GS Stress Test 7.26

July 26, 2010
Europe: Banks
Stress test: more than meets the headlines, a conditional thumbs up

Stress-test potential for confidence-building Sovereign exposures; disclosure is king
WHY READ THIS REPORT?
The European bank stress test fell short of Only the trading books were stressed. However,
expectations (as expressed by our survey) by investors now have the information to gauge the 1) Summary of European stress-test results
identifying a €3.5 bn capital shortfall vs. €37.6 bn impact from various scenarios on their own. For 2) Assessment of severity of CEBS assumptions (macro
expected. However, the credibility of the exercise example, marking all sovereign exposure in South backdrop, cumulative losses, pre-provision profit
generation)
will ultimately be determined by its underlying Europe and Ireland would increase the capital
3) Multi-scenario analysis of bank-by-bank capital impact of
assumptions and associated disclosure. We shortfall to €16 bn. On Greece, exposures seem more severe assumptions for: a) capital hurdles, and b)
assess the assumptions – Tier 1 hurdle, sovereign well distributed and manageable, in our view. haircuts on peripheral European sovereigns
risk, macro/loss assumptions and pre-provision

profit – and new disclosure, concluding that the Macro and loss assumptions reflect cycle RELATED RESEARCH
test represents a substantial step forward. The headline macro assumptions of the European Europe: Banks: Stress-test survey: Participants expect an
89% pass rate and €38 bn capital raises, July 22, 2010
stress test seem less severe than the US; a closer
Europe: Banks: Stress test – value added is in stressing
Capital hurdle; 6% subject to assumptions comparison shows a different picture as: (i) public-sector banks; hurdle rate is key, July 16, 2010
While the minimum Tier 1 hurdle set in the test Europe is one year further into the credit cycle, Europe: Banks: Stress-test adds to transparency, for private
and public sector banks, June 23, 2010
(6%) is above current regulatory minimums (4%) and (ii) assumptions employed for countries
and in line with the US test (4% Tier 1 common), facing particularly challenging macro conditions Coverage view: Neutral
some may take the view that it is not sufficiently (Greece, Spain, Ireland) are severe, in our view.
conservative. However, the stress test provides
market participants with sufficient information to Pre-impairment income below GS estimates
See the Financial Advisory Disclosure section
locate capital shortfalls against the capital ratio of Pre-impairment income assumptions under the of this document for important disclosures
their choosing. Our analysis suggests scaling the adverse scenario are more conservative than our about transactions in which The Goldman
Sachs Group, Inc. or an affiliate is acting as
capital hurdle to 7% increases capital shortfall GS base-case estimates for most banks; however, financial advisor.
from €3.5 bn to €11.3 bn, and number of banks there are multiple outliers.
with a capital shortfall from 7 to 24, for example.
Jernej Omahen The Goldman Sachs Group, Inc. does and seeks to do business with
+44(20)7774-6324 jernej.omahen@gs.com Goldman Sachs International companies covered in its research reports. As a result, investors should
Aaron Ibbotson, CFA be aware that the firm may have a conflict of interest that could affect
+44(20)7774-6661 aaron.ibbotson@gs.com Goldman Sachs International the objectivity of this report. Investors should consider this report as
Frederik Thomasen only a single factor in making their investment decision. For Reg AC
+44(20)7552-9363 frederik.thomasen@gs.com Goldman Sachs International certification, see the end of the text. Other important disclosures follow
Domenico Vinci the Reg AC certification, or go to www.gs.com/research/hedge.html.
+44(20)7552-9360 domenico.vinci@gs.com Goldman Sachs International Analysts employed by non-US affiliates are not registered/qualified as
research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Global Investment Research

July 26, 2010 Europe: Banks
Table of Contents
The results of the stress test came in below market expectations 3

Overview of stress test: 4
Scope: 91 banks comprising private and public sector banks 4
Assumptions comprise stress on macro developments and asset values 4
Test implementation: standardized results and sovereign disclosure add to transparency 5
Overview of results: 5
Overview of analysis: assessing the credibility of the test 6
Company-specific notes 7
Capital hurdle; 6% subject to assumptions 8
Scaling up the Tier 1 ratio hurdle 8
A core capital hurdle rate implies limited capital shortfall for banks under our coverage 11
Sovereign debt; disclosure is king 12
The CEBS approach 12
Scenario 1: extending CEBS haircuts to the banking book; reversing haircuts on stable sovereigns 15
Scenario 2: testing for the extreme – a Greek restructuring; new disclosure suggests contagion risk very limited 18
Macro assumptions: Putting European stress assumption to the US test 21
Comparing the past with potential prologue? 24
Pre-impairment income assumptions by CEBS allow for meaningful deterioration to GS(E) 25
Credit Section: Results positive for credit spreads, even raising the minimum Tier 1 to 8% 28
Appendix: Rankings of Tier 1 capital ratios 31
Appendix: Rankings of core Tier 1 capital ratios 33
Appendix: Relative changes in Tier 1 ratios and stress-test rankings 34
Appendix: Writedowns on SE4 and Ireland exposures 36
The prices in the body of this report are based on the market close of July 23, 2010.
We would like to thank Eugene Zagorovskis, Peter Skoog and Callum Godwin for their contribution to this report.
Goldman Sachs Global Investment Research 2

The results of the stress test came in below market expectations

The survey we conducted before the stress test (see our report of July 22, 2010, Stress-test survey: Participants expect an 89% pass
rate and €38 bn capital raises) suggested that the market was looking for a more significant end result – higher number of failures,
higher amounts of capital raised. In summary:
 CEBS indentified a capital shortfall of some €3.5 bn, however the capital raising announcements since July 23 total €5.4 bn.
Both figures should be compared to a market expectation of €38 bn, according to our survey.
 The number of institutions not passing came in at seven, compared to an expectation of 10. That said, the number of
institutions that are “close”, i.e. come within a 10% deviation from the benchmark (so below 6.7%), is 13.
 Finally, the top-three countries where capital is being raised are Spain, Greece and Germany, in line with expectations.
Exhibit 1: Seven banks did not pass and four additional groups have Exhibit 2: Stress-test outcome vs. GS Survey
announced intention to raise fresh capital € bn where applicable
€ mn
Bank Nature Country Capital (€mn) Item Actual Expected (*) Deviation
Stress test shortfall
- Hypo Real Estate Public Germany 1,245 - Banks not passing 7 10 -3
- Diada Public Spain 1,032
- Banca Civica Public Spain 406 - Capital shortfall (€bn) 5.4 38.0 -86%
- Unnim Public Spain 270
- ATE bank (ABG) Private Greece 243 - Tier 1 ratio threshold in test 6% 6% -
- Cajasur Public Spain 208
- Espiga Public Spain 127 - Proportion of capital raised in public sector 61% 51% 10%
Sub-total 3,531
- Top 3 countries where the capital is being raised 1. Spain 1. Spain -
Other capital raises 2. Greece 2. Germany -
- Piraeus Private Greece 1,000 3. Germany 3. Greece -
- NLB d.d. Private Slovenia 400
- Banca Civica (in addition to shortfall) Public Spain 44 (*) by the GS survey published July 22, 2010
- NBG Private Greece 450

Sub-total 1,894
Total shortfall and other raises 5,425
Source: CEBS, Reuters, Financial Times. Source: CEBS, Reuters, Financial Times.

Overview of stress test:

The stress test was mandated by the ECOFIN to the Committee of European Banking Supervisors (CEBS) and conducted as follows:
Scope: 91 banks comprising private and public sector banks

 The scope of the test included 91 banks (including foreign branches and subsidiaries), encompassing 65% of total system
assets.
 Banks were tested across the EU, including in non-Euro area countries.
Assumptions comprise stress on macro developments and asset values

 The macro assumptions included stress on GDP, real estate prices, unemployment and equity markets (we summarize them in
Exhibit 3).
Exhibit 3: Stress-test assumptions

yearly percentages
GDP Unemployment House prices
2010 2011 2010 2011 2010 2011
Euro area
- Benchmark assumptions 0.7% 1.5% 10.7% 10.9% -1.5% -0.3%
- Adverse scenario assumptions -0.2% -0.6% 10.8% 11.5% -5.9% -5.0%
EU 27
- Benchmark assumptions 1.0% 1.7% 9.8% 9.7% NA NA
- Adverse scenario assumptions 0.0% -0.4% 10.5% 11.0% NA NA
Source: CEBS.

Test implementation: standardized results and sovereign disclosure add to transparency

 The test was conducted by simulating a stressed environment in 2010 and 2011, with the aim of assessing the resilience of the
banking system to credit shocks on credit and markets risks, including sovereign risks, as measured by the end-of-period Tier 1
ratio.
 The chosen threshold was 6% by 2011 year-end.
 The results were shown as aggregate and bank by bank.
The stress-test results showed the following:
 The historical reference (2009) for Tier 1 capital, total capital, RWAs, pre-impairment income (PII), losses on the banking book in
absolute amounts, % loss rate on retail and corporate exposures, including AFS, HTM as well as loans and receivables.
 The base-line scenario estimates for Tier 1 capital, total capital, RWAs and the Tier 1 ratio.
 An “adverse”-stress scenario: The same as above for an adverse scenario (assumptions described above) as well as a stressed
cumulative PII over the two-year period, cumulative losses on the banking and trading books in absolute terms, and the loss
rates on retail and corporate exposures.
 A more adverse scenario, with additional stress on sovereign exposures, and the implications for losses on corporate and retail
exposures. The same output as in the “adverse” scenario was presented.
Overview of results:
 The aggregate Tier 1 ratio would decrease under an adverse scenario from 10.3% at end-2009 to 9.2% (-110 bp) by year-end
2011.
 The losses assumed in the 2-year period amount to €473 bn on the banking books and €26 bn on the trading books.
 The sovereign shock adds €67 bn of losses, of which €39 bn is in the trading books. In aggregate, the losses would then amount
to €566 bn.
 The average cumulative loss rate stands at 3% for corporate exposure and 1.5% for retail exposures under the benchmark
scenario. They rise to 4.4% and 2.1%, respectively, in an adverse scenario. This compares to 1.5% and 0.8%, respectively, in
2009.
 As a result of the exercise, seven banks would see their Tier 1 ratio fall below the threshold of 6% and therefore would not pass
the test, with an overall shortfall of €3.5 bn in Tier 1 capital.

Overview of analysis: assessing the credibility of the test

Going into the stress test, the market expectation was for 10 banks to fail and €37.6 bn of capital shortfall to be identified. The result
– seven banks and €3.5 bn, respectively – therefore fell short of expectations. To judge if this result is down to the test being too
lenient or if the market had too harsh of a view, we hoped for substantial disclosure, especially related to sovereign risk. On this
point, we got what we hoped for. This data allows us to examine the tests’ underlying assumptions, and our analysis proceeds as
follows:
1. Hurdle rate. 2. Sovereign Risk. 3. Macro and loss assumptions. 4. Pre-impairment income assumptions
Exhibit 4: Overview of the analysis: assessing the credibility of the test
Amount of capital being raised is low – Is the stress test therefore credible?
4 key discussion items:
#1 #2 #3 #4
Discussion item Hurdle rate Sovereign Risk Macro and loss assumptions PII used by CEBS
6% = LEVEL IS TOO LOW NOT ALL EXPOSURES ARE STRESSED ASSUMPTIONS ARE TOO LENIENT PII IS TOO OPTIMISTIC
- banks would recap before they hit 6% - Banking book not stressed - US stress test was harsher for GDP… - CEBS PII assumptions under adverse scenario
CONCERN
- does not capture capital quality - Assumptions on some countries too soft - … and also for house price decline… overly optimistic
- … and therefore cumulative losses
ASSESS SENSITIVITY TO THRESHOLD WE RUN 3 SCENARIOS BENCHMARKING THESE ASSUMPTIONS BENCHMARKING THESE ASSUMPTIONS
- based on 7 and 8% tier 1 ratio 1. CEBS haircuts on SE4+I banking book 1. vs US stress test - v GS base case forecast for 2010-11E
GS APPROACH - based on 6% core tier 1 ratio and reversal of other losses 2. vs GS expectations
2. Greek debt restructuring + shock CEBS
3. Combination of the above (1 & 2)
AT THE FOLLOWING THRESHOLDS: IN SCENARIO HEADLINE LOWER IN EU, BUT DEVIATION SAME PII UNDER ADVERSE SCENARIO
- 7%, €11 bn cap need, 24 failures 1. €16 bn cap need - Headline numbers reflect timing of test - On aggregate, CEBS is 6% below GS est.
RESULT
- 8%, €30 bn cap need, 39 failures 2. €28 bn cap need - US, EU assume similar stress v baseline - For 26 out of 39 banks, CEBS below GS
3. €34 bn cap need - Stress losses vary across countries = Reasonable assumptions
Source: Goldman Sachs Research.

Company-specific notes
We note that our analyses contained in this report are based predominantly on the data published in the CEBS stress test;
consequently the outcome of our work could have been different should CEBS choose to use different parameters or methodology.
We highlight selected disclosures made by the banks and regulators in relation to the CEBS stress-test results below. Additional
disclosure might be made in the future – in short, CEBS has attempted to compare all 91 European banks on an equal footing and
we fully appreciate that such an exercise is never perfect. Still, it represents by far the best cross-country bank comparison to date,
in our view.
Sweden. According to a statement published by the Swedish Financial Supervisory Authority, RWA published in the CEBS stress
test are "not a fair reflection of the actual RWAs that the Swedish banks would report in a stressed scenario".
UK. According to the statements made by the UK banks, the CEBS stress test doesn't fully reflect asset reduction plans including the
mandatory asset reductions.
Deutsche Postbank. We note that results of CEBS stress test do not take into account planned reductions in RWA reflecting
incorporation of IRB methodology. We believe this could increase core and headline Tier 1 capital ratios meaningfully.
Allied Irish Bank and Bank of Ireland. In completing the CEBS stress test, the Central Bank of Ireland and Financial Regulator
decided to apply a number of more rigorous parameters (in particular in relation to the property investment and development
books) than was required by CEBS. According to the statement published by the regulator, on a like-for-like basis Tier 1 ratios under
“Sovereign Shock” scenarios based on CEBS assumptions for other European banks would be +90 bp higher for AIB (7.4%) and
+70 bp higher for BOI (7.8%).
Intesa. According to the bank, the CEBS stress test does not reflect RWA reduction following full implementation of the advanced
IRB approach which would have a c.20 bp positive impact on the capital ratios.
BMPS. CEBS reported figures do not incorporate the impact on capital ratios from announced branch disposals and the RWA
reduction following full implementation of the IRB advanced model. We believe this could increase core and headline Tier 1 ratios
meaningfully, in the range of 70-75 bp.
Banco Popolare: CEBS figures do not incorporate the full conversion of the issued €1 bn soft mandatory convert bond, estimated
impact 110 bp.
NBG. The bank noted that the CEBS stress-test methodology, as applied in Greece, assumes stricter parameters of rating migrations
under advanced IRB when compared to the standard approach which meaningfully affects relative outcome of the CEBS analysis for
the Greek banks. Further to that, NBG was not applying a tax shield to €1.5 bn of its impairments of its banking book in the
sovereign shock scenario, resulting in a 52 bp harsher Tier 1 hit than for peers which adjusted for tax. The figures do not include the
bank’s raising of €450 mn of Tier 2 instruments, which by reducing core Tier 1 deductions improved core Tier 1 by 34 bp.
Piraeus Bank. The bank announced that its Tier 1 ratio under the "Sovereign Shock" scenario would increase to 6.4% after taking
into account the fact that the trading portfolio of Greek Government Bonds at June 30, 2010 was significantly decreased (to €0.1 bn
against €1.1 bn).
Bank of Cyprus. The CEBS stress-test results do not reflect a €345 mn capital increase announced on July 8.

Capital hurdle; 6% subject to assumptions

CEBS set the capital hurdle rate at a Tier 1 ratio of 6%, which a bank needs to achieve by 2011, under an adverse macroeconomic
scenario, including sovereign shock. This hurdle rate could face investor skepticism, as it is likely to be viewed as less appropriate
from both a capital composition and capital level perspective:
1. Capital composition. The recent crisis exposed weaknesses of non-equity capital, focusing investor attention on the core
Tier 1 ratio. By contrast, headline the Tier 1 ratio ignores capital composition, which we view as central to assessing banks’
capital strength. At end-2009, the difference between the two stood at 1.7% for the banks under our coverage (Tier 1 level of
10.3%, core Tier 1 of 8.6%).
2. Level of capital. In the post-crisis period, a core Tier 1 level of 6% is viewed as the new minimum by many. A simple
application of non-core capital of banks under our coverage translates a 6% Tier 1 into a 4.3% core Tier 1 hurdle rate.
In short, many in the market could argue that an application of either a higher Tier 1 hurdle rate or usage of core Tier 1 would
have been better, in our view. In fairness to CEBS, usage of core Tier 1 was never an option, as currently no commonly agreed
definition for it exists in Europe. And CEBS setting a hurdle rate for a headline Tier 1 ratio even higher would have looked odd,
in our view, given the regulatory minimum is set at 4% (CEBS’ target is thus 50% higher). Moreover, a Tier 1 hurdle of 6% is in
line with the assumption of the US stress test (Tier 1 common hurdle of 4%).
All this said, the released data allows us to address both points through our own analysis.
Scaling up the Tier 1 ratio hurdle

The average 2009 core capital ratio stood at 8.6% for the banks under our coverage, which compares to a total Tier 1 ratio of 10.3%.
Applying the same split to the Tier 1 hurdle rate of 6%, would broadly correspond to a core Tier 1 cut-off of 4%, on aggregate. We
note that this is likely to be broadly in line with the hurdle rate set at the time of the US stress tests.
Acknowledging that the market seems to have adopted a 6% core Tier 1 as the new “minimum”, we scale up CEBS’s hurdle rate,
from 6% towards 7% and ultimately 8%. This allows investors to choose from the hurdle rate they deem most appropriate, and
assess results accordingly. We acknowledge that our cut-off treats all individual banks uniformly; however, we still see this exercise
as meaningful, particularly on an aggregate basis.
In the stress test, seven banks fail to exceed the hurdle rate of 6%; this rises to 24 banks if we lift the hurdle rate to 7% and 39 banks
if it is increased to 8%. Similarly, the capital shortfall for institutions below the hurdle rate rises from €3.5 bn, to €11.3 bn and
€30.25 bn, if capital thresholds are increased.
Our survey ahead of the stress-test results release pointed towards a consensus expectation of €37.6 bn of capital increases, which
translates into a capital hurdle rate of 8.25%; assuming this hurdle rate, some 46 institutions would show a capital shortfall.

Exhibit 5: Scaling up the hurdle rate, towards investor expectations Exhibit 6: As always, pass rate is a function of hurdle rate
Cumulative capital needs under scaled-up capital hurdle rates Pass rate under scaled-up cut-off rates
€40.0bn €37.6bn 45 100%

92%
Total capital required 39 90%
€35.0bn 40 89%
o/w GS coverage €30.2bn 35 74% 80%

€30.0bn
# banks < threshold 70%
30
€25.0bn o/w GS coverage 60%
24 57%
25
Pass rate (%) 50%
€20.0bn
20
40%
€15.0bn
€11.3bn 15
30%
10
€10.0bn 10 7 20%
16
€5.0bn €3.5bn 5 9 10%
1
€0.0bn 0 0%
6% 7% 8% Consensus 6% 7% 8% Consensus
(8.25%)
Source: CEBS, Goldman Sachs Research estimates. Source: CEBS, Company data, Goldman Sachs Research estimates.

Exhibit 7: A less flattering picture, under scaled-up hurdle rate

Institutions in capital shortfall, under increased hurdle rate assumptions
Capital required to meet 6% Tier 1 threshold Capital required to meet 7% Tier 1 threshold Capital required to meet 8% Tier 1 threshold

Rank Bank € mn Rank Bank € mn Rank Bank € mn
1 HRE 1,245 1 HRE 2,146 1 Jupiter 3,637
2 Diada 1,032 2 Diada 1,522 2 HRE 3,078
3 Banca Civica 406 3 Jupiter 1,498 3 BMPS 2,207
4 UNNIM 270 4 BMPS 981 4 Diada 2,013
5 ABG 243 5 NordLB 865 5 NordLB 1,946
6 Caja Sur 208 6 Banca Civica 692 6 Allied Irish Bank 1,107
7 ESPIGA 127 7 UNNIM 459 7 UBI Banca 1,029
8 ESPIGA 404 8 Banca Civica 993
9 ABG 391 9 Unicredit 942
10 Piraeus Bank 371 10 Banco Popolare 931
11 Allied Irish Bank 369 11 Banco Popular 926
12 Caja Sur 328 12 Deutsche Postbank 869
13 Deutsche Postbank 248 13 Bank of Ireland 777
14 Caja SOL 212 14 Banco Espirito Santo 747
15 Banco Pastor 187 15 Piraeus Bank 742
16 UBI Banca 171 16 ESPIGA 692
17 CAI 135 17 UNNIM 642
18 NLB 82 18 ABG 539
19 Ibercaja 76 19 HeLaBa 501
20 Banco Guipuzcoano 70 20 Caixa 489
21 Banco Espirito Santo 68 21 WestLB 472
22 Bankinter 61 22 Banco Sabadell 464
23 Caja de Ontinyent 3 23 Caja Sur 449
24 Caja Colonya 1 24 Mare Nostrum 449
25 NBG 427
26 Caja SOL 425
27 Breogan 375
28 Banco Pastor 374
29 Bankinter 368
30 Ibercaja 329
31 CAI 285
32 Marfin 216
33 RZB 212
34 NLB 199
35 CAM 168
36 Banco Guipuzcoano 148
37 Caja de Vitoria y Alava 67
38 Caja de Ontinyent 10
39 Caja Colonya 3
Total capital required to reach threshold 3,531 Total capital required to reach threshold 11,340 Total capital required to reach threshold 30,246
o/w GS coverage 243 o/w GS coverage 2,780 o/w GS coverage 11,917
o/w other 3,288 o/w other 8,560 o/w other 18,329
Institutions below the threshold 7 Institutions below the threshold 24 Institutions below the threshold 39
o/w GS coverage 1 o/w GS coverage 9 o/w GS coverage 16
o/w other 6 o/w other 15 o/w other 23
Stress test pass rate 92% Stress test pass rate 74% Stress test pass rate 57%
o/w GS coverage 98% o/w GS coverage 78% o/w GS coverage 60%
o/w other 88% o/w other 71% o/w other 55%
Source: CEBS, Company data, Goldman Sachs Research estimates.

A core capital hurdle rate implies limited capital shortfall for banks under our coverage
For the institutions we cover (37 of the 91 banks), we forecast the composition of banks’ capital bases and are able to apply a core
Tier 1 capital hurdle rate to the CEBS stress-test results. We do this by deducting our forecast non-core capital (mostly hybrids) from
the disclosed Tier 1 capital positions, as estimated by CEBS under various scenarios.
We start with a hurdle rate of 4% (in line with the US Tier 1 Common capital risk-based ratio) and scale that up towards 6%, as we
believe the market has moved to treat a 6% core capital as the “new minimum”.
Under a 4% core capital hurdle rate, one institution shows a capital shortfall (36 do not), rising to five (32) assuming a 5% and 10 (27)
assuming a 6% hurdle-rate. From a core capital perspective, therefore, the amount that would need to be raised for banks under our
coverage to reach 4% core Tier 1 hurdle rate is €36 mn, rising to €1.1 bn for 5% and €3.7 bn for a 6%.
Exhibit 8: Core Tier 1 ratio instead of Tier 1 ratio of 6% as cut-off: our coverage would need €3.7 bn of extra capital instead of €12 bn for Tier 1 ratio of 8%
Institutions in capital shortfall, under increased hurdle rate assumptions
Capital required to meet 4% Core Tier 1 threshold Capital required to meet 5% Core Tier 1 threshold Capital required to meet 6% Core Tier 1 threshold

Rank Bank € mn Rank Bank € mn Rank Bank € mn
1 Banco Pastor 36 1 Deutsche Postbank 607 1 Deutsche Postbank 1,228
2 Banco Pastor 224 2 BMPS 487
3 Marfin 97 3 Banco Pastor 411
4 ABG 95 4 Marfin 337
5 Bank of Cyprus 86 5 Bank of Cyprus 308
6 Banco Popolare 269
7 ABG 243
8 Piraeus Bank 200
9 Allied Irish Bank 195
10 Bankinter 22
Total capital required to reach threshold 36 Total capital required to reach threshold 1,108 Total capital required to reach threshold 3,698
Institutions below the threshold 1 Institutions below the threshold 5 Institutions below the threshold 10
Stress test pass rate 97% Stress test pass rate 86% Stress test pass rate 73%
Source: CEBS, Company data, Goldman Sachs Research estimates. Note: in the core Tier 1 capital, we include the Government participation where applicable (mostly Italy, Greece).

Sovereign debt; disclosure is king

In conducting its stress test, CEBS provided investors with a unique set of disclosures relating to sovereign risk for European banks.
These disclosures are new, and give investors a detailed insight into substantially all European sovereign debt exposures; as a
consequence, investors now have the ability to apply their own assumptions, or run their own “stress tests”. We lay out the CEBS
methodology for assessing sovereign risk and then move to our scenarios.
We note that the comparison between the CEBS and our scenario is not perfect and differences, that can impact the result, exist
including: RWA calculation, application of macro and loss assumptions, split of sovereign exposure, amongst others. In addition,
while the sovereign debt disclosure is detailed, it is not identical across all of the 91 institutions; this too has the capacity to impact
our analysis. For example, with select German banks the level of detail outside of SE4 and Ireland is comparatively lower.
All our analysis is based on the RWA’s, tier one capital, pre-provisions profit and loss estimates provided by the banks and CEBS,
not our own forecasts or our expectations of the outcome under the given assumptions. Our analyses expand on the results of CEBS
stress tests and should be viewed as potential outcomes should CEBS have applied different parameters, not as our forecasts under
these scenarios.
The CEBS approach

CEBS’ stress test of sovereign risk is not simulating for a default of an EU member state, but is rather testing for losses on securities
portfolios, of which sovereign paper is one. In doing so:
 CEBS applies various degrees of stress to the sovereign debt exposures of banks, but only in their trading books. Exposures
held in the banking book (including the AFS) do not form part of the exercise.
 Haircuts are applied across all sovereigns, with a varied degree of severity. In other words, even the German sovereign
exposure has been subjected to a 4.9% haircut. The haircuts on the more risky countries range from 23.1% on Greece, 14.1% on
Portugal, 12.8% on Ireland, 12.0% on Spain and 7.4% on Italy. These assumptions have been laid out by CEBS, and we show
them in Exhibit 9.
We have expected CEBS to adopt this approach. As said, the stress test is simulating trading losses not sovereign defaults. As CEBS
rightly points out, the unprecedented actions taken by the authorities have substantially stabilized the markets; as such, CEBS saw
no reason to take its simulation further.
Despite this, many in the market continue to doubt that stressing the trading book alone adequately captures the level of sovereign
risk embedded in European banks. Importantly, CEBS has provided an unprecedented level of disclosure on sovereign holdings, at
an aggregate as well as bank-by-bank basis. We welcome this disclosure and view it as essential, as it allows investors to run their
own scenarios of stress levels and analyse its outcomes.
Current market concerns relating to sovereign risk are split in two:
 Exposure to sovereign debt of Greece, Portugal, Spain, Italy (“Southern Europe” or “SE”) and Ireland. The total exposure
of the 91 banks subject to the stress test is €771 bn. Of this amount, €136 bn (17%) is held in the trading book and €635 bn in the
banking book. In particular this is true for Greece, where investor concern has been focused around the prospect of potential for
debt restructuring.

 Lack of disclosure. Prior to CEBS’ announcement, the level of disclosure on sovereign debt holdings has been inconsistent. The
crisis of confidence surrounding select European sovereigns has been amplified by lack of disclosure, and hence market
inability to gauge the prospect of potential contagion effects. Post the stress test, we have obtained a detailed split of sovereign
exposures, at an individual bank level. This allows investors to run their own scenarios, which might well differ from those
applied by CEBS. In our view, this has substantially reduced the risks that have the potential to trigger irrational market
behavior.
Exhibit 9: Overview of assumptions applied across the CEBS and our scenarios (%)
Haircuts (%)
CEBS GS
Benchmark Adverse Scenario 1 Scenario 2 Scenario 3
Country 2010 2011 2010 2011 Trading Banking Trading Banking Trading Banking
- Austria 1.00 2.80 3.10 5.60 -- -- 5.60 -- -- --
- Belgium 1.40 3.10 4.30 6.90 -- -- 6.90 -- -- --
- Cyprus 0.30 3.20 3.00 6.70 -- -- 6.70 -- -- --
- Finland 0.00 3.30 1.90 6.10 -- -- 6.10 -- -- --
- France 1.50 3.00 3.70 6.00 -- -- 6.00 -- -- --
- Germany 0.10 2.50 2.30 4.70 -- -- 4.70 -- -- --
- Greece 3.90 4.30 20.10 23.10 23.10 23.10 60.00 60.00 60.00 60.00
- Ireland 1.60 4.20 8.60 12.80 12.80 12.80 12.80 -- 12.80 12.80
- Italy 1.20 2.90 4.90 7.40 7.40 7.40 7.40 -- 7.40 7.40
- Luxembourg 1.40 3.10 4.30 6.90 -- -- 6.90 -- -- --
- Malta 0.70 3.60 2.90 6.40 -- -- 6.40 -- -- --
- Netherlands 1.10 2.50 3.00 5.20 -- -- 5.20 -- -- --
- Portugal 2.30 3.70 11.10 14.10 14.10 14.10 14.10 -- 14.10 14.10
- Slovakia 0.10 2.40 1.60 5.00 -- -- 5.00 -- -- --
- Spain 1.30 4.10 6.70 12.00 12.00 12.00 12.00 -- 12.00 12.00
- Slovenia 0.00 1.10 1.40 4.20 -- -- 4.20 -- -- --
- Czech Republic 0.00 2.70 4.60 11.40 -- -- 11.40 -- -- --
- Denmark 0.00 1.40 2.10 5.20 -- -- 5.20 -- -- --
- Poland 2.60 6.10 6.40 12.30 -- -- 12.30 -- -- --
- Sweden 1.30 2.30 5.00 6.70 -- -- 6.70 -- -- --
- UK 5.00 6.90 7.70 10.20 -- -- 10.20 -- -- --
- Other non Euro area countries 1.30 4.40 5.50 11.80 -- -- 11.80 -- -- --
- EU Average 1.30 3.30 5.20 8.50
In our view, the treatment of sovereign debt within the CEBS stress test is unlikely to put market concerns to rest. However, we are
in a position to run scenarios which we believe the market currently deems more likely, and is also most concerned about. To reflect
these market concerns, we run three separate scenarios:

 GS scenario 1: extending CEBS haircuts to the banking book; reversing haircuts on stable sovereigns. In our view, the
market is likely to identify two key issues of the CEBS approach to stress-testing sovereign exposures:
 Applying haircuts to all sovereign exposures. The CEBS approach applies haircuts to all sovereign exposures, in-line with
Exhibit 9. We do not believe that the market is likely to view this as appropriate – after all, experience shows that the value of
the more stable sovereign paper tends to increase in times of crisis, rather than the opposite. The market seems to be by far
the most concerned with exposures to SE and Ireland, whilst treating the remaining European exposures comparatively
favorably.
 For this reason, we apply the following modifications to the CEBS approach: (i) we reverse the trading losses simulated by
CEBS for all non Southern European and Irish exposure, (ii) we extend CEBS’ assumptions on sovereign haircuts for SE and
Ireland to the banks’ trading as well as banking books.
 GS scenario 2: testing for the extreme – a Greek restructuring. Regardless of our own view and unprecedented political and
financial support, many in the market continue with their concern that Greek sovereign debt might ultimately face some type of
restructuring. As such, the market continues to harbor an element of “fear of the worst”. In this variation of the stress test, we
isolate the exposures to the Greek sovereign and stress them to a level implied by the S&P recovery rate, in the event of
restructuring. S&P assigned a recovery rating of '4' to Greece's debt issues, indicating its expectation of "average" (30%-50%)
recovery for debt holders in the event of a debt restructuring or payment default; we take the mid-point of 40%.
 GS scenario 3: our final scenario combines the two above (Exhibit 10 and 11).

Exhibit 10: Capital increase under three GS stress scenarios Exhibit 11: Number of banks below 6% hurdle rate under GS stress scenarios
40 €37.6bn 30 100%
Total capital required # banks < threshold o/w GS coverage Pass rate (%)
€34.1bn 89% 90%
35 81% 25
o/w GS coverage 25
22 76% 80%
30 €27.8bn
73%
70%
20
25
17 60%
20 15 50%
€16.2bn
15 10 40%
10
10 30%
12 20%
5 5 10 10
10%
0
Scen. 1 Scen 2. Scen 3. Consensus… 0 0%
Scen. 1 Scen 2. Scen 3. Consensus
Source: CEBS, Company data, Goldman Sachs Research estimates. Source: CEBS, Company data, Goldman Sachs Research estimates.
Scenario 1: extending CEBS haircuts to the banking book; reversing haircuts on stable sovereigns
Our analysis is based on the following key elements:
 CEBS haircut assumptions applied across the SE and Irish debt. We apply it uniformly to the trading, as well as the banking
book; banks hold the majority of these exposures in the banking book. We acknowledge that this approach overstates the
impact to some degree, as select exposures to the public sector, held in the banking book, will have been subject to the
cumulative credit loss assumptions. Given that the hits to this part of the book have not been split out, we are unable to adjust
for them. In addition, while the disclosure is detailed, it is not identical across all of the 91 institutions; for example, with select
German banks the level of detail on sovereign exposure within the trading book is limited, which prevents a reversal of haircuts.
 We have reversed the trading haircuts assumed on debt outside of SE and Ireland as we do not believe that the haircuts should
be extended to all sovereigns. After all, experience shows that the value of the more stable sovereign paper tends to increase in
times of crisis, rather than the opposite. In this scenario, therefore, we start by reversing the trading losses on all sovereign
exposure, excluding that of Southern Europe and Ireland.
 From a capital perspective, we use the CEBS calculated Tier 1 capital levels under the adverse scenario including sovereign
shock as a starting point.

Our key conclusions are as follows:
 Additional losses: €65 bn post-tax, comprised of €74 bn markdowns on SE and Irish debt and €11 bn reversal on other sovereign
securities.
 Keeping with the 6% Tier 1 hurdle rate, the number of institutions that fall below rises from seven previously to 21 (an increase
of 14 banks, for a pass rate of 77%). In turn, the aggregate capital shortfall rises from €3.5 bn to €16 bn (an increase of €12.5 bn).
 The discrepancy between the seemingly large increase in losses (€65 bn) and a lower increase in incremental capital need
(€12.5 bn) reflects the high level of dispersion of SE and Irish sovereign debt among European banks. In other words, for most
banks exposures are manageable, and hits are absorbed through the credit rather than the capital buffer.
Exhibit 12: SE and Ireland: Banking book exposures 4x the level of trading Exhibit 13: We arrive at additional hits of €65 bn, applying haircuts on
book exposures banking book of SE and Ireland countries; and reversing trading mark downs
(€ bn)Trading book and banking book exposures) on other sovereign debt (€ bn)
400 400 40
Banking Book Trading Book
336 29
350 350 30
22
300 300 18
263 20
250 250
10 6
2
200 200
0
150 150
108 -10
100 100 -11
47 -20
50 22 50 Spain Greece Italy Portugal Ireland Reversal of
(Sovereign (Sovereign (Sovereign (Sovereign (Sovereign trad. losses
0 0 debt) debt) debt) debt) debt) on other sov.
debt
Italy Spain Greece Portugal Ireland
Source: CEBS, Company data, Goldman Sachs Research estimates. Source: CEBS, Company data, Goldman Sachs Research estimates.

Exhibit 14: 21 Institutions fall below 6% Tier 1 assuming hits on banking book for SE and Ireland in line with trading losses
We have not obtained sovereign exposure data for DZ Bank, Landesbank Berlin, WGZ Bank
Incremental Incremental
Tier 1 Tier 1
Rank Bank haircut net of Rank Bank haircut net of
Ratio (%) Ratio (%)
30% tax 30% tax
(€ mn) Diff (€ mn) Diff
1 Greek Postal Savings Bank 845 ‐12.2% 46 Commerzbank 1,169 ‐0.4%
2 ABG 1,539 ‐10.4% 47 BNP Paribas 2,269 ‐0.3%
3 NBG 2,929 ‐4.1% 48 UBI Banca 280 ‐0.3%
4 HRE 3,058 ‐3.3% 49 KBC 447 ‐0.3%
5 Piraeus Bank 1,157 ‐3.1% 50 Banco Popolare 230 ‐0.2%
6 Banco BPI 597 ‐2.3% 51 Unicredit 1,091 ‐0.2%
7 EFG Eurobank 1,190 ‐2.2% 52 Norddeutsche Landesbank 199 ‐0.2%
8 Marfin Popular Bank 485 ‐2.0% 53 BCP 115 ‐0.2%
9 ESPIGA 511 ‐1.8% 54 ING Bank 701 ‐0.2%
10 Alpha Bank 794 ‐1.6% 55 Caja Sur 15 ‐0.1%
11 Bank of Cyprus 338 ‐1.5% 56 Societe Generale 450 ‐0.1%
12 BBVA 3,956 ‐1.3% 57 Bank of Ireland 104 ‐0.1%
13 BCEE 182 ‐1.2% 58 Caja de Ontinyent 1 ‐0.1%
14 Dexia 1,780 ‐1.2% 59 HSH Nordbank 60 ‐0.1%
15 Banco Pastor 212 ‐1.1% 60 Banca March 9 ‐0.1%
16 Caja Colonya 2 ‐1.1% 61 ABN / Fortis Bank 109 ‐0.1%
17 Caja BBK 203 ‐1.1% 62 Rabobank 208 ‐0.1%
18 Deutsche Postbank 648 ‐1.0% 63 Bank of Valletta 2 ‐0.1%
19 Deutsche Bank 3,953 ‐1.0% 64 Credit Agricole Group 320 ‐0.1%
20 Jupiter 2,039 ‐1.0% 65 Barclays 256 ‐0.1%
21 Caixa 1,517 ‐0.9% 66 BPCE 96 0.0%
22 Banca Civica 251 ‐0.8% 67 Lloyds Banking Group 5 0.0%
23 BMPS 991 ‐0.8% 68 WGZ Bank 0 0.0%
24 Caixa General de Depositos 564 ‐0.8% 69 FHB 0 0.0%
25 Unicaja 173 ‐0.8% 70 DZ Bank 0 0.0%
26 CAI 116 ‐0.8% 71 Landesbank Berlin 0 0.0%
27 Banco Popular Espanol 711 ‐0.8% 72 Caja Kutxa 0 0.0%
28 Caja de Vitoria y Alava 49 ‐0.7% 73 Erste Bank ‐1 0.0%
29 UNNIM 136 ‐0.7% 74 SYDBANK ‐1 0.0%
30 Banco Sabadell 419 ‐0.7% 75 Bayerische Landesbank ‐21 0.0%
31 Ibercaja 182 ‐0.7% 76 OP‐Pohjola Group ‐8 0.0%
32 Diada 350 ‐0.7% 77 Svenska Handelsbanken ‐22 0.0%
33 Santander 3,790 ‐0.6% 78 Swedbank ‐24 0.0%
34 Allied Irish Bank 470 ‐0.6% 79 Nordea ‐87 0.0%
35 CAM 534 ‐0.6% 80 Royal Bank of Scotland ‐255 0.0%
36 Breogan 297 ‐0.6% 81 RZB ‐59 0.1%
37 Banco Espirito Santo 419 ‐0.6% 82 JYSKE BANK ‐11 0.1%
38 Caja SOL 131 ‐0.6% 83 SEB ‐61 0.1%
39 Banco Guipuzcoano 46 ‐0.6% 84 Landesbank Hessen‐Thüringen ‐55 0.1%
40 Intesa SanPaolo 2,162 ‐0.6% 85 HSBC ‐857 0.1%
41 Mare Nostrum 253 ‐0.6% 86 OTP Bank ‐53 0.2%
42 Bankinter 146 ‐0.5% 87 PKO BP ‐66 0.2%
43 Banque Raiffeisen 12 ‐0.5% 88 Danske Bank ‐643 0.4%
44 SNS BANK 104 ‐0.4% 89 WestLB ‐267 0.5%
45 Landesbank Baden‐Württemberg 666 ‐0.4% 90 NLB ‐60 0.5%
91 Dekabank ‐187 0.6%

Scenario 2: testing for the extreme – a Greek restructuring; new disclosure suggests contagion
risk very limited
We mechanically apply the mid-point of the S&P recovery ratio, in the event of Greek restructuring, at 40%. In total, the 91 banks
tested disclosed exposures to the Greek sovereign of €108 bn; this amount splits between Greek banks (€56 bn) and non-Greek
banks (€52 bn).
Mechanically applying the mid-point of the S&P recovery rate across the board, would result in a total pre-tax impact of €60 bn. We
note the following key conclusions:
 The bulk of the impact is with the Greek banks, at some €33.7 bn. The non-Greek European banks would be exposed to the
residual of €31 bn on a pre-tax basis.
 The number of institutions falling below the 6% Tier 1 threshold would increase from seven to 17; an increase of 10, for a total
pass rate of 81%. In turn, the capital shortfall would rise form €3.5 bn to €28 bn.
 The capital shortfall, however, is split unevenly, with Greek banks needing some €20 bn and the non-Greek banks a substantially
lower €8 bn.
On the basis of the above, we conclude that the risk for contagion across the banking system is lower than what we would have
anticipated. In short, the fear of the unknown was larger than the fact laid out by CEBS, in our view. We show, that while Greek
banks would clearly need a recapitalization in such an event, the amount to which the European banks are exposed strikes us as
limited.
Being able to pinpoint exposures is clearly a positive, as it would allow the markets to differentiate among individual institutions.
Additionally, were this analysis to be reproduced for some of the market’s extreme concerns related to Spain – so the same haircut
of 60% applied – the additional losses would be €108 bn, for an additional capital shortfall of €47.5 bn. However, we see this as an
extremely remote scenario.

Exhibit 15: Potential hits from Greek debt restructuring largest in Greece Exhibit 16: Potential pre-tax hits from Greek debt restructuring by bank
€ bn € bn
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
NBG 11.5
Total exposure to Greek
108
debt ABG 6.0
Piraeus Bank 4.7
HRE 4.7
o/w Greek banks 56
EFG Eurobank 4.5
Greek Postal Savings Bank 3.2
Alpha Bank 3.0
o/w others 52
BNP Paribas 3.0
Dexia 2.2
Societe Generale 2.1
- 40% recovery rate Marfin Popular Bank 1.8
(post / pre-tax loss)
Commerzbank 1.7
Scenario losses for Deutsche Bank 1.6

24 10
Greek banks ING Bank 1.3
Royal Bank of Scotland 1.2
Scenario losses for other Bank of Cyprus 1.1

22 9
banks Deutsche Postbank 0.9
Landesbank Baden-Württemberg 0.8
BPCE 0.8
Source: CEBS, Goldman Sachs Research estimates, S&P. Source: CEBS, Goldman Sachs Research estimates, S&P.

Exhibit 17: Scenario 2: Outside of Greece, only five banks experience a >1% fall in Tier 1 from a Greek restructuring
€ mn
Incremental Incremental
Tier 1 Tier 1
Rank Bank haircut net of Rank Bank haircut net of
Ratio (%) Ratio (%)
30% tax 30% tax
(€ mn) Diff (€ mn) Diff
1 Greek Postal Savings Bank 2,232 ‐32.2% 46 Breogan 17 0.0%
2 ABG 4,171 ‐28.2% 47 Caixa General de Depositos 23 0.0%
3 NBG 8,037 ‐11.3% 48 Santander 167 0.0%
4 Piraeus Bank 3,315 ‐8.9% 49 Banco Popolare 26 0.0%
5 EFG Eurobank 3,117 ‐5.8% 50 Barclays 135 0.0%
6 Marfin Popular Bank 1,236 ‐5.2% 51 Allied Irish Bank 17 0.0%
7 Alpha Bank 2,104 ‐4.3% 52 UNNIM 4 0.0%
8 Bank of Cyprus 795 ‐3.6% 53 CAM 17 0.0%
9 HRE 3,276 ‐3.5% 54 OP‐Pohjola Group 5 0.0%
10 Deutsche Postbank 655 ‐1.1% 55 Jupiter 26 0.0%
11 Dexia 1,563 ‐1.0% 56 Unicaja 3 0.0%
12 Banco BPI 209 ‐0.8% 57 Banca Civica 3 0.0%
13 Banque Raiffeisen 13 ‐0.5% 58 BMPS 11 0.0%
14 BCP 301 ‐0.5% 59 UBI Banca 6 0.0%
15 Societe Generale 1,485 ‐0.4% 60 RZB 5 0.0%
16 Commerzbank 1,218 ‐0.4% 61 WGZ Bank 0 0.0%
17 Landesbank Baden‐Württemberg 592 ‐0.4% 62 FHB 0 0.0%
18 BCEE 51 ‐0.3% 63 Bank of Ireland 0 0.0%
19 BNP Paribas 2,067 ‐0.3% 64 Swedbank 0 0.0%
20 Deutsche Bank 1,092 ‐0.3% 65 Caja de Vitoria y Alava 0 0.0%
21 Banco Espirito Santo 195 ‐0.3% 66 Banco Popular Espanol 0 0.0%
22 KBC 379 ‐0.3% 67 Caja BBK 0 0.0%
23 WestLB 119 ‐0.2% 68 Banco Sabadell 0 0.0%
24 ING Bank 937 ‐0.2% 69 ESPIGA 0 0.0%
25 JYSKE BANK 35 ‐0.2% 70 DZ Bank 0 0.0%
26 Erste Bank 317 ‐0.2% 71 Svenska Handelsbanken 0 0.0%
27 SNS BANK 41 ‐0.2% 72 Caja SOL 0 0.0%
28 Dekabank 54 ‐0.2% 73 Caja Sur 0 0.0%
29 Royal Bank of Scotland 855 ‐0.2% 74 Landesbank Berlin 0 0.0%
30 HSH Nordbank 82 ‐0.1% 75 Caja Kutxa 0 0.0%
31 BPCE 585 ‐0.1% 76 CAI 0 0.0%
32 Bank of Valletta 4 ‐0.1% 77 Danske Bank 0 0.0%
33 Rabobank 266 ‐0.1% 78 Bankinter 0 0.0%
34 Banco Pastor 17 ‐0.1% 79 OTP Bank 0 0.0%
35 Intesa SanPaolo 301 ‐0.1% 80 Caixa 0 0.0%
36 NLB 9 ‐0.1% 81 Banca March 0 0.0%
37 Norddeutsche Landesbank 83 ‐0.1% 82 Lloyds Banking Group 0 0.0%
38 SEB 63 ‐0.1% 83 SYDBANK 0 0.0%
39 Unicredit 312 ‐0.1% 84 Mare Nostrum 0 0.0%
40 Bayerische Landesbank 83 ‐0.1% 85 ABN / Fortis Bank 0 0.0%
41 Landesbank Hessen‐Thüringen 35 0.0% 86 Caja Colonya 0 0.0%
42 Nordea 105 0.0% 87 Ibercaja 0 0.0%
43 Credit Agricole Group 277 0.0% 88 Caja de Ontinyent 0 0.0%
44 HSBC 433 0.0% 89 Banco Guipuzcoano 0 0.0%
45 BBVA 123 0.0% 90 PKO BP 0 0.0%
91 Diada 0 0.0%
Source: Company data, Goldman Sachs Research estimates.

Macro assumptions: Putting European stress assumption to the US test
GDP assumptions: adjusted for the point in the GDP cycle, European GDP assumptions on par with US
At first glance, the adverse CEBS macro assumptions appear less conservative than those employed in the US adverse stress-test
scenario. Specifically, CEBS assumes Year 1 and Year 2 GDP growth of -0.2% and -0.6% in Europe vs. the Fed’s assumption of -3.3%
and +0.5% growth in the US during Year 1 and Year 2 of the test (Exhibit 18). Consequently, this translates into substantially lower
assumed cumulative loan losses for both corporate (4.4% in Europe vs. 7.0% in the US) and retail (2.1% in Europe vs. 12.6% in the
US) exposures (Exhibit 19).
Exhibit 18: European stress-test GDP assumptions appear less conservative Exhibit 19: Loan loss assumptions are also lighter in Europe, reflecting the
than those used in the US stress test, on a headline basis less severe assumed macro backdrop
GDP growth in adverse scenario, Euro area and US 2-year cumulative loan losses, Euro area and US
14.0%
Year 1 Year 2
12.6%
1.0% Euro area (CEBS)
0.5% 12.0%
Cumulative loan losses ‐ adverse scneario
0.5%
US (Federal Reserve)
GDP growth ‐ adverse scneario
0.0% 10.0%
‐0.5% ‐0.2%
8.0% 7.0%
‐0.6%
‐1.0%
6.0%
‐1.5%
4.4%
‐2.0% 4.0%
Euro area (CEBS) 2.1%
‐2.5%
2.0%
‐3.0% US (Federal Reserve)
0.0%
‐3.5% ‐3.3% Loan losses (corporate) Loan losses (retail)
Source: Federal Reserve, CEBS. Source: Federal Reserve, CEBS, Company data, Goldman Sachs Research estimates.
However, we believe these differences in macro severity (Exhibit 20), in large part, reflect the timing of the stress tests. In fact,
relative to base-line GDP estimates, the assumptions employed in the adverse European macro scenario are even slightly more
severe at -300 bp, compared to -290 bp in US (cumulative over two years).
The deviation in adverse estimates on an absolute level are thus a function of the fact that the US stress test was undertaken against
a macro backdrop of substantial GDP contraction during year one of its stress test (2009) while the base line for Europe is for
moderate growth during year 1 (2010) of its stress tests.
This, of course, follows substantial GDP contraction in Europe during 2009 (which, in fact, marginally exceeded the contraction in
the US) and the severity of the GDP decline assumed in the adverse scenario of the European stress test appears
significantly more conservative seen in this light, in our view (Exhibit 21).

It is also entails that European banks are one year further into their credit cycle than US banks at the time of their respective stress
tests. In fact, while US banks charged-off 2.6% of their loan books during 2009, European banks under our coverage took provisions
against 1.6% of their loan books. In turn, these losses (realized in the case of the US and mostly unrealized in the case of Europe)
were included (insofar as they were projected) in the US stress test but precede the European test and are therefore excluded from
the cumulative loss estimates. This too, is a significant factor when evaluating the relative severity of the two tests, in our view.
Exhibit 20: Adverse scenario of US and European stress tests appear similarly Exhibit 21: …But the European stress test is taking place in the aftermath of
conservative relative to base-line estimates… a substantial GDP drawdown during 2008
GDP growth in adverse scenario relative to base line, Euro area and US 2007-2011 GDP (indexed), Europe and US
Year 1 Year 2 Cumulative 102
0.0%
101
GDP growth ‐ adverse scneario vs base‐line
‐0.5% 100
99
‐1.0%
‐0.9%
GDP indexed
98
‐1.5% ‐1.3%
97
‐1.6%
‐2.0%
96
‐2.1% Europe
‐2.5% 95
US
Euro area (CEBS)
94
‐3.0%
‐2.9%
US (Federal Reserve) ‐3.0%
93
‐3.5% 2007 2008 2009 2010E 2011E
Notes
2009 and 2010 US data = stress test assumptions under adverse Fed scenario
2011 US data = GS estimates
2010 and 2011 European data = stress test assumptions under adverse CEBS scenario
Source: Federal Reserve, CEBS, Company data, Goldman Sachs Research estimates. Source: Federal Reserve, CEBS, Company data, Goldman Sachs Research estimates.
Severity of cumulative loan loss assumptions differs widely from country to country
The differences in European and US loan loss assumptions reflect the assumed GDP backdrop discussed above, but importantly
also:
 geographical composition of the “Europe” aggregate;
 banking market fundamentals.
1. Geographical composition of the “Europe” aggregate

Even more than the US, the “European” banking market as such is not a practical concept, owing to its vast divergence. In our view,
the average loan loss assumptions employed in the test are thus, in part, a reflection of the health and stability of the Eurozone’s
dominant economies (Germany, France), which represent about 50% of aggregate Euro-area banking assets. In fact, as we note
below, the assumptions employed for countries facing challenging macro conditions (Greece, Spain, Ireland) are relatively severe.

2. Banking market fundamentals

Specifically, a greater proportion of loans in the US banking market are extended to vulnerable (“subprime”) borrowers relative to
Europe. In addition, the US has undergone a uniquely severe residential real estate downturn in the current cycle. Consequently,
even in the absence of timing differences, we would have expected, particularly, cumulative retail losses in the US to exceed those
in Europe under severe macro assumptions.
Those caveats aside, we note that while cumulative loss estimates are lower, on average, in the European stress test relative to the
US, the assumptions employed for several countries reflect macro headwinds broadly on par with those employed in the US.
Spain, in particular, stands out for the severity of its assumptions. The Spanish adverse scenario assumes commercial/residential
real estate price declines of 55%/23% (relative to the 41% peak-to-date decline for US CRE and 27% residential real estate decline
assumed in the US adverse stress-test scenario) and 2-year cumulative corporate/retail losses of 8.2%/1.7% (relative to 7.0%/12.6%
in the US) (Exhibit 22).
Exhibit 22: Assumptions differ substantially across countries. Spain stands out for the severity of its adverse scenario assumptions
Cumulative real estate price declines and loan losses, by country
2 year cumulative price decline - adverse scenario Commercial real estate 2 year cumulative price decline - adverse scenario Residential real estate
Italy -4% Italy -4%
Malta -4% Malta -4%
Cyprus -4% Cyprus -4%
Greece -7% Greece -7%
Denmark -8% Denmark -8%
France -9% France -9%
Portugal -10% Portugal -10%
Hungary -13% Finland -10%
UK -19% UK -19%
Germany -19% Germany -19%
Netherlands -19% Netherlands -19%
Finland -19% Belgium -19%
Belgium -19% Sweden -19%
Ireland -24% Hungary -20%
Sweden -26% Ireland -21%
US peak (2Q07) to date -41% Spain -23%
Spain -55% US stress test -27%
Average (Europe) -16% Average -13%
Cumulative loss rate (%) - adverse scenario Corporate Cumulative loss rate (%) - adverse scenario Retail
Malta 0.7% Luxembourg 0.9%
Germany 1.6% Netherlands 0.9%
Finland 1.8% Sweden 0.9%
France 2.0% Portugal 0.9%
Netherlands 2.1% Germany 1.1%
Sweden 2.3% Finland 1.2%
Belgium 2.3% Slovenia 1.2%
Luxembourg 2.9% Denmark 1.6%
Denmark 2.9% Spain 1.7%
Austria 3.0% Belgium 1.8%
Italy 3.1% Malta 2.1%
UK 3.2% France 2.3%
Slovenia 3.8% Italy 2.7%
Portugal 4.6% UK 4.3%
Ireland 5.4% Ireland 4.4%
Poland 5.5% Hungary 4.8%
Cyprus 6.6% Poland 5.7%
Greece 6.8% Greece 8.3%
US stress test - adverse scenario 7.0% Austria 9.1%
Spain 8.2% Cyprus 9.5%
Hungary 9.5% US stress test 12.6%
Average (Europe) 4.4% Average (Europe) 2.1%
Source: Datastream, NCREIF/MIT, Federal Reserve, CEBS, Goldman Sachs Research.

Comparing the past with potential prologue?

To sanity-check the overall assumptions and findings of the stress test, we have compared the progression of aggregate capital
ratios under the severe CEBS macro scenario to the capital formation reported by the top 10 European banks (by assets) during 2009.
The comparison is not like-for-like (CEBS takes as its starting point Tier 1 and examines capital formation over two years while our
analysis examines capital formation during a single year). Nevertheless, the comparison highlights the following points:
1) The severe stress-test scenario assumes worse operational trends during 2010 and 2011 than major banks reported during 2009.
Specifically, the CEBS test assumes lower pre-provision generation (4.5% of RWA during 2010-11 in aggregate vs. 2.4% reported in
2009) and higher losses (4.5% of RWA during 2010-2011 vs. 2.0% reported in 2009). In addition, the major European banks in our
2009 sample delivered RWA shrinkage during 2009 (this boosting capital ratios) while the CEBS adverse scenario assumes RWA
growth (thus putting additional pressure on capital ratios) (Exhibit 23 and 24).
2) Overall, the conclusion of the CEBS test that European banks are in a position to fund loan losses through pre-provision earnings
is supported by the results reported during 2009 when the banks in our sample (more than) covered loan losses through GOP
(Exhibits 23 and 24).
3) Separately, the analysis highlights that major European banks already re-capitalized substantially during 2009, adding 200 bp of
core Tier 1, split evenly between private and public sources (Exhibit 23).
Exhibit 23: Major European banks more than covered loan losses with pre- Exhibit 24: CEBS analysis indicates that, given time, European banks can
provision earnings during 2009 cover loan losses with pre-provision earnings
2008-2009 capital ratio development, top 10 European banks (by assets) 2009-2011 capital ratio development, European banks (CEBS adverse scenario)
12.0% 16.0%
14.0%
2.4% -2.0%
Capital ratios - top 10 European banks (by assets)
10.0%
Capital ratios - based on CEBS adverse scenario

2.0%
0.2% 4.5% -4.5%
- 0.5% 12.0%
8.0%
10.0% -0.7%
- 0.1% NA
6.0% 10.8% 8.0%
8.8% 6.0%
4.0% 10.3% 9.2%
4.0%
2.0%
2.0%
0.0% 0.0%
Tier 1 (2008) Pre-provision Post-tax loan RWA Other Capital Tier 1 (2009) Tier 1(2009) Pre-provision Post-tax loan RWA Other Capital Tier 1 (2011E)
earnings (post- loss provisions (including earnings (post- loss provisions
tax) and write-downs dividend) tax) and write-downs
Source: Company data, Goldman Sachs Research estimates. Source: CEBS, Goldman Sachs Research.

Pre-impairment income assumptions by CEBS allow for meaningful deterioration to GS(E)

In our view, the pre-impairment income (PII) assumption is as important as the cumulative loss assumption, when it comes to
assessing the credibility of this stress test. CEBS scenarios imply largely unchanged PII for the benchmark, and a 6% decline in the
adverse scenario. We show that this represents a meaningful haircut compared to GS base-case estimates, both on an aggregate
basis as well as for most individual banks. In our view, the CEBS estimates therefore fairly reflect a deterioration in operating
conditions, which goes beyond what is currently captured by our base-case estimates.
Assessment of pre-impairment income forecast is central to stress-test credibility

As part of the stress test, banks provided an estimate of two years (2010-2011) of cumulative pre-impairment income. These differ
depending on the scenario; for the 91 banks in total, they add up to €538 bn under the benchmark scenario, falling to €509 bn under
the adverse scenario (-5.4%). On an annual run-rate basis, the benchmark scenario assumes €269 bn of PII and the adverse scenario
€255 bn. In comparison to 2009, the run-rate is flat in a benchmark scenario, while it assumes a 6% decline in an adverse scenario.
In our view, the PII assumption is as important as the cumulative loss assumption, when it comes to assessing the credibility of this
stress test. There are a number of reasons for this, but highlight the following:
 PII translates into credit buffers, which – unlike capital buffers – are recurring in nature. As such, they are the first line of a bank’s
loss absorption capacity.
 The benchmark scenario implies that the aggregate PII more than covers estimated impairment losses, and represent 164% of
total losses. This ratio falls to 108% under the adverse scenario, however PII remains sufficient to cover impairments without
eroding into banks’ capital.
 In the context of RWA, PII represents 4%-5% of total. As show in Exhibit 25, this is an all-important element in the dynamics of
Tier 1 capital formation.

Exhibit 25: Pre-impairment income resilience key component of banks’ loss absorption capacity
European banks aggregated figures – CEBS sample (91 banks)
Run rate
2009 2010 2011 Cum. 2010-11E vs 2009 (%) Base case: PII covers 164% of impairment losses
2010-11E
Benchmark (1) (2) (3) (4) = (2)+(3) (5) = (4) / 2
Pre-impairment income 270 261 277 538 269 0% 182%
164%
147%
Change. YoY (%) -- -3% 6% -- -- --
Total impairments 206 177 152 329 165 -20%
Change. YoY (%) -- -14% -14% -- -- --
Pre impairment income / Total losses (%) -- 147% 182% 164% 164% ‐‐ 2010 2011 Cum. 2010-11E
Pre-impairment income / RWA (%) 2.4% 2.3% 2.4% 4.7% 2.4% ‐‐
Advesre scenario Adverse scenario: PII still higher than impairments

Pre provision income 270 251 258 509 254.5 -6%
ch. YoY (%) -7% 3% -- -- --
108%
Total impairments 206 234 239 473 237 15%
108%
ch. YoY (%) -- 14% 2% -- -- --
107%
Pre impairment income / Total losses (%) -- 107% 108% 108% 108% ‐‐
Pre-impairment income / RWA (%) 2.4% 2.2% 2.1% 4.2% 2.1% ‐‐ 2010 2011 Cum. 2010-11E
Source: CEBS summary report.
CEBS PII assumptions are more conservative compared to GS base case for 26 of 39 banks
At the individual bank level, CEBS PII assumptions for 11 banks are above our estimates, while 26 banks show one that is below (i.e.
more conservative). Particularly, that is the case for a few outliers, both on the positive and negative side. The exact reasons are
difficult to gauge, however, we believe that the comparison is heavily affected by change in scope (e.g. planned disposals, pre-
agreed acquisitions), management actions (e.g. cost savings, revenue forecasts, risk reduction) and different views regarding marks
on certain securities. As per Exhibit 26, we note that:
 Top 3 banks showing a positive deviation from GS forecasts (i.e. CEBS forecasts are more optimistic than GS) are Deutsche
Bank, ABG and Barclays. For these banks the deviation is in the meaningful 0.6%-1.3% of RWA range.
 On the other end, banks that show a negative deviation from GS estimates are AIB, KBC and DPB.
 For the vast majority of banks, however, the deviations are negative, and in the 0%-20% range.

Exhibit 26: CEBS pre-impairment income assumptions are more conservative than GS base case for 26 of 39 banks
Cumulative PII 2010-11E: CEBS adverse scenario vs. GS estimates
Difference Difference
Rank Bank** % % of RWA* Rank Bank** % % of RWA*
1 Deutsche Bank 42% 1.3% 21 SEB -8% 0.2%
2 ABG 18% 0.6% 22 PKO BP -8% 0.7%
3 Barclays 17% 0.8% 23 Bankinter -8% 0.2%
4 Svenska Handelsbanken 12% 0.3% 24 BBVA -10% 0.6%
5 Danske Bank 7% 0.2% 25 BNP Paribas -11% 0.4%
6 Marfin Popular Bank 5% 0.2% 26 EFG Eurobank -12% 0.5%
7 Intesa SanPaolo 5% 0.1% 27 Piraeus Bank -13% 0.4%
8 Royal Bank of Scotland 4% 0.2% 28 HSBC -13% 0.6%
9 Banco Popular Espanol 2% 0.1% 29 NBG -14% 0.7%
10 Nordea 1% 0.0% 30 BMPS -15% 0.4%
11 Commerzbank 0% 0.0% 31 Unicredit -18% 0.7%
12 OTP Bank 0% 0.0% 32 UBI Banca -19% 0.4%
13 Swedbank -4% 0.1% 33 Societe Generale -20% 0.8%
14 Erste Bank -4% 0.1% 34 Banco Pastor -24% 0.8%
15 Bank of Cyprus -4% 0.2% 35 Banco Popolare -27% 0.5%
16 Banco Sabadell -5% 0.1% 36 Greek Postal Savings Bank -43% 1.5%
17 Santander -5% 0.3% 37 Deutsche Postbank -58% 1.6%
18 Lloyds Banking Group -6% 0.2% 38 KBC -60% 2.6%
19 Alpha Bank -6% 0.2% 39 Allied Irish Bank -72% 2.6%
20 Bank of Ireland -7% 0.2% Average -6% 0.2%
* adjusted for corporate tax impact, ** excludes Dexia
Source: CEBS, Goldman Sachs Research estimates.

Credit Section: Results positive for credit spreads, even raising the minimum Tier 1 to 8%
This section was The positive takeaways for credit investors are: a) the increased disclosure provided by the standardized results of the stress tests,
written by our Global b) the banking book losses assumed for each of the 2010 and 2011 years are in most cases higher than those in 2009, c) the fact that
Banks and Finance almost all of the banks under our coverage “pass” even when raising the minimum Tier 1 ratio to 8%, d) the resulting balance sheet
Credit Research
restructuring that is taking place among the European banking sector, e) confidence that additional losses on highly subordinated
Analyst, Louise Pitt.
securities of the banks under coverage is increasingly unlikely.
While concerns for the broader European banking sector are unlikely to be alleviated entirely as a result of the stress tests, as
ongoing restructuring and recapitalization is needed, the results support our Attractive view of our European Bank credit sector
coverage as well as our ratings distribution within our covered names. In fact, we think spread volatility is likely to remain high in
the short term, but as we proceed through 2Q earnings and investors appreciate the differentiation evident by the transparency of
data provided in the tests, spreads should tighten.
An important factor not stressed, however, was liquidity, which could remain a concern for investors in the short term, although we
believe will also be positively impacted for the stronger names in the group. In fact, the unsecured markets have been active in
recent weeks as many of the larger banks have issued debt in both euros and US dollars.
Specifically, based on the analysis carried out by our Equity Research colleagues, only three banks covered by GS Credit Research
would require additional capital raises under a minimum 8% Tier 1 ratio test. As we can see in Exhibit 7, only AIB (€1.1 bn), Unicredit
(€942 mn) and Bank of Ireland (€777 mn) fall short of reaching the 8% threshold.
Exhibit 27: Stress test largely assumes losses at least as significant as 2009 Exhibit 28: Banks are likely to improve core capital levels
are carried forward Most recently reported core Tier 1 and total Tier 1 capital ratios
Half of 2-year cumulative losses in the banking book as % of 2009 actual
200% 18%
180% Tier 1 Capital Core Tier 1 Capital

16%
160%
14%
140%
Adverse / 2009 Actual
120%
12%
100%
10%
80%
60% 8%
40%
6%
20%
0% 4%
ACAFP
BBVA
SANTAN
BACR
HSBC
SOCGEN
BKIR
ISPIM
UCGIM
Nordea
DB
BNP
BPCE
RBS
AIB
LLOYDS
ING
BBVA
ACAFP
BACR
BKIR
STANLN
HSBC
SOCGEN
SANTAN
UCGIM
ISPIM
Nordea
CS
UBS
RBS
DB
BNP
LLOYDS
BPCE
AIB
Source: CEBS, Goldman Sachs Research. Source: Company data, Goldman Sachs Research. ING

Spanish and UK banks’ spreads should benefit most, Irish banks remain cheap despite low capital levels, French and
Italian banks still look tight based on results of tests
Looking more specifically at the names in our coverage, the range of the change in Tier 1 capital was a 3.2 percentage point
reduction at RBS and a 0.7 percentage point increase at BACR, with an average of an 82 basis point reduction in the Tier 1 ratio,
showing a wide dispersion between names. Santander even had the same Tier 1 capital ratio and a 10 bp increase in core Tier 1
capital under the adverse scenario.
We note that the stress test results assume a 60% improvement in pre-impairment income at RBS, and DB’s pre-impairment income
estimates under the stress test were 42% higher than those of our Equity Research colleagues. DB would also be one of the large
cap banks most negatively impacted by applying sovereign haircuts to the banking book and incorporating a restructuring of Greek
debt (-1.2% Tier 1 capital impact) according to the work carried out by our Equity Research colleagues.
Overall, we believe that the major Spanish banks, the UK banks and Nordea should benefit the most from spread tightening as a
result of both the published stress test results and the incremental analysis presented by our Equity Research colleagues. In contrast,
we think the data show that the major French and Italian banks, as well as DB, could see some relative spread underperformance.
It is also important to consider the quality of capital, however. As we can see in Exhibit 28 above, the Irish banks, DB and BPCE are
those with the highest percentage of non-core equity in their capital base. Following recent capital management transactions, most
of the Irish hybrids are now government securities, but this is not true of DB or BPCE. Considering the analysis that is possible with
Exhibit 29: European bank CDS spreads still offer value Exhibit 30: Bank cash spreads are still wide across the capital structure
Historical CDS spreads We still recommend moving down the capital structure
300 1,500
1,400
1,300
250 1,200
1,100
1,000
Treasury spread (bp)

200 900
Mid Spread (bp)
800
European Banks 700

150 US Banks 600
iTraxx Sen. Fin.
Non-Financial CDX
500 Tier 1
Non-Financial iTraxx 400
CDX
100 300
LT2
Senior
200
IG Corp - A
100
50 0
Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
Source: iTraxx, Goldman Sachs Research.US and European Bank indices represent names under coverage Source: iBoxx, Goldman Sachs Research
other than BPCE and ALLY. Non-financial CDX is average of sector indices.

the increased disclosure provided through the stress tests, it would not surprise us (in fact it would be an additional positive
development) to see some banks that passed the test still raise core Tier 1 capital levels in coming months.
Given the relatively high core and total Tier 1 capital ratios of the banks in our coverage, we do not believe that additional
coupon deferrals are likely, but think that additional capital structure management could occur as banks seek to
improve core Tier 1 ratios and replace securities which could lose Tier 1 credit in the longer term. We would continue to
recommend investors move down the capital structure in the names we like. We think the stronger institutions are likely to replace
innovative securities as they reach their call dates, while weaker banks are likely to exercise a more “economic” approach to the
calls.
Exhibit 31: Sovereign disclosure is a clear positive for investors

Select sovereign exposures in local currencies
All sovereign exposures Select exposures

Banking book Trading book Aggregate Portugal Italy Greece Spain
BACR 35,056 7,362 42,418 1,024 787 388 4,376
RBS 66,922 23,527 90,449 660 3,919 2,010 821
1
LLOYDS 7,605 65 7,670 0 0 0 0
HSBC 42,857 37,708 80,565 698 6,247 101 1,935
SANTAN 46,536 13,801 60,337 5,118 1,184 513 50,642
BBVA 52,892 11,883 64,775 646 6,230 293 52,131
ISPIM 46,580 24,820 71,400 25 63,681 828 556
UCGIM 58,756 23,001 81,757 186 38,832 801 560
ACAFP 36,515 16,077 52,592 1,478 12,347 854 2,286
SOCGEN 33,805 8,673 42,478 404 5,149 4,225 901
BNP 91,316 4,634 95,950 2,526 23,196 5,005 3,021
2
BPCE 34,584 13,002 47,586 456 7,493 1,540 384
BKIR 1,237 77 1,314 0 30 0 0
AIB 9,564 0 9,564 257 671 41 391
1
NORDEA 19,888 4,089 23,977 0 709 249 37
INTNED 41,319 5,332 46,651 1,773 6,443 2,425 1,380
1
LLOYDS as of 1H10, Nordea as of FY09
2
Groupe BPCE released on 6 May 2010 its exposure on Greece, amounting to 2,1 billion euros inclusive of all Greek counterparties at 30 April 2010. At that
time, gross exposure to Greek government amounted to 1,4 billion euros, guaranteed at 0,3 billion euros.
3
Not disclosed
Source: Company data, Goldman Sachs Research.

Appendix: Rankings of Tier 1 capital ratios
Exhibit 32: Rankings of Tier 1 capital ratios published by CEBS for 2009 and 2011 under "Benchmark" and “Sovereign Shock” scenarios
Tier 1 Ratio (2009) as reported by CEBS Tier 1 Ratio (2011) under "Benchmark" scenario Tier 1 Ratio (2011) under "Sovereign Shock" scenario

Rank Bank % Rank Bank % Rank Bank %
1 Banca March 19.7% 1 Banca March 20.8% 1 Banca March 19.0%
2 GPSB 17.1% 2 OTP Bank 18.0% 2 OTP Bank 16.2%
3 Caja BBK 14.6% 3 Caja BBK 17.4% 3 PKO BP 15.4%
4 WestLB 14.4% 4 GPSB 17.0% 4 Caja BBK 14.1%
5 RBS 14.4% 5 PKO BP 16.5% 5 Barclays 13.7%
6 Rabobank 14.1% 6 Barclays 15.8% 6 SYDBANK 13.2%
7 OTP Bank 13.8% 7 HSH Nordbank 14.9% 7 JYSKE BANK 12.5%
8 JYSKE BANK 13.5% 8 SYDBANK 14.8% 8 Rabobank 12.5%
9 Dexia 13.4% 9 Rabobank 14.8% 9 OP‐Pohjola Group 12.3%
10 LBB 13.3% 10 BCEE 14.2% 10 BCEE 11.3%
11 PKO BP 13.3% 11 JYSKE BANK 14.1% 11 LBB 11.2%
12 SYDBANK 13.1% 12 FHB 14.1% 12 RBS 11.2%
13 ABN / Fortis Bank 13.0% 13 RBS 14.1% 13 Dexia 10.9%
14 Caja Kutxa 13.0% 14 Dexia 13.4% 14 FHB 10.6%
15 Barclays 13.0% 15 OP‐Pohjola Group 13.4% 15 Caja Kutxa 10.6%
16 OP‐Pohjola Group 12.6% 16 Deutsche Bank 13.2% 16 SNS BANK 10.5%
17 Deutsche Bank 12.6% 17 LBB 12.8% 17 SEB 10.3%
18 SEB 12.4% 18 Caja Kutxa 12.6% 18 Banco BPI 10.2%
19 KBC 12.2% 19 WestLB 12.4% 19 HSBC 10.2%
20 Unicaja 11.8% 20 Alpha Bank 12.3% 20 GPSB 10.1%
21 Danske Bank 11.7% 21 KBC 12.2% 21 Nordea 10.1%
22 Alpha Bank 11.6% 22 ABN / Fortis Bank 12.0% 22 Danske Bank 10.0%
23 BCEE 11.4% 23 SNS BANK 12.0% 23 Societe Generale 10.0%
24 NBG 11.3% 24 Societe Generale 11.9% 24 Santander 10.0%
25 Caja de Vitoria y Alava 11.3% 25 BayernLB 11.9% 25 ABN / Fortis Bank 9.9%
26 EFG Eurobank 11.2% 26 Unicaja 11.8% 26 Swedbank 9.9%
27 BayernLB 10.9% 27 SEB 11.8% 27 Deutsche Bank 9.7%
28 HSBC 10.8% 28 Danske Bank 11.7% 28 HSH Nordbank 9.7%
29 Societe Generale 10.7% 29 NBG 11.7% 29 BNP Paribas 9.6%
30 SNS BANK 10.7% 30 EFG Eurobank 11.7% 30 KBC 9.4%
31 RZB 10.6% 31 HSBC 11.7% 31 Bank of Valletta 9.3%
32 Bank of Cyprus 10.5% 32 Banco BPI 11.6% 32 BBVA 9.3%
33 Commerzbank 10.5% 33 Bank of Valletta 11.5% 33 Lloyds 9.2%
34 HSH Nordbank 10.5% 34 BNP Paribas 11.4% 34 Commerzbank 9.1%
35 Bank of Valletta 10.5% 35 Nordea 11.3% 35 WGZ Bank 9.1%
36 Banco Pastor 10.5% 36 ING Bank 11.2% 36 Credit Agricole Group 9.0%
37 Erste Bank 10.4% 37 Dekabank 11.1% 37 Unicaja 9.0%
38 Swedbank 10.4% 38 Santander 11.0% 38 Svenska Handelsbanken 8.9%
39 Caixa 10.3% 39 Bank of Cyprus 10.9% 39 BayernLB 8.8%
40 Caja SOL 10.3% 40 Piraeus Bank 10.9% 40 ING Bank 8.8%
41 ING Bank 10.2% 41 WGZ Bank 10.8% 41 DZ Bank 8.7%
42 Nordea 10.2% 42 Lloyds 10.8% 42 BPCE 8.5%
43 BNP Paribas 10.1% 43 ABG 10.7% 43 Dekabank 8.4%
44 Marfin 10.0% 44 Swedbank 10.7% 44 BCP 8.4%
45 Santander 10.0% 45 RZB 10.6% 45 Alpha Bank 8.2%
46 DZ Bank 9.9% 46 Credit Agricole Group 10.6% 46 Intesa SanPaolo 8.2%
47 Caja Colonya 9.9% 47 BBVA 10.6% 47 Banque Raiffeisen 8.2%
48 LBBW 9.8% 48 Caixa 10.6% 48 Caixa CGD 8.2%
49 Dekabank 9.8% 49 Commerzbank 10.5% 49 EFG Eurobank 8.2%
50 Credit Agricole Group 9.7% 50 CAM 10.5% 50 LBBW 8.1%
Source: CEBS.

Exhibit 33: Rankings of Tier 1 capital ratios published by CEBS for 2009 and 2011 under "Benchmark" and “Sovereign Shock” scenarios (continued)
Tier 1 Ratio (2009) as reported by CEBS Tier 1 Ratio (2011) under "Benchmark" scenario Tier 1 Ratio (2011) under "Sovereign Shock" scenario

51 WGZ Bank 9.7% 51 Erste Bank 10.4% 51 Erste Bank 8.0%
52 Banca Civica 9.6% 52 DZ Bank 10.4% 52 Bank of Cyprus 8.0%
53 Lloyds 9.6% 53 BPCE 10.2% 53 RZB 7.8%
54 HRE 9.4% 54 Svenska Handelsbanken 10.2% 54 Unicredit 7.8%
55 BBVA 9.4% 55 Breogan 10.1% 55 CAM 7.8%
56 Ibercaja 9.4% 56 Marfin 10.0% 56 Caixa 7.7%
57 CAI 9.4% 57 Unicredit 10.0% 57 NBG 7.4%
58 BCP 9.3% 58 LBBW 9.8% 58 HeLaBa 7.3%
59 CAM 9.3% 59 Intesa SanPaolo 9.8% 59 Banco Sabadell 7.2%
60 Bank of Ireland 9.2% 60 Banque Raiffeisen 9.8% 60 Breogan 7.2%
61 BPCE 9.1% 61 Mare Nostrum 9.7% 61 Marfin 7.1%
62 Piraeus Bank 9.1% 62 Banco Sabadell 9.6% 62 WestLB 7.1%
63 Banco Popular 9.1% 63 Allied Irish Bank 9.5% 63 Bank of Ireland 7.1%
64 Banco Guipuzcoano 9.1% 64 Caja de Vitoria y Alava 9.5% 64 Banco Popolare 7.0%
65 Svenska Handelsbanken 9.1% 65 BCP 9.4% 65 Banco Popular 7.0%
66 Banco Sabadell 9.0% 66 Banco Espirito Santo 9.2% 66 Mare Nostrum 7.0%
67 Mare Nostrum 9.0% 67 Banco Popular 9.2% 67 Caja de Vitoria y Alava 7.0%
68 Caja de Ontinyent 8.9% 68 Caixa CGD 9.1% 68 Banco Espirito Santo 6.9%
69 HeLaBa 8.8% 69 Ibercaja 9.1% 69 UBI Banca 6.8%
70 FHB 8.6% 70 Caja Colonya 9.1% 70 Bankinter 6.8%
71 Unicredit 8.6% 71 Bank of Ireland 9.0% 71 Ibercaja 6.7%
72 Jupiter 8.6% 72 HeLaBa 8.9% 72 Deutsche Postbank 6.6%
73 Breogan 8.6% 73 Jupiter 8.8% 73 Caja de Ontinyent 6.6%
74 ESPIGA 8.6% 74 CAI 8.8% 74 Allied Irish Bank 6.5%
75 Banque Raiffeisen 8.5% 75 Banco Pastor 8.7% 75 NLB 6.3%
76 Banco BPI 8.5% 76 Caja SOL 8.7% 76 Jupiter 6.3%
77 ABG 8.4% 77 Bankinter 8.4% 77 NordLB 6.2%
78 Caixa CGD 8.4% 78 Caja de Ontinyent 8.4% 78 BMPS 6.2%
79 Intesa SanPaolo 8.3% 79 ESPIGA 8.2% 79 Caja Colonya 6.2%
80 UBI Banca 8.0% 80 Banco Guipuzcoano 8.1% 80 CAI 6.1%
81 Banco Popolare 7.7% 81 NordLB 8.0% 81 Banco Guipuzcoano 6.1%
82 Banco Espirito Santo 7.7% 82 Deutsche Postbank 7.9% 82 Piraeus Bank 6.0%
83 NordLB 7.5% 83 HRE 7.8% 83 Banco Pastor 6.0%
84 BMPS 7.5% 84 Banco Popolare 7.8% 84 Caja SOL 6.0%
85 NLB 7.5% 85 BMPS 7.6% 85 ESPIGA 5.6%
86 Bankinter 7.5% 86 UBI Banca 7.6% 86 HRE 4.7%
87 UNNIM 7.2% 87 Banca Civica 7.6% 87 Banca Civica 4.7%
88 Deutsche Postbank 7.1% 88 NLB 7.0% 88 UNNIM 4.5%
89 Allied Irish Bank 7.0% 89 UNNIM 6.6% 89 ABG 4.4%
90 Diada 6.6% 90 Caja Sur 6.6% 90 Caja Sur 4.3%
91 Caja Sur 1.8% 91 Diada 6.4% 91 Diada 3.9%
Median 9.9% Median 10.6% Median 8.2%
o/w GS coverage 10.3% o/w GS coverage 10.9% o/w GS coverage 8.6%
o/w other 9.7% o/w other 10.4% o/w other 8.2%
Minimum 1.8% Minimum 6.4% Minimum 3.9%
Maximum 19.7% Maximum 20.8% Maximum 19.0%
Source: CEBS.

Appendix: Rankings of core Tier 1 capital ratios
Exhibit 34: Rankings of core Tier 1 ratios for 2009 and 2011 estimates based on "Benchmark" and “Sovereign Shock” scenarios published by CEBS
Core Tier 1 Ratio (2009) Core Tier 1 Ratio (2011E) under "Benchmark" scenario Core Tier 1 Ratio (2011E) under "Sovereign Shock" scenario

1 GPSB 17.1% 1 GPSB 17.0% 1 Barclays 11.0%
2 Swedbank 12.0% 2 Barclays 13.0% 2 GPSB 10.1%
3 Svenska Handelsbanken 11.7% 3 RBS 10.9% 3 Nordea 9.2%
4 SEB 11.7% 4 Alpha Bank 10.8% 4 HSBC 8.9%
5 RBS 11.0% 5 ABG 10.7% 5 Santander 8.6%
6 EFG Eurobank 10.3% 6 NBG 10.4% 6 Swedbank 8.6%
7 Nordea 10.3% 7 Piraeus Bank 10.4% 7 SEB 8.3%
8 Alpha Bank 10.3% 8 HSBC 10.4% 8 Lloyds 8.2%
9 Barclays 10.0% 9 KBC 10.4% 9 RBS 8.1%
10 NBG 9.9% 10 Nordea 10.3% 10 Societe Generale 8.0%
11 Danske Bank 9.5% 11 EFG Eurobank 9.8% 11 BBVA 8.0%
12 HSBC 9.4% 12 SEB 9.8% 12 Commerzbank 7.8%
13 KBC 9.2% 13 Societe Generale 9.8% 13 KBC 7.8%
14 Commerzbank 9.1% 14 Lloyds 9.7% 14 BNP Paribas 7.7%
15 Bank of Ireland 8.9% 15 Deutsche Bank 9.7% 15 Svenska Handelsbanken 7.4%
16 Piraeus Bank 8.8% 16 Santander 9.6% 16 Erste Bank 7.2%
17 Deutsche Bank 8.7% 17 Erste Bank 9.5% 17 Intesa SanPaolo 7.0%
18 Santander 8.6% 18 Swedbank 9.4% 18 Deutsche Bank 6.8%
19 Banco Popular 8.6% 19 BBVA 9.3% 19 Unicredit 6.8%
20 Unicredit 8.5% 20 BNP Paribas 9.3% 20 Alpha Bank 6.6%
21 Societe Generale 8.5% 21 Commerzbank 9.1% 21 Banco Popular 6.5%
22 ABG 8.4% 22 Unicredit 8.9% 22 Danske Bank 6.4%
23 Erste Bank 8.3% 23 Banco Popular 8.7% 23 EFG Eurobank 6.3%
24 Banco Pastor 8.3% 24 Allied Irish Bank 8.7% 24 UBI Banca 6.3%
25 Lloyds 8.1% 25 Svenska Handelsbanken 8.5% 25 NBG 6.1%
26 BNP Paribas 8.0% 26 Intesa SanPaolo 8.5% 26 Bank of Ireland 6.1%
27 BBVA 8.0% 27 Banco Sabadell 8.4% 27 Banco Sabadell 6.0%
28 Allied Irish Bank 7.9% 28 Bank of Ireland 8.0% 28 Bankinter 5.9%
29 Marfin 7.7% 29 Danske Bank 8.0% 29 Allied Irish Bank 5.7%
30 Banco Sabadell 7.7% 30 Bank of Cyprus 7.6% 30 Banco Popolare 5.7%
31 UBI Banca 7.4% 31 Marfin 7.5% 31 BMPS 5.6%
32 Bank of Cyprus 7.4% 32 Bankinter 7.5% 32 Piraeus Bank 5.5%
33 Intesa SanPaolo 7.1% 33 UBI Banca 7.1% 33 Bank of Cyprus 4.6%
34 BMPS 6.9% 34 BMPS 7.0% 34 Marfin 4.6%
35 Bankinter 6.5% 35 Banco Pastor 6.5% 35 ABG 4.4%
36 Banco Popolare 6.4% 36 Banco Popolare 6.5% 36 Deutsche Postbank 4.0%
37 Deutsche Postbank 4.4% 37 Deutsche Postbank 5.5% 37 Banco Pastor 3.8%
Median 8.6% Median 9.3% Median 6.8%
Minimum 4.4% Minimum 5.5% Minimum 3.8%
Maximum 17.1% Maximum 17.0% Maximum 11.0%

Appendix: Relative changes in Tier 1 ratios and stress-test rankings
Exhibit 35: Relative changes in Tier 1 ratios and stress-test rankings
Tier 1 Ratio (2011) ‐ "Benchmark" less "Sovereign Shock" estimates Tier 1 Ratios (2011) ‐ Reported 2009 figures less "Sovereign Shock" Change in Tier 1 ranking ‐ "Benchmark" less "Sovereign Shock" scenarios

Rank Bank % Rank Bank % Rank Bank #
1 GPSB 6.9% 1 WestLB 7.3% 1 BCP 21
2 ABG 6.3% 2 GPSB 7.0% 2 Banco Popolare 20
3 WestLB 5.3% 3 Banca Civica 4.9% 3 Caixa CGD 20
4 HSH Nordbank 5.2% 4 HRE 4.7% 4 Swedbank 18
5 Piraeus Bank 4.9% 5 Banco Pastor 4.5% 5 UBI Banca 17
6 NBG 4.3% 6 Caja SOL 4.3% 6 Svenska Handelsbanken 16
7 Alpha Bank 4.1% 7 Caja de Vitoria y Alava 4.3% 7 Commerzbank 15
8 EFG Eurobank 3.5% 8 ABG 4.0% 8 BBVA 15
9 Deutsche Bank 3.5% 9 NBG 3.9% 9 HeLaBa 14
10 FHB 3.5% 10 Caja Colonya 3.7% 10 Banco BPI 14
11 Caja BBK 3.3% 11 Alpha Bank 3.4% 11 Santander 14
12 HRE 3.1% 12 CAI 3.3% 12 Nordea 14
13 BayernLB 3.1% 13 RBS 3.2% 13 Intesa SanPaolo 13
14 Allied Irish Bank 3.0% 14 Piraeus Bank 3.1% 14 Banque Raiffeisen 13
15 Marfin 2.9% 15 ABN / Fortis Bank 3.1% 15 NLB 13
16 Bank of Cyprus 2.9% 16 EFG Eurobank 3.0% 16 HSBC 12
17 BCEE 2.9% 17 ESPIGA 3.0% 17 BPCE 11
18 Caixa 2.9% 18 Banco Guipuzcoano 3.0% 18 DZ Bank 11
19 Breogan 2.9% 19 Deutsche Bank 2.9% 19 Credit Agricole Group 10
20 Banca Civica 2.9% 20 Unicaja 2.8% 20 Deutsche Postbank 10
21 Caja Colonya 2.9% 21 Diada 2.7% 21 SEB 10
22 RBS 2.9% 22 Ibercaja 2.7% 22 Lloyds 9
23 RZB 2.8% 23 UNNIM 2.7% 23 LBBW 8
24 KBC 2.8% 24 Caixa 2.6% 24 Bank of Ireland 8
25 Unicaja 2.8% 25 Bank of Cyprus 2.5% 25 BMPS 7
26 Dekabank 2.7% 26 Caja Kutxa 2.4% 26 SNS BANK 7
27 CAM 2.7% 27 Marfin 2.3% 27 Bankinter 7
28 Mare Nostrum 2.7% 28 Jupiter 2.3% 28 Danske Bank 6
29 Banco Pastor 2.7% 29 Caja de Ontinyent 2.3% 29 OP‐Pohjola Group 6
30 Caja SOL 2.7% 30 BayernLB 2.1% 30 LBB 6
31 CAI 2.7% 31 LBB 2.1% 31 WGZ Bank 6
32 ESPIGA 2.6% 32 Bank of Ireland 2.1% 32 BNP Paribas 5
33 Dexia 2.5% 33 Banco Popular 2.1% 33 Caja de Ontinyent 5
34 Jupiter 2.5% 34 SEB 2.1% 34 JYSKE BANK 4
35 Diada 2.5% 35 Mare Nostrum 2.0% 35 NordLB 4
36 Caja de Vitoria y Alava 2.5% 36 Banco Sabadell 1.8% 36 Unicredit 3
37 Erste Bank 2.4% 37 Danske Bank 1.7% 37 Banco Sabadell 3
38 ING Bank 2.4% 38 LBBW 1.7% 38 Caja Kutxa 3
39 Banco Sabadell 2.4% 39 Rabobank 1.6% 39 SYDBANK 2
40 Ibercaja 2.4% 40 RZB 1.5% 40 Bank of Valletta 2
41 Rabobank 2.3% 41 KBC 1.5% 41 PKO BP 2
42 Banco Espirito Santo 2.3% 42 HeLaBa 1.5% 42 Banco Popular 2
43 Caja Sur 2.3% 43 CAM 1.5% 43 Dexia 1
44 Unicredit 2.2% 44 Dexia 1.4% 44 Societe Generale 1
45 Bank of Valletta 2.2% 45 Commerzbank 1.4% 45 Rabobank 1
46 Banco Popular 2.2% 46 Dekabank 1.4% 46 UNNIM 1
47 ABN / Fortis Bank 2.1% 47 ING Bank 1.4% 47 RBS 1
48 UNNIM 2.1% 48 Breogan 1.4% 48 Barclays 1
49 Barclays 2.1% 49 NordLB 1.3% 49 Erste Bank 0
50 Caja Kutxa 2.0% 50 BMPS 1.3% 50 OTP Bank 0
Source: CEBS

Exhibit 36: Relative changes in Tier 1 ratios and stress-test rankings (continued)
Tier 1 Ratio (2011) ‐ "Benchmark" less "Sovereign Shock" estimates Tier 1 Ratios (2011) ‐ Reported 2009 figures less "Sovereign Shock" Change in Tier 1 ranking ‐ "Benchmark" less "Sovereign Shock" scenarios
Rank Bank % Rank Bank % Rank Bank #
51 Banco Guipuzcoano 2.0% 51 Erste Bank 1.2% 51 BCEE 0
52 Societe Generale 1.9% 52 DZ Bank 1.2% 52 Diada 0
53 Bank of Ireland 1.9% 53 UBI Banca 1.2% 53 Banca Civica 0
54 BNP Paribas 1.8% 54 Bank of Valletta 1.2% 54 Caja Sur 0
55 NordLB 1.8% 55 NLB 1.2% 55 Banca March 0
56 OTP Bank 1.8% 56 JYSKE BANK 1.0% 56 Caja BBK ‐1
57 Banca March 1.8% 57 BCP 0.9% 57 Banco Guipuzcoano ‐1
58 Caja de Ontinyent 1.8% 58 HSH Nordbank 0.8% 58 FHB ‐2
59 Danske Bank 1.7% 59 Unicredit 0.8% 59 Banco Espirito Santo ‐2
60 BPCE 1.7% 60 Banco Espirito Santo 0.8% 60 Ibercaja ‐2
61 LBBW 1.7% 61 Credit Agricole Group 0.7% 61 HRE ‐3
62 DZ Bank 1.7% 62 Societe Generale 0.7% 62 ABN / Fortis Bank ‐3
63 WGZ Bank 1.7% 63 Banco Popolare 0.7% 63 Jupiter ‐3
64 JYSKE BANK 1.6% 64 Bankinter 0.7% 64 Caja de Vitoria y Alava ‐3
65 SYDBANK 1.6% 65 Banca March 0.7% 65 ING Bank ‐4
66 Credit Agricole Group 1.6% 66 BPCE 0.6% 66 Marfin ‐5
67 HeLaBa 1.6% 67 WGZ Bank 0.6% 67 CAM ‐5
68 LBB 1.6% 68 HSBC 0.6% 68 Breogan ‐5
69 Intesa SanPaolo 1.6% 69 BNP Paribas 0.5% 69 Mare Nostrum ‐5
70 Banque Raiffeisen 1.6% 70 Deutsche Postbank 0.5% 70 Dekabank ‐6
71 Bankinter 1.6% 71 Allied Irish Bank 0.5% 71 ESPIGA ‐6
72 Lloyds 1.6% 72 Caja BBK 0.5% 72 CAI ‐6
73 SNS BANK 1.5% 73 Swedbank 0.5% 73 RZB ‐8
74 SEB 1.5% 74 Lloyds 0.4% 74 Caixa ‐8
75 HSBC 1.5% 75 Banque Raiffeisen 0.3% 75 Banco Pastor ‐8
76 Commerzbank 1.4% 76 OP‐Pohjola Group 0.3% 76 Caja SOL ‐8
77 BMPS 1.4% 77 SNS BANK 0.2% 77 KBC ‐9
78 Banco BPI 1.4% 78 Caixa CGD 0.2% 78 Caja Colonya ‐9
79 Deutsche Postbank 1.3% 79 Svenska Handelsbanken 0.2% 79 Deutsche Bank ‐11
80 BBVA 1.3% 80 Intesa SanPaolo 0.1% 80 Allied Irish Bank ‐11
81 Svenska Handelsbanken 1.3% 81 BCEE 0.1% 81 Unicaja ‐11
82 Nordea 1.2% 82 BBVA 0.1% 82 Bank of Cyprus ‐13
83 OP‐Pohjola Group 1.1% 83 Nordea 0.1% 83 BayernLB ‐14
84 PKO BP 1.1% 84 Santander 0.0% 84 GPSB ‐16
85 BCP 1.0% 85 SYDBANK ‐0.1% 85 EFG Eurobank ‐19
86 Santander 1.0% 86 Barclays ‐0.7% 86 HSH Nordbank ‐21
87 Caixa CGD 0.9% 87 Banco BPI ‐1.7% 87 Alpha Bank ‐25
88 Banco Popolare 0.8% 88 FHB ‐2.0% 88 NBG ‐28
89 UBI Banca 0.8% 89 PKO BP ‐2.1% 89 Piraeus Bank ‐42
90 Swedbank 0.8% 90 OTP Bank ‐2.4% 90 WestLB ‐43
91 NLB 0.7% 91 Caja Sur ‐2.5% 91 ABG ‐46
Median 2.2% Median 1.4% Median 1
o/w GS coverage 1.9% o/w GS coverage 1.3% o/w GS coverage 3
o/w other 2.3% o/w other 1.5% o/w other 0
Minimum 0.7% Minimum ‐2.5% Minimum ‐46
o/w GS coverage 0.8% o/w GS coverage ‐2.4% o/w GS coverage ‐46
o/w other 0.7% o/w other ‐2.5% o/w other ‐43
Maximum 6.9% Maximum 7.3% Maximum 21
o/w GS coverage 6.9% o/w GS coverage 7.0% o/w GS coverage 20
o/w other 5.3% o/w other 7.3% o/w other 21
Source: CEBS

Appendix: Writedowns on SE4 and Ireland exposures

Exhibit 37: Total writedowns on SE4 and Ireland exposures and incremental impact on Tier 1 ratios from haircuts on banking book
SE and Ireland Exposures SE and Ireland Writedowns
( € bn)
IT ES PO GR IR Total IT ES PO GR IE Total
Austria Erste Bank 1.2 0.2 0.3 0.8 0.1 2.6 0.06 0.02 0.03 0.12 0.01 0.24
RZB 0.3 ‐ ‐ ‐ ‐ 0.3 0.01 0.00 0.00 ‐ ‐ 0.01
Total 1.5 0.2 0.3 0.8 0.1 2.9 0.07 0.02 0.03 0.12 0.01 0.25
Belgium KBC 7.6 1.7 0.2 0.9 0.4 10.8 0.34 0.12 0.02 0.14 0.03 0.65
Dexia 17.6 1.8 2.8 3.7 0.1 26.0 0.85 0.15 0.28 0.59 0.01 1.88
Total 25.2 3.5 3.0 4.6 0.5 36.8 1.19 0.27 0.29 0.74 0.05 2.54
Cyprus Marfin ‐ ‐ ‐ 2.9 0.1 3.0 ‐ ‐ 0.00 0.48 0.01 0.49
Bank of Cyprus ‐ ‐ ‐ 1.9 0.4 2.3 ‐ ‐ ‐ 0.31 0.03 0.34
Total ‐ ‐ ‐ 4.8 0.5 5.3 ‐ ‐ 0.00 0.78 0.04 0.82
Denmark Danske Bank 0.6 ‐ ‐ ‐ 0.7 1.3 ‐ ‐ ‐ ‐ 0.05 0.05
JYSKE BANK ‐ ‐ ‐ 0.1 ‐ 0.1 ‐ ‐ ‐ 0.01 ‐ 0.01
SYDBANK ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total 0.6 ‐ ‐ 0.1 0.7 1.4 ‐ ‐ ‐ 0.01 0.05 0.06
Finland OP‐Pohjola Group ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 0.00 0.00
Total ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 0.00 0.00
France BNP Paribas 23.2 3.0 2.5 5.0 0.6 34.3 1.13 0.25 0.21 0.77 0.04 2.42
Credit Agricole Group 12.3 2.3 1.5 0.9 0.9 17.9 0.18 0.17 0.14 0.06 0.02 0.57
BPCE 7.5 0.4 0.5 1.5 0.5 10.4 0.18 0.01 0.02 0.19 0.04 0.43
Societe Generale 5.1 0.9 0.4 4.2 0.5 11.1 0.18 0.06 0.01 0.39 0.00 0.64
Total 48.1 6.6 4.9 11.6 2.5 73.7 1.67 0.50 0.39 1.41 0.10 4.06
Germany Deutsche Bank 27.6 20.6 2.5 2.6 1.4 54.7 1.43 1.73 0.25 0.42 0.13 3.95
Commerzbank 10.0 3.6 1.1 2.9 ‐ 17.6 0.51 0.30 0.11 0.47 ‐ 1.39
HRE 26.8 2.7 1.6 7.8 0.3 39.2 1.39 0.23 0.16 1.26 0.02 3.06
LBBW 4.0 4.2 2.2 1.4 0.6 12.4 0.18 0.34 0.21 0.22 0.05 1.01
BayernLB 0.6 0.7 ‐ 0.2 0.2 1.7 0.03 0.06 0.00 0.03 0.02 0.14
DZ Bank n.a. n.a. n.a. n.a. n.a. ‐ n.a. n.a. n.a. n.a. n.a. ‐
NordLB 1.9 0.9 0.5 0.2 0.3 3.8 0.10 0.07 0.04 0.03 0.02 0.27
Deutsche Postbank 4.7 1.3 0.1 1.6 0.4 8.1 0.24 0.11 0.00 0.25 0.04 0.65
WestLB 1.6 1.0 1.7 0.4 0.3 5.0 0.00 0.05 0.02 0.02 0.00 0.08
HSH Nordbank 0.8 0.2 0.1 0.2 ‐ 1.3 0.04 0.02 0.01 0.03 ‐ 0.09
HeLaBa 0.4 1.8 0.2 0.1 ‐ 2.5 0.01 0.13 0.01 0.01 ‐ 0.17
LBB n.a. n.a. n.a. n.a. n.a. ‐ n.a. n.a. n.a. n.a. n.a. ‐
Dekabank 0.4 0.6 0.1 0.1 0.1 1.3 0.00 0.03 0.00 0.02 0.00 0.06
WGZ Bank n.a. n.a. n.a. n.a. n.a. ‐ n.a. n.a. n.a. n.a. n.a. ‐
Total 78.8 37.6 10.1 17.5 3.6 147.6 3.94 3.07 0.80 2.76 0.28 10.85
Greece NBG ‐ ‐ ‐ 19.8 ‐ 19.8 0.00 ‐ ‐ 2.93 ‐ 2.93
EFG Eurobank 0.1 ‐ ‐ 7.5 ‐ 7.6 0.01 ‐ ‐ 1.19 ‐ 1.20
Alpha Bank ‐ ‐ ‐ 5.1 ‐ 5.1 ‐ ‐ ‐ 0.79 ‐ 0.79
Piraeus Bank ‐ ‐ ‐ 8.3 ‐ 8.3 ‐ ‐ ‐ 1.17 ‐ 1.17
ABG ‐ ‐ ‐ 10.2 ‐ 10.2 ‐ ‐ ‐ 1.54 ‐ 1.54
GPSB ‐ ‐ ‐ 5.4 ‐ 5.4 ‐ ‐ ‐ 0.84 ‐ 0.84
Total 0.1 ‐ ‐ 56.3 ‐ 56.4 0.01 ‐ ‐ 8.47 ‐ 8.48
Hungary OTP Bank ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
FHB ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Ireland Bank of Ireland ‐ ‐ ‐ ‐ 1.2 1.2 0.00 ‐ ‐ ‐ 0.11 0.11
Allied Irish Bank 0.7 0.4 0.3 ‐ 4.1 5.5 0.03 0.03 0.03 0.01 0.37 0.47
Total 0.7 0.4 0.3 ‐ 5.3 6.7 0.04 0.03 0.03 0.01 0.48 0.58
Italy Unicredit 38.8 0.6 0.2 0.8 0.1 40.5 1.18 0.04 0.00 0.10 0.01 1.34
Intesa SanPaolo 63.7 0.6 ‐ 0.8 0.2 65.3 2.13 0.05 0.00 0.09 0.01 2.28
BMPS 27.8 0.1 0.1 ‐ ‐ 28.0 0.99 ‐ 0.00 0.00 ‐ 1.00
Banco Popolare 8.3 0.2 ‐ 0.1 ‐ 8.6 0.21 0.01 ‐ 0.00 ‐ 0.23
UBI Banca 6.3 ‐ ‐ ‐ ‐ 6.3 0.28 ‐ ‐ ‐ ‐ 0.28
Total 144.9 1.5 0.3 1.7 0.3 148.7 4.80 0.10 0.01 0.20 0.02 5.13

Exhibit 38: Total writedowns on SE4 and Ireland exposures and incremental impact on Tier 1 ratios from haircuts on banking book (continued)
SE and Ireland Exposures SE and Ireland Writedowns
( € bn)
IT ES PO GR IE Total IT ES PO GR IR Total
Luxembourg BCEE 2.5 0.2 0.2 0.1 ‐ 3.0 0.13 0.02 0.02 0.02 ‐ 0.18
Banque Raiffeisen 0.1 ‐ ‐ ‐ ‐ 0.1 0.00 0.00 0.00 0.00 0.00 0.01
Total 2.6 0.2 0.2 0.1 ‐ 3.1 0.13 0.02 0.02 0.02 0.00 0.19
Malta Bank of Valletta ‐ ‐ ‐ ‐ ‐ 1.0 ‐ ‐ 0.00 0.00 0.00 0.00
Netherlands ING Bank 6.4 1.4 1.8 2.4 ‐0.1 11.9 0.24 0.15 0.14 0.31 ‐ 0.84
Rabobank 0.9 0.8 0.4 0.6 0.2 2.9 0.05 0.07 0.04 0.10 0.02 0.28
ABN / Fortis Bank 1.9 0.5 0.1 ‐ 0.2 2.7 0.09 0.04 0.01 ‐ 0.02 0.16
SNS BANK 1.1 0.2 ‐ 0.1 0.2 1.6 0.06 0.01 ‐ 0.02 0.02 0.10
Total 10.3 2.9 2.3 3.1 0.5 19.1 0.44 0.28 0.19 0.43 0.05 1.38
Poland PKO BP ‐ ‐ ‐ ‐ ‐ 6.4 ‐ ‐ ‐ ‐ ‐ ‐
Portugal Caixa CGD ‐ 0.3 6.8 0.1 0.2 7.4 ‐ 0.01 0.58 0.01 0.01 0.62
BCP 0.1 ‐ 1.0 0.7 0.2 2.0 0.00 ‐ 0.06 0.12 0.02 0.19
Banco Espirito Santo ‐ 0.1 4.7 0.5 ‐ 5.3 ‐ 0.00 0.34 0.08 ‐ 0.42
Banco BPI ‐ ‐ 4.2 0.5 1.1 5.8 ‐ ‐ 0.42 0.08 0.10 0.60
Total 0.1 0.4 16.7 1.8 1.5 20.5 0.00 0.02 1.39 0.28 0.13 1.83
Slovenia NLB ‐ 0.2 ‐ ‐ ‐ 2.6 0.00 0.00 0.00 0.00 0.00 0.01
Spain Santander 1.2 50.6 5.1 0.5 ‐ 57.4 0.04 3.61 0.39 0.03 0.00 4.07
BBVA 6.2 52.1 0.6 0.3 ‐ 59.2 0.26 3.66 0.06 0.05 0.00 4.03
Jupiter ‐ 24.2 ‐ 0.1 ‐ 24.3 0.00 2.03 ‐ 0.01 ‐ 2.04
Caixa 3.1 20.1 ‐ ‐ ‐ 23.2 0.00 1.52 ‐ ‐ ‐ 1.52
CAM ‐ 6.2 ‐ ‐ ‐ 6.2 0.00 0.52 0.00 0.01 0.00 0.53
Banco Popular 0.2 7.6 0.7 ‐ ‐ 8.5 0.01 0.63 0.06 ‐ ‐ 0.71
Banco Sabadell ‐ 4.9 0.1 ‐ ‐ 5.0 ‐ 0.41 0.01 ‐ ‐ 0.42
Diada 0.1 4.1 ‐ ‐ ‐ 4.2 0.01 0.34 ‐ ‐ 0.00 0.35
Breogan 0.2 3.3 ‐ ‐ ‐ 3.5 0.01 0.27 0.00 0.01 ‐ 0.30
Mare Nostrum ‐ 2.9 0.1 ‐ ‐ 3.0 ‐ 0.24 0.01 ‐ ‐ 0.25
Bankinter 0.1 1.7 ‐ ‐ ‐ 1.8 ‐ 0.15 ‐ ‐ ‐ 0.15
ESPIGA ‐ 6.1 ‐ ‐ ‐ 6.1 ‐ 0.51 0.00 ‐ ‐ 0.51
Banca Civica ‐ 3.0 ‐ ‐ ‐ 3.0 ‐ 0.25 ‐ 0.00 ‐ 0.25
Ibercaja 0.4 1.9 ‐ ‐ ‐ 2.3 0.02 0.16 ‐ ‐ ‐ 0.18
Unicaja ‐ 2.1 ‐ ‐ ‐ 2.1 ‐ 0.17 ‐ 0.00 ‐ 0.17
Banco Pastor 0.1 2.7 0.1 ‐ ‐ 2.9 0.01 0.19 0.01 0.01 ‐ 0.21
Caja SOL ‐ 1.6 ‐ ‐ ‐ 1.6 ‐ 0.13 ‐ ‐ ‐ 0.13
Caja BBK ‐ 2.4 ‐ ‐ ‐ 2.4 ‐ 0.20 ‐ ‐ ‐ 0.20
UNNIM ‐ 1.6 ‐ ‐ ‐ 1.6 0.00 0.13 ‐ 0.00 0.00 0.14
Caja Kutxa ‐ 1.4 ‐ ‐ ‐ 1.4 ‐ 0.11 ‐ ‐ ‐ 0.11
CAI ‐ 1.4 ‐ ‐ ‐ 1.4 ‐ 0.11 ‐ ‐ 0.00 0.12
Caja Sur ‐ 0.2 ‐ ‐ ‐ 0.2 ‐ 0.02 ‐ ‐ ‐ 0.02
Banca March ‐ 0.1 ‐ ‐ ‐ 0.1 ‐ 0.01 ‐ ‐ ‐ 0.01
Banco Guipuzcoano ‐ 0.6 ‐ ‐ ‐ 0.6 ‐ 0.05 ‐ ‐ ‐ 0.05
Caja de Vitoria ‐ 0.6 ‐ ‐ ‐ 0.6 ‐ 0.05 ‐ ‐ ‐ 0.05
Caja de Ontinyent ‐ ‐ ‐ ‐ ‐ ‐ ‐ 0.00 ‐ ‐ ‐ 0.00
Caja Colonya ‐ ‐ ‐ ‐ ‐ ‐ ‐ 0.00 ‐ ‐ ‐ 0.00
Total 11.6 203.4 6.7 0.9 ‐ 222.6 0.36 15.49 0.55 0.11 0.01 16.52
Sweden Nordea 0.7 ‐ ‐ 0.2 ‐ 0.9 0.02 0.00 ‐ 0.04 ‐ 0.06
SEB 0.1 0.2 0.1 0.2 ‐ 0.6 0.01 0.01 0.01 0.02 ‐ 0.05
Svenska Handelsbanken ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Swedbank ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total 0.8 0.2 0.1 0.4 ‐ 1.5 0.03 0.02 0.01 0.06 ‐ 0.12
UK RBS 4.6 1.0 0.8 2.4 5.0 13.8 0.06 0.02 0.06 0.24 0.35 0.73
HSBC 4.8 0.1 0.5 1.5 0.6 7.5 0.02 0.00 0.04 0.05 ‐ 0.10
Barclays 0.9 5.1 1.2 0.5 0.2 7.9 0.01 0.44 0.10 0.02 0.01 0.58
Lloyds 0.1 ‐ 0.2 ‐ ‐ 0.3 0.01 ‐ 0.02 ‐ ‐ 0.02
Total 10.4 6.2 2.7 4.4 5.8 29.5 0.08 0.46 0.21 0.31 0.36 1.43

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GS Stress Test 7.26

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July 26, 2010

Stress test: more than meets the headlines, a conditional thumbs up

risk, macro/loss assumptions and pre-provision

The Goldman Sachs Group, Inc. Global Investment Research

The results of the stress test came in below market expectations 3

Goldman Sachs Global Investment Research 2

The results of the stress test came in below market expectations

- NBG Private Greece 450

Goldman Sachs Global Investment Research 3

Overview of stress test:

Scope: 91 banks comprising private and public sector banks

Assumptions comprise stress on macro developments and asset values

Exhibit 3: Stress-test assumptions

GDP Unemployment House prices

2010 2011 2010 2011 2010 2011

- Benchmark assumptions 0.7% 1.5% 10.7% 10.9% -1.5% -0.3%

- Adverse scenario assumptions -0.2% -0.6% 10.8% 11.5% -5.9% -5.0%

- Benchmark assumptions 1.0% 1.7% 9.8% 9.7% NA NA

- Adverse scenario assumptions 0.0% -0.4% 10.5% 11.0% NA NA

Goldman Sachs Global Investment Research 4

Test implementation: standardized results and sovereign disclosure add to transparency

 The chosen threshold was 6% by 2011 year-end.

 The results were shown as aggregate and bank by bank.

The stress-test results showed the following:

Goldman Sachs Global Investment Research 5

Overview of analysis: assessing the credibility of the test

Exhibit 4: Overview of the analysis: assessing the credibility of the test

4 key discussion items:

Source: Goldman Sachs Research.

Goldman Sachs Global Investment Research 6

Goldman Sachs Global Investment Research 7

Capital hurdle; 6% subject to assumptions

Scaling up the Tier 1 ratio hurdle

Goldman Sachs Global Investment Research 8

€40.0bn €37.6bn 45 100%

o/w GS coverage €30.2bn 35 74% 80%

Goldman Sachs Global Investment Research 9

Exhibit 7: A less flattering picture, under scaled-up hurdle rate

Capital required to meet 6% Tier 1 threshold Capital required to meet 7% Tier 1 threshold Capital required to meet 8% Tier 1 threshold

Source: CEBS, Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 10

Capital required to meet 4% Core Tier 1 threshold Capital required to meet 5% Core Tier 1 threshold Capital required to meet 6% Core Tier 1 threshold

Goldman Sachs Global Investment Research 11

Sovereign debt; disclosure is king

The CEBS approach

Current market concerns relating to sovereign risk are split in two:

Goldman Sachs Global Investment Research 12

Source: CEBS, Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 13

Goldman Sachs Global Investment Research 14

Goldman Sachs Global Investment Research 15

Our key conclusions are as follows:

Goldman Sachs Global Investment Research 16

Source: CEBS, Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 17

Goldman Sachs Global Investment Research 18

Scenario losses for Deutsche Bank 1.6

Scenario losses for other Bank of Cyprus 1.1

Goldman Sachs Global Investment Research 19

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 20

Macro assumptions: Putting European stress assumption to the US test

Goldman Sachs Global Investment Research 21

 geographical composition of the “Europe” aggregate;