FCF CDS Spreads Monitor H1 2018

Transcription

1 FCF CDS Spreads Monitor H1 2018

2 Agenda EXECUTIVE SUMMARY 2

3 Executive Summary The FCF Credit Default Swaps Monitor is a standardized report on Credit Default Swap spreads of German and European banks, active in the German midcap market and is a reference for investors, corporates and professionals More advanced, detailed and / or customized reports are available upon request Executive Summary The FCF CDS Spreads Monitor is a comprehensive semi-annual analysis of the historic and current spreads of Credit Default Swaps (CDS) for banks most active in the German corporate lending market The analysis provides the short-term, medium-term and long-term market view on such banks credit default risks and is an indicator for banks (re-)financing costs in the capital markets The FCF Credit Default Swaps Monitor targets the following audience: Financial institutions Investors Corporates with existing bank financings and with further financing needs The FCF Credit Default Swaps Monitor is a standardized publication The selection of financial institutions is based on the YTD financing volumes (senior debt incl. 2 nd lien) in the German midcap segment recorded by Debtwire: Only institutions with actively traded CDS instruments are included More advanced, detailed and / or customized reports can be ordered individually, offering subscribers the possibility to customize the following criteria (among others): Inclusion of international / US institutions Selection / deselection of specific institutions Specific solvency analysis (equity or debt analysis) Monthly or quarterly updates To recommend colleagues or fellow investors to be added to the mailing list, kindly send an with the respective contact information The FCF Credit Default Swaps Monitor is available on FCF s website at All input data is provided by S&P Capital IQ and is not independently verified by FCF. For additional information and disclaimer, please refer to the last page If you have questions, comments or ideas, please do not hesitate to contact us Enjoy the reading

4 FCF OVERVIEW 4

5 Debt Equity FCF Overview FCF seeks to provide its clients with financing solutions (i) (ii) at the lowest cost, with the highest flexibility, (iii) in the shortest period of time, (iv) with the highest closing probability, and with (v) financing partners that integrate well into their strategy Who We Are Specialized investment bank and financing specialist Advising public and private small / midcap companies Advisor for structuring and placement of financing transactions: All instruments: Unbiased approach to all available corporate financing instruments (no product selling approach), allowing for customized financing structures All investors: Close and trusted relationships with senior executives of virtually all relevant equity and debt investors Fast process: Process management skills and direct / personal access to institutional debt and equity investors enable fast transactions More than 100 transactions with a total placement volume in excess of EUR 4.0 billion since foundation in 2005 Approx. 10 professionals headquartered in Munich Capital Markets Capabilities and Services Private / Pre-IPO Public Short-term Debt Long-term Debt Venture capital Growth capital Initial Public Offering (IPO) / Capital increase Dual-track (IPO and alternative transaction Receivables / Factoring / ABS Borrowing base / Inventory Bank loan facility / Straight debt Sale-and-lease back Corporate bonds (public / private placement) Private equity pursued in tandem) Private Investment in Public Equity (PIPE) Block trade Working capital / Revolving credit facility Guarantees / Letter of Credit Promissory note (Schuldscheindarlehen) High-yield / PIK bond (public / private) Second lien Mezzanine Mezzanine capital Convertible bonds Selected Transactions 5

6 FCF Facts & Figures More than # 1 More than 10 Network Completed Transactions Contacts to Family Offices and Ultra High Net Worth Individuals worldwide Financing Advisor in Germany, purely focusing on corporate financing transactions Investment Banking Professionals Access to more than 4000 international financial institutions More than 4 bn Leading Close to 100 More than 120 More than 25 Total volume of advised & closed transactions since 2005 Advisor for Financing Transactions with EIB in the DACH region Years of aggregated, investment banking / financing experience Articles and research papers published International conferences organized 6

7 INTRODUCTION 7

8 Credit Interest Repayment Introduction Credit Default Swaps Definition Credit Default Swaps (CDS) are, in simplest terms, very much like insurance policies. The main difference between a classical insurance policy and a CDS is that those buying the CDS can trade in and out of their contracts. A CDS is a privately negotiated contract in which one party, the Protection Buyer (the one seeking to shed the risk, for example a lender to a bank), pays a fee (also premium or spread ) to the Protection Seller (the one taking on the risk, for example specialized financial institutions) for protection against a loss that may be incurred from the exposure to a loan in case of unforeseen developments (e.g. non-repayment of / default on the loan). The development is known as a credit event, indicating that the borrower (the reference entity) on which the CDS contract is written is unable to pay its debts. If, such a credit event occurs, the Protection Seller will make a payment to the Protection Buyer of the contract. For example: A typical contract provides for the Protection Buyer to pay the Protection Seller 500 bps per year (5.0% p.a.) for protection against a default of Bank A on its senior debt. The contract s notional size is for EUR 10m. This means that the Protection Buyer pays EUR 500,000 per year (4 quarterly payments of EUR 125,000). If another bank, Bank B, has a CDS spread priced at 250 bps (2.5% p.a.), Bank B is perceived to have a lower credit risk than Bank A. The higher the credit risk of a bank (as seen in the CDS spread), the greater funding costs that a bank will incur to be able to borrow in the institutional / inter-bank market (funding cost risk premium). As a direct consequence, the funding cost risk premium has a direct impact on the rates that a bank will charge its clients: Bank B will be able to offer i) cheaper, longer financing conditions and ii) less erratic responses (more lenient) during periods of stress with their clients (corporates), ceteris paribus. Aside from the direct impact on a banks lending rates, the CDS spread is also a good proxy of a banks current / future behavior towards its corporate clients in times of market (macro) or client specific (micro) volatility / stress. Premium Protection Seller (Investor) No Credit Event Credit Event Payment No Payment Protection Buyer (Investor) Reference Borrower Source: S&P Capital IQ 8

9 KEY FINDINGS 9

10 Key Findings The FCF Credit Default Swaps Monitor highlights the key developments in the German midcap financing market The FCF Credit Default Swaps Monitor outlines several key factors that should be considered prior to (re)financing of existing financial liabilities Key Findings CDS spreads of banking institutions reveal two fundamental market principles that have significant implications for borrowers: i. Solvency / crisis resistance: CDS put a price on the future solvency of a bank according to all information currently available in the market and signal the bank s ability to remain operational in periods of crisis / illiquid markets. Banks with lower, more stable CDS spreads should respond less erratically during periods of stress with their borrowers (i.e. covenant breaks), ceteris paribus ii. Pricing: CDS spreads indicate the perceived solvency of banks, hence their future ability to refinance (funding costs). Consequently, banks with lower, more stable CDS spreads generally have to pay lower risk premia as part of their funding costs, enabling them to offer cheaper, longer financing conditions to their customers / borrowers, ceteris paribus Both German and European banks experienced significant increases in perceived credit risk during the Euro crisis in 2010 / Since then, confidence in the banking institutions have strengthened (please see pages 1, 20, 27) As of July 2018 CDS spreads for German and European banks active in Germany remain at near record lows, however showing slight upticks lately due to increasing market volatility. Nonetheless, the current market situation provides an ideal opportunity for borrowers to (re)finance existing financial liabilities and reduce interest expenses German banks with the best perceived solvency across 1-, 5- and 10-year terms are the LBBW and DZ Bank. The European banks with consistently low CDS spreads across 1-, 5- and 10-year terms are the French Crédit Mutuel and the Dutch ING Bank A general trend can be uncovered between European and German banks, especially across mid- and long-term horizons, whereby European banks are perceived to be more solvent than their German peers A high variation in short-term CDS spreads highlights the importance of considering the perceived solvency of the bank prior to selecting an institution as a lending bank (short-term CDS spreads accentuate the differential in current perceived solvency). For example, the ratio between the least and most solvent bank is 21.x for 1-year CDS spreads (please see page 14); the same ratio falls to 4.1x for 10-year CDS spreads (please see page 28) Across longer time horizons, German banks exhibit a higher probability of a future rating downgrade, exhibiting higher CDS spreads than their current rating would indicate, where the Deutsche Bank and HSH Nordbank appear most susceptible to a future rating downgrade (please see page 2) 10

11 League Table FCF allocated scores of 1 (low) to 14 (high) to the 14 German and European banks under review, based on: 1-Year CDS price and standard deviation; 5-Years CDS price and standard deviation; 10-Years CDS price and standard deviation; Public ratings (Fitch, Moody s, S&P) Based on the total score, FCF created a league table (high to low) The ranking in the league gives an indication on the bank s expected future stability and crisis resistance The German Landesbank Baden-Württemberg (score 90) heads the league table, whereas Deutsche Bank is placed at rank 14 (score 14) Rank Bank Country (HQ) CDS 1Y CDS 5Y CDS 10Y Rating H1 H2 18 Trend 18 vs. 17 Price Score STD (LY) Score Price Score STD (LY) Score Price Score STD (LY) Score Rating Score Total Score, FCF Research Note: Score 1 (low) -14 (high) 11

12 1-YEAR CDS SPREADS 12

13 1-Year-Spread Overview & Historical Analysis 1 2 Over the past 10 years, trends in CDS spreads have been strongly influenced by macroeconomic events (i.e. financial crisis, Euro crisis) Apart from the challenging years and 10-11, CDS prices have remained fairly stable In H the CDS prices generally remain at near record lows with slight upticks relative to 2017 All selected banks show slight increases in CDS spreads over the last six months, indicating a general increase in market risk, especially Deutsche Bank, UniCredit and Santander 10-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings German Institutions 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* Last 90 Days S&P Moody's Fitch Bayerische Landesbank % -19.8% 158.2% 54.1% - A1 A- Commerzbank AG % -48.6% 50.0% 81.7% A- A2 A- Deutsche Bank Aktiengesellschaft % 26.1% 60.1% 77.1% BBB+ A BBB+ DZ Bank. Die Initiativbank % 118.1% 19.8% 51.8% AA- Aa1 AA- HSH Nordbank AG % -0.2% 0.9% 8.9% - Baa BBB- Landesbank Baden-Württemberg % -1.0%.5% 47.6% AAA A1 A- Norddeutsche Landesbank Girozentrale na na na na na na % -0.2% 8.8% 18.1% - Baa A- Min % -48.6% 0.9% 8.9% Max % 118.1% 60.1% 81.7% Median % -0.2% 8.8% 51.8% Mean % -2.2% 90.2% 48.5% 10-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings European Institutions 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* 90 Days S&P Moody's Fitch Banco Santander, S.A % -25.5% 279.5% 107.% A A2 A- Banque Fédérative du Crédit Mutuel - So % -24.4% 4.6% 29.1% A Aa A+ BNP Paribas SA % -.6% 15.2% 112.0% A Aa A+ HSBC Holdings plc % -0.5% 85.9% 64.7% A A2 AA- ING Bank N.V % -57.9% 117.9% 119.6% A+ Aa A+ NIBC Bank N.V. na % -59.0% 7.7% 27.0% BBB - BBB UniCredit S.p.A % -9.9% 1.9% 159.1% BBB Baa1 BBB Min % -59.0% 7.7% 27.0% Max % -0.5% 1.9% 159.1% Median % -25.5% 117.9% 107.% Mean % -0.1% 140.5% 88.4% 10-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings All Institutions 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* Last 90 Days S&P Moody's Fitch Min % -59.0% 0.9% 8.9% Max % 118.1% 60.1% 159.1% Median % -27.8% 68.0% 59.4% Mean % -16.2% 115.4% 68.4% 10-Year Price Development (in bps) -Year Changes (in %) Annual Volatility Long-Term Ratings 1-Year Government Interest Rates 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* Last 90 Days S&P Moody's Fitch EU Central Government Bond % 12.4% 2.4% 21.6% AAA Aaa AAA United Kingdom Government Debt % 4,778.6% 68.2% 66.2% AAA Aaa AAA Note: * denotes YTD Note: All calculations based on mid prices 1

14 1-Year-Spread Pricing, Rating, Volatility & Development Based on the latest 1- year CDS prices, the most solvent banks are the French Crédit Mutuel, the German Landesbank Baden- Württemberg and the Dutch ING Bank, indicated by CDS prices clearly below 15 bps The ratio between the least and most solvent bank is 21.x (117. / 5.5), signalling a large gap in the perceived short-term solvency amongst European banks NIBC Bank recorded the largest improvement in CDS prices, decreasing by 4.6 bps compared with 1 year prior Overall, European banks exhibit higher levels of volatility in their CDS spreads over the last 90 days, most notably UniCredit CDS Mid-Price as of 02/07/2018 (in bps) Deutsche Bank UniCredit S.p.A HSH Nordbank NIBC Bank 50.9 DZ Bank 40.4 Banco Santander 2.2 Norddeutsche Landesbank 1.9 HSBC Holdings 25.6 BNP Paribas 25. Commerzbank AG 25.0 Bayerische Landesbank 15. ING Bank 11.9 Landesbank Baden-Württemberg Crédit Mutuel 5.5 Long-Term Rating* as of 02/07/ A- A- A A 1-Year Change in CDS Mid-Price (in bps) 117. NIBC Bank -4.6 HSH Nordbank x 2 Landesbank Baden-Württemberg Crédit Mutuel DZ Bank Norddeutsche Landesbank ING Bank Bayerische Landesbank Commerzbank AG BNP Paribas HSBC Holdings Banco Santander UniCredit S.p.A 44.4 Deutsche Bank Annual Volatility (Last 90 days) as of 02/07/2018 HSH Nordbank NIBC Bank UniCredit S.p.A Norddeutsche Landesbank Deutsche Bank Commerzbank AG Banco Santander Bayerische Landesbank A+ ING Bank AA- HSBC Holdings AA- BNP Paribas AA- Crédit Mutuel AA- DZ Bank A+ Landesbank Baden-Württemberg A BBB- UniCredit S.p.A 159.1% 4 BBB ING Bank 119.6% BBB+ BNP Paribas 112.0% Banco Santander 107.% Commerzbank AG 81.7% Deutsche Bank 77.1% HSBC Holdings 64.7% Bayerische Landesbank 54.1% DZ Bank 51.8% Landesbank Baden-Württemberg 47.6% Crédit Mutuel 29.1% NIBC Bank 27.0% Norddeutsche Landesbank 18.1% HSH Nordbank 8.9% 95.6 Note: All calculations based on mid prices; * S&P Rating notches 14

15 -Year Development of 1-Year-Spread of German vs. European Institutions German and European banks generally follow the same trend over the past years bps 120 Mean and median CDS prices have generally been lower for European banks, in particular since the beginning of Volatility remains consistent across both German and European banks over the year period, exhibiting standard deviations (median) of approximately 15 bps The Deutsche Bank and UniCredit turmoil caused the large spike in mean CDS prices during Q and H (next pages) 20 0 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Median German Mean German Median European Mean European Note: All calculations based on mid prices 15

16 -Year Development of 1-Year-Spread of German Institutions Over the last years, Deutsche Bank and HSH Nordbank were the most volatile German banks with standard deviations of 57 bps and 26 bps, respectively Deutsche Bank reached the highest CDS price over the last years (292 bps, 11/02/2016) Landesbank Baden- Württemberg and DZ Bank were the least volatile (standard deviations of 7 bps and 8 bps respectively) From the highs in Q1 2016, CDS prices for German banks have been steadily declining, some reaching new record lows The internal reorganisation at Deutsche Bank in H caused the strong increase in CDS price bps Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Bayerische Landesbank Commerzbank AG Deutsche Bank Aktiengesellschaft DZ Bank HSH Nordbank AG Landesbank Baden-Württemberg Norddeutsche Landesbank Girozentrale Note: All calculations based on mid prices 16

17 -Year Development of 1-Year-Spread of European Institutions Over the last years, NIBC Bank and UniCredit were the most volatile European banks with standard deviations of 5 bps and 4 bps, respectively UniCredit reached the highest CDS price over the last years (181 bps, 11/02/2016) Crédit Mutuel and ING Bank were the least volatile (standard deviations of 11 bps and 12 bps respectively) From the highs in Q1 2016, CDS prices for European banks have been steadily declining, some reaching new record lows bps The political instability and the macroeconomic situation in Italy and Spain caused the strong increase in CDS prices of UniCredit and Santander Note: All calculations based on mid prices 0 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Banco Santander, S.A. Banque Fédérative du Crédit Mutuel - Société Anonyme BNP Paribas SA HSBC Holdings plc ING Bank N.V. NIBC Bank N.V. UniCredit S.p.A. 17

18 S&P 5-Year PD CDS Price (in bps) 1-Year-Spread CDS vs. Rating The comparison of current CDS prices with current ratings, highlights the relationship between these forward- and backward-looking solvency indicators Deutsche Bank implied trend risk for a future rating action (downgrade) A strong correlation exists between CDS prices and rating (40% of the variation in CDS prices can be explained via ratings) The slope implies (on average) that a 1 notch fall in rating would result in a higher 1-year CDS price by approx. 8 bps Banks above the trendline seem to possess greater solvency risk than their rating would imply; a possible indicator for a future rating downgrade AAA 1 AA+ 2 AA AA- 4 A+ 5 A6 A- 7 BBB+ 8 BBB 9 BBB- 10 BB BB UniCredit S.p.A HSH Nordbank NIBC Bank DZ Bank Banco Santander Norddeutsche Landesbank HSBC Holdings BNP Paribas Commerzbank AG ING Bank Bay erische Landesbank Landesbank Baden-Württemberg Crédit Mutuel R² = Rating 0.10% 0.16% 0.15% 0.52% 0.64% 0.42% 0.86% 2.0% 2.17% 4.94% 6.47% 9.98% Note: All calculations based on mid prices; rating according to S&P Rating notches; S&P 5-Year PD represents the 5-year probability of default for each respective rating notch 18

19 5-YEAR CDS SPREADS 19

20 5-Year-Spread Overview & Historical Analysis 1 2 Over the past 10 years, trends in CDS spreads have been strongly influenced by macroeconomic events (i.e. financial crisis, Euro crisis) Apart from the challenging years and 10-11, CDS prices have remained fairly stable In H the CDS prices generally remain at near record lows with slight upticks relative to 2017 All selected banks (with exception of DZ Bank and NIBC) show slight increases in CDS spreads over the last six months, indicating an increase in risk, especially Deutsche Bank, UniCredit and Santander 10-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings German Institutions 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* Last 90 Days S&P Moody's Fitch Bayerische Landesbank % -6.6% 1.9% 45.2% - A1 A- Commerzbank AG % -22.1% 67.6% 49.7% A- A2 A- Deutsche Bank Aktiengesellschaft % 8.7% 14.8% 64.2% BBB+ A BBB+ DZ Bank % -12.1% -1.6% 60.% AA- Aa1 AA- HSH Nordbank AG % -1.2% 15.2% 15.9% - Baa BBB- Landesbank Baden-Württemberg % -16.4% 14.% 47.% AAA A1 A- Norddeutsche Landesbank Girozentrale na na na na na na % -22.5% 2.% 9.4% - Baa A- Min % -6.6% -1.6% 9.4% Max % 8.7% 14.8% 64.2% Median % -16.4% 2.% 47.% Mean % -14.6% 42.1% 41.7% 10-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings European Institutions 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* 90 Days S&P Moody's Fitch Banco Santander, S.A % -25.9% 177.4% 77.6% A A2 A- Banque Fédérative du Crédit Mutuel - So % 8.4% 25.4% 18.5% A Aa A+ BNP Paribas SA % -4.0% 151.7% 66.0% A Aa A+ HSBC Holdings plc % -18.2% 88.2% 51.1% A A2 AA- ING Bank N.V % -46.5% 104.5% 55.8% A+ Aa A+ NIBC Bank N.V. na % -62.4% -2.2% 24.2% BBB - BBB UniCredit S.p.A % -16.4% 16.6% 97.9% BBB Baa1 BBB Min % -62.4% -2.2% 18.5% Max % 8.4% 177.4% 97.9% Median % -25.9% 104.5% 55.8% Mean % -2.6% 97.4% 55.9% 10-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings All Institutions 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* Last 90 Days S&P Moody's Fitch Min % -62.4% -2.2% 9.4% Max % 8.4% 177.4% 97.9% Median % -20.2% 49.8% 50.4% Mean % -19.1% 69.7% 48.8% 10-Year Price Development (in bps) -Year Changes (in %) Annual Volatility Long-Term Ratings 5-Year Government Interest Rates 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* Last 90 Days S&P Moody's Fitch EU Central Government Bond ,665.4% 42.5% -64.1% 151.7% AAA Aaa AAA United Kingdom Government Debt % 111.7% 41.1% 44.6% AAA Aaa AAA Note: * denotes YTD Note: All calculations based on mid prices 20

21 5-Year-Spread Pricing, Rating, Volatility & Development Based on the latest 5- year CDS prices, the most solvent banks are the French Crédit Mutuel, the Dutch ING and the German Landesbank Baden- Württemberg and Bayerische Landesbank, indicated by CDS prices clearly below 50 bps The ratio between the least and most solvent bank is 5.x (176.4 /.2), signalling a moderate gap in the perceived medium-term solvency amongst European banks NIBC recorded the largest improvement in CDS prices, decreasing by 97 bps com-pared with 1 year prior Overall, European banks exhibit higher levels of volatility in their CDS spreads over the last 90 days, most notably UniCredit CDS Mid-Price as of 02/07/2018 (in bps) Deutsche Bank HSH Nordbank UniCredit S.p.A Commerzbank AG 91. Norddeutsche Landesbank 89.7 Banco Santander 88. DZ Bank 69.1 NIBC Bank 68.5 HSBC Holdings 66.4 BNP Paribas 56.5 Bayerische Landesbank 4.5 Landesbank Baden-Württemberg 41.8 ING Bank Crédit Mutuel.2 Long-Term Rating* as of 02/07/2018 A- A- HSH Nordbank NIBC Bank UniCredit S.p.A Norddeutsche Landesbank Deutsche Bank Commerzbank AG A Banco Santander A Bayerische Landesbank A+ ING Bank AA- HSBC Holdings AA- BNP Paribas AA- Crédit Mutuel AA- DZ Bank A+ Landesbank Baden-Württemberg A x BBB- BBB BBB+ 2 1-Year Change in CDS Mid-Price (in bps) NIBC Bank HSH Nordbank DZ Bank Norddeutsche Landesbank Landesbank Baden-Württemberg ING Bank Crédit Mutuel Bayerische Landesbank BNP Paribas Commerzbank AG HSBC Holdings Banco Santander UniCredit S.p.A Deutsche Bank UniCredit S.p.A Banco Santander BNP Paribas Deutsche Bank DZ Bank ING Bank HSBC Holdings Commerzbank AG Landesbank Baden-Württemberg Bayerische Landesbank NIBC Bank Crédit Mutuel HSH Nordbank Norddeutsche Landesbank % 15.9% 9.4% 24.2% 55.8% 51.1% 49.7% 47.% 45.2% Annual Volatility (Last 90 days) as of 02/07/ % 64.2% 60.% % 77.6% Note: All calculations based on mid prices; * S&P Rating notches 21

22 -Year Development of 5-Year-Spread of German vs. European Institutions German and European banks generally follow the same trend over the past years Mean and median CDS prices have generally been lower for European banks, in particular since the beginning of 2016 Volatility remains consistent across both German and European banks over the year period, exhibiting standard deviations (median) of approximately 2 bps The Deutsche Bank and UniCredit turmoil caused the large spike in mean CDS prices during Q and H (next pages) bps Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Median German Mean German Median European Mean European Note: All calculations based on mid prices 22

23 -Year Development of 5-Year-Spread of German Institutions Over the last years, Deutsche Bank and Commerzbank were the most volatile German banks with standard deviations of 52 bps and 26 bps, respectively HSH Nordbank reached the highest CDS price over the last years (289 bps, 14/02/2016) DZ Bank and Landesbank Baden- Württemberg were among the least volatile (standard deviations of 5 bps and 16 bps respectively) From the highs in Q1 2016, CDS prices for German banks have been steadily declining, some reaching new record lows The internal reorganisation at Deutsche Bank in H caused the strong increase in CDS price bps Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Bayerische Landesbank Commerzbank AG Deutsche Bank Aktiengesellschaft DZ Bank HSH Nordbank AG Landesbank Baden-Württemberg Norddeutsche Landesbank Girozentrale Note: All calculations based on mid prices 2

24 -Year Development of 5-Year-Spread of European Institutions Over the last years, UniCredit and Santander were the most volatile European banks with standard deviations of 48 bps and 2 bps, respectively NIBC Bank reached the highest CDS price over the last years (268 bps, 06/10/2016) Crédit Mutuel and ING Bank were the least volatile (standard deviations of 10 bps and 21 bps respectively) From the highs in Q1 2016, CDS prices for European banks have been steadily declining, some reaching new record lows bps The political instability and the macroeconomic situation in Italy and Spain caused the strong increase in CDS prices of UniCredit and Santander Note: All calculations based on mid prices 0 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Banco Santander, S.A. Banque Fédérative du Crédit Mutuel - Société Anonyme BNP Paribas SA HSBC Holdings plc ING Bank N.V. NIBC Bank N.V. UniCredit S.p.A. 24

25 S&P 5-Year PD CDS Price (in bps) 5-Year-Spread CDS vs. Rating The comparison of current CDS prices with current ratings, highlights the relationship between these forward- and backward-looking solvency indicators A strong correlation exists between CDS prices and rating (42% of the variation in CDS prices can be explained via ratings) The slope implies (on average) a 1 notch fall in rating would result in a higher 5-Year CDS price by approx. 12 bps Banks above the trendline (predominantly German banks) seem to possess greater solvency risk than their rating would imply; a possible indicator for a future rating downgrade DZ Bank Landesbank Baden-Württemberg HSBC Holdings ING Bank BNP Paribas Crédit Mutuel Bay erische Landesbank Banco Santander Commerzbank AG Deutsche Bank UniCredit S.p.A Norddeutsche Landesbank NIBC Bank HSH Nordbank 0 AAA 1 AA+ 2 AA AA- 4 A+ 5 A6 A- 7 BBB+ 8 BBB 9 BBB- 10 BB BB 0.10% 0.16% Rating implied trend risk for a future rating action (downgrade) R² = % 0.52% 0.64% 0.42% 0.86% 2.0% 2.17% 4.94% 6.47% 9.98% Note: All calculations based on mid prices; rating according to S&P Rating notches; S&P 5-Year PD represents the 5-year probability of default for each respective rating notch 25

26 10-YEAR CDS SPREADS 26

27 10-Year-Spread Overview & Historical Analysis 1 2 Over the past 10 years, trends in CDS spreads have been strongly influenced by macroeconomic events (i.e. financial crisis, Euro crisis) Apart from the challenging years and 10-11, CDS prices have remained fairly stable In H the CDS prices generally remain at near record lows with slight upticks relative to 2017 All selected banks (with exception of DZ Bank and NIBC) show slight increases in CDS spreads over the last six months, indicating a general increase in risk, especially Deutsche Bank, UniCredit and Santander 10-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings German Institutions 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* Last 90 Days S&P Moody's Fitch Bayerische Landesbank % -27.% 11.5% 91.1% - A1 A- Commerzbank AG % -10.5% 50.8% 2.6% A- A2 A- Deutsche Bank Aktiengesellschaft % 21.1% 86.0% 46.1% BBB+ A BBB+ DZ Bank % -10.8% -5.9% 59.8% AA- Aa1 AA- HSH Nordbank AG % 4.5% 15.% 16.0% - Baa BBB- Landesbank Baden-Württemberg % -10.2% 10.1% 46.4% AAA A1 A- Norddeutsche Landesbank Girozentrale na na na na na na % -16.% 15.5% 9.1% - Baa A- Min % -27.% -5.9% 9.1% Max % 21.1% 86.0% 91.1% Median % -10.5% 15.% 46.1% Mean % -7.1% 26.2% 4.0% 10-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings European Institutions 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* 90 Days S&P Moody's Fitch Banco Santander, S.A % -2.7% 108.5% 55.0% A A2 A- Banque Fédérative du Crédit Mutuel - So % 28.5% 17.7% 14.5% A Aa A+ BNP Paribas SA % -27.8% 74.7% 42.8% A Aa A+ HSBC Holdings plc % -1.9% 6.2% 1.8% A A2 AA- ING Bank N.V % -46.8%.5% 89.7% A+ Aa A+ NIBC Bank N.V. na % -55.5% -5.1% 19.5% BBB - BBB UniCredit S.p.A % -16.4% 88.4% 62.2% BBB Baa1 BBB Min % -55.5% -5.1% 14.5% Max % 28.5% 108.5% 89.7% Median % -2.7% 6.2% 42.8% Mean % -22.2% 54.4% 45.1% 10-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings All Institutions 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* Last 90 Days S&P Moody's Fitch Min % -55.5% -5.9% 9.1% Max % 28.5% 108.5% 91.1% Median % -15.1% 25.6% 44.5% Mean % -14.6% 40.% 44.0% 10-Year Price Development (in bps) -Year Changes (in %) Annual Volatility Long-Term Ratings 10-Year Government Interest Rates 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012 1/12/201 1/12/2014 1/12/2015 1/12/2016 1/12/ /07/2018 Δ 15-18* Δ 16-18* Δ 17-18* Last 90 Days S&P Moody's Fitch EU Central Government Bond % 48.8% -26.4% 72.4% AAA Aaa AAA United Kingdom Government Debt %.4% 7.7% 6.2% AAA Aaa AAA Note: * denotes YTD Note: All calculations based on mid prices 27

28 10-Year-Spread Pricing, Rating, Volatility & Development Based on the latest 10- year CDS prices, the most solvent banks are the Dutch ING Bank and the French Crédit Mutuel and the German Landesbank Baden- Württemberg and Bayerische Landesbank, indicated by CDS prices clearly below 75 bps The ratio between the least and most solvent bank is 4.1x (209. / 208.6), signalling a lower gap in the perceived long-term solvency amongst European banks NIBC recorded the largest improvement in CDS prices, decreas-ing by 96 bps com-pared with 1 year prior Overall, German and European banks exhibit similar levels of volatility in their CDS spreads over the last 90 days CDS Mid-Price as of 02/07/2018 (in bps) 1-Year Change in CDS Mid-Price (in bps) HSH Nordbank 209. NIBC Bank -96. Deutsche Bank DZ Bank UniCredit S.p.A ING Bank -.2 Commerzbank AG Banco Santander Norddeutsche Landesbank HSH Nordbank Norddeutsche Landesbank HSBC Holdings NIBC Bank BNP Paribas DZ Bank Bayerische Landesbank x 2 Bayerische Landesbank Landesbank Baden-Württemberg Crédit Mutuel BNP Paribas HSBC Holdings Commerzbank AG Landesbank Baden-Württemberg 61.4 Banco Santander 6. 1 Crédit Mutuel 59.1 UniCredit S.p.A 50.0 ING Bank 51.0 Deutsche Bank 89.5 HSH Nordbank BBB- Bayerische Landesbank 91.1% NIBC Bank BBB ING Bank 89.7% UniCredit S.p.A BBB+ UniCredit S.p.A 62.2% Norddeutsche Landesbank A- DZ Bank 59.8% Deutsche Bank A- Banco Santander 55.0% Commerzbank AG A Landesbank Baden-Württemberg 46.4% Banco Santander A Deutsche Bank 46.1% Bayerische Landesbank A+ BNP Paribas 42.8% ING Bank AA- Commerzbank AG 2.6% HSBC Holdings AA- HSBC Holdings 1.8% BNP Paribas AA- NIBC Bank 19.5% Crédit Mutuel AA- HSH Nordbank 16.0% DZ Bank A+ Crédit Mutuel 14.5% Landesbank Baden-Württemberg A Norddeutsche Landesbank 9.1% Long-Term Rating* as of 02/07/2018 Annual Volatility (Last 90 days) as of 02/07/ Note: All calculations based on mid prices; * S&P Rating notches 28

29 -Year Development of 10-Year-Spread of German vs. European Institutions German and European banks generally follow the same trend over the past years Mean and median CDS prices have generally been lower for European banks, in particular since the beginning of 2016 bps Volatility remains consistent across both German and European banks over the year period, exhibiting standard deviations of approximately 26 bps The Deutsche Bank and UniCredit turmoil caused the large spike in mean CDS prices during Q and H (next pages) Note: All calculations based on mid prices 0 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Median German Mean German Median European Mean European 29

30 -Year Development of 10-Year-Spread of German Institutions Over the last years, Deutsche Bank and Commerzbank were the most volatile German banks with standard deviations of 44 bps and 25 bps, respectively HSH Nordbank reached the highest CDS price over the last years (294 bps, 15/02/2016) DZ Bank and Landesbank Baden- Württemberg were among the least volatile (standard deviations of 4 bps and 12 bps respectively) From the highs in Q1 2016, CDS prices for German banks have been steadily declining, some reaching new record lows bps The internal reorganisation at Deutsche Bank in H caused the strong increase in CDS price Note: All calculations based on mid prices 0 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Bayerische Landesbank Commerzbank AG Deutsche Bank Aktiengesellschaft DZ Bank HSH Nordbank AG Landesbank Baden-Württemberg Norddeutsche Landesbank Girozentrale 0

31 -Year Development of 10-Year-Spread of European Institutions Over the last years, NIBC and UniCredit were the most volatile European banks with standard deviations of 50 bps and 44 bps, respectively NIBC Bank reached the highest CDS price over the last years (289 bps, 06/10/2016) Crédit Mutuel and ING Bank were the least volatile (standard deviations of 15 bps and 24 bps respectively) bps From the highs in Q1 2016, CDS prices for European banks have been steadily declining, some reaching new record lows The political instability and the macroeconomic situation in Italy and Spain caused the strong increase in CDS prices of UniCredit and Santander Note: All calculations based on mid prices 0 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Banco Santander, S.A. Banque Fédérative du Crédit Mutuel - Société Anonyme BNP Paribas SA HSBC Holdings plc ING Bank N.V. NIBC Bank N.V. UniCredit S.p.A. 1

32 S&P 5-Year PD CDS Price (in bps) 10-Year-Spread CDS vs. Rating The comparison of current CDS prices with current ratings, highlights the relationship between these forward- and backward-looking solvency indicators implied trend risk for a future rating action (downgrade) Deutsche Bank HSH Nordbank UniCredit S.p.A A strong correlation exists between CDS prices and rating (51% of the variation in CDS prices can be explained via ratings) The slope implies (on average) that a 1 notch fall in rating would result in a higher 10-Year CDS price by approx. 17 bps DZ Bank Landesbank Baden-Württemberg HSBC Holdings BNP Paribas Crédit Mutuel ING Bank Bay erische Landesbank Commerzbank AG Banco Santander Norddeutsche Landesbank NIBC Bank Banks above the trendline (predominantly German banks) seem to possess greater solvency risk than their rating would imply; a possible indicator for a future rating downgrade R² = AAA 1 AA+ 2 AA AA- 4 A+ 5 A6 A- 7 BBB+ 8 BBB 9 BBB- 10 BB BB Rating 0.10% 0.16% 0.15% 0.52% 0.64% 0.42% 0.86% 2.0% 2.17% 4.94% 6.47% 9.98% Note: All calculations based on mid prices; rating according to S&P Rating notches; S&P 5-Year PD represents the 5-year probability of default for each respective rating notch 2

33 CONTACT DETAILS & DISCLAIMER

34 Contact Details & Disclaimer D I S C L A I M E R FCF Fox Corporate Finance GmbH Maximilianstrasse Munich Germany Telephone +49 (89) Facsimile +49 (89) info@fcf.de Arno Fuchs Chief Executive Officer P: +49 (89) M: +49 (172) arno.fuchs@fcf.de Tristan Blümli Analyst P: +49 (89) M: +49 (172) tristan.bluemli@fcf.de Marcel Lange Associate P: +49 (89) M: +49 (172) marcel.lange@fcf.de This document does not constitute an offer or invitation to purchase or subscribe for any securities, and neither this document nor anything contained herein shall form the basis of or may be relied upon in connection with any contract or commitment whatsoever. No representation or warranty (express or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein, and, accordingly, neither FCF nor any of its officers, directors or employees accepts any liability whatsoever arising directly or indirectly from the use of this document. By accepting this document you acknowledge that you will be solely responsible for your own assessment of the market and the market position of the Company and that you will conduct your own analysis and be solely responsible for forming your own view of the potential future performance of the Company's business. This document contains certain forward-looking statements, including assumptions, opinions and views cited from third party sources. Various known and unknown risks, uncertainties and other factors could cause the actual results, financial position, development or performance of the Company to differ materially from the estimations expressed or implied herein. FCF does not guarantee that the figures, assumptions and calculations underlying such historical and forward looking statements are free from errors nor does FCF accept any responsibility for the future accuracy of the opinions expressed in this document or the actual occurrence of the forecasted developments. FCF Fox Corporate Finance GmbH

35