FCF Fox Corporate Finance GmbH FCF Credit Default Swaps Monitor H2 207 Data as of December 06, 207 Published as of December 22, 207
EXECUTIVE SUMMARY 2
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 Credit Default Swaps Monitor is a comprehensive solvency analysis for all relevant German and European financial institutions, active in the German midcap market segment and is published by FCF on a semi-annual basis The analysis provides relevant solvency metrics (e.g. ratings and CDS prices) for all relevant financial institutions 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 email with the respective contact information The FCF Credit Default Swaps Monitor is available on FCF s website at www.fcf.de 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
FCF OVERVIEW 4
Debt Equity FCF Overview FCF seeks to provide its clients with financing (i) at the lowest cost, (ii) 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 00 transactions with a total placement volume in excess of 4.0 billion since foundation in 2005 Approx. 0 professionals with offices in Munich Capital Markets Capabilities and Services Private / Pre-IPO Public Short-term Debt Long-term Debt Venture capital Growth capital Capital increase / Initial Public Offering (IPO) Dual-track (IPO and alternative transaction) Receivables financing / Factoring / ABS Borrowing base / Inventory financing Bank loan facility (straight debt) Leasing / Sale-and-lease back High-yield / PIK bond Private equity Private Investment in Public Equity (PIPE) Block trade Overdraft / Revolving / Working capital facility Guarantee / Letter of Credit Corporate bond (public / private) Promissory note (Schuldscheindarlehen) Second lien Mezzanine Mezzanine capital Convertible bond Selected Transactions 5
FCF Facts & Figures More than 00 Completed Transactions 2000 Contacts to Family Offices & Ultra High Net Worth Individuals worldwide # Growing Financing Corporate Advisor in Finance Germany, Advisor purely focusing Germany on corporate financing transactions More than 0 Investment Banking Professionals Network Access to more than 4000 international financial institutions More than 4 bn Leading Close to 00 More than 20 More than 25 Total volume of advised & closed transactions since 2005 Advisor for Financing Transactions with EIB in DACH region Years of aggregated, investment banking / financing experience Articles and research papers published International conferences organized 6
INTRODUCTION 7
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 an 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), pays a fee or premium or spread to the Protection Seller (the one taking on the risk) for protection against a loss that may be incurred on exposure to a loan or bond as a result of an unforeseen development. 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 a credit event occurs, the Protection Seller will make a payment to the Protection Buyer of the contract. For example, a contract provides for the Protection Buyer to pay the Protection Seller 500 bps per year for protection on Bank A, the reference entity, Senior Debt. The contract s notional size is for EUR 0m. This means that the Protection Buyer pays EUR 500,000 per year (4 quarterly payments of EUR 25,000). If Bank B currently has a CDS spread priced at 250 bps, Bank B has a lower perceived credit risk than Bank A. The higher the credit risk of the bank, the greater the implication on future funding costs (funding cost risk premium). The funding cost risk premium has a direct consequence on the funding costs of bank clients (corporates) via two mechanisms: 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. Premium Protection Seller (Investor) No Credit Event No Payment Protection Buyer (Investor) Credit Event Payment Reference Borrower Source: S&P Capital IQ 8
KEY FINDINGS 9
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 price the future solvency of each banking institution according to all information currently available to investors and signal their 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 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 lower funding costs risk premia, enabling them to offer cheaper, longer financing conditions, ceteris paribus Both German and European banks experienced significant increases in perceived credit risk during the Euro crisis in 200 / 20. Since then, confidence in the banking institutions have strengthened CDS spreads for German and European banks have reached record lows, providing an ideal opportunity for borrowers to (re)finance existing financial liabilities and reduce interest expenses German banks with the best perceived solvency across -, 5- and 0-year terms are the regional state banks Bayern LB and LBBW. The European banks with consistently low CDS spreads across -, 5- and 0-year terms are the French banks Crédit Mutuel and BNP Paribas 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 the institution (short-term CDS spreads accentuate the differential in current perceived solvency). For example, the ratio between the least and most solvent bank is 9.x for -year CDS spreads; the same ratio falls to 4.7x for 0-year CDS spreads Across longer time horizons, German banks exhibit a higher incidence of a future rating downgrade, reaching higher CDS spreads than their current rating would indicate, where the HSH Nordbank and DZ Bank appear most susceptible to a rating downgrade 0
-YEAR CDS SPREADS
-Year Spread Overview & Historical Analysis 2 Over the past 0 years, trends in CDS spreads have been strongly influenced by macroeconomic events (i.e. Financial crisis, Euro crisis) Apart from the challenging years 08-09 and 0 -, CDS prices have remained fairly stable Over the past year, a downward trend can be observed across all banks, approaching record lows All selected banks show negative changes in CDS spreads over the last years, indicating a decrease in risk (with exception of DZ Bank) 0-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings German Institutions /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* Last 90 Days S&P Moody's Fitch Bayerische Landesbank 5.9 2.8 77.0 4.2 264.5 42.0 40. 27.9 2. 9. 5.7-79.7% -82.% -70.% 87.2% A+ Aa A+ Commerzbank AG 25.0 70.0 22.2 90.8 27.2 9. 5.6 29.9 42.6 48.8 7.0-4.% -60.% -65.% 42.9% A- A2 A- Aktiengesellschaft 2.5 9.9 9.7 45.2 9. 0.2 8.5 2. 45.7 92.9 26.0-9.5% -4.% -72.0% 96.6% A- A A- DZ Bank. Die Initiativbank na 6.8 6.8 66. 04.5.4 2.8 0.4 7.0 8.5 4. 2.2% -7.9% 84.0% 84.2% Aa HSH Nordbank AG 29.5 269.8 20.4 84. 55.2 86.8 88.9 0. 5.0 07. 77. -0.% -.0% -28.2% 7.% - Baa BBB- Landesbank Baden-Württemberg na 2. 0.7 29.9 247.4 8.0 25.8 8. 9. 2.7 9. -48.8% -52.% -27.0% 65.6% A Aa A+ Norddeutsche Landesbank Girozentrale na na na na na na na 5.4 42.5 45.7 2.7 -.2% -44.% -48.% 7.% - Baa A- Min 25.0 6.8 22.2 45.2 04.5 0.2 5.6 8. 9. 2.7 5.7-79.7% -82.% -72.0% 7.% Max 5.9 269.8 20.4 84. 55.2 86.8 88.9 0. 5.0 07. 77. 2.2% -7.9% 84.0% 42.9% Median.0 20.5 58.4 0. 242. 5.7 2.8 0.4 42.5 45.7 2.7 -.2% -44.% -48.% 84.2% Mean 0.7 2.6 84.6 08.4 224.7 8. 5. 40.6 47.7 49. 27.5-4.6% -46.% -2.4% 7.0% 0-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings European Institutions /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* 90 Days S&P Moody's Fitch Banco Santander, S.A. 9.5 0.9 4.2 206.2 0.7 2. 2.5 7. 74.5 4.2 0.5-7.7% -85.9% -75.6% 55.% - Aa A- Banque Fédérative du Crédit Mutuel - So.9.9.9 80.2 266.7 59.0 7.5 2.4 24.9 7. 4.0-82.9% -8.9% -44.9% 2.8% A Aa A+ BNP Paribas SA 9.5 67. 6.9 44. 220. 29.0 20.8 28.9 25. 8.2 8.8-69.5% -65.% -76.9% 90.4% A- A A- HSBC Holdings plc 4.9 8.9 69.2 70.0.9 9. 2.5 2.0 7.6 25.7 4. -8.5% -62.4% -45.0% 26.6% A A2 ING Bank N.V. 24.5 2.9 24.9 87.8 5. 22.9.8 5.4 7. 28.2 5. -65.8% -69.% -8.%.% - A A- NIBC Bank N.V. na na 7.5 8.5 56.9 45.5 8.0 09.9 67.7 24.0 47. -57.0% -0.% -6.9% 29.2% BBB - BBB- UniCredit S.p.A. 29.9 4.9 54. 47.4 566.4 49.9 2. 62.6 67.7 8.7 9. -69.% -7.5% -76.9% 65.% BBB Baa BBB Min.9.9.9 44..9 22.9.8 5.4 7. 7. 4.0-82.9% -85.9% -8.% 2.8% Max 9.5 2.9 7.5 206.2 566.4 49.9 8.0 09.9 74.5 24.0 47. -8.5% -0.% -44.9% 26.6% Median 22.0 84.5 4.2 87.8 266.7 59.0 2. 28.9 7.6 8.2 0.5-69.% -69.% -75.6% 55.% Mean 20.0 69.8 57.4 0.6 05.0 8.0 44.6 42.9 45.0 50.0 5.6-64.9% -66.9% -66.% 57.4% 0-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings All Institutions /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* Last 90 Days S&P Moody's Fitch Min.9.9.9 44. 04.5 0.2.8 5.4 7. 7. 4.0-82.9% -85.9% -8.% 7.% Max 9.5 269.8 20.4 206.2 566.4 49.9 8.0 0. 5.0 24.0 77. 2.2% -7.9% 84.0% 26.6% Median 27. 08.4 4.2 90.8 247.4 9. 2. 0. 40.0 40.7 5.6-52.9% -6.% -6.5% 04.0% Mean 24. 96.7 70.0 09.6 267.9 6. 40.2 4.8 46.4 49.7 2.6-49.8% -56.5% -49.2% 5.2% 0-Year Price Development (in bps) -Year Changes (in %) Annual Volatility Long-Term Ratings -Year Government Interest Rates /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* Last 90 Days S&P Moody's Fitch EU Central Government Bond 400. 84.4 8.2 60. 9.4 -.8 9.4-9.0-9.7-82.2 0.0 00.0% 00.0% 00.0% 20.4% AAA Aaa AAA United Kingdom Government Debt 442.0 57.0 64.0 57.0.7 2.2 5.9 28.5 42.4.4 4.4 52.% 2.4%,000.0% 07.5% AAA Aaa AAA Note: * denotes YTD Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 2
-Year Spread Pricing, Rating, Volatility & Development Based on the latest - year CDS prices, the most solvent banks are the French Crédit Mutuel, the Dutch ING Bank and the German Bayern LB, indicated by CDS prices clearly below 0 bps The ratio between the least and most solvent bank is 9.x (77. / 4.0), signalling a large gap in the perceived short-term solvency amongst European banks CDS Mid-Price as of 06/2/207 (in bps) HSH Nordbank NIBC Bank DZ Bank Norddeutsche Landesbank UniCredit S.p.A Commerzbank AG HSBC Holdings Banco Santander Landesbank Baden-Württemberg BNP Paribas Bayerische Landesbank ING Bank Crédit Mutuel 4. 26.0 2.7 9. 7.0 4. 0.5 9. 8.8 5.7 5. 4.0 Long-Term Rating* as of 06/2/207 47. 77. CDS Mid-Price -Year Development (in bps) 2 UniCredit S.p.A NIBC Bank Banco Santander Commerzbank AG HSH Nordbank BNP Paribas Norddeutsche Landesbank ING Bank Bayerische Landesbank HSBC Holdings Landesbank Baden-Württemberg Crédit Mutuel DZ Bank -4.6-04. -76.4-47.7-4.4-7.5-4.9 Annual Volatility (Last 90 days) as of 06/2/207-25.2-2.7-20.9-8.7-4. -.8 5.9 2 recorded the largest improvement in CDS prices, decreasing by 44 bps compared with year prior Overall, European banks exhibit higher levels of volatility in their CDS spreads over the last 90 days, most notably HSBC HSH Nordbank NIBC Bank UniCredit S.p.A Norddeutsche Landesbank Banco Santander Commerzbank AG Bayerische Landesbank Landesbank Baden-Württemberg ING Bank HSBC Holdings DZ Bank BNP Paribas A+ A A- A- A- BBB+ BBB- BBB HSBC Holdings BNP Paribas UniCredit S.p.A Banco Santander Commerzbank AG NIBC Bank ING Bank Bayerische Landesbank DZ Bank Landesbank Baden-Württemberg Crédit Mutuel Norddeutsche Landesbank HSH Nordbank 2.8% 7.% 7.% 87.2% 84.2% 65.6%.% 96.6% 55.% 42.9% 29.2% 90.4% 65.% 26.6% Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices; * S&P Rating notches
-Year Spread Development Domestic vs. European Institutions (LY) German and European banks generally follow the same trend over the past years Mean and median CDS prices have generally (significantly) been lower for European banks, in particular since the beginning of 206 bps 40 20 00 80 Volatility remains consistent across both German and European banks over the year period, exhibiting standard deviations of approximately 5 bps The and UniCredit turmoil caused the large spike in mean CDS prices during Q 206 (next pages) 60 40 20 0 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Median German Mean German Median European Mean European Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 4
-Year Spread Development Domestic Institutions (LY) Over the last years, and HSH Nordbank were the most volatile German banks with STDs of 58 bps and 2 bps, respectively reached the highest CDS price over the last years (292 bps, /02/206) The regional state banks LBBW and Bayern LB were the least volatile (STDs of 7 bps and 0 bps respectively), achieving the lowest CDS prices of all selected German banks From the highs in Q 206, CDS prices for German banks have been steadily declining, some reaching new record lows bps 00 250 200 50 00 50 0 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Bayerische Landesbank Commerzbank AG Aktiengesellschaft DZ Bank. Die Initiativbank HSH Nordbank AG Landesbank Baden-Württemberg Norddeutsche Landesbank Girozentrale Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 5
-Year Spread Development European Institutions (LY) Over the last years, UniCredit and NIBC Bank were the most volatile European banks with STDs of 29 bps and 28 bps, respectively UniCredit reached the highest CDS price over the last years (8 bps, /02/206) ING Bank and Crédit Mutuel were the least volatile (STDs of bps and 0 bps respectively), achieving the lowest CDS prices of all selected European banks From the highs in Q 206, CDS prices for European banks have been steadily declining, some reaching new record lows bps 200 80 60 40 20 00 80 60 40 20 0 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 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. Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 6
S&P 5-Year PD CDS Price (in bps) -Year Spread CDS vs. Rating Comparing CDS prices with current ratings, seeks to highlight the relationship between the forward- and backward-looking solvency indicators A strong correlation exists between CDS prices and rating (55% of the variation in CDS prices can be explained via ratings) The slope implies that a notch fall in rating would result in a higher -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 90 80 70 60 50 40 0 20 0 0 AAA AA+ 2 AA 4 A+ 5 A 6 A- 7 BBB+ 8 BBB 9 BBB- 0 BB+ 2 BB HSH Nordbank NIBC Bank DZ Bank Norddeutsche Landesbank UniCredit S.p.A HSBC Holdings Commerzbank AG Banco Santander Landesbank Baden-Württemberg BNP Paribas Bayerische Landesbank ING Bank Crédit Mutuel R² = 0.5506 Rating 0.0% 0.6% 0.5% 0.52% 0.64% 0.42% 0.86% 2.0% 2.7% 4.94% 6.47% 9.98% Source: S&P Capital IQ as of December 06th, 207 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 7
5-YEAR CDS SPREADS 8
5-Year Spread Overview & Historical Analysis 2 Over the past 0 years, trends in CDS spreads have been strongly influenced by macroeconomic events (i.e. Financial crisis, Euro crisis) Apart from the challenging years 08-09 and 0 -, CDS prices have remained fairly stable Over the past year, a downward trend can be observed across all banks, approaching record lows All selected banks show negative changes in CDS spreads over the last years, indicating a decrease in risk (with exception of Crédit Mutuel) 0-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings German Institutions /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* Last 90 Days S&P Moody's Fitch Bayerische Landesbank 65.8 06.2 07.2 9.0 289.5 94.6 0.0 77.2 75.8 68.6.6-59.0% -58.2% -5.8% 6.% A+ Aa A+ Commerzbank AG 4. 84.9 62.4 47. 284.5 54.6 0.7 8.6 90.6 7. 52.5-7.% -42.% -55.%.6% A- A2 A- Aktiengesellschaft 45.2 4.0 77.0 05.4 94.2 95.2 84. 79.7 96.5 62. 7.5-7.8% -2.9% -54.7% 25.2% A- A A- DZ Bank. Die Initiativbank na 97.7 97.7 22.5 65. 92.4 82.4 75.9 78. 78.6 7.0-6.5% -9.% -9.7% 45.2% Aa HSH Nordbank AG 72. 22.5 2.8 205.5 7.4 70. 89. 9.8 87.0 72. 52.5-2.% -8.4% -.4% 9.5% - Baa BBB- Landesbank Baden-Württemberg na 09. 2.7 59.5 287.2 96.6 80.8 6.4 64.8 50.0 40. -4.4% -7.9% -9.6% 57.2% A Aa A+ Norddeutsche Landesbank Girozentrale na na na na na na na 04.6 4. 5.8 75.2-28.% -4.% -5.% 9.4% - Baa A- Min 4. 84.9 62.4 05.4 65. 92.4 80.8 6.4 64.8 50.0.6-59.0% -58.2% -55.% 9.4% Max 72. 22.5 2.8 205.5 7.4 70. 89. 9.8 87.0 72. 52.5-6.5% -9.% -9.7% 6.% Median 55.5 07.8 02.5 5. 285.9 95.9 92.7 79.7 90.6 5.8 7.0-28.% -4.% -5.%.6% Mean 56.6 42.4 7.0 55.5 265.7 7. 08. 96.6 0.0 09.2 70.9-27.8% -2.0% -4.2% 4.5% 0-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings European Institutions /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* 90 Days S&P Moody's Fitch Banco Santander, S.A. 47. 00.5 8.8 248.6 55.7 270.6 2.2 79.6 9.7 9. 4.4-56.8% -75.% -7.% 45.0% - Aa A- Banque Fédérative du Crédit Mutuel - So 5.0 5.0 5.0 08.9 8.6 50. 09. 64.8 4.9 24.0 27.0-58.% -5.5% 2.5% 6.7% A Aa A+ BNP Paribas SA 0.0 69.9 60. 4.5 259.0 7.0 8. 69.6 70.8 85.6 22.9-67.0% -67.6% -7.2% 4.8% A- A A- HSBC Holdings plc 8.6 7.4 78.0 99.4 5.4 9.5 65.4 52. 8. 8.2 9. -24.9% -52.9% -5.8% 5.8% A A2 ING Bank N.V. 42.8 7.0 64.4 44.6 22.9 09.2 8.2 54.8 52.4 64.4 8.5-66.% -64.7% -7.% 8.4% - A A- NIBC Bank N.V. na na 240.2 220.4 458.0 272.5 27.2 78.6 59.8 82.0 70. -60.7% -56.% -6.5% 28.9% BBB - BBB- UniCredit S.p.A. 45.5 22.0 94. 97.2 57. 299.5 46.6 28.0 2.7 7.8 62.9-50.9% -52.6% -6.8% 6.% BBB Baa BBB Min 5.0 5.0 5.0 99.4 5.4 9.5 65.4 52. 4.9 24.0 8.5-67.0% -75.% -7.2% 6.7% Max 47. 22.0 240.2 248.6 57. 299.5 27.2 78.6 59.8 82.0 70. -24.9% -5.5% 2.5% 28.9% Median 6.4 85.2 78.0 44.6 8.6 50. 09. 69.6 8. 85.6 4.4-58.% -56.% -6.8% 4.8% Mean 29.9 72.0 89. 62.0 29. 90.4 25.7 89.6 97.2 04. 9. -55.0% -57.8% -54.% 5.5% 0-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings All Institutions /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* Last 90 Days S&P Moody's Fitch Min 5.0 5.0 5.0 99.4 5.4 92.4 65.4 52. 4.9 24.0 8.5-67.0% -75.% -7.2% 9.4% Max 72. 22.5 240.2 248.6 57. 299.5 27.2 9.8 87.0 82.0 52.5-6.5% -9.% 2.5% 28.9% Median 44.2 0.4 8.8 47. 287.2 7.0 0.0 78.4 86.8 00.7 46.4-44.% -47.% -54.% 40.% Mean 40.5 07.2 02.0 59.0 299.8 56.6 7.6 9. 99. 06.8 55. -4.4% -44.9% -44.% 4.0% 0-Year Price Development (in bps) -Year Changes (in %) Annual Volatility Long-Term Ratings 5-Year Government Interest Rates /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* Last 90 Days S&P Moody's Fitch EU Central Government Bond 4.5 295. 26.7 24.8 55.5 58. 07. 7..7-47. 0.0-00.0% -00.0% 00.0% 99.% AAA Aaa AAA United Kingdom Government Debt 445.0 24.0 279.0 220.0 86.4 84.9 204.2. 25.6 48.0 7.4-5.% -4.6% 52.9% 7.0% AAA Aaa AAA Note: * denotes YTD Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 9
5-Year Spread Pricing, Rating, Volatility & Development 2 Based on the latest 5- year CDS prices, the most solvent banks are the Dutch ING Bank and the French BNP Paribas and Crédit Mutuel, indicated by CDS prices clearly below 50 bps The ratio between the least and most solvent bank is 8.2x (52.5 / 8.5), signalling a moderate gap in the perceived mediumterm solvency amongst European banks UniCredit recorded the largest improvement in CDS prices, decreasing by 45 bps compared with year prior Overall, European banks exhibit higher levels of volatility in their CDS spreads over the last 90 days, most notably NIBC Bank CDS Mid-Price as of 06/2/207 (in bps) Long-Term Rating* as of 06/2/207 HSH Nordbank NIBC Bank UniCredit S.p.A Norddeutsche Landesbank Banco Santander Commerzbank AG Bayerische Landesbank Landesbank Baden-Württemberg ING Bank HSBC Holdings DZ Bank BNP Paribas A+ A A- A- A- BBB+ BBB- BBB CDS Mid-Price -Year Development (in bps) 2 HSH Nordbank 52.5 UniCredit S.p.A -45.0 Norddeutsche Landesbank DZ Bank NIBC Bank UniCredit S.p.A Commerzbank AG Landesbank Baden-Württemberg HSBC Holdings Banco Santander Bayerische Landesbank Crédit Mutuel BNP Paribas 75.2 7.5 7.0 70. 62.9 52.5 40. 9. 4.4.6 27.0 22.9 NIBC Bank Banco Santander Commerzbank AG BNP Paribas HSBC Holdings ING Bank Bayerische Landesbank Norddeutsche Landesbank HSH Nordbank Landesbank Baden-Württemberg DZ Bank -42. -.9-0. -78.0-67.0-50.0-49.4-45.9-4. -2.2 -.4-6.4 ING Bank 8.5 Crédit Mutuel Annual Volatility (Last 90 days) as of 06/2/207 NIBC Bank Bayerische Landesbank Landesbank Baden-Württemberg HSBC Holdings DZ Bank Banco Santander BNP Paribas ING Bank UniCredit S.p.A Commerzbank AG Crédit Mutuel HSH Nordbank Norddeutsche Landesbank 6.7% 9.5% 9.4% 6.%.6% 25.2% 45.2% 45.0% 4.8% 8.4% 6.% 57.2% 5.8% 28.9%. Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices; * S&P Rating notches 20
5-Year Spread Development Domestic vs. European Institutions (LY) German and European banks generally follow the same trend over the past years bps 200 80 Mean and median CDS prices have generally (significantly) been lower for European banks, in particular since the beginning of 206 Volatility remains consistent across both German and European banks over the year period, exhibiting standard deviations of approximately 9 bps The and UniCredit turmoil caused the large spike in mean CDS prices during Q 206 (next pages) 60 40 20 00 80 60 40 20 0 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Median German Mean German Median European Mean European Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 2
5-Year Spread Development Domestic Institutions (LY) Over the last years, and Commerzbank were the most volatile German banks with STDs of 55 bps and 2 bps, respectively HSH Nordbank reached the highest CDS price over the last years (289 bps, 4/02/206) The regional state banks LBBW and Bayern LB were among the least volatile (STDs of 4 bps and 8 bps respectively), achieving the lowest CDS prices of all selected German banks From the highs in Q 206, CDS prices for German banks have been steadily declining, some reaching new record lows bps 00 250 200 50 00 50 0 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Bayerische Landesbank Commerzbank AG Aktiengesellschaft DZ Bank. Die Initiativbank HSH Nordbank AG Landesbank Baden-Württemberg Norddeutsche Landesbank Girozentrale Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 22
5-Year Spread Development European Institutions (LY) Over the last years, UniCredit and Santander were the most volatile European banks with STDs of 9 bps and 5 bps, respectively NIBC Bank reached the highest CDS price over the last years (268 bps, 06/0/206) ING Bank and Crédit Mutuel were the least volatile (STDs of 6 bps and 2 bps respectively), achieving the lowest CDS prices of all selected European banks From the highs in Q 206, CDS prices for European banks have been steadily declining, some reaching new record lows bps 00 250 200 50 00 50 0 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 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. Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 2
S&P 5-Year PD CDS Price (in bps) 5-Year Spread CDS vs. Rating Comparing CDS prices with current ratings, seeks to highlight the relation-ship between the forward- and backward-looking solvency indicators 80 60 40 HSH Nordbank A strong correlation exists between CDS prices and rating (5% of the variation in CDS prices can be explained via ratings) The slope implies a notch fall in rating would result in a higher 5-Year CDS price by approx. 0 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 20 00 80 60 40 20 DZ Bank Landesbank Baden-Württemberg HSBC Holdings Crédit Mutuel Banco Santander Bayerische Landesbank ING Bank Norddeutsche Landesbank Commerzbank AG BNP Paribas UniCredit S.p.A NIBC Bank 0 AAA AA+ 2 AA 4 A+ 5 A 6 A- 7 BBB+ 8 BBB 9 BBB- 0 BB+ 2 BB 0.0% 0.6% Rating R² = 0.5084 0.5% 0.52% 0.64% 0.42% 0.86% 2.0% 2.7% 4.94% 6.47% 9.98% Source: S&P Capital IQ as of December 06th, 207 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 24
0-YEAR CDS SPREADS 25
0-Year Spread Overview & Historical Analysis 2 Over the past 0 years, trends in CDS spreads have been strongly influenced by macroeconomic events (i.e. Financial crisis, Euro crisis) Apart from the challenging years 08-09 and 0 -, CDS prices have remained fairly stable Over the past year, a downward trend can be observed across all banks, approaching record lows All selected banks show negative changes in CDS spreads over the last years, indicating a decrease in risk (with exception of DZ Bank, Deutsche Bank, Crédit Mutuel and HSBC) 0-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings German Institutions /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* Last 90 Days S&P Moody's Fitch Bayerische Landesbank 77.6 02. 08. 95.8 295. 06.5 2. 97.2 00.0 95.9 55. -4.% -44.7% -42.% 77.% A+ Aa A+ Commerzbank AG 46.2 89. 75.8 5.8 297.9 84.4 58.2 20.6 2.9 52.2 88.4-26.7% -27.5% -4.9% 24.% A- A2 A- Aktiengesellschaft 46.6.4 92.0 5. 20.7 2.5 28. 2.8 25.4 72.4.2 0.4% -9.8% -4.% 26.7% A- A A- DZ Bank. Die Initiativbank na 0.7 0.7.6 78..8 9. 8.6 8. 87.6 8.9 0.4%.0% -4.2% 45.% Aa HSH Nordbank AG 94.4 4.4 220.5 95. 62.4 94.5 22.2 220.7 20.9 200. 85.6-5.9% -2.0% -7.% 9.5% - Baa BBB- Landesbank Baden-Württemberg na 0.6 28.6 68. 29.7 04.9 7. 7.8 75.9 68.5 57.8-9.5% -2.9% -5.6% 48.% A Aa A+ Norddeutsche Landesbank Girozentrale na na na na na na na 24.9 6.8. 98.6-2.% -27.9% -26.0% 0.% - Baa A- Min 46.2 89. 75.8 5. 78. 04.9 7. 7.8 75.9 68.5 55. -4.% -44.7% -42.% 9.5% Max 94.4 4.4 220.5 95.8 62.4 94.5 22.2 220.7 20.9 200. 85.6 0.4%.0% -4.2% 77.% Median 62. 07.2 09.4 6.0 29.4 8.7 0. 2.8 2.9. 88.4-9.5% -2.9% -26.0% 26.7% Mean 66.2 42. 22.6 60.0 272.7 7.9 4.7 8.8 22.0 0.0 97.5-7.9% -20.7% -24.5% 4.4% 0-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings European Institutions /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* 90 Days S&P Moody's Fitch Banco Santander, S.A. 50. 00. 9.0 247.7 66.4 295.6 74.5 4.7 72.5 57.9 60.7-47.% -64.8% -6.6% 44.0% - Aa A- Banque Fédérative du Crédit Mutuel - So 8.8 8.8 8.8 20.9 0.8 8.6 45.8 9.4 75.2 46.0 5.0-45.4% -2.2%.0% 6.7% A Aa A+ BNP Paribas SA.8 68.7 65. 22.9 274.8 72.2 7.6 0.4 98. 9.6 49. -5.4% -49.8% -58.8% 49.% A- A A- HSBC Holdings plc 4.5 27.7 85.4 08. 76.7.0 78.5 62.4 27. 6.6 70.0 2.2% -45.% -40.0% 42.4% A A2 ING Bank N.V. 5. 8.6 77.2 5.7 29.9 27.4 25.2 78.2 79.2 95.8 9.9-48.9% -49.6% -58.% 06.6% - A A- NIBC Bank N.V. na na 240. 2.4 45.6 295.8 297.7 97.2 85.9 97.0 92.6-5.0% -50.2% -5.0% 02.% BBB - BBB- UniCredit S.p.A. 46.8 25.4 06.0 202.8 529. 20.4 94.7 79.9 76.2 2.7 96.6-46.% -45.% -54.8% 2.% BBB Baa BBB Min 8.8 8.8 8.8 08. 76.7.0 78.5 62.4 75.2 46.0 9.9-5.0% -64.8% -6.6% 6.7% Max 5. 25.4 240. 247.7 529. 20.4 297.7 97.2 85.9 2.7 96.6 2.2% -2.2%.0% 06.6% Median 9. 84.5 85.4 5.7 0.8 8.6 45.8 0.4 27. 9.6 60.7-47.% -49.6% -54.8% 44.0% Mean 4.2 74.9 96.2 69.4 8.8 25. 62.0 8.2 0.6 5.2 65.7-40.0% -48.% -45.% 56.2% 0-Year Price Development (in bps) 2 -Year Changes (in %) Annual Volatility Long-Term Ratings All Institutions /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* Last 90 Days S&P Moody's Fitch Min 8.8 8.8 8.8 08. 76.7 04.9 7. 62.4 75.2 46.0 9.9-5.0% -64.8% -6.6% 9.5% Max 94.4 4.4 240. 247.7 529. 20.4 297.7 220.7 20.9 2.7 85.6 2.2%.0%.0% 06.6% Median 46.7 0.0 92.0 5.8 295. 72.2 2. 07. 2.7 26.4 76.9-4.9% -8.4% -4.0% 4.2% Mean 47.0 08.6 08.4 65.0 08. 79.5 49.4 8.5 26. 2.6 8.6-29.0% -4.4% -4.8% 45.% 0-Year Price Development (in bps) -Year Changes (in %) Annual Volatility Long-Term Ratings 0-Year Government Interest Rates /2/2007 /2/2008 /2/2009 /2/200 /2/20 /2/202 /2/20 /2/204 /2/205 /2/206 06/2/207 Δ 4-7* Δ 5-7* Δ 6-7* Last 90 Days S&P Moody's Fitch EU Central Government Bond 47.6 68.8 76.0 6.2 264.5 72. 224. 64.9 76.9 25.8 9.2-9.5% -49.0% 5.9% 80.0% AAA Aaa AAA United Kingdom Government Debt 45.0 22.0 42.0 5.0 96.5 8.4 0.0 75.7 9.9 24.0 22.8-0.% -6.7% -.0% 4.5% AAA Aaa AAA Note: * denotes YTD Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 26
0-Year Spread Pricing, Rating, Volatility & Development 2 Based on the latest 0- year CDS prices, the most solvent banks are the Dutch ING Bank and the French BNP Paribas and Crédit Mutuel, indicated by CDS prices clearly below 75 bps The ratio between the least and most solvent bank is 4.7x (85.6 / 9.9), signalling a lower gap in the perceived long-term solvency amongst European banks UniCredit recorded the largest improvement in CDS prices, decreasing by 55 bps compared with year prior Overall, European banks exhibit higher levels of volatility in their CDS spreads over the last 90 days, most notably ING Bank and NIBC Bank CDS Mid-Price as of 06/2/207 (in bps) Long-Term Rating* as of 06/2/207 HSH Nordbank NIBC Bank UniCredit S.p.A Norddeutsche Landesbank Banco Santander Commerzbank AG Bayerische Landesbank Landesbank Baden-Württemberg ING Bank HSBC Holdings DZ Bank BNP Paribas A+ A A- A- A- BBB+ BBB- BBB CDS Mid-Price -Year Development (in bps) 2 HSH Nordbank 85.6 UniCredit S.p.A -55.0.2 Banco Santander Norddeutsche Landesbank 98.6 UniCredit S.p.A 96.6 NIBC Bank NIBC Bank 92.6 Commerzbank AG Commerzbank AG 88.4 BNP Paribas DZ Bank 8.9 ING Bank HSBC Holdings 70.0 HSBC Holdings Banco Santander 60.7 Bayerische Landesbank Landesbank Baden-Württemberg 57.8 Norddeutsche Landesbank Bayerische Landesbank 55. HSH Nordbank Crédit Mutuel 5.0 Landesbank Baden-Württemberg BNP Paribas 49. DZ Bank ING Bank 9.9 Crédit Mutuel -7.7-6.8-0.6-78. -7.8-57.0-5.7-48.2-8. Annual Volatility (Last 90 days) as of 06/2/207 ING Bank NIBC Bank Bayerische Landesbank BNP Paribas Landesbank Baden-Württemberg DZ Bank Banco Santander HSBC Holdings UniCredit S.p.A Commerzbank AG Crédit Mutuel Norddeutsche Landesbank HSH Nordbank 6.7% 0.% 9.5% 2.% 26.7% 24.% 49.% 48.% 45.% 44.0% 42.4% 77.% -9. -2.5 06.6% 02.% -2. 2.2 Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices; * S&P Rating notches 27
0-Year Spread Development Domestic vs. EuropeanInstitutions (LY) German and European banks generally follow the same trend over the past years bps 250 Mean and median CDS prices have generally (significantly) been lower for European banks, in particular since the beginning of 206 200 50 Volatility remains consistent across both German and European banks over the year period, exhibiting standard deviations of approximately 2 bps 00 50 The and UniCredit turmoil caused the large spike in mean CDS prices during Q 206 (next pages) 0 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Median German Mean German Median European Mean European Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 28
0-Year Spread Development Domestic Institutions (LY) Over the last years, and Commerzbank were the most volatile German banks with STDs of 48 bps and 24 bps, respectively HSH Nordbank reached the highest CDS price over the last years (294 bps, 5/02/206) The regional state banks LBBW and Bayern LB were among the least volatile (STDs of bps and 7 bps respectively), achieving the lowest CDS prices of all selected German banks From the highs in Q 206, CDS prices for German banks have been steadily declining, some reaching new record lows bps 00 250 200 50 00 50 0 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Bayerische Landesbank Commerzbank AG Aktiengesellschaft DZ Bank. Die Initiativbank HSH Nordbank AG Landesbank Baden-Württemberg Norddeutsche Landesbank Girozentrale Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 29
0-Year Spread Development European Institutions (LY) Over the last years, UniCredit and Santander were the most volatile European banks with STDs of 4 bps and 8 bps, respectively NIBC Bank reached the highest CDS price over the last years (289 bps, 06/0/206) ING Bank and Crédit Mutuel were the least volatile (STDs of 9 bps and 7 bps respectively), achieving the lowest CDS prices of all selected European banks From the highs in Q 206, CDS prices for European banks have been steadily declining, some reaching new record lows bps 50 00 250 200 50 00 50 0 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 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. Source: S&P Capital IQ as of December 06th, 207 Note: All calculations based on mid prices 0
S&P 5-Year PD CDS Price (in bps) 0-Year Spread CDS vs. Rating Comparing CDS prices with current ratings, seeks to highlight the relationship between the forward- and backward-looking solvency indicators 200 80 60 HSH Nordbank A strong correlation exists between CDS prices and rating (56% of the variation in CDS prices can be explained via ratings) The slope implies that a notch fall in rating would result in a higher 0-Year CDS price by approx. 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 40 20 00 80 60 40 20 0 AAA AA+ 2 AA 4 A+ 5 A 6 A- 7 BBB+ 8 BBB 9 BBB- 0 BB+ 2 BB Norddeutsche Landesbank UniCredit S.p.A Commerzbank AG NIBC Bank DZ Bank HSBC Holdings Landesbank Baden-Württemberg Banco Santander Bayerische Landesbank BNP Paribas Crédit Mutuel ING Bank R² = 0.5607 Rating 0.0% 0.6% 0.5% 0.52% 0.64% 0.42% 0.86% 2.0% 2.7% 4.94% 6.47% 9.98% Source: S&P Capital IQ as of December 06th, 207 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
CONTACT DETAILS & DISCLAIMER 2
Contact Details & Disclaimer D I S C L A I M E R FCF FCF Fox Fox Corporate Finance GmbH GmbH Maximilianstrasse 2-4 8059 Munich Germany Telephone +49 (89) 206 0409-0 Facsimile +49 (89) 206 0409-299 info@fcf.de www.fcf.de Arno Fuchs Chief Executive Officer P: +49 (89) 206 0409-00 M: +49 (72) 86 6777 arno.fuchs@fcf.de Tristan Blümli Analyst P: +49 (89) 206 0409-40 M: +49 (72) 89 576 tristan.bluemli@fcf.de Marcel Lange Associate P: +49 (89) 206 0409-26 M: +49 (72) 89 5740 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 207