Sector Update 19Sept2011...

Sales Desk Ope Adewale Carlo Pirri Milan Office +39 02 8829 211 Specialist Sales Specialist Sales New York Office +1 212 991 4745 +44(0)203 0369 530 +39 02 8829 764 London Office +44 (0) 203 0369 530 [email protected] [email protected]

European Banks

19 September 2011 Sector view: Neutral

Antonio Guglielmi

Equity Analyst

+44(0)203 0369 573

[email protected]

The Burning Summer

Potential €151bn capital deficit puts 30% of tangible equity at risk

MTM of sovereign, legacy assets, Basel III (both on capital and liquidity) and

EBA disclosed losses (both on trading and extra LLP) amount to €151bn for the

larger caps we cover. The result is 30% of TE is at risk, which explains current

0.7x 2012e TE valuation. This long list seems to support the ‘lot is in the price’

view as banks have managed to defend the TE, at least, since 2009. However,

the summer events show that such a list is more than just a tail risk today.

More than 1 p.p. of sustainable RoTE burnt throughout the summer

Our updated across the cycle valuation screen points to worst case fully recap

RoTE of 9.2% versus 10.5% estimated back in July (see Banks Briefing). The

sector has burnt through more than 1 p.p. of RoTE since July due to higher

sovereign losses, worsening macro and higher funding cost, reflected in our

average cut in EPS estimates of 14% today.

Reiterate Underweight stance on all three French Banks

The summer also welcomed French banks to the club of highly volatile banks,

joining their veteran Italian peers. Sovereign is the major pain the two groups

share. But on most of the rest (capital, liquidity and leverage) it is Paris that has

been recently forced to react to the warnings alarms sent by the markets. More

capital can only help – better if not through the Government.

The market lost patience but the ‘chicken-egg’ conundrum remains

Everyone knows that a mix of Eurobonds, fiscal harmonization and QE from the

ECB is the only antidote for Europe, whichever measure comes first. ‘How long

will it take for politicians to get there?’ is the obvious question. But ‘What if they

don’t achieve it on time?’ is the most pertinent one given disorderly markets.

UK, Swiss Banks, Popolari and Assets Gatherers the best value

Our recent downgrade of SAN to Neutral left us even more selective in

periphery Europe. However, our sovereign screen shows the much shorter

duration of the govies held by the Italian banks, SocGen and BBVA – a more

granular approach to sovereign risk should not ignore such a relative positive.

The popolari space seems relatively oversold to us in light of potential catalysts

ahead. We see value in the UK banks. BARC versus DB is our fixed income value

trade. We stick with our UBS vs CS call but the November Investor Day has to

convince the market on risk control procedures at UBS and the downsizing of

its IB. Assets gatherers, Erste, KBC and NDA complete the names we favour.

Alain Tchibozo Equity Analyst +44(0)203 0369 573 [email protected]

Alex Tsirigotis Equity Analyst +44(0)203 0369 572 [email protected]

European Banks

19 September 2011 ◆ 2

Contents

Contents ........................................................................................................................................................ 2

Poor tangible equity visibility ...................................................................................................................... 3

Liquidity pressure the inevitable result ...................................................................................................... 4

Marking to market tangible equity at large EU banks ................................................................................ 6

French banks – Welcome to the club ......................................................................................................... 11

Messages from Q2 results .......................................................................................................................... 24

Summary of EPS changes .......................................................................................................................... 32

Summary of target price changes .............................................................................................................. 33

European Banks


Poor tangible equity visibility The same old problem for banks’ valuations

The Sx7P is down 30% since the beginning of July, with the market down 16% over the same period.

This brings the YTD relative underperformance of EU banks versus the market to 17%. As a result, the

Sx7p Index is now back to April 2009 levels and, for the first time in two years, the banking sector is

trading significantly below its tangible equity.

But what is the real underlying tangible equity of the banks? The market has clearly delivered some

strong messages throughout the summer, all adding uncertainty to this point:

You don’t need the default of Greece to get contagion risk. Italy and Spain are

already at risk of being ‘next in line’ whatever happens in Greece and only the ECB

intervention temporarily calmed the pressure on govies’ spreads.

There is no safe haven any more in banks. French banks almost halved their valuations

since the beginning of July. The French spread versus the German bund is also at historic

highs. In the meantime, the DAX has been the worst-performing EU market in August, losing

19%, the poorest monthly performance since September 2002. No country is immune at this

stage and the AAA rating of Germany and France no longer seems to be enough to separate

them from the destiny of the rest of Europe.

Funding issues will not disappear soon. Only the recent central banks’ intervention on

USD funding helped the sector get a breather from the liquidity-driven selling pressure. The

short-term funding exposure of French banks is now a well-perceived risk for the market,

which has been reflected in the recent ratings downgrades.

Risk of recession is increasing. Recent GDP data, consumer and business confidence

and unemployment figures show signs of macro deterioration. The recessionary effect of

austerity measures is already starting to kick in, so the market is attaching a higher

probability to the double-dip risk scenario.

Capital is never enough. Capital remains an issue for the sector. Summer news flow

(stress test results, Greek haircut and sovereign contagion) confirmed how strong the link is

between sovereign issues and the loss-absorbing capability of banks. The chances of banks

raising capital or getting partially nationalised have increased significantly through the

summer.

M&A is hardly the panacea. Despite a 30% rebound on the day of the Alpha-Eurobank

merger announcement, Greek banks are now below their pre-deal announcement levels. Size

matters for the GSIFI buffer and assuming big banks could fix their balance sheet problems

through M&A seems a risky call to us at this stage. Perhaps we might see some action just in

the small Italian banks.

Sovereign – time is running fast. The market clearly lost its patience with politicians

during the summer. The good news is that this should help force politicians to deliver. The

bad news is that we do not think that EFSF injecting capital into the banks may be the final

solution. We stick with our view that only through an agreed roadmap towards Eurobond

implementation, QE from the ECB and most importantly fiscal harmonization can the sector

take the required breath and give the banks the time they need to recapitalise.

European Banks


Liquidity pressure the inevitable result

The obvious consequence of the above is that liquidity issues in the interbank sector are back on the

table. The Libor-OIS spread is a measure of counterpart credit risk, expressed as the difference

between the Libor and overnight indexed swap rates. Usually the Libor floating rate fluctuates,

depending on interbank perceptions of lending risk. The OIS is a swap derived from the overnight rate

which is usually fixed. Thus the OIS allows Libor banks to borrow at a fixed rate of interest, with the

two banks involved in the transaction swapping the floating rate of interest for the fixed rate of

interest. This means the spread between Libor and OIS shows how likely it is that borrowing banks

will default. Given the intervention of the ECB and the provision of liquidity to the system, this spread

has compressed since the levels seen through 2008. Although the levels are still relatively low

compared with the last three years, signs of renewed stress have emerged recently, with an increase of

340% since July in Europe, compared to a 120% rise in the US spread and 40% in the UK equivalent.

Libor OIS 2007 - today Libor OIS July 2011 - today

0

50

100

150

200

250

300

350

400 Bps US UK EUR

0

10

20

30

40

50

60

70

80

90

1-Jul 8-Jul 15-Jul 22-Jul 29-Jul 5-Aug 12-Aug 19-Aug 26-Aug 2-Sep 9-Sep

BpsUS UK EUR

Source: Mediobanca Securities on Datastream

Similar signs of stress can be seen in the FRA/OIS spread, which looks at forward rates rather than

spot Libor and so gives an idea of future expectations of the interbank vs spot level. Since July, the

Euro spread has increased by 225% versus 60% for the US and 40% for the UK. Additionally, the Ted

spread - a measure for counterpart risk calculated as the difference between the interest rates on

interbank loans and short-term US T-bills – is still narrow versus 2009 levels but has increased 50%

from July levels to 35bps.

European Banks


FRA/OIS spread 2009-today Ted spreads, 2009-today

0

20

40

60

80

100

120

140

160

Jan

-09

Mar-

09

May-0

9

Ju

l-09

Se

p-0

9

No

v-0

9

Jan

-10

Mar-

10

May-1

0

Ju

l-10

Se

p-1

0

No

v-1

0

Jan

-11

Mar-

11

May-1

1

Ju

l-11

Se

p-1

1

bpsUS UK EUR

0

20

40

60

80

100

120

140

160

Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11

Bps

Source: Mediobanca Securities, Datastream

Who is using the ECB borrowing facility? The main refinancing operation provides liquidity to the Eurosystem, and its inception can

predominately explain the lower spreads in the measures of liquidity we have seen post-2009. As can

be seen, the current levels of c. €500bn are significantly lower than the peaks of 2010. However, what

is noticeable is the percentage of the total facility being used by the periphery economies. The majority

of the facility can be explained by the banks from Greece, Ireland, Italy, Spain and Portugal which

represented over 75% in February this year. The share of the ECB borrowing facility has been relatively

stable since July last year, but we notice a significant increase in the facility from Italy, which has

doubled its share to 16% over the last two months.

Greece, Ireland, Italy, Spain and Portugal's use of the ECB borrowing facility

2% 2% 2% 2% 2% 4% 5% 8% 8% 7% 7% 7% 8% 8% 9% 9% 11% 11% 9% 9% 9%11% 12% 12% 12% 12% 13% 16%

22% 21%19% 13% 12% 13% 12% 12% 10% 10% 13%

10% 12% 16%4% 3% 4% 3% 3%3%

4%

6% 6%5%

6% 6%9% 10% 9% 8% 9% 7%

8%16%

16%13% 12% 11% 11% 12% 12%

10%

15%20%

22% 26% 25%24% 24% 26%

25% 24% 24%20%

20%20%

7% 7% 8% 9%13% 11% 11%

15% 16%16% 17% 18%

19% 19%20%

20% 20% 22%

21%

19%19%

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%€ trn

GR IRE IT ES PRT Total ECB Facility (RHS)

Source: Mediobanca Securities. As data for Greece and Ireland not yet available for August, we use the same % as the previous

month.

European Banks


Marking to market tangible equity at large EU banks

Capital, capital, capital – the same old problem

Following our EPS cuts today, we see EU banks currently trading on 0.7x 2012 tangible equity, versus

12.8% RoTE.

Assessing the real underlying tangible equity of EU banks remains an almost ‘theoretical exercise’ in

the current volatile environment. The two problems preventing EU banks from smoothly navigating

the crisis are still there, in our view:

Delay in the Basel III recap requirements left EU banks with inadequate capital buffers. It

remains our view that forcing banks to recapitalise when the environment (and valuations)

allowed for that would have put EU banks in a much better position today.

Lack of political coordination in relation to fixing the sovereign situation. This has opened up

a dangerous game with the market which is asking for a quick-fix of the problem.

We have seen this movie already in 2008: delay on loss-recognition for subprime brought us to the

post-Lehman liquidity crisis. For the subprime of 2008, now read Greece, Portugal and Ireland, and

the delay in the loss-recognition is bringing the banking sector into a liquidity crisis ignited by Italian

and Spanish government debt, which we hope are not going to become the new Lehman events. The

common link between now and then is still the same: banks are too short of capital to navigate the

current turmoil. We continue to believe that forcing recapitalisations over the last two years, hand in

hand with loss-recognition on Greek debt, would have most likely brought us to a much better

situation than the current one.

So the question is: what are we discounting in current 0.7x tangible equity valuation?

Our exercise back in July

Back in July, we tried to assess the implicit across the cycle profitability of the sector after taking into

account six key adjustments: Basel III and sovereign losses recapitalisation coupled with the cost of

the NSFR implementation were the three major negatives we priced in. We partially offset such

negatives assuming LLP normalisation, cost-cutting efforts and short-term rising rates. The chart

below shows the contribution of each metric to the normalised 2012 RoTE for the sector at that time:

the result was RoTE dropping from the 14.2% embedded in our 2012 numbers to 12.8% post earnings

adjustment and recapitalisation. Stripping out the benefit of LLP normalisation and cost cutting (a

more realistic and conservative way to look at this exercise, in our view) would have brought the sector

to 10.5% RoTE in 2012.

European Banks


EU banks – from 2012E stated RoTE to adjusted RoTE (%)*

14.3% 1.4%

0.3%

1.4%

0.9% 1.2%

0.8%

12.8%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

2012 stated ROTE

NSFR 100 bps ST rates rise

Norm LLP cost cutting potential

Basel III recap

Sovereign recap

RoTE All In

*from our Banks Briefing, 5th July 2012 Source: Mediobanca Securities analysis

We estimated haircuts based on CDS-implied probability of default, as per the table below. The table

shows that we have been slightly more cautious on the peripheral debt than the EBA was in the recent

stress test.

Trading losses on sovereign – EBA haircut assumptions by maturity and vs MBe

3M 1Y 2Y 3Y 5Y 10Y 15Y Average MB

Austria 0.2% 0.5% 1.1.% 1.9% 3.4% 5.5% 8.4% 3% 4%

Belgium 0.2% 1.2% 2.1% 3.7% 5.9% 9.8% 15.3% 5% 8%

France 0.2% 0.8% 1.6% 2.6% 4.1% 7.3% 13.1% 4% 5%

Germany 0.1% 0.5% 0.9% 1.3% 2.1% 3.5% 6.2% 2% 3%

Greece 0.5% 5.1% 25.6% 29.5% 18.1% 25.2% 26.2% 19% 43%

Ireland 0.9% 3.8% 12.7% 16.9% 19.4% 19.1% 22.7% 14% 25%

Italy 0.3% 1.5% 3.0% 5.0% 8.4% 13.1% 20.1% 7% 9%

Netherlands 0.1% 0.6% 1.2% 2.1% 3.2% 5.2% 9.5% 3% 3%

Portugal 0.5% 6.4% 12.6% 18.9% 21.7% 22.3% 33.2% 16% 26%

Spain 0.5% 1.6% 3.4% 5.5% 9.0% 14.6% 23.2% 8% 13%

UK 0.2% 1.1% 1.9% 3.1% 4.7% 7.6% 14.1% 5% 2%

Source: EBA and Mediobanca Securities estimates

European Banks


More than one RoTE point lost through the summer We have updated here our valuation screen, taking into account today’s EPS cut on the sector and

reflecting the market correction seen over the summer.

The results are shown in the table below:

The sector’s 2012 stated RoTE of 12.8% gets diluted to 11.5% post our six adjustments, or

more conservatively it drops to 9.2% when taking into account just the three key negatives:

NSFR, Sovereign and Basel III capital shortfall.

This means that our recent EPS cut, the higher sovereign losses and the higher funding costs

brought the ‘worst case’ ROTE for the sector down from 10.5% estimated back in July to 9.2%

today. In other words, the painful summer cost the banks more than 1 p.p. of sustainable

RoTE.

Such 9.2% RoTE compares with post recap P/TE of 0.7x. Given the double-digit cost of equity

in the sector, it is hard to find huge upside from current levels without assuming a solving of

the sovereign crisis.

European Banks


EU Banks – an ‘all-in’ approach to valuation: normalising earnings and recapitalizing for Basel III and Sovereign, 2012E €m

2012 Market*

cap €mnsNet

IncomeTangible

equityCore

capitalRWAs P/TE ROTE P/E CT1 ratio

Basel IIICapital

shortfallSovereign NSFR Norm LLP

100 bpsrates

Cost cutting

Tax rateNormalized

earnings % versus

expected

Recap Tangible

Equity

% versusexpected

Norm P/E

post

Norm RoTE post

recap

Norm P/TE post

recap

UBS 33,442 5,006 37,772 32,459 175,907 0.9 13.3% 6.7 20.5% -202 -550 194 611 14.9% 5,223 4.3% 37,944 0.5% 6.4 13.8% 0.9

Credit Suisse 19,775 4,098 22,521 26,051 198,430 0.9 18.2% 4.8 13.1% -2,424 -595 -105 -494 45 794 19.9% 4,291 4.7% 25,422 12.9% 5.3 16.9% 0.9

Deutsche Bank 19,664 5,498 41,293 42,693 324,700 0.5 13.3% 3.6 13.1% -15,738 -1,428 -2,468 133 -495 793 33.5% 4,143 -24.6% 57,980 40.4% 8.8 7.1% 0.6

Goldman Sachs 39,546 6,105 56,633 52,991 331,422 0.7 10.8% 6.5 16.0% -1,314 -1,355 -197 382 23.3% 6,247 2.3% 58,986 4.2% 6.7 10.6% 0.7

Morgan Stanley 21,243 3,415 37,944 38,786 225,804 0.6 9.0% 6.2 17.2% -1,541 594 18.3% 3,901 14.2% 39,204 3.3% 5.8 9.9% 0.6

JP Morgan 92,545 16,707 108,498 106,750 882,639 0.9 15.4% 5.5 12.1% -2,350 -431 1,746 -1,202 1,151 23.3% 17,677 5.8% 110,300 1.7% 5.3 16.0% 0.9

BBVA 24,660 4,516 34,539 29,455 298,058 0.7 13.1% 5.5 9.9% -2,671 -6,784 2,008 -191 321 26.2% 6,095 35.0% 42,218 22.2% 5.3 14.4% 0.8

Santander 44,202 9,581 51,855 59,757 612,692 0.9 18.5% 4.6 9.8% -6,921 -7,831 -1,673 6,089 -291 472 25.3% 13,016 35.8% 64,627 24.6% 4.4 20.1% 0.9

Unicredit 13,549 3,365 36,854 42,143 450,582 0.4 9.1% 4.0 9.4% -6,866 -5,728 2,578 -85 778 36.0% 5,459 62.2% 47,386 28.6% 4.4 11.5% 0.5

Intesa Sanpaolo 14,221 3,365 36,854 35,161 338,582 0.4 9.1% 4.2 10.4% -789 -5,672 -221 1,159 335 390 41.1% 4,345 29.1% 40,984 11.2% 4.2 10.6% 0.4

MPS 4,272 403 9,936 9,542 113,520 0.4 4.1% 10.6 8.4% -1,842 -2,180 -233 426 51 148 51.7% 593 46.9% 12,831 29.1% 12.1 4.6% 0.6

BNP Paribas 29,197 8,387 58,262 65,797 701,119 0.5 14.4% 3.5 9.4% -11,064 -8,887 -5,117 611 -1,709 912 29.6% 4,654 -44.5% 75,582 29.7% 10.0 6.2% 0.6

Soc Gen 12,095 3,797 35,359 35,589 349,582 0.3 10.7% 3.2 10.2% -7,583 -4,148 -1,845 734 -1,162 506 27.0% 2,508 -34.0% 45,969 30.0% 9.1 5.5% 0.5

Credit Agricole 12,010 3,692 29,576 31,125 395,521 0.4 12.5% 3.3 7.9% -10,007 -5,210 -3,667 916 -527 276 37.6% 1,818 -50.8% 42,836 44.8% 13.9 4.2% 0.6

Barclays 19,856 6,123 56,206 57,708 472,181 0.4 10.9% 3.2 12.2% -2,621 -963 588 -216 828 30.2% 6,288 2.7% 58,035 3.3% 3.4 10.8% 0.4

HSBC 100,549 14,679 99,653 98,728 838,149 1.0 14.7% 6.8 11.8% -2,470 -2,262 1,193 225 1,868 16.9% 15,531 5.8% 101,706 2.1% 6.6 15.3% 1.0

Erste Bank 7,622 1,308 10,365 12,442 125,414 0.7 12.6% 5.8 9.9% -4,321 -2,599 847 76 107 22.0% 2,111 61.4% 16,713 61.2% 6.6 12.6% 0.8

Raiffeisen 4,478 1,045 8,867 9,583 99,673 0.5 11.8% 4.3 9.6% -3,277 -1,018 321 23 52 19.9% 1,362 30.4% 12,960 46.2% 6.3 10.5% 0.7

KBC 5,468 2,192 16,969 17,027 132,615 0.3 12.9% 2.5 12.8% -4,560 -4,931 -292 266 37 25 25.9% 2,219 1.2% 25,183 48.4% 6.2 8.8% 0.5

Commerzbank 7,593 1,891 23,164 27,047 242,251 0.3 8.2% 4.0 11.2% -4,433 -5,396 659 -479 259 24.5% 2,222 17.5% 31,672 36.7% 7.2 7.0% 0.5

Nordea 22,136 2,726 24,149 21,916 232,846 0.9 11.3% 8.1 9.4% -411 -2,548 -595 270 350 120 26.2% 2,833 3.9% 26,441 9.5% 8.6 10.7% 0.9

Banco Popolare 1,839 356 8,370 8,047 101,582 0.2 4.3% 5.2 7.9% -2,253 -580 286 100 113 47.5% 618 73.5% 10,928 30.6% 7.1 5.7% 0.4

UBI Banca 2,024 353 7,029 8,224 99,307 0.3 5.0% 5.7 8.3% -728 -675 -31 59 63 99 54.2% 440 24.6% 8,066 14.8% 6.9 5.5% 0.4

StanChart 36,640 4,277 29,133 27,553 210,924 1.3 14.7% 8.6 13.1% -520 -199 -84 187 262 21.3% 4,407 3.1% 29,542 1.4% 8.4 14.9% 1.3

NBG 2,773 431 5,832 7,279 62,611 0.5 7.4% 6.4 11.6% -6,700 986 11 57 25.0% 1,222 183.3% 10,857 86.2% 6.4 11.3% 0.7

Sector 591,397 113,319 887,633 903,853 8,016,111 0.7 12.8% 5.2 11.1% -87,202 -83,969 -20,299 20,747 -4,660 11,918 119,221 5.2% 1,034,371 16.5% 6.2 11.5% 0.7

*Priced as of 14 September

Source: Mediobanca Securities

European Banks


The two charts below compare the recapitalised and earnings-adjusted value map back in July

and today. It can be seen how the market efficiently reduced dispersion around the regression line

with French banks, the major outlier back in July, now positioned on a more balanced metric.

Post recap and earnings adjustment: P/TE versus RoTE, 2012E

July map Today map

UBS

CS

DBGS

MS

JPMBBVASAN

UCISP

BNPP

SGCASA

BARC

HSBC

ERS

RI

KBCCBK

NDA

BP

StanChar

NBG

Sector

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0% 21.0% 23.0%

Norm

alized P

/TE p

ost

recap a

nd a

dj

EPS

Normalized RoTE post recap and EPS adj

UBS CS

DBKGS

MS

JPM

BBVA

SAN

UCISP

BNPP

SG

HSBC

EBS

RBI

KBC

CBK

NDA

BP

StanChart

NBG

Sector

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0% 21.0% 23.0%

Norm

alise

d P

/TE p

ost

recap a

nd E

PS a

dj

Normalized RoTE post recap and EPS adj

Source: Mediobanca Securities estimates

This is confirmed in the chart below, where we show the P/TE versus RoTE currently embedded in our

2012 numbers (blue dots) and post earnings and recap adjustments (red dots). It can be seen that the

banks exposed to the largest potential valuation corrections are the ones which suffered particularly

throughout August, i.e. the French and German banks.

Value map: P/TE versus RoTE – from actual to adjusted for earnings and recap, 2012E*

UBS

CS

DBK BBVA

SAN

UCISP

BNPP

GLE

ACA

BARC

HSBC

CBK

NDA

STAN

Sector UBS ADJ

CS ADJ

DBK ADJ

BBVA ADJ

SAN ADJ

UC ADJ

ISP ADJ

BNPP ADJGLE ADJ ACA ADJ

BARC ADJ

HSBC ADJ

CBK ADJ

NDA ADJ

STAN ADJ

Sector ADJ

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

0.2 0.4 0.6 0.8 1.0 1.2 1.4

RoT

E pr

e ad

just

men

t (bl

ue

dot)

an

d po

st a

djsu

tmen

t (re

d do

t)

P/TE pre adj blue dot) and post adj (red dot) *Assuming 9.5% Basel III CT1 Target, NSFR impact, Sovereign haircuts, 100 bps rising rates, cost cutting efforts and LLP normalisation Source: Mediobanca Securities estimates

European Banks


French banks – Welcome to the club

Our exercise prompted us to downgrade French banks to Underperform back in July in light of their

above-average capital, sovereign and liquidity issues not fully recognised by market valuations at that

time in our view. As we show in the two pie charts below, French and German banks account for more

than 50% of the Basel III theoretical capital deficit and NSFR-driven liquidity shortfall.

€87bn Basel III capital deficit, breakdown 2012E €1trn liquidity shortfall from NSFR, breakdown 2012E

CS3%

DB18%

UC8%

SAN8%

BNPP12%Casa

11%

SG8%

Erste5%

Raiffeisen4%

KBC5%

CBK5%

Rest13% Other

6%

DB10%

US banks5%

SAN5%

BNPP27%

SG8%

Casa15%

BARC8%

HSBC9%

Nordea4%


The severe de-rating of French banks is a wake-up call from the market on how EU banks share

similar problems. However, French events tell us more:

French banks leveraged on their cheaper cost of funding as a sign of strength. However, we

think that such a funding advantage is mainly a function of the French AAA rating and as

soon as such a rating became at risk, the overall market perception on the strength of French

banks evaporated.

The rating downgrade of French banks was a well-flagged problem. Having relied for so long

on their stronger than peers rating, French Banks should have acted ahead of the downgrade

rather than waiting for such a risk to materialize in our view. Deleveraging remains a key

topic for them.

French and German banking lobbies led the pack in terms of delaying the loss-recognition on

sovereign and the implementation of Basel III. Moving ‘from denial to contrition’ on capital

continues to prove one of the most difficult management calls.

Press comments on Mme Lagarde underplaying the capital topic when she was Minister of

Finance before changing her approach at the IMF did not help market sentiment on French

banks, we suspect.

At the same time that the Italian Central bank was forcing its banks to recapitalise, Bank de

France agreed on the Switch solution for Agricole as a means to avoid raising straight equity.

We believe a more severe and coordinated approach from local regulators would have helped

the whole system, by forcing the banks to recapitalise when investors’ appetite, market

conditions and valuations allowed for that.

European Banks


From theory to practice - Explaining 30% tangible equity at risk

Sovereign, liquidity, regulation and recessionary fears created a perverse negative spiral which broke

the tangible equity support of banks’ valuations that has been in place since 2009.

What are we discounting today?

In order to investigate what’s in the price we took into account the following variables potentially

eroding tangible equity:

Greek lending. Greek loan books directly funded through non-Greek retail deposits is

mainly a French issue. Assuming 30% NPL ratio in Greece and 60% NPL coverage ratio

means SocGen and Agricole could end up losing some 12% of their directly-funded Greek

loans, i.e. €392m and €2.7bn respectively.

Greek bonds. Following the 21 July debt swap deal agreed between European Governments

and Greece, banks holding Greek government bonds with maturity of up to 10 years will swap

them for 15-year maturity bonds. While most EU banks depreciated their holdings in Greek

bonds by 21% (bar Commerzbank and RBS which depreciated by 50%), further markdowns

are likely given the outlook for Greece has worsened since. Since the market is now pricing in

losses of up to 60% of Greek bonds, we have assumed in our calculations that a more cautious

approach could lead most European banks to take additional haircuts over the coming

quarters. We have accounted for an extra additional loss amounting to 30% of Greek bond

exposure.

Italian and Spanish Government bonds. Despite the ECB buying Spanish and Italian

government bonds, the yields of these bonds stand close to their highs, translating into

potential losses for banks holding such bonds and willing to sell them in the markets. We

have applied a 10% haircut to reflect the impact of these potential losses on the tangible

equity.

Legacy assets. Most European banks have disposed of their illiquid asset-backed securities

inherited from the credit crisis. French banks are the main exception given legacy assets still

embedding potential mark to market losses. We have assumed a 50% discount due to the

illiquidity of these assets for Soc Gen (the most exposed among French banks), while we took

a lower discount for the other two French banks.

Trading losses. The increased volatility in equity market indices, FX rates and dividends

are a source of potential loss in bank’s trading books, as confirmed by the EBA’s last stress

test disclosure. Hence, given current market dislocation, we have taken into account the

trading losses disclosed by each bank in the EBA’s last stress test.

Additional loan loss provisions. With most European countries implementing austerity

measures, we have assumed that the macro scenario could remain challenging, translating

into higher loan loss provisions within European banks’ loan books. For each of the banks in

our universe, we have included in our calculations the amount of potential loan losses

embedded in the EBA’s last stress tests as a result of the impact of an adverse macro scenario.

Funding. Assessing the higher cost of funding for EU banks is quite a difficult exercise as it

is a function of short-term funding needs and long-term NSFR implementation. We have

assumed 100bps higher cost of funding applied to the liquidity shortfall we estimate

originating from the NSFR implementation (see our Banks Briefing for details).

Basel III capital shortfall. As our Basel III capital adjustments screen points to a capital

deficit for most of European banks in our universe, we have deducted the capital deficit from

the current tangible equity. We reiterate our view that the current environment requires

more capital sooner rather than later. Looking at Basel III and at GSIFI buffers as 2019

targets would be inappropriate and risky in our view.

European Banks


The table on the following page summarises our findings for the 10 largest EU banks in our coverage.

Total capital deficit amounts to €188bn pre-tax.

After tax this means roughly €150bn, i.e. 30% of 2012 expected tangible equity for the panel.

Effectively this explains EU banks currently trading at 0.7x tangible equity.

The theoretical capital deficit ranges between 56% of tangible equity at DB and 11% at HSBC.

Such impact is almost equally split between regulatory issues (Basel III capital shortfall and

NSFR impact on cost of funding), sovereign losses (on Greece, Italy and Spain) and macro

deterioration (EBA stress result on higher LLP and trading losses).

European Banks


Estimating the underlying adjusted tangible equity of EU banks, 2012e

2012e, €m BNPP SocGen CASA UCG ISP BBVA SAN DB HSBC BARC Peer group

Core Capital 65,797 35,589 31,125 42,143 35,161 29,455 59,757 42,693 98,728 57,708 498,156

Other 5,800 5,800

Greek lending exposure - 3,266 22,585 - - - - - - - 25,851

Haircut (additional): NPLs 30% and 60% NPL coverage 0% 12.00% 12.00% 0% 0% 0% 0% 0% 0% 0%

Loss - (392) (2,710) - - - - - - - (3,102)

Greek bonds exposure 3,816 2,700 329 637 619 127 177 1,510 834 93 10,842

Haircut (30%) 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%

Loss (1,145) (810) (99) (191) (186) (38) (53) (453) (250) (28) (3,253)

Italian bonds exposure 22,739 4,100 8,728 47,445 57,622 3,897 261 5,336 3,145 2,915 156,188

Haircut (10%) 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%

Loss (2,274) (410) (873) (4,745) (5,762) (390) (26) (534) (315) (292) (15,619)

Spanish bonds exposure 2,518 - 1,794 1,910 764 53,452 41,807 2,082 406 5,496 110,229

Haircut (10%) 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%

Loss (252) - (179) (191) (76) (5,345) (4,181) (208) (41) (550) (11,023)

Legacy assets (level 3): RMBS+CMBS+CDOs 12,500 10,124 2,547 - - - - - - - 25,171

Haircut 25% 50% 38% 0% 0% 0% 0% 0% 0% 0%

Loss (3,125) (5,062) (955) - - - - - - - (9,142)

Loan book 710,601 413,463 378,431 585,238 404,205 362,034 761,831 412,239 811,081 548,076 5,387,198

Extra LLP from EBA stress test -0.6% -0.10% -1.08% -0.74% -1.13% -0.57% -1.26% -0.64% -0.59% -0.22%

Additional LLP (4,516) (433) (4,105) (4,346) (4,548) (2,052) (9,599) (2,631) (4,799) (1,194) (38,223)

Liquidity shortfall from NSFR 280,894 87,530 159,522 0 6,392 0 51,887 140,078 93,896 82,195 902,394

Additional spread (%) -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% 0

Additional funding costs (2,809) (875) (1,595) - (64) - (519) (1,401) (939) (822) (9,024)

2Yr trading losses EBA stress (trading book (3,027) (4,328) (3,014) (1,131) (1,197) (864) (1,717) (6,982) (6,208) (6,137) (34,605)

Basel III capital shortfall with 9.5% CT1 target (11,064) (8,340) (11,945) (6,866) (789) (2,671) (6,921) (15,738) 0 0 (64,334)

Effective Tax Rate 30% 27% 38% 36% 41% 26% 25% 34% 17% 31%

Total theoretical capital deficit (net of tax) (22,110) (17,324) (20,392) (13,653) (7,757) (9,086) (18,946) (23,857) (10,461) (6,245) (150,851)

Adj tangible equity 43,687 18,265 10,732 28,491 27,404 20,369 40,811 18,836 87,006 51,678 347,279

Tangible equity at risk (% of total) 34.6% 48.7% 65.5% 32.4% 22.1% 30.8% 31.7% 55.9% 10.7% 10.8% 30.3%


European Banks


The chart below provides a picture of the above table. It is interesting to note how for French and

German banks, and UC and SAN, the Basel III capital deficit explains almost half of the problem.

Potential capital deficit, 2012e

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

-

5,000

10,000

15,000

20,000

25,000

30,000

BNPP DB CASA SAN SocGen UCG ISP HSBC BBVA BARC

as a %

of total tangible equity

Tangible equity at risk (€m)

Greek lending Greek bonds Italian bonds Spanish bondsLegacy assets extra LLP from EBA Additional funding cost Trading losses from EBABasel III capital shortfall TE erosion (as % TE)


The table below provides a valuation comparison for our sample. We show P/TE versus RoTE pre

adjustments and after full recapitalisation for the above adjustments.

P/TE vs RoTE post full recap, 2012E

BNPP SocGen CASA UCG ISP BBVA SAN DB HSBC BARCPeer

group

P/TE pre adj. 0.60 0.44

0.48 0.39 0.49

0.96 0.84 0.56

1.09 0.39 0.67

RoTE pre adj. 12.9% 9.9% 11.5% 8.0% 7.9% 16.4% 14.7% 12.8% 18.5% 11.5% 13.2%

P/TE post recap 0.70 0.62

0.68 0.54 0.59

0.97 0.88 0.72

1.08 0.45 0.75

RoTE post recap 9.6% 6.7% 7.0% 6.0% 6.5% 12.6% 11.2% 8.2% 16.7% 10.4% 10.1%

*as of 14 September


It is interesting to note how such an ‘all-in’ approach explains quite a lot of the current market

correction: effectively only UK banks seem to offer clear upside at these levels. In the case of Spanish,

Italian and French banks, considering a cost of equity ranging between 10% and 12%, it is difficult to

identify screaming buys given the assumptions we factored into our exercise.

This is confirmed in the chart below, wherein we plot P/TE versus RoTE after full recapitalisation for

the above factors.

European Banks


RoTE versus P/TE post full recap, 2012 RoTE dilution from full recap (p.p.) vs TE

at risk (as % TE), 2012E

BNPP

SocGen

CASA

UCG

ISP

BBVA

SAN

DB

HSBC

BARC Peer group

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 1.20

RoTE post adj (full recap)

P/TE post adjustment (full recap)

BNPP

SocGen

CASA

UCG

ISP

BBVA

SAN

DB

HSBCBARC

Peer group

0%

10%

20%

30%

40%

50%

60%

70%

1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%TE erosion from M

TM sovereign + B III +

Stress test losses

RoTE dilution from full recap


The market has been pretty efficient in correcting share prices based on expectations of tangible equity

dilution. The chart below shows the link between the share price drop since July and potential tangible

equity at risk stemming from our above exercise. Following such an approach, one could conclude that

the market has been punishing the likes of BNPP, UCG, ISP and BARC even more than our

methodology would suggest especially when compared with the likes of Agricole or Deutsche Bank.

Potential tangible equity erosion (as % 2012E TE) versus share price drop since July

66%

56%49%

35%32% 32% 31% 30%

22%

11% 11%

50%44%

57%

47%51%

32% 34% 33%

50%

43%

20%

0%

10%

20%

30%

40%

50%

60%

70%

CredAg DBK SocGen BNPP UCG SAN BBVA Peer group

ISP BARC HSBC

TE erosion Share price drop since July


Our simulation implies some 3 percentage points of RoTE evaporation for the sector from full recap

for the above factors. As we show in the chart below, UK banks would face a below-average RoTE

dilution while French banks would face a particularly severe valuation correction.

European Banks


P/TE vs RoTE – before and after full recap, 2012E *

BNPP

SocGen CASA

UCG

ISP

BBVA

SAN

DB

HSBC

BARCPeer group

BNPP pre

SocGen pre

CASA pre

UC preISP pre

BBVA pre

SAN pre

DB pre

HSBC pre

BARC pre

Peer group pre

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0.35 0.45 0.55 0.65 0.75 0.85 0.95 1.05 1.15

RoTE before (red dots) and after (blue dots) recap

P/TE before (red dots) and after (blue dots) recap *Post sovereign haircuts, trading losses and LLP increase from EBA stress test, funding impact from NSFR, MtM on legacy assets, Basel III recap


MB Rank of Ranks screen on govies exposure

The above exercise showed how sensitive banks valuations are on haircut assumptions. Our conclusion

from the above exercise is that current valuations embed a 50% haircut on Greece and at least 10%

haircut on Spain and Italy on top of a macro recessionary scenario (which we take from the recent

stress test), liquidity mismatch (NSFR) and Basel III recap. The above assumptions explain some 30%

tangible equity at risk of dilution for the banks, hence the current 0.7x TE valuation. As we show

below, the result is very sensitive to the haircut assumptions. For instance, assuming 35% haircut on

Spain and Italy would double the tangible equity erosion risk at BBVA or ISP. Potential tangible equity at risk of dilution (as % 2012E TE) from our ‘all-in’ approach: different haircut assumptions on govies only*

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

CASA DB SocGen BNPP UCG SAN BBVA Peer group

ISP BARC HSBC

50% on GR, 10% on IT and SP 75% GR, 20% IT and SP 100% GR, 35% IT and SP

*Different haircut assumptions on govies on top of the impact from legacy assets, EBA losses (trading and extra LLP) and

regulation (liquidity and capital)


European Banks


However, such a brutal top-down approach on a sovereign haircut only takes into account the overall

stock of govies disclosed by the banks in the recent stress test, without reflecting important differences

within the govies portfolios. Based on recent EBA disclosure, we built our rank of ranks sovereign

screen, which tries to introduce higher granularity on the govies exposure. We ranked the banks on

four metrics related to their govies exposure:

Sovereign exposure sitting in the trading books (the higher, the better);

Sovereign exposure as % core capital (the higher, the worst);

Peripheral exposure (Portugal, Greece, Ireland, Spain and Italy) as a percentage of total

exposure (the higher, the worst);

Duration of the portfolio (the higher, the worst);

#1 - Government bond exposure increased by 6% YoY, 18% sits in trading

Our coverage panel increased its overall government bond holdings by 6% YoY from €850bn to

€904bn. However there is wide divergence in our universe: BNPP, DB (mainly related to Postbank’s

Greek exposure now partially disposed), BBVA, MPS, HSBC, Raiffeisen, CBK, Nordea, BP and UBI

increased their exposure by a double-digit level while ISP, SAN, Agricole, UC, Barclays, Erste and

KBC's exposure remained flat or decreased significantly YoY.

Ceteris paribus, banks with most of their exposure in their trading books (especially for peripheral

bonds) face a lower risk of future markdowns relative to those peers which have most of their exposure

in their banking books. On average, trading books represent only 18% of the overall government bond

exposure. SocGen, BARC, Banco Popolare, HSBC and ISP show an above-average trading component

suggesting that a larger part of the overall govies exposure has been marked to market. This is a plus

relative to peers in our view.

Sovereign Exposure (€ m) – trading and banking book and YoY change

Banking book Trading boo� Total 2011 Trading % tota� 2011 Total 2010 YoY change

DB 41,622 5,935 47,557 12% 32,876 45%

BBVA 56,251 7,146 63,397 11% 52,869 20%

SAN 41,127 8,221 49,348 �7% 60,337 -18%

UC 65,097 17,079 82,176 21% 81,590 1%

ISP 48,006 16,489 64,495 26% 69,977 -8%

MPS 26,646 6,433 33,079 19% 28,192 17%

BNPP 97,345 19,976 117,321 17% 95,437 23%

SG 26,695 18,540 45,235 41% 41,898 8%

Casa 42,586 8,026 50,612 16% 52,592 -4%

BARC 21,738 12,139 33,877 36% 42,065 -19%

HSBC 51,604 17,463 69,067 25% 77,437 -11%

Erste 22,760 3,061 25,821 12% 25,434 2%

Raiffeisen 15,194 2,216 17,410 13% 11,924 46%

KBC 45,943 4,982 50,925 10% 50,710 0%

CBK 64,795 7,699 72,494 11% 59,700 21%

Nordea 33,134 2,448 35,582 7% 20,448 74%

OTP 1,641 102 1,742 6% 5,166 -66%

BP 7,140 5,002 12,142 41% 8,524 42%

UBI 8,818 1,588 10,406 15% 6,461 61%

PKO 1,564 70 1,634 4% 6,583 -75%

SAB 7,425 0 7,425 0% 7,725 -4%

POP 9,713 14 9,727 0% 9,850 -1%

BKT 1,931 603 2,534 24% 2,615 -3%

Total 738,775 165,231 904,007 18% 850,410 6%

Source: Mediobanca Securities from EBA stress test

European Banks


#2 - Government bonds amount to 1.5x tangible equity

On aggregate, the sector holds government bonds amounting to 1.5x tangible equity. BBVA, BNPP, ISP

and UC are the large caps with an above-average leverage.

Total government bond exposure as a multiple of 2011E tangible equity (x)

3.2

2.7

2.32.2

1.9 1.9 1.9 1.91.7

1.6 1.5 1.5 1.4 1.4 1.3 1.31.1 1.1

0.9 0.8 0.7

0.3

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50


#3 - Peripheral exposure is 35% of total

Here below we summarise exposure to the key five peripheral countries under scrutiny by the market

(Italy, Spain, Portugal, Greece and Ireland) and the split between banking and trading books.

Peripheral exposure – break down between trading and banking book €m

Banking book Trading book Total

DB 7,436 � 2,057 �

9,493

BBVA 52,241 5,882 58,123

SAN 40,982 4,895 45,877

UC 37,590 12,530 50,120

ISP 43,190 15,999 59,189

MPS 26,116 6,388 32,504

BNPP 31,749 3,792 35,541

SG 6,612 2,671 9,283

Casa 12,045 2,749 14,794

BARC 6,949 3,136 10,085

HSBC -30 4,615 4,585

Erste 1,232 1 1,233

Raiffeisen 348 106 454

KBC 7,528 324 7,852

CBK 16,919 423 17,342

Nordea 0 98 98

BP 6,847 4,999 11,846

UBI 8,572 1,577 10,149

SAB 7,425 0 7,425

POP 9,503 14 9,517

BKT 1,931 603 2,534

Source: Mediobanca Securities on EBA data

European Banks


As per the chart below, some 35% of government bond holdings belong to peripheral countries at the

sector level. Pure retail banks in Spain and Italy sit above the average due to their higher exposure to

home country bonds. UC’s exposure to peripheral countries is well below those of its Italian and

Spanish peers. Within the wholesale banks, we note how HSBC's book has virtually no exposure to

peripheral bonds, while on the other side, French and German banks and Barclays have around one-

third of their books invested in peripheral bonds.

Peripheral country exposure as a % of total government bond holdings

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%SA

BBK

TM

PSPO

P BP UBI

SAN ISP

BBVA UC

Aver

age

BNPP

BARC

Casa

CBK SG DB KBC

HSBC

Erst

eRa

iffei

sen

Nord

ea


#4 – Duration in periphery ranging from 2 to 12 years

The table below tells us that some 18% of the sector's total government bond exposure is to peripheral

countries with less than two years' maturity. We think banks with a high concentration of their

peripheral exposure to short-term maturities have two advantages: a lower haircut required on their

short-dated peripheral exposures and a better chance of reducing their exposure more quickly than

peers. As per the table below, for instance, we note that BBVA and ISP can potentially halve their

exposure within two years.

Government bonds in peripheral countries with less than two years' maturity, €m

Portugal Ireland Greece Spain Italy as a % of total govies

DB 15 61 950 1,179 1,399 7.6%UC 8 10 242 585 �30,411 38.0%ISP 7 1 242 184 28,983 45.6%BNPP 622 20 1,008 1,286 2,635 4.7%SG 551 300 2,023 1,302 1,644 13.9%Casa 983 40 109 2,533 5,125 17.4%BARC 522 30 - 3,145 1,318 14.8%HSBC 55 21 608 471 2,086 3.3%Erste 96 14 289 135 493 4.0%KBC 63 - 241 762 1,661 5.4%CBK 25 - 31 783 101 1.3%SAN 327 - - 9,410 128 20.0%BBVA 633 - 19 32,258 141 52.1%Total 3,907 497 5,762 54,033 76,125 17.6%


European Banks


The short-term maturity concentration of peripheral bonds also helps the overall duration of the

government bond portfolios. In the table below, we calculate the weighted average duration of

peripheral exposures: we go from 12 years at Commerzbank to two years at Erste and Raiffeisen. In

our rank of ranks screen, we have assumed that banks with shorter duration are in a better position

than peers, as they are likely to exit the crisis earlier than others. Compared duration in peripheral countries (years)

Portugal Ireland Greece Spain Italy Weighted average

CBK 12 10 15 6 12 12

BNPP 6 8 9 7 10 9

POP 9 7 7

SAN 7 3 7 2 7

MPS 5 5 6 6

DB 10 9 4 5 7 6

SAB 10 10 6 6

UBI 6 6

KBC 5 10 2 5 6 6

ISP 9 10 10 5 5 5

Nordea 10 5 5 5

BKT 5 5

HSBC 1 10 3 2 5 4

Casa 1 5 6 2 5 4

BBVA 1 9 4 7 4

BARC 4 4 10 5 3 4

UC 5 3 4 3 3 3

SG 2 3 2 3 3 3

BP 5 3 3

Erste 1 7 2 2 3 2

Raiffeisen 9 3 2 2


Rank of Ranks scoring

The table below shows the results of our rank of ranks screen aimed at shedding more granularity on

the relative gearing to the sovereign issues. Our rationale:

The higher the sovereign exposure sitting in the trading book, the lower the risk of future

marks. We have therefore ranked #1 the bank with the highest sovereign exposure in the

trading book.

The lower the exposure to peripheral bonds, the lower the risk of future losses, ranking the

banks accordingly (#1 meaning the lowest exposure as a percentage of total government

bonds).

The earlier sovereign bonds mature, the earlier the bank can exit the crisis. This means

ranking #1 for the shortest duration in peripheral countries.

Finally, we rank the overall sovereign bond exposure of each bank relative to its tangible

equity, with #1 meaning the lowest multiple.

European Banks


Rank of Ranks for sensitivity to government bond exposure

Trading %sovereign

PIGS % Sovereign

Duration weighted

Sovereign as % Tangible equity

Rank of Ranks (lower, better)

HSBC 5 1 9 3 18

BARC 3 10 6 2 21

SG 2 7 4 9 22

BP 1 16 3 12 32

Raiffeisen 13 3 1 17 34

UC 7 12 5 14 38

CASA 11 9 8 11 39

Erste 15 4 2 18 39

BKT 6 21 10 6 43

DB 14 6 16 7 43

ISP 4 14 12 15 45

Nordea 19 2 11 13 45

UBI 12 17 14 8 51

SAN 10 20 19 4 53

BNPP 9 11 21 16 57

BBVA 16 15 7 19 57

KBC 18 5 13 22 58

POP 23 18 20 5 66

CBK 17 8 22 20 67

PKO 22 21 23 1 67

MPS 8 19 18 23 68

SAB 24 21 15 10 70

NBG 20 13 17 21 71

OTP 21 21 23 24 89


Some key findings:

Only three banks in our coverage score in the top 10 for each of the metrics we used: HSBC,

SocGen and Barclays.

Only two banks, OTP and NBG rank poorly on all of the criteria.

Interestingly enough, the two banks which posted stressed CT1 ratios above 10% in the EBA

stress test (OTP and PKO) are sitting at the bottom of our screen.

UC and BP emerge as the best-placed peripheral banks due to the relatively low duration of

their peripheral bond portfolio and the high component of govies sitting in their trading

book.

BNPP emerges as the worst-placed French bank mainly due to its long duration and higher

leverage of govies/tangible equity relative to its domestic peers.

As expected, Santander emerges as less geared into sovereign issues relative to its domestic

peers but not far away from BBVA.

European Banks


Government Bonds Exposure by Country €m

Spain Italy Portugal Greece UK Ireland France Germany Austria Belgium Netherlands Scandinavia Others Total

DB 2,082 5,336 88 1,510 1,766 477 4,796 23,156 1,768 2,784 2,452 289 1,053 47,557

BBVA 53,452 3,897 647 127 123 0 965 789 11 217 4 505 2,660 63,397

SAN 41,807 261 3,632 177 2,978 0 97 142 63 71 120 0 0 49,348

UC 1,910 47,445 84 637 45 58 158 18,480 3,194 216 134 105 9,710 82,176

ISP 764 57,622 70 619 58 114 109 220 50 39 3 43 4,784 64,495

MPS 284 32,018 202 8 1 0 356 9 2 124 0 1 74 33,079

BNPP 3,900 24,114 2,033 4,996 4,452 498 18,051 16,503 1,279 25,364 9,460 727 5,944 117,321

SG 2,218 3,341 631 2,651 1,226 442 13,501 6,770 636 1,687 907 435 10,790 45,235

Casa 2,772 10,123 1,109 655 321 135 28,975 1,426 828 2,441 586 608 633 50,612

BARC 5,496 2,915 1,174 93 16,770 407 1,635 356 86 2,550 1,203 811 380 33,877

HSBC 406 3,145 99 834 41,382 102 10,280 4,729 512 473 2,624 1,819 2,660 69,067

Erste 140 602 106 345 0 40 153 995 5,899 132 69 78 17,262 25,821

Raiffeisen 3 449 2 2 0 0 244 405 7,163 227 55 6 8,854 17,410

KBC 1,419 5,561 159 444 -4 269 1,461 1,408 422 21,813 85 99 17,789 50,925

CBK 3,165 10,132 976 3,043 2,642 26 1,657 44,075 1,496 750 549 223 3,760 72,494

Nordea 64 97 0 0 0 1 101 5,160 5 135 137 28,956 926 35,582

OTP 0 0 0 0 0 0 0 0 0 0 0 0 4,699 4,699

BP 0 11,759 0 87 0 0 0 3 0 0 0 0 293 12,142

UBI 0 10,124 0 25 0 0 17 22 0 0 0 0 218 10,406

PKO 0 0 0 0 0 0 0 0 0 0 0 0 6,561 6,561

SAB 7,296 0 91 0 0 38 0 0 0 0 0 0 0 7,425

POP 8,874 210 643 0 0 0 0 0 0 0 0 0 0 9,727

BKT 2,533 1 0 0 0 0 0 0 0 0 0 0 0 2,534


European Banks


Messages from Q2 results

French Banks

We expect Q3 to remain subdued especially in French retail banking, life insurance and CIB.

In Q2 2011, French retail banking experienced margin compression, driven by rising cost of

funding, a trend we believe will continue in Q3.

CIB suffered from lower revenues in Q2 from both FICC trading and equity derivatives

revenues, due to high volatility and sovereign issues. Although no major trading loss was

reported in Q2, most French banks experienced lower revenues in equity derivatives as most

of them have cautiously down-scaled the size of their trading books.

The lack of consistency among European banks in their approach to marking down their

Greek government bonds in their Q2 results could put Q3 earnings at risk for most French

banks. Their mark-to-model approach brought French banks to write down 21% of their Greek

exposure versus some 50% mark taken by some EU peers. This could put additional pressure

on French banks’ Q3 results.

We remain Underweight all three French banks.

French Banks – new estimates

New 2011 EPS New 2012 EPS New 2013 EPS

BNPP 6.30 6.55 8.02

SocGen* 4.10 4.55 5.93

CASA 1.27 1.43 1.73

Source: Mediobanca Securities EU Investment Banks

In an overall very difficult quarter for the investment banks, Credit Suisse suffered the most as

illustrated by a 76% decline in FICC revenues QoQ, a much worse performance than its peers.

This was fuelled by a CHF900m trading loss in the RMBS market during June and the

inexorable rise of the Swiss franc versus the US$ (appreciation of 23% since Q2 2010 and 8%

appreciation in the quarter) which hurt revenues in all their businesses.

The difficult outlook for the markets and this currency mismatch saw Credit Suisse announce

2,000 job losses by year-end and UBS 5,000.

Deutsche Bank saw investment banking profits more than halve compared to Q1 2011 but

improving performance across its other business lines, supported by the consolidation of

Deutsche Postbank, saw the bank produce an adjusted RoTE in the quarter of 13.7%. In

addition, Deutsche Bank was buoyed by a final decision on management succession, with the

current CEO likely to become Chairman of the Supervisory Board next May and Anshu Jain

and Juergen Fitschen becoming co-CEOs.

We made meaningful downgrades to the Swiss banks' EPS estimates following the results, but

just trimmed our estimates for Deutsche Bank. However, given the turbulent markets in

August and the worsening market outlook, we have made further cuts to these estimates of on

average between 12% and 17%. In addition, we have built in a further dividend cut for 2011E at

Credit Suisse (CHF1.30 to CHF1.00), given the bank’s difficult capital position (this is still a

payout ratio of over 37%).

We embedded the recently-announced trading loss into UBS's Q3 numbers. Although we do

not want to underestimate the bad news, we want to treat it as a one-off for the time being,

European Banks


assuming no major derailing of UBS's business model. UBS remains our favourite name in the

space.

EU Investment Banks – new estimates


UBS 1.00 1.58 1.85

CS 2.96 3.94 4.57

DB 5.24 5.88 6.4


UK Banks

Standard Chartered posted the most encouraging results among the UK banks we cover.

Record profits surpassed the pre-close update in June and were 17% ahead of the previous

year. Importantly, after recording negative cost jaws in 2010, it more than met its neutral jaws

target with positive jaws of 3%. With a 11.9% Basel II Core tier 1 ratio, it was able to increase

the dividend by 10%; a rare thing in the banking industry at present.

HSBC's sale of its US card business shortly after the H1 2011 results announcement will boost

current 10.8% Basel II Core tier 1 ratio by 60bps. The H1 2011 results were solid with

investment banking, particularly in FICC, outperforming its peers. Some 5,000 jobs were shed

in H1, with 25,000 more positions to be eliminated by 2013, albeit these will be netted off by

hires in growth areas. In addition, the sale of 195 upstate New York branches, the US white

label card business and the exit from retail banking in Russia and Poland suggests the

rationalisation of Retail Banking & Wealth Management is well underway. The defensive

profile is reinforced by a “safe” dividend yield hovering around 5%.

Barclays also produced H1 2011 result ahead of consensus. Barclays Capital outperformed its

peers with FICC trading revenues in Q2 falling just 21% compared to Q1 and equity trading

revenues actually rising 3% in the same period. The CEO remains confident of achieving the

targeted 13% RoE by 2013E (H1 2011 9.1%). The bank remains well capitalised, with a 2012E

Basel III “all-in” Core tier 1 ratio of 9.9%.

We reiterate our Overweight stance on the three UK banks under our coverage. The ICB report

did not bring any additional unexpected negative news and leaves enough time to the banks to

adjust to the new regulatory environment.

UK Banks – new estimates


HSBC 1.02 1.11 1.25

StanChart 2.14 2.37 2.59

BARC 0.33 0.41 0.46


European Banks


US Investment Banks

The US investment banks' Q2 2011 results were a mixed bag. As is normally the case, JP

Morgan Chase beat consensus by around 5%. FICC trading revenues fell 18% QoQ and equity

trading revenues fell 13%, both good relative to peers. The bank’s strong balance sheet

(already on a 7.6% Basel III “all-in” Core tier 1 ratio of 7.6%) allowed it to complete a

US$3.5bn buy-back in Q2, another rare event in banking circles at present. It was also

aggressive in stating it would not reach its likely Basel III Core tier 1 requirement of 9.5%

ahead of 2019. Given our estimates suggest they will be at 9.9% by 2012E, this suggests more

buy-backs and a more aggressive dividend policy could be in the cards.

Goldman Sachs produced the negative shock, with Q2 results 33% below consensus mainly

driven by a 63% QoQ fall in FICC trading revenues. Similarly, revenues from principal

activities fell by 61% QoQ. The 6.5% RoTE posted by the bank shows how market and

regulatory forces have changed the landscape since 2006 when it earned an RoTE of 35%.

This was reinforced further by the announcement of 1,000 job losses (3% of total staff).

Following the results we cut our 2011E EPS forecast by 31% and our 2012E and 2013E

forecasts by 17% and 13% respectively.

Morgan Stanley beat Q2 expectations by 20%. Its recent investment in FICC trading activity

paid off in the quarter, with FICC trading revenues 18% ahead of Q1, by far the best

performance in the sector. Similarly, equity trading revenues were 9% ahead of Q1, again a

“best in class” performance. However, while Institutional Securities had a good Q2, the

Global Wealth Management business stalled, with overheads continuing to outpace revenue

growth and the pre-tax margin falling to 9.3% from 10.1% in Q1. While the conversion of the

MUFJ preferred stock has made the bank’s capital position more robust (2012E Basel III “all-

in” Core tier 1 ratio looks set to top 10%), returns remain muted with Q2 2011 RoTE of just

under 9%.

Long JPM (Overweight) short GS (Underweight) continues to be our play on US banks under

coverage.

US Investment Banks – new estimates


JPM 5.27 5.85 6.19

GS 12.8 14.93 16.1

MS 1.17 2.42 2.78


Greek Banks

Q2 results for the Greek banks were somewhat overshadowed by the increased market fears

of an imminent sovereign default, the participation in the PSI plan and the merger between

Alpha Bank and Eurobank. Asset quality continued to deteriorate with NPL formation

increasing on average by 90bps for the Greek banks, with group NPLs now ranging from

12.5% at Eurobank to 9.6% at Piraeus. In addition, deposits fell sharply QoQ between 14% at

Eurobank and 8% at NBG and Piraeus. These outflows were largely attributed to government

withdrawals needed to meet payments, but even excluding these there are signs of clients

withdrawing money to meet the cost of living.

As expected, all four Greek banks under coverage have agreed to participate in the private

sector involvement. A 21% haircut was announced by Alpha Bank, 18% at NBG, 16.7% at

European Banks


Eurobank and 15% at Piraeus. As such, all banks reported losses on their quarterly earnings

which will both make them loss-making for 2011 and erode capital levels. The headline

haircuts taken look optically lower than the 21% widely touted by other European banks but

all the Greek banks involved have complied with the instructions of the offer and we attribute

the main difference to coming from the original carrying value of the bonds held in their

portfolios. However, given the current prices of the Greek sovereign curve as shown in the

chart below, we expect that the cuts taken so far may still not be enough to assure investors.

Current prices of Greek government bonds at stressed levels

99 97

47 43 42 41 40 38 38 38 38 30 32 320%

20%

40%

60%

80%

100%

120%

140%

0

20

40

60

80

100

120

3 m 6 m 1 yr 2 yrs 3 yrs 4 yrs 5 yrs 6 yrs 7 yrs 8 yrs 10 yrs 15 yrs 25 yrs 30 yrs

Price Yield (RHS)


Alpha-Eurobank deal synergies are targeted at €650m over the next three years. These

synergies can be broken down as €350m costs, €210m funding and €90m revenues.

Although we feel that the funding and revenue synergy targets may be challenging, we

consider the cost synergies as being towards the conservative end. Whilst the combined entity

will be a stronger proposition than the two separate components, it is still not immune from

the four key challenges faced by Greek banks: sovereign, ECB reliance for funding, deposit

outflows and rising NPLs. We remain cautious in the space with no Overweight rating.

Greek Banks – new estimates


Alpha Bank -1.12 0.07 0.38

EFG Eurobank -1.36 -0.19 0.32

NBG -1.25 0.45 0.73

Piraeus -0.74 0.01 0.04


European Banks


Asset Gatherers

Margins held up quite well in Q2 for Italian asset gatherers and no significant deterioration is

expected in 3Q. It is worth mentioning the different approach to managing the relationship

with the fiscal authority (Agenzia delle Entrate): Banca Generali remains on the safe side,

rebating 66% of the management fees originated in Luxembourg. Mediolanum sticks to its

“50% rebate” policy (from Ireland) and considers this as a “market practice” level. Strategy-

wise, we see different approaches. Azimut continues its foreign expansion, Mediolanum is

focused on product innovation, while Banca Generali is focused on efficiency.

Regarding Swiss private banks, both EFGN and BAER have a vast part of their assets

denominated in EUR and USD, while the majority of their costs are in CHF. Such a mismatch

created significant negative FX impact in 1H, and is not expected to revert any time soon,

despite the action of the Swiss Central Bank. Neither BAER nor EFGN put any hedging

strategy in place in order to avoid P&L volatility. What they are trying to achieve (particularly

EFGN) is the decentralisation of costs in order to have a better match between revenues and

costs. BAER is overcapitalised and fully matches the FINMA requirements. The company

launched a buyback in April, and aims to buy back CHF500m of share capital. EFGN should

perfectly match FINMA requirements, even though the treatment of its Bons de Participation

is still a debated issue.

Our new estimates reflect -20% 2011E equity market performance. We have also more than

halved performance fees for Mediolanum and kept the 20bps on AuM reported in 1H11

(annualized) flattish at end of 2011. A similar assumption has been made for Banca Generali.

Our current estimate of 12bps is some 50% below our previous forecast of 25bps (equal to

€26m) and remains 50% below the 2006-2011 average. As far as Azimut is concerned, we

decreased performance fees at year-end from 35bps to 25bps, or from €53m to €36m, taking

into account that its first half was more generous than its two competitors, both in terms of

bps/AuM and the amount in absolute terms. No particular adjustments have been made for

Julius Baer and EFG International, given the negligible contribution of performance fees to

their top line. This lead us to recent EPS changes of between 6%, in the case of the two Swiss

banks, and 23% for Banca Generali. We remain Overweight the space with Mediolanum and

Banca Generali our favourite names.

Asset Gatherers – new estimates


Banca Mediolanum 0.26 0.33 0.36

Banca Generali 0.65 0.88 1.12

Julius Baer 2.02 2.54 2.82

EFGN 0.68 0.99 1.56


European Banks


Spanish Banks

Spanish banks showed flat to mildly negative QoQ volume growth, with NIM mildly tipping a

few bps upwards QoQ as funding costs stabilised. This was coupled with stabilisation of LLP,

albeit still at the 80-100bp level. In practice, banks are running out of generics and NPL

coverage ratios have fallen at around 40%, an unsustainably low level, in our view. Banks

focused on RWAs reduction to confirm CT1 capital levels above the 8% threshold required by

BDE.

Q2 saw the listing of Caixabank, Bankia, Banca Civica, marking a major step forward for the

solution of the Cajas and jointly representing c. 25% of Spanish assets. Finally, over the

summer we assisted in the collapse of CAM, which was nationalized and showed 19% NPL

ratio.

SAN marked the slowdown of its international pillars. The bank reported a €500m hit in its

UK unit as a provision for litigation on insurance protection products and the overall cruising

speed of the bank has slowed down as mounting regulatory pressure in the UK dents

profitability. Also, Brazil showed a large pickup in LLP and a slowdown in the top line as the

country adjusts to the ongoing global growth deceleration. We downgraded the stock to

Neutral post Q2 as the stock no longer deserves a diversification premium, in our view.

BBVA on the one hand confirmed better-than-peer asset quality and resilience in the Spanish

franchise but on the other, also showed lower-than-expected acceleration from its EM banks.

Among domestic players, POP and SAB continue to work through the clean-up of their large

R.E. exposure, while BKT showed signs of vivacity through the improvement in NII from

more stable funding costs and low LLP levels (small R.E. exposure).

We remain cautious in the space with no Overweight rating. Our concerns: sovereign, deposit

war, no more asset quality cushions, real estate, too strong outperformance YTD.

Spanish Banks – new estimates


Santander 0.86 1.04 1.2

BBVA 0.86 1.00 0.8

Bankinter 0.28 0.33 0.4

Popular 0.25 0.29 0.37

Sabadell 0.16 0.26 0.3


European Banks


Italian Banks

Securities issued increased by 12% in 1H11 versus December 2010. Only UC and ISP show a

decrease in the amount of securities issued, but this is solely due to the dismantling of some

repo portfolios. During the 1H results sessions, most of the Italian Banks stated they opted to

refinance most of the bond portfolios, aiming at hedging against the risk of a further increase

in the cost of funding. As a consequence, Q2 NII dropped QoQ.

On average, loan growth remained stagnant with 2% average growth. ISP showed the weakest

performance (-2% versus December 2010), but the growth remained subdued in all the

largest banks (UBI, MPS, and BP), while it was more robust in the smaller local players

(namely CRG, Creval and Credem). With regard to asset quality, we notice a steady growth in

gross NPL (some 7%) in H1 versus December 2010, signalling that the robust growth in

doubtful loans in 2010 is now progressively transferring into the NPL category. The NPL

coverage ratio is stable at 58%, but it is falling in the smaller players (most notably in UBI

and Credem). Gross Doubtful Loans stabilised, but Restructured Loans are growing quickly

(+15%), signalling that asset quality is unlikely to improve markedly in the short term.

UBI and Credem are the only Overweight ratings in the space. UC rights issue should be well

expected but it needs to hit the screens before being properly priced in. ISP remains a more

defensive way to get exposure to Italy and we would expect its relatively strong capital

position to start paying off sooner or later. M&A in the cooperative space could be the nice Q4

surprise.

Italian Banks – new estimates


ISP 0.13 0.17 0.2

UCG 0.13 0.17 0.2

MPS 0.04 0.04 0.06

UBI 0.26 0.39 0.5

BP 0.07 0.14 0.18

Credem 0.38 0.43 0.52

Creval 0.14 0.2 0.22


CEE banks

Loan growth remained broadly muted in Q2. Momentum remained strong in Poland and

Ukraine, slowed down in the Czech Republic, and continues to remain weak in Hungary.

RBI management sounded the most optimistic, as it expects further recovery in the region.

EBS expects loan growth to reach mid-single digit, but this is unlikely to materialise before

H1 2012. At OTP, management also voiced cautious optimism on the volume growth outlook

especially in Russia and Ukraine and even a certain stabilisation of the Hungarian situation,

but was downbeat on other countries.

The rate hikes by the central banks in some markets supported deposit margins. In addition,

changes in asset mixes, i.e. increased high-margin corporate and consumer lending and

decreased low-margin mortgages, and the banks’ asset re-pricing, also aided NIM in Q2. As a

result, NIM either remained stable or grew by some 10-50bps in the quarter across countries.

European Banks


EBS has noted stiff competition for deposits in Romania is hurting margins. However,

management also added that thanks to its leading position in the market, it still managed to

lower the rates offered on deposits, but that the majority of deposits on the retail side in

Romania are firm deposits, so it takes a little while for the effect to work through. The re-

pricing is around 45 days. As EBS brought down deposit rates in the very final part of the last

quarter, the impact will likely be in Q3. Additionally, in Hungary, OTP was faced with strict

rules on pricing that aimed to protect borrowers but hurt banks in Q2 – hence, NIM dropped

10bps.

RBI has stated that a capital increase within the next 12 months may be an option but the

main purpose would be to fund growth and it has no intention of paying back the €2.5bn

Participation Capital at the moment. This, however, will depend on how the markets evolve;

i.e. a stagnation with no growth prospects would not trigger a capital increase. While M&A

aspiration seems still on the cards and a buyback programme has been approved in the case

of OTP, managements have voiced caution on such moves, given the current market

conditions. This even applies to OTP and PKO, which were better capitalised than the others

- with 11-13% plus Basel II CT1.

Erste and KBC continue to represent our favourite options to get CEE exposure.

CEE Banks – new estimates


KBC 2.82 3.1 3.29

Erste 2.27 2.94 3.83

OTP 453 615 839

Raiffeisen 3.5 3.68 4.26

NDA 0.64 0.67 0.71

PKO 2.9 3.29 3.81


European Banks


Summary of EPS changes The table below summarises our earnings changes. On average we are cutting EPS by 14% for 2012. Where no changes are shown it means EPS was recently cut separately.

Earnings Revisions 2011-13E Old New Changes

Currency 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E

Erste Bank EUR 2.8 3.68 4.94 2.27 2.94 3.83 -19% -20% -22%

Raiffeisen EUR 3.6 4.08 4.86 3.5 3.68 4.26 -3% -10% -12%

KBC EUR 3.56 3.8 4.15 2.82 3.1 3.29 -21% -19% -21%

Credit Agricole EUR 1.52 1.84 1.99 1.27 1.43 1.73 -17% -22% -13%

Alpha Bank EUR 0.03 0.25 0.55 -1.12 0.07 0.38 nm -71% -31%

EFG Eurobank EUR 0.10 0.18 0.80 -1.36 -0.19 0.32 nm nm -60%

NBG EUR 0.44 0.75 1.04 -1.25 0.45 0.73 nm -39% -30%

Piraeus EUR -0.02 0.03 0.19 -0.74 0.01 0.04 nm -76% -78%

OTP Bank HUF 519 705 983 453 615 839 -13% -13% -15%

Banco Popolare EUR 0.10 0.2 0.26 0.07 0.14 0.18 -36% -31% -32%

Credem EUR 0.45 0.51 0.62 0.38 0.43 0.52 -16% -15% -17%

Intesa Sanpaolo EUR 0.19 0.23 0.26 0.13 0.17 0.2 -30% -25% -24%

MPS EUR 0.05 0.06 0.08 0.04 0.04 0.06 -31% -29% -29%

UBI Banca EUR 0.46 0.55 0.69 0.26 0.39 0.5 -42% -29% -27%

Unicredit EUR 0.17 0.24 0.29 0.13 0.17 0.2 -22% -29% -31%

PKO PLN 3.08 3.46 3.93 2.9 3.29 3.81 -6% -5% -3%

Banco Popular EUR 0.3 0.38 0.45 0.25 0.29 0.37 -18% -22% -18%

Bankinter EUR 0.28 0.34 0.41 0.28 0.33 0.4 -1% -2% -2%

Sabadell EUR 0.20 0.33 0.31 0.16 0.26 0.3 -18% -21% -5%

Nordea EUR 0.72 0.78 0.82 0.64 0.67 0.71 -12% -14% -14%

BNP Paribas EUR 7.05 7.23 10.82 6.3 6.55 8.02 -11% -9% -26%

Societe Generale EUR 4.10 4.55 5.93 4.10 4.55 5.93 0% 0% 0%

Commerzbank EUR 0.28 0.36 0.40 0.18 0.31 0.38 -34% -14% -4%

Deutsche Bank EUR 5.24 5.88 6.4 5.24 5.88 6.4 0% 0% 0%

Credit Suisse CHF 3.19 4.41 5.05 2.96 3.94 4.57 -7% -11% -9%

UBS CHF 1.00 1.58 1.85 1.00 1.58 1.85 0% 0% 0%

Barclays GBp 0.33 0.41 0.46 0.33 0.41 0.46 0% 0% 0%

Azimut EUR 0.54 0.67 0.7 0.54 0.67 0.70 0% 0% 0%

Banca Generali EUR 0.65 0.88 1.12 0.65 0.88 1.12 0% 0% 0%

Mediolanum EUR 0.26 0.33 0.36 0.26 0.33 0.36 0% 0% 0%

EFG International CHF 0.68 0.99 1.56 0.68 0.99 1.56 0% 0% 0%

Julius Baer CHF 2.02 2.54 2.82 2.02 2.54 2.82 0% 0% 0%

BBVA EUR 0.97 1.14 1.26 0.86 1.00 1.08 -11% -12% -14%

Santander EUR 0.86 1.04 1.2 0.86 1.04 1.2 0% 0% 0%

HSBC GBp 1.02 1.24 1.25 1.02 1.11 1.25 0% -11% 0%

StanChart GBp 2.15 2.37 2.55 2.14 2.37 2.59 0% 0% 2%

Goldman Sachs USD 12.8 14.93 16.1 12.8 14.93 16.1 0% 0% 0%

JP Morgan USD 5.35 5.94 6.3 5.27 5.85 6.19 -2% -2% -2%

Morgan Stanley USD 1.33 2.82 3.21 1.17 2.42 2.78 -12% -14% -13%

Average -11% -14% -15%


European Banks


Summary of target price changes The table below summarises our changes to our 2012 target prices. On average we have cut target

prices by 20% when not previously reduced already.

Target price changes based on our SOTP 2012

Change in TPs Currency Price as at 15/9/2011 Old TP New TP Change in TP Rating

Erste Bank EUR 20.6 45.0 34.0 -24% Outperform

Raiffeisen EUR 23.8 40.0 34.0 -15% Neutral

KBC EUR 15.4 43.0 35.0 -19% Outperform

Credit Agricole EUR 5.5 11.5 8.0 -30% Underperform

Alpha Bank EUR 1.61 3.70 2.50 -32% Neutral

EFG Eurobank EUR 1.19 3.00 1.30 -58% Underperform

NBG EUR 3.10 5.30 3.60 -32% Neutral

Piraeus EUR 0.56 0.70 0.50 -29% Underperform

OTP Bank HUF 3730 6095 4655 -24% Underperform

Banca Etruria EUR 1.5 2.3 1.8 -22% Neutral

Banco Desio EUR 3.3 5.2 5.0 -4% Outperform

Banco Popolare EUR 1.1 1.8 1.3 -28% Neutral

Carige EUR 1.4 1.6 1.4 -13% Neutral

Credem EUR 2.9 6.2 5.0 -19% Outperform

Creval EUR 2.2 2.9 2.1 -28% Underperform

Intesa Sanpaolo EUR 1.1 2.1 1.5 -28% Neutral

MPS EUR 0.41 0.60 0.40 -30% Neutral

UBI Banca EUR 2.4 4.6 3.7 -20% Outperform

Unicredit EUR 0.8 1.8 1.2 -35% Neutral

PKO PLN 31.4 48.0 40.0 -17% Neutral

Banco Popular EUR 3.4 4.4 4.1 -8% Neutral

Bankinter EUR 3.9 4.4 3.7 -15% Underperform

Sabadell EUR 2.6 2.7 2.5 -10% Underperform

Nordea EUR 54.5 95.0 80.0 -16% Outperform

BNP Paribas EUR 30.5 60.7 37.9 -38% Underperform

Societe Generale EUR 18.3 47.3 29.7 -37% Underperform

Commerzbank EUR 1.8 4.5 3.9 -13% Neutral

Deutsche Bank EUR 25.1 36.4 36.4 0% Neutral

Credit Suisse CHF 21.7 40.0 33.3 -17% Neutral

UBS CHF 9.8 16.7 16.7 0% Outperform

Barclays GBp 158 305 305 0% Outperform

Azimut EUR 4.8 6.7 6.7 0% Outperform

Banca Generali EUR 6.7 10.0 10.0 0% Outperform

Mediolanum EUR 2.5 4.0 4.0 0% Outperform

EFG International CHF 6.7 10.0 10.0 0% Neutral

Julius Baer CHF 30.9 38.0 38.0 0% Neutral

BBVA EUR 5.9 9.1 7.8 -15% Neutral

Santander EUR 5.9 8.6 7.8 -9% Neutral

HSBC GBp 521 710 710 0% Outperform

StanChart GBp 1379 1900 1900 0% Outperform

Goldman Sachs USD 108.0 129.0 120.4 -7% Underperform

JP Morgan USD 33.8 48.3 47.6 -2% Outperform

Morgan Stanley USD 16.6 25.3 22.1 -13% Neutral


Disclaimer


THIS RESEARCH REPORT IS PREPARED BY MEDIOBANCA - BANCA DI CREDITO FINANZIARIO S.P.A. ("MEDIOBANCA S.P.A.") AUTHORIZED BY THE BANK OF ITALY TO PROVIDE FINANCIAL SERVICES. THIS RESEARCH REPORT IS PROVIDED FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE OR SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL, OR A SOLICITATION OF AN OFFER TO BUY OR SELL, ANY FINANCIAL INSTRUMENTS. IT IS NOT INTENDED TO REPRESENT THE CONCLUSIVE TERMS AND CONDITIONS OF ANY SECURITY OR TRANSACTION, NOR TO NOTIFY YOU OF ANY POSSIBLE RISKS, DIRECT OR INDIRECT, IN UNDERTAKING SUCH A TRANSACTION. THE INFORMATION CONTAINED HEREIN, INCLUDING ANY EXPRESSION OF OPINION, HAS BEEN OBTAINED FROM OR IS BASED UPON SOURCES BELIEVED TO BE RELIABLE BUT IS NOT GUARANTEED AS TO ACCURACY OR COMPLETENESS ALTHOUGH MEDIOBANCA S.P.A. CONSIDERS IT TO BE FAIR AND NOT MISLEADING. NEITHER MEDIOBANCA S.P.A. NOR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS SHALL HAVE ANY LIABILITY, HOWSOEVER ARISING, FOR ANY ERROR, INACCURACY OR INCOMPLETENESS OF FACT OR OPINION IN IT OR LACK OF CARE IN ITS PREPARATION OR PUBLICATION. SAVE AS OTHERWISE PROVIDED IN THE RESEARCH REPORT, MEDIOBANCA S.P.A. HAS NO OBLIGATION TO UPDATE, MODIFY OR AMEND THIS REPORT AND INFORM THE READER ACCORDINGLY. THIS DOCUMENT DOES NOT CONSTITUTE A PERSONAL RECOMMENDATION AND RECIPIENTS MUST SATISFY THEMSELVES THAT ANY DEALING IS APPROPRIATE IN THE LIGHT OF THEIR OWN UNDERSTANDING, APPRAISAL OF RISK AND REWARD, OBJECTIVES, EXPERIENCE, AND FINANCIAL AND OPERATIONAL RESOURCES. ALL STATEMENTS AND OPINIONS ARE MADE AS OF THE DATE ON THE FACE OF THIS DOCUMENT AND ARE NOT HELD OUT AS APPLICABLE THEREAFTER. THE PERSON WHO PREPARED THIS RESEARCH REPORT, WHOSE NAME AND FUNCTION APPEAR AT THE BOTTOM OF THE FIRST PAGE OF THIS RESEARCH REPORT, DOES NOT RECEIVE ANY COMPENSATION WHATSOEVER TIED TO SPECIFIC INVESTMENT BANKING TRANSACTIONS PERFORMED BY MEDIOBANCA S.P.A. OR ANY OF THE COMPANIES BELONGING TO ITS GROUP. ALL PRICES ARE MARKET CLOSE PRICES UNLESS DIFFERENTLY SPECIFIED. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO ALPHA BANK. ALPHA BANK INITIAL COVERAGE AS OF 16/03/2011. CERTAIN MEMBERS OF THE GOVERNING BODIES OF BANCA GENERALI ARE ALSO MEMBERS OF THE GOVERNING BODIES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. BANCA GENERALI INITIAL COVERAGE AS OF 17/01/2007. CERTAIN MEMBERS OF THE GOVERNING BODIES OF BANCA MONTE PASCHI SIENA ARE ALSO MEMBERS OF THE GOVERNING BODIES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. IN THE PAST 12 MONTHS, MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP HAVE ACTED AS LEAD MANAGERS, CO-LEAD MANAGERS, BOOKRUNNERS OR IN SIMILAR ROLES IN THE CONTEXT OF A PUBLIC OFFERING OF FINANCIAL INSTRUMENTS OF BANCA MONTE PASCHI SIENA. BANCA MONTE PASCHI SIENA INITIAL COVERAGE AS OF 12/02/2004. IN THE PAST 12 MONTHS, THE RATING ON BANCA MONTE PASCHI SIENA HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 19/04/2011, WAS UNDERPERFORM. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO BANCA POP. ETRURIA E LAZIO. BANCA POP. ETRURIA E LAZIO INITIAL COVERAGE AS OF 22/01/2003. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP ARE CURRENTLY PROVIDING CORPORATE FINANCE SERVICES TO BANCA POP. MILANO OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. MEDIOBANCA S.P.A. IS COMMITTED TO PURCHASE FINANCIAL INSTRUMENTS REMAINING UNSUBSCRIBED IN THE CONTEXT OF FINANCIAL INSTRUMENTS OFFERING OF BANCA POP. MILANO. BANCA POP. MILANO INITIAL COVERAGE AS OF 05/03/2003. IN THE PAST 12 MONTHS, THE RATING ON BANCA POP. MILANO HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 01/02/2011, WAS NEUTRAL. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO BANCO DESIO & BRIANZA. BANCO DESIO & BRIANZA INITIAL COVERAGE AS OF 06/03/2006. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO BANCO POPOLARE. BANCO POPOLARE INITIAL COVERAGE AS OF 25/07/2007. IN THE PAST 12 MONTHS, THE RATING ON BANCO POPOLARE HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 28/03/2011, WAS UNDERPERFORMMEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO BANCO POPULAR. BANCO POPULAR INITIAL COVERAGE AS OF 10/03/2011. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO BANKINTER. BANKINTER INITIAL COVERAGE AS OF 10/03/2011. CERTAIN MEMBERS OF THE GOVERNING BODIES OF BARCLAYS ARE ALSO MEMBERS OF THE GOVERNING BODIES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. BARCLAYS INITIAL COVERAGE AS OF 30/06/2010. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO BBVA. BBVA INITIAL COVERAGE AS OF 30/06/2010. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP ARE CURRENTLY PROVIDING CORPORATE FINANCE SERVICES TO BNP PARIBAS OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. BNP PARIBAS INITIAL COVERAGE AS OF 30/06/2010. IN THE PAST 12 MONTHS, THE RATING ON BNP PARIBAS HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 24/02/2011, WAS NEUTRALCERTAIN MEMBERS OF THE GOVERNING BODIES OF COMMERZBANK ARE ALSO MEMBERS OF THE GOVERNING BODIES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP ARE CURRENTLY ACTING AS LEAD MANAGERS CO-LEAD MANAGERS IN THE CONTEXT OF A PUBLIC OFFERING OF FINANCIAL INSTRUMENTS OF COMMERZBANK. MEDIOBANCA S.P.A. IS COMMITTED TO PURCHASE FINANCIAL INSTRUMENTS REMAINING UNSUBSCRIBED IN THE CONTEXT OF FINANCIAL INSTRUMENTS OFFERING OF COMMERZBANK. COMMERZBANK INITIAL COVERAGE AS OF 30/06/2010. IN THE PAST 12 MONTHS, THE RATING ON COMMERZBANK HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 08/04/2011, WAS UNDERPERFORM. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO CREDEM. CREDEM INITIAL COVERAGE AS OF 21/03/2003. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO CREDIT AGRICOLE SA. CREDIT AGRICOLE SA INITIAL COVERAGE AS OF 30/06/2010. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO CREDIT SUISSE. CREDIT SUISSE INITIAL COVERAGE AS OF 30/06/2010. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR

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INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO DANSKE BANK. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO EFG EUROBANK. EFG EUROBANK INITIAL COVERAGE AS OF 16/03/2011. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO EFG INTERNATIONAL. EFG INTERNATIONAL INITIAL COVERAGE AS OF 30/06/2010. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO ERSTE BANK. ERSTE BANK INITIAL COVERAGE AS OF 30/06/2010. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO GOLDMAN SACHS. GOLDMAN SACHS INITIAL COVERAGE AS OF 30/06/2010. IN THE PAST 12 MONTHS, THE RATING ON GOLDMAN SACHS HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 07/02/2011, WAS NEUTRAL. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO HSBC. HSBC INITIAL COVERAGE AS OF 30/06/2010. IN THE PAST 12 MONTHS, THE RATING ON HSBC HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 08/11/2010, WAS NEUTRAL. CERTAIN MEMBERS OF THE GOVERNING BODIES OF INTESA SANPAOLO ARE ALSO MEMBERS OF THE GOVERNING BODIES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. IN THE PAST 12 MONTHS, MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP HAVE ENTERED INTO AGREEMENTS TO DELIVER CORPORATE FINANCE SERVICES TO INTESA SANPAOLO OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. INTESA SANPAOLO INITIAL COVERAGE AS OF 16/04/2007. IN THE PAST 12 MONTHS, THE RATING ON INTESA SANPAOLO HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 16/03/2011, WAS UNDERPERFORM. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO JP MORGAN CHASE. JP MORGAN CHASE INITIAL COVERAGE AS OF 30/06/2010. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO JULIUS BAER. JULIUS BAER INITIAL COVERAGE AS OF 30/06/2010. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO KBC GROEP. KBC GROEP INITIAL COVERAGE AS OF 30/06/2010. CERTAIN MEMBERS OF THE GOVERNING BODIES OF MEDIOLANUM ARE ALSO MEMBERS OF THE GOVERNING BODIES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. MEDIOLANUM OWNS A MAJOR HOLDING (AS DEFINED IN THE REGULATIONS OF THE COMMISSIONE NAZIONALE PER LE SOCIETA E LA BORSA) IN MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. PLEASE CONSULT THE WEBSITE OF COMMISSIONE NAZIONALE PER LE SOCIETA E LA BORSA (WWW.CONSOB.IT) FOR DETAILS. MEDIOLANUM INITIAL COVERAGE AS OF 19/03/2003. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO MORGAN STANLEY. MORGAN STANLEY INITIAL COVERAGE AS OF 30/06/2010. IN THE PAST 12 MONTHS, THE RATING ON MORGAN STANLEY HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 24/02/2011, WAS UNDERPERFORM. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO NATIONAL BANK OF GREECE. NATIONAL BANK OF GREECE INITIAL COVERAGE AS OF 16/03/2011MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO NORDEA. NORDEA INITIAL COVERAGE AS OF 30/06/2010. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO PIREAUS. PIREAUS INITIAL COVERAGE AS OF 16/03/2011. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO PKO BANK. PKO BANK INITIAL COVERAGE AS OF 30/06/2010. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO RAIFFEISEN. RAIFFEISEN INITIAL COVERAGE AS OF 30/06/2010. SANTANDER HAS A REPRESENTATIVE ON ONE OF THE GOVERNING BODIES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. SANTANDER INITIAL COVERAGE AS OF 30/06/2010. IN THE PAST 12 MONTHS, THE RATING ON SANTANDER HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 05/07/2011, WAS OUTPERFORM. SOCIETE GENERALE HAS A REPRESENTATIVE ON ONE OF THE GOVERNING BODIES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. SOCIETE GENERALE INITIAL COVERAGE AS OF 30/06/2010. IN THE PAST 12 MONTHS, THE RATING ON SOCIETE GENERALE HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 06/05/2011, WAS OUTPERFORM. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP MAY, FROM TIME TO TIME, DEAL IN, HOLD OR ACT AS MARKET MAKERS OR ADVISERS, BROKERS OR BANKERS IN RELATION TO THE FINANCIAL INSTRUMENTS, OR DERIVATIVES THEREOF, OF PERSONS, FIRMS OR ENTITIES MENTIONED IN THIS DOCUMENT, OR BE REPRESENTED ON THE GOVERNING BODIES OF SUCH FIRMS OR ENTITIES. EMPLOYEES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, MAY FROM TIME TO TIME HAVE A POSITION IN OR BE HOLDING ANY OF THE INVESTMENTS OR RELATED INVESTMENTS MENTIONED IN THIS DOCUMENT. APPLIES TO UBS. UBS INITIAL COVERAGE AS OF

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30/06/2010. IN THE PAST 12 MONTHS, THE RATING ON UBS HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 09/02/2011, WAS NEUTRAL. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP HOLD MATERIAL OPEN POSITIONS IN FINANCIAL INSTRUMENTS, OR DERIVATIVES WHOSE UNDERLYING FINANCIAL INSTRUMENTS ARE MATERIALLY REPRESENTED BY FINANCIAL INSTRUMENT, ISSUED BY UNICREDIT. UNICREDIT HAS A REPRESENTATIVE ON ONE OF THE GOVERNING BODIES OF MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. UNICREDIT OWNS A MAJOR HOLDING (AS DEFINED IN THE REGULATIONS OF THE COMMISSIONE NAZIONALE PER LE SOCIETA E LA BORSA) IN MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. PLEASE CONSULT THE WEBSITE OF COMMISSIONE NAZIONALE PER LE SOCIETA E LA BORSA (WWW.CONSOB.IT) FOR DETAILS. MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP ARE CURRENTLY PROVIDING CORPORATE FINANCE SERVICES TO UNICREDIT OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. UNICREDIT INITIAL COVERAGE AS OF 30/06/2003. IN THE PAST 12 MONTHS, MEDIOBANCA S.P.A. OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP HAVE ENTERED INTO AGREEMENTS TO DELIVER CORPORATE FINANCE SERVICES TO UNIONE DI BANCHE ITALIANE OR ONE OR MORE OF THE COMPANIES BELONGING TO ITS GROUP. UNIONE DI BANCHE ITALIANE INITIAL COVERAGE AS OF 16/04/2007. IN THE PAST 12 MONTHS, THE RATING ON UNIONE DI BANCHE ITALIANE HAS BEEN CHANGED. THE PREVIOUS RATING, ISSUED ON 02/11/2010, WAS NEUTRAL.FERRARI GIANLUCA, THE ANALYST WHO PREPARED THIS RESEARCH REPORT, DOES NOT RECEIVE ANY COMPENSATION WHATSOEVER TIED TO SPECIFIC INVESTMENT BANKING TRANSACTIONS PERFORMED BY MEDIOBANCA S.P.A. OR ANY OF THE COMPANIES BELONGING TO ITS GROUP AND HOLDS NO. 300 SHARES OF BANCA GENERALI.MEDIOBANCA S.P.A. AND THE COMPANIES BELONGING TO ITS GROUP, OR INDIVIDUALS CONNECTED TO THEM, ARE UNDER NO OBLIGATION TO DISCLOSE OR TAKE ACCOUNT OF THIS DOCUMENT WHEN ADVISING OR DEALING WITH OR FOR THEIR CUSTOMERS. FOR FURTHER INFORMATION REGARDING QUARTERLY RATING STATISTICS AND DESCRIPTIONS, CHINESE WALL MECHANISMS PUT IN PLACE BY MEDIOBANCA S.P.A., EVALUATION METHODS, THE MEANING OF ANY "OUTPERFORM", "NEUTRAL", "UNDERPERFORM" OR SIMILAR RECOMMENDATIONS (AND AN INDICATION OF THE RISKS AND A SENSITIVITY ANALYSIS OF THE RELEVANT ASSUMPTIONS) AND ANY OTHER RELEVANT MATTERS, PLEASE REFER TO THE "MB SECURITIES" SECTION OF THE MEDIOBANCA S.P.A. WEBSITE AT WWW.MEDIOBANCA.IT. TO ACCESS PREVIOUS RESEARCH REPORTS AND ESTABLISH TRENDS IN RATINGS ISSUED, PLEASE SEE THE RESTRICTED ACCESS PART OF THE "MB SECURITIES" SECTION OF THE MEDIOBANCA S.P.A. WEBSITE AT WWW.MEDIOBANCA.IT. ANY REFERENCES TO STATUES, LAWS, DECREES, REGULATIONS OR LISTING REQUIREMENTS ARE TO STATUES, LAWS, DECREES, REGULATIONS OR LISTING REQUIREMENTS AS IN FORCE ON THE DATE OF THIS RESEARCH REPORT. THIS MATERIAL IS NOT DIRECTED AT YOU IF MEDIOBANCA S.P.A. IS PROHIBITED OR RESTRICTED BY ANY LEGISLATION OR REGULATION IN ANY JURISDICTION FROM MAKING IT AVAILABLE TO YOU. YOU SHOULD SATISFY YOURSELF BEFORE READING IT THAT MEDIOBANCA S.P.A. IS PERMITTED TO PROVIDE RESEARCH MATERIAL CONCERNING INVESTMENTS TO YOU UNDER RELEVANT LEGISLATION AND REGULATIONS. MEDIOBANCA S.P.A. ACCEPTS NO RESPONSIBILITY WHATEVER FOR ANY FAILURE BY A PERSON RESIDENT OUTSIDE ITALY, THE UNITED STATES OR THE UNITED KINGDOM TO OBSERVE THE FOREGOING. NO PART OF THE CONTENT OF ANY RESEARCH MATERIAL MAY BE COPIED, FORWARDED OR DUPLICATED IN ANY FORM OR BY ANY MEANS WITHOUT THE PRIOR CONSENT OF MEDIOBANCA S.P.A., AND MEDIOBANCA S.P.A. ACCEPTS NO LIABILITY WHATSOEVER FOR THE ACTIONS OF THIRD PARTIES IN THIS RESPECT. ADDITIONAL NOTES TO U.K. INVESTORS: MEDIOBANCA S.P.A. PROVIDES INVESTMENT SERVICES IN THE UK THROUGH A BRANCH ESTABLISHED IN THE UK (AS WELL AS DIRECTLY FROM ITS ESTABLISHMENT(S) IN ITALY) PURSUANT TO ITS PASSPORTING RIGHTS UNDER APPLICABLE EEA BANKING AND FINANCIAL SERVICES DIRECTIVES AND IN ACCORDANCE WITH APPLICABLE FINANCIAL SERVICES AUTHORITY REQUIREMENTS. THIS DOCUMENT IS DIRECTED ONLY AT PERSONS WHO (I) HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS FALLING WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (AS AMENDED, THE FINANCIAL PROMOTION ORDER), (II) ARE PERSONS FALLING WITHIN ARTICLE 49(2)(A) TO (D) (HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS, ETC.) OF THE FINANCIAL PROMOTION ORDER, OR (III) ARE PERSONS TO WHOM AN INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY (WITHIN THE MEANING OF SECTION 21 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000) MAY OTHERWISE LAWFULLY BE COMMUNICATED (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS RELEVANT PERSONS). THIS DOCUMENT IS DIRECTED ONLY AT RELEVANT PERSONS AND MUST NOT BE ACTED ON OR RELIEDON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS DOCUMENT RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. MEDIOBANCA S.P.A. DOES NOT PROVIDE INVESTMENT ADVISORY SERVICES TO RETAIL CLIENTS (AS DEFINED BY THE RULES OF THE FINANCIAL SERVICES AUTHORITY). ADDITIONAL NOTES TO U.S. INVESTORS: THIS RESEARCH REPORT IS PREPARED BY MEDIOBANCA S.P.A. AND DISTRIBUTED IN THE UNITED STATES AND CANADA BY MEDIOBANCA SECURITIES USA LLC, A FINRA MEMBER FIRM. THIS INFORMATION PROVIDED IN THIS COMMUNICATION IS FOR DISCUSSION AND IS NOT BINDING ON MEDIOBANCA SECURITIES USA LLC OR ANY OF ITS AFFILIATES. MEDIOBANCA SECURITIES USA LLC IS AN AFFILIATE OF MEDIOBANCA S.P.A. MEDIOBANCA S.P.A. HAS NO OBLIGATION TO UPDATE, MODIFY OR AMEND THIS REPORT AND INFORM THE READER ACCORDINGLY, EXCEPT WHEN TERMINATING COVERAGE OF THE ISSUER OF THE SECURITIES DISCUSSED IN THIS REPORT. THIS DOCUMENT IS NOT INTENDED TO REPRESENT THE CONCLUSIVE TERMS AND CONDITIONS OF ANY SECURITY OR TRANSACTION, NOR TO NOTIFY YOU OF ANY POSSIBLE RISKS, DIRECT OR INDIRECT, IN UNDERTAKING SUCH A TRANSACTION. THE ATTACHED TERMS ARE INDICATIVE AND CONSTITUTE NEITHER AN OFFER TO SELL NOR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY. WE WILL ASSUME, UNLESS YOU NOTIFY US OTHERWISE, THAT YOU HAVE SUFFICIENT KNOWLEDGE, EXPERIENCE AND/OR PROFESSIONAL ADVICE TO UNDERTAKE YOUR OWN ASSESSMENT. ALL OF THE VIEWS EXPRESSED IN THIS RESEARCH REPORT ACCURATELY REFLECT THE RESEARCH ANALYST'S PERSONAL VIEWS REGARDING THE SUBJECT COMPANY. NO PART OF ANALYST COMPENSATION WAS, IS OR WILL BE, DIRECTLY OR INDIRECTLY RELATED TO THE SPECIFIC RECOMMENDATIONS OR VIEWS EXPRESSED IN THIS RESEARCH REPORT. MEDIOBANCA SECURITIES USA LLC ACCEPTS RESPONSIBILITY FOR THE CONTENT OF THIS REPORT. ANY US OR CANADIAN PERSON RECEIVING THIS REPORT AND WISHING TO EFFECT ANY TRANSACTION IN ANY SECURITY DISCUSSED IN THIS REPORT SHOULD CONTACT MEDIOBANCA SECURITIES USA LLC AT 001(212) 991-4745. PLEASE REFER TO THE CONTACT PAGE FOR ADDITIONAL CONTACT INFORMATION.

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Sector Update 19Sept2011...

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