Banks. Banco Popular Espanol S.A. Spain. Full Rating Report. Key Rating Drivers. Rating Sensitivities. Ratings

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1 Spain Full Rating Report Ratings Foreign Currency Long-Term IDR Short-Term IDR BB+ B Viability Rating bb- Support Rating 3 Support Rating Floor BB+ Sovereign Risk Foreign-Currency Long-Term IDR Local-Currency Long-Term IDR Outlooks BBB+ BBB+ Foreign-Currency Long-Term Negative IDR Sovereign Foreign-Currency Stable Long-Term IDR Sovereign Local-Currency Long- Stable Term IDR Financial Data 31 Dec Dec 13 Total assets (USDm) 196, ,905.3 Total assets (EURm) 161, ,851.7 Total equity (EURm) 12, ,980.3 Pre-impairment op. 2, ,953.9 profit (EURm) Operating profit (EURm) Net income (EURm) Pre-impairment op ROAA (%) Operating ROAA (%) Operating ROAE (%) Fitch core capital/ weighted risks (%) Fitch eligible capital/ weighted risks (%) Regulatory Tier 1 ratio (%) Related Research Outlook: Spanish Banks (December 2014) Ratings Navigator () Fitch Affirms SRF of 64 EMEA Banks; Downward Revisions Likely for Most due to Weakening Support (March 2014) Analysts Roger Turro roger.turro@fitchratings.com Josu Fabo, CFA josu.fabo@fitchratings.com Key Rating Drivers Support-driven IDRs: s (Popular) Issuer Default Ratings (IDR) are based on its Support Rating Floor (SRF), which reflects Fitch Ratings belief that there is a moderate probability of state support, if required. This is due to Popular s systemic importance to Spain. The Negative Outlook reflects a likely reduction of state support in view of the EU s Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM). The Viability Rating (VR) of bb- is negatively impacted by Popular s large stock of unreserved problem assets. This results in weak asset quality indicators, pressure on internal capital generation and vulnerability of capital to additional collateral valuation shocks. The VR also reflects Popular's strong SME banking franchise, which provides good recurring revenues. Large Problematic RED Exposure: Assets related to real estate development (RED) accounted for a high 16.5% of total end-2014 assets. This legacy exposure translates into a high NPL ratio of 19.5% (25.6% including foreclosures) at end Positively, in 2014 Popular sold EUR1.5bn of RED assets and expects to sell a further EUR2bn in Just Adequate Capitalisation: Popular s Fitch Core Capital (FCC) ratio stood at 10.6% at end The bank issued a EUR750m AT1 security in February 2015, increasing the pro forma Fitch eligible capital (FEC) ratio up to 12.7%. In October 2014 the ECB s comprehensive assessment concluded that Popular did not require additional capital to withstand an adverse scenario. However, the stock of unreserved problem assets is almost 2x pro forma FEC reflecting that capital is still vulnerable to further asset quality stress. Strong SME Banking Franchise: Around a third of Popular s total loans were to SMEs and self-employed professionals at end The bank s market share for SME loans (roughly 17%) is well above its overall loan market share in Spain (7%). Its leadership in SME lending enables the bank to benefit from cross-selling opportunities and provides a competitive advantage that translates into a moderate degree of pricing power. Sound Margins, Large Impairments: Popular has wide client margins relative to peers thanks to its focus on SME banking. The bank has potential to reduce the cost of retail deposits further to compensate for declining loan yields. However, impairment charges will continue to erode bottom-line earnings, in particular in view of reserve coverage for problem assets that remains below peers (42% coverage for NPLs at end-2014). Adequate Funding and Liquidity: Fitch calculates that the bank had a loan-to-deposit ratio (adjusted for reserves, securitisations and mediation loans) of 116% and held a portfolio of unencumbered ECB-eligible assets of 6.2% of total assets at end Popular s liquidity position is comfortable given that wholesale debt maturities are well spread over time. Rating Sensitivities Weakening Support: Popular s IDRs, Support Rating (SR) and SRF are sensitive to progress made in the implementation of BRRD and SRM, which is likely to result in a revision of the SR and SRF to 5 and No Floor in 1H15, so the IDRs will become driven by the VR. Upside VR Potential: Potential for a VR upgrade in the next 12 to 18 months is reliant upon Popular s ability to reduce its portfolio of RED assets and improve NPL trends. This should translate into better asset quality metrics, which together with an improved internal capital generation capacity should also help the bank to further strengthen its capital base. 25

2 Operating Environment Domestic Economy Set to Improve Although Downside Risks Remain Fitch affirmed Spain s sovereign rating (BBB+/Stable) in October Spain s economy has begun to recover after a prolonged recession. GDP grew modestly at 1.4% in 2014 and we expect 1.7% growth in 2015 and 1.9% in Better economic prospects should help temper pressure on banks asset quality, which Fitch expects to have peaked during Market sentiment has also improved, resulting in lower funding costs for banks. However, downside risks for banks remain if unemployment stays stubbornly high and credit does not flow to the economy, potentially restraining any meaningful upside to the economic recovery. Unfavourable developments in the property market or in the political landscape could also put pressure on banks asset quality. Figure 1 Popular s Geographical Presence Market share > 7% 5% < Market share < 7% 3% < Market share < 5% Market share < 3% Source: Popular, Fitch. Company Profile Strong SME Banking Franchise Popular is the sixth largest domestic bank with a 7.4% market share for loans at end Its branch network is well diversified nationwide with a good presence in the main urban areas. The bank s main focus is on SMEs (defined as companies and self-employed professionals with annual turnover below EUR100 m) which account for around a third of the total domestic loan book. In this segment it has a leading market share of around 17%, providing it with some pricing power and supporting the bank s capacity to generate recurrent revenues. The bank s competitive advantage in other business segments is more modest. JVs in Non-Core Businesses Support Efficiency Figure 2 Popular's Main Joint-Ventures and Strategic Alliances Business Partner Popular's stake (%) Year Commercial banking Banque Federative du Credit Mutuel Life insurance, pension and asset Allianz SE management Payment services EVO Payments international Early debt recovery unit EOS 0 a 2013 ATM network Euro Information b SME banking in Mexico Grupo Financiero BX Real estate management Varde Partners & Kennedy Wilson Credit cards Varde Partners a Popular's arrears (0-90 days past due) recovery management b A subsidiary of Banque Federative du Credit Mutuel Source: Fitch Popular s organisational structure is relatively simple, with the bank being the parent company for consolidation purposes and holding ownership stakes in the major subsidiaries that complement the retail banking activities of the group. Since 2010 Popular has been active in setting up joint-ventures and alliances to develop businesses that are complementary to the group s main banking activity such as real estate asset management, debt recovery, credit cards and insurance. The bank has generated sizeable capital gains with these transactions, although these come at the expense of having to share future revenues with its partners. The joint ventures help Popular to improve the operational efficiency of its non-core businesses thanks to the expertise provided by the partners and alignment of their interests and incentives. Thus the bank s staff can focus primarily on its core banking business. Related Criteria Global Bank Rating Criteria () 2

3 Management Adequate Corporate Governance Fitch believes corporate governance at Popular is effective and does not constrain its ratings. The board of directors is the bank s main governing body. At end-2014 it comprised fifteen members of which three were executives, five were independents and seven were proprietary directors. Executives and proprietary directors jointly represented around 24.6% of the total ownership, including the stakes held by Banque Federative du Credit Mutuel (A+/Stable), Allianz SE (AA-/Stable) and a Mexican investment group. The ownership structure also included 44.9% of the shares owned by institutional investors while the remaining 30.6% was held by retail investors. Popular is listed on the Madrid stock exchange. Related party lending is not material and is granted at market conditions. Managing Down Legacy Assets Constrains Execution Popular has clear strategic objectives that underline a focus on reinforcing its strong position in the SME banking segment while continuing to develop existing partnerships and joint-ventures in non-core business. However, the bank has a large legacy exposure to RED assets (see Asset Quality) as a result of the expansion into this business until 2009 and the acquisition of Banco Pastor, which also had a significant exposure to the sector. This legacy exposure consumes resources, in terms of staff, liquidity, earnings and capital, constraining Popular s potential for further core business development. The bank s joint-venture in the real estate servicing business should help speed up foreclosed asset sales. However, the timing of the RED assets divestment process will also depend on the extent and speed of the recovery in the domestic property market. Figure 3 Breakdown of the Residential Mortgage Portfolio by LTV (End-2014) LTV > 100% 80% < LTV < 100% 60% < LTV < 80% 40% < LTV < 60% LTV < 40% (%) Source: Popular, Fitch Risk Appetite Tightened Underwriting Standards Popular s lending activity grew significantly in and resulted in a significant risk concentration in loans to real estate developers. Following the downturn of the property market in Spain the bank tightened its underwriting standards and restricted new lending for developers. Popular uses an internal credit rating system to approve loans for corporates and SMEs. To assess loan applications for individuals the bank uses credit-scoring models adapted to each product. Small loan amounts can be granted at branch levels but larger exposures need to be approved by the different risk management layers of the entity. Also, the bank sets internal risk concentration limits by borrower, economic sector, geography and product. Popular s risk analysis is centred on borrower s debt repayment capacity, but given its targeted segments, it benefits from a relatively high proportion of secured lending, limiting losses in case of customer defaults; 61% of total loans was collateral backed at end As shown in Figure 3, Popular s residential mortgage book is well collateralised, with 74% of the book having loanto-values below 80%. The loan book shrank by 1% in 2014 after shrinking by 7% in Relatively Low Market Risk Exposure Popular s exposure to market risk is relatively low and well-managed. The bank monitors and controls structural mismatches using re-pricing gaps, simulation and duration analyses under various scenarios. Exposure to FX risk is relatively low and trading activity is mostly clientdriven or for hedging purposes. Interest rate risk is well-managed. At end-2014, the bank estimated that a 100bp upward (downward) parallel shift in the interest-rate curve could result in a 1.46% decrease (0.42% decrease) in its annual net interest income (NII) if no corrective action were taken. This level of sensitivity is partly explained by the existence of floors on around 29% of gross end-2014 loan contracts, most of which are currently in-the-money. The equity portfolio amounted to EUR2.6bn at end-2014, representing a modest 31% of FCC (or 28% of FEC). Of the total, 72% were at-equity stakes, 15% were classified as available for 3

4 Figure 4 Loan Book Breakdown at End-2014 Corporate ex- RED 10% Public admin and foreign loans 14% Real estate development (RED) 18% Source: Popular, Fitch Figure 5 Individuals - Other Public works 2% 2% SMEs ex-red 31% Individuals - Mortgagesbacked 23% Asset Quality Trend in 2014 (EURm) 3,000 2,000 1, ,000-2,000-3,000 Write-offs (LHS) Foreclosed asset sales (LHS) New foreclosures (LHS) NPL recoveries (LHS) Gross NPL entries (LHS) Problem asset variation (RHS) (%) 1Q14 2Q14 3Q14 4Q14 Source: Popular, Fitch sale, 7% were in the trading book and 6% were accounted at fair value. The largest equity exposure was a 12.6% stake in Metrovacesa (real estate; EUR202m representing 2.4% of FCC) which arose from a loan-for-equity swap. The rest is well diversified. Financial Profile Asset Quality Large Problem Assets Undermine Viability Rating Popular s new NPL entries peaked in 2013 following the update on NPL recognition standards for restructured loans implemented by the Bank of Spain. However, the loan quality trend reversed in 2014, when the stock of NPLs declined by 4% as gross NPL entries were offset by increased foreclosures, some write-offs and recoveries. At the same time, sales of foreclosed real estate properties accelerated totalling EUR1.5bn, with an average margin over net book value of 2.2%. Nevertheless, Popular s asset quality remains weak relative to peers and undermines its credit profile. At end-2014 NPLs accounted for 19.5% of gross loans, while a further 3.8% of total loans were classified as watchlist loans and 4.2% as performing after having been restructured. In addition, the bank had a portfolio of foreclosed assets (FA) with a carrying value of EUR8.4bn (5.2% of total assets). The exposure to RED assets negatively impacts Popular s asset quality indicators as around 67% of total problem assets (including NPLs, PPLs and FAs) were related to the bank s credit investment in this sector. The SME and residential mortgage portfolios have also suffered during the recession and show NPL ratios above many peers. On a positive note, 17% of total NPLs at end-2014 had been classified as such despite being performing. Fitch anticipates that this part of the book has a higher probability of recovery in the context of the improved economic prospects in Spain. While Popular booked substantial impairment charges in 2014, NPL reserve coverage (41.8%) remained below many peers at end At this date the specific reserve coverage on RED loans and RED NPLs stood at 24.2% and 40.4% respectively. Fitch considers this coverage level to be just adequate for the rating given the relatively high proportion of unsecured and second mortgage-backed exposures (32% of total RED loans) and loans backed by land properties (15.4%). Relatively High Single-Name Concentration Popular s corporate loan book includes a high proportion of syndicated facilities and accounts for roughly 10% of gross loans. This book is relatively concentrated in a few large Spanish companies. At end-2014 the 20 largest credit exposures accounted for 10.3% of total risks and 149% of FCC. The four largest risk exposures represented over 10% of FCC and were either public sector-related or well-diversified blue chip companies operating in sectors such as energy and telecoms and are listed on the Madrid stock exchange. The portfolio of fixed income securities (20% of total assets) is primarily accounted for as available for sale and comprises mainly Spanish sovereign debt (62% of total portfolio) and corporate bonds (34%; of which 20% issued by financial institutions). At end-2014 Popular s exposure to Spanish sovereign risk (including bonds and loans to all public administration bodies) totalled EUR26.3bn (310% of FCC). 4

5 Earnings and Profitability LICs Erode Good Recurrent Earnings The focus on SME banking supports Popular s relatively wide client margins and strong revenue generation capacity, even during recessionary periods. However, in 2014 large impairment charges, mainly on the bank s legacy real estate-related loans and foreclosed assets, continued to erode bottom-line earnings. In 2014, loan impairment charges (LIC) accounted for a high 85% of pre-impairment operating profit. In 2014 NII remained broadly resilient (down only by 3% yoy) because the reduction in the cost of retail funding cushioned the impact on loan yields from lower interest rates and a lower contribution from revenues related to the securities portfolio. Business volumes remained subdued in 2014, resulting in a decline in commission income by 13.8% yoy. However, the latter is also partially attributable to the sale of some fee-generating non-core businesses which are now conducted through joint-ventures. Results from financial operations increased substantially, accounting for 21.2% of gross revenues, mainly thanks to the rotation in the bank s sovereign bond portfolio. This distorts somewhat the cost-to-income ratio (48% in 2014); however Fitch views the bank s cost efficiency as sound even considering the non-recurrent nature of part of these trading gains. In 2015 Popular faces the challenge to keep its revenue generation capacity in the context of low interest rates and still muted business volume growth. Due to its strong position in the SME market the bank is well-placed to benefit from the economic recovery in Spain, despite this segment becoming increasingly competitive. However, Fitch expects impairment charges, particularly on real estate related assets, to remain high, undermining Popular s internal capital generation capacity. Capitalisation and Leverage Capital Tied to the Large Stock of Problem Assets Since end-2012 Popular has gradually improved its capitalisation by realising capital gains on the sale of non-core businesses and the securities portfolio, deleveraging the loan book and tapping equity markets. At end-2014 the bank reported adequate capital ratios: the regulatory common equity Tier 1 (CET1) and FCC ratios stood at 11.2% and 10.6% respectively. The FEC ratio was higher at 11.7% as the agency gives 100% equity credit to the bank s outstanding EUR660m mandatorily convertible bonds and 50% to the EUR599m perpetual preference shares. In February 2015 Popular issued EUR750m of additional tier 1 securities with a high conversion trigger (7% CET 1) to which Fitch gives 100% equity credit. This raises the FEC ratio on a pro forma basis by 94bp. However, in Fitch s opinion Popular s weak asset quality undermines its capital position. The unreserved portion of problem assets (including NPLs and foreclosures) at end-2014 still accounted for a high 198% of the pro forma FEC (down from 226% at end-2013). This indicates that the bank s solvency is still vulnerable to further erosion from additional credit deterioration or shocks to collateral valuations, although the economic recovery in Spain should help to manage down problem assets and uphold appraisals. No Additional Capital Needs from Comprehensive Assessment In October 2014 the European Banking Authority and ECB s joint comprehensive assessment concluded that Popular could withstand a reasonable degree of stress without additional capital needs. As shown in Figure 6, under the adverse scenario of the exercise Popular s CET1 ratio would decline to 7.56%, above the minimum 5.5% threshold. The CET1 ratio would increase by 91bp if the bank s outstanding mandatorily convertible notes were taken into account. Although Popular s stress test result is one of the weakest among Spanish banks, it compares well with that of similarly rated international peers, implying that the regulator is unlikely to require Popular to raise additional capital. This may lead the management team to apply a 50% cash dividend payout target in the medium term. 5

6 Pre-AQR CET1 bps Provision adj. on sample files Projection of adjustments Collective provisioning Other Tax effect Post-AQR CET1 bps Adverse case losses Post- AQR+Adverse case CET1 bps Fully loading CRR adj. FLB3 % end-2016 Adverse scenario Banks Figure 6 Banco Popular's AQR and Stress Test Capitalisation Results (bps) 1,150 1, ,063 1, Source: ECB and EBA While the results of the exercise were positive for Popular, reducing pressure to raise further capital, they do not eliminate the risks of having a high proportion of its capital tied up with unreserved problem assets. Funding and Liquidity Improved Funding Structure; Adequate Liquidity Position Popular rebalanced its asset and liability mix in 2013 to obtain a structure that is more appropriate for its business profile. This was the result of a significant reduction in the balance between loans and deposits and the regained access to long-term debt markets. In 2014 the bank continued deleveraging and provisioning; Fitch therefore calculates that Popular had a good 115.7% loan-to-deposit ratio (adjusted for reserves, securitisations and mediation loans) at end Due to the bank s focus on SME banking, its deposit base is slightly more concentrated than for domestic peers with a larger residential mortgage business. However, Popular s deposit base proved to be resilient during the recent economic recession. Figure 7 Funding Breakdown (EURbn) (%) (EURbn) (%) Customer deposits Bank borrowings Repo funding Other ST funding ECB funding Long-term funding O/w CVB and securitisations O/w senior debt O/w ICO funds Subordinated and Hybrid debt Total funding Source: Popular, Fitch. Apart from customer deposits Popular also taps wholesale markets to fund its activities. Market funding is primarily long-term and in the form of covered bond and securitisations sold to investors (8.5% of total end-2014 funding), ECB s funds (7.1%, of which 57% were from the TLTRO (targeted long-term refinancing operation) program) and senior debt (3.2%). Reliance on short-term market funding, primarily repurchase agreements, is relatively high compared to peers at 21.7% of total funding but it should be viewed in the context of its relatively large reverse repo portfolio and its larger proportion of shorter term SME loans. Popular s liquidity position is comfortable because it holds a sizeable liquid asset buffer and is able to issue secured debt in the market, making upcoming maturities manageable. At end the bank held a portfolio of EUR10bn of unencumbered ECB-eligible assets net of 6

7 haircuts (6.2% of total assets). The portfolio comprised Spanish sovereign debt (70%), other fixed income securities (29%) and self-retained fixed income securities (1%). The bank s wholesale debt maturities are manageable and well diversified over time. Of the total long-term wholesale debt maturities, around 74% are in the form of secured issuances, which eases refinancing risk. Support Popular's Support Rating and Support Rating Floor are predominantly sensitive to a weakening of Fitch's assumptions about the government s ability or willingness to provide timely support to the bank, if needed. In Fitch s view, there are likely to be negative rating implications due to legislative, regulatory and policy initiatives taken by Spain to allow it to achieve the resolution of its important banks without excessive disruption to financial markets, with the implementation of the EU s BRRD and the deployment of SRM. BRRD requires creditors to be bailed in before an insolvent bank can be recapitalised with state funds. Therefore, the likelihood of banks senior creditors receiving full support from the sovereign, if required, will diminish substantially. Fitch s current assumption is that Banco Popular s SR is likely to be downgraded to '5' and its SRF to 'No Floor' by end-1h15. A downward revision of the SRF would result in the alignment of Popular s Long-Term IDR and senior debt ratings with its VR. 7

8 Figure 8 Sample Peer Group Popular Caixabank Bankia Liberbank Abanca BMN (%) LT IDR BB+ BBB BBB- BB+ BB+ BB+ Outlook Negative RWP Negative Negative Negative Negative Viability rating bb- bbb bb- bb bb- bb- Balance sheet (EURm) Total assets 161, , , , , ,569 43,137 44,547 54,142 52,687 43,835 47,519 Risk-weighted assets (RWAs) 79,940 80, , ,110 88,565 88,838 16,299 17,098 24,173 23,218 19,906 18,699 Fitch core capital (FCC) 8,476 6,775 16,204 14,403 11,631 7,820 2, ,707 2,688 2,284 1,921 Fitch eligible capital (FEC) 9,386 8,472 16,204 16,341 11,631 7,820 2,399 1,393 2,707 2,688 2,284 1,921 Asset quality (%) Growth of gross loans Impaired/gross loans Reserves for impaired/impaired loans Impaired loans less reserves for impaired loans/fcc Loan impairment charge/avg. gross loans Impaired loans and foreclosures/gross loans and foreclosures Capitalisation and leverage (%) Fitch core capital/rwas Fitch eligible capital /RWAs Tangible common equity/tangible assets Regulatory core tier 1 ratio Internal capital generation Earnings and profitability (%) Net interest income/average earning assets Non-interest expense/gross revenues Loans and securities impairment charges/pre-impairment operating profit Operating profit/average total assets Operating profit/rwas Net income/average equity Funding (%) Gross loans/customer deposits Interbank assets/interbank liabilities Customer deposits/total funding (excl. derivatives) Source: Banks, Fitch 8

9 Income Statement 31 Dec Dec Dec Dec 2011 Year End Year End As % of Year End As % of Year End As % of Year End As % of USDm EURm Earning EURm Earning EURm Earning EURm Earning Unqualified Unqualified Assets Unqualified Assets Unqualified Assets Unqualified Assets 1. Interest Income on Loans 4, , , , , Other Interest Income Dividend Income Gross Interest and Dividend Income 5, , , , , Interest Expense on Customer Deposits 1, , , , Other Interest Expense 1, , Total Interest Expense 2, , , , , Net Interest Income 2, , , , , Net Gains (Losses) on Trading and Derivatives Net Gains (Losses) on Other Securities Net Gains (Losses) on Assets at FV through Income Statement (30.0) (24.7) (0.02) (24.6) (0.02) (19.6) (0.01) (1.9) (0.00) 12. Net Insurance Income (2.1) (1.7) (0.00) Net Fees and Commissions Other Operating Income (33.3) (0.03) (74.6) (0.05) Total Non-Interest Operating Income 1, , , Personnel Expenses 1, Other Operating Expenses 1, Total Non-Interest Expenses 2, , , , , Equity-accounted Profit/ Loss - Operating Pre-Impairment Operating Profit 2, , , , , Loan Impairment Charge 2, , , , Securities and Other Credit Impairment Charges Operating Profit (2,547.4) (1.81) Equity-accounted Profit/ Loss - Non-operating Non-recurring Income Non-recurring Expense Change in Fair Value of Own Debt Other Non-operating Income and Expenses (137.6) (0.11) (1,188.2) (0.85) (29.6) (0.02) 29. Pre-tax Profit (3,491.7) (2.49) Tax expense (1,030.8) (0.73) (39.8) (0.03) 31. Profit/Loss from Discontinued Operations Net Income (2,460.9) (1.75) Change in Value of AFS Investments (14.5) (0.01) (282.2) (0.23) 34. Revaluation of Fixed Assets n.a Currency Translation Differences (18.8) (0.01) (7.8) (0.01) Remaining OCI Gains/(losses) (203.7) (167.8) (0.12) (231.0) (0.18) (21.8) (0.02) n.a Fitch Comprehensive Income (2,505.0) (1.78) Memo: Profit Allocation to Non-controlling Interests (0.6) (0.5) (0.00) Memo: Net Income after Allocation to Non-controlling Interests (2,461.0) (1.75) Memo: Common Dividends Relating to the Period Memo: Preferred Dividends Related to the Period n.a. - Exchange rate USD1 = EUR USD1 = EUR USD1 = EUR USD1 = EUR

10 Balance Sheet 31 Dec Dec Dec Dec 2011 Year End Year End As % of Year End As % of Year End As % of Year End As % of USDm EURm Assets EURm Assets EURm Assets EURm Assets Assets A. Loans 1. Residential Mortgage Loans n.a Other Mortgage Loans , n.a Other Consumer/ Retail Loans n.a Corporate & Commercial Loans , n.a Other Loans 124, , , , , Less: Reserves for Impaired Loans 9, , , , , Net Loans 114, , , , , Gross Loans 124, , , , , Memo: Impaired Loans included above 24, , , , , Memo: Loans at Fair Value included above n.a. - B. Other Earning Assets 1. Loans and Advances to Banks 5, , , , , Reverse Repos and Cash Collateral 8, , , , Trading Securities and at FV through Income Derivatives 2, , , , , Available for Sale Securities 36, , , , , Held to Maturity Securities , , Equity Investments in Associates 2, , Other Securities 2, , , Total Securities 53, , , , , Memo: Government Securities included Above 19, , , , , Memo: Total Securities Pledged 24, , , , , Investments in Property 1, , Insurance Assets Other Earning Assets Total Earning Assets 174, , , , , C. Non-Earning Assets 1. Cash and Due From Banks 1, , , , Memo: Mandatory Reserves included above n.a Foreclosed Real Estate 11, , , , , Fixed Assets Goodwill 2, , , , Other Intangibles Current Tax Assets Deferred Tax Assets 4, , , , , Discontinued Operations Other Assets , , Total Assets 196, , , , , Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 22, , , , , Customer Deposits - Savings 10, , , , , Customer Deposits - Term 55, , , , , Total Customer Deposits 88, , , , , Deposits from Banks 1, , , , Repos and Cash Collateral 37, , , , , Other Deposits and Short-term Borrowings , , Total Deposits, Money Market and Short-term Funding 127, , , , , Senior Debt Maturing after 1 Year 15, , , , , Subordinated Borrowing , Other Funding 26, , , , , Total Long Term Funding 43, , , , , Derivatives 4, , , , , Trading Liabilities Total Funding 175, , , , , E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt Credit impairment reserves Reserves for Pensions and Other Current Tax Liabilities Deferred Tax Liabilities Other Deferred Liabilities Discontinued Operations Insurance Liabilities Other Liabilities 2, , , , , Total Liabilities 179, , , , , F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt , , , Pref. Shares and Hybrid Capital accounted for as Equity G. Equity 1. Common Equity 14, , , , , Non-controlling Interest Securities Revaluation Reserves (186.0) (153.2) (0.09) (362.8) (0.25) (917.7) (0.58) (912.4) (0.70) 4. Foreign Exchange Revaluation Reserves Fixed Asset Revaluations and Other Accumulated OCI (42.0) (34.6) (0.02) (5.2) (0.00) Total Equity 14, , , , , Total Liabilities and Equity 196, , , , , Memo: Fitch Core Capital 10, , , , , Memo: Fitch Eligible Capital 11, , , , , Exchange rate USD1 = EUR USD1 = EUR USD1 = EUR USD1 = EUR

11 Summary Analytics 31 Dec Dec Dec Dec 2011 Year End Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans Interest Expense on Customer Deposits/ Average Customer Deposits Interest Income/ Average Earning Assets Interest Expense/ Average Interest-bearing Liabilities Net Interest Income/ Average Earning Assets Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets (1.07) Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues Non-Interest Expense/ Gross Revenues Non-Interest Expense/ Average Assets Pre-impairment Op. Profit/ Average Equity Pre-impairment Op. Profit/ Average Total Assets Loans and securities impairment charges/ Pre-impairment Op. Profit Operating Profit/ Average Equity (28.30) Operating Profit/ Average Total Assets (1.67) Taxes/ Pre-tax Profit (8.96) 10. Pre-Impairment Operating Profit / Risk Weighted Assets Operating Profit / Risk Weighted Assets (2.87) 0.71 C. Other Profitability Ratios 1. Net Income/ Average Total Equity (27.34) Net Income/ Average Total Assets (1.61) Fitch Comprehensive Income/ Average Total Equity (27.83) Fitch Comprehensive Income/ Average Total Assets (1.64) Net Income/ Av. Total Assets plus Av. Managed Securitized Assets n.a. n.a. (1.61) Net Income/ Risk Weighted Assets (2.77) Fitch Comprehensive Income/ Risk Weighted Assets (2.82) 0.24 D. Capitalization 1. Fitch Core Capital/ Risk Weighted Assets Fitch Eligible Capital/ Risk Weighted Assets Tangible Common Equity/ Tangible Assets Tier 1 Regulatory Capital Ratio Total Regulatory Capital Ratio Core Tier 1 Regulatory Capital Ratio n.a Equity/ Total Assets Cash Dividends Paid & Declared/ Net Income n.a. n.a. (6.75) Cash Dividend Paid & Declared/ Fitch Comprehensive Income n.a. n.a. (6.63) Cash Dividends & Share Repurchase/Net Income n.a. n.a. n.a. n.a. 11. Internal Capital Generation (28.33) 5.40 E. Loan Quality 1. Growth of Total Assets 9.20 (6.20) Growth of Gross Loans (1.04) (6.99) Impaired Loans/ Gross Loans Reserves for Impaired Loans/ Gross Loans Reserves for Impaired Loans/ Impaired Loans Impaired loans less Reserves for Impaired Loans/ Fitch Core Capital Impaired Loans less Reserves for Impaired Loans/ Equity Loan Impairment Charges/ Average Gross Loans Net Charge-offs/ Average Gross Loans Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Ass F. Funding 1. Loans/ Customer Deposits Interbank Assets/ Interbank Liabilities Customer Deposits/ Total Funding (excluding derivatives)

12 Reference Data 31 Dec Dec Dec Dec 2011 Year End Year End As % of Year End As % of Year End As % of Year End As % of USDm EURm Assets EURm Assets EURm Assets EURm Assets A. Off-Balance Sheet Items 1. Managed Securitized Assets Reported Off-Balance Sheet Other off-balance sheet exposure to securitizations Guarantees , , , Acceptances and documentary credits reported off-balance sheet Committed Credit Lines , , , Other Contingent Liabilities , , Total Business Volume 196, , , , , Memo: Risk Weighted Assets 97, , , , , Fitch Adjustments to Risk Weighted Assets Fitch Adjusted Risk Weighted Assets 97, , , , , B. Average Balance Sheet Average Loans 126, , , , , Average Earning Assets 173, , , , , Average Assets 189, , , , , Average Managed Securitized Assets (OBS) Average Interest-Bearing Liabilities 170, , , , , Average Common equity 15, , , , , Average Equity 14, , , , , Average Customer Deposits 95, , , , , C. Maturities Asset Maturities: Loans & Advances < 3 months n.a. - Loans & Advances 3-12 Months n.a. - Loans and Advances 1-5 Years n.a. - Loans & Advances > 5 years n.a. - Debt Securities < 3 Months , , n.a. - Debt Securities 3-12 Months , , n.a. - Debt Securities 1-5 Years , , n.a. - Debt Securities > 5 Years , , n.a. - Loans & Advances to Banks < 3 Months , , n.a. - Loans & Advances to Banks 3-12 Months n.a. - Loans & Advances to Banks 1-5 Years n.a. - Loans & Advances to Banks > 5 Years n.a. - Liability Maturities: Retail Deposits < 3 months n.a. - Retail Deposits 3-12 Months n.a. - Retail Deposits 1-5 Years n.a. - Retail Deposits > 5 Years n.a. - Other Deposits < 3 Months n.a. - Other Deposits 3-12 Months n.a. - Other Deposits 1-5 Years n.a. - Other Deposits > 5 Years n.a. - Deposits from Banks < 3 Months n.a. - Deposits from Banks 3-12 Months n.a. - Deposits from Banks 1-5 Years n.a. - Deposits from Banks > 5 Years n.a. - Senior Debt Maturing < 3 months , , n.a. - Senior Debt Maturing 3-12 Months , , n.a. - Senior Debt Maturing 1-5 Years , , n.a. - Senior Debt Maturing > 5 Years , , n.a. - Total Senior Debt on Balance Sheet n.a. n.a. - 16, , n.a. - Fair Value Portion of Senior Debt n.a. - Covered Bonds n.a. - Subordinated Debt Maturing < 3 months n.a. - Subordinated Debt Maturing 3-12 Months n.a. - Subordinated Debt Maturing 1-5 Year n.a. - Subordinated Debt Maturing > 5 Years , n.a. - Total Subordinated Debt on Balance Sheet , Fair Value Portion of Subordinated Debt n.a. - D. Equity Reconciliation 1. Equity 14, , , , , Add: Pref. Shares and Hybrid Capital accounted for as Equity Add: Other Adjustments n.a Published Equity 15, , , , , E. Fitch Eligible Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 14, , , , , Fair value effect incl in own debt/borrowings at fv on the B/S- CC only Non-loss-absorbing non-controlling interests Goodwill 2, , , , Other intangibles Deferred tax assets deduction , Net asset value of insurance subsidiaries First loss tranches of off-balance sheet securitizations Fitch Core Capital 10, , , , , Eligible weighted Hybrid capital 1, , , , Government held Hybrid Capital Fitch Eligible Capital 11, , , , , Exchange Rate USD1 = EUR USD1 = EUR USD1 = EUR USD1 = EUR

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