Beruflich Dokumente
Kultur Dokumente
16 July 2011
European Banks
The Stress Test converted into JPM Acid Test: Capital raising inevitable
The EBA stress test result is of limited value to us, as a) the sovereign banking book exposures are not fully stressed, and b) it is based on a relatively low 5% min Basel 2 Core Tier I. However, it offers transparency with excellent new input data, especially in respect to sovereign risk and credit exposure at risk. Hence, using EBAs input data, we run a JPMe Acid test for 27 banks on Basel 3 Common Equity Tier I incl. haircuts on sovereign banking book exposures. In our acid test, 20 banks would fall below JPM 7% hurdle rate resulting in 80bn of capital deficit, split 25bn for UK banks, 20bn for French banks, 14bn for German banks, 9bn for Italian banks, 4bn for Spanish banks, 4bn for Portuguese banks and 4.5bn for Austrian banks. Comparability of results across jurisdictions is questionable in our view. The EBA stress test is a disappointment for Spanish banks, with credit losses assumptions lower than 2010 and falling exposures to real estate questioning the tests validity. On the other hand, we find EBAs stressed earnings assumptions conservative for French, German and UK banks. EBA stress test II is yet again an opportunity missed for EU member states encouraging banks to raise equity as Basel 3 ratios remains low at just avg. 6.6% 2012E in our JPM Acid Test, in our view. We remain worried about the secondary effect of the sovereign crisis into funding with two key issues i) short-term $ funding, and ii) one-way CSA with a sovereign as discussed in Sovereign risk concerns- capital and funding at risk. Funding is the key concern, and without stress liquidity assumptions, the picture remains incomplete, especially in current market conditions. We continue to prefer banks with solid capital position, limited sovereign haircut risk, and limited short-term funding profile. In a global context, we believe US banks will outperform Europeans at similar valuations but better capitalized and market confidence in BVs. We believe credit banks continue to have higher long-term earnings at risk compared to equity-geared IBs. We continue to prefer UBS as our global top IB pick with IB restructuring potential and limited sovereign risk exposure with B3 CT1 12.1% 2012E. Our additional top picks are defensive with Swedbank and HSBC. Our default core Europe pick is BNPP although we see some short term pressure on capital levels and short term funding. ISP is our preferred sovereign pick, considering capital position and funding. We remain cautious on Spain, UK domestic and German Banks.
Table 1: European banks Summary Valuation (local currency)
UBS BNP HSBC Swedbank ISP Rec OW OW OW OW OW Price 13.7 45.28 599 100.9 1.58 TP 20 65 900 128 3.1 EPS 2011E 1.74 6.90 0.99 11.72 0.24 EPS 2012E 2.15 7.50 1.22 12.46 0.26 NAV*/Sh. 2011E 10.8 45.5 711 79.6 2.4 NAV*/Sh. 2012E 13 50.7 774 85.0 2.6 RoNAV*2012E 18.0% 15.6% 16.9% 14.4% 10.5% Basel 3 CT1 12E** 12.1% 8.5% 9.3% 13.7% 9.4%
Delphine Lee
(44-20) 7325-3971 delphine.x.lee@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780 amit.x.ranjan@jpmorgan.com
Jaime Becerril
(44-20) 7742-6449 jaime.becerril@jpmorgan.com
Eugenio M Cicconetti
(44-20) 7325-8215 eugenio.cicconetti@jpmorgan.com
Paul Formanko
(44-20) 7325-6028 paul.formanko@jpmorgan.com
Rohit Nigam
(44-20) 7325-0803 rohit.z.nigam@jpmorgan.com
Axel J Finsterbusch
(44-20) 7325 9021 axel.j.finsterbusch@jpmorgan.com J.P. Morgan Securities Ltd.
Source: J.P. Morgan estimates. Bloomberg (14th July 2011 COB.) * ex own debt. ** Basel 3 estimates pre acid test assuming no phasing of capital deductions
See page 25 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.morganmarkets.com
Source: J.P. Morgan estimates. EBA. CET1- Commoan equity tier 1. Note: Basel 3 Common Equity Tier I ratios assuming no phasing of capital deductions. Socit Gnrale: our starting Basel 3 Common Equity of 7.5% excludes a) the 1.2bn positive impact from paying 2012e dividends in shares mid-2013, and b) the positive impact from additional mitigation initiatives with the group targeting 9% Common Equity Tier I end 2013 including at least 50bp of additional mitigation.
Source: J.P. Morgan estimates. Note: Basel 3 Common Equity Tier I ratios assuming no phasing of capital deductions. Socit Gnrale: our starting Basel 3 Common Equity of 7.5% excludes a) the 1.2bn positive impact from paying 2012e dividends in shares mid-2013, and b) the positive impact from additional mitigation initiatives with the group targeting 9% Common Equity Tier I end 2013 including at least 50bp of additional mitigation.
Source: J.P. Morgan estimates. Note: Basel 3 Common Equity Tier I ratios assuming no phasing of capital deductions. Socit Gnrale: our starting Basel 3 Common Equity of 7.5% excludes a) the 1.2bn positive impact from paying 2012e dividends in shares mid-2013, and b) the positive impact from additional mitigation initiatives with the group targeting 9% Common Equity Tier I end 2013 including at least 50bp of additional mitigation.
EBA Stress Test: 8 banks fail to reach 5% Core Tier 1 under adverse scenario pre mitigating measures
Only 8 banks failed to reach the 5% core Tier 1 ratio required to pass under the EBA stress test methodology as shown in Table 4 . Of these 5 banks are in Spain, 2 in Greece and 1 in Austria. Total capital required for these 8 banks to reach 5% Core Tier 1 ratio is 2.5bn under the EBA stress test methodology.
Table 4: 8 banks fail to reach 5% Core Tier 1 ratio under adverse scenario, pre mitigating measures
%, millions Bank Country Core Tier 1 ratio under adverse Scenario 4.5% 4.9% -0.8% 4.8% 3.3% 4.5% 4.0% 3.0% Capital required to reach 5% Core Tier 1 160 58 713 75 317 85 140 947 2,495 Supervisory recognised capital ratio after additional taken or planned mitigating measures 9.8% 7.6% 6.0% 6.3% 5.6% 6.2% 6.6% 5.1%
OESTERREICHISCHE VOLKSBANK AG EFG EUROBANK ERGASIAS S.A. AGRICULTURAL BANK OF GREECE S.A. (ATEbank) CATALUNYA CAIXA PASTOR UNNIM GRUPO CAJA3 CAJA DE AHORROS DEL MEDITERRNEO Total Capital required
Source: EBA 2011 Stress test documents
Table 5: Haircut assumptions for sovereign banking book exposures in our analysis
% CDS implied haircuts* 32% 22% 23% 10% 8% Haircuts used in our analysis 40% 30% 30% 10% 10%
Source: J.P. Morgan estimates.* CDS implied haircuts assuming 40% recovery rate and 60% implied premium to expected default rate
Methodology employed within the JPM Acid test We adjust our current 2012 Basel 3 core capital to incorporate for the difference between our estimates and those provided under EBA adverse scenario - for pre1
EBA stress test are based on a static balance sheet assumption, whilst JPM forecasts are based on a dynamic balance sheet assumption
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provision income and impairment charges. Whilst comparing JPM and EBA figures, we incorporate the more conservative numbers, i.e. taking the lowest figure for preprovision income and highest figure for impairment charges. In addition to these adjustments, we also incorporate for haircuts on peripheral sovereign portfolio. We illustrate our stress test methodology in the following table
Table 6: JPM stress test methodology- Adjustments to current Basel III core tier 1
Adjustment 1- Pre provision income Adjustment 2- Impairment Charges Adjustment 3- Banking book haircut Adjustment 4 JPM 12E Stress Basel III CET1 capital JPM 12E Stress Basel III CET1 ratio
Source: J.P. Morgan.
= JPMe 11-12 cumulative pre-provision profits - Minimum (EBA 11-12 adverse scenario pre-provision profits, JPMe 11-12 cumulative pre-provision profits) = JPMe 11-12 impairment charges - Maximum (EBA 11-12 adverse scenario 2 year cumulative losses on banking and trading book, JPMe 11-12 impairment charges) = JPM calculated haircut on sovereign exposure in banking book Tax = tax rate x (Adjustment 2- Adjustment 1- Adjustment 3) = JPM 12E Basel III CET1 capital + Adjustment 2 - Adjustment 1 - Adjustment 3 - Tax = JPM 12E Stress Basel III CET1 capital / JPM 12E Basel III RWA
Caveats to our methodology JPM acid test includes our current estimates of dividend payouts for 201112, which may not be feasible in a stressed scenario. We use a uniform haircut based on 5yr maturity for the entire sovereign book. Our method would thus penalize banks which have higher proportion of peripheral bonds in short term maturities. Similarly, our method would understate the impact for banks with higher maturity portfolio. Our acid test does not account for hedging of sovereign portfolio in banking book (via CDS). This is particularly for the case when JPM estimates for pre provision income are lower than EBA figures and impairment charges are higher than EBA (as EBA numbers incorporate hedging impact). We have not included negative impact on AFS reserves from rise in interest rates, as we believe this would double count the impact for peripheral exposures (for which we are assuming a haircut). This limitation however arises for non peripheral exposures, for which haircuts are not assumed. Our methodology uses our current estimates of 2012 Basel III RWA. These estimates do not incorporate for RWA increase from default and migration risks which contribute to RWA increase under EBA adverse scenario.
60,530 34,032 41,729 34,056 7,322 7,457 35,859 24,102 48,188 40,002 102,714 60,527 60,404 30,011 8,604 2,662 5,106 22,767 12,157 9,295 15,017 9,178 14,918 4,234 6,079 11,446 7,282 4,818 3,909
716,010 451,875 522,322 363,842 99,702 100,407 508,851 285,658 595,518 496,726 1,109,414 691,954 651,520 335,982 94,659 32,913 56,741 227,558 92,679 67,737 141,732 76,929 135,972 57,152 72,988 143,803 104,135 48,590 40,072
36,932 20,356 24,158 17,362 3,126 3,182 19,517 9,210 24,699 24,456 57,115 22,902 49,304 22,560 4,190 844 1,903 9,650 3,472 3,472 5,449 3,615 5,589 2,358 2,356 7,963 5,401 2,843 1,407
-18,524 -8,834 -4,891 -5,048 -1,522 -998 -8,923 -5,531 -7,359 -5,359 -31,807 -13,448 -5,610 -2,255 -1,126 -222 -329 -3,191 -1,231 -831 0 0 -1,216 -1,265 -885 -1,943 -1,743
-8,728 -4,009 -8,257 -4,182 -1,285 0 -4,088 -3,578 -2,214 -15,864 -8,177 -12,324 -10,092 -4,401 -3,841 -771 -1,745 -2,864 -1,729 -1,409 -1,754 -1,055 -1,616 -1,305 -1,243 -2,938 -947
-32,232 -14,005 -17,119 -13,709 -3,500 -1,855 -14,158 -11,879 -10,609 -21,227 -40,110 -26,369 -18,940 -8,796 -6,196 -1,051 -2,743 -6,054 -2,984 -2,240 -1,754 -1,055 -2,832 -3,975 -2,662 -5,007 -2,725
37,968 23,948 30,626 25,282 5,071 6,437 26,656 14,955 40,338 24,294 72,174 41,014 46,444 23,462 4,205 1,895 3,049 18,257 9,770 7,565 13,789 8,397 12,737 1,003 3,949 7,526 5,286
5.3% 5.3% 5.9% 6.9% 5.1% 6.4% 5.2% 5.2% 6.8% 4.9% 6.5% 5.9% 7.1% 7.0% 4.4% 5.8% 5.4% 8.0% 10.5% 11.2% 9.7% 10.9% 9.4% 1.8% 5.4% 5.2% 5.1%
-12,153 -7,683 -5,937 -187 -1,908 -592 -8,963 -5,041 -1,348 -10,477 -5,485 -7,423 838 -57 -2,421 -409 -923 2,328 3,282 2,823 3,868 3,012 3,219 -2,998 -1,160 -2,540 -2,004 -79,708
Source: J.P. Morgan estimates EBA. Note: Basel 3 Common Equity Tier I ratios assuming no phasing of capital deductions. Socit Gnrale: our starting Basel 3 Common Equity of 7.5% excludes a) the 1.2bn positive impact from paying 2012e dividends in shares mid-2013, and b) the positive impact from additional mitigation initiatives with the group targeting 9% Common Equity Tier I end 2013 including at least 50bp of additional mitigation.
Country Analysis
German Banks
As per expectations, DBK, and CBK passed the stress test, reaching core Tier 1 ratios of 6.5% and 6.4%, respectively, under the adverse scenario at 31st Dec 2012. However, under the JPM Acid Test scenario, including banking book haircuts on sovereign exposures, DBK and CBK need 9.0bn and 5.0bn of capital, respectively, to reach 7% Basel 3 common equity Tier 1 ratio in 2012E. Deutsche Bank Under the EBA methodology, DB reaches a core Tier 1 ratio of 6.5% as of 31st Dec 2012, in an adverse scenario which is well above the core Tier 1 ratio of 5% required under EBA stress test.
Stress Test assumptions of 10.6bn of pre-provision profits for DB in 2011-12 is very harsh in our view, with DB already having reported pre-provision profits of 3.3bn in Q1 11 alone.
However, under the JPM acid test methodology taking haircuts on the banking book exposure of DB to GIIPS countries, and using Basel 3 RWAs of 509bn under JPMe which factors in the RWA increase from Basel 2.5 and Basel 3 and also gives benefits of mitigation actions as guided by the companies, DB reaches a Basel 3 common equity Tier 1 Ratio of 5.2% in 2012E. This implies DB needs 9.0bn of additional capital to reach 7% Basel 3 common equity Tier 1 ratio in 2012E under the JPM acid test methodology. Please note we only take a haircut on the AFS banking book which is disclosed with the stress test as it is not clear to us how much of the exposure would be HTM. We would like to point out that the EBA stress tests assume 10.6bn of 2 yr cumulative operating profit before impairments in 2011-12 for DB, which looks very harsh in our view with DB having already reported 3.3bn of preprovision profits in Q1 11. We estimate pre-provision profits of 19.5bn in 2011-2012 for DB and thus the low pre-provision profit numbers used by EBA have a major negative impact on our calculation. Impairment losses on banking book under EBA stress tests is 7.9bn for 2011-12 vs. JPMe provisions for loan losses of 3.8bn in our model. Under the EBA stress test methodology, RWAs for DB increase by c.26% to 435bn from RWAs of 347bn in 2010 in the baseline scenario with 85bn of RWAs in the trading book. Under the adverse scenario, RWAs increase further to 500bn which is a 44% increase over 2010 RWAs of 347bn with 110bn of RWAs in trading book. DB also gives detailed sovereign exposures to the different countries. Within the GIIPS countries, DB has 5.3bn of net direct positions in Italy of which 1.2bn is in the trading book. DB has 2.1bn of net direct positions in Spain of which 0.3bn is in the trading book. The sovereign exposures to Portugal and Ireland are relatively very small. Looking at the credit risk exposures, EAD to peripheral countries is also not of concern in our view with limited CRE and Residential mortgage exposure to GIIPS countries. The highest Residential mortgage exposure amongst peripheral countries is to Spain (7.5bn) followed by Italy (6.3bn). In CRE, the highest exposure is to Spain (1.3bn) followed by Italy (1.1bn).
Thus, the sovereign exposures to peripheral countries is not a big concern for DB in our view, however its low starting Basel 3 common equity Tier 1 ratio of 7.0% in 2012E under JPMe provides limited cushion to absorb losses. Commerzbank Under the EBA methodology, CBK reaches a core Tier 1 ratio of 6.4% as of 31st Dec 2012, in an adverse scenario which is well above the core Tier 1 ratio of 5% required under EBA stress test.
Stress Test assumptions of 3.7bn of pre-provision profits for CBK in 2011-12 is also very harsh in our view with CBK already reporting pre-provision profits of 1.4bn in Q1 11.
However, taking haircuts on the banking book exposure of CBK to GIIPS countries, and using Basel 3 RWAs of 286bn under JPMe which factors in the RWA increase from Basel 2.5 and Basel 3 and also gives benefits of mitigation actions as guided by the companies, CBK reaches a Basel 3 common equity Tier 1 Ratio of 5.2% in 2012E. This implies CBK needs 5.0bn of additional capital to reach 7% Basel 3 common equity Tier 1 ratio under JPM acid test methodology. Please note we take a haircut on the net positions excluding the trading book as HTM portfolio is not disclosed with the stress test. We would like to point out that the EBA stress tests assume 3.7bn of 2 yr cumulative operating profit before impairments in 2011-12 for CBK, which looks very harsh in our view with CBK having already reported 1.4bn of pre-provision profits in Q1 11. We estimate pre-provision profits of 9.6bn in 2011-2012 for CBK and thus the low pre-provision profit numbers used by EBA again have a major negative impact on our calculation. Impairment losses on banking book under EBA stress test is 7.5bn vs. JPMe provisions for loan losses of 3.9bn in our model. Under the EBA stress test methodology, RWAs for CBK increase by c.11% to 297bn from RWAs of 268bn in 2010. Under the adverse scenario, RWAs increase further to 347bn which is a 30% increase over 2010 RWAs of 267bn. Looking at sovereign exposure to peripheral countries, CBK has 3.0bn of net direct positions in Greece of which 63mn is in the trading book. In Italy CBK has 10.1bn of net direct positions of which 0.2bn is in the trading book. CBK also has 3.2bn of net direct positions in Spain of which only 38mn is in the trading book. The sovereign exposures to Portugal and Ireland are relatively small.
Iberian banks
The Bank of Spain reported 5 Spanish banks failing the European tests carried out by the EBA, below the 9 banks reported in February 2011, in what we consider was not a very stress-tested exercise. Banco Pastor, CAM, UNNIM, Catalunyacaixa and Caja 3 failed the tests, although including mitigating factors all of them passed these levels. On top of this a number of banks dropped below 6% pre-mitigating measures, including Bankinter, Sabadell and Popular. BBVA and Santander stood at 9.2% and 8.4% respectively, whilst Banca March was the outlier with 28% CT1. EBA stress tests released for Spanish banks by the Bank of Spain were in our view not stress tested enough, where disclosed information will be the most useful element. The tests used lighter credit losses assumptions than in 2010 (22% lower on average), optimistic pre-provision profits and a 120bn drop in exposure to real estate developers and construction likely to raise some questions.
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Its worth noting how mandatory convertible bonds and generic provisions were excluded from core capital by the test, included below as mitigating factors, having a large impact on all main banks under our coverage with such products inside their core capital structure. Expected losses in landbank (-47%) and housing (-22%) seem low in our view, as companies in the real estate market are already reporting drops below those levels. Convertible bonds are excluded unless they convert before end 2012. This is especially relevant for SAN as it has 7bn of convertible bonds maturing within this period (115bps). For other banks this amount is deducted from core tier I but stated as part of mitigating measures below. As an example, BBVA 2bn convertible bonds converted into 273mn shares in July although they are consider as mitigating measures under the stress test. Some banks reported large drops in core tier I capital relative to reported figures. This was due to the removal of the items stated above and was significant for Santander (-21%), BBVA (-17%), Popular (-24%), or Sabadell (-29%) relative to their FY10 reported figures. RWA inflation was just 2% on average for Spanish banks until 2012, except SAN (+10%), BBVA (+3%). While this looks low, we dont expect to see large increases in RWAs in Spain, as banks delever. Total capital needed under a stressed scenario would be just 143mn according to the Bank of Spain. This seems very unrealistic to us, considering there is a 3trn balance sheet and banks are suffering from almost no access to wholesale funding (partly because of capital concerns). Pre-provisions profits were more credible this time, but not far from consensus estimates. The tests used a total 2Y cumulative pre-provision profit of 79bn vs. 99.5bn for last year stress test, which looks optimistic to us even under current market conditions and where SAN and BBVA would account for 78% of total, only 17% below current consensus estimates. Impacts of dividends and other changed from 5.5bn negative in 2010 to 3.8bn positive in 2011. Following the JPM methodology, we achieve a 3.8bn capital shortfall for the banks under our coverage universe to reach 7% Core Tier I (5% of aggregated market cap, 0.5% of GDP). This figure looks manageable to us, although some investors may argue this ratio is not enough, especially for larger institutions and increasing it would yield significant shortfalls. We disagree with the tests expected losses hypothesis, as not only are they lighter than in 2010 but they look too optimistic under a tough economic downturn. Expected losses under an adverse stress scenario stood at 5.4% vs. 7.3% in 2010 stress test (table below). Our current expected loss ratio stands closer to 9.8% for saving banks and 8.1% for private banks.
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Total Credit Losses Financial Institutions Corporates Real estate developers + R.E. Assets SMEs Mortgages Other Retail Sovereign Risk + Other Gross Deterioration
Source: EBA, CEBS, Bank of Spain.
Total Credit Losses Financial Institutions Corporates Real estate developers + R.E. Assets SMEs Mortgages Other Retail Sovereign Risk + Other Gross Deterioration
Source: EBA, CEBS, Bank of Spain.
Regarding Portuguese banks, both BCP and BES managed to pass the EBA tests with 5.4% for BCP and 5.1% for BES, including mitigating measures under an adverse scenario. Applying our own methodology we obtain a capital shortfall of 3bn for BCP and 1.1bn for BES or 4.1bn for both. The shortfall is basically due to the Basel III impact (for BCP) although BES sale in Bradesco will help reduce its impact from Basel III to 30bp under our assumptions.
Italian Banks
Following the JPM methodology, none of the Italian banks would have passed the acid test. ISP is at 6.9% with a minimal gap of 0.2bn. UCG is the bank with the highest capital shortfall in the Italian universe equal to 5.9bn while BAPO shows the lowest JPM stress Basel 3 ratio in the Italian universe at 5.1%. UBI shows a capital gap of 0.6bn which looks manageable in our view. At first glance the stress exercise doesnt seem too much stressed, in our view, and we highlight our main findings below: Net Interest Income The comparison between NII 2010 and NII 2012 under the adverse scenario shows an average contraction of 1.8% CAGR10-12E for the Italian universe. We understand that the assumptions include an increase in interest rates due to the sovereign shock but we find difficult to find it consistent with an increase in the cost of funding of almost 52% per annum for the universe. CAGR10-12 on provision under the adverse scenario : The increase in provisions from defaulted assets from 2010-2012, according to the numbers reported in the additional information disclosed in the stress test template, is on average 27% per year. If we compare this number with the CAGR07-10 recorded
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for our universe which was circa 23%, again this does not seem too aggressive in our view. Pre-provision profit 2012: The pre-provision profit for the adverse scenario is only 20% lower than the number we obtain annualizing the pre-provision profit posted in the Q111 by each bank. Considering also that Q111 numbers are usually inflated by a lower provision we would have expected to see a higher difference. RWA increase: The increase in the RWA under the adverse scenario seems mild to us: on average 4% growth per year, but we would have expected an higher number considering that under the adverse scenario is likely to have a significant impact arising from rating migration within the loan book which should trigger an higher capital absorption. Furthermore, is worth to mention that despite the base line scenario is based on static balance sheet assumptions, plus additional constraints (i.e. no improvement on costs etc.), however the difference between the net income for 2011 versus the Bloomberg consensus estimates for the same year are 7% lower for UCG, 31% and 47% lower for ISP and UBI respectively while for BAPO the two numbers are in line. In conclusion the exposure to peripheral remains limited in the Italian universe. The JPM exercise takes a more severe approach on sovereign haircuts on the banking book where a lot of Italian government bonds are held and this explains mainly why none of the Italian banks are above the 7% threshold set in the JPM acid test. It is also true that the low profitability and therefore the limited pre-provision buffer does not offer much support in a scenario of rising provisions.
French banks
Conservative EBA assumptions for French banks leading to significant capital shortfalls based on our acid test We estimate BNP Paribas Basel 3 Common Equity Tier I ratio would drop to 5.3% from 8.5% in 2012, and Socit Gnrale to 5.3% from 7.5% in our acid test, based on our methodology as well as EBAs conservative earnings assumptions. This would imply capital shortfalls of 12.1bn for BNPP and 7.7bn for SG vs. our minimum requirement of 7%. This is based on: EBA conservative cumulative pre-provision profits which are 40%-50% below our current 2012 estimates: of 18.4bn for BNPP, 50% below our base case estimate of 36.9bn in 2012, and 11.5bn for SG, 43% below our estimate of 20.4bn. Profits under the adverse scenario are significantly below our current estimates as the EBA stress test assumes a static balance sheet, i.e. no growth vs. our 2-3% revenue growth CAGR 11-12e and no adjustments to costs and margins. EBA realistic cumulative impairment losses on banking book of 16.2bn for BNPP and 9.5bn for SG, 70-120% higher than our current estimates. For SG, 9.5bn of cumulative provisions would be marginally lower than the 10.0bn booked in 2009-10. For BNPP however, 16.3bn of provisions would be 23% higher than the 2009-10 levels. EBA conservative trading losses assumptions of 3.0bn for BNPP and 4.3bn for SG, included in the pre-provisions profits estimates in EBAs adverse
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scenario. This is to be compared to trading losses of about 4bn for BNPP (split 2bn in equities and 2bn in FICC) and 2.5bn for SG (split 1bn in equities and 1.5bn in FICC) in 2008. This would be more penalizing for SG due to its legacy assets portfolio - EBA assumption of a static balance sheet implies no deleveraging for SGs legacy assets. EBA stress test also does not assume any cost offsets for both years, on the contrary, group costs even increases by 17% in BNPP's case, which is unrealistic in our view. JPMe additional losses on sovereign AFS exposures of 5.0bn for BNPP and 1.2bn for SG, on top of EBAs losses of 0.5-0.6bn for sovereign trading exposures. The additional 5.0bn of losses for sovereign shock for BNPP mainly results from Greece (1.8bn) and Italy (2.2bn). Although EBA stress tests did not assume haircuts on sovereign banking book exposures, the adverse scenario for French banks was conservative in our view. The EBAs stress test assumes both BNPP and SG make not much money for 2 years. Net profits remain however positive despite the stress conditions, underlying the French banks cashflow generation capacity. The assumption for 2011 is 2.9bn of net profits for BNPP vs. 2.6bn achieved in Q1 11, and 655m for SG in 2011 vs. 913m in Q1 11. In 2012, assumed net profits amount to only 61m for BNPP in the adverse scenario vs. EBA base case of 8.6bn and JPMe 9.4bn, and for SG, stress net profits of 1.3bn vs. EBA base case of 4.0bn, JPMe 5.4bn and SG target of 6.0bn. In conclusion, we view the EBA stress assumptions as credible overall, although we note that pre-provision assumptions are very conservative in our view, accounting for no adjustments from banks on costs/margins nor balance sheet management. Based on our acid test which is even more conservative as: a) it is based on Basel 3 Common Equity Tier I of 7% minimum (assuming no phasing of capital deductions) and b) it assumes haircuts on sovereign banking book exposures, we estimate that BNPP and SG would need to raise 12.1bn and 7.7bn respectively. Some of it could be achieved through cost reduction, RWAs optimization and dividend cuts (which we have not assumed, unlike in the EBA stress test). Note that the EBA stress test exercise is applied to Credit Agricole Group and BPCE rather than the listed entities, CASA and Natixis, respectively. We only have forecasts for CASA and Natixis, and have not run Acid Tests for Credit Agricole Group and BPCE.
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Source: J.P. Morgan estimates, EBA. Note: Basel 3 Common Equity Tier I ratios assuming no phasing of capital deductions. Socit Gnrale: our starting Basel 3 Common Equity of 7.5% excludes a) the 1.2bn positive impact from paying 2012e dividends in shares mid-2013, and b) the positive impact from additional mitigation initiatives with the group targeting 9% Common Equity Tier I end 2013 including at least 50bp of additional mitigation.
UK Banks
As per the expectations, all UK banks passed the EBA stress test with 7.3%, 7.7%, 6.3%, 8.5% 2012E Core Tier 1 ratios under adverse scenario for Barclays, Lloyds, RBS and HSBC respectively. However, against the JPM Acid test, we see a 16% 40% hit to JPMe 2012E B3 CET1 ratios and combined capital deficit of 25bn for UK Banks with the greatest impact coming from conservative operating profit and impairment charge estimates than from haircut on sovereign debt. We estimate a 16%, 40%, 30% and 32% decline in 2012E Basel III ratios for Barclays, Lloyds, HSBC and RBS respectively. We also note that UK Banks exposure to Portugal, Italy, Ireland, Greece and Spain sovereign debt is small ranging from 40mn for Lloyds to 7.8bn for Barclays (mainly to Spain - 5.2bn). Barclays Based on our JPM Acid Test, we estimate 1.3bn capital shortfall with the JPM Acid Test Ratio at 6.8% vs. EBA adverse scenario ratio at 7.3% with most of the difference arising due to our starting point being fully loaded 2010 Basel III CET1 ratio of 7.1% compared to 10.0% used by EBA, due to higher capital deductions with JPMe 2010 B3 Capital 42bn vs EBA 46bn and higher RWAs JPMe B3 RWAs 589bn vs EBA 461bn. According to the results published, i) estimates for 11/12E provisions on banking book are 13bn which compare to JPM estimates of 11bn; (ii) estimates for 11E/12E pre provision profits in the adverse scenario are 17bn which compare to JPM estimates of 25bn. Note that in the benchmark scenario Barclays will have 542bn RWAs 2012E which rises by c.21% to go up to 657bn in the adverse scenario compared to 596bn that we estimate under Basel III post mitigation. Compared to our B3CET1 ratio of 8.1%, we estimate 6.8% under JPM Acid Test due to 7bn lower 11E/12E PPOP and 2bn higher 11E/12E impairment charges.
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Lloyds Banking Group In the adverse scenario EBA estimates 7.7% Core Tier 1 ratio for Lloyds compared to 4.9% under JPM Acid Test - a capital deficit of 10.5bn. The difference in capital ratios arising mostly from our starting point being fully loaded 2010 Basel III CET1 ratio of 5.7% with higher capital deductions mostly arising from insurance and DTAs vs. 10% used by EBA. According to the results published, i) estimates for 11/12E provisions on banking book are 32bn which compare to JPM estimates of 16bn; (ii) estimates for 11E/12E pre provision profits in the adverse scenario are 19bn which compare to JPM estimates of 24bn. Compared to our B3CET1 ratio of 8.1%, we estimate 4.9% under JPM Acid Test due to 5bn lower 11E/12E PPOP and 16bn higher 11E/12E impairment charges. RBS In the adverse scenario EBA estimates 6.3% Core Tier 1 ratio for RBS compared to 5.9% under JPM Acid Test - a capital deficit of 7.4bn. The difference in capital ratios arising due our starting point being fully loaded 2010 Basel III CET1 ratio of 6.1% to 9.7% used by EBA due to higher capital deductions with JPMe 2010 B3 Capital 43bn vs. EBA 59bn and higher RWAs JPMe B3 RWAs 696bn vs EBA 607bn compared. According to the results published, i) estimates for 11/12E provisions on banking book are 26bn which compare to JPM estimates of 14bn; (ii) estimates for 11E/12E pre provision profits in the adverse scenario are 9bn which compare to JPM estimates of 23bn. Whilst the EBA stress tests are based on static balance sheet assumptions, our estimates include substantial RWA reduction in noncore where we estimate RWAs to decline by c. 94bn by 2012E as part of the Groups strategy, slightly offsetting the impact due to conservative operating profit and impairment losses. Compared to our B3CET1 ratio of 8.7%, we estimate 5.9% under JPM Acid Test due to 13bn lower 11E/12E PPOP and 12bn higher 11E/12E impairment charges. HSBC In the adverse scenario EBA estimates 8.5% Core Tier 1 ratio for HSBC compared to 6.5% under JPM Acid Test - a capital deficit of 5.5bn. The difference in capital ratios arising mostly from our starting point being fully loaded 2010 Basel III CET1 ratio of 8.1% vs 10.5% used by EBA. According to the results published, i) estimates for 11/12E provisions on banking book are 23bn which compare to JPM estimates of 15bn; (ii) estimates for 11E/12E pre provision profits in the adverse scenario are 25bn which compare to JPM estimates of 57bn which we believe is overly conservative and note that in the past 8 years HSBC has consistently generated PPOP >36bn for 2 years on a cumulative basis vs. EBA adverse scenario estimate of 25bn. Compared to our B3CET1 ratio of 9.3%, we estimate 6.5% under JPM Acid Test due to 32bn lower 11E/12E PPOP and 8bn higher 11E/12E impairment charges.
CEEMEA banks
Austrians- Erste and Raiffeisen cleared the EBA stress test comfortably, with an adverse scenario core tier 1 of 8.1% and 7.8% respectively. On our JPM acid test, we see 12E Basel 3 levels at 5.2% for Erste and 5.1% for RBI - declining from 8% and 7% (Basel 3 CET1) respectively. The difference between EBA and JPM acid test numbers can be explained by 1. Estimates for pre-provision income are more conservative than JPM estimates - Erstes 11-12 cumulative pre-provision income under the EBA
15
adverse scenario comes at 6bn, which compares to 8bn under JPM estimates (ie. 24% below our estimates). For RBI EBA pre-provision profit figures are 32% below our estimates. 2. EBA impairment charges are significantly higher than JPM estimates Erstes 2year cumulative impairment charges under EBA come at 5.3bn, which compares to 2.3bn under JPM (ie. 126% higher than our estimates). EBA tests have incorporated c. 3.6% cumulative provisioning rate on corporate book, whilst 1.6% for retail exposures. Erstes total commercial real estate exposure stands at 22bn (10% of total credit exposure), for which 3.8% cumulative loss rate is applied. Overall these impairment charges translate to an average 198bps cost of risk over 2 years, which is higher than 2009-10 levels of 150-160bps. For RBI, 2 year EBA impairment charges of 2.8bn are c.52% higher than JPM estimates. These numbers incorporate a 1.5% cumulative loss rate on corporate exposure, whilst a 6.5% loss rate for retail exposures (vs. 1.6% for Erste). This highlights the difference in quality of Erstes and RBIs retail book and different geographical risk profile more Central Europe(Erste) vs, more exCIS(RBI). Total commercial real estate exposure stands at 3.5bn (c. 2%). Overall these numbers for pre-provision and impairment charges for a stressed scenario looks conservative to us. 3. The main reason for the difference between JPM acid test and EBA capital levels is the use of Basel 3 equity capital and RWA for JPM acid test vs. core tier 1 levels for EBA. In addition we do not include participation capital within our estimates- which amounts to 1.7bn for Erste and 2.5 for RBI. Including this participation capital, the JPM acid test Basel 3 capital levels would improve for Erste and RBI.
We do highlight that sovereign exposure of Austrians to peripheral countries is low- hence the negative impact from banking book haircut scenario is limited. Greeks- we have not included the Greek banks into our JPM acid test as the results distort the overall picture for European banking system. Greek banks are facing considerable headwinds and despite the recent capital enhancing measures, they remain vulnerable to sovereign default risks. In the event of Greek sovereign default, most of the Greek banks would require additional capital from the Greek state or EU/IMF. In addition liquidity position of the banks would also come under pressure. Within the EBA stress tests, 2 Greek banks failed, Agricultural Bank of Greece and EFG Eurobank, with core tier 1 of -0.8% and 4.9% respectively. Post mitigating factors both banks pass the minimum 5% threshold- however the mitigating factors are more credible for Eurobank than for ATE. For EFG, positive impact from sale of Polbank to RBI, which adds c.120bps to core capital and absorption of DIAS, which adds c.10bps to capital are not considered. For ATE, utilization of generic provisions is the main mitigating factor. With respect to stress test numbers, pre-provision income figures look weak- 2 year cumulative pre-provision income under adverse scenario are only 13% below our estimates for EFG and 4% below for Piraeus.
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However we do highlight that loan loss impairment estimates used within EBA adverse scenario are considerably higher than our estimates. For EFG, 2 year cumulative impairment charges amount to 5.7bn, in comparison to 2bn under JPM (2yr cum. corporate loss rate of 7.1%; retail 6.2%). Similarly for Piraeus, 3.6bn of EBA impairments compare to 1.1bn JPMe. From our discussion with banks, we can conclude that these numbers also include provision charges on sovereign exposures within investment book (ie. impairment charges on sovereign book to reflect for worsening macro/credit ratings).
Nordic banks
No Surprises Against the JPM acid test all the Nordic banks delivered B3 equity ratios above 8% (Nordea the lowest at 8.0% and Swedbank the highest at 11.2%), with an 8% - 20% hit to JPM 2012E B3 equity based on our acid test assumptions. We saw a 9% negative B3 equity impact for SHB, 8% for Danske, 15% for DnB NOR, 19% for Swed,20% for SEB and 20% for Nordea coming from the generally more conservative EBA figures on adverse scenario pre-provision profits and loan losses. Even the EBA base line profit scenario is on average 15% below consensus, with the exception being Danske where the EBA baseline is 35% ahead and the adverse scenario is also above JPMe profit expectations. However, even within these conservative figures we find assumptions which are more favourable than may be expected for a stressed scenario, for example only 50bp negative funding cost impact for Nordea compared to ~200bp for the other Nordics, corporate loan losses as low as 50bp and CRE losses as low as 20bp in the adverse scenario, and coverage as low as 11% for CRE and lower risk weighted assets in the adverse scenario than in the base line for all Nordics except SEB. Against the EBA stress test as expected the Nordic banks showed solid resilience all delivering adverse scenario tier one ratios above 8.6%, with SHB the lowest at 8.6% and Danske the highest at 13%. In addition to the relatively high expectations for cumulative net profits, we believe Danskes number is somewhat overstated due to the inclusion both of the 26bn DKK government hybrid in core capital and the 20bn DKK rights issue proceeds which Danskes management intends to use to repay that government hybrid capital. We note two additional important differences between the EBA methodology and our ratios. Firstly the EBA has only considered the current reporting of RWAs whilst the Swedish banks and DnB NOR still report under transitional Basel 2 rules, which has a negative impact of 140bp for Nordea, 127p for SEB, 380bp for Swed, and 220bp for DnB NOR based on FY2010 core tier one ratios (and a negative impact 730bp based on total tier one for SHB). Secondly the EBA has not considered the mandatorily convertible preference shares which Swedbank issued in its 15bn SEK August 2009 rights issue, convertible by August 2013 and equivalent to 200bp of tier one capital. In general exposure levels to Portugal, Italy, Ireland, Greece and Spain sovereign debt, which were already very small in the 2010 stress test, have fallen to almost zero in the banking books for the Nordic banks.
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Appendix
Table 11: AFS (sovereign) exposures by country
mn Austria Belgium Bulgaria Cyprus Czech Denmark Estonia Finland France Germany Greece Hungary Iceland Ireland Italy Latvia Liechtenstein Lithuania Luxembourg Malta Netherlands Norway Poland Portugal Romania Slovakia Slovenia Spain Sweden UK Total
Source: EBA
UCG 1,688 134 124 1,195 32 130 231 229 297 47 21,815 114 3,884 45 927 425 143 1,440 5 34,607
PAS 68 68
SocGen 300 158 2,632 5,166 300 1,753 13 302 2,197 111 298 200 936 57 123 902 100 530 25,975
BNP 1,190 23,723 6 75 165 523 16,287 8,342 4,539 796 433 21,835 35 463 9,386 101 2,879 1,785 76 32 61 3,156 31 1,424 168,632
CA Group 738 2,189 0 0 506 17,567 319 242 77 7,303 2 518 0 95 858 16 1,810 0 150 36,612
Barclays 1,543 182 148 240 1,377 1,030 31 5,172 13,881 29,801
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HSBC 87 223 1,113 6,369 7,295 189 506 204 244 540 19 1,209 18 20,833 168,732
RBS 162 800 101 632 30 6,596 6,581 1,044 121 1,057 3,901 107 108 304 21 56 9,772 62,098
Danske 19 42 26 87
Nordea -
Swedbank -
SHB 156
DBK 1,211 2,207 52 98 3,711 8,894 1,277 42 218 4,512 23 899 419 50 10 1,038 90 898 29,238
RBI 58 57 5 127
KBC 304 15,819 27 2,291 82 1,539 18 206 517 92 1,748 7 78 1,542 654 1,302 26,400
19
BP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
UBI 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
SAN 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
BBVA 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
POP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 0 0 3
SAB 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
BKT 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
PAS 0 0 0 0 0 0 0 0 0 17 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 17
SocGen 0 -91 0 0 5 -38 0 40 -125 -252 29 -166 0 -37 -668 2 0 0 0 0 -62 0 3 73 0 87 0 0 -1 -24 -2,030
BNP -80 0 0 0 0 -29 0 26 -422 -90 207 0 -2 -24 1,130 0 0 0 42 0 -29 0 1 184 0 0 0 -119 -39 -30 -221
CA Group 9 41 0 1 0 -36 0 44 468 -164 -47 -28 0 9 68 0 0 0 0 0 -63 0 2 -117 0 -3 0 -166 29 -17 -1,200
Barclays 101 -562 0 0 2 -12 0 -140 395 786 -1 6 0 12 243 0 0 0 0 2 266 -71 -37 54 0 4 0 -192 -67 -719 -5,060
Lloyds 0 5 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 32
20
RBS 567 -72 0 0 84 -237 0 235 285 -411 -75 4 -1 25 -86 0 0 0 0 0 -1,124 21 0 34 0 -2 0 47 -88 -139 -954
Swedbank 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
BCP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
BPI 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
BES 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
DBK 431 -108 0 0 150 -42 0 -602 113 -184 -178 248 8 0 1,782 161 0 -5 -1,686 0 -77 0 19 103 0 0 0 -75 -42 49 365
RBI -7 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 3 0 0 0 0 0 8
KBC 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Piraeus 0 0 0 0 0 0 0 0 0 0 65 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 65
21
Lloyds 1,044,713 0%
Swedbank 21 5 3 29 175,355 0%
SHB 225,400 0%
22
Risks to Our View : 1) Vulnerability to a tougher macroeconomic environment in Italy and (2) sovereign exposure to government bonds
23
Upside risk from faster than expected Baltic, Russia and Ukraine recoveries and writebacks of collective provisions Upside risk from new commercial aggreement with the savings banks Dowside risk from slowdown in Swedish retail activity given Swedbank's proportionaly larger exposure here with 28% market share in Swedish mortgages Downside risk from smaller than expected benefit in funding costgs from moving for govenrment guaranteed to covered bond funding compared to management guidance of 60bp to 80bp funding cost benefit. UBS (Overweight Price Target: SF20.00)
Valuation Methodology : Our Dec 2011E sum-of-the-parts-based price target for UBS is SF20, down from SF21 previously. Note that our SoP multiples are differentiated by business and franchise quality, and IB multiple is adjusted for regulatory uncertainty. Risks to Our View : Risks that could prevent the stock from achieving our target price and rating include: The performance of the capital markets, impacting both the investment banking capital markets business as well as the performance of UBS assets under management. Potential risk of further markdowns in remaining legacy credit assets, and potential risk of further balance sheet assets becoming impaired, although greatly reduced post transaction with SNB. The US, as well as global, economies could experience a slowdown with a corresponding deterioration in credit quality and weaker revenues. Growth in new private banking money and the development of private banking transaction margins in particular UBS's ability to stem recent outflows, and rebuild its franchise. Legal risk in part from the structured credit and financial market crisis, could become an issue in particular for banks with material capital markets activities as well as within asset and wealth management
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Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for BNP Paribas, HSBC Holdings plc, IntesaSanpaolo within the past 12 months. Analyst Position:The following analysts (and/or their associates or household members) own a long position in the shares of UBS: Kian Abouhossein. Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of HSBC Holdings plc, IntesaSanpaolo, UBS. Client:J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: BNP Paribas, HSBC Holdings plc, IntesaSanpaolo, Swedbank, UBS. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: BNP Paribas, HSBC Holdings plc, IntesaSanpaolo, Swedbank, UBS. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: BNP Paribas, HSBC Holdings plc, IntesaSanpaolo, Swedbank, UBS. Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: BNP Paribas, HSBC Holdings plc, IntesaSanpaolo, Swedbank, UBS. Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking BNP Paribas, HSBC Holdings plc, IntesaSanpaolo, Swedbank, UBS. Investment Banking (next 3 months): J.P. Morgan expect to receive, or intend to seek, compensation for investment banking services in the next three months from BNP Paribas, HSBC Holdings plc, IntesaSanpaolo, Swedbank, UBS. Non-Investment Banking Compensation:J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from BNP Paribas, HSBC Holdings plc, IntesaSanpaolo, Swedbank, UBS. Important Disclosures for Equity Research Compendium Reports: Important disclosures, including price charts for all companies under coverage for at least one year, are available through the search function on J.P. Morgans website https://mm.jpmorgan.com/disclosures.jsp or by calling this U.S. toll-free number (1-800-477-0406).
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Date
BNP Paribas (BNPP.PA) Price Chart
162 OW 90 135 N 90 108 N 88 Price() 81 N 93 N 89 N 77 N 71 N 28 45 N OW 65 OW 63 N 90 N 74 N 72 N 27 N 50 OW 61 N 83 N 60 N 29 OW 66 OW 65
Rating Share Price () 80.81 76.16 77.98 87.88 72.10 68.53 63.45 58.30 66.81 63.23 66.50 46.93 25.23 22.67 25.90 44.60 46.50 52.63 55.17 50.45 43.45 55.49 N OW N N N N N N N N N N N N N OW OW OW OW OW
Price Target () 88.00 90.00 90.00 93.00 89.00 90.00 83.00 77.00 74.00 71.00 72.00 60.00 28.00 27.00 29.00 45.00 50.00 66.00 65.00 63.00 61.00 65.00
18-Dec-06 N 07-Mar-07 08-Mar-07 04-Jun-07 19-Sep-07 08-Nov-07 04-Feb-08 20-Feb-08 22-Apr-08 06-Aug-08 07-Oct-08 12-Nov-08 16-Feb-09 20-Feb-09 10-Mar-09
54
27
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Dec 18, 2006.
UW 720p
UW 360p
OW 900p
Date 08-Feb-07 11-Feb-07 14-Nov-07 18-Jan-08 03-Mar-08 19-Nov-08 25-Feb-09 02-Mar-09 04-Aug-09 10-Nov-09
Rating Share Price (p) UW UW UW UW UW UW UW UW OW OW 799 798 734 663 688 615 411 428 518 629 720
Price Target (p) 1100 850 820 790 720 675 400 360 450 760 900
06-May-09 N
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Feb 08, 2007.
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Date
IntesaSanpaolo (ISP.MI) Price Chart
10 9 8 7 6 Price() 5 4 3 2 1 0 Sep 06 Jun 07 Mar 08 Dec 08 Sep 09 Jun 10 Mar 11 OW 6.793 N 5.749 N 4.773 OW 3.049 OW 3.803OW 2.999 OW 6.783 N 5.539 OW 3.11 OW 3.05 OW 3.804
Rating Share Price () 5.29 5.97 5.67 5.28 5.58 4.60 4.76 4.13 3.55 3.11 2.43 2.10 2.48 2.60 2.90 3.08 2.58 2.80 2.12 2.15 2.07 OW OW OW OW OW N N N N OW OW
Price Target () 6.30 6.65 6.79 6.78 6.55 6.33 5.75 5.54 4.90 4.77 3.11 3.00 3.05 3.05 3.80 3.80 3.80 3.80 3.00 3.00 3.05 Price Target (Skr) 300.00 300.00 284.00 259.00 238.00 225.00 112.00 77.00 29.00 54.00 60.00 59.00 75.00 76.00 80.00 84.00 85.00 110.00 115.00 125.00 128.00
N 4.905 OW 2.997
OW 3.802 3.797 OW
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Dec 04, 2006.
15-Dec-10 OW
Rating Share Price (Skr) N OW OW OW OW OW N N N N N N OW OW OW OW OW OW 222.51 219.20 165.02 157.99 139.38 139.79 57.69 51.49 19.77 44.87 44.05 54.18 65.97 60.50 66.30 66.00 79.00 91.50 92.90 105.80 115.20
25-Jan-07 30-Jan-07 24-Oct-07 28-Oct-07 18-Feb-08 24-Apr-08 16-Oct-08 31-Oct-08 16-Mar-09 28-Jul-09 18-Aug-09 15-Sep-09 30-Oct-09 22-Feb-10
07-May-09 N
140
70
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Jan 25, 2007.
04-May-11 OW
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Rating Share Price (SwF) UW UW UW UW N N OW OW OW OW OW OW OW OW OW OW OW OW OW N OW OW OW OW OW OW 69.59 66.08 71.15 56.43 55.67 59.05 49.00 49.00 49.09 51.58 39.36 32.34 28.67 30.24 31.66 25.80 19.09 15.00 13.63 11.71 14.88 18.94 14.65 13.67 18.45 14.04 15.88 14.49
Price Target (SwF) 72.00 75.00 77.00 74.00 72.00 72.00 70.00 70.00 67.00 64.00 61.00 56.00 55.00 45.00 43.00 33.00 28.00 20.00 18.00 16.00 17.00 20.00 20.00 19.00 23.00 22.00 21.00 20.00
06-Nov-07 07-Nov-07
OW SwF20 29-Nov-07 OW SwF21 04-Feb-08
92
OW SwF19
10-Dec-07 OW
UW SwF72 UW SwF77 N SwF72 OW SwF43 W SwF28 SwF16 OW SwF67 OW SwF56 O OW OW SwF20 SwF22 OW
Price(SwF)
69
46
23
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Oct 31, 2006.
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N= Neutral, UW = Underweight Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] The analyst or analyst's team's coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe. Coverage Universe: Abouhossein, Kian: BBVA (BBVA.MC), Banco Popular (POP.MC), Barclays (BARC.L), Credit Suisse Group (CSGN.VX), Deutsche Bank (DBKGn.DE), Deutsche Postbank (DPBGn.DE), Goldman Sachs (GS), Lloyds Banking Group (LLOY.L), Mediobanca (MDBI.MI), Morgan Stanley (MS), Natixis (CNAT.PA), Royal Bank of Scotland (RBS.L), Santander (SAN.MC), UBS (UBSN.VX)
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J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.
Equity Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative. Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
Other Disclosures
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Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. JPMSAL does not issue or distribute this material to "retail clients". The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms "wholesale client" and "retail client" have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht. 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In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. 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Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised June 13, 2011.
Copyright 2011 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P
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