Global banking and capital markets sector: key themes from ... · Bank of China and Industrial and Commercial Bank of China (ICBC) were excluded from the analysis due to the lack

Global banking and capital markets sector: key themes from third quarter 2012 earnings callsg

19 November 2012

Contents

Page

1 Scope, limitations and methodology of the review 3

2 Top 10 key themes: 3Q12 earnings season 4

3 Key themes of the review 6

4 Appendix 19

Global Banking and Capital Markets sector — 3Q 2012 themes | 1

Global banking and capital markets sector – 3Q12 themes | 2

S li it ti d

The purpose of this review is to determine the key themes discussed during the 3Q12 earnings reporting season among 34 selected banks operating within the Banking and Capital Markets sector worldwide.

Scope, limitations and methodology of the review

To determine the key themes, the review was limited to the examination of the transcripts and presentations of the 3Q12 earnings conference calls.

For most of the 34 banks reviewed, the period covered was 3Q12, ended30 September 2012. Exceptions to this include the following:

► Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD) — period covered was 3Q12, ended 31 July 2012.

► Nomura Holdings — period covered was 2Q13, ended 30 September 2012.

► Macquarie Group — period covered was 1H13, ended 30 September 2012.

► National Australia Bank — period covered was 2H12, ended30 September 2012.

Banks were selected based on their size and the availability of earnings call transcripts. Every effort was made to ensure a global sample of banks was included in the review.

► Bank of China and Industrial and Commercial Bank of China (ICBC) were excluded from the analysis due to the lack of transcript availability.

► Mizuho and Mitsubishi UFJ Group were excluded due to the timing of the 1Q12 results reporting.


Top 10 key themes: 3Q12 earnings seasonTop 10 key themes: 3Q12 earnings season

Despite a flurry of positive economic and macro-related developments in 3Q12, significant uncertainties remained in place and management expressed the expectation that headwinds are likely to persist for the foreseeable future. As noted by National Australia Bank (NAB) CEO Cameron Clyne, “I think it's clearly evident now that optimism

banking model; and higher capital requirements for “high-risk” activities, banks addressed the need to alter their approach to business. Refocusing efforts were evident through the following:

►Strategic reviews are underway and in some cases have been completedis not arriving and that we are not the only ones predicting a more difficult operating environment.”

As in previous quarters, banks continued to look internally to pull the performance levers within their control, paying close attention to expense management, capital strength and prudent risk management. In 3Q12, however, many banks also adopted a more forward-looking view as they worked to define optimal business models for future opportunities and position themselves for an eventual recovery in the operating environment.

►Strategic reviews are underway, and in some cases, have been completed.

►Banks that launched adaptation plans in 2011 have achieved targets or made solid progress against them.

►Banks have identified — or are in the process of defining — the core customers, competencies and geographies that will be strategically important for future success.

These efforts to reshape businesses and adapt to operating conditions influenced discussions about investments, cross-border activities, capital allocation, funding,

Driven by a number of factors, including persistent revenue and profitability pressures; regulatory scrutiny of ring-fencing; speculation about the viability of the universal

acquisitions and divestments in 3Q12.

3Q12rank

3Q12 earnings season top 10 themes(arranged from most common to least common)34 banks

2Q12rank

2Q12 earnings season top 10 themes(arranged from most common to least common)32 banks

1.1 Responses to the macro-environment 1.1 Concerns related to the macro-environment

1.2 Capital issues 1.2 Capital issues

1.3 Expense trends/investments in the business 1.3 Expense trends/investments in the business

1.4 Drivers of earnings performance 1.4 Drivers of earnings performance

5 Regulatory issues 5 Lending trends

6 Cross-border activities 6.1 M&A strategies

7.1 M&A strategies 6.2 Credit quality trends

7.2 Lending trends 8.1 Regulatory issues

9 Credit quality trends 8.2 Cross-border activities

10 Funding strategy and liquidity management 10 Funding strategy and liquidity management


10 Funding strategy and liquidity management 10 Funding strategy and liquidity management

Key themes overview: banks review business models in response to challenging macro environment

Key theme: 1.1

to challenging macro environmentManagement acknowledge positive developments on the macro front, but expect headwinds to continue into 2013. Improved economic indicators in the US and moves by the ECB to support the euro fueled cautious optimism and, in some regions, improved activity levels in selected retail and capital markets businesses. Nevertheless, banks worldwide continued to operate in a challenging environment that is expected to

the region will become more important. It should. And that is why we need to take measures right now.”

• Enrico Cucchiani, CEO, Intesa Sanpaolo: “We have developed eight work streams to make Intesa more competitive and to reposition the bank for the New Normal. These

k t i iti th b i d l d th d li t f th b kbanks worldwide continued to operate in a challenging environment that is expected to persist for several more quarters.

• Ed Clark, CEO, Toronto Dominion: “As we look ahead to 2013, we know we have our work cut out for us because the headwinds we've identified continue to gather steam.”

• Sergio Ermotti, CEO, UBS: “We believe that any return to sustained global economic growth may be further away than we anticipated one year ago.”

In addition to pressuring current and near-term performance, the environmental h d i d h i f t t iti f b k D i th 3Q12 ti

work streams are revisiting the business model and the delivery system of the bank, and will affect our interaction with customers as well as operations.”

• Jan Hommen, CEO, ING: “Following a strategic review at the Commercial Bank earlier this year, we decided to accelerate the implementation of strategic adaptations, including the run-off of certain leasing units, the rightsizing of the equity businesses and operational improvements in several units.”

• The French banks that announced “adaptation” or “adjustment” plans in 2011 reported th i d i l tiheadwinds are reshaping future opportunities for banks. During the 3Q12 reporting

season, management comments provided insight into how banks are examining and adapting their business models so they will be well-positioned to thrive when conditions improve. Banks are at different points in the cycle of this review process, with some having already arrived at their optimal business model, others well along the path to adaptation, and still others determining what their business should look like in the future.

• Antony Jenkins, CEO, Barclays: “The business performance review is in full progress, involving analysis of the financial performance and reputational risk of our business at

on their progress, and in some cases, completion:• Lars Machenil, CFO, BNP Paribas: “So for us, we look forward. We are in a position

to grow. We are in a position to help our clients.”• Frederic Oudea, CEO, Societe Generale: “With this third quarter, I think we have

made a significant step in our transformation, which will enable us to enter into 2013 in a position of strength.”

• Bertrand-Pierre Delpit, CFO, Credit Agricole: “The adaptation plan is well ahead of its target, but we will not relax our approach on liquidity and solvency.”involving analysis of the financial performance and reputational risk of our business at

twice the level of granularity of previous reviews. Using this analysis, we are modeling a range of options as to where we can grow significantly, where we can turn around businesses or where we have to run them down or exit them. While we remain absolutely committed to our universal banking model, this detailed assessment will allow us to determine the future size, shape and composition of Barclays.”

• Sergio Ermotti, CEO, UBS: “This morning, we announced an acceleration of our strategy to transform UBS. Implementing the next phase of our strategy comes on the b k f j th t t t d Th b i d l ti

• In general, North American banks highlighted the strength of their business models, seemingly indicating that they are already well-positioned to benefit when conditions improve.• Richard Davis, CEO, US Bancorp: “We continue to manage this company for the

long term by investing in our diverse and stable mix of business, by maintaining a prudent approach to risk that has served us so well throughout this late cycle, by providing our customers with the products and services they need to help them shape their future and reach their dreams, and by supporting our employees and our back of a journey that we started one year ago. ... The business model we are creating

will be unique in the banking industry. UBS will be less capital and less balance sheet intensive, highly cash-flow generative, more focused on serving our clients and capable of maximizing value for our employees and shareholders. We are reshaping our Investment Bank, and we'll achieve this by exiting or significantly reducing lines of business, predominantly in our fixed income businesses that have been made uneconomic by changes in regulation and in the markets.”

• Nomura COO Atsushi Yoshikawa referred to a key element of the “Fit for the Future”

p , y pp g p ycommunities, all while producing consistent, predictable and repeatable results for the benefit of our shareholders.”

• Dan Henry, CFO, American Express: “Looking ahead, we recognize that our business is not immune to the economic environment, but we continue to believe that our business model is well positioned for the challenges ahead.”

• Gord Nixon, CEO, RBC: “Going forward, we believe we're well positioned to continue to extend our lead in Canada and building on strong client relationships in select U.S. and international markets while delivering long-term growth to our


o u a COO tsus os a a e e ed to a ey e e e t o t e t o t e utu eplan unveiled at the bank’s 6 September 2012 Investor Day, “We want to become Asia’s global investment bank. ...Asia’s potential as well as Nomura’s position within

g g gshareholders.”

Key themes overview: capital strength reflects ability to adapt to the environment and comply with Basel III when it is finalized

Key theme: 1.2

the environment and comply with Basel III when it is finalizedCapital levels remain strong. In 3Q12, banks continued to demonstrate the ability to maintain or increase strong capital ratios through retained earnings, risk-weighted assets (RWA) reduction, asset sales and other strategic measures. Management at several banks took the opportunity to highlight continued capital strength as an indicator of their ability to transform their business models and get positioned for future growth.

think as we see that develop, we'll probably have to give you more guidance as that comes through. Although and frankly, given that both the EU and the US have kind of delayed that Basel III implementation, it does feel slightly confusing at the moment. ...It’s somewhat confused by the fact that a large part of the world are not, in fact, implementing Basel III on the 1st of January.”o e ab y o a s o e bus ess ode s a d ge pos o ed o u u e g o

• Sergio Ermotti, CEO, UBS: “Our industry-leading capital position gives us a firm foundation to accelerate our strategic transformation.”

• James Gorman, CEO, Morgan Stanley: “Evidence of progress across the firm towards our long-term strategy is our strong Basel III capital ratio, which is now north of 9% as of September 30.”

• Ángel Cano Fernandez , COO, BBVA: In four quarters, we've been able to raise €7 billi i it l ith t h i t ll ff t t i t ”

p e e g ase o e s o Ja ua y

• Lars Machenil, CFO, BNP Paribas: “As you know, we've set ourselves a 9% target. We still wait for [the rules] to be cast in stone or chiseled in marble.”

• Bertrand Badre, CFO, Societe Generale: “So, on Basel III, we made the decision not to publish anything called Basel III for different reasons. First of all, because as you know, the CRD IV has not been voted. We still don't know when it's going to be voted and, of course, when it's going to be implemented.”

C di d A t li b k f th h d f f th i US d l b lbillion in new capital without having to sell off any strategic assets.”

• Stefan Krause, CFO, Deutsche Bank: “We finished the quarter with a Core Tier 1 ratio of 10.7%, which is a 57 basis points increase compared to the 30th of June. Two-thirds of the increase in our Core Tier 1 ratio reflects our successful de-risking and one-third our quarterly net income.”

• Brady Dougan, CEO, Credit Suisse, “The implementation of the capital actions that we announced in July is well underway. To date, we've achieved CHF 12.8 billion of the CHF 15 3 billi t t W t t d li dditi l CHF 2 4 billi i it l b

Canadian and Australian banks are further ahead of some of their US and global counterparts in terms of complying with international capital rules, driven by guidance from local regulators.

• David McKay, Group Head of Canadian Banking, Royal Bank of Canada: “The bad news about the way we're operating today is we're operating with fully loaded capital and liquidity rules compared to a lot of other banks around the world. The good news of that is it puts us in a very strong position as the world unfolds going forward, and these rules are applied more strenuously to other institutions.”CHF 15.3 billion target. We expect to deliver an additional CHF 2.4 billion in capital by

year end, through a combination of strategic divestments, additional real estate sales resulting from the Clariden Leu merger, retained earnings and lower deductions.”

With the start of the Basel III implementation period rapidly approaching, management at 26 of the 34 banks reviewed for this analysis provided pro-forma estimates of Basel III ratios as of 3Q12. Notably, outside the US, there were numerous references to the fact that the Basel III rules are still not finalized. US banks, which are still reporting capital under Basel I, provided matter-of-fact disclosures of Basel III estimates, while European

these rules are applied more strenuously to other institutions.

• Ed Clark, CEO, Toronto Dominion Bank: “Canada is clearly leading the world here, but we can only lead the world by a little bit. If we get too far ahead of the world, we put the Canadian banking system at a significant competitive disadvantage.”

• Patrick Upfold, CFO, Macquarie Group: “On a harmonized Basel III basis — this the way the rest of the world reports — we have a surplus of $3.4 billion...an 8.5% level. I remind you that under the Basel rules, banks are not required to meet that requirement, that 8.5% requirement until 2019.”under Basel I, provided matter of fact disclosures of Basel III estimates, while European

counterparts offered more commentary on the potential timing of final rules.

• Patrick Flynn, CFO, ING: “We're not even sure that Basel III will come in in 1Q13 because we haven't seen CRD IV ratified yet.”

• David Mathers, CFO, Credit Suisse: “The whole industry is, obviously, watching the Basel review about model standardization and market risk across the industry. So I

requirement, that 8.5% requirement until 2019.


Key themes overview: banks disclose Basel III estimates, based on their current understanding of the rules

Key theme: 1.2

their current understanding of the rulesEstimated Basel III ratios, as of 30 September 2012Bank Methodology, as reported RatioDB Not defined ~7CBK Common equity tier 1 (CET1) ratio, fully phased ≥7.5RBS Not defined mid-7sCS Common equity tier 1 (CET1) ratio, "look through basis" 7.5TD Common equity tier 1 (CET1) ratio 7.7LLD Core Tier 1 ratio, fully loaded 7.7NAB Common equity tier 1 (CET1) ratio 7.9BCS Core Tier 1 ratio, fully loaded 8.0WFC Common equity tier 1 (CET1) ratio 8.0USB Not defined 8.2RBC Common equity tier 1 (CET1) ratio 8.3JPM Common equity tier 1 (CET1) ratio 8.4GS Not defined 8.5C Not defined 8.6

C (C )CIBC Common equity tier 1 (CET1) ratio 8.9BAC Not defined 9.0AXP Not defined 9.1BK Not defined 9.3UBS Common equity tier 1 (CET1) ratio, fully phased 9.3UCG Common equity tier 1 (CET1) ratio, fully phased 9.3BNP C it ti 1 (CET1) ti f ll h d 9 5BNP Common equity tier 1 (CET1) ratio, fully phased 9.5HSBC Not defined 10.3INT Common equity tier 1 (CET1) ratio, fully phased 10.5ING Core Tier 1 ratio, fully loaded 10.9STT Not defined 11.3MAC Harmonized Basel III, Bank Group 11.8


Notes: See Appendix for legend to ticker symbols

Key themes overview: expense management initiatives support the reshaping of banks’ businesses

Key theme: 1.3

reshaping of banks businessesExpense management, which has been used as a key lever for boosting profitability, is now also a primary element of banks’ plans to reshape their businesses. During the 3Q12 earnings season, management commented on how certain expense management strategies, including organic investments and headcount decisions, are supporting efforts to simplify, reshape and reposition the business.

North America, increased personnel to respond to revenue opportunities.

• Junko Nakagawa, CFO, Nomura: “The $1 billion cost reduction in wholesale [announced on 6 September 2012] is allocated as 43% in personnel expenses and 57% in non-personnel expenses. Personnel expense reductions will be achieved th h h d t d ti t i th l t f l bidecisions, are supporting efforts to simplify, reshape and reposition the business.

• Antony Jenkins, CEO, Barclays: “I see cost as being a strategic battleground for the industry for the coming years. ...If you share my view of the world, which is that we're in a period of prolonged low to no economic growth and therefore have very little tailwind around the top line, then you'd have to focus intensely on cost.”

• Ed Clark, CEO, Toronto Dominion Bank: “We have been focused on making the investments necessary to have positive operating leverage, recognizing it will be more difficult to achieve in an environment of slowing revenue growth. What we won't do is

through headcount reductions, postponing the replacement of leavers, curbing new hires and business efficiencies.”

• Stefan Krause, CFO, Deutsche Bank: “We, on purpose, are abstaining from giving any specific headcount numbers and please understand that for the sensitivity around it, we don't disclose that number at this point in time. We will be reporting as soon as we are completed with our discussions with the worker councils, and then obviously, we might then give you a disclosures around these numbers.”

S i E tti CEO UBS “U f t t l th ti d t d hdifficult to achieve in an environment of slowing revenue growth. What we won t do is engage in fire drills or other kinds of short-term thinking.”

• Sergio Ermotti, CEO, UBS: “On costs, our primary aim is to improve efficiency, while we also improve our effectiveness. This will enable us to service our clients with greater agility, improve product quality and speed to market and reduce operational risks. However, there is an even more critical benefit. By improving efficiency, we are freeing up resources to capitalize on even greater opportunities for future investment and growth. In the next two years, we plan to invest about CHF 1.5 billion to support

th ll UBS d thi l l l i l d th I t t B k ”

• Sergio Ermotti, CEO, UBS: “Unfortunately, the actions we announced today have painful consequences. In three years, UBS is more likely to employ around 54,000 people compared with around 64,000 today. This decision has been a difficult one, particularly in a business like ours that is all about people.”

• Federico Ghizzoni , CEO, Unicredit: “We have decreased 150 people in this quarter, 3,300 people altogether since September 2011. ..We will be in the position to continue the reduction of [an additional] 2,600 people.”

Ti Sl CFO W ll F “T t f t th i t tl hgrowth across all UBS, and this clearly also includes the Investment Bank.”

• Alfredo Egydio Setubal, EVP and Investor Relations Director, Banco Itau: So you should expect this big investment [in the IT platform] to prepare the bank for the next 30 years. ...We need to tackle the future challenges for the bank in a growing environment.”

• Stuart Gulliver, CEO, HSBC: “We’re realizing sustainable saves of $3 billion, which we're reinvesting in executing the strategy. ...And what I'm saying is that we're finding

t t hi h th i t i h i th h f HSBC ”

• Tim Sloan, CFO, Wells Fargo: “To support future growth, we consistently have invested throughout our franchise. For example, we increased platform banker FTEs in the East by more than 500 or 5% from the second quarter.”

0%0%

1%2%

6%9%

CIBCSTD JPM

TDBBVARBC

Percent change in headcount from 3Q11

costs to save, which we can then reinvest in changing the shape of HSBC.”

• Antonio Horta-Osorio, CEO, Lloyds: “I would like to briefly share with you some examples of how we are investing in our core business to build growth and sustainable returns for the future. We are investing in our distribution capabilities, including in Retail where we have seen internet customers increase by more than one million in the last year, and mobile customers by nearly three million. We have continued to refurbish our Lloyds TSB branded branches and extend their opening hours to better meet customers’ needs, as we have already done in Halifax.” 6%

-5%-5%

-3%-3%-3%

-2%-2%-2%-2%-2%-2%

0%

BACGSCS

UBSCBKNAB

NOM ING

UCGC

BKDB

STT


eet custo e s eeds, as e a e a eady do e a a

In 3Q12, headcount decisions varied by region and revenue opportunities. A number of banks across regions announced staff reductions as they exited or scaled back certain activities, particularly within investment banking. In contrast, several banks, primarily in

-11%-8%

-7%-7%

-6%

MACITAU

MSRBSBAC

Key themes overview: earnings quality obscured by multipleone off items

Key theme: 1.4

one-off itemsExtraordinary items cloud net income trends. In 3Q12, net income declined from 2Q12 at 18 out of the 31 banks that reported quarterly figures. When compared with 3Q11, 17 banks reported lower earnings. In general, earnings strength was more evident in North America than other regions, with nine and 10 out of 13 banks reporting an increase in earnings from 2Q12 and 3Q11, respectively.

Numerous extraordinary items affected 3Q12 earnings across all regions. The impact of

increased substantially, due to two reasons: first, the further cost reductions we’ve achieved as a result of our Simplification program, and second, the de-risking of the balance sheet which has produced a 40 per cent decline in impairments. Both are above our plans set at the beginning of the year.”

Positive aspects of 3Q12 earnings reports were primarily evident in North America and included the following:

the extraordinary items is underscored by the discrepancy between revenue growth and net income growth (see charts on next page) and made it difficult to assess the quality of earnings. In acknowledgment of this, management at banks that experienced earnings pressure emphasized that underlying results were “sound”, “strong” and “well-balanced” and highlighted progress on strategic drivers of future earnings growth.

• At Credit Suisse, which reported a decline in net income of 68% and 63% from 2Q12 and 3Q11, respectively, CEO Brady Dougan described the 3Q12 result as “solid, stable earnings” and noted “Our performance in these challenging markets

• Several banks reported record quarterly net income, including CIBC, JPMorgan Chase, Royal Bank of Canada, Toronto Dominion, US Bancorp and Wells Fargo.

• Strong mortgage originations, driven by refinancing, boosted performance at Bank of America, Citigroup, JPMorgan Chase, US Bancorp and Wells Fargo. Outside of North America, Banco Itau and National Australia Bank also reported positive mortgage trends.

• Much improved investment banking results , particularly related to fixed income trading at Bank of America, BNY Mellon, Barclays, BNP Paribas, BNY Mellon, stable earnings and noted, Our performance in these challenging markets

underscores the strength of our business model and the significant progress we've achieved in executing our strategy.”

• At Barclays, which reported a statutory net loss of £106 million, CEO Antony Jenkins said “The numbers we're announcing today show continued momentum despite significant headwinds. They demonstrate that we have remained proactive, for example, in taking action to cut costs.”

• Intesa Sanpaolo CEO Enrico Cucchiani commented on his bank’s earnings which

Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Macquarie Group, Morgan Stanley, Nomura and Societe Generale.

Selected negative earnings impacts, as reported in 3Q12 earnings calls

►Losses related to “own credit” accounting revaluations: ►Bank of America ($1.9 billion)►Barclays (£4 billion)►BNP Paribas (€774 million)• Intesa Sanpaolo CEO Enrico Cucchiani commented on his bank s earnings, which

declined 12% from 2Q12 and 21% from 3Q11: “We continue to deliver quality earnings, and I would like to emphasize the word quality. We have €1.7 billion of net income for the period and €414 million in Q3. Operating income is up 6.9% at €13.4 billion and operating costs are down 2.3%, thanks to a aggressive cost management.”

• Societe Generale: “On the one hand, we have a reported result of €85 million. On the other hand, the underlying net income [excluding legacy assets, noneconomic and nonrecurring items], which is consistent with what we've stated first and second

►BNP Paribas (€774 million)►Citigroup ($776 million)►Credit Agricole (€647 million)►Credit Suisse (CHF 1 billion)►HSBC (£5.8 billion)►Morgan Stanley ($2.3 billion)►Royal Bank of Scotland (£1.5 billion)►Societe Generale (€400 million)►UBS (CHF 863 million)

quarter, is €856 million which compared to €793 million second quarter and to €2.8 billion so far this year, which clearly showed not only the resilience of our businesses but the strength of our businesses so far this year. And it is, of course, an element of comfort looking forward.

• Citigroup net income declined 84% from 2Q12 and 88% from 3Q11. Former CEO Vikram Pandit said, “We reported earnings of $468 million for the third quarter of 2012. Excluding non-operating items, such as the mark on Morgan Stanley Smith Barney (MSSB) the credit valuation adjustment (CVA) and a tax benefit net income was $3 3

►UBS (CHF 863 million)►Provisions

►BBVA — Spanish Royal Decree (€2.9 billion year-to-date)►Santander — Spanish Royal Decree (€2.23 billion in 3Q12)►HSBC — Anti-money laundering claims ($800 million)►HSBC — Payment Protection Insurance (PPI) claims ($357 million)►RBS — PPI (£400 million)►Lloyds — PPI (£1 billion)►Barclays — PPI (£700 million)


(MSSB), the credit valuation adjustment (CVA) and a tax benefit, net income was $3.3 billion, and that amounts to $1.06 per share. Our businesses gained momentum during the quarter, while the impact of Citi Holdings lessened.”

• At Lloyds, which reported a smaller net loss in 3Q12 than in the preceding periods, CEO Antonio Horta-Osorio said: “At the Group level, our underlying profit has

►Barclays PPI (£700 million)►Bank of America — Merrill Lynch lawsuit settlement ($1.6 billion)

►Restructuring costs: UBS (CHF 3.1 billion)►Loss on asset sale: Citigroup —Morgan Stanley Smith Barney ($4.7 billion)

Key themes overview: revenue and net income growthtrends diverge

Key theme: 1.4

trends diverge

9%

12%

13%

26%

-12%

46%

15%

57%

NOM RBCJPM

GS

Revenues and net income, % change from 2Q12

18%

23%

33%

49%

133%

-3%DBBBVA NOM CBK

GSRevenues and net income, % change from 3Q11

1%

2%

2%

2%

2%

8%

8%

1%

51%

4%

4%

-12%

14%

LLD TDBK

CIBCUSBINTDB

6%

7%

8%

8%

8%

12%

17%

18%

14%

22%

14%

73%

-21%

RBSUCGUSBWFC

TDRBCINT

-4%

-3%

-2%

-2%

-1%

0%

0%

0%

38%

98%

-7%

7%

STDSTT

UCGUBSAXPWFCRBS

2%

-1%

1%

1%

1%

4%

6%

6%

13%

-94%

42%

-11%

1%

34%

BCSBK

STDCIBCITAUAXPJPM RBS

-8%

-8%

-7%

-6%

-4%

-4%

-4%

%

-65%

-68%

-86%

-28%

2%

CBKCS

BACBCS

BBVA BNP ITAU

-15%

-14%

-7%

-3%

-3%

-2%

-2%

86%

-63%

-49%

145%

21%

SGCS

HSBCLLD BNP STTUBS

BCS

-25%

-24%

-21%

-16%

-16%

-14%

-8%

-84%

-54%

-48%

-80%

CMS

HSBCCA

INGSG

CBK

-47%

-33%

-28%

-20%

-19%

-17%

-88%

-95%

-64%

-86%

MSC

BACCA

INGSG


Notes: See Appendix for legend to ticker symbols. Bars for net income omitted for banks that reported negative earnings in one of the comparable periods (3Q12, 2Q12 or 3Q11).

Net income RevenuesNet income Revenues

Key themes overview: banks face numerous regulatory issues at the local level

Key theme: 5

the local levelFragmented regulatory proposals add to macro challenges. In addition to macro headwinds and the incoming Basel III capital requirements, banks around the world are grappling with a number of regulatory proposals from local regulators. The wide variety of regulatory impacts renewed concerns about a globally-level playing field. UBS CEO Sergio Ermotti noted, “On the regulatory front, our view is clearer today than it was one

• Italy• Federico Ghizzoni, CEO, Unicredit: “Let's remind everybody that the way Bank of

Italy is requesting Italian banks to cover impaired loans is different from other regulators. In terms of restructured loans, for example, we do impairments that banks from other countries don't do.”Sergio Ermotti noted, On the regulatory front, our view is clearer today than it was one

year ago. The trend towards increased regulation for banks is not going away, although the rules are unlikely to be applied consistently around the world.”

Discussions about regulatory impacts and investigations specific to individual banks included the following:

• ING CEO Jan Hommen commented on ongoing discussions with the European Commission over restructuring requirements: “We are making good progress with the European Commission. We are doing that together with the Dutch State.”

from other countries don t do.• Enrico Cucchiani , CEO, Intesa Sanpaolo: “So our approach in general is, we don’t

spend time and don’t waste energies criticizing the regulators and the rules. ...We try to comply with them ... as well as we can within that framework. Now, generally speaking, there is no question that if there is a bias by Italian regulators, the bias is to being more conservative than others.”

• Spain• Alfredo Saenz Abad, CEO, Banco Santander: “We private agents still don't know

h th b d b k i i t b b ilt I i i th t i f k illEuropean Commission. We are doing that together with the Dutch State.

• At Standard Chartered, group finance director Richard Meddings discussed settlement talks related to anti-money laundering (AML) charges: “I can't really give you guidance..apart from to say that we are having active and constructive conversations with the other four regulators. We would hope to be able to announce a coordinated set of settlements across these four agencies.”

• HSBC group finance director Iain MacKay referred to an AML investigation, “Third quarter results include an additional provision of $800 million in relation to the ongoing

how the bad bank is going to be built. ...I can imagine that in a few weeks, we will have more information, and we'll be able to answer these questions on what our role will be, but we can't say now. ...What worries us is the possible relation between transfer pricing to the bad bank and the prices at which we have valued our assets once we have covered the provisions from the Royal Decrees.”

• UK• Antonio Horta-Osorio, CEO, Lloyds “As previously announced, we continue to

explore with our regulators the advantage of becoming a ring-fenced bank ahead of quarter results include an additional provision of $800 million in relation to the ongoing US anti-money laundering Bank Secrecy Act and Office of Foreign Assets Control investigations. We're actively engaged in discussions with the US authorities to try to reach a resolution, but there is not yet an agreement.”

Management commented on multiple country-level regulatory issues, including French banking reforms, ring-fencing proposals, the establishment of Spain’s bad bank and OTC derivatives rules in the US.

• France

p g g g gregulatory requirements, which should give us a relative competitive advantage in relation to capital in the future.”

• Stephen Hester, CEO, RBS: “The UK authorities remain at the hawkish end of global authorities on bank regulation and capital. ...There are regulatory pressures on us and all banks to be more conservative still faster.”

• US• Jamie Dimon, CEO, JPMorgan Chase: “The rules for collateral — for liquidity — are

t it l t Cl i h b th t it d i k d 'France• Lars Machenil, CFO, BNP Paribas: “With respect to French banking reform, which is

also due before year end, I think you know as much as I do. From what I see, it has always been articulated as separating speculative activities, which has always been clearly stated by [President François] Hollande.”

• Bertrand-Pierre Delpit, CFO, Credit Agricole: “We are at the very early stage of the discussions in the French environment, where you know we will have a specific regulation ahead of the European one. ...We would like the regulatory reform not to damage market-making, which is, of course, key for the bank and for our clients.”

not quite clear yet. Clearinghouses are both opportunity and risk, and so we're building the system so we can provide cross collateral for clients and ease of transactions and cheap transactions for clients.”

• Harvey Schwartz , Global Securities Co-Head, Goldman Sachs: “As you know, we've been big supporters of clearing. We think it's fundamental to systemic risk reduction. So we've been big proponents, moving clearing forward as quickly as possible.”


da age a et a g, c s, o cou se, ey o t e ba a d o ou c e ts

Key themes overview: cross-border commentary reflects where banks are in the “repositioning” cycle

Key theme: 6

banks are in the repositioning cycleDiscussions about cross border activity varied across regions and reflected individual banks’ progress on positioning for future growth. Commentary on geographical footprints had a distinctly different tone in North America than in Europe and Asia-Pacific. North American banks largely reported on the specific earnings contributions of international divisions. Management did not discuss any shift in

we aim to do is to continue to migrate our lending capacity to areas where we have deposit generation. So it is about moving Commercial Banking origination capability to Belgium and into Germany where there are strengths.”

• Frederic Oudea, CEO, Societe Generale: “In retail outside France, I'm also positive ith th t t d W h i ti l i R i th fi t i f i tcontributions of international divisions. Management did not discuss any shift in

strategies related to expanding into or exiting from overseas markets, which may indicate satisfaction with existing global footprints. In contrast, comments about cross-border presence and activities in Europe and Asia-Pacific reflected banks’ continuing efforts to sharpen their focus on key strategic markets.

• Atsushi Yoshikawa, COO, Nomura: “There are financial institutions that have chosen not to increase their investments and to withdraw from the Asian market. And in the midst of not so many business opportunities, we are studying what business

t iti E d h i t th t i

with the current trend. We have, in particular in Russia, the first signs of improvement behind the hard work we have done in terms of restructuring, refocusing development of key priorities in terms of business, again, cost monitoring.”

• Martin Blessing, CEO, Commerzbank: “We basically promised to refocus our business on our core activities in Germany and Poland, and we have done so. We sold a lot of nonstrategic entities. We sold our business, part of the business in the UK, we've sold part of our businesses in Switzerland and I think it was the right step.”

T N til CFO UBS “[I W lth M t] t iti i llopportunities we can grasp. Even under such circumstances, there are two main points; one is the domestic Asian countries markets that we had not gained foothold into, mainly China, and obtaining licenses in that major market is something that we have been focusing on. And secondly, Japan is the stronghold of Nomura and how we can connect our strength in Japan to expand our Asia business, so Asia including Japan is our mother market.”

• Antony Jenkins, CEO, Barclays: “[Africa] is likely to be the fastest-growing region of the world over the coming decade. ...I also believe that we are very well positioned in

• Tom Naratil, CFO, UBS : “[In Wealth Management] net new money was positive in all regions, with strong contributions from APAC, emerging markets and ultrahigh net worth globally. Annualized net new money growth at 3.9% remained within its target range. Our client advisor headcount increased slightly with improvements in our strategic growth regions and our home market of Switzerland.”

Banks with a strong emerging markets presence, including Banco Santander, BBVA, Citigroup, Goldman Sachs, HSBC and Standard Chartered, remain strongly committed to these regions, reflecting Unicredit CEO Federico Ghizzoni’s observation that, “It isg y p

Africa. We're the largest bank on the continent. We have substantial franchises in countries like Kenya, Zimbabwe, Botswana and South Africa. We've been there for many years, in some cases over 100 years. And as such, we are seen as much as a local bank as an international bank. So when you put those two things together, Africa is a very interesting strategic opportunity for the Barclays Group.”

• Stephen Hester, CEO, RBS: “The reason that [US-based] Citizens has always been a part of our base case for the ongoing Core of RBS is no different than it was a few

A d th t i t th t thi k it' d b i th t it b i bl

to these regions, reflecting Unicredit CEO Federico Ghizzoni s observation that, It is important today to have a diversified geographical presence and to be present in emerging markets like Central Eastern Europe.”

• Vikram Pandit, Former CEO, Citigroup: “Our unique footprint [in emerging markets] gives us a meaningful competitive advantage.”

• David Viniar, CFO, Goldman Sachs: “In the medium term, we think that — although it will be far from a straight line up —the growth markets continue to provide very good medium- to long-term opportunities for the firm.”years ago. And that is to say that we think it's a good business, that it can be variable

to our shareholders, that it will pass both customer safety and soundness and shareholder value test. And it happens that not being a second-best Lloyds, i.e. every single egg in one economy, but where we don't have the dominant market shares that Lloyds have, that it's to our shareholders' interest for us to have a slightly better business balance. But the US economy, as we know, tends to grow faster than UK. It's more fragmented in the banking industry, so you have better growth opportunities organically and in other ways. And it gives us a business balance with 80% Retail & Commercial onl 20% in estment banking that a n mber of o r larger competitors

medium to long term opportunities for the firm.

• José Antonio Álvarez , EVP of Finance, Banco Santander: “You can see a good balance of mature and emerging markets. 55% of our profit come currently from emerging markets. And Brazil is, of course, the main contributor, with 26% of our profit; and Mexico, the second; and Chile and Poland with 5% each. Spain represents 16% of the profit, the UK 13% and the US around 10%.”

• Angel Cano Fernandez, COO, BBVA: “China CITIC Bank is a strategic investment. We're investing in a strong growth market which will continue to grow over the next few


Commercial, only 20% investment banking that a number of our larger competitors would much prefer than the balance they've got.”

• Patrick Flynn, CFO, ING: “Our core strength is the ability to generate deposits. What

We re investing in a strong growth market which will continue to grow over the next few years. And definitely, it would have to have a complete change of strategy to change our approach to that.”

Key themes overview: asset sales support refocused strategies and help banks adapt to environment pressures

Key theme: 7.1

and help banks adapt to environment pressuresIn 3Q12, few banks made acquisitions, but many discussed asset sales. During 3Q12, a number of banks reported on asset sales that supported a range of objectives:• The run-down of non-core and legacy assets;• Efforts to de-risk and reduce risk-weighted assets ahead of the Basel III

implementation period;

we've either sold or negotiated to sell the largest RWA positions in the portfolio. As a result, we expect the rate of reductions on the original legacy to slow to around CHF 10 billion a year as we work through the remaining items.”

• Stuart Gulliver, CEO, HSBC : “We have continued to make significant progress in f S Cimplementation period;

• Refocusing of businesses on core activities, clients and markets; and• Compliance with regulatory restructuring agreements made in the wake of financial

crisis bailouts.The few acquisitions that did occur during 3Q12 took place primarily in North America. These included:• CIBC’s acquisitions of Griffis and Small and MFS McLean Budden;• State Street’s purchase of Goldman Sachs Administrative Services;• Morgan Stanley’s purchase of an additional 14% of the Morgan Stanley Smith

delivering our strategy to simplify and restructure and grow HSBC. We've announced eight transactions since 30 June 2012, bringing the total to 24 this year and 41 since the start of 2011. We disposed of 57 branches in upstate New York in the quarter, completing our stated intention to dispose of 195 branches in New York this year. And we've also reclassified $3.7 billion of customer loans and advances net of impairment allowances from our US Consumer Finance portfolios to assets held for sale.”

• Bertrand-Pierre Delpit, CFO, Credit Agricole: “We have made a significant step forward of course including the signature sale of Emporiki but also the adjustmentMorgan Stanley s purchase of an additional 14% of the Morgan Stanley Smith

Barney (MSSB) joint venture;• BNY Mellon’s purchase of a 50% stake in West LB Mellon Asset Management; and• RBC’s acquisition of its remaining stake in the RBC Dexia Investor Services venture.

While well-capitalized banks acknowledged they had the flexibility to consider strategic acquisitions, many expressed a preference for using capital to support organic growth. Strategic divestments and asset sales were the primary focus of discussions in 3Q12.

• Vikram Pandit, Former CEO, Citigroup: “We also made progress winding down Citi H ldi [S t b ’ ] i t M St l S ith B h i

forward, of course, including the signature sale of Emporiki but also the adjustment plan and also other actions to refocus our activities on our core businesses.”

• Frederic Oudea, CEO, Societe Generale: “This third quarter is an additional significant step in the group transformation. With, in particular, as you've seen, first of all, the announcement of disposals, the signing of [the deals to sell] Geniki and TCW Group, and of course the signing of Geniki means no more risk in Greece going forward.”

• Bruce Van Saun, Group Finance Director, RBS: “We were disappointed at Santander's decision [to withdraw from the deal to buy 316 branches] but certainly we haveHoldings. [September’s] price agreement on Morgan Stanley Smith Barney has given

us more certainty on our exit. Citi Holdings assets were reduced by $20 billion in the quarter, and now total $171 billion or 9% of our balance sheet. Holdings assets are down 31% from the end of third quarter of 2011.” Nevertheless, CFO John Gerspach later cautioned that further asset sales may proceed at a slower pace: “The ability to sell requires willing buyers. And the biggest stumbling block, I think, that we've got right now from a buyer's point of view would be liquidity. ...There just aren't a great deal of big national buyers in the market right now.”

decision [to withdraw from the deal to buy 316 branches], but certainly, we have worked very, very hard to comply with the divestiture timeline. And in everything else that was part of the agreement with the European Commission (EC), we've met or exceeded expectations. So certainly, the divestiture around WorldPay, around the Sempra Commodities joint venture, in terms of Direct Line Group and being on track to deliver that, we've got all ticks there. ...We've started a new process around [the branch sale]. We are engaged in an active sales process now. We have interest in the business.”

J H CEO ING “W h i d k d h• Brady Dougan, CEO, Credit Suisse: “As it relates to strategic divestments in Asset Management, in addition to the sales of select private equity businesses previously announced in July, we have decided to pursue the sale of our exchange-traded funds (ETF) business. However, we remain committed to the Asset Management business going forward. We have no further plans for the divestment of other businesses.”

• Tom Naratil, CFO, UBS: “We've had great success in reducing the positions in our original legacy portfolio ahead of schedule in a cost-efficient manner. As of today,

• Jan Hommen, CEO, ING: “We have continued to make good progress on the European Commission restructuring program. We have announced the first three sales of our Asian Insurance units, and our US organization is preparing to file a registration statement with the SEC.” He later noted, “ING Bank continues to deliver on its strategic priorities. We did sell our equity stake in Capital One. We announced the divestments of ING Direct Canada and the UK as part of sharpening our strategic focus.”


Key themes overview: slowing loan demand evident acrossall regions

Key theme: 7.2

all regionsA combination of muted loan demand and strict lending requirements pressured loan growth. Lending growth trends in 3Q12 were mixed, as lenders reported a slowdown in demand and highlighted their own efforts to be selective about borrowers. In addition, some banks are deliberately shrinking loan balances as part of broader efforts to reduce their balance sheets. At a number of banks, management specifically

selective, maybe also sacrificing some internal revenue. But in a moment like this one, quality is first.”

• Bruce Thompson, CFO, Bank of America: “While we want to make loans, the loans that we make have to make economic sense and have to have the returns on capital th t i t t ith h ' t ki th b i ” CEO B i M ih t defforts to reduce their balance sheets. At a number of banks, management specifically

stated that they would not alter pricing strategies or loosen underwriting standards simply to increase balances.

• Alfredo Egydio Setubal, EVP and Investor Relations Director, Banco Itau: “Probably, by the second quarter of 2013, our credit portfolio will start to grow in pace with the market or depending on the economy conditions and the scenario that we foresee. At that moment, it would be even higher than the market. But I see second quarter and ahead, as the time that the portfolio will grow at least in the same level of the market.”

that are consistent with where we're taking the business.” CEO Brian Moynihan noted separately, “We're not going to go reach for credit just to grow the business.”

• J. David Williamson, Group Head of Retail & Business Banking, CIBC: “We said expect single-digit drops in our overall mortgage balances on the balance sheet. How we're doing it is sensible. We're focused on our client. We're increasing how we service our clients, so the mobile advisers have been growing, and that's facilitated our CIBC-branded growth. And we're not reaching for it, right? You can see our net interest margins are expanding, so we're not trying to reach for that growth by taking

• Iain Mackay, Group Finance Director, HSBC: “Reported loans and advances to customers increased by $26.1 billion in the quarter. ...Residential mortgage balances continued to grow strongly in the UK, Hong Kong and in the Rest of Asia-Pacific. Higher demand for credit and targeted lending activity focused on capturing international trade and capital flows led to a rise in customer advances in Commercial Banking Hong Kong and in the Rest of Asia-Pacific. Lending, Commercial Banking and Global Banking and Markets customers in North America also increased, reflecting our strategic investment in target segments.”

interest margins are expanding, so we re not trying to reach for that growth by taking lower prices.”

• Cameron Clyne, CEO, NAB: “Credit continues to grow in Australia at a rate below 5%, which is lower than our expectations of long-term trends, but still ahead of other regions.”

2.8%3.0%

TDRBC

End-of-period loans, percent change from 2Q12

g g g

• Stephen Hester, CEO, RBS: “We would like to increase our lending, both in Retail and in Commercial. We're resolved to do it, we'd like to do it. And we'll serve our customers better and make more money if that's what happens. However, we can't force people to borrow if they don't want it, and we shouldn't be thrusting money at people who may not pay us back. And so the macro lessons of the past are that lending growth does not front-run economic recovery; economic recovery front-runs lending growth.”

• Lars Machenil, CFO, BNP Paribas, “Loans going down is, for a big part, driven by the 0.5%0.8%0.9%1.0%1.0%1.1%

1.3%1.4%1.4%1.5%

2.7%8%

C CIBCUCG ITAU USBWFCAXPCS

UBSBBVA HSBC

, , , g g , g p , yde-leveraging. So that part should basically be over. As we said, it's done. We take no prisoners. We move on. So you should anticipate that the strong decrease that you have seen is not something you should extrapolate going forward.”

• Federico Ghizzoni, CEO, Unicredit: “If we talked about loans, well, we have seen a poor demand starting from summer. We will see if demand will come back or not. I'm not expecting anything exceptionally good looking forward. But clearly, good loans, we are available to do it and they must be good enough in term of risk. They must be

d h i t f i I thi t I' t d t i i t 3 2%-3.2%

-2.7%-2.4%

-1.7%-1.6%-1.6%

-0.7%-0.4%

0.0%0.0%

0.1%

CABNP RBS

CBK DB

LLDSTD JPMBCSINT SG

BAC


good enough in term of price. In this moment, I'm not prepared to compromise in terms of quality of lending and in terms of price of our lending. So we will continue to be very -5.9%

-3.2%INGCA

Key themes overview: credit quality and cost of risk are largely stable but at risk of deterioration

Key theme: 9

stable, but at risk of deteriorationAsset quality and cost of risk have not shown signs of marked deterioration in most countries thus far. In 3Q12, most banks reported further improvement — or at least stabilization — of credit quality indicators and cost of risk. Banks with significant lending operations in peripheral Eurozone countries such as Spain and Italy were the exception. Management in all regions are closely monitoring credit trends in their

• Bertrand Badre, CFO, Societe Generale: “On the cost of risk... So far, it's stable, which I think is a good news. We, of course, remain cautious looking forward given the economic environment in the various zones where we are operating. But so far, it's stable. It's stable in France. It's decreasing in our international retail, especially with a decrease in Russia.”exception. Management in all regions are closely monitoring credit trends in their

portfolios as economic growth falters, but banks operating in stronger economies are confident that efforts over the past years to strengthen portfolio quality will protect them against a severe deterioration .

• Stuart Gulliver, CEO, HSBC: “Over the last 20 months, we have changed our credit policy and our credit risk appetite. Whether I would be as bold as to ascribe it as a step change we'll only know after the event looking backwards. But we absolutely have consciously moved away from unsecured Consumer Finance, unsecured SME type of l di A d ' l ti ht i t f th bi Gl b l B ki li t th t

decrease in Russia.

• Lars Machenil, CFO, BNP Paribas: “Our strict risk management approach allowed us to keep the group's cost of risk at the low level of 55 basis points compared to the customer loans. This is only slightly higher than what we saw in the previous quarters, when we exclude Greece.”

• Enrico Cucchiani, CEO, Intesa Sanpaolo: “The credit environment as you can see is deteriorating. The inflow of substandard loans has increased by 37% and the inflow of doubtful loans by 26%. We have addressed this negative development verylending. And we're also very, very tight in terms of the big Global Banking clients that

we bank.”

• Richard Davis, CEO, US Bancorp: “When the recession started last time, there was a different quality of customers that had loans from banks. And as you think about it five years later, a very high quality of customers are now remaining in the bank portfolios that either haven't been charged off or, in fact, haven't been originated. So I do think [the fiscal cliff] would be a lagging effect [on consumer credit quality], certainly would be a negative effect, but I don't think it would be immediate. And I think you'd once

doubtful loans by 26%. We have addressed this negative development very aggressively by increasing our provisions by almost 50%, which should give us a very comfortable safety margin going forward.”

• Federico Ghizzoni, CEO, Unicredit: “The problem for us is in Italy, where we have 188 basis points of cost of risk. Different picture in Germany, in Austria, both at 48 and also a very positive trend in Central Eastern Europe with 118 basis points. So again Italy is the issue. ...Italy is the most critical country.”

• Spanish banks’ loan loss provisions increased significantly due to requirements ing , yagain see the nuances of credit quality in each bank's portfolio as they would be stressed at different speeds and different depths based on the recession.”

• Vikram Pandit, Former CEO, Citigroup: “The quality of our portfolio is very strong. We are an urban lender. We have a more affluent portfolio. It's diversified.”

• Richard Meddings, Group Finance Director, Standard Chartered: “We have a very proactive management of risk exposures. ...One of the key indicators to us, particularly just around secured growth is unemployment level. So I think as long as you're seeing

Spanish banks loan loss provisions increased significantly due to requirements in Royal Decree Laws 02/2012 and 18/2012 to set aside a significant amount of loan-loss provisions against impairments in the Spanish real estate sector.• Alfredo Sáenz Abad, CEO, Banco Santander: “Second, provision for real estate risk

in Spain in the quarter was €2.23 billion, bringing the provisions made in the year to over €5 billion. After this, we are meeting 90% of the requirements of the new Royal Decree. And we've increased total coverage for doubtful loans in Spain, not just real estate, up to 65%, which is 19 percentage points higher than in September 2011.”

• Ángel Cano Fernandez, COO, BBVA: “ So with this volume of provisions [€2.9 j g p y g y gacross our economy in the Consumer Bank, underlying GDP growth and low levels of unemployment, then I think we have a high degree of confidence. If unemployment starts to rise, then I think you would see us tighten on underwriting criteria really quite quickly.”

g , , p [billion], in line with the plan that we launched at the beginning of the year, we've already covered two-thirds of the requirements for real estate exposure provisions, with just over €1.5 billion left for the rest of the year.”


Key themes overview: banks strengthen balance sheets and diversify funding sources

Key theme: 10

diversify funding sourcesBanks’ success in obtaining sufficient funding was attributed to adaptation efforts. During the 3Q12 earnings season, management at a number of banks highlighted their ability to obtain funding through a variety of sources, and in some cases, to start pre-funding 2013 requirements. Market conditions have eased considerably since 3Q11, leading to reduced concerns about access to the capital

funding sources. As a consequence of our lower funding needs, our debt issuance activity will be markedly reduced. We've also built selective repurchases of our debt into our planning assumptions, which will reduce our costs even further.”

• Chris Lucas, CFO, Barclays: “We've met our funding needs for the year, and any f th d bt i ill f d 2013 i t O t iti i 2013 f £18considerably since 3Q11, leading to reduced concerns about access to the capital

markets. In addition, management at several banks attributed their improved funding positions to the successful execution of strategies to diversify funding sources and reduce balance sheets.

• Ruth Porat, CFO, Morgan Stanley: “In terms of funding, as I've said on many quarterly calls, the strategic moves that we've been making are benefiting our funding costs and our requirements. For example, the growth of the deposit base, which is fairly consistent with our ongoing growth of the Wealth Management business funds both

t d t il l b k d dditi l d t i th b k A d

further debt issuance will prefund our 2013 requirement. Our maturities in 2013 of £18 billion are much lower than this year. As you know, our Retail Banking, Corporate Banking and Wealth businesses are largely funded by customer deposits and customer loan-to-deposit ratio for these businesses was 104%, down from 106% at the end of June.

• George Culmer, Group Finance Director, Lloyds: “In the third quarter we have taken further action to manage and strengthen the balance sheet. Strong deposit growth and the reduction in non-core assets have helped us drive a £65 billion reduction inour corporate and retail loan books and additional products in the bank. And as we

increase funding with deposits, we reduce reliance on our unsecured funding. ...So in the aggregate, as a result of the strategic move, which is why I keep anchoring it back to that, the strategy is actually yielding multiple benefits. We've reduced our funding requirements, we've increased the durability of our funding because we have more efficiency given the multiple funding sources.”

• Nicholas Moore, CEO, Macquarie Group: “From a funding viewpoint, we have kept ourselves well-funded, and we have also funded ourself through term funding rather

the reduction in non core assets have helped us drive a £65 billion reduction in wholesale funding in the first nine months, £52 billion of which was in short term wholesale funding. Maturities of less than one year are now only 33% of our wholesale funding compared with 45% at the start of the year, and 50% in 2010.”

• Lars Machenil, CFO, BNP Paribas: “[We] have ample liquidity. And this is also apparent if you look at the update on our 2012 medium- and long-term funding program, which we closed in mid-October, having raised €34 billion in total. With this amount, we went beyond initial estimates in order to capitalize on market

t iti S th t b i ll l d f thi d, g gthan short-term funding, obviously, which is expensive. Now in terms of our term funding buybacks, yes, we will continue with that. Even though the world is obviously a lot calmer today than it was one year ago or perhaps the last few years, I don't think anyone thinks the world is in a relaxed frame of mind just yet.”

• National Australia Bank CEO Cameron Clyne said, “The improvement in market conditions in the half meant we were able to achieve our funding plan for the year and also prefund a proportion of next year's requirement.” He also noted, “Funding costs h ti d t i th h t th d hil t ' t t bilit

opportunities. ...So that basically means we are now closed for this year, and any funding from now on will be prefunding for the 2013 funding program.”

• Bertrand Badre, CFO, Societe Generale: “On the balance sheet, we have benefited from two things. On the one hand, our own efforts; so we've been working actively on restoring the solidity of the balance sheet; on the other hand, we have also benefited from the environment. So, the both combined have allowed us to raise €20 billion of medium and long-term money so far this year; with I think something very important not only because of the money, which is a concern but also from the symbolic have continued to rise throughout the year and whilst we've seen some recent stability

in the pricing of wholesale funding and term deposits, we continue to see a higher average cost of funds and a shift in the mix to higher cost deposit funding. We have repriced where we can, but have not fully recovered this rising cost and have seen pressure on margin throughout the year.”

• Tom Naratil, CFO, UBS: “In the future, over half of our funding will come from customer deposits, which are more stable and typically less expensive than most other

y y, yperspective.”

• Federico Ghizzoni, CEO, Unicredit: “The funding plan has been completed. We are now working on 2013, we've done 120% of Italian funding plan. We are pretty satisfied of the successful execution of the plan. We never experienced problems getting money from the market. All the time the demand has been much higher compared to our offering in all the diversified products that we have requested from the market.”



A diAppendix


Summary of key banking sector themes: 3Q12 earnings season

The tables on the following pages provide a summary of the top 10 themes.

Top initiatives and issues (arranged from most t l t ) AXP ITU STD BAC BK BCS BBVA BNP CIBC C CBK CA CS DB GS HSBC INGcommon to least common)

Responses to the macro-environment 34 Capital issues 34 Expense trends/investments in the business 34 Drivers of earnings performance 34 Regulatory issues 33 Cross-border activities 31 M&A strategies 28 M&A strategies 28 Lending trends 28 Credit quality trends 27 Funding strategy and liquidity management 25

LegendAXP — American Express ITU — Banco Itau STD — Banco Santander BAC — Bank of America BK — BNY Mellon BCS — Barclays BBVA — Grupo BBVA BNP — BNP ParibasCIBC — Canadian Imperial Bank of Commerce C — Citigroup CBK — Commerzbank CA — Credit Agricole

(continued on next page)


CS — Credit Suisse DB — Deutsche Bank GS — Goldman Sachs HSBC — HSBCING —ING Groep

Summary of key banking sector themes: 3Q12 earnings season continued

Top initiatives and issues (arranged fromt t l t ) INT JPM LLD MAC MS NAB NOM RBC RBS SG STAN STT TD UBS UCG USB WFCmost common to least common)

Responses to the macro-environment 34 Capital issues 34 Expense trends/investments in the business 34 business

Drivers of earnings performance 34 Regulatory issues 33 Cross-border activities 31

M&A strategies 28 Lending trends 28 Credit quality trends 27 Funding strategy and liquidity management 25

LegendINT — Intesa Sanpaolo JPM — JPMorgan Chase LLD — Lloyds Banking Group MQG— Macquarie GroupMS — Morgan Stanley NAB — National Australia Bank NOM — Nomura RBC — Royal Bank of CanadaRBS — Royal Bank of Scotland SG— Societe Generale STAN — Standard Chartered STT — State Street

g


TD — Toronto Dominion UBS — UBS AG UCG — Unicredit Group USB — US BancorpWFC — Wells Fargo

Select KPIsTotal

Market Value

(US$m)Assets (US$m) ROA ROE

Total Shareholder's

Equity (US$m)

Capital ratio

Basis of Calculation for Capital Ratio

American Express 60,026.49$ 152,873.00$ 3.34 26.81 19,478.00$ 12.7 Basel I Tier 1 common ratioBanco Itau 62,528.12$ 432,626.76$ 1.65 19.50 36,887.86$ 12.2 Basel IIBanco Santander 73,837.30$ 1,670,367.94$ 0.21 3.33 108,343.93$ 10.4 Basel II core capital ratioBank of America 97,972.73$ 2,166,162.00$ 0.25 2.32 238,606.00$ 11.4 Basel I Tier 1 common ratioBank of China 121,649.74$ 2,026,860.86$ 1.16 18.06 131,648.85$ n/a n/a,$ , ,$ ,$Bank of New York Mellon 27,544.07$ 339,944.00$ 0.71 6.57 37,139.00$ 13.2 Basel I Tier 1 common ratioBarclays 46,445.21$ 2,578,215.24$ 0.00 0.00 102,713.42$ 11.2 Basel 2.5 core tier 1 ratioBBVA 43,061.81$ 828,930.84$ 0.35 5.09 56,185.71$ 10.8 Basel 2.5 core tier 1 ratioBNP Paribas 63,638.90$ 2,560,324.92$ 0.00 0.00 120,232.45$ 11.4 Basel 2.5 common equity tier 1 ratioCIBC 31,012.42$ 400,469.37$ 0.90 20.39 16,984.07$ 14.1 Basel II Tier 1 capital ratioCitigroup 103,254.06$ 1,931,346.00$ 0.39 4.11 188,738.00$ 12.7 Basel I Tier 1 common ratioCommerzbank 9,755.38$ 867,606.76$ 0.16 4.38 35,462.66$ 12.2 Basel 2.5 core tier 1 ratioCredit Agricole 17,889.73$ 2,284,779.11$ -0.14 -4.42 64,185.84$ 11.3 Basel 2.5 core tier 1 ratioCredit Suisse 29,038.00$ 1,087,382.31$ 0.07 1.78 45,515.70$ 14.7 Basel 2.5 core tier 1 ratioDeutshe Bank 39,706.86$ 2,806,968.47$ 0.13 5.44 73,727.61$ 10.7 Basel 2.5 core tier 1 ratioGoldman Sachs 56,115.38$ 949,207.00$ 0.59 7.63 75,026.00$ 13.1 Basel I Tier 1 common ratioHSBC 135,803.25$ 2,721,061.00$ 0.54 11.18 179,764.00$ 11.7 Basel 2.5 core tier 1 ratioIndustrial and Commercial Bank of China 217,755.32$ 2,762,851.09$ 1.42 23.28 171,020.45$ n/a n/aING Groep 32,594.30$ 1,602,897.32$ 0.06 1.41 73,071.34$ 12.1 Basel 2.5 core tier 1 ratioIntesa Sanpaolo 25,478.55$ 844,795.59$ -1.26 -15.21 61,679.66$ 11.1 Basel 2.5 core tier 1 ratioJP Morgan Chase 149,737.21$ 2,321,284.00$ 0.84 10.12 199,693.00$ 10.4 Basel I Tier 1 common ratioLl d 50 915 17$ 1 525 520 35$ 0 14 3 03 74 055 62$ 11 5 B l 2 5 ti 1 tiLloyds 50,915.17$ 1,525,520.35$ 0.14 3.03 74,055.62$ 11.5 Basel 2.5 core tier 1 ratioMacquarie Bank 10,615.85$ 162,913.62$ 0.49 7.01 11,931.52$ 13.3 Basel II Tier 1 capital ratioMitsubishi UFJ Group 62,040.36$ 2,807,050.77$ 0.01 0.13 152,354.71$ n/a n/aMizuho 37,297.49$ 2,126,070.94$ 0.30 7.44 86,684.34$ n/a n/aMorgan Stanley 32,102.45$ 764,985.00$ -0.03 -0.35 69,472.00$ 13.7 Basel I Tier 1 common ratioNational Australia Bank 53,888.70$ 791,792.48$ 0.54 9.50 45,450.58$ 10.3 Basel II Tier 1 capital ratioNomura 13,698.44$ 454,414.21$ 0.18 2.71 30,651.52$ 13.1 Basel 2.5 common equity tier 1 ratioRabobank -$ 977,242.82$ 0.29 4.76 57,322.68$ n/a n/aRoyal Bank of Canada 79 355 11$ 823 282 57$ 0 91 16 25 44 864 43$ 13 Basel II Tier 1 capital ratioRoyal Bank of Canada 79,355.11$ 823,282.57$ 0.91 16.25 44,864.43$ 13 Basel II Tier 1 capital ratioRoyal Bank of Scotland 49,299.50$ 2,219,901.65$ -0.34 -6.56 119,134.22$ 11.1 Basel 2.5 core tier 1 ratioSociete Generale 24,150.98$ 1,645,797.21$ 0.14 3.40 68,580.24$ 10.3 Basel 2.5 core tier 1 ratioStandard Chartered Bank 55,144.22$ 624,431.00$ 0.88 12.38 42,934.00$ n/a n/aState Street 20,516.63$ 204,522.00$ 0.95 9.76 20,749.00$ 17.8 Basel I Tier 1 common ratioToronto Dominion 71,882.81$ 805,195.99$ 0.87 13.82 48,002.20$ 12.2 Basel II Tier 1 capital ratioUBS 56,817.13$ 1,454,822.22$ -0.02 -0.57 60,399.97$ 18.1 Basel 2.5 core tier 1 ratioUniCredit 25,265.86$ 1,210,559.36$ -0.97 -13.75 81,734.23$ 10.7 Basel 2.5 core tier 1 ratioUS Bancorp 58,686.38$ 352,253.00$ 1.60 14.70 39,825.00$ 9 Basel I Tier 1 common ratio


p , , ,Wells Fargo 166,193.10$ 1,374,715.00$ 1.36 12.36 156,059.00$ 10.1 Basel I Tier 1 common ratio

Source: Capital IQ, accessed 16 November 2012; Market value, assets and shareholder’s equity as of 15 November 2012; ROA and ROE obtained on an LTM (last twelve month) basis as of 30 September 2012; Capital ratio “as reported” by banks


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