Global banking and capital markets sector

Transcription

1 Global banking and capital markets sector Key themes from 1Q14 earnings calls May 2014

2 Content Scope, limitations and methodology of the review 3 Top 10 key themes: 1Q14 earnings season 4 Key themes overview 6 Theme 1.1: Quarterly earnings performance reduced impact from significant items... 6 Theme 1.2: Expense trends elevated compliance costs offset simplification benefits... 8 Theme 1.3: Capital plans excess capital may not lead to buybacks Theme 1.4: Regulatory multiple regulatory topics discussed as the reform agenda progresses Theme 5.0: Cross-border strategies management cite clear reasons for geographic diversity Theme 6.0: Lending trends banks focus on lending to core customer segments Theme 7.1: Credit quality trends improving economy and de-risking efforts drive lower impairments Theme 7.2: Strategic plans restructuring and adaptation efforts are ongoing Theme 9.0: Mergers and acquisitions limited appetite for acquisitions, but non-core asset sales continue Theme 10.0: Channel strategies banks focus on optimizing their branch networks Appendix 18 Summary of key banking sector themes Select KPIs Global banking and capital markets sector 2

3 Scope, limitations and methodology of the review The purpose of this review is to examine the key themes discussed during the 1Q14 earnings reporting season among 35 global institutions operating within the banking and capital markets sector. This review is limited to the examination of transcripts of the earnings conference calls held from 26 February 2014 to 15 May The review does not take into consideration information from other sources, such as news reports, annual reports and company press releases. The period covered was 1Q14, ended 31 March Exceptions are the following: Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC) and Toronto-Dominion Bank, for which the period covered, 1Q14, ended 31 January 2014 Nomura Holdings, for which the period covered was 4Q14 Macquarie Group, for which the period covered was 2H14 Australia and New Zealand Banking Corporation (ANZ) and National Australia Bank (NAB), for which the period covered was 1H14 Banks were selected based on their size and the availability of earnings call transcripts. Every effort was made to include a global sample of banks in the review. Exceptions were the following: Mitsubishi UFJ Group Bank, Mizuho Financial Group and Sumitomo Mitsui Financial Group were excluded from the analysis due to the lack of transcript availability. Bank of China and Industrial and Commercial Bank of China were excluded due to the timing of their 1Q14 results reporting. Net income, revenue and expense data are not provided for ANZ, Macquarie Group, NAB and Standard Chartered. These banks disclose half-yearly and annual income statement figures only, which do not compare with the quarterly data reported by the other banks in the analysis. Global banking and capital markets sector 3

4 Top 10 key themes: 1Q14 earnings season During 1Q14, global banks continued to face a number of industry headwinds in the form of low interest rates, muted client activity levels and the escalating regulatory burden. These challenges, however, appeared to even out somewhat, and earnings reports seemed to reflect an operating environment that was less volatile than previous quarters have been. As Citigroup CEO Michael Corbat observed, We ve kind of transitioned out of the year-end malaise, which was largely focused around the Fed s stance [on tapering], and I think we ve seen volumes and confidence pick up. But at the same time, I don t think you can ignore what s going on in the Ukraine or in Russia and that those things clearly continue to have an overhang on the market. So I think the overall sentiment is better, but I think there are still some things out there, which cause people pause. Earnings reports reflected the influence of noticeably fewer significant items as management at a number of banks highlighted clean results and positive trends in a number of areas: Few banks reported charges for litigation, restructuring or extraordinary provisions; likewise, the benefits of gains from asset disposals diminished. Credit quality continued to improve, as evidenced by lower impairments. Banks remain well-capitalized but have adopted a prudent stance on deploying excess capital. Banks have enhanced their focus on targeted customer segments, priority markets and core business lines and services. While clean results are clearly a positive development, suggestions that 1Q14 results represent a normalized earnings environment may be premature, given continued uncertainties on a number of fronts: The outcome of the European Asset Quality Review (AQR) and stress tests The final shape of capital rules, including leverage ratios and models for risk-weighted assets The escalating impact of compliance costs The resolution of multiple investigations and legal-related issues The possibility that banks may have to further refine strategies to address ongoing revenue weakness The pace of global macroeconomic growth It is more likely that 1Q14 reflects what Toronto-Dominion CEO Ed Clark described as a pause in the marketplace rather than a return to sustainable performance. We delivered solid earnings in a still lackluster economic backdrop in Europe. We continue to support our clients across all businesses and geographies, and we are proceeding as planned with the implementation of our business plan. Lars Machenil, CFO, BNP Paribas Global banking and capital markets sector 4

5 Top 10 themes: 1Q14 earnings season 1Q14 4Q13 Rank Earnings season top 10 themes (arranged from most common to least common) 35 banks Rank Earnings season top 10 themes (arranged from most common to least common) 31 banks 1.1 Quarterly earnings performance 1.1 Quarterly earnings performance 1.2 Expense trends and investments in the business 1.2 Expense trends 1.3 Capital strength and plans 1.3 Capital strength and plans 1.4 Regulatory and compliance 4.1 Regulatory and compliance 5.0 Cross-border and location strategies 4.2 Cross-border and location strategies 6.0 Lending trends 6.1 Credit quality trends 7.1 Credit quality trends 6.2 Lending trends 7.2 Strategic planning 8.1 Mergers and acquisitions 9.0 Mergers and acquisitions 8.2 Channel strategies 10.0 Channel strategies 10.0 Conduct issues Note: The theme shaded in gold is new to the list this quarter; the theme shaded in dark gray dropped out of the top 10. Global banking and capital markets sector 5

6 Key themes overview Theme 1.1: Quarterly earnings performance reduced impact from significant items Management called out the sustainability of results. During the 1Q14 earnings season, management at a number of banks across regions highlighted clean results and characterized earnings as high-quality and even sustainable. Marianne Lake, CFO, JPMorgan Chase: Of note, you will see that we didn t disclose any significant items this quarter on the front page of the presentation. To be clear, this means our reported net income of US$5.3 billion is very close to being a core performance number. Javier Marín Romano, CEO, Banco Santander: My view is that the profit is of great quality, as net interest income and fee income represent 92% of the gross income. All the increase is coming from recurring revenues, and it is not affected by capital gains from corporate operations. In short, I think it s a clearer step towards a return to more normal levels of profits and a better level of profitability. Iain Mackay, Group Finance Director, HSBC: The lower level of significant items in the first quarter of 2014 also reflects the fact that the program of major restructuring the group has undertaken over the last three years is almost complete. Michael Smith, CEO, ANZ: This is another strong, clean result that demonstrates consistent execution of our super regional strategy. Federico Ghizzoni, CEO, UniCredit: The quality of the [1Q14] result is quite good. There is nothing exceptional inside these numbers. Lars Machenil, CFO, BNP Paribas: Our good profit generation capacity this quarter was not impacted by one-off items. Of the 31 banks included in this analysis that disclose quarterly income statement data,* 29 reported a net profit in 1Q14. For 10 of these banks, improved performance was driven by the absence of non-recurring impacts from either 1Q13 or 4Q13. BNY Mellon and Commerzbank reversed 1Q13 net losses, due to the absence of extraordinary charges for tax-related matters and restructuring, respectively. When compared to 4Q13, eight banks Barclays, Credit Suisse, Deutsche Bank, Grupo BBVA, Intesa Sanpaolo, Lloyds, Royal Bank of Scotland and UniCredit rebounded from net losses that had been driven by significant charges for provisions, litigation or restructuring. Only Bank of America and ING posted a net loss in 1Q14, driven by litigation charges and restructuring costs, respectively. While disappointed by 1Q14 performance, management at both banks pointed to the strength of underlying results. The reduced impact from significant items is encouraging; however, 1Q14 results did not provide strong evidence that global banks in the aggregate have found a way to drive revenues higher. As a result, it remains premature to characterize earnings performance as sustainable, despite management comments to the contrary. Revenue growth of 5% or more was evident at only 8 banks on a year-over-year basis and 12 banks on a linked-quarter basis. The low-interest rate environment and reduced activity in banks Fixed Income, Currency and Commodities (FICC) divisions continue to be drag on revenue performance. While we see encouraging early signs of momentum, we know we still have a long way to go and expect to face further headwinds in the coming quarters. As a consequence, we caution on a full-year read-through from the first quarter s result. Nathan Bostock, Group Finance Director, Royal Bank of Scotland *ANZ, Macquarie Group, NAB and Standard Chartered disclosed half-yearly income statement figures only. Global banking and capital markets sector 6

7 Net income, percentage change from prior quarters* CBK 176% BK 25% RBS 113% INT CIBC 43% 50% 64% UCG CA 8% 38% 37% MS ITAU -5% 29% 27% BCS TD WFC AXP STD UBS BNP C RBC USB GS 0% -4% -13% -10% 16% 26% 14% 5% 14% 9% 12% 23% 8% 15% 7% 5% 4% 2% 2% 61% CS SG JPM STT HSBC -12% -16% -19% -35% -22% -23% 0% 68% 86% LLD NOM -25% -33% 28% DB -34% BBVA -62% Change from 4Q13 Change from 1Q13 *Banks not included for the following reasons: 1Q14 net loss (BAC, ING); 4Q13 net loss (BBVA, BCS, CS, DB, INT, LLD, RBS, UCG); 1Q13 net loss (BK, CBK); BNP Paribas net profit increased from 110 million in 4Q13 to 1,668 million in 1Q14; Morgan Stanley s net income increased from US$173 million in 4Q13 to US$1,584 million in 1Q14. Global banking and capital markets sector 7

8 Theme 1.2: Expense trends elevated compliance costs offset simplification benefits One [must be] very cautious about turning off multi-year programs and projects to manage immediate cost pressures. Richard Meddings, Group Finance Director, Standard Chartered Mixed progress on expenses reflects the difficult revenue environment and increased compliance burden. In 1Q14, 70% of the banks* included in this analysis reported a year-over-year decline in expenses. While this might initially appear to be an indication that banks have moved decisively to reduce their cost structures, most of the reductions were in the mid- to low-single-digit range, and expense growth actually exceeded revenue growth at 55% of the banks. Global banks continue to face significant roadblocks to sustainable cost management, including elevated regulatory compliance expenses and ongoing investments to drive future growth. As Intesa Sanpaolo CEO Carlo Messina explained, It is not possible to only reduce costs because there is a time at which you have to start investing, especially if you are moving through a business plan that is focused on growth. Management continue to expect simplification and efficiency initiatives, specifically the rationalization of product portfolios, real estate footprint and IT infrastructure, to eventually offset investment spending. Stuart Gulliver, Group CEO, HSBC: We ve actually reduced the number of front-book products in Retail Banking by 28%, Insurance by 24% and Investments by 60%. There s a phenomenal opportunity to get a much more holistic core set of products, which not only reduces your customer mis-selling risk, but also provides an opportunity to reduce the cost base of the firm. Cameron Clyne, Group CEO, NAB: We re making very good progress on the simplification agenda. Product numbers continue to fall. We started at over 500. We re now at 184, with a target to get below 100. Colleen Johnston, CFO, Toronto-Dominion: If you look at the project and initiative spend in our expense growth, [the goal] is certainly to try to neutralize a fair amount of that through the productivity gains. Lars Machenil, CFO, BNP Paribas: We are reorienting Corporate and Investment Banking (CIB) in order to be in line with what regulation wants from us. That means that we have to make investments in infrastructure and so forth. And so, as I said, we [invest] at the speed of the savings from the Simple and Efficient plan. Efforts to offset investment spending with efficiency savings, however, face significant pressure from the growing impact of regulatory and compliance costs. John Gerspach, CFO, Citigroup: We have achieved an additional US$1 billion of annual savings through our ongoing efforts to simplify and streamline our organization as well as improve our productivity. Of these US$2.8 billion in annualized savings, approximately 40% has been reinvested in regulatory, control and compliance initiatives. Nicholas Moore, CEO, Macquarie: In terms of ongoing costs of regulation and compliance, it s having an impact on Macquarie. We ve calculated it s about AU$320 million in annual spend. Now part of that spend we d have to do in any event, but the point is that it s actually stepped up three times in recent years, so quite a step up in costs coming through from that compliance viewpoint. Anshu Jain, Co-CEO, Deutsche Bank: Along with the rest of the industry, we re spending more than anticipated on adapting to new regulations all around the world. Simply put, we re complying with new rules and producing more reporting for more regulators. These are new but understandable requirements that we re committed to meeting and that require more people and upgraded systems. Some will be one-time expenses, while others will be of an ongoing nature. We re increasing head count in compliance and related functions by over 500 people, and doubling the compliance IT budget to make sure we execute this diligently. We re also running a multi-year project to create a single source of data required for all financial and regulatory reporting across the globe. Gerald Hassell, CEO, BNY Mellon: We re still building out risk compliance, a variety of data aggregation models, risk analytics models, et cetera, that the regulators are asking for. A good example is in our broker-dealer services tri-party area. Over the last two years, we ve incurred about US$73 million of additional expense in that business associated with regulatory compliance and satisfying tri-party reform. *ANZ, Macquarie Group, NAB and Standard Chartered disclosed half-yearly income statement figures only; 70% refers to 22 of the 31 banks reporting quarterly expense data; 55% refers to 17 of 31 banks. Global banking and capital markets sector 8

9 Revenues and expenses, percentage change from 1Q14 SG CIBC ING MS CA AXP BK RBS BCS BNP WFC UBS ITAU C INT RBC CS STD GS BBVA UCG TD NOM LLD JPM USB CBK HSBC DB STT BAC -16.3% -2.4% -0.5% -0.4% -0.9% -3.1% -5.6% -2.1% -14.0% -1.4% -0.6% -3.6% -3.0% -7.3% -6.6% -1.1% -0.6% -2.7% -3.7% -4.4% -5.6% -6.1% -7.6% -5.3% -6.8% -1.8% -3.6% -37.7% -40.3% -4.6% -7.4% -5.1% -8.5% -1.2% -1.5% -7.9% -5.3% -12.5% -2.4% -10.6% -2.7% 0.4% 0.8% 0.5% 0.1% 0.0% 14.0% 14.8% 12.1% 9.6% 5.6% 4.0% 9.2% 9.8% 8.4% 7.6% 17.0% 15.2% 3.0% 11.1% 2.1% 14.0% Expenses Revenues Notes: ANZ, Macquarie Group, NAB and Standard Chartered disclose half-yearly income statement figures only, and they are not comparable to quarterly figures reported by other banks. The following banks achieved year-over-year positive operating jaws of 2% or greater in 1Q14: BCS, RBS, BK, AXP, CA, MS, ING, CIBC, SG. Global banking and capital markets sector 9

10 TD CBK USB RBS UCG CIBC DB JPM BAC BCS ITAU GS RBC BBVA CS WFC ING SG C NAB ANZ BNP STD LLD HSBC STAN BK MAC MS CA INT AXP STT UBS NOM Theme 1.3: Capital plans excess capital may not lead to buybacks With further progress on CET1, the PRA leverage ratio and the LCR ratio, although we are already meeting or on track to meet these anticipated future minimum requirements ahead of their compliance dates, it remains important that we anticipate further regulatory change where we can and stay ahead of the curve. Tushar Morzaria, Group Finance Director, Barclays Banks favor flexibility in capital planning. At the end of 1Q14, global banks reported Common Equity Tier 1 (CET1) ratios in excess of regulatory requirements as they are currently understood, leading analysts to ask multiple questions on plans to deploy surplus capital. In response, management indicated that they intend to maintain a certain level of excess capital in coming quarters. This will give them the flexibility to fund growth opportunities and the comfort to confront ongoing uncertainties related to risk-weighted asset models and treatment, proposed leverage ratios, and the upcoming Asset Quality Review and stress tests in Europe. Reluctance to return all excess capital to shareholders was evident even in the US, where the US Federal Reserve approved the capital plans of 8 of the 10 US banks included in this review under the 2014 Comprehensive Capital Analysis and Review (CCAR). Gord Nixon, CEO, RBC: We recognize that our capital levels have been creeping higher, and we ve got in place a share buyback program. But, in an environment like this, you would just rather run with a slightly higher capital position than at a bang-on target capital position. Harvey Schwartz, CFO, Goldman Sachs: The first priority is always safety and soundness and adequate capital. There is a risk of excess capital in the system, and what we re doing is no different than what we would have done in the past. If there are periods where we re running with excess capital, we re going to be patient and disciplined and wait for opportunities. Shigesuke Kashiwagi, CFO, Nomura: We are setting up a share buyback program. We will continue to keep a close watch on the regulatory environment and deploy retained earnings required for growth while taking a flexible approach to using surplus capital, including to enhance shareholder returns, such as dividends and share buybacks. Lars Machenil, CFO, BNP Paribas: With respect to excess capital, we have a series of solutions that we will deploy depending on the situation. So, as we said, to deal with uncertainty, to capture growth in Europe, if that growth would be faster or harder than what we anticipated, it could also be for bolt-on acquisitions and it could be a share buyback. But on the share buyback, at this stage, of course, we do not have a share buyback program. Carlo Messina, CEO, Intesa Sanpaolo: As we stated in our business plan, we plan to distribute from the excess capital that is not needed for growth initiatives. But, if you take a shorter-term perspective, such a capital buffer provides the bank with a virtually unlimited buffer versus any asset quality exercise or evolving regulation. Iain Mackay, Group Finance Director, HSBC: The principal criteria [for a scrip buyback] is clarity in capital management. The second is that we d run out of investment opportunities that were attractive to us. Basel III CET1 ratios,* 1Q14 *Fully loaded CET1 ratios; US banks Basel III CET1 ratios are calculated under the US Federal Reserve s standardized approach (AXP, USB) or advanced approach (BAC, BK, C, GS, JPM, MS, STT, WFC); Australian banks CET1 ratios are internationally harmonized. Global banking and capital markets sector 10

11 CS DB BCS SG BNP ING RBS UBS NOM* GS MS CBK CA HSBC LLD STD BK BAC JPM C MAC BBVA STT WFC Theme 1.4: Regulatory multiple regulatory topics discussed as the reform agenda progresses Macquarie is regulated by over 190 authorities in 28 jurisdictions. From Macquarie Group s results presentation Implementation of the regulatory agenda intensifies. During the 1Q14 earnings season, management commented on a number of regulatory issues at the global, regional and country levels. These included the global Liquidity Coverage Ratio, Canadian tax measures for captive reinsurance, the Orderly Liquidation Authority (OLA) and the Volcker Rule in the US, upcoming stress tests in Europe and the UK, the Asset Quality Review (AQR) in Europe, and leverage rules in several jurisdictions. In early March, the European Central Bank (ECB) published guidelines for the AQR. Six weeks later, as European banks were reporting 1Q14 results, the European Banking Authority (EBA) released the details of the adverse scenario for the separate EU-wide stress tests. Management at European banks offered their perspective on both exercises. Lars Machenil, CFO, BNP Paribas: What the ECB is doing, and what Europe has endorsed them to do, is really what the doctor ordered. We believe that if it is done in a credible way, it will lead to transparency, it will lead to stability and it might help in [driving] growth. Federico Ghizzoni, CEO, UniCredit: On the AQR, well, the process is ongoing. It is a completely new process, as you know. So every day is a new day. But overall, I think that we have a very good relationship with the regulators. Stephan Engels, CFO, Commerzbank: On the stress-test assumptions that have now been released, it can be said that, at this early stage, they are probably more demanding than expected by the industry. Nevertheless, even if it might result in higher impacts on the stressed capital ratio, we feel well prepared to pass the exercise. Wilfred Nagel, Chief Risk Officer, ING: We re still delivering data. We are working with the Dutch National Bank (DNB) and ECB to put together what we need to do in terms of executing the stress test. The divergence between leverage ratio rules continued to generate much discussion during the 1Q14 earnings season. On 8 April 2014, US regulators approved the supplementary leverage ratio (SLR) rule that had been proposed in July 2013 and issued a new proposal for an adjustment that would include off-balance-sheet derivatives, such as credit default swaps in the SLR calculation. In addition, there was speculation that the UK Prudential Regulation Authority might raise its leverage ratio requirement to 4% from the current 3%, while the Basel III requirement remained at 3%. Stefan Krause, CFO, Deutsche Bank: We don t see any competitive advantage in the leverage discussion. Obviously we ll comply, but we have no aim to be a market leader in terms of leverage; it doesn t make any sense to us. It s not very sensitive, so it doesn t really help us to really understand the risk nature of the business. Harvey Schwartz, CFO, Goldman Sachs: Given that the proposed rule hasn t been finalized and won t take effect until 2018, to date we have not taken any significant actions. When we have a final rule, there are multiple options that we can pursue. Patrick Upfold, CFO, Macquarie: [The leverage ratio] started out as a simple backstop to overcome complexities and differences in the way in which banks calculate the risks on their balance sheet. But I think as you can see here, it s fast becoming a binding constraint for many financial institutions. Leverage ratio disclosures,* 1Q *Not disclosed at American Express, Banco Itaú, CIBC, Intesa Sanpaolo, NAB, RBC, Standard Chartered, Toronto-Dominion, UniCredit or US Bancorp; Nomura disclosed a ratio in the upper 3% range ; fully loaded Basel III ratios exceptions include US banks (US supplementary leverage ratio) and Commerzbank (Basel III phase-in). Global banking and capital markets sector 11

12 Theme 5.0: Cross-border strategies management cite clear reasons for geographic diversity We are pleased with what we ve been doing in China because we think, without any capital expenditure, we are building awareness and presence and brand in China that we believe we will find ways to monetize over the longer term. Jeffrey Campbell, CFO, American Express Banks continue to reshape global footprints to match core priorities. Many of the banks included in this analysis have a significant presence in countries and regions outside their domestic markets. During the 1Q14 earnings season, management clearly articulated why they are operating in certain markets and exiting others. Comments revealed that banks are focused on markets in which they have sufficient scale, that are important to their core customers or that present an attractive opportunity set. John Stumpf, CEO, Wells Fargo: We have opportunities with what we re doing internationally, because more of our US customers are doing business there. Impact of instability in Russia and the Ukraine Tushar Morzaria, Group Finance Director, Barclays: We have strong market positions in Africa and critical mass across the continent, a key element in our geographic diversity. Gord Nixon, CEO, RBC: We recently completed a comprehensive review of our operations across the Caribbean to find ways to operate more efficiently and to ensure that we are able to be a competitive leader in the markets where we want to do business. As part of that review, we recently announced that we are selling our banking operations in Jamaica, a country where we did not have scale or a market-leading position necessary to compete effectively over time and to meet our hurdle rates of return. Michael Smith, CEO, ANZ: Let s recap the three key pillars of our super-regional strategy. The first is strengthening the core franchises that we have in our home markets of Australia and New Zealand. The second is the profitable growth in Asia by capturing trade capital and wealth flows into and across the region. And the third pillar involves an enterprise approach to building the business on common platforms and processes to reduce unit costs and reduce complexity and risk. Delivery of the strategy requires an integrated approach to serving our customers across 33 markets. Brady Dougan, CEO, Credit Suisse: In the first quarter, we recorded CHF16 billion of net new assets in our strategic businesses, reflecting our strength in key emerging markets within Asia, Latin America and the Middle East; our strong position in our Swiss home market; and In 1Q14, European banks with operations in Russia or the Ukraine addressed actions they were taking to minimize their exposure to disruptions in the region. BNP Paribas set aside generic provisions of 100 million to cover issues that might arise due to its non-material exposure to the region. ING is monitoring the situation; management said, It is reasonable to expect some more provisioning at some point there. Société Générale conservatively set aside 525 million to fully impair the goodwill of its Russian Rosbank operations. UniCredit s talks to sell its Ukrainian operations have decelerated, although CEO Federico Ghizzoni said that discussions are ongoing. significant inflows in alternative investments and index products within our Asset Management business. Notably, our net new assets in Asia-Pacific grew at a 17% annualized rate. Ángel Cano Fernández, President, Grupo BBVA: Despite the political instability we ve seen in Turkey in the first part of this year and at the end of 2013, the macro-prospects are good. We re talking about an economy that has a potential growth in its economy of around 5% and about two-thirds of the population is under 35, which gives it enormous potential. We have the most profitable and the best-managed bank in a country where there s a long way to go with regard to banking the unbanked. So from the point of view of opportunities, Turkey clearly has enormous potential for us. Stuart Gulliver, Group CEO, HSBC: From a geographic perspective, I would say the performance is largely in line with expectations. We continue to see some revenue development within the Asian business. We see the UK is largely stable. The Middle East is largely stable. Some progression in North America, specifically within Commercial Banking within that North American space, driven both by the US and Canada. Latin America certainly under a little bit of pressure, particularly in Brazil. I think that s probably the best way to describe it, as we see from a trends perspective. Global banking and capital markets sector 12

13 RBS INT BBVA UCG STD ING CA LLD DB BNP NOM CS JPM UBS AXP BAC CIBC C WFC BCS USB NAB HSBC RBC TD ITAU ANZ MAC MS Theme 6.0: Lending trends banks focus on lending to core customer segments I don t want to give you the impression that I am over-optimistic because I m not, but at the same time, I am confident that the situation is moving in the right way. Federico Ghizzoni, CEO, UniCredit Loan growth trends vary by region and customer segment. Loan growth rates continue to reflect macroeconomic conditions in various countries for example, modest growth in the US, flat trends in France and ongoing deleveraging in Spain and Italy. Nevertheless, comments from management across regions indicated that they believe that lending trends are headed in a positive direction. Management also noted that they intend to remain disciplined on both pricing and risk appetite and do not plan to change their stance on either policy just to drive higher volumes. David Mathers, CFO, Credit Suisse: The continued expansion of our lending offering to ultra-high-net-worth clients is and remains a core part of our long-term strategy and is a means to enhancing revenue in the future. Stuart Gulliver, Group CEO, HSBC: We would expect that during the course of the year we will be adding to the loans and advances line in Retail Banking Wealth Management (RBWM) and that we ll have a higher balance at the end of the year than at the start of the year. What we re doing there, though, is not going down the credit curve. What we re looking to do is to take an increased market share in, frankly, the kind of customer groups that we bank in Premier and Advance. So we re looking for bigger market share and unchanged credit risk. Bruce Thompson, CFO, Bank of America: We have a focus not just on growing the loans, but also on the return that s generated from those loans. And, going forward, you should expect to see us grow loans, but we re going to be prudent, and they will need to be at returns that make sense and for those customers that we have good relationships with. Marianne Lake, CFO, JPMorgan Chase: In Commercial and Industrial lending, you re right. The industry was up slightly. We were not. It s a continuation of the things we ve talked about, which is a combination of client selection, of being very disciplined on credit, so not chasing growth at the cost of liberal credit structures or overly aggressive pricing. David McKay, Group Head, Personal and Commercial Banking, RBC: We have gained market share in both the core [commercial lending] categories that we focus on. That s C$0 to C$5 million and C$5 million to C$25 million. Where we might be losing a bit of market share is the C$25 million-plus category, where we selectively pick our opportunities. Javier Marín Romano, CEO, Banco Santander: We re seeing an improvement in the economic environment, right? So this should definitely help in terms of growth of our loan book. The behavior is very different by geographies. However, what we expect for this year is good growth in all the geographies. Cameron Clyne, Group CEO, NAB: Business credit growth remains subdued in Australia, so it s given us an opportunity to be disciplined about where we re looking for growth. Tom Naratil, CFO, UBS: New loans [in Retail and Corporate] were positive, but increased to a lesser extent than client assets, reflecting our strategy to selectively grow the business by focusing on high-quality loans. End of period net loans,* group level, percentage change from 1Q13 23% 1% 1% 1% 1% 1% 2% 4% 4% 5% 7% 7% 9% 9% 10% 11% 15% 16% -10% -9% -6% -6% -6% -5% -5% -4% -4% -2% -2% * Comparable loan data from 1Q13 not available for CBK and SG; loan data from both periods not available for BK, GS, STAN and STT. Global banking and capital markets sector 13

14 Theme 7.1: Credit quality trends improving economy and de-risking efforts drive lower impairments Impairments are reduced in every division, reflecting better credit quality and the benefits of reductions in the run-off portfolio. George Culmer, CFO, Lloyds Banking Group Banks across regions report lower levels of impaired loans. The quality of banks loan portfolios has improved significantly in recent quarters, reflecting improved or at least stabilized economic conditions in many regions and efforts to de-risk their balance sheets and run off legacy loan portfolios. In 1Q14, management in a number of countries commented on lower levels of new non-performing loans (NPLs). In addition, many indicated that they expect no further deteriorations in this area, given muted loan demand in some areas and higher-quality originations in others. Richard Davis, CEO, US Bancorp: We re all extending credit at the right level, and we re taking the appropriate measured risk. Ross McEwan, CEO, RBS: The bad debts have been kept under very good control, and that has been a [focus] for the team. And I d expect the bad debt levels to stay about where they are. I don t think we re doing anything in that business that should see [bad debts] lift or decline much further than this. Alfredo Setubal, Investor Relations Officer, Banco Itaú: NPLs above 90 days have continued to drop since the second quarter of And it s the best number, this 3.5%, that we have had since the merger of Itaú and Unibanco [in 2008]. Tom Naratil, CFO, UBS: We ve seen limited credit loss expenses [in Retail and Corporate] in recent quarters and have now reversed the vast majority of the collective credit loan loss allowances we ve built in the past. Javier Marín Romano, CEO, Banco Santander: During 2013, we saw an average of new NPLs of 4 billion every quarter. In the first quarter of 2014, new NPLs came in at 2.5 billion, which is a significant decrease. Ángel Cano Fernández, President, Grupo BBVA: In general, we re seeing this in a lot of different countries and now in Spain as well, and we are able to confirm that Spain is definitely seeing better cost of risk. There s a drop of gross additions to non-performing assets compared against the first quarter of last year. It was the lowest [level of new] entries we ve had, down 25%. The fall in Spain is even greater, close to a 35% drop, and a drop in the risk premium as well of 18 basis points. Craig Drummond, Group Executive, Finance and Strategy, NAB: Asset quality improved significantly in the past half. We ve seen categorized assets, as a percentage of gross loans and acceptances (GLAs), reduced 36 basis points in the past half to 3.69%. The key drivers are clearly a substantial reduction in watch loans, a substantial reduction in impaired assets. An interesting stat, if you look at the 90-day past dues plus the impaireds excluding the UK, that ratio to GLAs has moved down to 1.04% or 21-basis-point reduction in the past six months. Also, we ve seen new impaireds in the past six months come in at US$1.5 billion, down from the US$2.5 billion of new impaireds that we saw in the previous six months, so again a significant reduction. Carlo Messina, CEO, Intesa Sanpaolo: After years of operating in a very difficult macro-environment, we are finally starting to see significant improvement in net NPL inflow, which fell to 2011 levels in this quarter and is down 24% versus the first quarter of If confirmed in the coming quarters, this could represent a signal of improvement in the Italian macroeconomic scenario. Nevertheless, we maintained robust loan loss provisions of more than 1 billion, down only 7% versus first quarter of 2013, confirming our prudent approach. Global banking and capital markets sector 14

15 Theme 7.2: Strategic plans restructuring and adaptation efforts are ongoing Our message is quite simple: our strategy is the right one for UBS and can work in a variety of market environments and we remain committed to it. Sergio Ermotti, CEO, UBS Banks continue efforts to adapt to evolving environment. Over the past five years, many banks have launched strategic repositioning and restructuring plans in order to adapt their businesses to changing regulations and the challenging operating environment. While some have made marked progress in adapting their strategies, others continue to seek the right business model for the evolving marketplace. During the 1Q14 earnings season, management comments on strategic repositioning efforts reflected the varied progress across the industry. Certain banks stated their belief that they have the right business model in place, while others indicated that they were entering the next phase of strategic execution. However, a number of banks referred to recent or upcoming investor days and strategy reviews, underscoring the fact that strategic adaptation continues to be a work in progress across the industry. Gerald McCaughey, CEO, CIBC: We will continue to execute our client-focused strategy to grow our business and deliver consistent sustainable returns to our shareholders. Harvey Schwartz, CFO, Goldman Sachs: Over the last several years, we ve been focused on a number of strategic initiatives, things like growing our Asset Management business and being very focused on cost reduction. And that is really about strategically building operating leverage into the business. As we ve done that through this part of the cycle, we ve done it with an eye on finding the right balance. And by balance, I mean we re obviously running these businesses for years and decades. And so as we re getting more efficient and creating operating leverage, we need to make sure that we protect that franchise. And I think this quarter s results really showed the diversity and the strength of the franchise, whether you look at Investment Banking, Asset Management, et cetera. So I think we found the right balance so far. Shigesuke Kashiwagi, CFO, Nomura: Successful strategic refinement and cost reduction initiatives contributed to the strongest pre-tax income since the year ended March António Horta-Osório, Group CEO, Lloyds: With the bulk of the Investor days/strategy reviews transformation we set out in June 11 behind us, we are well positioned to grow and to make further progress in the remainder of 2014, taking advantage of the economic recovery underway in the UK. STAN JPM 11 November February 2014 Brady Dougan, CEO, Credit Suisse: I d like to reiterate the key elements of our strategy and the roadmap to achieving our targets, specifically how the combination of our two strong businesses coupled with resource reallocation will drive growth in targeted areas, namely in capital-efficient, high-returning businesses Anshu Jain, Co-CEO, Deutsche Bank: As we approach the halfway point of Strategy 2015+, we re over halfway towards our 2015 goals in key areas, in capital strength, reducing exposures and operational excellence savings. Our strategy remains the right path in the current environment. Ross McEwan, CEO, RBS: Two months ago I set out a plan for RBS focused on building the number one bank for trust and service in the UK. The results we are posting today show the steady progress that we re making, to making this a much simpler, smaller and fairer bank. Ralph Hamers, CEO, ING: On March 31 we hosted our investor day on the bank side, where we basically laid out our bank strategy as well as the financial ambitions The foundation for improving the client experience and achieving our target is clearly there. We have to deliver. STT 27 February 2014 RBS 27 February 2014 CA 20 March 2014 BNP 24 March 2014 INT 28 March 2014 ING 31 March 2014 UBS 6 May 2014 BCS 8 May 2014 SG 13 May 2014 WFC 20 May 2014 BK Upcoming: fall 2014 Frédéric Oudéa, CEO, Société Générale: On the 13th of May, we ll enter into the full detail of our strategic and financial roadmap for the next three years. Global banking and capital markets sector 15

16 Theme 9.0: Mergers and acquisitions limited appetite for acquisitions, but non-core asset sales continue There are no actual M&A deals that we are looking at. Shigesuke Kashiwagi, CFO, Nomura Management display limited interest in acquisitions. During the 1Q14 earnings season, management at very few banks expressed strong interest in pursuing inorganic growth. Those that were open to acquisitions were mainly in North America and reiterated that any potential deals would have to meet strict financial, risk and return hurdles, as well as strict internal hurdles. John Stumpf, CEO, Wells Fargo: The things that we look at are, is there a way to enhance Wealth, Brokerage and Retirement, possibly, and that would be interesting to us; portfolio purchases; and we announced something with Dillard s recently. These are the things that we like doing. I would think of it as bolt-on businesses and not as transformational. But again, if we don t do anything, that s also fine. Richard Davis, CEO, US Bancorp: We want to continue to have a little powder for acquisitions. We ll continue to look for, in particular, payment and trust opportunities. Asset sales remained a topic of discussion as banks continue to reshape their businesses to reflect core priorities and adapt to the regulatory environment. Notably, management at some banks indicated that the pace of non-core disposals could slow, reflecting fluctuating investor demand and pricing. Michael Corbat, CEO, Citigroup: It s of the highest priority to continue to work Citi Holdings to break even, but we are going to be very focused on opportunistic sales and continuing to get assets down. And so, as opportunities present themselves and I think the environment s fine; you can see it from the way we and others are describing credit, and how we re describing the continued recovery in the US if the prices are there, you should expect that we re going to continue to make some progress. Selected transactions discussed in 1Q14 BNP [Personal Finance] continued to develop its sources of growth through partnerships and targeted acquisitions. In South Africa, we reached an agreement to buy RCS, which is a point-of-sale consumer lender. STD SG CS RBC JPM MS ITAU DB MAC We launched a voluntary effort to acquire the minority interest in Santander Brasil that accounts for approximately 25% of the shares in the bank. What s the rationale behind this transaction? Basically, the first one is to unlock the long-term value of our Brazilian business. We are definitely very optimistic on Santander Brasil s long-term prospects. We have also announced the closing of the Newedge acquisition under the 50% stake, which was previously owned by Crédit Agricole. We signed an agreement with DBS, the Singaporean bank, for the sale of our private banking activities in Asia at the beginning of this quarter. [We are] making good progress in winding down the non-strategic portfolio within the Private Banking & Wealth Management division. The first quarter included a CHF91 million gain on the sale of our private equity fund-of-funds and co-investment group, CFIG. We are selling our banking operations in Jamaica, a country where we did not have scale or a market-leading position necessary to compete effectively over time and to meet our hurdle rates of return. We are also pleased with the progress we ve made on key items, including announcing the sale of our physical commodities business and our retirement planning services business. We re continuing to work on the sale of TransMontaigne. We ll give you an update when we have something more to say on that. We continue to focus on bancassurance, remembering that we don t operate in the health insurance that is very good in terms of revenues but also brings a lot of claims. We announced that we are selling the [high-risk corporate insurance] business. From a de-risking standpoint, the first quarter of 2014 has been another positive quarter, with the main achievements being the completion of the sale of BHF Bank and further risk reduction in the credit correlation book. The [Banking and Financial Services Group] sold Macquarie Private Wealth Canada and a 19.9% stake in OzForex through an initial public offering (IPO). Global banking and capital markets sector 16

17 Theme 10.0: Channel strategies banks focus on optimizing their branch networks 50% of the US population and 50% of the businesses in America reside within two miles of one of our stores. And while people often join us online, they pick the location that they re familiar with or that is close by them, because they still use the store. John Stumpf, CEO, Wells Fargo Branch networks are being reconfigured to complement digital channels. During the 1Q14 earnings season, management comments on channel strategies reflected their focus on achieving the right balance between physical and digital channels as they seek to drive efficiency and simplification. Tim Hockey, Group Head of Canadian Banking, Toronto-Dominion: We re constantly experimenting with branch format size. There is no question that the average square footage of the branch network will decline over time and the nature of the transactions that happen [at branches] will change. They ll move much more to sales transactions versus service transactions, and we ve seen a remarkable increase in online, mobile and alternate forms of distribution growth. I would say that to date, we still continue to see the vast majority of sales happening in the branches, so it will be a question of managing that shift, but we re seeing great success in the alternate formats we re seeing so far. Brian Moynihan, CEO, Bank of America: Mobile banking growth is pretty strong. So at the end of the day, if you look out across the last five or six years, we have more customers, a lot more deposits and a lot less cost structure as we ve repositioned to meet customers changing usage of first computers, then phones and the enhanced effect of ATMs. So you should expect those techniques to continue. We also still have 7.5 million people that come in our branches every week. There are great opportunities to engage with the customers that we continue to see through strong foot traffic. We are managing this to meet the needs of both the people who come into the branch and the people who use the automated techniques. And that is the challenge as we go forward. Ángel Cano Fernández, President, Grupo BBVA: What we mean by digital is that the business will be done as efficiently and productively as possible so that the customer will benefit. Not just in terms of the customers that come in through digital touch points but those that use the traditional ones too. Because the transformation will mean that everything can be done from one place locally, and there will be a digital offering which will include both digital and traditional products. It s much simpler for customers, so they have a better experience and a seamless experience whatever touchpoint they use. In addition, decisions about branch closures and openings reflect banks focus on serving core customers in specific regions. António Horta-Osório, Group CEO, Lloyds Banking Group: I said that we would keep our branch network. We have kept it. We are committed to keeping it in net terms until the end of the year. We are a retail and commercial bank very much focused on a multi-channel and multi-brand approach for our customers and on having a strong presence in the communities. Stuart Gulliver, CEO, HSBC: We think of our branch networks around city clusters within countries, not in terms of networks across the country. And the logic of that is, for an international bank like us, the addressable wallet tends to be centered around city clusters. It s concentrated around metropolitan and urban areas. And that again will result in some further fine-tuning of branch networks. Shayne Elliott, CFO, ANZ: Australia remains our largest and most valuable business, and given our relative size, we will continue to grow, with a focus on great customer experience in digital channels and products like gomoney, FastPay and Smart Choice; a portfolio of fairly priced, well-packaged products and services; a range of channels so customers can interact with us how and when they choose; and a unique Asian footprint, which is increasingly of value to our corporate and wealth customers. Carlo Messina, CEO, Intesa Sanpaolo: Our retail footprint optimization has continued, leading to [an additional] 74 branch closures in the first quarter Javier Marín Romano, CEO, Banco Santander: In Mexico, we are opening this year over 100 branches, and we are opening some branches also in Chile and Argentina. Richard Meddings, Group Finance Director, Standard Chartered: With regard to Korea, we continue to make reasonable progress in terms of potential exits or disposal of the rest of our Consumer Financing business there. Branches are down to around 250 branches from just over 330. Global banking and capital markets sector 17