share capital and surplus 1,561 1,079 678 664 632 2.28 1.99 1.42 1.41 1.50

Revaluation reserve 33 38 50 56 68 0.05 0.07 0.10 0.12 0.16

Retained profits 2,467 2,049 1,892 1,633 1,439 3.60 3.79 3.95 3.46 3.41

Total liabilities and equity 68,599 54,132 47,858 47,181 42,138 100.00 100.00 100.00 100.00 100.00

Less revaluation reserve, intangibles (1,594) (404) (203) (56) (68) Tangible common equity 2,844 2,831 2,473 2,333 2,104 Adjusted common equity 2,844 2,831 2,473 2,333 2,104

Plus preferred stock and other capital 1,419 1,154 1,132 1,136 1,114 Tangible total equity 4,263 3,985 3,605 3,469 3,218

Less total preferred stock over 25% total adjusted equity (471) (210) (308) (358) (413)

Adjusted total equity 3,792 3,775 3,297 3,111 2,805 *Data as of fiscal year end. N.A.--Not available


Table 4 Profit and Loss Statement Statistics

--Year ended Dec. 31-- Adj. avg. assets (%)

(Mil. $) 2000* 1999 1998 1997 1996 - 2000* 1999 1998 1997 1996

PROFITABILITY

Interest income 4,555 3,730 4,003 3,400 3,003 7.54 7.35 8.44 7.61 7.41

Interest expense 2,768 2,094 2,479 2,030 1,712 4.58 4.13 5.23 4.55 4.22

Net interest income 1,787 1,636 1,524 1,370 1,291 2.96 3.22 3.21 3.07 3.18

Operating noninterest income 911 742 843 823 677 1.51 1.46 1.78 1.84 1.67

Fees and commissions 586 438 405 445 423 0.97 0.86 0.85 1.00 1.04

Trading gains 249 246 418 352 213 0.41 0.48 0.88 0.79 0.53

Other noninterest income 76 58 20 26 41 0.13 0.11 0.04 0.06 0.10

Operating revenues 2,698 2,378 2,367 2,193 1,968 4.47 4.69 4.99 4.91 4.85

Noninterest expenses 1,790 1,376 1,228 1,133 1,086 2.96 2.71 2.59 2.54 2.68

Personnel expenses 915 713 638 610 578 1.51 1.41 1.34 1.37 1.43

Other general and administrative expense 679 546 517 460 441 1.12 1.08 1.09 1.03 1.09

Depreciation and amortization-other 196 117 73 63 67 0.32 0.23 0.15 0.14 0.17

Net operating income before loss provisions 908 1,002 1,139 1,060 882 1.50 1.97 2.40 2.37 2.18

Credit loss provisions (net new) 310 495 436 156 64 0.51 0.98 0.92 0.35 0.16

Net operating income after loss provisions 598 507 703 904 818 0.99 1.00 1.48 2.02 2.02

Nonrecurring/special income 351 0 0 (34) 52 0.58 0.00 0.00 (0.08) 0.13

Pretax profit 949 507 703 870 870 1.57 1.00 1.48 1.95 2.15

Tax expense/credit 249 149 227 269 264 0.41 0.29 0.48 0.60 0.65

Net income before minority interest 700 358 476 601 606 1.16 0.71 1.00 1.35 1.49

Minority interest in consolidated subsidiaries 23 14 13 N.A. N.A. 0.04 0.03 0.03 N.A. N.A.

Net income before extraordinaries 677 344 463 601 606 1.12 0.68 0.98 1.35 1.49

Net operating income 677 344 463 624 570 1.12 0.68 0.98 1.40 1.41

2000* 1999 1998 1997 1996 *Data as of fiscal year end. N.A.--Not available


Table 4 Profit and Loss Statement Statistics Cont… --Year ended Dec. 31-- Adj. avg. assets (%)

(Mil. $) 2000* 1999 1998 1997 1996 - 2000* 1999 1998 1997 1996

ASSET QUALITY Nonperforming assets 2,249 2,598 1,418 724 722

Nonaccrual loans 2,249 2,598 1,418 724 722 Net charge-offs 629 250 124 61 57 AVERAGE BALANCE SHEET Average customer loans 33,588 31,190 29,158 25,933 22,571 Average earning assets 55,179 46,048 41,997 39,315 36,001 Average assets 61,366 50,995 47,520 44,660 40,536 Average total deposits 45,886 37,953 34,756 32,765 30,242 Average interest-bearing liabilities 49,968 41,345 37,520 34,901 31,959 Average common equity 2,838 2,652 2,403 2,219 1,924 Average adjusted assets 60,403 50,736 47,444 44,660 40,536 OTHER DATA Number of employees (end of period) N.A. 28,200 26,500 25,300 24,600 N.A. Off-balance-sheet credit equivalents 38,418 32,773 5,419 5,268 4,741 *Data as of fiscal year end. N.A.--Not available


Table 5 Ratio Analysis --Year ended Dec. 31--

2000* 1999 1998 1997 1996

ANNUAL GROWTH (%)

Customer loans (gross) 19.61 11.17 2.97 25.08 3.59

Loss reserves (9.75) 34.68 60.25 10.76 (19.42)

Adjusted assets 24.68 12.71 1.11 11.97 8.23

Customer deposits 24.10 16.11 9.91 14.73 1.67

Tangible common equity 0.46 14.48 6.00 10.88 20.64

Total equity 33.45 15.26 8.03 7.27 9.83

Operating revenues 13.46 0.46 7.93 11.43 10.07

Noninterest expense 30.09 12.05 8.38 4.33 2.26

Net operating income before provisions (9.38) (12.03) 7.45 20.18 21.49

Loan loss provisions (37.37) 13.53 179.49 143.75 (11.11)

Net operating income after provisions 17.95 (27.88) (22.23) 10.51 25.08

Pretax profit 87.18 (27.88) (19.20) 0 31.62

Net income 95.53 (24.79) (20.80) (0.83) 30.04

2000* 1999 1998 1997 1996

PROFITABILITY (%) Interest Margin Analysis

Net int. income (taxable equiv.)/avg. earning assets 3.24 3.55 3.63 3.48 3.59

Net int. spread 2.72 3.04 2.92 2.83 2.98

Int. income (taxable equiv.)/avg. earning assets 8.25 8.10 9.53 8.65 8.34

Int. exp./average int.-bearing liabilities 5.54 5.06 6.61 5.82 5.36



Table 5 Ratio Analysis Cont… --Year ended Dec. 31--

2000* 1999 1998 1997 1996

Revenue Analysis

Net int. income/revenues 66.23 68.80 64.39 62.47 65.60

Fee income/revenues 21.72 18.42 17.11 20.29 21.49

Market-sensitive income/revenues 9.23 10.34 17.66 16.05 10.82

Noninterest income/revenues 33.77 31.20 35.61 37.53 34.40

Personnel expense/revenues 33.91 29.98 26.95 27.82 29.37

Noninterest expenses/revenues 66.35 57.86 51.88 51.66 55.18

Noninterest exp./revenues less investment gains 66.35 57.86 51.88 51.66 55.18

Net operating income before provision/revenues 33.65 42.14 48.12 48.34 44.82

Net operating income after provisions/revenues 22.16 21.32 29.70 41.22 41.57

New loan loss provisions/revenues 11.49 20.82 18.42 7.11 3.25

Net nonrecurring/abnormal income/revenues 13.01 0 0 (1.55) 2.64

Pretax profit/revenues 35.17 21.32 29.70 39.67 44.21

Tax/pretax profit 26.24 29.39 32.29 30.92 30.34

Net income/revenues 25.95 15.05 20.11 27.41 30.79

2000* 1999 1998 1997 1996

Other Returns

Pretax profit/average risk assets (%) 2.42 1.50 2.20 2.99 3.38

Net income/average risk assets (%) 1.78 1.06 1.49 2.07 2.36

Net income/average assets + securitized assets 1.15 0.70 1.00 1.35 1.49

Net income/employee (currency unit) N.A. 13,090 18,378 24,088 23,953

Personnel expense/employee (currency unit) N.A. 26,069 24,633 24,449 22,846

Net income/avg. tang. common equity (ROE) (%) 24.11 12.90 19.14 26.37 30.67

2000* 1999 1998 1997 1996




2000* 1999 1998 1997 1996

FUNDING AND LIQUIDITY (%)

Customer deposits/funding base 78.42 79.32 78.88 75.12 72.45

Total loans/customer deposits 93.75 95.53 102.05 104.81 100.20

Total loans/customer deposits + long-term funds 75.68 77.82 82.93 86.38 82.35

Customer loans (net)/assets(adj) 51.91 53.56 54.69 54.36 48.52

2000* 1999 1998 1997 1996

CAPITALIZATION (%)

Adjusted common equity/adjusted assets 4.24 5.27 5.18 4.94 4.99

Adjusted common equity/adjusted assets + securitization 4.24 5.23 5.18 4.94 4.99

Adjusted common equity/risk assets 6.58 8.04 7.61 7.40 7.88

Adjusted common equity/customer loans (net) 8.17 9.83 9.48 9.10 10.29

Internal capital generation/prior year's equity 12.03 3.28 10.20 18.75 25.25

Tier 1 capital ratio 7.00 8.60 8.20 8.00 8.60

Regulatory total capital ratio 14.10 14.80 12.70 N.A. N.A.

Adjusted total equity/adjusted assets 5.66 7.02 6.91 6.59 6.66

Adjusted total equity/risk assets 8.77 10.72 10.15 9.87 10.51

Adjusted total equity/adjusted assets + securitizations 5.66 6.97 6.91 6.59 6.66

Adjusted total equity plus LLR(Specific)/customer loans(gross) 13.59 16.58 15.52 13.99 15.79

Common dividend payout ratio 42.36 73.78 46.31 31.45 24.24

2000* 1999 1998 1997 1996




2000* 1999 1998 1997 1996

ASSET QUALITY (%)

New loan loss provisions/average customer loans 0.92 1.59 1.50 0.60 0.28

Net charge-offs/average customer loans 1.87 0.80 0.43 0.24 0.25

Loan loss reserves/customer loans (gross) 3.02 4.00 3.30 2.12 2.40

Credit-loss reserves/risk assets 2.50 3.41 2.74 1.76 1.88

NPA/customer loans + ORE 6.27 8.66 5.26 2.76 3.45

Nonperforming assets (NPA) (excl. delinquencies)/customer loans + ORE 6.27 8.66 5.26 2.76 3.45

Net NPA/customer loans (net) + ORE 3.35 4.85 2.02 0.66 1.08

NPA (net specifics)/customer loans (net specifics) 3.35 4.85 2.02 0.66 1.08

Loan loss reserves/NPA (gross) 48.15 46.19 62.83 76.80 69.53



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