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EQUITY

9 April 2015

Extract from a report

Global Investment Banks


Global IBs: Positive quarter for trading but lack of capital is the key issue
Q1 should be a decent quarter JPM will kick off the global investment banks Q1
earnings season on 14 April. Q1 15 equity and FICC trading revenues in investment banking
Stock selection

are widely anticipated to be healthy (consensus = up mid-high single-digit percentage points

Preferred

yoy), while advisory revenues should be stable. However, weak underwriting revenues, a low
interest rate environment, weak mortgage revenues (US), catch-up litigation expenses (EU)

Bank of America
Barclays
JP Morgan
UBS

would be key offsets. Importantly, we continue to see lack of adequate capital as a key
structural concern, exacerbated by continuing regulatory burdens (e.g. trading book review).

Least preferred

Credit Suisse
Deutsche Bank
Goldman Sachs

See here for our detailed report. Robust trading revenues in Q1 15 are therefore likely to be a
passing phase in a general downtrend. We reiterate our preference for business models that
are more diversified, well capitalised and have manageable regulation/litigation risks.
We are buyers of BAC, BARC, JPM and UBS. BAC has sold-off 13% YTD (vs down 3% for
BKX), and is particularly compelling given our forecast 16e ROTNAV of 11% vs P/16e TNAV
of 0.9x. BARC and UBS are attractive self-help restructuring stories in our view;
management should be able to improve ROTNAVs to drive a re-rating of P/TNAVs. JPM is
well placed to benefit from an improvement in the global macroeconomic environment, and
looks attractively valued on forward ROTNAV in our view.
We are sellers of CS, DBK and GS. CS, DBK and GS have weak capital adequacy in various
guises. We see capital deficits of CHF6.5bn at CS and 5bn at DBK to reach minimum
leverage ratio requirements. At GS, the CCAR/stress test has severely reduced buyback
capacity and therefore future EPS accretion (see here) We are also sellers of WFC given
slowing earnings growth and expensive valuation (click here for detailed report).
We update our EPS for several stocks. Please see page 4-6 for details. There are only
very modest changes to our EPS forecasts. There are no changes to our target prices or
recommendations.

Key recommendations
Company

07/04/15
Pricing

Curr

Reco

Target
Price

P/TVNAV ROTNAV

12m

12m

fcast div

TSR

15e

Bank of America

15.46

USD

Buy

19.0

0.20

24%

0.95

Citigroup

51.52

USD

Hold

55.0

0.16

7%

0.83

Barclays

258

P/E
Comments
ratio

10.0% 10.9 Cleaner turnaround in profitability, RoTE to rise to to11% in FY15


9.1% 10.0 EM growth risks and lower US exposure

GBp

Buy

320.0

8.00

27%

0.85

10.4% 8.4 Non-core run-off will move group towards cores 12% RoTE

Credit Suisse

26.85

CHF

Sell

15.5

0.35

-41%

1.26

12.6% 10.5 Weak CET1 leverage ratio points to equity deficit. RMBS fines a concern

Deutsche Bank

33.15

EUR

Sell

23.0

0.75

-28%

0.83

8.3% 10.1 Weak leverage ratio points to equity raise. Litigation for MBS mis-selling

Goldman Sachs

192.39

USD

Sell

149.0

2.50

-21%

1.17

10.2% 11.6 Expensive. mRWA inflation concerns. Capital return policy under pressure

JP Morgan

60.85

USD

Buy

69.0

1.72

16%

1.27

12.6% 10.6 Capital optimisation and expense savings are key areas of focus.

Morgan Stanley

35.94

USD

Hold

37.0

0.55

5%

1.13

9.1% 13.0 Attractive WM strategy. Rally leaves little value in the stock though

UBS

18.75

CHF

Buy

23.0

0.50

25%

1.55

16.3% 10.0 Great WM business. Litigation & leverage concerns should alleviate

Wells Fargo

54.02

USD

Sell

51.0

1.55

-3%

1.93

15.7% 13.2 Slowing earnings growth/quality, rising credit costs, expensive valuation

Equity analyst
Murali Gopal
(91) 80 2803 7319

Equity analyst
Andrew Lim
(44) 20 7676 6014

Equity analyst
Anubhav Srivastava
(91) 888 416 8685

Specialist sales
James Lloyd
(44) 20 7762 5426

murali.gopal@sgcib.com

andrew.lim@sgcib.com

anubhav.srivastava@sgcib.com

james.d.lloyd@sgcib.com

Societe Generale (SG) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that SG may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision. PLEASE SEE APPENDIX AT THE END OF THIS REPORT FOR THE ANALYST(S)

CERTIFICATION(S), IMPORTANT DISCLOSURES AND DISCLAIMERS AND THE STATUS OF NON-US RESEARCH ANALYSTS.
This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

9 April 2015

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Contents
Key SG bank sub-sector calls ............................................................................................... 4
Q1 15 earnings calendar ....................................................................................................... 5
Earnings estimates fine tuned; target price and rating remain unchanged ............................. 5
SG estimates versus consensus (Q1 15) ............................................................................... 6
Key recommendations .......................................................................................................... 8
Global IBs set for revenue boost from trading................................................................... 11
US banks: net interest revenues should be weak ................................................................ 16
Asset management: Strong flows in the US; markets up sharply in Europe ......................... 18
Global IBs: Structural issues still at play .............................................................................. 19
Leverage ratios: Key differentiator among UBS, CSG and DBK ........................................... 19
US Banks: 2015 CCAR cloud clears but increased G-SIB surcharges ahead ...................... 20
Litigation monitor ................................................................................................................ 22
Stock performance in Q1 15 European IBs prevail ........................................................... 23
Company section ................................................................................................................ 25
Bank of America Buy........................................................................................................ 25
Barclays -- Buy ................................................................................................................... 27
Citigroup Hold .................................................................................................................. 29
Credit Suisse Sell ............................................................................................................. 31
Deutsche Bank Sell .......................................................................................................... 33
Goldman Sachs Sell ......................................................................................................... 35
JP Morgan Buy ................................................................................................................ 37
Morgan Stanley Hold ........................................................................................................ 39
UBS Buy .......................................................................................................................... 41
Wells Fargo Sell ................................................................................................................ 43

9 April 2015

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Key SG bank sub-sector calls


Key SG bank sub-sector calls

2015 OUTLOOK
Benelux &
Germany

KEY CALLS
BUY

SELL

ING, CBK

ACA

BARC,
LLOY

BOI

- Funding costs and restructuring to drive EPS upgrades


- Sound credit quality and capital
- Funding costs and restructuring to drive EPS upgrades

France

PREFERRED

- Sound credit quality and capital


- An increasing focus on capital return

UK:
Domestic

- Further deposit repricing likely, accelerated by eventual rate rises


- Election (May) too tight to call, could bring volatility

US:
Universal

- Return to healthy earnings growth, and greater consistency


- Revenue growth outlook positive; pick-up in loan growth and higher ST
rates

JPM,
BAC

WFC

- Higher AUM driven by rising markets and net new money

Wealth Mgmt

UBS

Akbank, Yapi
Kredi

Bank Pekao
SA

ISP,
UBI

POP,
Caixabank

BKT

HSBC

BARC

CSGN, DBK,
GS

- Wealth management benefits from operating leverage and rising rates


- Poland: Low interest rates put pressure on NIM. Russia: Visibility very
low.
- Turkey: steady recovery. Other CEE: waiting for loan demand to
recover.

NEUTRAL

CEE

- ISP safer and cheaper way to play peripheral banks

Italy
- UBI best small play in Italy. Huge discount to Spanish domestic

Spain:
Domestic

- Valuations discount blue sky scenario in some names


- Revenue expectations starting to improve from a low base, US rate
rises would help

UK:
Asian

LEAST
PREFERRED

- Domestic conditions improving

- Continued restructuring to offset rising cost of being international

Investment
Banks

- Trading weakness on rising US rates and volatility spikes


- Regulation and litigation a struggle: leverage, MBS/CDO mis-selling
- Earnings healthy in Norway and corporate Sweden

Nordics

DNB
- Risk of volume slowdown and limited cost extraction opportunities

Nordea

- Diversified earnings stream

Spain: Large

- Potential earnings downgrade due to EM exposure

Source: SG Cross Asset Research/Equity

9 April 2015

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

BBVA

Global Investment Banks

Q1 15 earnings calendar
Tuesday 14 April

Wednesday 15 April

Thursday 16 April

JPM

BAC

Citi

GS

MS

Call: 8:30 am (EST)

Call: 8.30 am (EST)

Call: 11.00 am (EST)

Call: 9:30am EST

Call: 8:30am EST

(866) 541-2724 (US/Can)

877-200-4456 (US)

(866) 516-9582 (US/Can)

888-281-7154 (US)

877-895-9527 (US)

(866) 786-8836 (US/Can)

785.424.1732 (Intl)

(973) 409-9210 (Int)

706-679-5627 (Intl)

706-679-2291 (Intl)

(706) 634-7246 (Intl)

Conference ID: 79795

Conference ID: 90108772

Tuesday 21 April

Wednesday 29 April

CS

BARC

WFC

Monday 20 April

Passcode: 19351679
Tuesday 5 May
DBK

UBS

Call: 10 am EST
866-872-5161 (US/Can)
706-643-1962 (Intl))
Source: Company site, SG Cross Asset Research/Equity

Earnings estimates fine tuned; target price and


rating remain unchanged
Q1 15

FY15

FY16

Target price

Rating

New

Old

New

Old

New

Old

New

Old

Old

New

JPM $

1.40

1.35

5.72

5.74

6.48

6.50

69.00

69.00

Buy

Buy

BAC $

0.30

0.31

1.42

1.44

1.67

1.68

19.00

19.00

Buy

Buy

29.85

29.85

36.31

36.31

320.00

320.00

Buy

Buy

5.18

5.23

5.52

5.55

55.00

55.00

Hold

Hold
Sell

BARC (GBP)
Citi $

1.38

1.35

Wells $

1.00

0.99

4.12

4.12

4.53

4.53

51.00

51.00

Sell

GS $

4.10

4.47

16.50

16.10

17.57

16.90

149.00

149.00

Sell

Sell

MS $

0.77

0.78

2.77

2.78

3.17

2.95

37.00

37.00

Hold

Hold

CSG (CHF)

0.67

0.66

2.51

2.44

2.49

2.43

15.50

15.50

Sell

Sell

DBK (EUR)

1.11

1.14

3.22

3.28

3.51

3.63

23.00

23.00

Sell

Sell

UBS (CHF)

0.41

0.40

1.86

1.82

2.07

2.00

23.00

23.00

Buy

Buy

Source: SG Cross Asset Research/Equity

9 April 2015

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

SG estimates versus consensus (Q1 15)


SG estimates versus consensus (Q1 15)
BAC
SG est.

Per share items

JPM

Cons. SG est.

Citi

Cons. SG est.

WFC

Cons. SG est.

GS

Cons. SG est.

MS

Cons. SG est.

UBS

Cons. SG est.

CS

Cons. SG est.

DB

Cons. SG est.

Cons.

CHF

CHF

CHF

CHF

EUR

EUR

EPS

0.30

0.30

1.40

1.39

1.38

1.39

1.00

0.98

4.10

4.09

0.77

0.77

0.41

0.35

0.67

0.70

1.11

0.98

Dividends per share

0.05

0.05

0.40

0.41

0.01

0.02

0.35

0.35

0.60

0.61

0.10

0.11

0.13

0.00

0.00

Book value per share

22.1

21.6

58.4

58.2

67.6

67.3

32.2

32.8

165.3

165.7

35.2

33.9

13.4

26.8

50.1

Tangible BVPS

15.1

14.7

45.3

45.2

58.3

58.1

27.2

27.2

156.0

155.8

30.4

29.1

11.6

21.2

39.3

3,757

P&L statement ($m)


Net interest income

925

611

1,749

1,990

Non-interest income

12,045 11,442 14,039 13,053

9,252

7,688 10,129 10,009

8,422

8,397

5,594

3,974

Revenue

21,297 21,362 25,013 24,379 19,835 19,903 21,129 21,238

9,347

Loan loss provision

9,902 10,974 11,145 11,870 11,914 11,000 11,215

782

Non-interest expense

701

1,036

931

7,965

2,220

1,929

622

9,083

9,008

9,304

585

7,343

7,734

83

15,295 15,266 14,876 14,963 11,435 11,568 12,136 12,523

6,394

6,655

5,963

4,866
6,535

28

6,253

8,623

8,797

396

4,534

6,660

Pre-tax profit

5,220

5,383

9,101

8,176

6,180

6,396

8,371

8,043

2,953

2,905

2,353

2,409

1,090

882

1,402

1,379

1,567

1,386

Net income

3,416

3,487

5,244

5,371

4,316

4,268

5,609

5,163

1,884

1,857

1,523

1,551

1,560

661

1,090

1,229

1,571

1,338

NIM %

2.08

2.24

2.08

2.13

2.83

2.94

2.96

3.02

0.46

NA

0.00

NA

1.12

1.51

3.00

ROTE %

8.89

8.06

12.69

12.27

9.92

9.56

15.55

14.37

10.82

10.51

10.40

10.56

14.88

12.61

11.68

ROA %

0.64

0.69

0.90

0.87

0.93

0.94

1.32

1.26

0.88

0.87

0.73

0.78

0.28

Efficiency ratio %

71.1

70.6

59.5

60.8

57.7

57.6

57.4

58.9

68.4

NA

73.9

NA

85.2

Ratios

0.44

76.0

0.25

77.2

Source: SG Cross Asset Research/Equity, SNL Factset and Bloomberg estimates for consensus

SG estimates versus consensus (2015)


BAC

JPM

Citi

WFC

GS

MS

UBS

CS

DB

BARC

SGe

Cons.

SGe

Cons.

SGe

Cons.

SGe

Cons.

SGe

Cons.

SGe

Cons.

SGe

Cons.

SGe

Cons.

SGe

Cons.

SGe

CHF

CHF

CHF

CHF

EUR

EUR

EPS

1.42

1.40

5.72

5.77

5.18

5.34

4.12

4.16

16.50

17.28

2.77

2.89

1.86

1.22

2.51

2.20

3.22

3.18

29.85

25.00

DPS

0.20

0.24

1.72

1.71

0.16

0.24

1.55

1.47

2.50

2.46

0.55

0.55

0.50

0.77

0.35

0.89

0.75

1.93

10.00

8.60

BVPS

23.3

22.6

61.1

61.3

71.3

72.2

33.0

34.4

176.0

174.9

36.3

36.5

13.9

13.4

26.4

50.1

346.2

343.4

TBVPS

16.3

15.6

47.8

48.1

62.0

62.7

28.0

28.8

167.1

164.2

31.7

31.7

12.0

20.9

39.3

300.0

Per share items

Cons.

P&L statement
NII

39,550 40,853

46,094 44,223 49,416 48,675 45,034 46,269

3,850

2,559

6,758

7,692

14,865

12,736

Non-interest inc.

45,717 45,377

55,161 53,808 28,922 29,291 41,631 41,316 29,888

32,853

22,018

15,363

17,282

13,627

Revenue

85,267 86,661 101,255 98,739 78,338 78,044 86,665 87,597 33,738 34,384 35,412 36,342 28,776 28,726

Impairment

3,333

3,397

4,409

4,178

9,041

8,190

2,752

2,686

26,362 25,850

272

106

1,525

2,088

24,954

20,892

27,980

17,637

Non-interest exp.

56,782 58,305

59,683 59,463 46,080 45,543 49,827 50,451 22,213

Pre-tax profit

25,152 24,597

37,164 34,024 23,217 24,722 34,086 34,227 11,526 12,250

8,565

9,235

3,822

4,573

2,057

4,727

2,642

4,642

6,696

6,512

Net income

15,754 15,950

21,341 21,928 16,166 16,268 22,846 21,927

7,868

5,420

5,758

7,078

4,587

4,321

4,434

4,447

4,693

4,555

4,047

7,268

26,847

23,055 24,645 32,147 32,717

Ratios
NIM %

2.19

2.24

2.13

2.11

2.92

2.90

3.00

3.01

0.48

NA

0.00

NA

1.10

1.55

2.97

2.97

ROTE %

9.96

8.98

12.61

12.00

9.11

8.51

15.73

14.43

10.22

10.53

9.13

9.12

16.3

12.58

8.27

10.45

ROA %

0.73

0.78

0.90

0.87

0.87

0.88

1.25

1.30

0.84

0.91

0.62

0.73

0.37

Efficiency ratio %

65.9

66.9

58.9

60.6

58.8

58.7

57.5

57.5

65.8

NA

75.8

NA

86.7

0.47

0.11
90.6

0.00

0.11
87.0

Source: SG Cross Asset Research/Equity, SNL Factset and Bloomberg estimates for consensus.

9 April 2015

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

0.39
82.0

66.9

0.33

Global Investment Banks

SG estimates versus consensus (2016)


JPM

Citi

WFC

SGe

Cons.

BAC
SGe

Cons.

SGe Cons.

SGe Cons.

EPS

1.67

1.64

6.48

6.45

5.52

5.86

DPS

0.26

0.33

1.85

1.85

0.30

BVPS

25.0

24.1

65.3

65.5

76.7

TBVPS

17.9

17.0

51.9

52.1

67.1

NII

43,099 43,360

Non-interest inc.

48,389 47,874

Revenue

91,488 91,390 108,942 104,411 82,445 81,170 92,484 93,346 34,480 35,969 37,196 39,177 31,028 30,169

Per share items

GS

MS

UBS

CS

SGe

Cons.

SGe Cons.

SGe Cons.

SGe Cons.

SGe

Cons.

DB
SGe

BARC

CHF

CHF

CHF

CHF

EUR

EUR

4.53

4.54

17.57

18.45

3.17

3.27

2.07

1.56

2.49

2.67

3.51

3.83

36.31

29.60

0.72

1.70

1.57

2.70

2.73

0.70

0.70

1.80

1.15

0.50

1.31

0.80

1.11

13.00

11.30

77.8

34.3

36.8

188.7

189.5

38.1

39.2

13.9

13.9

28.6

52.3

364.8

353.9

68.6

29.2

31.2

180.5

178.5

33.6

34.4

12.0

23.0

41.5

322.0

50,249

47,186 52,186 51,298 48,381 50,034

4,548

2,757

6,611

7,960

14,843

13,699

58,693

56,514 30,259 29,638 44,103 43,244 29,932

34,440

24,417

15,897

17,400

13,751

Cons.

P&L statement

Impairment

4,461

5,293 10,158

9,523

3,859

4,094

28

23,857 25,382 32,243 33,338

Non-interest exp.

58,006 58,043

62,222

60,484 46,645 45,789 52,079 52,157 22,668

Pre-tax profit

29,021 28,466

41,525

37,594 25,642 26,025 36,547 36,789 11,812 12,920

9,527 10,400

7,324

6,697

6,007

6,482

6,205

7,499

8,972

8,117

Net income

18,262 18,191

23,837

24,099 16,715 17,144 24,520 23,515

8,308

6,093

6,511

7,887

5,845

4,288

4,933

4,953

5,627

6,003

4,863

7,460

23,704

1,468

26,522

5,196

27,669

101

27,450

4,774

17,749

2,197

24,570

16,340

Ratios
NIM %

2.28

2.32

2.22

2.20

3.00

2.96

3.16

3.10

0.55

NA

0.00

NA

1.12

1.64

3.00

3.19

ROTE %

10.72

9.60

13.16

12.37

8.90

8.54

16.49

14.54

10.03

10.33

9.80

9.51

18.1

12.21

8.89

11.96

ROA %

0.81

0.88

0.97

0.94

0.87

0.91

1.28

1.32

0.84

0.94

0.65

0.78

0.74

Efficiency ratio %

62.7

62.9

57.1

57.8

56.6

56.9

56.3

55.7

65.7

NA

74.4

NA

76.4

0.68

0.53
74.4

0.00

0.25
76.2

Source: SG Cross Asset Research/Equity, SNL Factset and Bloomberg estimates for consensus.

9 April 2015

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

0.51
74.0

59.5

0.41

Global Investment Banks

Key recommendations
Global Investment Banks and US Universal Banks Buy recommendations
SG View
Bank of America
Analyst: Murali Gopal
Ticker: BAC US
Buy
Target price: $19

SG View Q1 earnings expectations

A much cleaner turnaround in profitability is


expected, and we forecast RoTE to rise to
to11% in FY16.
In the near term: cost savings, asset
management, primary markets business and a
pick-up in loan growth should support
earnings growth.
Over the medium term: as short-term interest
rates rise, the banks market-leading deposit
franchise should support NII growth.

JP Morgan
Analyst: Murali Gopal
Ticker: BAC US
Buy
Target price: $69

BUY

Barclays
Analyst: James Invine
Ticker: BARC LN
Buy
Target price: GBP 320

UBS
Analyst: Andrew Lim
Ticker: UBSG VX
Buy
Target price: CHF23.00

The bank is in our view best placed to benefit


from a robust macroeconomic recovery. Most
asset-sensitive among the largest banks
although larger non-core deposits, which
should run-off.
Could accelerate exit from its large non-core
loan book (c. 19% of total) as asset valuations
continue to improve.
Faced with a steep increase in GSIB buffer
(4.5% vs 2.5%), capital optimisation and
expense savings are key areas of focus.
However, GSIB buffer likely to restrict any
meaningful upside to current payout nearterm.
Strong self-help deleveraging story as NonCore shrinks (2014 alone saw leverage
exposure fall from ~480bn to 277bn)
Core businesses generate 12% RoTE thanks
to high return UK, Africa, cards; IB a drag but
FICC now only 12% of group revenues
I-Bank headwinds of litigation and
restructuring should recede, but a double-digit
RoTE looks difficult without further balance
sheet restructuring
Litigation risks remain high for FX fines and
perhaps also US CDO mis-selling (fourth
largest player in 2006/7); we forecast a further
4bn provisions 2015-17e.
Undervalued versus 2015e ROTNAV of 16%
and 2016e of 18%. Significant excess capital
as RWA and leverage exposure reduces, even
with new leverage ratio rules.
Unrecognised DTA of CHF23bn can be utilised
via the P&L, therefore supporting equity and
CET1 growth. Potential for DTA recognition to
increase due to extension of profit recognition
period.
We see payout ratio of 75% in 2015 and at
least 100% for 2016-18.
Litigation risk is high, but alleviating as FX
fines comes through lower than expected.
RMBS fines should be relatively small (we
estimate CHF2bn in 2015). UBS was a small
CDO player in 2006/7.
New leverage ratio rules in 2015 are an
uncertain overhang risk.

NII should be under pressure as the ten-year


yields were down 23bp qoq. However, the
combination of improving asset inflows, FICC
trading and cost savings should support
earnings growth.
Key positive would be an improvement in the
loan growth as the bank has been re-positioning
its balance sheet and also seems to be losing
market share.
Another positive would be any commentary on
the outlook for credit costs the current outlook
is for costs to rise substantially. FX-related
litigation expense is possible.
Lastly, operating RWAs are set to rise although
should be manageable as the bank just last
month received approval for its capital plan.
FICC trading should be solid and up high-single
digit rate despite the sale of the 'physical
commodities' business.
Loan growth should also be solid although noncore book continues to be significant.
Expect non-core spending to pick up as the
bank begins implementing its business
simplification and business/product exits plans
with an expected cost savings of $4.8bn over
time.

We expect Non-Core leverage exposure to print


250bn (Dec 2014:277bn), benefiting from the
Spanish sale in January (14bn).
In the retail/commercial businesses we expect
reasonable volume growth, while Africa's
reported numbers should benefit from the first
quarter of ZAR/GBP stability for several years.
We expect FICC revenues to be about flat:
positive backdrop but restructuring disruption
began towards the end of Q1 14; we may see
further hints of balance sheet reduction to be
announced H2 15

Strong equity markets should have benefited


AUM and wealth margin.
Expect DTA recognition to continue to boost
earnings.
Greater clarity on FX fines likely to result in
reduced COE.
Excess capital expected to build despite
tougher Swiss leverage ratio requirements.

Source: SG Cross Asset Research/Equity

9 April 2015

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Global Investment Banks

Global Investment Banks Sell recommendations


SG View
Credit Suisse
Analyst: Andrew Lim
Ticker: CSGN VX
Sell
Target price: CHF15.50

Deutsche Bank
Analyst: Andrew Lim
Ticker: DBK GY

SELL

Sell
Target price: EUR23.00

Goldman Sachs
Analyst: Andrew Lim
Ticker: GS US
Sell
Target price: $149

Wells Fargo
Analyst: Murali Gopal
Ticker: WFC US
Sell
Target price: $51

SG View Q1 earnings expectations

Weak CET1 leverage ratio of 2.5%. Likely


increase in minimum requirements under new
Swiss legislation points to need for equity raise.
We estimate c.CHF6.5bn if CET1 leverage ratio
increases to 3.5% (currently 2.4%).
I-Bank is much more exposed to Emerging
Markets versus peers (c. 11% of I-Bank net profit
on our estimates). Credit and Securitised Product
revenues likely under pressure when US interest
rates increase.
Uncertainty from new Swiss leverage rules, but
these may be less onerous than expected.

We expect CSG benefitted lesser than peers from a


pickup in trading revenues given relatively smaller
presence in macro products. Also, flow credit and
securitised products appear to have weakened again
in Q1 15, areas where CSG has greater exposure.
New Swiss leverage rules have been pushed to yearend. However, the new CEO may bring forward a
dilutive equity raise to improve the weak CET1
leverage ratio, which will impact ROE.
RMBS litigation provisions are significantly underestimated by consensus.

We are more negative than consensus on


FX and rates volatility should be a positive for
earnings forecasts due to weaker revenue growth
revenues in the short term but weak leverage ratio
and cost management.
will drive further business contraction in the longer
A weak leverage ratio (SGe 3.6% at end-2015)
term.
points to another equity raise of c.EUR5bn to
Consensus has under-estimated provisions for US
reach 4.0%.
RMBS issues in our view, exacerbated by the
Fines for RMBS/CDO mis-selling might be
strengthening in the US/ exchange rate.
significantly more than expected. We factor in
Any strategic announcement regarding
EUR3bn for 2015. Likely fines for OFAC (we factor
divestment/restructuring has already been priced-in
in EUR1.5bn) is another overhang risk, although
in our view and will likely disappoint high
risk from FX fines looks to be low.
expectations.
Meaningful exposure to Emerging Markets in Ibank versus peers
GS is an expensive stock, trading at 1.2x TNAV
Trading revenues is relatively large proportion of total
for a 2015e ROTNAV of only 10.4%. We see
revenues, and along with the primary markets
headwinds for FICC trading revenues
business is likely to contribute to a good quarter.
(commodities revenues under regulatory pressure)
However, faced with regulatory constraints, the
and Investment & Lending revenues, (which
earnings contribution from investment and lending
should suffer pressure from implementation of the
business should steadily decline.
Volcker rule).
We also expect greater clarity on the buyback
We believe GS' current aggressive capital return
potential post-CCAR, which is likely to be
strategy needs to be reined in, which will reduce
significantly lower (than last year), and we believe
EPS accretion.
market expectations.
Significant market RWA inflation risk from the
Trading Book review.

With the near-term outlook challenging, we


Expect EPS growth to turn negative (yoy) for the first
expect profitability to decline in FY15.
time in several years. With loan growth (commercial)
Slowing earnings growth, deterioration in the
already being solid, a pick-up in consumer growth
quality of earnings, loan growth largely limited to
(jumbo mortgages) will be important in the absence
low-yielding assets, continuing NIM pressure, loss
of a pickup in NIM near-term.
absorbing capital issuance, and rising loan loss
NCOs were at historically low levels (35bp) in Q4
provision costs are some of the headwinds.
we expect it to have bottomed. Loan-loss provisions
Valuation multiples have continued to expand,
should rise should the consumer (cards) loan growth
and at current levels we see little potential for
improve.
further re-rating of the stock.
Expense ratio has remained stubborn, and any
decline would be positive.
Faced with revenue pressure, we expect investment
income and some reserve releases to support
earnings.

Source: SG Cross Asset Research/Equity

9 April 2015

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Global Investment Banks

Global Investment Banks Hold recommendations


SG View
Citi
Analyst: Murali Gopal
Ticker: C US
Hold
Target price: $55

HOLD

Morgan Stanley
Analyst: Andrew Lim
Ticker: MS US
Hold
Target price: $37

SG View Q1 earnings expectations

2015 capital plan was approved but EM growth


Expect a noisy quarter as various consumer nonrisks and lower US exposure should keep RoTE
core consumer businesses are included under
subdued.
'Citi Holdings'.
Ongoing repositioning should result in substantial
Key positive would be a pick-up in consumer
expense savings but fall through to the bottom-line
spending translating in to higher card balances.
is expected to be only a small proportion.
Unlike, its peers, we expect FICC trading
Unlikely to reach Citicorps efficiency target (midrevenues to be weak, in part we believe related
50%) in FY15.
to the losses around Swiss franc volatility.
Expect sharp rise in GSIB surcharge (3.5% vs 2% Details on the ongoing divestment plans and cost
currently).
savings will be important.
Expect litigation expenses to fall substantially
and closer to a more normalised level.
Impressive re-orientation of the group towards
Asset (and wealth) management likely had a
wealth management with the purchase of the
good quarter with positive flows, and strong
Smith Barney JV. Has achieved increase in WM
European equity markets.
margins as free deposits have been deployed into Continued deployment of deposits should remain
higher yielding assets and as greater penetration of
a positive.
the WM client base is achieved (particularly with
Any additional target for FICC RWA reduction
respect to securities-backed lending).
would be a positive but unlikely, in our view.
Attractive capital build as CET1 and leverage ratios
increase. Potential further release if low return FIC
operations are restructured.
mRWA inflation risk from the trading book review
could limit capital return. MS still has significant
RWA tied up in the low return FIC business.
Hold recommendation reflects full valuation for
turnaround efforts.

Source: SG Cross Asset Research/Equity

9 April 2015

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Global Investment Banks

Global IBs set for revenue boost from trading


Over the past several quarters, FICC trading (and latterly equities trading) has been adversely
impacted by the lack of volatility. This seems to have changed with reasonable levels of
volatility across several asset classes. We expect trading revenues to have been robust, up
mid-to-high single-digit percentage points yoy and macro, within that (rates and currency) to
have been particularly strong.
However, flow credit and securitised products look to have been weaker yoy for the second
quarter in a row. ECM and DCM revenues also look like they will be softer yoy by high
single/low double-digit percentage points. We believe ECM has suffered from a change in
product mix, with weaker high-margin IPO business offsetting the strength seen in the lowermargin equity issuance business. In DCM, investment grade spreads have tightened even
further, more than offsetting decent volumes.
Overall, business models continue to be re-sized. US banks seemed to be gaining market
share for a while but that seems to be easing. While the US banks are well capitalised, capital
requirements are moving higher (driven by G-SIB and CCAR regulations). Picking up market
share is no longer a priority. Instead, capital optimisation and RoE are more important.
MOVE Index (treasury market volatility)

Currency Volatility Index


12

125

11

10

100

9
8

75

7
6

50

5
25
Mar 12

Sep 12

Mar 13

Sep 13

Mar 14

Sep 14

Mar 15

4
Mar 12

Sep 12

Mar 13

Sep 13

Mar 14

Sep 14

Mar 15

Source: Bloomberg and SG Cross Asset Research/Equity

Commodity Volatility Index

Credit spreads (bp)


160

20

140
120

16

100
80

60

12

40
20

4
Mar 12

Mar 13

Sep 13

Mar 14

Sep 14

ITRX EUROPE (EUR)


ITRX ASIAXJ (USD)

Mar 15

ITRX EUR SNR (EUR)

Source: Bloomberg and SG Cross Asset Research/Equity

9 April 2015

Apr-15

Jan-15

Oct-14

Jul-14

Jan-14

Sep 12

Apr-14

11

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Global Investment Banks

US Bond markets (average daily trading volume), $bn

US: Stock market volume (daily average), millions of shares


6,000

900
800

5,000

700

Agency

600

4,000

Corporate

500

ABS

400

Non-Agency (MBS)

300

Agency MBS

200

Treasury

100

Municipal

DirectEdge
BATS**

3,000

NASDAQ
2,000

AMEX/ARCA*
NYSE

1,000

0
Q1 14

Q2 14

Q3 14

Q4 14

Q1 15
(Jan-Feb)

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15 (JanFeb)

Source: SIFMA and SG Cross Asset Research/Equity

VIX Index (S&P 500 equity market volatility)

European market volatility (VDAX Index)


32

24
22

28

20

24

18

20

16

16
14

12

12
10
Mar 12

Sep 12

Mar 13

Sep 13

Mar 14

Sep 14

8
Mar 12

Mar 15

Sep 12

Mar 13

Sep 13

Mar 14

Sep 14

Mar 15

Source: Bloomberg and SG Cross Asset Research/Equity

Cash equities Xetra


6.0

ADV traded (bn)

Cash equities Euronext


% change (RHS)

60%

9.0

ADV traded (bn)

Cash equities LSE


% change (RHS)

60%
6.0

8.0

ADV traded (bn)

% change (RHS)

60%

5.0
40%
4.0

7.0

40%

6.0

5.0
40%

4.0

5.0
3.0

20%

20%
4.0

2.0

3.0
0%

0%

1.0

1.0
-20%

20%

2.0
0%

2.0

1.0
0.0

3.0

0.0

-20%

0.0

Source: Xetra, Euronext, LSE and SG Cross Asset


Research/Equity,

9 April 2015

12

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-20%

Global Investment Banks

Xetra Derivatives

Euronext Derivatives

ADNoC (m)

% change (RHS)

12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

ADNoC (m)

% change (RHS)

0.8

40%

40%

0.7
0.6

20%

20%

0.5
0.4

0%

0.3

0%

0.2

-20%

0.1
-40%

Feb-15

Dec-14

Oct-14

Aug-14

Jun-14

Apr-14

Feb-14

Dec-13

Oct-13

Aug-13

Apr-13

Jun-13

-20%

Feb-13

0.0

Source: Xetra, Euronext, LSE, and SG Cross Asset Research/Equity

Who is best placed as volatility rises?


On the back of favourable volatility across several asset classes, FICC trading revenues
should see a pick-up. Within FICC, we expect macro products (FX and rates) to have
performed strongly, more than offsetting an expected slowdown in flow credit and structured
products. We expect JPM to report a strong quarter, unlike Citi. Also, DBKs large FX trading
platform is a positive. Meanwhile, CSG and BAC have large credit businesses, which are likely
to have been weak.
GS and DBK have the largest FICC trading revenues (as a proportion of total group revenues).
Also, year-on-year growth trends will be impacted by each banks growth in the same quarter
in the previous year. On that basis, the US IBs seem better placed (see charts on next page).
FICC trading revenues as a proportion of total group revenues
25%

20%

15%

10%

5%

0%
GS

DBK

CSG

Citi

JPM

MS

KN

BAR

BAC

CASA

Source: SG Cross Asset Research/Equity

9 April 2015

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BNPP

UBS

Global Investment Banks

FICC trading revenue in Q4 14 (yoy growth) was weak, particularly for the US IBs

30.0%

20.0%
10.0%
0.0%

GS

BAC

JPM

BAR

Citi

MS

UBS

DBK

SG

BNPP

Natixis

CASA

CSG

BNPP

UBS

CASA

Natixis

-10.0%
-20.0%
-30.0%
-40.0%

Source: SG Cross Asset Research/Equity

FICC trading revenue in Q4 14 (qoq growth) US IBs are well placed to experience a rebound

20.0%

10.0%
0.0%
GS

MS

CSG

BAC

Citi

JPM

SG

DBK

BAR

-10.0%

-20.0%
-30.0%
-40.0%
-50.0%

Source: SG Cross Asset Research/Equity

9 April 2015

14

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Global Investment Banks

Primary markets...mixed quarter ahead


Equity underwriting should be weak as IPO volumes have slumped. We also expect debt
underwriting to have been somewhat weak. However, advisory revenues likely held up well.
Global M&A Announced transactions (Q1 15), $bn

M&A advisor ranking (Q1 15), $m


1,800

A dv is e r

700

1,600

JP M o rgan

174,063

56

600

1,400

Go ldman Sachs

162,657

85

1,200

M o rgan Stanley

135,712

65

Lazard Ltd

126,078

45

B ank o f A merica M errill Lynch

112,492

51

HSB C

100,588

19

Centerview P artners LLC

99,916

11

Deutsche B ank

76,161

36

800

Volume (LHS)

Deal Count (RHS)

500

1,000
400
800
300

600

200

400

100

200
0
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15

T o t a l D e a l V a lue

R a nk

D e a l C o unt

Credit Suisse

72,704

30

So merley

70,586

10

17

Source: Bloomberg and SG Cross Asset Research/Equity

Q1 15 global equity underwriting volume, $bn (follow-on


offerings likely were strong but IPOs down)
U.S.

350

Global equity underwriter ranking (Q1 15)


E quit ie s
Unde rwrit e r

Rest of the world

300
250

A m o unt

R a nk

Is s ue s

Go ldman Sachs

20,858

76

UB S

16,603

61

M o rgan Stanley

16,080

94

JP M o rgan

15,756

98

B ank o f A merica M errill Lynch

14,864

81

Deutsche B ank

11,303

55

Citi

10,465

69

Credit Suisse

10,203

58

200

150
100
50

1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15

B arclays

9,324

49

RB C Capital M arkets

4,340

10

44

Source: Bloomberg and SG Cross Asset Research/Equity

Corporate and international bonds underwriting volume ($bn)

Bond underwriter ranking (Q1 15), $m

3,000
Global Corporate bonds

International Bonds

C o rpo ra t e bo nds Unde


A m orwrit
unt e r

Int e rna t io na l bo nds Unde A


rwrit
m oeunt
r

2,500

2,000
1,500
1,000
500

1Q15

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

JP M o rgan

83,023

B arclays

84,000

B ank o f A merica M errill Lynch

66,216

JP M o rgan

83,996

Citi

65,504

Citi

74,957

Deutsche B ank

59,601

Deutsche B ank

72,563

M o rgan Stanley

57,458

HSB C

B arclays

57,185

Go ldman Sachs

54,685

Go ldman Sachs

51,271

B ank o f A merica M errill Lynch

53,679

HSB C

49,157

M o rgan Stanley

49,826

Credit Suisse

45,326

Credit Suisse

45,741

Wells Fargo

32,908

B NP P aribas

43,988

Source: Bloomberg and SG Cross Asset Research/Equity

9 April 2015

15

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71,118

Global Investment Banks

US banks: net interest revenues should be weak


US loan growth: Home mortgages (overall) show some revival

Europe loan growth: ECB survey shows recovery

14%

60

12%

40

10%

20

8%

0
%

6%

-20

4%
-40

2%

-60

0%

Total loans

C&I

Home mortgages

Demand

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Credit cards

-4%

Jan-08

CRE

-80
Jan-07

Q1 15 (JanFeb)

Jan-06

Q4 14

Jan-05

Q3 14

Jan-04

-2%

Q2 14

Jan-03

Q1 14

Supply

Source: Federal Reserve, ECB, and SG Cross Asset Research/Equity

US Banks: Loan growth (reported)


Q2 14

US Banks: Non-core loans proportion of total

Q3 14

Q4 14

21.7%

5.3%
4.0%

18.3%

4.0%
3.7%

3.0%

13.9%

2.6%
2.0%

JPM

11.3%

BAC

Citi
-0.6%

7.0%

5.4%
4.0%

Wells

9.8%

-1.0%
-3.1%

JPM

BAC

Citi

WFC

-4.6%-5.0%

Q4 13

Q4 14

Source: SG Cross Asset Research/Equity

Although loan growth appears decent (see above), the low interest rate environment is likely to
have kept NII subdued. Also, Q1 is seasonally weak given two less days for interest accrual
during the quarter. In the case of BAC, we further expect greater headwind from the
amortisation of bond premium. The ten-year treasury yield ended 23bp lower compared with
the end of Q4, although the decline was slower than it was in Q4 14 when the yield was 35bp
lower.
The outlook for spread revenues should pick up as loan growth remains healthy, although only
gradually as growth is largely been confined to some of the lower yielding categories, i.e. C&I
and CRE. While auto loans have been very positive, consumer loan growth in general has
remained challenging, particularly credit cards. The trend in credit card balances would be a
key indicator to note in Q1.
Also, with treasury yields heading lower during the quarter, opportunity for re-investments
within the securities portfolio was limited.

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Global Investment Banks

US 10-year Treasury yield has fallen further


%
3.2

Fed funds rate (SG economist forecast)...we see limited upside


to FY15 NIM
Fed f unds rate

Average rate
1Q15: 1.97%
4Q14: 2.28%
3Q14: 2.50%
2Q14: 2.62%
1Q14: 2.77%

3.0
2.8

%
6.0

Libor 3m (USD)
SG Eco team av g. est. (Fed rate)

5.0

2.6

4.0

2.4

3.0

2.2
2.0

2.0
1.0

1.8

2017e

2016e

2014

2015e

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2001

Jan-15

Feb-15
Mar-15

Nov -14
Dec-14

Sep-14
Oct-14

Aug-14

Jun-14
Jul-14

Apr-14
May -14

Jan-14

Feb-14
Mar-14

Nov -13
Dec-13

Sep-13
Oct-13

Aug-13

Jun-13
Jul-13

2002

0.0

1.6

Source: SG Cross Asset Research/Equity

Mortgage banking revenues Purchase index picked up in January but has given up some of
the gains. Outlook is positive as we move into a seasonally strong quarter.

Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15

-15
Mar-15

Jan-15

Nov-14

Jul-14

Mar-15

Jan-15

Nov-14

Sep-14

Jul-14

May-14

Jan-14

Mar-14

Nov-13

Jul-13

Sep-13

Mar-13

0
May-13

,0

-10
Sep-14

50

1,000

-5

May-14

100

2,000

Jan-14

150

3,000

10

Mar-14

4,000

15

Nov-13

200

Jul-13

5,000

Mortgage applications weekly change


(%)
20

4.8
4.6
4.4
4.2
4.0
3.8
3.6
3.4
3.2
3.0
Sep-13

250

Mar-13

Refinancing Index SA
Purchase Index SA (rhs)

6,000

Mortgage 30-year fixed rate % (national


average)

May-13

The refinancing and purchase indexes


remain weak

Source: SG Cross Asset Research/Equity

9 April 2015

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Global Investment Banks

Asset management: Strong flows in the US;


markets up sharply in Europe
Asset management Inflows have picked up in the US, and were strong in Europe in Q1 15.
Also, equity markets spiked in Europe in Q1 15, which should have helped CS and UBS in
particular.
Mutual fund flows picked up in the US: Outflows were reversed in domestic US equity funds
after three consecutive quarters of outflows. Also, inflows to non-US products were strong,
registering $22bn (as of 18 March). While inflows into fixed income funds were strong,
doubling to $32bn in Q2 14, they turned anaemic in Q2 and Q3 with $3-$4bn outflows.
However, in Q1 15, the inflows picked up to $33bn. As a result, total long-term inflows of
$71bn were the strongest since Q1 14 (as of 18 March). While flows were solid in the US, the
market performance was lacklustre.
US: Asset management (industry growth), long-term mutual
fund flows picked-up
Domestic/US equity

Non-US equity

Total Bond

Total Hy brid

Europe: Flows were strong to start the quarter


70

90

60

75

50

60

40

45

30

30

20

15

10

-15

-10

-30

Jan
'14

-45
-60
1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

Feb Mar Apr May Jun


'14 '14 '14 '14 '14
Equity

1Q15

Jul
'14

Bond

Aug
'14

Sep
'14

Oct Nov Dec


'14 '14 '14

Balanced

Source: ICI, EFAMA and SG Cross Asset Research/Equity

Asset and wealth management revenues as a proportion of total (FY14)


70%

61%
60%
53%
50%
40%
40%

30%
20%
20%

16%

15%

15%
11%

10%

0%
UBS

MS

CS

BAC

GS

Wells

DB

Source: SG Cross Asset Research/Equity

9 April 2015

18

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JPM

Jan
'15

Global Investment Banks

Global IBs: Structural issues still at play


Leverage ratios: Key differentiator among UBS, CSG and DBK
The CET1 leverage ratio is a significant (but not the only) differentiator between CSG and UBS.
With a much lower starting position at CSG, together with higher litigation risk, we see CSG
having an equity deficit against a likely minimum CET1 leverage ratio of 3.5% of c.CHF7bn.
This projection incorporates a significant 50% reduction in CSGs cash DPS to CHF0.35 for
2015e, equivalent to a yield of only 2%.
For UBS, on the other hand, we see its CET1 leverage ratio already in excess of a 3.5%
minimum requirement at end-2015, enabling it to pay out 75% of its earnings for 2015e. For
2016 and beyond, continued deleveraging and the absence of large litigation fines should
allow it to pay out 100% of its earnings and achieve yields in excess of 12% for 2016e
onwards.
DBKs leverage ratio (FL) is only 3.5% with additional headwinds related to: 1) a prudential
valuation hit to capital of 1.5-2.0bn; 2) likely leverage exposure inflation from further US dollar
appreciation; and 3) significant litigation charges we forecast an equity deficit of 5bn.
UBS: Leverage ratio glide path
6.0%
5.0%

Credit Suisse: Leverage ratio glide path


6.0%

Likely new minimum


CET1 leverage ratio

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0%

0.0%

0.0%
FY2014e

4.5%

Likely new minimum


CET1 leverage ratio

4.0%

5.0%

4.0%

FY2013

Deutsche: Leverage ratio glide path

FY2015e

FY2016e

FY2017e

FY2018e

3.5%
3.0%
2.5%
2.0%
1.5%
1.0%

0.5%
0.0%
FY2013

FY2014e

FY2015e

FY2016e

FY2017e

FY2018e

FY2012

FY2013

FY2014e

FY2015e

FY2016e

CET1 capital (FL)

T1 low trigger hy brids

CET1 capital (FL)

T1 low trigger hy brids

CET1 capital (FL)

Low trigger hy brids

T1 high trigger hy brids

Min. CET1 lev erage ratio

T1 high trigger hy brids

Min. B3 lev erage ratio

High trigger hy brids

Min. B3 lev erage ratio

Source: SG Cross Asset Research/Equity

UBS: Expected DPS and payout ratio

Credit Suisse: Expected DPS and payout ratio

0.60

2.00

50.0%

0.50

1.50

40.0%

0.40

30.0%

0.30

20.0%

0.20

10.0%

0.10

0.0%

0.00

1.00
0.50

DPS (R/H)

FY 2018e

FY 2017e

FY 2016e

FY 2015e

FY 2014e

FY 2013

0.00

Pay -out ratio (L/H)

DPS (R/H)

Pay -out ratio (L/H)

Source: SG Cross Asset Research/Equity

9 April 2015

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FY 2018e

60.0%

FY 2017e

0.70

2.50

FY 2016e

0.80

70.0%

FY 2015e

80.0%

FY 2014e

DPF (CHF)
3.00

FY 2013

110%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Global Investment Banks

US Banks: 2015 CCAR cloud clears but increased G-SIB


surcharges ahead
CCAR was positive for Citi and MS. For GS, we believe management has scaled back its
buyback programme significantly. GSs buybacks were $5.5bn in FY14, which we now think
could be below $1bn for 2015.
CCAR results for individual banks
Dividend/share
Quarterly

Buybacks $mil

Comments

BAC
13 CCAR
14 CCAR
15 CCAR

0.01
0.05
0.05

5,000 Approved
Initially approved; buyback disallowed subsequently.
4,000 Conditional approval. Scaled back initial ask.

JPM
13 CCAR
14 CCAR
15 CCAR

0.38
0.40
0.44

6,000 Conditional approval


6,500 Approved
6,400 Approved. Scaled back initial ask.

Citi
13 CCAR
14 CCAR
15 CCAR

0.01
0.05
0.05

1,200 Approved
6,400 Denied
7,800 Approved

WFC
13 CCAR
14 CCAR
15 CCAR

0.3
0.35
0.375

Inc. vs FY12 of $3.9bn Approved


Inc. vs FY13 Approved
continue strong repurch. activity Approved

GS
13 CCAR

Potential increase (was $0.55/quarter)

14 CCAR

details not disclosed

15 CCAR

0.65 (0.60 in prior year)

MS
13 CCAR
14 CCAR
15 CCAR

Approved, incl. acq. of balance 35% in JV


0.10 (from $0.05)
0.15

Amt. not disclosed Conditional approval


Amt. not disclosed Approved. Scaled back initial ask.
Amt. not disclosed Approved. Scaled back initial ask (we believe substantially).

Approved
1,000 Approved
3,100 Approved. Scaled back initial ask.

Santander Holdings USA Inc.


14 CCAR
15 CCAR

Objection based on qualitative concerns


Objection based on qualitative concerns

HSBC North America Holdings Inc.


14 CCAR
15 CCAR

Objection based on qualitative concerns


Approved

Deutsche Bank Trust Corpn.


15 CCAR

Objection based on qualitative concerns

Source: SG Cross Asset Research/Equity

9 April 2015

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Global Investment Banks

G-SIB surcharge inflation ahead (SGe of new and old surcharges below)
1.
2.
3.
4.
5.

Category
Size
Interconnectedness
STWF
Complexity
Cross-jurisdictional activity

Total Score
US score multiplier
US G-SIB score
G-SIB buffer SGe
G-SIB buffer (current)

Surcharge bands
Score range
230 329
330 429
430 529
530 629
630 729
730 829
830 929
930 1029
1030 1129

WFC
43
38
25
53
10

JPM
78.21
86.91
69.00
173.13
66.82

Citi
63.42
84.72
69.30
101.20
77.11

BAC
59.06
53.89
71.23
97.10
30.48

GS
33.25
41.60
109.56
93.31
32.40

MS
28.10
55.20
146.26
98.22
40.96

168
2x
336

474
2x
948

396
2x
791

312
2x
624

310
2x
620

369
2x
737

2.00%

4.5%-5%

4.0%

3.00%

3.0%

3.5%

1.0%

2.5%

2.0%

1.5%

1.5%

1.5%

Surcharge
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%

Source: Basel Committee on Banking Supervision, US Federal Reserve and SG Cross Asset Research/Equity

9 April 2015

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Global Investment Banks

Litigation monitor
Litigation monitor: Banks exposure to litigation risks
RED - Penalties/settlements which could yet be paid in future.
Civil settlements are not included.

BANK

LIBOR
(US & UK)

EURIBOR
(and similar)

CASA

Yet to settle

Yet to settle

BNPP

Yet to settle

725m fine by
EU for
EURIBOR and
yen LIBOR
manipulation

DBK

Banks not in the table are deemed to have LOW litigation risk.

REGULATORY PENALTIES ALREADY INCURRED and COULD YET BE PAID IN FUTURE


PPI misInterest rate
US trade
US tax
FHFA
US MBS/CDO mis- Dark pools
Other
2
selling
hedging
sanctions
evasion
selling
products
Small player in FX market
650m likely
settlement?
(Bloomberg)
c.9th largest player in FX
$8.9bn with one
market
year ban on $
clearing
Top 2 player in FX market.
Likely
$1.9bn
Likely exposure. 3rd 4th largest Gold and silver
Risk could be low given
exposure.
settlement in largest player in US
US dark
trading (main
benign reaction from FCA
Dec 2013
MBS & CDO markets
pool
player). DoJ suit
and US regulators. No
in 2006/7
for tax evasion.
fines incurred yet
Possible fee
rebate for
German loans
FX trading

CS

Yet to settle,
Yet to settle,
Small player in FX market
mgmt claims no mgmt claims no
material
material
exposure
exposure

UBS

$1.5bn (o/w
$500m for DoJ,
$700m for
CFTC, $259m
for UK, $64m
for FINMA)

2.5bn fine
avoided due to
whistleblower
status

Top 4 player in FX market.


CHF1.8bn litigation
provision in 3Q14, mainly
for FX? $290m for CFTC,
$371m for UK, $139m for
FINMA (total $800m thus
far). DoJ outstanding. Not
under remit of DFS

BARC

$451m, o/w
690m fine
$160m for DoJ, avoided due to
$200m for
whistleblower
CFTC, $91m for
status
UK

Top 4 player in FX market.


0.5bn 3Q14 FX provision,
followed by 0.75bn in
4Q14. No settlement yet.

Litigation
risk profile

Medium

Medium

High

$536m

$2.6bn

$0.9bn
settlement
Mar 2014

$10bn lawsuit from Crossfinder


NY Attorney General. is largest
4th largest US MBS
US dark
player in 2006/7 (14th
pool
in CDOs)

High

$780m.
Potential
use of
bearer
bonds
could result
in further
fines.

$0.9bn
settlement
July 2013

Likely exposure. 8th 2nd largest


largest CDO and 12th US dark
largest MBS player in
pool
2007

French tax
evasion issue.
1.1bn bond
posted. Will
likely take many
years to resolve

High

$0.3bn in Aug
2010

$0.28bn

Gold trading
(main player)

High

$375m

Recent
revelations
of very poor
compliance
in Swiss
private
bank; tax
authorities
were
-

$550m

Likely exposure. 4th


Sued by
largest US CDO
NY
player in 2006/7. 17th attorneyin US MBS
general. LX
is third
largest
Possible exposure
-

Gold & silver


trading. Up to
$600m for
savings rates in
Brazil.
$1.9bn for money
laundering

Medium

Low

$350m

Low

High

Taken total 1.34bn provision


5.22bn
taken, of which
provision, of 211m remains
which
1059m
remains
c.5th largest player in FX Taken total 682m provisions
market. $378m 3Q14 FX
2,578m
taken, of which
provision. $275m for
provisions, of 200m remains
CFTC, $336m for UK (total which 624m
$611m thus far); HSBC
remains
carries $550m relating to
future settlements

HSBC

Yet to settle

Yet to settle

STAN

Small player in FX market

LLOY

$370m

RBS

$612m (o/w
$150m for DoJ,
$325m for
CFTC, $137m
for UK)

391m

BAC

Yet to settle

Yet to settle

c.7th largest player in FX


market. Took $400m FX
charge in 3Q14. $250m
fine from OCC thus far.
DoJ and DFS outstanding

$6.3bn total
settlement
March 2014

$16.65bn

5th largest
US dark
pool

High

CITI

Yet to settle

70m

Top 4 player in FX market.


$600m 3Q14 FX provision.
$310m for CFTC, $350m
for OCC, $358m for UK
(Total: $1.018bn thus far).
DoJ and DFS outstanding

$0.3bn
settlement
May 2013

$7bn

Small US
dark pool

High

JPM

Yet to settle

$200m

c.6th largest player in FX


market. c.$500m 3Q14 FX
provision. $310m for
CFTC, $350m for OCC,
$353m for UK (total
$1.013bn thus far). DoJ
and DFS outstanding

$4bn
settlement
Oct 2013

$9bn

10th
largest US
dark pool

Hiring of
'Princelings'
under
investigation.

High

GS

Yet to settle

Yet to settle

$1.2bn

Potential exposure

Medium

Yet to settle

$1.25bn

$2.6bn

6th largest
US dark
8th largest
US dark

Yet to settle

c.10th largest player in FX


market
Small player in FX market

MS

Medium

Taken total 680m provisions


12,025m
taken, of which
provisions of 109m remains
which
c.8th largest player in FX Taken total 1.4bn provisions
market. 400m 3Q14 FX
3,750m
taken, of which
provision to pay for CFTC provisions, of 424m remains
($290m) and UK ($344m) which 799m
settlements; a further
remains
320m provided in Q4

$667m and
$320m top-up
for insufficient
implementation
of compliance
recommendatio
ns

Yet to settle; Speculation of c.3bn


2bn held as
fine, mainly for DoJ
provision
(Times) with no
against
provisions made.
regulatory
Already paid $150m
investigations to SEC in Nov 2013.
and litigation
Top 5 player in US
(ex FX/LIBOR)
MBS market

Source: SG Cross Asset Research/Equity. 1. Ranking data from Euromoney FX Surveys 2. Ranking data from https://ats.finra.org/TradingParticipants

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Global Investment Banks

Stock performance in Q1 15 European IBs prevail


Performance of stock indices in Q1 15
Indices

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

S&P 500

1.3%

4.7%

0.6%

4.4%

0.4%

Nasdaq

0.5%

5.0%

1.9%

5.4%

3.5%

Euro Stoxx 50

1.7%

2.1%

-0.1%

-2.5%

17.5%

FTSE 100

-2.2%

2.2%

-1.8%

-0.9%

3.2%

Bovespa

-2.1%

5.5%

1.8%

-7.6%

2.3%

Nikkei

-9.0%

2.3%

6.7%

7.9%

10.1%

Hang Seng

-5.0%

4.7%

-1.1%

2.9%

5.5%

1.2%

-16.6%

41.0%

17.7%

-20.4%

2.73%

2.53%

2.52%

2.17%

1.94%

VIX
US Treasury 10-year

Source: Bloomberg and SG Cross Asset Research/Equity

US equities/bank stocks impacted by interest rate and growth


outlook; also by the strong dollar
30%

EU IBs: Stellar performance on optimism driven by ECBs QE


measures and improving macroeconomic growth outlook
40%

2014

25%

1Q15

2014

1Q15

30%

20%
20%

15%
10%

10%

5%
0%

0%
-5%

JPM

GS

MS

BAC

Citi

WFC

KBW Bk
Index

UBS

S&P 500

CSG

DBK

SX7P Index

Euro Stoxx 600

FTSE 100

-10%

-10%
-20%

-15%
-20%

-30%

Source: Bloomberg and SG Cross Asset Research/Equity

US banks valuationStrong relationship to profitability

2.5

MTB
R = 0.8818

Consensus FY15 Price / Tangible book

European banks valuationSomewhat less correlated

BBT

1.8

WFC

1.6

KEY
1.2

MS
RF

1.0
0.8
0.6
8.0%

COF

PNC

1.4
STI

FITB
GS

JPM

BAC
Citi

10.0%

12.0%
Consensus FY15 ROTE

14.0%

Consensus FY15 Price / Tangible book

2.0

Non-eurozone

CEE
R = 0.1358

R = 0.7989

US
R = 0.9019

2.0

WFC

1.5
JPM

BAC

MS

GS

1.0
Citi
0.5

0.0
2.0%

16.0%

Eurozone
R = 0.716

4.0%

6.0%
8.0% 10.0% 12.0%
Consensus FY15 ROTE

14.0%

Source: Datastream and SG Cross Asset Research/Equity

9 April 2015

23

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16.0%

18.0%

Global Investment Banks

Long-term valuation: Six-bank US index trades at wider than


historical discount to the S&P 500 Index

Long-term valuation: Four-bank Euro IBs index trades at a


wider than historical discount to the Stoxx 50

18

18

16

16

14

14
S&P500

Stoxx Euro
50

12
10

Apr-15

Oct-14

Jan-15

Jul-14

Apr-14

Oct-13

Jan-14

Jul-13

Apr-13

Jan-13

Euro IB
index

Apr-12

Apr-15

Oct-14

Jan-15

Jul-14

Apr-14

Oct-13

Jan-14

Jul-12

Jul-13

Apr-13

Jan-13

Oct-12

Apr-12

Jul-12

6-banks
index

10

Oct-12

12

US and Euro indexes are SG calculated. Six banks index include JPM, BAC, C, GS, MS and WFC.
Four banks EU IBs index include UBS, CSG, DBK, BARC Source: Datastream and SG Cross Asset
Research/Equity

Short-term valuation: Six-bank US index vs Euro IBs index

18

12

16

11

Euro IB
index

US and Euro indexes are SG calculated. Six banks index include JPM, BAC, C, GS, MS and WFC.
Four banks EU index include UBS, CSG, DBK, BARC Source: Datastream and SG Cross Asset
Research/Equity

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Apr-15

Feb-15

Dec-14

Oct-14

Aug-14

Apr-14

Jun-14

Apr-13

Apr-15

Dec-14

Aug-14

Apr-14

Dec-13

Apr-13

Aug-13

Dec-12

Aug-12

Apr-12

Dec-11

Apr-11

Aug-11

Dec-10

Apr-10

Aug-10

Euro IB
index

Feb-14

6-banks
index

Oct-13

10

10

Dec-13

6-banks
index

12

Jun-13

14

Aug-13

Long-term valuation: Six-bank US index vs Euro IBs index

Global Investment Banks

Company section
We provide valuation methodology, summary earnings forecasts and risks for each of the
banks discussed in this report.

Bank of America Buy


Valuation ($)
Forward

Multiple

Multiple

Valuation

Probability

estimate

3-year avg.

assigned

per share

assigned

16.23

0.8x

1.20x

19.5

25%

1.42

9.7x

11.0x

15.6

25%

DCF valuation

19.2

25%

Sum-of-parts

20.2

25%

Tang. BV/share
Forward EPS (NTM)

Weighted valuation/TP

Value/share

5
19

Source: SG Cross Asset Research/Equity

Valuation methodology
Our fair value for Bank of America of $19.0 is derived using a probability-weighted
methodology that includes a DCF, trading multiples (tangible book and earnings), and sum-ofthe-parts.

Risks to our target price


FICC trading revenues could remain low for longer. The bank could continue to lose loanmarket share. Investigations related to rogue trading in the LIBOR and currency markets could
result in larger fines than expected. Weakness in CCAR process and RWA inflation could be
significant.

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Global Investment Banks

Summary financials
Bank of America financials ($m)
FY 2014

Q1 15e

Q2 15e

Q3 15e

Q4 15e

FY 2015e

FY 2016e

Income statement
Net interest income

39,952

9,252

9,721

10,117

10,460

39,550

43,099

Non-interest income

44,535

12,045

11,538

11,190

10,944

45,717

48,389

Revenue

85,356

21,518

21,491

21,548

21,654

86,211

92,517

2,275

782

811

850

890

3,333

4,461

75,117

15,295

13,993

13,779

13,715

56,782

58,006

Pre-tax income

7,964

5,441

6,687

6,919

7,049

26,096

30,049

Income tax expense

2,022

1,492

2,156

2,231

2,271

8,150

9,511

Net income

5,942

3,948

4,531

4,688

4,778

17,946

20,538

Net income to common

3,957

3,416

3,987

4,134

4,217

15,754

18,262

FICC trading

9,013

2,850

2,500

2,200

1,900

9,450

9,850

Equities trading

4,148

1,200

1,100

1,000

900

4,200

4,450

Investment banking fees

6,280

1,595

1,505

1,360

1,500

5,960

6,400

Provision for credit losses


Operating expense

Specific business lines

Ratios and payout


Net interest margin

2.2%

2.1%

2.2%

2.2%

2.3%

2.2%

2.3%

88.0%

71.1%

65.1%

63.9%

63.3%

65.9%

62.7%

Dividends

1,263

523

521

518

515

2,077

2,647

Buybacks

1,623

250

800

800

800

2,650

3,600

76%

23%

33%

32%

31%

30%

34%

2.7%

8.9%

10.2%

10.4%

10.4%

10.0%

10.7%

0.37

0.30

0.36

0.37

0.38

1.42

1.67

10,585

11,217

11,161

11,106

11,050

11,134

10,913

Efficiency ratio

Total payout %
Earnings and profitability
RoTE
EPS diluted (ex. settlement cost in Q3)
Average diluted shares
DPS

0.12

0.05

0.05

0.05

0.05

0.20

0.26

14.78

15.14

15.50

15.87

16.26

16.26

17.87

2,104,534

2,148,569

2,166,615

2,183,809

2,204,443

2,204,443

2,308,394

881,391

888,633

895,810

902,639

910,867

910,867

941,346

1,118,936

1,128,483

1,137,962

1,146,992

1,157,830

1,157,830

1,197,531

81%

79%

79%

79%

79%

79%

79%

Gross NPL ratio

1.3%

1.4%

1.4%

1.4%

1.4%

1.4%

1.4%

Gross NPA ratio

1.4%

1.5%

1.5%

1.5%

1.5%

1.5%

1.5%

Coverage Ratio %

114%

108%

106%

104%

101%

101%

94%

Provision exp. % of net loans

0.3%

0.4%

0.4%

0.4%

0.4%

0.4%

0.5%

Tangible BPS
Balances
Total assets
Total gross loans
Total deposits
Loan to deposit
Asset quality and credit costs

Capital ratios
Core Tier 1 ratio

12.3%

12.3%

12.5%

12.6%

12.8%

12.8%

13.4%

Basel 3 Core Tier 1 ratio (fully loaded)

9.6%

9.6%

9.8%

10.0%

10.2%

10.2%

10.8%

Tangible common equity ratio

7.5%

7.5%

7.5%

7.6%

7.7%

7.7%

7.9%

Supplementary leverage ratio

5.9%

6.0%

6.0%

6.0%

6.1%

6.1%

6.2%

Source: Company reports and SG Cross Asset Research/Equity for estimates

9 April 2015

26

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Barclays
Valuation
We value the stock at 320p

Our SOTP valuation remains 320p. We value each division


separately, estimating sustainable return on tangible equity, cost of equity and growth. We
value the corporate centre at zero given that it breaks even on average.
Main risks to TP

Risks include higher conduct charges than expected. Included within our

forecasts for 2015-17 is a further 3.75bn of charges (which we assume are not tax deductible),
although the actual outcome could be materially higher or lower than this number.
Barclays sum-of-the-parts valuation (GBP)
2016e RWAs

CET1 capital

Sust RoTE

CoE

Growth

P/TB

Value

Per share

124,876

14,325

18%

10%

1%

1.9

27,058

164

Barclaycard

50,544

6,360

18%

11%

2%

1.8

11,306

69

Africa Banking

42,521

5,177

12%

12%

3%

1.0

3,210

19

111,095

13,888

8%

12%

0%

0.7

9,258

56

5,975

657

40,257

5,782

0.5

1,800

Personal and Corporate Banking

Investment Bank
Head Office
Barclays Non-Core
Surplus capital
Group total

47,988

Discount to one-year forward

2,891

18

1,800

11

55,523

337
303

Present value of dividends

18

Fair value one-year forward

321

Source: SG Cross Asset Research/Equity

9 April 2015

27

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Summary financials
Barclays Group financials (m)
2013

2014

2015e

2016e

2017e

Net interest income

11,600

12,080

12,736

13,699

14,641

Non-interest income

16,296

13,648

13,627

13,751

13,757

Total income

27,896

25,728

26,362

27,450

28,398

-18,180

-16,442

-15,117

-14,320

-14,025

Operating expenses
Bank levy
Impairments
Other net income

-504

-462

-570

-570

-570

-3,071

-2,168

-2,088

-2,197

-2,615

-24

11

59

59

59

Adjusted profit

5,385

5,502

7,946

10,222

11,046

Restructuring

-1,209

-1,165

-700

-200

-200

Stated profit

4,176

4,337

7,246

10,022

10,846

Underlying profit

5,385

5,502

7,946

10,222

11,046

Restructuring

-1,209

-1,165

-700

-200

-200

PPI

-1,350

-2,520

-650

160

-1,250

-1,250

-1,250

IRHP
Litigation
Other (inc own debt)
Statutory profit

Tax

692

725

700

200

200

2,868

2,702

6,696

8,972

9,796

-1,571

-1,411

-2,745

-3,678

-4,016

Minorities

-757

-769

-927

-1,050

-1,143

Net profit

540

522

3,023

4,243

4,637

14,668

16,625

16,880

16,913

16,946

23.6

23.0

29.8

36.3

39.0

Basic EPS

3.7

3.1

17.9

25.1

27.4

DPS

6.5

6.5

10.0

13.0

16.0

TBVPS

283

285

300

322

346

Core tier 1 solvency ratio

9.13%

10.31%

11.38%

12.76%

13.90%

Core tier 1 leverage ratio

2.93%

3.36%

3.94%

4.61%

5.32%

Tier 1 leverage ratio

3.10%

3.74%

4.35%

5.05%

5.79%

Loans

434,237

427,767

428,712

430,950

431,794

Deposits

431,998

427,704

433,254

438,456

443,820

1,343,628

1,357,906

1,243,309

1,160,547

1,093,878

Diluted average shares


Underlying EPS

Assets
RWAs
Leverage exposure
Core tier 1 capital
Additional tier 1 capital
Tangible equity

Cost income ratio

442,471

401,900

387,377

373,741

370,662

1,376,628

1,233,000

1,118,403

1,035,641

968,972

40,387

41,453

44,067

47,697

51,508

2,300

4,600

4,600

4,600

4,600

45,637

47,065

49,588

53,329

57,462

67%

66%

60%

54%

51%

Impairments as % loans

0.68%

0.50%

0.49%

0.51%

0.61%

Return on tangible equity

7.9%

8.3%

10.5%

12.0%

12.0%

Source: Company reports and SG Cross Asset Research/Equity

9 April 2015

28

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Citigroup Hold
Probability-weighted valuation methodology used to arrive at our target price ($)
Forward

Multiple

Multiple

Valuation

Probability

estimate

3-year avg.

assigned

per share

assigned

61.95

0.71x

0.90x

55.8

25%

14

5.18

8.4x

9.5x

49.2

25%

12

DCF valuation

54.3

25%

14

Sum-of-the-parts

61.5

25%

15

Tang. BV/share
Forward EPS (NTM)

Weighted valuation/TP

Value/share

55

SG Cross Asset Research/Equity

Valuation methodology
Our fair value for Citigroup of $55 is derived using a probability-weighted methodology that
includes a DCF, trading multiples (tangible book and earnings), and sum-of-the-parts.

Risks to our target price


Downside risks: A sharp rise in EM currency volatility, accompanied by a slowdown in
emerging market economic growth. Also, litigation risks (LIBOR, FX markets, etc) remain
elevated. A slowdown in the US economic recovery would limit DTA utilisation and capital
release. Upside risks: A rapid pick-up in consumer spending and its impact on the card
business; rapid EM economic recovery.

9 April 2015

29

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Summary financials
Citigroup financials ($m)
FY 2014

Q1 15e

Q2 15e

Q3 15e

Q4 15e

FY 2015e

FY 2016e

Net interest income

47,993

11,870

12,170

12,583

12,793

49,416

52,186

Non-interest income

28,889

7,965

7,284

7,164

6,509

28,922

30,259

Revenue

76,882

19,835

19,453

19,747

19,302

78,338

82,445

7,473

2,220

2,215

2,271

2,334

9,041

10,158

Operating expense

55,051

11,435

11,404

11,704

11,536

46,080

46,645

Pre-tax income

14,358

6,180

5,834

5,772

5,432

23,217

25,642

Income tax expense

6,864

1,819

1,723

1,711

1,618

6,871

8,746

Net income

7,337

4,316

4,066

4,015

3,769

16,166

16,715

Net income to common

7,470

4,316

4,066

4,015

3,769

16,166

16,715

Income statement

Provision for credit losses

Specific business lines


FICC trading

11,815

3,600

2,936

3,041

2,584

12,161

12,769

Equities trading

2,776

812

758

687

509

2,766

3,014

Investment Banking fees

4,703

1,035

1,080

985

985

4,085

4,380

Ratios and payout


Net interest margin
Efficiency ratio

2.9%

2.8%

2.9%

3.0%

3.0%

2.9%

3.0%

71.6%

57.7%

58.6%

59.3%

59.8%

58.8%

56.6%

Dividends

121

30

150

149

148

477

868

Buybacks

1,200

300

1,560

1,560

1,560

4,980

6,720

18%

8%

42%

43%

45%

34%

45%

4.4%

9.9%

9.2%

8.9%

8.3%

9.1%

8.9%

2.29

1.38

1.29

1.30

1.21

5.18

5.52

3,037

3,027

3,005

2,983

2,962

2,995

2,909

Total payout %
Earnings and profitability
RoTE
EPS diluted
Average diluted shares
DPS
Tangible BPS

0.04

0.01

0.05

0.05

0.05

0.16

0.30

56.85

58.29

59.54

60.78

61.95

61.95

67.14

Balances
Total assets

1,842,530

1,855,129

1,870,953

1,876,352

1,871,062

1,871,062

1,923,307

Total gross loans

644,635

640,019

654,834

666,105

664,227

664,227

702,007

Total deposits

899,332

888,916

897,032

912,473

909,900

909,900

955,112

72%

72%

73%

73%

73%

73%

74%

Gross NPL ratio

1.1%

1.2%

1.1%

1.1%

1.0%

1.0%

0.8%

Gross NPA ratio

0.4%

0.4%

0.4%

0.4%

0.4%

0.4%

0.3%

Coverage Ratio %

208%

204%

206%

209%

213%

195%

238%

Provision exp. % of net loans

1.2%

1.2%

1.2%

1.2%

1.3%

1.3%

1.4%

Core Tier 1 ratio

14.0%

14.4%

14.5%

14.8%

15.1%

15.1%

15.8%

Basel 3 Core Tier 1 ratio (fully loaded)

10.5%

10.8%

10.9%

11.1%

11.4%

11.4%

12.0%

Tangible common equity ratio

9.4%

9.7%

9.7%

9.8%

9.9%

9.9%

10.1%

Supplementary leverage ratio

6.0%

6.2%

6.3%

6.4%

6.5%

6.5%

6.8%

Loan to deposit
Asset quality and credit costs

Capital ratios

Source: Company reports and SG Cross Asset Research/Equity for estimates

9 April 2015

30

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Credit Suisse Sell


Valuation (CHF)
CREDIT SUISSE Sum-of-the-parts fair value

Wealth Management Clients

Net
income
FY2016e

Basel 3
RWA
FY2016e

COE (%) Allocated


TNAV
end-2016

RoTNAV Assumed Fair Value Fair Value % of total


(%) LT growth FY2016e (disc'd at
FV
FY2016e rate g (%)
12.5%)
FY2015e

Fair
P/TNAV
FY2016e

Fair P/E Fair Value


FY2016e per share
FY2015e

1,325

52,996

11.0%

5,830

22.7%

2.0%

13,430

11,948

47%

2.30

10.1

7.4

Corporate & Institutional Clients

686

28,572

11.0%

3,143

21.8%

2.0%

6,920

6,157

24%

2.20

10.1

3.8

Asset Management

394

10,599

11.0%

1,166

33.8%

2.0%

4,124

3,669

15%

3.54

10.5

2.3

2,405

92,166

11.0%

10,138

23.7%

2.0%

24,474

21,774

86%

2.41

10.2

13.5

2,222 127,951

Private Banking & Wealth Management Strategic


Investment Banking - Strategic
Corporate Center - Strategic
TOTAL - Strategic businesses
Private Banking & Wealth Management Non-Strategic
Investment Banking - Non-Strategic
Corporate Center - Non-Strategic
TOTAL - Non-Strategic businesses

Total of subsidiary operations

14.0%

17,913

12.4%

0.0%

15,871

14,120

56%

0.89

7.1

8.8

16,172

13.0%

2,102

-14.0%

0.0%

-2,264

-2,014

-8%

-1.08

7.7

-1.3

4,333 236,289

12.8%

30,154

-294

14.4%

1.1%

38,082

33,880

134%

1.26

8.8

21.0

-4

3,884

-13

-12

0%

3.0

0.0

-188

2,716

-563

-501

-2%

3.0

-0.3

-35

-105

-93

0%

3.0

-0.1

-227

6,599

-681

-606

-2%

3.0

-0.4

37,401

33,275

132%

1.24

9.1

20.7

1.00

4,106 242,888

Excess capital at end-2015e


TOTAL GROUP

12.4%

30,154

13.6%

-8,975
4,106 242,888

1.2%

-8,975

-7,985

-32%

28,426

25,290

100%

-5.0
15.7

Source: SG Cross Asset Research/Equity

Valuation methodology
We use a sum-of-the-parts fair value (SPFV) approach to determine Credit Suisses target
price of CHF15.5. For each division, we apply a (ROE-g) / (COE-g) valuation methodology.
Capital is allocated on the basis of a realistic COE applied to B3 RWA for the division. Longterm growth rates are consistent with our expectations of how various revenue lines should
perform in a rising interest-rate environment. Please note that dividends are excluded from our
SPFV calculation (and therefore the 12-month target price). The dividends that we expect over
the next 12 months are included in the calculation of the 12-month total shareholder return.

Risks to our target price


New Swiss leverage ratio requirements may be less onerous than we expect.
Litigation for RMBS mis-selling may be much lower than we have forecast.

9 April 2015

31

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Summary financials
GROUP FINANCIAL DATA (CHFm)

Net revenues (reported)


Operating costs (reported)
Pre-tax profit (reported)

Q1 15e

FY2013

FY2014e

FY2015e

FY2016e

5,967

25,217

25,815

23,072

23,876

-4,529

-21,546

-22,120

-20,871

-17,728

1,411

3,504

3,509

2,095

6,047

-411

-1,276

-1,452

-1,186

-1,626

970

2,326

2,105

881

4,288

EPS stated (diluted)

0.59

1.31

1.27

0.40

2.49

EPS adjusted

0.67

2.89

2.58

2.51

2.49

DPS

0.00

0.70

0.70

0.35

0.50

TNAVPS

21.20

21.34

22.07

20.87

23.03

BVPS

26.76

26.50

27.63

26.44

28.62

Taxes
Net profit (reported)
Per share data (CHF)

Important financial ratios


ROE

8.9%

6.0%

4.9%

2.0%

9.7%

11.2%

7.6%

6.1%

2.6%

12.2%

Cost/income (reported)

-76%

-84%

-84%

-91%

-74%

Tax rate

-29%

-31%

-37%

-58%

-27%

0%

48%

53%

64%

19%

10.2%

10.0%

10.2%

11.0%

12.5%

3.9%

3.7%

3.9%

4.7%

5.2%

ROTNAV (reported)

Payout ratio
B3 CET1 ratio (fully-loaded)
B3 leverage ratio (fully-loaded)
Wealth management (CHFm)
Net revenues (reported)
Operating costs (reported)
Pre-tax profit (reported)

1,933

8,444

8,286

7,797

8,184

-1,469

-6,316

-5,966

-5,926

-6,179

451

2,050

2,260

1,820

1,952

Corporate & Institutional Clients (CHFm)


Net revenues (reported)
Operating costs (reported)
Pre-tax profit (reported)

494

1,996

1,973

2,006

2,088

-244

-1,027

-1,004

-1,011

-1,042

242

965

917

960

1,010

Asset management (CHFm)


Net revenues (reported)

425

1,994

1,849

1,789

2,021

-300

-1,382

-1,300

-1,284

-1,440

125

612

549

505

581

Debt underwriting

421

1,902

1,777

1,599

1,567

Equity underwriting

179

765

870

752

752

Total underwriting

601

2,667

2,647

2,352

2,320

Advisory and other fees

171

658

749

712

747

Total underwriting and advisory

772

3,325

3,396

3,063

3,067

Fixed income trading

1,396

5,232

5,457

4,802

4,802

Equity trading

1,085

4,847

4,625

4,163

4,246

Total trading

2,481

10,079

10,082

8,965

9,048

-95

-308

-391

-380

-380

3,158

13,096

13,087

11,648

11,735

-2,183

-9,195

-9,305

-8,399

-8,462

975

3,894

3,744

3,249

3,272

Underlying Cost / income ratio

69.1%

70.2%

70.5%

72.1%

72.1%

Pre-tax margin (% of revenues)

30.9%

29.7%

28.6%

27.9%

27.9%

Operating costs (reported)


Pre-tax profit (reported)
Investment banking (CHFm)

Other operating income (expenses)


Net revenues (reported)
Operating costs (reported)
Pre-tax profit (reported)

Corporate center (CHFm)


Net revenues, (reported)

-37

-790

663

-136

-112

Operating costs (reported)

-193

-663

-1,347

-772

-368

Pre-tax profit (reported)

-231

-1,455

-686

-912

-485

Source: Company reports and SG Cross Asset Research/Equity

9 April 2015

32

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Deutsche Bank Sell


Valuation ()
DEUTSCHE BANK - Sum-of-the-parts fair
value

Corporate Banking and Securities

Net
income
(adj)
FY2016e

Basel 3
RWAs
FY2016e

ROTNAV Assumed Fair Value Fair Value % of total


(%) long-term end-2016 (disc'd at
FV
FY2016e
growth
11.7%)
rate g (%)
FY2015e

Fair
Fair P/E Fair Value
P/TNAV end-2016 per share
multiple
end-2015

14.0%

26,615

10.8%

0.0%

20,474

18,346

53%

0.77

7.1

12.5

Global Transaction Banking

935

50,692

12.0%

6,083

15.4%

0.0%

7,792

6,982

20%

1.28

8.3

4.8

Asset and Wealth Management

992

16,931

11.0%

1,862

53.3%

0.0%

9,018

8,081

23%

4.84

9.1

5.5

1,284

93,230

10.0%

9,323

13.8%

0.0%

12,845

11,510

33%

1.38

10.0

7.8

-608

20,437

12.0%

2,452

-24.8%

0.0%

-5,070

-4,543

-13%

-2.07

8.3

(3.1)

-661

27,514

-1,983

-1,777

-5%

11.6%

46,336

10.4%

0.0%

43,075

38,598

112%

Private & Business Clients


Consolidation & Adjustments
Non-Core
Total of subsidiary operations

2,866 190,107

COE Allocated
TNAV
end-2016

4,808 398,912

Capital surplus (deficit)

-5,000

Total Group

4,808 398,912

51,336

9.4%

0.93

3.0

(1.2)

9.0

26.3

-5,000

-4,480

-13%

(3.0)

38,075

34,118

100%

23.2

Source: SG Cross Asset Research/Equity

Valuation methodology
We use a sum-of-the-parts fair value (SPFV) approach to determine Deutsche Banks target
price of $23.0. For each division, we apply a (ROE-g) / (COE-g) valuation methodology. Capital
is allocated on the basis of a realistic COE applied to B3 RWA for the division. Long-term
growth rates are consistent with our expectations of how various revenue lines should perform
in a rising interest-rate environment. Please note that dividends are excluded from our SPFV
calculation (and therefore the 12-month target price). The dividends that we expect over the
next 12 months are included in the calculation of a 12-month total shareholder return.

Risks to our target price


Weakness in the credit market may not last as long as we expect, meaning that investors buy
into a stock which can display growth in FICC trading.
Concerns about RWA inflation may prove overblown with time.

9 April 2015

33

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Summary financials
Deutsche Bank financials
(EURm)

Q1 15e

Operating revenues (reported)


Operating costs (reported)
Income before taxes (reported)
Net profit (reported)

FY2013

FY2014e

FY2015e

FY2016e

8,623

31,914

31,948

32,147

32,243

-6,660

-28,392

-27,700

-27,980

-24,570

1,567

1,458

3,118

2,642

6,205

1,061

667

1,665

1,776

4,199

1.11

3.80

3.44

3.22

3.51

0.00

0.75

0.75

0.75

0.80

39.30

40.54

38.72

39.26

41.51

50.15

53.68

49.57

50.10

52.35

6.2%

1.2%

2.7%

2.6%

5.9%

7.9%

1.6%

3.5%

3.3%

7.5%

-77.2%

-89.0%

-86.7%

-87.0%

-76.2%

-32.0%

-53.2%

-45.7%

-32.0%

-32.0%

0.0%

114.6%

62.1%

58.2%

26.3%

392,411

350,143

393,969

391,426

398,912

n/a

9.7%

11.7%

12.0%

12.5%

n/a

2.1%

3.5%

3.7%

3.9%

Per share data (EUR)


EPS adjusted
DPS
TNAVPS
BVPS
Important financial ratios
ROE
ROTNAV
Cost/income (reported basis)
Tax rate
Payout ratio
B3 RWA (fully-loaded)
B3 CET1 ratio, fully-loaded
B3 Leverage ratio, fully-loaded
Corporate banking & securities (EURm)
Origination (equity)
Origination (debt)
Origination
Sales & Trading (equity)
Sales & Trading (debt and other products)
Sales & Trading
Advisory
Loan products
Other products
Total net revenues (reported)
Total noninterest expenses (reported)
Operating profit (reported)
Income before taxes (reported)

157

732

761

746

768

347

1,557

1,526

1,480

1,480

504

2,289

2,287

2,226

2,248

757

2,737

2,927

2,868

2,926

2,311

6,805

6,841

6,499

6,304

3,068

9,542

9,768

9,367

9,230

107

480

580

580

597

258

1,237

1,196

1,199

1,217

-9

-21

-90

-90

-91

3,927

13,527

13,741

13,282

13,202

-2,481

-10,162

-10,348

-9,523

-9,353

1,419

3,175

3,291

3,650

3,755

1,414

3,159

3,265

3,630

3,735

Global transaction banking (EURm)


Total net revenues (reported)
Total noninterest expenses (reported)
Income before taxes (reported)

1,028

4,069

4,147

4,147

4,188

-614

-2,647

-2,791

-3,559

-2,564

331

1,107

1,200

341

1,382

Asset & Wealth management (EUR m)


Total net revenues (reported)
Total noninterest expenses (reported)
Income before taxes (reported)

1,155

4,734

4,709

4,930

5,022

-842

-3,929

-3,685

-3,563

-3,539

309

780

1,027

1,349

1,466

Private & Business clients (EURm)


Total net revenues (reported)
Total noninterest expenses (reported)
Income before taxes (reported)

2,490

9,549

9,641

9,797

10,022

-1,760

-7,275

-7,682

-7,444

-7,310

548

1,555

1,337

1,601

1,898

Non-core operating unit (EURm)


Total net revenues (reported)
Total Non Interest Expenses (reported)
Income before taxes (reported)

172

965

211

591

408

-958

-3,550

-2,804

-3,575

-1,489

-885

-3,402

-2,849

-3,381

-1,377

Source: Company reports and SG Cross Asset Research/Equity

9 April 2015

34

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Goldman Sachs Sell


Valuation ($)
Net
income
FY2016e

Basel 3
RWA
FY2016e

Investment Banking

1,770

81,000

10.0%

8,100

21.9%

3.0%

21,818

19,394

31%

2.69

12.3

46.1

Institutional Client Services

2,853 354,095

12.5%

44,262

6.4%

1.0%

20,962

18,633

30%

0.47

7.3

44.3

Investing & Lending

2,097 155,760

14.0%

21,806

9.6%

0.0%

14,981

13,317

21%

0.69

7.1

31.7

14,540

10.0%

1,454

67.6%

2.5%

12,625

11,222

18%

8.68

12.8

26.7

7,704 605,395

12.5%

75,622

10.2%

1.4%

70,387

62,566

100%

0.93

9.1

148.8

70,387

62,566

100%

0.93

Investment Management
Total of subsidiary operations

983

COE (%) Allocated


TNAV
end-2016

RoTNAV Assumed Fair value Fair value % of total


(%) LT growth FY2016e (disc'd at
FV
FY2016e rate g (%)
12.8%)
FY2015e

Fair
P/TNAV
FY2016e

Fair P/E Fair value


FY2016e per share
FY2015e

Excess capital at end FY2016e


TOTAL GROUP

7,704 605,395

75,622

149

Source: SG Cross Asset Research/Equity

Valuation methodology
We use a sum-of-the-parts fair value (SPFV) approach to determine Goldman Sachs target
price of $149. For each division, we apply a (ROE-g) / (COE-g) valuation methodology. Capital
is allocated on the basis of a realistic COE applied to B3 RWA for the division. Long-term
growth rates are consistent with our expectations of how various revenue lines should perform
in a rising interest-rate environment. Please note that dividends are excluded from our SPFV
calculation (and therefore the 12-month target price). The dividends that we expect over the
next 12 months are included in the calculation of the 12-month total shareholder return.

Risks to our target price


Weakness in the credit market may not last as long as we expect, meaning that investors buy
into a stock which can display growth in FICC trading.
Management may prove more adept than we expect in reducing the bank's leverage exposure
while still achieving revenue growth and therefore organic capital generation.

9 April 2015

35

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Summary financials
Goldman Sachs ($m)
FY2014

Q1 15e

Q2 15e

Q3 15e

Q4 15e

FY2015e

FY2016e

Income statement
Non-interest income

30,403

8,505

7,688

7,225

6,797

30,216

30,278

Revenue

34,528

9,347

8,538

8,120

7,733

33,738

34,480

Operating expense

22,171

6,394

6,083

5,073

4,662

22,213

22,668

Pre-tax income

12,357

2,953

2,455

3,046

3,071

11,526

11,812

Income tax expense

3,880

975

810

1,005

1,013

3,803

3,898

Net income

8,477

1,979

1,645

2,041

2,058

7,722

7,914

Net income to common

8,026

1,938

1,564

1,998

1,981

7,481

7,685

FICC trading

8,391

2,964

2,156

2,105

1,401

8,626

8,898

Equities trading

6,728

1,645

1,662

1,586

1,843

6,736

6,811

Investment banking fees

6,464

1,671

1,758

1,477

1,473

6,378

6,442

Specific business lines

Ratios and payout


Efficiency ratio

64.2%

68.4%

71.2%

62.5%

60.3%

65.8%

65.7%

Dividends

1,051

269

266

286

283

1,104

1,150

Buybacks

1,220

5,441

1,220

600

600

600

1,000

29%

303%

99%

46%

46%

23%

28%

11.8%

10.8%

8.6%

10.9%

10.7%

10.2%

10.0%

16.97

4.22

3.44

4.43

4.43

16.50

17.57

Average diluted shares

473

459

455

451

447

453

437

DPS

2.30

0.60

0.60

0.65

0.65

2.50

2.70

153.79

156.01

159.89

163.00

167.12

167.12

180.48

856,240

862,087

866,398

870,729

875,083

875,083

892,717

83,008

66,362

66,694

67,027

67,362

67,362

68,720

Core Tier 1 ratio

16.5%

12.2%

16.7%

16.9%

16.9%

16.9%

17.3%

Basel 3 Core Tier 1 ratio (fully loaded)

11.1%

11.2%

11.4%

11.5%

11.7%

11.7%

11.3%

Tangible common equity ratio

7.9%

8.1%

8.2%

8.3%

8.3%

8.4%

8.6%

Supplementary leverage ratio

5.0%

5.2%

5.2%

5.3%

5.3%

5.3%

5.5%

Total payout %
Earnings and profitability
RoTE
EPS diluted

Tangible BPS
Balances
Total assets
Total deposits
Capital ratios

Source: Company reports and SG Cross Asset Research/Equity for estimates

9 April 2015

36

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

JP Morgan Buy
Probability-weighted valuation methodology used to arrive at our target price ($)
Forward

Multiple

Multiple

Valuation

Probability

estimate

3-year avg.

assigned

per share

assigned

Tang. BV/share

47.8

1.1x

1.4x

67

25%

17

Forward EPS (NTM)

5.47

8.2x

11.0x

60

25%

15

DCF valuation

73

25%

18

Sum-of-parts

75

25%

19

Weighted valuation/TP

Value/share

69

Source: Bloomberg and SG Cross Asset Research/Equity

Valuation methodology
Our fair value for JPM is derived using a probability-weighted methodology that includes a
DCF, trading multiples (tangible book and earnings) and sum-of-the-parts.

Risks to our target price


If the macroeconomic recovery in the US stumbles, this would have a significant impact. Also,
should trading revenues continue to slow sharply, this would have an adverse impact on
earnings. Litigation/investigation risks related to currency trading, LIBOR, and hiring practices
could keep costs elevated.

9 April 2015

37

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Summary financials
JPMorgan Chase & Co. financials ($m)
FY2014

Q1 15e

Q2 15e

Q3 15e

Q4 15e

FY2015e

FY2016e

Net interest income

44,619

10,974

11,276

11,727

12,117

46,094

50,249

Non-interest income

53,304

14,039

13,543

13,841

13,738

55,161

58,693

Revenue

97,670

25,013

24,819

25,569

25,855

101,255

108,942

Income statement

Provision for credit losses

3,139

1,036

1,074

1,124

1,175

4,409

5,196

Operating expense

61,274

14,876

14,652

14,825

15,329

59,683

62,222

Pre-tax income

33,257

9,101

9,093

9,619

9,351

37,164

41,525

Income tax expense

11,748

3,339

3,350

3,558

3,469

13,716

15,335

Net income

21,509

5,762

5,742

6,061

5,882

23,448

26,190

Net income to common

20,141

5,244

5,227

5,517

5,353

21,341

23,837

Specific business lines


FICC trading

13,848

4,094

3,373

3,505

2,913

13,885

14,574

Equities trading

4,861

1,368

1,198

1,252

1,149

4,967

5,216

Investment Banking fees

6,570

1,519

1,625

1,567

1,721

6,432

6,809

Ratios and payout


Net interest margin

2.2%

2.1%

2.1%

2.2%

2.2%

2.1%

2.2%

62.7%

59.5%

59.0%

58.0%

59.3%

58.9%

57.1%

Dividends

5,924

1,481

1,623

1,617

1,612

6,333

6,712

Buybacks

5,186

1,700

1,280

1,280

1,280

5,540

5,520

55%

61%

56%

53%

54%

56%

51%

12.8%

12.7%

12.4%

12.9%

12.3%

12.6%

13.2%

5.30

1.40

1.40

1.48

1.44

5.72

6.48

3,798

3,752

3,739

3,726

3,713

3,732

3,678

Efficiency ratio

Total payout %
Earnings and Profitability
RoTE
EPS diluted
Average diluted shares
DPS
Tangible BPS

1.58

0.40

0.44

0.44

0.44

1.72

1.85

43.92

45.26

46.08

46.98

47.84

47.84

51.92

2,573,126

2,573,214

2,610,045

2,634,945

2,671,603

2,671,603

2,778,877

757,336

759,454

772,556

782,256

795,440

795,440

842,973

1,363,427

1,331,696

1,331,638

1,325,707

1,325,896

1,325,896

1,407,395

57%

58%

58%

58%

59%

59%

61%

Balances
Total assets
Total gross loans
Total deposits
Loan to deposit
Asset quality and credit costs
Gross NPL ratio

0.9%

0.8%

0.8%

0.8%

0.8%

0.8%

0.8%

Coverage Ratio %

212%

224%

224%

222%

222%

222%

193%

Provision exp. % of net loans

0.4%

0.6%

0.6%

0.6%

0.6%

0.6%

0.6%

Core Tier 1 ratio

10.1%

10.4%

10.4%

10.5%

10.5%

10.5%

10.7%

Basel 3 Core Tier 1 ratio (fully loaded)

10.2%

10.5%

10.5%

10.5%

10.5%

10.5%

10.8%

Tangible common equity ratio

6.6%

6.6%

6.7%

6.7%

6.7%

6.8%

7.0%

Supplementary leverage ratio

5.6%

5.7%

5.7%

5.7%

5.7%

5.7%

5.8%

Capital ratios

Source: Company reports and SG Cross Asset Research/Equity for estimates

9 April 2015

38

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Morgan Stanley Hold


Valuation ($)
Net
income
FY2016e

Basel 3
RWA
FY2016e

COE (%) Allocated


TNAV
end-2016

RoTNAV Assumed Fair value Fair value % of total


(%) LT growth FY2016e (disc'd at
FV
FY2016e rate g (%)
11.8%)
FY2015e

Fair
P/TNAV
FY2016e

Fair P/E Fair value


FY2016e per share
FY2015e

Institutional Securities

3,217 343,084

13.0%

44,601

7.2%

1.0%

23,091

20,507

29%

0.52

7.2

11

Wealth Management

2,759

44,000

10.5%

4,620

59.7%

5.0%

45,966

40,822

58%

9.95

16.7

22

Investment Management

517

17,000

10.5%

1,785

29.0%

3.0%

6,179

5,488

8%

3.46

12.0

Total of subsidiary operations

-49

-488

-433

-1%

74,748

66,383

94%

1.47
1.00

6,493 404,084
Excess capital at end-FY2016e
TOTAL GROUP

12.6%

51,006

12.7%

4,392
6,493 404,084

2.9%

4,392

3,900

6%

79,140

70,284

100%

10.0

11.5

35
2
37

Source: SG Cross Asset Research/Equity

Valuation methodology
We use a sum-of-the-parts fair value (SPFV) approach to determine Morgan Stanleys target
price of $37.0. For each division, we apply a (ROE-g) / (COE-g) valuation methodology. Capital
is allocated on the basis of a realistic COE applied to B3 RWA for the division. Long-term
growth rates are consistent with our expectations of how various revenue lines should perform
in a rising interest-rate environment. Please note that dividends are excluded from our SPFV
calculation (and therefore the 12-month target price). The dividends that we expect over the
next 12 months are included in the calculation of the 12-month total shareholder return.

Risks to our target price


There is upside risk if management does more to reduce RWA and leverage exposure in the
IB, which generates only a mid-single-digit ROE. We may also have under-estimated the
extent of improvement in margins and revenues in the wealth management business.
There is downside risk if MS executes poorly in its stated strategy of deploying deposits in
high yield assets, with improving margins failing to materialise.

9 April 2015

39

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

Summary financials
Morgan Stanley financials ($m)
FY2014

Q1 15e

Q2 15e

Q3 15e

Q4 15e

FY2015e

FY2016e

Non-interest income

32,112

8,397

8,248

8,226

7,981

32,853

34,440

Revenue

34,226

9,008

8,881

8,876

8,647

35,412

37,196

Operating expense

27,881

6,655

6,806

6,662

6,724

26,847

27,669

6,345

2,353

2,075

2,214

1,923

8,565

9,527

33

706

622

664

577

2,570

2,858

Net income

6,337

1,647

1,452

1,550

1,346

5,996

6,669

Net income to common

5,562

1,523

1,288

1,426

1,182

5,420

6,093

FICC trading

3,956

1,737

1,062

967

703

4,468

4,602

Equities trading

6,965

1,671

1,843

1,838

1,738

7,089

7,218

Investment Banking fees

5,203

1,170

1,477

1,334

1,327

5,308

5,569

Income statement

Pre-tax income
Income tax expense

Specific business lines

Ratios and payout


Efficiency ratio

82.5%

73.9%

76.6%

75.1%

77.8%

75.8%

74.4%

Dividends

780

195

291

290

288

1,057

1,320

Buybacks

684

228

620

620

620

2,088

2,640

26%

28%

71%

64%

77%

58%

65%

9.2%

10.4%

8.7%

9.5%

7.8%

9.1%

9.8%

2.82

0.77

0.66

0.73

0.61

2.77

3.17

1,970

1,973

1,962

1,952

1,942

1,957

1,920

Total payout %
Earnings and profitability
RoTE
EPS diluted
Average diluted shares
DPS

0.40

0.10

0.15

0.15

0.15

0.55

0.70

29.63

30.39

30.82

31.31

31.68

31.68

33.63

Total assets

824,692

837,063

849,619

862,363

875,298

875,298

938,197

Total deposits

163,713

166,169

168,661

171,191

173,759

173,759

186,245

Core Tier 1 ratio

14.3%

14.6%

14.9%

15.1%

15.2%

15.2%

15.7%

Basel 3 Core Tier 1 ratio (fully loaded)

12.4%

12.8%

13.1%

13.3%

13.4%

13.4%

13.9%

Tangible common equity ratio

7.1%

7.2%

7.2%

7.1%

7.1%

7.2%

7.1%

Supplementary leverage ratio

5.0%

5.1%

5.1%

5.2%

5.2%

5.2%

5.4%

Tangible BPS
Balances

Capital ratios

Numbers exclude CVA/DVA


Source: Company reports and SG Cross Asset Research/Equity for estimates

9 April 2015

40

This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)

Global Investment Banks

UBS Buy
Valuation (CHF)
UBS Sum-of-the-parts fair value

Adj. Net
income
FY2016e

Basel 3
RWA
FY2016e

PB: Wealth Management

2,969

27,505

10.5%

2,888

102.8%

3.5%

40,977

36,652

43%

14.19

13.8

9.9

PB: Wealth Management Americas

1,165

24,443

10.5%

2,566

45.4%

4.0%

16,349

14,623

17%

6.37

14.0

3.9

PB: Retail & Corporate

1,682

33,051

11.0%

3,636

46.3%

0.0%

15,294

13,680

16%

4.21

9.1

3.7

Private Banking

5,817

84,998

10.7%

9,090

64.0%

2.6%

72,620

64,956

77%

7.99

12.5

17.5
2.0

Global Asset Management

COE (%) Allocated


TNAV
end-2016

RoTNAV Assumed Fair Value Fair Value % of total


(%) LT growth FY2016e (disc'd at
FV
FY2016e rate g (%)
11.8%)
FY2015e

Fair
P/TNAV
FY2016e

Fair P/E Fair Value


FY2016e per share
FY2015e

788

3,800

10.5%

399

197.4%

1.0%

8,248

7,378

9%

20.67

10.5

Investment Bank (Core)

1,904

63,700

12.5%

7,963

23.9%

3.0%

17,524

15,675

19%

2.20

9.2

4.2

Corporate Centre (Core)

-605

30,100

13.0%

3,913

-15.5%

-2.0%

-3,510

-3,140

-4%

-0.90

5.8

-0.8

Corporate Center (Non-Core & Legacy)

-173

3,978

18.0%

716

-24.2%

-10.0%

-364

-325

0%

-0.51

2.1

-0.1

7,730 186,576

11.8%

22,081

35.0%

3.2%

94,519

84,543

100%

4.3

12.2

22.7

1.00

Total of subsidiary operations

Assumed excess capital


TOTAL GROUP

-14
7,730 186,576

22,095

35.0%

-14

-13

0%

94,504

84,530

100%

0.0
22.7

Source: SG Cross Asset Research/Equity

Valuation methodology
We use a sum-of-the-parts fair value (SPFV) approach to determine UBSs target price of
CHF23.0. For each division, we apply a (ROE-g) / (COE-g) valuation methodology. Capital is
allocated on the basis of a realistic COE applied to B3 RWA for the division. Long-term growth
rates are consistent with our expectations of how various revenue lines should perform in a
rising interest-rate environment. Please note that dividends are excluded from our SPFV
calculation (and therefore the 12-month target price). The dividends that we expect over the
next 12 months are included in the calculation of the 12-month total shareholder return.

Risks to our target price


FINMA might be aggressive in increasing leverage ratio requirements more than we expect,
therefore reducing UBS's capital return potential.
The WM transactional margin in Asia might sink even lower as a result of emerging market
concerns, more than offsetting any positive developments elsewhere.

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Summary financials
UBS financials
(CHFm)

Q1 15e

Group Operating income

FY2013

FY2014e

FY2015e

FY2016e

7,343

27,733

28,481

28,776

31,028

-6,253

-24,462

-25,605

-24,954

-23,704

1,090

3,271

2,875

3,822

7,324

700

3,171

3,719

3,638

6,527

EPS diluted

0.18

0.82

0.97

0.96

1.72

EPS diluted (adjusted)

0.41

1.46

1.85

1.86

2.07

DPS (excludes special dividends)

0.13

0.25

0.75

0.50

1.80

TNAVPS

11.56

11.07

11.96

11.99

11.99

BVPS
Important financial ratios

13.43

12.74

13.71

13.86

13.86

5.7%

6.6%

7.2%

7.2%

13.0%

6.7%

7.6%

8.3%

8.4%

15.0%

-85.2%

-88.2%

-89.9%

-86.7%

-76.4%

-35.8%

3.3%

33.3%

-1.9%

-9.7%

65%

30%

50%

50%

100%

12.8%

14.1%

15.7%

16.1%

3.39%

4.17%

5.58%

5.75%

Group Operating costs (reported)


Group Operating profit (reported)
Group Net profit (reported)
Per share data (CHF)

ROE (annualised)
ROTNAV (annualised) reported
Cost/income ratio
Tax rate, effective
Payout ratio
B3 CET1 ratio, fully-loaded
B3 leverage ratio, fully-loaded
Wealth management
Total operating income (reported)
Total operating expenses (reported)
Pre-tax profit (reported)

2,096

7,563

8,037

8,138

8,660

-1,354

-5,316

-5,648

-5,322

-5,461

742

2,247

2,390

2,816

3,199

Retail & Corporate


Total operating income (reported)
Total operating expenses (reported)
Profit before tax (reported)

881

3,756

3,787

3,627

4,026

-502

-2,299

-2,218

-2,058

-2,255

379

1,457

1,569

1,569

1,771

Wealth management Americas


Total operating income (reported)
Total operating expenses (reported)
Pre-tax profit (reported)

1,789

6,538

6,979

7,287

7,858

-1,531

-5,680

-6,026

-6,341

-6,668

258

858

953

946

1,190

Investment bank
Advisory revenues
Capital market revenues
ECM
DCM
Financing Solutions
Risk Management
Corporate Client Solutions income
Equities Sales and Trading
FICC Sales and Trading
Investor Client Services income
Total income (reported)
Total operating expenses (reported)
Pre-tax profit (reported)

158

588

705

730

739

484

2,030

2,092

1,833

1,888

196

1,142

1,004

933

980

288

888

1,088

899

908

131

598

504

525

545

-10

-239

-54

-42

-35

762

2,977

3,247

3,046

3,137

954

4,029

3,646

3,612

3,748

351

1,590

1,364

1,307

1,284

1,305

5,620

5,010

4,919

5,032

2,067

8,596

8,257

7,965

8,169

-1,628

-6,300

-8,500

-6,358

-6,269

439

2,299

-250

1,607

1,900

Global asset management


Total operating income (reported)
Total operating expenses (reported)
Pre-tax profit (reported)

491

1,935

1,928

2,063

2,293

-329

-1,359

-1,362

-1,358

-1,488

162

576

566

704

805

-888

-4,171

-2,347

-3,808

-1,535

Corporate center
Profit before tax (reported)
Source: Company reports and SG Cross Asset Research/Equity

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Wells Fargo Sell


Probability-weighted valuation methodology used to arrive at our target price ($)
Forward

Multiple

Multiple

Valuation

Probability

estimate

3-year avg.

assigned

per share

assigned

Tang. BV/share

28.6

1.5x

1.7x

48.7

33%

16

Forward EPS (NTM)

4.12

9.7x

10.5x

43.3

33%

14

61.1

33%

20

DCF valuation
Weighted valuation/TP

Value/share

51

Source: SG Cross Asset Research/Equity

Valuation methodology
Our fair value for WFC is derived using a probability-weighted methodology that includes a
DCF and trading multiples (tangible book and earnings).

Risks to our target price


A faster-than-expected pick-up in short-term interest rates, consumer loan growth and
mortgage banking.

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Summary financials
Wells Fargo & Co. financials ($m)
FY2014

Q1 15e

Q2 15e

Q3 15e

Q4 15e

FY2015e

FY2016e

Net interest income

43,527

11,000

11,194

11,315

11,525

45,034

48,381

Non-interest income

40,820

10,129

10,478

10,526

10,498

41,631

44,103

Revenue

84,347

21,129

21,672

21,841

22,023

86,665

92,484

1,395

622

665

707

758

2,752

3,859

Operating expense

49,037

12,136

12,411

12,488

12,792

49,827

52,079

Pre-tax income

33,915

8,371

8,596

8,645

8,474

34,086

36,547

Income tax expense

10,307

2,679

2,751

2,766

2,712

10,908

11,695

Net income

23,057

5,609

5,763

5,796

5,679

22,846

24,520

Net income to common

21,821

5,282

5,436

5,469

5,352

21,538

23,212

Community Banking

50,862

7,491

7,614

7,658

7,793

30,555

32,448

Wholesale Banking

23,482

3,019

3,074

3,129

3,194

12,416

13,651

Wealth, Brokerage and Retirement

14,218

842

866

896

916

3,520

3,893

Income statement

Provision for credit losses

Specific business lines (revenues)

Ratios and payout


Net interest margin

3.1%

3.0%

3.0%

3.0%

3.0%

3.0%

3.2%

58.1%

57.4%

57.3%

57.2%

58.1%

57.5%

56.3%

Dividends

7,069

1,822

2,087

2,051

2,010

7,973

8,543

Buybacks

9,164

2,500

2,700

2,700

2,700

10,600

11,400

74%

82%

88%

87%

88%

86%

86%

16.8%

15.6%

15.9%

15.9%

15.5%

15.7%

16.5%

4.10

1.00

1.02

1.05

1.05

4.12

4.53

5,323

5,292

5,306

5,213

5,109

5,230

5,121

Efficiency ratio

Total payout %
Earnings and Profitability
RoTE
EPS diluted
Average diluted shares
DPS

1.35

0.35

0.40

0.40

0.40

1.55

1.70

26.89

27.24

27.30

27.92

28.62

27.96

29.20

1,687,155

1,713,308

1,724,890

1,736,024

1,757,442

1,757,442

1,863,089

862,551

869,917

875,798

881,451

892,326

892,326

945,967

1,168,310

1,175,564

1,183,511

1,191,150

1,205,846

1,205,846

1,278,334

75%

73%

73%

73%

73%

74%

74%

Gross NPL ratio

1.5%

1.5%

1.5%

1.5%

1.5%

1.5%

1.4%

Coverage Ratio %

96%

94%

92%

93%

90%

90%

85%

Provision exp. % of net loans

0.2%

0.3%

0.3%

0.3%

0.3%

0.3%

0.4%

Core Tier 1 ratio

11.0%

11.1%

11.2%

11.3%

11.3%

11.3%

11.3%

Basel 3 Core Tier 1 ratio (fully loaded)

10.4%

10.3%

10.4%

10.4%

10.3%

10.3%

10.1%

Tangible common equity ratio

8.6%

8.4%

8.4%

8.4%

8.3%

8.4%

8.2%

Supplementary leverage ratio

5.4%

5.4%

5.4%

5.4%

5.5%

5.5%

5.4%

Tangible BPS
Balances
Total assets
Total gross loans
Total deposits
Loan to deposit
Asset quality and credit costs

Capital ratios

Numbers exclude CVA/DVA


Source: Company, SG Cross Asset Research/Equity for estimates

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APPENDIX
COMPANIES MENTIONED
Akbank (AKBNK.IS, Buy)
Banco Popular (POP.MC, Buy)
Bank of America (BAC.N, Buy)
Bank Pekao SA (PEO.WA, Sell)
Bankinter (BKT.MC, Sell)
Barclays (BARC.L, Buy)
BBVA (BBVA.MC, Sell)
Caixabank (CABK.MC, Buy)
Citigroup (C.N, Hold)
Commerzbank (CBKG.DE, Buy)
Crdit Agricole SA (CAGR.PA, Buy)
Credit Suisse (CSGN.VX, Sell)
Deutsche Bank AG (DBKGn.DE, Sell)
DNB (DNB.OL, Buy)
Euronext (ENX.PA, Buy)
Goldman Sachs (GS.N, Sell)
HSBC (HSBA.L, Buy)
Intesa Sanpaolo (ISP.MI, Buy)
JPMorgan Chase & Co. (JPM.N, Buy)
Lloyds Banking Group (LLOY.L, Buy)
London Stock Exchange (LSE.L, Hold)
Morgan Stanley (MS.N, Hold)
Nordea (NDA.ST, Sell)
UBI Banca (UBI.MI, Buy)
UBS AG (UBSN.S, Buy)
Wells Fargo & Co. (WFC.N, Sell)
YapiKredi Bank (YKBNK.IS, Buy)
ANALYST CERTIFICATION
The following named research analyst(s) hereby certifies or certify that (i) the views expressed in the research report accurately reflect his or
her or their personal views about any and all of the subject securities or issuers and (ii) no part of his or her or their compensation was, is, or
will be related, directly or indirectly, to the specific recommendations or views expressed in this report: Murali Gopal, Andrew Lim, Anubhav
Srivastava
The analyst(s) who author research are employed by SG and its affiliates in locations, including but not limited to, Paris, London, New York,
Dallas, Hong Kong, Tokyo, Bangalore, Mumbai, Frankfurt, Madrid, Milan, Seoul, Warsaw and Moscow.
SG EQUITY RESEARCH RATINGS on a 12 months period (in effect
as of March 14, 2012)
BUY: absolute total shareholder return forecast of 15% or more
over a 12 month period.
HOLD: absolute total shareholder return forecast between
and +15% over a 12 month period.

Equity rating and dispersion relationship


300

Updated on 01/04/15

40%

0%

250

SELL: absolute total shareholder return forecast below 0% over a


12 month period.

200

Total shareholder return means forecast share price appreciation


plus all forecast cash dividend income, including income from
special dividends, paid during the 12 month period. Ratings are
determined by the ranges described above at the time of the
initiation of coverage or a change in rating (subject to limited
management discretion). At other times, ratings may fall outside of
these ranges because of market price movements and/or other
short term volatility or trading patterns. Such interim deviations
from specified ranges will be permitted but will become subject to

150

9 April 2015

44%

48%

42%

16%

100
50

28%

0
Buy
Companies Covered

Hold

Sell

Cos. w/ Banking Relationship

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review by research management.

Source: SG Cross Asset Research/Equity

Prior to the change in SG Equity Ratings on March 14, 2012, the


SG Equity Ratings in effect were: BUY (expected upside of 10% or
more over a 12 month period; HOLD (expected return between 10% and +10% over a 12 month period); and SELL (expected
downside of -10% or worse over a 12 month period).
Sector Weighting Definition on a 12 months period:
The sector weightings are assigned by the SG Equity Research
Strategist and are distinct and separate from SG equity research
analyst ratings. They are based on the relevant MSCI.
OVERWEIGHT: sector expected to outperform the relevant broad
market benchmark over the next 12 months.
NEUTRAL: sector expected to perform in-line with the relevant
broad market benchmark over the next 12 months.
UNDERWEIGHT: sector expected to underperform the relevant
broad market benchmark over the next 12 months.
The Preferred and Least preferred stocks are selected by the
covering analyst based on the individual analysts coverage
universe and not by the SG Equity Research Strategist.
All pricing information included in this report is as of market close, unless otherwise stated.
MSCI DISCLAIMER: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without
prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or
used to create any financial products, including any indices. This information is provided on an as is basis. The user assumes the entire
risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the
information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular
purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any
third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan
Stanley Capital International and the MSCI indexes are service marks of MSCI and its affiliates or such similar language as may be
provided by or approved in advance by MSCI.
IMPORTANT DISCLOSURES
Akbank
SG acted as joint bookrunner Akbank's new bond issue (USD 10yr).
Akbank
SG acted as joint lead manager in the disposal of Akbank's shares by Citibank.
Banco Popular
SG acted as joint bookrunner in Banco Popular Espanol's bond issue (EUR, 5yr).
Bank of America
SG acted as Co-manager in Bank of America's new bond issue (3yr).
Bank of America
SG acted as co-manager in Bank of America's bond issue (PerpNC10yr).
Bank of America
SG acted as co-manager in the forthcoming BANK OF AMERICA's capital raising (USD Perp 5yrs).
Bank of America
SG acted as co-manager in Bank of America's bond issue (5yr).
Barclays
SG acted as joint bookrunner for Barclay's bond issue (3y GBP covered bond)
BBVA
SG acted as joint bookrunner in BBVA's bond issue (5yr)
Caixabank
SG is mandated in Criteria Caixaholding's (subsidary of Caixabank) forthcoming bond issue.
Citigroup
SG acted as Co-manager in Citigroup's new bond issue (10yr)
Citigroup
SG acted as Co-manager in Citigroup's new bond issue (5yr,USD,2020).
Citigroup
SG acted as joint lead manager in Citi's bond issue (7yr).
Citigroup
SG acted as co-manager in Citigroup's bond Issue (12yr).
Citigroup
SG acted as co-manager on the forthcoming Citigroup bond issue.
Citigroup
SG acted as joint lead manager in Citigroup's bonds issue (Benchmark, perp)
Crdit Agricole SA
SG acted as joint lead manager in Credit Agricole's bond issue (EUR, 1bn)
Deutsche Bank AG
SG acted as co-manager in Deutsche Bank's bond issue (EUR, 2.75%, 17/02/2025).
Deutsche Bank AG
SG acted as co-lead manager on Deutsche Bank's bond issue (1.25% 08/09/2021 EUR).
Deutsche Bank AG
SG acted as joint bookrunner on Deutsche Bank rights issue.
Deutsche Bank AG
SG acted as co-lead manager in Deutsche Bank's bond issue (15/04/19 FRN EUR).
DNB
SG acted as sole financial advisor to DNB in the disposal of JSC Commercial Bank DNB.
Euronext
SG acted as joint bookrunner in Ice's disposal of Euronext's shares.
Euronext
SG acted as global coordinator and joint bookrunner in EURONEXT N.V's IPO.
HSBC
SG acted as lead manager in HSBC's bond issue.
HSBC
SG acted as co-manager in HSBC BANK's bond issue
HSBC
SG acted as co-lead manager in HSBC's bond issue (Perp.2020 - 2024).
Intesa Sanpaolo
SG acted as joint bookrunner in Intesa SanPaolo's bond issue (5yr).
Intesa Sanpaolo
SG makes a market in Intesa Sanpaolo warrants
JPMorgan Chase & Co. SG acted as joint lead manager in JPMorgan's bond issue (EUR, 0.6% 27/01/2020 ; EUR 1.5% 27/01/2025).
JPMorgan Chase & Co. SG acted as a co-manager in JP Morgan's bond issue.
Morgan Stanley
SG acted as co-manager in Morgan Stanley's bond issue (5yr,30yr)
Morgan Stanley
SG acted as a co-manager in Morgan Stanley's bond issue (USD, 1.875% 05/01/2018).
Morgan Stanley
SG acted as co-manager on Morgan Stanley's bond issue.

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Morgan Stanley
Morgan Stanley
Nordea
YapiKredi Bank
YapiKredi Bank

SG acted as co-manager in Morgan Stanley's bond issue.


SG acted as co-manager on Morgan Stanley bond issue.
SG acted as Joint Bookrunner in Nordea's new bond issue (10yr EUR)
SG acted as joint lead manager in Yapi Kredi bond TAP
SG acted as joint lead manager in Yapikredi bank's bond issue (USD Octobre 2019).

SG and its affiliates beneficially own 1% or more of any class of common equity of Bank of America, Barclays, Euronext, Intesa Sanpaolo,
Lloyds Banking Group.
SG or its affiliates act as market maker or liquidity provider in the equities securities of BBVA, Banco Popular, Bankinter, Commerzbank,
Credit Suisse, Crdit Agricole SA, Deutsche Bank AG, Intesa Sanpaolo, UBI Banca.
SG or its affiliates expect to receive or intend to seek compensation for investment banking services in the next 3 months from BBVA, Banco
Popular, Bank of America, Caixabank, Commerzbank, Credit Suisse, Crdit Agricole SA, Goldman Sachs, HSBC, Intesa Sanpaolo, UBI
Banca.
SG or its affiliates had an investment banking client relationship during the past 12 months with Akbank, BBVA, Banco Popular, Bank of
America, Barclays, Caixabank, Citigroup, Crdit Agricole SA, DNB, Deutsche Bank AG, Euronext, HSBC, Intesa Sanpaolo, JPMorgan Chase &
Co., Morgan Stanley, Nordea, YapiKredi Bank.
SG or its affiliates have received compensation for investment banking services in the past 12 months from Akbank, BBVA, Banco Popular,
Bank of America, Barclays, Caixabank, Citigroup, Crdit Agricole SA, DNB, Deutsche Bank AG, Euronext, HSBC, Intesa Sanpaolo, JPMorgan
Chase & Co., Morgan Stanley, Nordea, YapiKredi Bank.
SG or its affiliates managed or co-managed in the past 12 months a public offering of securities of Akbank, BBVA, Banco Popular, Bank of
America, Barclays, Caixabank, Citigroup, Crdit Agricole SA, Deutsche Bank AG, Euronext, HSBC, Intesa Sanpaolo, JPMorgan Chase & Co.,
Morgan Stanley, Nordea, YapiKredi Bank.
SG received compensation for products and services other than investment banking services in the past 12 months from Akbank, BBVA,
Banco Popular, Bank of America, Bankinter, Barclays, Caixabank, Citigroup, Commerzbank, Credit Suisse, Crdit Agricole SA, DNB,
Deutsche Bank AG, Euronext, Goldman Sachs, HSBC, Intesa Sanpaolo, JPMorgan Chase & Co., Lloyds Banking Group, London Stock
Exchange, Morgan Stanley, Nordea, UBI Banca, UBS AG, Wells Fargo & Co..
SGAS had a non-investment banking non-securities services client relationship during the past 12 months with Akbank, Banco Popular, Bank
of America, Bankinter, Barclays, Caixabank, Citigroup, Commerzbank, Credit Suisse, Crdit Agricole SA, DNB, Deutsche Bank AG, Euronext,
Goldman Sachs, HSBC, Intesa Sanpaolo, JPMorgan Chase & Co., Lloyds Banking Group, Morgan Stanley, Nordea, UBS AG, Wells Fargo &
Co..
SGAS had a non-investment banking securities-related services client relationship during the past 12 months with Citigroup.
SGAS received compensation for products and services other than investment banking services in the past 12 months from Akbank, Banco
Popular, Bank of America, Bankinter, Barclays, Caixabank, Citigroup, Commerzbank, Credit Suisse, Crdit Agricole SA, DNB, Deutsche Bank
AG, Euronext, Goldman Sachs, HSBC, Intesa Sanpaolo, JPMorgan Chase & Co., Lloyds Banking Group, Morgan Stanley, Nordea, UBS AG,
Wells Fargo & Co..
FOR DISCLOSURES PERTAINING TO COMPENDIUM REPORTS OR RECOMMENDATIONS OR ESTIMATES MADE ON SECURITIES
OTHER THAN THE PRIMARY SUBJECT OF THIS RESEARCH REPORT, PLEASE VISIT OUR GLOBAL RESEARCH DISCLOSURE
WEBSITE AT http://www.sgresearch.com/compliance.rha or call +1 (212).278.6000 in the U.S.
European Specialty Sales
If a European specialist sales personnel is listed on the cover of research reports, these employees are in SGs Global Markets division
responsible for the sales effort in their sector and are not part of SGs Cross-Asset Research Department. Specialist Sales do not contribute
in any manner to the content of research reports in which their names appear.
The analyst(s) responsible for preparing this report receive compensation that is based on various factors including SGs total revenues, a
portion of which are generated by investment banking activities.
Non-U.S. Analyst Disclosure: The name(s) of any non-U.S. analysts who contributed to this report and their SG legal entity are listed below.
U.S. analysts are employed by SG Americas Securities LLC. The non-U.S. analysts are not registered/qualified with FINRA, may not be
associated persons of SGAS and may not be subject to the FINRA restrictions on communications with a subject company, public
appearances and trading securities held in the research analyst(s) account(s): Murali Gopal Socit Gnrale Bangalore, Andrew Lim Socit
Gnrale London, Anubhav Srivastava Socit Gnrale Bangalore
IMPORTANT DISCLAIMER: The information herein is not intended to be an offer to buy or sell, or a solicitation of an offer to buy or sell, any
securities and has been obtained from, or is based upon, sources believed to be reliable but is not guaranteed as to accuracy or completeness.
Material contained in this report satisfies the regulatory provisions concerning independent investment research as defined in MiFID. Information
concerning conflicts of interest and SGs management of such conflicts is contained in the SGs Policies for Managing Conflicts of Interests in
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time to time, deal, trade in, profit from, hold, act as market-makers or advisers, brokers or bankers in relation to the securities, or derivatives
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does, from time to time, act as a principal trader in equities or debt securities that may be referred to in this report and may hold equity or
debt securities positions. Employees of SG, or individuals connected to them, may from time to time have a position in or hold any of the
investments or related investments mentioned in this document. SG is under no obligation to disclose or take account of this document when
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The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed decisions
and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.
The value of securities and financial instruments is subject to currency exchange rate fluctuation that may have a positive or negative effect on
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Estimates of future performance are based on
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market, counterparty default and liquidity risk. Trading in options involves additional risks and is not suitable for all investors. An option may
become worthless by its expiration date, as it is a depreciating asset. Option ownership could result in significant loss or gain, especially for
options of unhedged positions. Prior to buying or selling an option, investors must review the "Characteristics and Risks of Standardized
Options" at http://www.optionsclearing.com/about/publications/character-risks.jsp or from your SG representative. Analysis of option trading
strategies does not consider the cost of commissions. Supporting documentation for options trading strategies is available upon request.
Notice to French Investors: This publication is issued in France by or through Socit Gnrale ("SG") which is authorised and supervised
by the Autorit de Contrle Prudentiel et de Rsolution (ACPR) and regulated by the Autorit des Marchs Financiers (AMF).
Notice to U.K. Investors: Socit Gnrale is a French credit institution (bank) authorised by the Autorit de Contrle Prudentiel (the French
Prudential Control Authority) and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and
Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and
regulation by the Financial Conduct Authority are available from us on request.
Notice to Swiss Investors: This document is provided in Switzerland by or through Socit Gnrale Paris, Zrich Branch, and is provided
only to qualified investors as defined in article 10 of the Swiss Collective Investment Scheme Act (CISA) and related provisions of the
Collective Investment Scheme Ordinance and in strict compliance with applicable Swiss law and regulations. The products mentioned in this
document may not be suitable for all types of investors. This document is based on the Directives on the Independence of Financial Research
issued by the Swiss Bankers Association (SBA) in January 2008.
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registered office in Warsaw (Poland) at 111 Marszakowska St. The Branch is supervised by the Polish Financial Supervision Authority and the
French Autorit de Contrle Prudentiel. This report is addressed to financial institutions only, as defined in the Act on trading in financial
instruments. The Branch certifies that this document has been elaborated with due dilligence and care.
Notice to U.S. Investors: For purposes of SEC Rule 15a-6, SG Americas Securities LLC (SGAS) takes responsibility for this research report.
This report is intended for institutional investors only. Any U.S. person wishing to discuss this report or effect transactions in any security
discussed herein should do so with or through SGAS, a U.S. registered broker-dealer, futures commission merchant (FCM) and swap dealer.
SGAS is a member of FINRA, NYSE, NFA and SIPC and its registered address is at 245 Park Avenue, New York, NY, 10167. (212)-278-6000.
Notice to Canadian Investors: This document is for information purposes only and is intended for use by Permitted Clients, as defined under
National Instrument 31-103, Accredited Investors, as defined under National Instrument 45-106, Accredited Counterparties as defined under
the Derivatives Act (Qubec) and "Qualified Parties" as defined under the ASC, BCSC, SFSC and NBSC Orders
Notice to Singapore Investors: This document is provided in Singapore by or through Socit Gnrale ("SG"), Singapore Branch and is
provided only to accredited investors, expert investors and institutional investors, as defined in Section 4A of the Securities and Futures Act,
Cap. 289. Recipients of this document are to contact Socit Gnrale, Singapore Branch in respect of any matters arising from, or in
connection with, the document. If you are an accredited investor or expert investor, please be informed that in SG's dealings with you, SG is
relying on the following exemptions to the Financial Advisers Act, Cap. 110 (FAA): (1) the exemption in Regulation 33 of the Financial
Advisers Regulations (FAR), which exempts SG from complying with Section 25 of the FAA on disclosure of product information to clients;
(2) the exemption set out in Regulation 34 of the FAR, which exempts SG from complying with Section 27 of the FAA on recommendations;
and (3) the exemption set out in Regulation 35 of the FAR, which exempts SG from complying with Section 36 of the FAA on disclosure of
certain interests in securities.
Notice to Hong Kong Investors: This report is distributed in Hong Kong by Socit Gnrale, Hong Kong Branch which is licensed by the
Securities and Futures Commission of Hong Kong under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
("SFO"). This document does not constitute a solicitation or an offer of securities or an invitation to the public within the meaning of the SFO.
This report is to be circulated only to "professional investors" as defined in the SFO.
Notice to Japanese Investors: This publication is distributed in Japan by Societe Generale Securities (North Pacific) Ltd., Tokyo Branch,
which is regulated by the Financial Services Agency of Japan. This document is intended only for the Specified Investors, as defined by the
Financial Instruments and Exchange Law in Japan and only for those people to whom it is sent directly by Societe Generale Securities (North
Pacific) Ltd., Tokyo Branch, and under no circumstances should it be forwarded to any third party. The products mentioned in this report may
not be eligible for sale in Japan and they may not be suitable for all types of investors.
Notice to Korean Investors: This report is distributed in Korea by SG Securities Korea Co., Ltd which is regulated by the Financial
Supervisory Service and the Financial Services Commission.
Notice to Australian Investors: Societe Generale is exempt from the requirement to hold an Australian financial services licence (AFSL) under
the Corporations Act 2001 (Cth) in respect of financial services, in reliance on ASIC Class Order 03/8240, a copy of which may be obtained at
the web site of the Australian Securities and Investments Commission, http://www.asic.gov.au. The class order exempts financial services
providers with a limited connection to Australia from the requirement to hold an AFSL where they provide financial services only to wholesale
clients in Australia on certain conditions. Financial services provided by Societe Generale may be regulated under foreign laws and regulatory
requirements, which are different from the laws applying in Australia.
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This document is being provided for the exclusive use of TONY TANAKA (JI-ASIA GROUP)