Banks. Commerzbank AG. Germany. Full Rating Report. Key Rating Drivers. Rating Sensitivities. Ratings

Transcription

1 Germany Full Rating Report Ratings Foreign Currency Long-Term IDR Short-Term IDR Viability Rating BBB+ F2 bbb+ Support Rating 5 Support Rating Floor NF Derivative Counterparty Rating A- (dcr) Sovereign Risk Long-Term Foreign-Currency IDR Long-Term Local-Currency Rating Outlooks AAA AAA Long-Term Foreign-Currency Rating Stable Sovereign Long-Term Foreign- Stable Currency IDR Sovereign Long-Term Local- Stable Currency IDR Financial Data 1H Total assets (USDbn) Total assets (EURbn) Total equity (EURbn) Operating profit (EURm) 51 1,323 Net interest margin (%) Operating RoRWA (%).6.7 Operating profit/average total.2.3 assets (%) Fitch Core Capital/RWAs (%) Tier 1 ratio (%) CET1 ratio (fully loaded, %) Related Research Germany - September 217 Global Economic Outlook Forecast () - Ratings Navigator (March 217) Fitch Affirms Commerzbank at 'BBB+'; Outlook Stable (February 217) Analysts Roger Schneider, CIIA roger.schneider@fitchratings.com Sebastian Schrimpf, CFA sebastian.schrimpf@fitchratings.com Key Rating Drivers Weak Profitability, Stable Asset Quality: s (CBK) Issuer Default Ratings (IDRs) and Viability Rating (VR) reflect progress in the bank s transformation process accompanied by weak profitability, but stable asset quality, improving capitalisation as well as solid funding and liquidity. Bank Restructuring Progressing: The execution of CBK s strategic transformation (Commerzbank 4.) to simplify its business model and make it more efficient, notably by automating 8% of its processes by 22, is on track. A binding agreement with its employee representatives has been reached, paving the way for reaching its target of reducing staffing levels by 7,3. Solid Customer Growth: CBK s strategic plan focuses on customer growth as the basis for revenue growth. The bank added 385, net customers in its private and small business customer (PSBC) segment in 1H17, approaching its target of 5, for 217. About 1, customers were added by the acquisition of Onvista a German online brokerage and financial information platform by CBK s online bank Comdirect. Lower Income, Sticky Costs: Operating revenue in the PSBC and corporate clients (CC) segments declined by 5% in 1H17 year-on-year (yoy). Both segments showed significantly lower operating results, dropping by 41% in PSBC and 16% in CC yoy. This highlights the challenges of converting volume growth into earnings growth at this early stage of the strategic plan. The bank s operating expenses have remained sticky, largely because of investments in digitalisation, regulatory costs and the introduction of the EU bank levy in Poland. Stable Asset Quality: Asset quality remained sound, helped by a benign credit environment in Germany and continued low-risk costs in CBK s core businesses. The bank further reduced its ship finance portfolio by EUR.9 billion to less than EUR4. billion in 1H17 but still expects high loan-loss provisions in the Asset and Capital Recovery (ACR) segment for 217, albeit now at the lower end of its guidance between EUR45 million and EUR6 million. The bank expects the shipping portfolio to decline to about EUR3. billion by end-217. Capitalisation Is Improving: CBK s regulatory capital ratios have improved. Its fully loaded common equity Tier 1 ratio (CET1) increased to 13% at end-1h17 and is increasingly in line with peers. The recent improvement was driven by EUR11.7 billion lower risk-weighted assets (RWAs) following further de-risking in its ACR segment, and declines in operational and market risk RWAs. Balanced Funding, Sound Liquidity: CBK s funding and liquidity is sound and based on retail deposits. The funding structure is diversified with good access to long-term funding, backed by CBK s covered bond franchise. Its liquidity benefits from a large portfolio of highly liquid assets. CBK maintained an intraday liquidity portfolio of EUR8.6 billion at end-1h17. Rating Sensitivities Limited Upside Potential: Upside potential for CBK s ratings is limited and contingent on demonstrating stronger earnings capacity, which could be the result of the successful execution of its strategic plan. The ratings would come under pressure if execution risks materialise, which could lead to insufficient revenue generation, significantly higher restructuring costs or a loss in franchise. 23

2 Real GDP Growth Historical data and forecast Germany Poland (%) av. United States Source: Fitch - Sovereign Data Comparator September 217 Operating Environment Benign German Economic Environment Supports Asset Quality Unemployment rates at a post-reunification low, generally sound property markets and low corporate and private insolvencies support the sound quality of lending in Germany. Fitch Ratings raised its GDP growth forecast for Germany in 217 to 2.1% from 1.9% in June 217 but expects moderately lower growth in 218 (1.7%) and 219 (1.4%). Domestic demand is expanding robustly as consumer spending benefits from increasing confidence and strong employment growth, and investment is boosted by a surge in construction activity. Improving external demand including from other eurozone countries and Russia has also supported the industrial sector, amplified by Germany s large export base. German Banking Sector s Consolidation Is Progressing Slowly Germany s banking sector is more fragmented and competition is more intense than in most European markets. Most banks belong to the public or cooperative sectors and are not listed. Consolidation in these two sectors is progressing but at a very slow pace. Low funding costs and the ample availability of retail and wholesale deposits encourage foreign banks to establish operations in Germany, which have increased competition in the SME segment. Pressure from Regulation and Competition Low interest rates, combined with strong international competition, have put material pressure on German banks earnings for several years. In addition, the banks have significantly reduced their foreign presence, increasing their reliance on the domestic market. Costs related to increasing regulatory requirements exacerbate the effects of margin compression on banks profitability. Investors search for yield amid the low-rate environment increases pressure on margins, which in our opinion could increase the risk of mispricing, primarily in commercial real estate (CRE) and residential mortgage loans. Poland Tensions with the EU Raise Medium-Term Risks CBK s Polish subsidiary is affected by the operating environment in its home market. Poland (A-/F2/Stable) enjoyed a favourable economic environment in recent years benefitting from its sound financial system and falling unemployment. However, a deteriorating relationship with the European Union because of the country s constitutional reform could negatively affect Poland s growth and government finances in the medium term. Company Profile Entrenched Retail and Corporate Franchise in Its Core Markets Germany and Poland CBK is one of the largest banks in Germany in terms of total assets and is an internationally operating universal bank. It has a leading retail franchise serving about 12 million private customers (including private banking and wealth management clients) in Germany and operates a country-wide network of about 1, branches including online subsidiaries. Its corporate franchise targets the German Mittelstand and, more recently, small business customers, for which CBK provides a wide range of financial products and services. CBK maintains a good franchise in Poland through its subsidiary mbank, the second core region of the group. mbank is the fourth-largest Polish bank by total assets (5.4 million customers at end-1h17), servicing more than five million retail and about 21, corporate clients. Related Criteria Global Bank Rating Criteria (November 216) Its international activities span almost 5 countries and CBK is a key player in German trade finance, where according to the bank it settles about 3% of the German export volume. CBK launched an overhaul of its business model in 3Q16. The bank aims to transform itself into a multi-channel financial institution with a focus on private, small business and corporate 2

3 clients. CBK expects to achieve savings of EUR1.1 billion by 22. The overhaul reflects a changing German banking landscape because of the low-interest-rate environment and lack of sufficient profitability for the sector as a whole and for the bank in particular. This is due to the high fragmentation and competitive nature of the banking market with low pricing power by international standards. Rising regulatory requirements and required investments in technology further aggravate the pressure on banks earnings. Potential Changes to the Shareholder Base CBK is a listed company. About half of the bank s shares are owned by institutional investors and about a quarter by private individuals. The German government still owns a 15% stake and has reiterated its commitment to the bank. In 3Q17, Cerberus Capital Management, a USbased private equity firm, acquired a stake of over 5% and several other large banks in Europe indicated potential interest in acquiring a stake in the bank. Revised Segment Reporting Reflecting its new strategy, CBK revised its segmental reporting at end-216. The new PSBC segment encompasses Commerzbank s private and small-business customers as well as its subsidiaries comdirect, Commerz Real and mbank. The customer group small-business customer comprises commercial clients and smaller SMEs. The bank expects this segment to deliver revenue growth of at least EUR1.1 billion by the end of 22. The CC segment consists of the larger part of the previous Mittelstandsbank and the capital market section. The business with structured investment and financial products is being scaled back and main parts of the EMC division will be separated. The bank s envisaged target in this segment is for revenue to grow by above EUR3 million by the end of Business Targets Consumer finance new 6 business volume (EURbn) Assets under control (EURbn) >4 Customers Germany (m) >14 Additional revenues (EURbn) >1.4 Digitalisation ratio 8% FTE 36, Market share small business 8% customers Market share trade finance & 32% services Source: CBK The ACR segment, which pools CBK s non-strategic and legacy assets (primarily ship financing, CRE and long-dated assets to local authorities, primarily in the UK), remained unchanged. The long-term objective is to completely wind down these assets. Management and Strategy First Milestones of Transformation Accomplished Management changes at Commerzbank have included the appointment of a chief executive in 216. We believe that the seven-member board is focused on the bank s transformation. Future customer growth is a prerequisite for revenue growth. The bank added 385, net new customers in its PSBC segment and about 3,1 net new customers in its CC unit in 1H17. In 2Q17, CBK reached a binding agreement with its employee representatives, a necessary step for the bank to reach its staff reduction target. The net reduction of about 7,3 staff is a central element to achieve its cost-cutting targets. Execution Risk Remains High In our view, CBK s transformation is a complex and ambitious project that involves a variety of organisational, technical and operational changes. The project has started well and there are clearly defined responsibilities at senior management. Nevertheless, we believe that execution risk remains substantial despite a fast-fail approach as part of the project management and CBK s good record of implementing IT projects. Joint Venture on Instalment Loans Terminated In August 217, CBK ended its joint-venture instalment loan platform Commerz Finanz GmbH, which it shared with BNP Paribas S.A. As a result, 3, loan contracts with a total volume of about EUR3.5 billion were transferred to CBK, which the bank considers to be a growth area under its digitalisation strategy. CBK plans to increase new business generation from EUR2.3 billion in 216 to EUR6 billion in 22. 3

4 Risk Appetite Underwriting Standards in Line with Industry Practice CBK s focus on its core customer-related businesses underlines a comparably conservative risk appetite. This is underpinned by the bank s decision to leave or scale back potentially volatile market segments including exotic interest rates and foreign-exchange derivatives business, fixed-income or currencies trading and more capital-intensive investment bank activities. The bank will, however, continue to offer fixed-income and currency core investment and hedging products. CBK also intends to further reduce the remaining assets in ACR and to utilise capital no longer needed in that segment to finance growth of its core business. Some areas of particular growth in recent years, including new mortgage lending, show good asset quality and do not indicate a loosening of standards, although that has not been tested through the cycle. Underwriting standards in uncollateralised consumer finance are generally sound. The CC segment s NPL ratio and risk costs continued to decline in 1H17. While we believe that CBK s underwriting standards are sound and broadly in line with the industry, we also consider the positive impact from the benign economic conditions. Potential Conduct and Litigation Risks Addressed CBK and its subsidiaries are involved in a variety of legal and arbitration cases, claims and legal proceedings in connection with a broad range of issues. We believe, however, that the main outstanding cases have been resolved and that the financial risks of CBK s legal proceedings are manageable. Relevant pending cases are provisioned based on the bank s judgement but these are undisclosed. Some of these cases could also have a non-quantifiable impact on the bank s reputation and hence represent a risk. Due to the relevance of the PSBC segment, CBK is sensitive to investment advisory and related court rulings. Moderate Traded Market Risk Exposure CBK s market risk exposure is moderate. The bank s main drivers of market risk in the trading book are interest and exchange rates, followed by credit spreads and equity risks. Under its 22-Strategy, CBK plans to exit exotic interest-rate derivatives business, reduce credit trading and separate structured equity business with low core client connectivity. We believe this will reduce its market risk exposure. The value-at-risk (VaR) level at end-1h17 was comparable with end-216. The structural banking book vulnerability to interest-rate shocks compares favourably with that of the domestic retail groups and is broadly in line with the wholesale banks, which have a more term-matched balance sheet. Market risk in the banking book is captured in the VaR figure for the overall book. In addition, CBK simulates the impact of +2/-2bp parallel shift in the yield curve on the economic value of banking book positions. An upward shift of +2% would lead to a potential loss of EUR2,583 million, or 1.3% of Fitch Core Capital (FCC), at end-1h17 (-2%: -EUR34 million). This is below the regulatory threshold of 2% in relation to the bank s own funds. Pension Liabilities Largely Covered by Plan Assets Coverage of pension obligations with pension plan assets remained stable at 9% at end- 1H17. Lower market values of pension obligations, resulting from an increase in the discount rate (1H17: 2.1%, 1H16: 1.7%), relieved CBK s capital through a positive OCI effect of EUR178 million. The discount rate has been volatile in both directions, but the overall trend since 213 has been negative (213: 3.9%), which has resulted in an increase in the bank's gross pension liabilities of EUR2 billion, leading to a cumulated OCI effect of -EUR555 million at end-1h17. 4

5 Solid Asset Quality NPL ratio (LHS) Growth of gross loans (LHS) Reserves/NPL (RHS) (%) (%) H17 Development of NPLs (EURm) 8, 7, 6, 5, 4, 3, 2, 1, PSBC CC CRE SF H17 Exposure at Default by Segment Inner circle: 1H17 Outer circle: 216 PSBC CC Others ACR 3% 19% 45% 17% 3% 46% 34% Default Volume by Segment (EaD) Inner circle: 1H17 Outer circle: % PSBC CC Others ACR.1% 26.1% 25.1% 25.6% 3.4% 43.6%.1% 48.6% Financial Profile Asset Quality Solid Asset Quality in Core Business; Weak in ACR Due to Shipping CBK s NPLs have improved materially over recent years, also thanks to benign economic conditions. CBK has substantially worked out NPLs and non-core assets in its ACR segment which comprises CRE, ship and public finance. However, due to the high amount of EUR2 billion NPLs largely in relation to the shipping exposure in the ACR portfolio, the NPL ratio still exceeds that of its direct peers, which constrains our assessment of the bank s asset quality. However, the loan quality in its core customer book is good and in line with peers on a comparable rating level. Customer loans accounted for about 44% of CBK s total assets end-1h17 and are the main source of credit risk of the core bank. Asset quality in PSBC, which comprise about 34% of the bank s exposure at default (EaD), remained strong with an NPL ratio of about 1%. Almost 6% of the exposure is to traditional owner-occupied residential mortgages, which we expect to continue to perform solidly. Risk charges in the CC segment which is CBK s largest portfolio in terms of EaD declined to EUR76 million in 1H17, significantly below the EUR128 million the bank reported in 1H16. Concurrently, NPLs reported under the CC segment declined by EUR.5 billion and totalled EUR2.8 billion at end-1h17. According to CBK s calculation, the segment s NPL ratio dropped to 1.4%, a level in line with the industry average. We think that the economic cycle has reached its peak but believe any worsening of the credit environment to be contained in the next two years absent any major economic shock. ACR Exposure Declining but Remains Key Source of Risk The ACR portfolio declined by EUR2.1 billion (EaD) in 1H17, driven by reductions in CBK s ship finance portfolio, and totalled EUR15.3 billion at end-1h17. We view CBK s plans to reduce its ship portfolio by about EUR.9 billion by end-217 as positive. The ACR portfolio represented 3% of the bank s total NPLs at end-1h17 and consumed 58% of the loan-loss provisions. Despite the progress in the reduction of the ACR portfolio, the inherent risk of this portfolio remains high, especially in light of the bank s weak profitability. Stable NPL Coverage Ratio CBK s overall NPL coverage ratio remained stable at 54% in 1H17. While the CC and PSBC segments coverage ratio improved in 1H17, the NPL coverage ratio of the ACR segment dropped to 47% from 57% at end-216. The decline was mitigated by a 29% rise in the collateral value resulting from a slight recovery in the ship portfolio, which we believe to remain very volatile. CBK expects loan loss provisions of about EUR8 million in 217, of which about EUR45 million will be allocated to the ACR segment. Write-downs on securities are now recognised in in net investment income rather than loan-loss provisions. Tail Risk in Peripheral Country-Risk Exposure CBK maintains a relatively large exposure to partly long-dated Italian and Spanish sovereign bonds. This exposure is vulnerable to deterioration of the debt service capacity of both countries, market risk and potential modifications of the regulatory treatment of sovereign debt. At end-1h17, Italian sovereign exposure was reported at about EUR9.1 billion and Spanish sovereign exposure was EUR1.7 billion. CBK also maintains exposure to companies and financial institutions in Russia and China. It is subject to tight monitoring and active management due to the geopolitical developments. CBK s Ukraine exposure remains immaterial and the exposure to Russia has been reduced substantially since the introduction of the sanctions. It was EUR2.4 billion at end-1h17, which we believe is manageable. CBK s exposure to China was reduced to EUR4.4 billion and the exposure to Turkey was EUR2.2 billion at end-1h17. 5

6 Development of CBK's Profitability since End-213 Operating profit/rwas ( LHS) Operating profit/av. equity (LHS) LICs/pre-imp. op. profit (RHS) CIR (RHS) (%) (%) H Earnings and Profitability Weaker Revenue; Sticky Costs CBK s profitability is weak, and improvements will depend on the successful progression of its restructuring programme and on the further evolution of risk costs. CBK generated a negative net return on tangible equity (RoTE) of 3.1% in 1H17, which clearly demonstrates the challenges in achieving its targeted net RoTE of above 6% by 22. CBK s reported a EUR292 million pre-tax loss in 1H17, which primarily reflected the full booking of EUR87 million restructuring charges for its staff reduction programme following a binding agreement with its employee representatives in 2Q17. Revenue growth has also been weak despite volume growth. The bank s operating expenses remained sticky, largely because of investments in digitalisation, regulatory costs and the introduction of the EU bank levy in Poland. CBK s cost/income ratio slightly increased in the first six month of 217 and totalled 81% in 1H17 (216: 77%), which is significantly above its targeted level of 66% in 22. Similar to recent years, the ACR segment negatively affected CBK s profitability in 1H17. However, the segment s income was positive due to significantly lower funding costs and a one-off income item of EUR68 million partly set off by a 46% increase in loan-loss provisions attributable exclusively to charges for ship financing. We believe that the ACR portfolio will continue to weigh on CBK s results, but to a lesser extent than in the past. Improving Capitalisation CET1 ratio (fully loaded) (LHS) Total capital ratio (fully loaded) (LHS) Leverage ratio (LHS) Internal capital generation (RHS) (%) (%) H Small Profit Expected for 217; Driven by One-Offs CBK s management expects a small profit for 217. This will be largely driven by expected oneoff items from the sale of a stake in a precious metal processor in Switzerland, a credit card provider in Germany, gains from revaluation of its joint venture and gains from property sales, which are likely to amount to more than EUR39 million. We expect that the bank s profitability will remain weak and volatile during its transformation phase until a clearer picture on revenue and cost dynamics emerge. We expect this to occur at the end of 218 at the earliest. Capitalisation and Leverage Improving Capitalisation CBK s regulatory capital ratios improved as the bank s fully loaded CET1 ratio increased to 13% at end-1h17, which is broadly in line with peers. At the same date, the bank s FCC/RWAs ratio improved to 14%. The improvement was driven by a EUR11.7 billion reduction in RWAs in 1H17, largely driven by the de-risking strategy in its ACR segment and moderate currency effects due to the strengthening euro. Further contributions came from declining market risk RWAs including pension risk due to lower market volatility across products and a decrease in operational risk RWAs following lower amounts of loss events in in external databases. CBK targets a CET1 ratio of about 12.5%, including the effect of the first-time implementation of IFRS 9 on 1 January 218, the expected impact of which it has not disclosed. The bank s fully loaded CRD IV/CRR leverage ratio increased to 4.6% at end-1h17, from 4.4% at 1H16 and is line with peers that have a similar business model. SREP Requirement Comfortably Met CBK comfortably complies with the supervisory review and evaluation process (SREP) requirement for 217. For 217, the ECB set a CET1 requirement of 8.5% for CBK on a consolidated basis taking into account the transitional CRR provisions. This comprises a minimum CET1 regulatory requirement of 4.5%, a Pillar 2 requirement of 2.25%, a capital conservation buffer of 1.25% (2.5% in 219) and a.5% (1.5% in 219) buffer for systemic importance (D-SIB/O-SII). In line with most eurozone banks, CBK has not disclosed its Pillar 2 Guidance. 6

7 We believe that the bank will meet additional requirements applicable in the near future. CBK will have to comply with the minimum requirement for own funds and eligible liabilities (MREL). We believe that the impact on its capital structure will depend on the implementation of MREL and on the resolution approach set by the Single Resolution Board. Stable Funding Ratios (%) Loans/customer deposits Interbank assets/interbank liabilities Customer deposits/total funding (excluding derivatives) H17 Capital Market Funding Mix End-1H17: EUR7bn Sub-debt 16% Unsecured bonds 21% Promissory notes 15% Covered bonds 48% Reduction of Legacy Assets Will Provide Modest Capital Relief We expect CBK s capitalisation to benefit from further RWA reductions in the ACR segment in the absence of large additional impairments. At end-1h17, the ACR represented EUR2.1 billion (-13% yoy) or almost 11% of total RWAs. The anticipated RWA reduction of about EUR4 billion by 22 implies a net capital relief of about EUR3 million. Limited Retained Earnings Expected CBK s ability to increase capital by retaining profit will remain constrained, at least until 219. This underscores the continuing importance of a tight RWA management, which CBK has carried out efficiently. CBK announced suspension of dividend payments to mitigate the negative impact of the restructuring cost on capital. As a result, we believe that it will be difficult for CBK to maintain capital ratios if the announced loan growth targets are to be achieved. Funding and Liquidity Balanced Funding Structure CBK has a well-diversified funding mix and solid liquidity reserves. CBK s funding benefits from its entrenched domestic franchise with stable access to a broad, diversified and granular deposit base. The proportion of customer deposits in the bank s funding has increased in recent years and has resulted in a strong loans/deposits ratio (end-1h17: 83%). However, CBK s large sight deposit surplus weighs on profitability. The bank has reduced the inflow of primarily institutional deposits through a revised pricing policy. CBK s funding needs in 217 are expected to be below EUR1 billion, which is moderate compared with its funding capacity. In 1H17, CBK raised EUR3.4 billion in long-term funding. Stable Access to Capital Markets CBK s reliance on unsecured wholesale funding is moderate. Out of EUR2.9 billion unsecured bond issuance in 1H17, EUR1.1 billion were through private placement. A smaller part of CBK s capital market funding is in the form of covered bonds (EUR5 million in 1H17), which have proved to be a stable and cheap source of funding even in times of stressed markets. We believe, that CBK maintains a comfortable pool of eligible assets to maintain its level of covered bonds in the funding structure in the medium term. In 1H17, CBK has returned its licence to conduct business concerning ship Pfandbriefe. However, historically it has been an insignificant funding source. Large Liquidity Reserves CBK has a substantial pool of highly liquid assets (a total of EUR98.5 billion of which EUR85.9 billion are level 1 assets, equal to 18% of total assets) and other central bank eligible and unencumbered assets. Assets readily available at any time during the subsequent 3 days to be liquidated via outright sale or repurchase agreements on an approved repurchase market are adequate to withstand stresses. A part of this liquidity reserve is held in a separate stress liquidity reserve portfolio managed by Treasury. In addition, CBK set aside an intraday liquidity reserve portfolio of EUR8.6 billion end-1h17. The bank s liquidity coverage ratio exceeded the minimum regulatory requirement throughout the last 12 months to end-1h17 but is not disclosed. Instead, CBK reports the liquidity ration under the German Liquidity Ordinance, which was 1.47 against a minimum requirement of 1.. 7

8 Support CBK s Support Rating of 5 and Support Rating Floor of No Floor reflect our view that following the implementation of the resolution legislation and tools, senior creditors can no longer rely on receiving extraordinary support from the sovereign in the event that CBK becomes non-viable. Debt, Deposit and Derivative Counterparty Ratings CBK s plain-vanilla senior debt is rated in line with the bank s IDRs. Structured notes with embedded market risk are rated one notch above its Long-Term IDR because they benefit from protection provided by the combined buffers of qualifying junior and vanilla senior debt because, under German law, these rank senior to plain-vanilla senior debt in a resolution. The ratings on subordinated debt and other hybrid capital issued by CBK are notched down from CBK s VR in accordance with Fitch s assessment of each instrument s respective nonperformance and relative loss severity risks. CBK s Derivative Counterparty Rating (DCR) and Long-Term Deposit Rating reflect Fitch s view that the bank has sufficient combined buffers of qualifying junior and vanilla senior debt that could be used to recapitalise it, restore its viability and prevent default on other "preferred" senior liabilities upon resolution. The protection afforded to preferred senior debt, deposits and derivative counterparties by those buffers means DCRs and Long-Term Deposit Ratings are each given a one-notch uplift above the Long-Term IDR to reflect these liabilities lower vulnerability to default than vanilla senior debt. 8

9 Income Statement 3 Jun Dec Jun Dec Dec Dec Months - Interim Year End 6 Months - Interim Year End Year End Year End EURm EURm EURm EURm EURm EURm Reviewed - Unqualified Audited - Unqualified Reviewed - Unqualified Audited - Unqualified Audited - Unqualified Audited - Unqualified 1. Interest Income on Loans 3,456 7,325 3,786 8,25 9,451 1, Other Interest Income 1,5 2,435 1,368 3,19 2,553 3, Dividend Income Gross Interest and Dividend Income 4,545 9,848 5,189 11,457 12,214 13, Interest Expense on Customer Deposits n.a. n.a. n.a. n.a. n.a. n.a. 6. Other Interest Expense 2,424 4,771 2,59 5,73 6,857 7,71 7. Total Interest Expense 2,424 4,771 2,59 5,73 6,857 7,71 8. Net Interest Income 2,121 5,77 2,68 5,727 5,357 6, Net Gains (Losses) on Trading and Derivatives (135) (55) 1. Net Gains (Losses) on Other Securities (7) Net Gains (Losses) on Assets at FV through Income Statement (37) (39) (129) (27) 12. Net Insurance Income Net Fees and Commissions 1,666 3,212 1,62 3,43 3,26 3, Other Operating Income (598) (127) 15. Total Non-Interest Operating Income 2,319 4,96 1,659 3,98 3,364 3, Personnel Expenses 1,827 3,854 1,818 4,53 3,984 4,9 17. Other Operating Expenses 1,756 3,246 1,777 3,14 2,945 2, Total Non-Interest Expenses 3,583 7,1 3,595 7,157 6,929 6, Equity-accounted Profit/ Loss - Operating Pre-Impairment Operating Profit 872 2, ,632 1,836 2, Loan Impairment Charge ,144 1, Securities and Other Credit Impairment Charges n.a. n.a. n.a. n.a. n.a. n.a. 23. Operating Profit 51 1, , Equity-accounted Profit/ Loss - Non-operating n.a. n.a. n.a. n.a. n.a. n.a. 25. Non-recurring Income Non-recurring Expense Change in Fair Value of Ow n Debt n.a. n.a. n.a. n.a. n.a. n.a. 28. Other Non-operating Income and Expenses n.a. n.a. n.a. n.a. n.a. n.a. 29. Pre-tax Profit (292) , Tax expense Profit/Loss from Discontinued Operations n.a. n.a. n.a. n.a. n.a. n.a. 32. Net Income (361) , Change in Value of AFS Investments 75 (135) (237) Revaluation of Fixed Assets n.a. n.a. n.a. n.a. n.a. n.a. 35. Currency Translation Differences 22 (143) (176) 162 (26) (165) 36. Remaining OCI Gains/(losses) 116 (45) (452) 24 (451) Fitch Comprehensive Income (148) (31) (431) 2, Memo: Profit Allocation to Non-controlling Interests Memo: Net Income after Allocation to Non-controlling Interests (46) , Memo: Common Dividends Relating to the Period n.a. n.a. n.a. 251 n.a. 41. Memo: Preferred Dividends Related to the Period n.a. n.a. n.a. n.a. n.a. n.a. Exchange rate USD1 = EUR.8763 USD1 = EUR.9487 USD1 = EUR.97 USD1 = EUR.9185 USD1 = EUR.8237 USD1 = EUR

10 Balance Sheet 3 Jun Dec Jun Dec Dec Dec Months - Interim Year End 6 Months - Interim Year End Year End Year End EURm EURm EURm EURm EURm EURm Assets A. Loans 1. Residential Mortgage Loans n.a. n.a. n.a. n.a. n.a. n.a. 2. Other Mortgage Loans n.a. n.a. n.a. n.a. n.a. n.a. 3. Other Consumer/ Retail Loans n.a. n.a. n.a. n.a. n.a. n.a. 4. Corporate & Commercial Loans n.a. 59,488 n.a. 61,369 67,235 7, Other Loans 27,84 144, ,16 146, ,89 153,89 6. Less: Reserves for Impaired Loans 3,53 3,67 3,672 3,862 5,663 6, Net Loans 24,274 2,486 27,434 23,895 21, , Gross Loans 27,84 24, ,16 27, ,44 224,17 9. Memo: Impaired Loans included above 6,54 6,914 6,54 7,124 11,843 15, Memo: Loans at Fair Value included above n.a. n.a. n.a. n.a. n.a. n.a. B. Other Earning Assets 1. Loans and Advances to Banks 28,351 25,134 3,795 28,36 32,145 31, Reverse Repos and Cash Collateral 47,31 45,757 59,591 58,754 71,165 84, Trading Securities and at FV through Income 23,678 27,54 4,59 4,52 43,476 4,12 4. Derivatives 55,584 64,59 87,268 8,41 94,186 69, Available for Sale Securities 34,419 39,635 44,171 43,26 42,756 34, Held to Maturity Securities n.a. n.a. n.a. n.a. n.a. n.a. 7. Equity Investments in Associates Other Securities 26,24 29,546 34,362 36,323 45,42 45,29 9. Total Securities 187,327 27, , , , , Memo: Government Securities included Above n.a. 43,142 n.a. 47,214 52,423 45, Memo: Total Securities Pledged 1,5 5,92 7,511 3,384 6,11 5, Investments in Property Insurance Assets n.a. n.a. n.a. n.a. n.a. n.a. 14. Other Earning Assets n.a. n.a. n.a. n.a. n.a. n.a. 15. Total Earning Assets 419, , 54, ,599 54,56 524,222 C. Non-Earning Assets 1. Cash and Due From Banks 54,273 34,82 13,71 28,59 4,897 12, Memo: Mandatory Reserves included above n.a. n.a. n.a. n.a. n.a. n.a. 3. Foreclosed Real Estate n.a. n.a. n.a. n.a. n.a. n.a. 4. Fixed Assets 1,626 1,723 2,27 2,294 1,916 1, Goodw ill 1,484 1,484 2,76 2,76 2,76 2,8 6. Other Intangibles 1,641 1,563 1,477 1,449 1,254 1, Current Tax Assets Deferred Tax Assets 3,12 3,49 2,861 2,761 3,426 3, Discontinued Operations 1,265 1,188 1, , Other Assets 3,152 3,12 3,899 2,655 3,51 2, Total Assets 487,26 48,45 532,62 532,71 558, ,654 Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 15, , ,36 153, ,3 157, Customer Deposits - Savings 7,37 7,189 7,39 6,961 6,76 6, Customer Deposits - Term 94,46 68,638 74,283 89,714 68,42 6, Total Customer Deposits 251, ,774 24,358 25,67 226, , Deposits from Banks 56,873 47,615 57,6 65,49 66,236 59,32 6. Repos and Cash Collateral 26,827 25,218 37,14 26,555 53,775 68, Commercial Paper and Short-term Borrow ings 9,36 9,564 11,479 14,541 17,425 2, Total Money Market and Short-term Funding 344,41 314, , , , , Senior Unsecured Debt (original maturity > 1 year) 26,222 14,853 25,754 2,721 27,535 41, Subordinated Borrow ing 11,76 1,969 12,368 11,858 12,358 13, Covered Bonds n.a. 27,338 n.a. 7,466 6,133 5, Other Long-term Funding n.a. n.a. n.a. n.a. n.a. n.a. 13. Total LT Funding (original maturity > 1 year) 37,298 53,16 38,122 4,45 46,26 6, Derivatives 57,173 7,33 91,228 84,548 99,534 71, Trading Liabilities 1,838 5,692 12,359 1,449 8,262 7, Total Funding 449, ,56 488,16 491, ,9 511,943 E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt n.a. n.a. n.a. n.a. n.a. n.a. 2. Credit impairment reserves n.a. n.a. n.a. n.a. n.a. n.a. 3. Reserves for Pensions and Other 3,695 3,436 3,57 3,326 5,272 3, Current Tax Liabilities Deferred Tax Liabilities Other Deferred Liabilities Discontinued Operations 14 1,343 1, Insurance Liabilities n.a. n.a. n.a. n.a. n.a. n.a. 9. Other Liabilities 3,54 3,373 9,16 5,511 6,897 6, Total Liabilities 457,885 45,81 52,92 52, , ,721 F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt n.a. n.a. n.a. n.a. n.a. n.a. 2. Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. n.a. n.a. n.a. n.a. G. Equity 1. Common Equity 29,214 29,628 29,885 29,92 27,529 27, Non-controlling Interest 1,17 1, , Securities Revaluation Reserves (715) (781) (91) (597) (963) (1,195) 4. Foreign Exchange Revaluation Reserves (157) (137) (168) (25) (193) (192) 5. Fixed Asset Revaluations and Other Accumulated OCI (74) (97) (133) (159) (246) (357) 6. Total Equity 29,375 29,64 29,682 3,125 27,33 26, Total Liabilities and Equity 487,26 48,45 532,62 532,71 558, , Memo: Fitch Core Capital 25,87 25,43 24,869 25,47 22,22 22,184 Exchange rate USD1 = EUR.8763 USD1 = EUR.9487 USD1 = EUR.97 USD1 = EUR.9185 USD1 = EUR.8237 USD1 = EUR

11 Summary Analytics 3 Jun Dec Jun Dec Dec Dec Months - Interim Year End 6 Months - Interim 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 n.a. n.a. n.a. n.a. n.a. n.a. 3. 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 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 Operating Profit/ Average Total Assets Operating Profit / Risk Weighted Assets C. Other Profitability Ratios 1. Net Income/ Average Total Equity (2.5) Net Income/ Average Total Assets (.2) Fitch Comprehensive Income/ Average Total Equity (1.) (1.) (2.9) Fitch Comprehensive Income/ Average Total Assets (.1) (.1) (.2) Taxes/ Pre-tax Profit (23.6) Net Income/ Risk Weighted Assets (.4) D. Capitalization 1. FCC/FCC-Adjusted Risk Weighted Assets Tangible Common Equity/ Tangible Assets Tier 1 Regulatory Capital Ratio Total Regulatory Capital Ratio Common Equity Tier 1 Capital Ratio Equity/ Total Assets Cash Dividends Paid & Declared/ Net Income n.a. n.a. n.a n.a. 8. Internal Capital Generation (2.5) E. Loan Quality 1. Grow th of Total Assets 1.4 (9.8) (.) (4.6) 1.6 (13.58) 2. Grow th of Gross Loans 1.8 (1.7) 1.6 (3.8) (3.6) (11.17) 3. 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 Assets F. Funding and Liquidity 1. Loans/ Customer Deposits Interbank Assets/ Interbank Liabilities Customer Deposits/ Total Funding (excluding derivatives) Liquidity Coverage Ratio n.a. n.a. n.a. n.a. n.a. n.a. 5. Net Stable Funding Ratio n.a. n.a. n.a. n.a. n.a. n.a. 11

12 Reference Data 3 Jun Dec Jun Dec Dec Dec Months - Interim Year End 6 Months - Interim Year End Year End Year End EURm EURm EURm EURm EURm EURm A. Off-Balance Sheet Items 1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. n.a. n.a. n.a. n.a. 2. Other off-balance sheet exposure to securitizations n.a. n.a. n.a. n.a. n.a. n.a. 3. Guarantees 34,771 34,917 33,85 37,18 37,69 35,22 4. Acceptances and documentary credits reported off-balance sheet n.a. n.a. n.a. n.a. n.a. n.a. 5. Committed Credit Lines 8,94 78,245 71,396 72,466 59,993 52, Other Off-Balance Sheet items n.a. n.a Total Assets under Management n.a. n.a. n.a. n.a. n.a. n.a. B. Average Balance Sheet Average Loans 26,517 28,43 29, ,828 22, ,45 Average Earning Assets 427, ,948 5, , , ,337 Average Assets 485, ,4 533, , , ,634 Average Managed Securitized Assets (OBS) n.a. n.a. n.a. n.a. n.a. n.a. Average Interest-Bearing Liabilities 448, , , , ,18 574,145 Average Common equity 29,58 29,797 3,55 29,41 27,551 26,83 Average Equity 29,68 29,817 3,11 29,96 27,188 25,621 Average Customer Deposits 245,42 241, , , ,82 23,314 C. Maturities Asset Maturities: Loans & Advances < 3 months n.a. n.a. 55,557 n.a. 63,775 69,467 Loans & Advances 3-12 Months n.a. n.a. 24,321 n.a. 25,732 27,836 Loans and Advances 1-5 Years n.a. n.a. 63,162 n.a. 65,371 73,651 Loans & Advances > 5 years n.a. n.a. 64,394 n.a. 55,53 46,526 Debt Securities < 3 Months n.a. n.a. n.a. n.a. n.a. n.a. Debt Securities 3-12 Months n.a. n.a. n.a. n.a. n.a. n.a. Debt Securities 1-5 Years n.a. n.a. n.a. n.a. n.a. n.a. Debt Securities > 5 Years n.a. n.a. n.a. n.a. n.a. n.a. Loans & Advances to Banks < 3 Months n.a. n.a. 7,893 n.a. 3,845 11,941 Loans & Advances to Banks 3-12 Months n.a. n.a. 15,875 n.a. 22,164 13,172 Loans & Advances to Banks 1-5 Years n.a. n.a. 6,611 n.a. 5,587 5,964 Loans & Advances to Banks > 5 Years n.a. n.a. 416 n.a Liability Maturities: Retail Deposits < 3 months 215,386 19, , ,8 172, ,741 Retail Deposits 3-12 Months 15,34 25,172 24,886 27,936 21,61 17,58 Retail Deposits 1-5 Years 1,35 8,411 12,299 13,969 14,414 15,412 Retail Deposits > 5 Years 1,634 19,294 18,856 17,431 21,89 23,9 Other Deposits < 3 Months n.a. n.a. n.a. n.a. n.a. n.a. Other Deposits 3-12 Months n.a. n.a. n.a. n.a. n.a. n.a. Other Deposits 1-5 Years n.a. n.a. n.a. n.a. n.a. n.a. Other Deposits > 5 Years n.a. n.a. n.a. n.a. n.a. n.a. Deposits from Banks < 3 Months n.a. 21,48 28,325 35,78 35,44 29,117 Deposits from Banks 3-12 Months n.a. 5,711 6,281 5,563 5,984 5,949 Deposits from Banks 1-5 Years n.a. 8,898 11,264 14,416 15,151 13,211 Deposits from Banks > 5 Years n.a. 13,12 11,73 9,319 9,731 11,129 Senior Debt Maturing < 3 months 3,628 4,43 2,448 5,561 5,85 7,926 Senior Debt Maturing 3-12 Months 5,48 5,521 9,31 8,98 11,62 12,847 Senior Debt Maturing 1-5 Years 11,36 13,429 18,45 24,419 3,787 32,661 Senior Debt Maturing > 5 Years 14,862 15,51 7,79 1, ,236 Total Senior Debt on Balance Sheet 35,258 38,494 37,233 4,65 48,811 64,67 Fair Value Portion of Senior Debt n.a. n.a. n.a. n.a. n.a. n.a. Subordinated Debt Maturing < 3 months n.a. 49 n.a Subordinated Debt Maturing 3-12 Months n.a. 918 n.a. 2,296 1,416 1,79 Subordinated Debt Maturing 1-5 Year n.a. 3,526 n.a. 5,939 7,678 5,436 Subordinated Debt Maturing > 5 Years n.a. 6,116 n.a. 3,482 3,154 7,186 Total Subordinated Debt on Balance Sheet 11,76 1,969 12,368 11,858 12,358 13,714 Fair Value Portion of Subordinated Debt n.a. n.a. n.a. n.a. n.a. n.a. D. Risk Weighted Assets 1. Risk Weighted Assets 178,818 19, ,7 198, ,178 19, Fitch Core Capital Adjustments for Insurance and Securitisation Risk Weighted Assets n.a. n.a. n.a. n.a. n.a. n.a. 3. Fitch Core Capital Adjusted Risk Weighted Assets 178,818 19, ,7 198, ,178 19, Other Fitch Adjustments to Risk Weighted Assets n.a. n.a. n.a. n.a. n.a. n.a. 5. Fitch Adjusted Risk Weighted Assets 178,818 19, ,7 198, ,178 19,588 E. Equity Reconciliation 1. Equity 29,375 29,64 29,682 3,125 27,33 26, Add: Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. n.a. n.a. n.a. n.a. 3. Add: Other Adjustments n.a. n.a. n.a. n.a. n.a. n.a. 4. Published Equity 29,375 29,64 29,682 3,125 27,33 26,933 F. Fitch Core Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 29,375 29,64 29,682 3,125 27,33 26, Fair value effect incl in ow n debt/borrow ings at fv on the B/S- CC only (28) (3) 3. Non-loss-absorbing non-controlling interests 4. Goodw ill 1,484 1,484 2,76 2,76 2,76 2,8 5. Other intangibles 1,641 1,563 1,477 1,449 1,254 1, Deferred tax assets deduction 1,163 1,163 1,26 1,13 1,473 1, Net asset value of insurance subsidiaries 8. First loss tranches of off-balance sheet securitizations 9. Fitch Core Capital 25,87 25,43 24,869 25,47 22,22 22,184 Exchange Rate USD1 = EUR.8763 USD1 = EUR.9487 USD1 = EUR.97 USD1 = EUR.9185 USD1 = EUR.8237 USD1 = EUR

13 The ratings above were solicited and assigned or maintained at the request of the rated entity/issuer or a related third party. Any exceptions follow below. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. 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