Global banking and capital markets sector

Key themes for 2Q13 earning calls

August 2013

Contents
Scope, limitations and methodology of the review Top 10 key themes: 2Q13 earnings season Key themes overview Theme 1.1: Drivers of earnings performance year-over-year revenue growth lags net income gains Theme 1.2: Macroeconomic environment signs of growth in developed economies are tempered by moderating trends in emerging markets Theme 1.3: Capital position compliance with Basel III Common Equity Tier 1 requirements appears assured Note: See Appendix for legend. Theme 1.4: Expense trends savings achieved from expense reduction plans are reinvested in the franchise Theme 5.1: New regulatory proposals global and national leverage ratio proposals elicit strong responses Theme 5.2: Cross-border activities cross-border strategies remain unchanged Theme 7: M&A strategies banks have little appetite for inorganic growth Theme 8.1: Lending trends positive loan growth is more evident in North America Theme 8.2: Credit quality trends credit performance reflects economic conditions Theme 8.3: Strategic progress banks look towards the future as legacy issues are resolved Appendix Summary of key banking sector themes Summary of key banking sector themes (cont.) Select key performance indicators 1 2 4 4 6 7 7 8 10 12 13 14 15 16 17 17 18 19

Global banking and capital markets sector

Scope, limitations and methodology of the review

The purpose of this review is to examine the key themes discussed during the 2Q13 earnings reporting season among 32 major global institutions operating within the banking and capital markets sector. This review was limited to the examination of transcripts of the earnings conference calls held from 23 May 2013 to 8 August 2013. The review did not take into consideration information from other sources, such as news reports, annual reports and company press releases. The period covered was 2Q13, ended 30 June 2013. Exceptions include the following: CIBC, RBC and Toronto-Dominion Bank, for which the period covered was 2Q13, ended 30 April 2013. Nomura Holdings, for which the period covered was 1Q14, ended 30 June 2013. Banks were selected based on their size and the availability of earnings call transcripts. Every effort was made to ensure a global sample of banks was included in the review: Mizuho and Mitsubishi UFJ Group Bank were excluded from the analysis due to the lack of transcript availability. Bank of China and Industrial and Commercial Bank of China (ICBC) were excluded due to the timing of the 2Q13 results reporting. Macquarie Group and National Australia Bank were not included because they did not report quarterly earnings for the period ended 30 June 2013.

Global banking and capital markets sector

Top 10 key themes: 2Q13 earnings season

During the 2Q13 earnings season, management at global banks offered evidence that they may have put the worst of the post-crisis period behind them as they continued to make progress in positioning their banks for a normalized environment. Comments reflected a view towards the future as banks continued to move past legacy issues and strengthen internal operations. Most of the banks included in this report reported stabilization in a number of key areas: Expense reduction programs either have been completed or are on track to meet targets, allowing management to shift their focus from strict cost-cutting to careful expense management as they invest savings in franchise-strengthening initiatives. According to disclosures of estimated Basel III Common Equity Tier 1 ratios, most banks either are already positioned to comply with Basel III capital requirements or have a clear path to compliance. Given strength on this measure, many banks are looking towards resuming normalized dividend and payout policies. Significant progress has been made on de-risking, as banks continue to reduce non-core portfolios, reshape or re-size businesses with high capital requirements and strengthen their balance sheets. Banks have identified core businesses, activities and regions. Activities related to acquisitions, asset sales and cross-border expansion or retreat reflect their refined focus. Credit quality metrics continued to improve and, in some cases, returned to pre-crisis levels driven by conservative underwriting standards, prudent provisioning policies and efforts to run off legacy portfolios. Despite this progress, not all industry headwinds have dissipated. Banks continue to face challenges as regulators propose new and controversial rules and macroeconomic conditions remain dynamic: Global and national regulators have turned their focus to banks leverage ratios. The Basel Committee, the UK Prudential Regulatory Authority and US regulators released separate leverage ratio proposals in advance of the 2Q13 earnings season, generating significant discussion about the impacts of yet another nonharmonized, capital-related measure. The macroeconomic environment remained complex, as the US recovery gained momentum in 2Q13 and glimmers of improvement appeared in other developed countries, such as the UK and France. At the same time, while economic growth in certain emerging markets continued to outpace developed markets, signs of slowed growth emerged. The impacts of both dynamics were evident in the 2Q13 earnings season. Banks commented on the short-term challenges associated with both the normalization of US monetary policy and adjusted expectations for emerging markets businesses. Finally, meaningful revenue and loan growth remained elusive in 2Q13, underscoring the fact that while banks might be well-positioned, the operating environment remains difficult and may not normalize according to expectations. While commenting on the outlook for his own bank, Standard Chartered CEO Peter Sands captured the industrys position at the end of the second quarter when he stated, We enter the second half with a blend of optimism and caution. Our businesses have good momentum. Our balance sheet is in great shape. Our markets are full of opportunities. But at the same time, there's volatility in financial markets and uncertainty in economic prospects and the regulatory context keeps on changing. So we will keep focused on what we can control: costs, risks, our balance sheetkeep focused on our clients and customers and keep focused on driving superior and sustainable returns to our shareholders.

Global banking and capital markets sector

Top 10 key themes: 2Q13 earnings season

2Q13 Earnings seasons top 10 key themes (arranged from most common to least common) 32 banks 1Q13 Earnings seasons top 10 key themes (arranged from most common to least common) 35 banks

Rank

Rank

1.1

Drivers of earnings performance

1.1

Drivers of earnings performance

1.2

Macroeconomic environment

1.2

Macroeconomic environment

1.3

Capital position

1.3

Capital position

1.4

Expense trends

Expense trends

5.1

New regulatory proposals

5.1

Strategic progress

5.2

Cross-border activities

5.2

Cross-border activities

Merger and Acquisition (M&A) strategies

Funding strategies and liquidity management

8.1

Lending trends

Regulatory issues

8.2

Credit quality trends

9.1

Credit quality trends

8.3

Strategic progress

9.2

Lending trends

Note: Theme shaded in gold is new to the list this quarter; theme shaded in dark gray dropped out of the top 10.

Global banking and capital markets sector

Key themes overview

Theme 1.1: Drivers of earnings performance year-overyear revenue growth lags net income gains
Net income grew on an annual basis at most banks. When compared to 2Q12, net income increased at 23 of the 30 banks that reported earnings on a quarterly basis.* Notably, revenues did not keep pace with earnings, since 13 banks reported a decline in revenues from the same quarter in the prior year. Banks are seeking to achieve what Citigroup CEO Michael Corbat described as strong, high-quality earnings that are well balanced across our products and geographies. In 2Q13, however, some of the primary drivers of earnings growth included reduced expenses, lower credit costs, asset sales and runoff of non-core portfolios. It is unlikely that these factors will be sustainable sources of net income growth in future quarters. The earnings tailwind from improving credit quality is likely to dissipate in the foreseeable future, as JPMorgan Chase CFO Marianne Lake observed when she forecast that the bank would likely get to a more normal charge-off rate and therefore reserve balance over the course of the next several quarters. Asset sales will generate one-off, unrepeatable benefits. The earnings drag caused by non-core portfolios will diminish as banks make further progress on reduction and run-off efforts. In fact, some banks have reduced non-core assets to such a degree that they will stop reporting on them separately. An example is Lloyds, about which Group Finance Director Mark Culmer stated, Given accelerated progress, we are now targeting non-core assets of less than 70 billion by the end of 2013, one year earlier than previously expected. It's our intention to cease separate non-core reporting at the end of this year. Expense benefits will stabilize as banks reach their optimal run-rate levels, although further earnings boosts may materialize as legal-related charges normalize at some point in the future. Sustainable revenues in core business lines, such as investment banking and lending, are highly influenced by macroeconomic trends. Despite signs that economies in Europe and the US are recovering or stabilizing, positive developments did not translate into meaningful revenues across the banking sector in 2Q13. Of the banks that did report an increase in revenues from 2Q12, only nine posted double-digit growth. Investment banking, particularly debt and equity underwriting, was the most common driver. James Gorman, CEO, Morgan Stanley: Revenues in all of our major businesses were up double digits year over year, with Institutional Securities excluding DVA up 40% and Investment Management up 48%. Gerald Hassell, CEO, BNY Mellon: The headline for the quarter was strong revenue growth across all of our businesses without exception. Revenue growth at Citigroup was driven by its Securities and Banking division, specifically by investment banking activities and fixed-income trading. Goldman Sachs reported a 30% jump in revenues, driven by debt and equity underwriting and its own securities investments. JPMorgan Chases revenue growth was primarily attributed to debt and equity underwriting activity and strong trading performance, which, according to CEO Jamie Dimon, was the result of years of building out its client flow businesses. At Royal Bank of Canada, the Insurance and Investor and Treasury Services segments provided the greatest tailwind to overall revenue growth. Management also highlighted particular strength in Canadian Banking. Nomuras revenues reflected strength in its Japanese retail business. CFO Shigesuke Kashiwagi said, Retail net revenue was 166.3 billion, up 20% from last quarter. Income before income taxes grew 42%, representing the best quarter since we started disclosing quarterly results in the year ended March 2002. Retail net revenues at Nomura increased 101% from 2Q12. UBS reported record revenue in Wealth Management Americas and its best second-quarter performance in equities trading in three years. The bank also posted improved investment banking revenues from 2Q12. Credit Suisses revenue was attributed to improved client activity in Private Banking and Wealth Management and strong investment banking performance. *Standard Chartered and Lloyds Banking Group reported net income on a half-yearly basis.

Global banking and capital markets sector

Net income and revenue, percentage change from 2Q12

RBS LLD NOM STD SG UBS BBVA GS BK BAC UCG CA MS C CS JPM RBC WFC STT ITAU CIBC AXP USB TD BNP HSBC ING DB INT CBK BCS

-1% 1% 17% -7% -1% 15% -5% 30% 11% 3% 1% -3% 121% 111% 105% 101% 78% 63% 63% 60% 22% 11% 12% 59% 754% 991%

42%

-3%

42% 14% 31% 12% 26% 0% 19% 6% 18% 8% 2% 8% 4% 5% 5% 4% 2%

-2%

-2% -5% -20% -31% -16% -39% -50% -75% -78% -96% -1% -10% -1%

2%

Revenue

Net income

Notes: See Appendix for legend. RBS reported a net loss in 2Q12. LLD reported net income on a half-yearly basis, but revenues on a quarterly basis.

Global banking and capital markets sector

Theme 1.2: Macroeconomic environment signs of growth in developed economies are tempered by moderating trends in emerging markets
There are signs of improvement in the UK and in the Eurozone. And the US economy continues to grow reasonably well. It does, however, seem to have been forgotten in the last few weeks that faster-growing markets also experience business cycles.
Stuart Gulliver, Group CEO, HSBC

Economic improvements in developed markets are welcomed but lead to short-term impacts. During 2Q13, management commented on improving economic conditions in the US and certain European countries and addressed concerns about slowing growth rates in emerging markets. Because the revenue-generating client volumes in many banks businesses, including lending, investment banking and trading, are highly influenced by macroeconomic health, the banking sector is looking forward to the end to the low-growth cycle. ngel Cano Fernandez, President, Grupo BBVA: The world is growing at two quite different speeds. In the developed economies, we are seeing that there is still a complex environment with, above all, a difficult situation in Europe. Looking at the emerging markets, we see that they are very buoyant, albeit there has been a slightly lower growth rate in some of the emerging economies. But they are still going to be sustaining world GDP growth for the next few years, as we see it. Antnio Horta-Osrio, CEO, Lloyds: From the beginning of the year, I told you that I think the economy is recovering. And I can now tell you I think the signs are even stronger. I do not expect a very quick or strong recovery. But the signs are much stronger in terms of breadth of the recovery and direction of the recovery. Enrico Cucchiani, CEO, Intesa Sanpaolo: The Italian political situation is stabilizing. The government that is now in power is seeking the right balance between fiscal discipline and growth. Consumer and business sentiment are showing the first signs of improvement in Italy, apparently on a trend that is even better than in other Eurozone countries. In the US, higher interest rates and an ebullient economy make medium- and longterm appreciation of the US dollar likely; this will have a positive impact on Eurozone and Italian exports. Brian Moynihan, CEO, Bank of America: The economy continues to improve across all areas. That benefits our company across multiple fronts. But most important, with an improving economy, it strengthens and creates opportunity for the people, companies, and investors that we serve, and that opportunity will continue to provide opportunity for to us capture. Despite the welcome news of stronger economic growth in the West, the dynamic environment is likely to present certain new challenges for banks, particularly as it relates to the normalization of monetary policy. In June 2013, based on improving US economic indicators, Federal Reserve Chairman Ben Bernanke suggested that the Federal Reserve might taper its bond-buying activities under its third round of quantitative easing (QE3) by mid-2014. Market speculation about the details and impacts of the Federal Reserves move drove long-term interest rates higher during the second half of 2Q13. While higher interest rates are expected to be beneficial for revenues over the long-term, the sudden increase had a number of immediate impacts on banks, underscoring the challenges presented by the complex macroeconomic environment. Marianne Lake, CFO, JPMorgan Chase: Higher long-term rates and wider spreads drove a significant reduction in the unrealized gains in our securities portfolio, or a reduction in accumulated other comprehensive income, which did impact Basel III capital negatively. Brady Dougan, CEO, Credit Suisse: The transition to higher interest rates led, in the latter part of the second quarter, to increased market volatility and reduced client activity, and this market volatility continued in July, although more recently we've seen signs of stabilization in our major markets. In the longer term, the transition to higher rates will benefit our business, both our global Private Banking & Wealth Management franchise and our client-focused, capital-efficient investment bank. Stefan Krause, CFO, Deutsche Bank: For the Investment Bank, April and May saw strong markets across fixed income and equities and good levels of client activity. However, the Fed's tapering comments in mid-May led to a broad sell-off in June across most asset classes. And, as a result, June market conditions were substantially more challenging. June was characterized by a general re-pricing of credit and lower levels of liquidity, especially in areas of fixed-income trading.

Global banking and capital markets sector

Theme 1.3: Capital position compliance with Basel III Common Equity Tier 1 requirements appears assured
With visibility into how they will comply with Basel III capital targets, banks look to return capital to shareholders. Disclosures of Basel III Common Equity Tier 1 (CET1) ratios* by global banks demonstrated that they are well positioned to comply with national and global capital requirements as they are currently structured. Having achieved this position, banks in all regions discussed their plans to return capital to shareholders through dividends and share buyback programs. US banks continued to execute the capital plans approved by the Federal Reserve in March 2013 and, in one case, received approval to supplement the previously endorsed plan. Management at Canadian banks confirmed their existing policies and payout targets, while European executives hinted that meaningful dividends could return as soon as 2014. Brady Dougan, CEO, Credit Suisse: We've been fairly clear that we hoped to get to the 10% Swiss core capital ratio sometime the middle of this year. Basel III Common Equity Tier 1 (CET1) ratios, as of 2Q13* Obviously, we were pleased that we exceeded G-SIB that pretty materially at the end of the required Total CET1 second quarter. We think that puts us in a Basis of calculation buffer requirement CET1 ratio strong place from a capital point of view. We AXP Standardized approach 0.0 7.0 12.2 had always said that having reached that, we NOM B3 Tier 1 common 0.0 7.0 11.9 would be expecting to make material UBS Fully loaded 1.5 8.5 11.2 distributions to shareholders. INT Fully loaded 0.0 7.0 11.0 Sergio Ermotti, CEO, UBS: We will not change our dividend policy until we reach our 13% target, which is still expected to happen in 2014. For the time being, we will continue with a progressive dividend policy. Mark Culmer, Group Finance Director, Lloyds: As a result of the significant progress made in strengthening the balance sheet and our substantial improved statutory financial performance, we now expect to commence discussions with our regulators in the second half of this year on the timetable and conditions for dividend payments. Frdric Ouda, CEO, Socit Gnrale: [The dividend policy] will be for the board to decide. But I stick to the idea of a 25% payout ratio for this year. And effectively, from 2014 onwards, a range between 35% and 50%. The developments that are taking place are positive for an increase of the payout ratio going forward. James Gorman, CEO, Morgan Stanley: We recently received a non-objection from the Federal Reserve to return 1% of our Tier 1 capital and will execute on the buyback in the forthcoming quarters.
STT BNP ING C CA DB MS BK UCG CIBC BAC LLD CS SG GS JPM RBC STD TD RBS USB WFC CBK BCS Advanced approach Fully loaded Fully loaded Advanced approach Not specified Fully loaded Not specified Advanced approach Fully loaded All-in basis Advanced approach Fully loaded Fully loaded Fully loaded Advanced approach Advanced approach CET1 ratio, all-in basis Fully loaded (as of 12/31/13) All-in basis Not specified Standardized approach Not specified Fully loaded Fully loaded 1.0 1.0 2.0 1.0 2.5 2.5 1.0 2.5 1.5 1.5 1.0 0.0 1.5 0.0 1.5 1.0 1.5 2.5 0.0 1.0 1.0 0.0 1.5 0.0 1.0 0.0 2.0 8.0 8.0 9.0 8.0 9.5 9.5 8.0 9.5 8.5 8.5 8.0 7.0 8.5 7.0 8.5 8.0 8.5 9.5 7.0 8.0 8.0 7.0 8.5 7.0 8.0 7.0 9.0 10.9 10.6 10.4 10.2 10.1 10.0 10.0 10.0 9.9 9.8 9.7 9.7 9.6 9.6 9.5 9.4 9.3 9.3 9.1 9.0 9.0 8.8 8.7 8.6 8.5 8.4 8.1 STAN Not specified

HSBC Estimated end point CRDIV CET1

BBVA Fully loaded

*Basel III CET1 ratios are estimates, except for banks of Canada, Japan and Switzerland. Note: See Appendix for legend.

Global banking and capital markets sector

Theme 1.4: Expense trends savings achieved from expense reduction plans are reinvested in the franchise
The Operational Excellence program is not primarily a cost-cutting exercise. ... We are aiming to strengthen our operational and controls environment by increasing flexibility and process discipline. In turn, this will help us to eliminate duplication and create efficiencies that will then lead to sustainable cost savings.
Stefan Krause, CFO, Deutsche Bank

Management highlighted progress on cost-cutting targets but noted that overall expenses may increase as they reinvest in their franchises. The expense reduction plans that have been launched over the past two years have either been completed or are on track to reach their targets in the foreseeable future. Despite this achievement, management indicated that non-interest expense levels may not reflect an absolute decline because savings are reinvested in the business. Specific investments that were highlighted in the 2Q13 earnings season included improvements to the customer experience, channel and branch innovations, talent, simplification and integrated technology platforms. Harvey Schwartz, CFO, Goldman Sachs: Given the dynamic nature of the marketplace, its natural for people to become somewhat short-term focused. However, everyone at Goldman Sachs remains keenly aware that our success will be measured over years as opposed to weeks or months. To that end, we are going to continue to invest in deepening and expanding our client franchise. We will continue to invest in our people, recruiting and retaining a group of professionals who are committed to providing solutions to our clients and driving value for our shareholders. Ed Clark, CEO, Toronto Dominion: We remain focused on the rate of expense growth across the bank and are pursuing initiatives that will permanently improve productivity. We continue to target core expense growth of less than 3% for 2013. We are making progress on managing expense growth. Chris Lucas, Group Finance Director, Barclays: We have incurred significant restructuring costs, especially in Europe Retail and Business Banking and the Investment Bank, and we'll be investing in the second half in order to build long-term competitive advantage. Both restructuring and investment are essential to achieving our 2015 targets, but this will impact our numbers in the intervening period. Stephan Engels, CFO, Commerzbank: In the light of a comparably moderate economic environment and with respect to a balanced cost income ratio, we follow a reasonable investment approach controlled by the bank's investment committee. All investments are released and scaled on an initiative-by-initiative basis while closely tracking the return of these activities. During the months to come, we expect investments to increase, while stringent cost management will broadly ensure compensating effects. Frdric Ouda, CEO, Socit Gnrale: We need to invest in certain businesses. It makes sense. We need to give the businesses the opportunity to compete. And we'll make some savings to stabilize total costs compared to 2012.

Global banking and capital markets sector

Total non-interest expenses, percentage change from previous quarters

DB ITAU TD USB AXP JPM MS BBVA CS CA UBS RBS STD BK RBC C WFC CBK STT UCG ING LLD HSBC SG INT BNP CIBC GS BCS BAC NOM
-34% -15% -18% -9% -6% -11% -2% -8% -10% -17% -5% -7% 0% -1% -1% -1% -1% -1% -2% -2% -2% -2% -2% -3% 2% 1% 1% 4% -6% -6% -2% 1% 5% 5% 4% 5% 4% 4% 3% 3% 2% 2% 2% 1% 1% 1% 0% 1% 18% 5% 7% 6% 12% 8%

-3% -4% -4% -5% -2% 3% 14% -2%

Change from 1Q13

Change from 2Q12

Note: See Appendix for legend.

Global banking and capital markets sector

Theme 5.1: New regulatory proposals global and national leverage ratio proposals elicit strong responses
New leverage ratio proposals are a prominent topic at US and European banks calls. In June and early July 2013, a flurry of leverage ratio proposals were separately released by the Basel Committee, the UK Prudential Regulatory Authority and a trio of US regulators (the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency). The proposals dominated the 2Q13 earnings season, with management offering their views of the rules and providing preliminary estimates of leverage ratios. Analysts asked numerous questions about the proposed rules as they sought to understand the potential impact on capital management, the severity of the USs 5% leverage requirement compared to the 3% ratio proposed under Basel III and implications for specific business lines. Notably, leverage ratio estimates were based on a wide range of calculations, which makes comparisons across banks virtually impossible. As observed by Intesa Sanpaolos Carlo Messina, We are not sure that all competitors are using the same rules. John Gerspach, CFO, Citigroup: What weve seen so far are proposals. I dont think weve actually had a chance to read through every aspect of it. And I would expect that, as usual, well engage in a robust and healthy dialogue with the various regulators on these topics. Jamie Dimon, CEO, JPMorgan Chase: We have an interest in a safe and sound system, so were not against a leverage ratio, but were not for a hugely unbalanced competitive playing field. Stefan Krause, CFO, Deutsche Bank: As most agree, leverage obviously fails to assess the quality of the balance sheet as well as the firm's ability to fund itself. Leverage, in our view, forces banks to run a very different business. One of the obvious consequences is the need to originate higher-yielding assets and therefore, by definition, taking on more risk. Shigesuke Kashiwagi, CFO, Nomura: In June, the Basel III leverage ratio was announced and the details about the standards have not been announced yet. So its still too early to calculate the exact figures. Through the consultation period, the details of the standards will be disclosed, and we will conduct more accurate calculations and announce the leverage ratio based on these new standards when the time comes. Iain Mackay, Group Finance Director, HSBC: Until we get the banking industry to be, frankly, just a lot more transparent about what's going inside the risk-weighted asset models, one can perhaps appreciate the regulators desire to look at it on a different basis. Our own view would be that banging out a standardized measure is simply banging out another measure. It doesn't really help risk management within the banking sector. [A leverage ratio is] a great backstop measure for the economy. You might even argue that it's a good backstop measure for an individual institution, but it's not particularly risk sensitive; in fact, it's not risk sensitive at all. Bertrand Delpit, CFO, Crdit Agricole: In terms of the leverage ratio, there are many definitions, so it's already quite bold to give [an estimated] figure here. So I did it based on CRD IV. I am not going to update it to take into account the Basel Committees new proposal because they can change it week after week. Frdric Ouda, CEO, Socit Gnrale: There are now probably four or five or six different definitions that have being thrown out. ... We should push for a regulation that encourages bank managers to look at the risk to take in the balance sheet. Leverage ratio as a backstop: fine. Leverage ratio as the backbone for the regulation: I think it will be a recipe for catastrophe.

We welcome the opportunity to contribute to the debate and comment on the leverage ratio refinements proposed by the Basel Committee, as the impact of further regulatory measures should be considered carefully. We believe it is important that regulators ensure the quality of both the numerator, or the capital base, and the denominator, or total exposure. Balance sheet size matters, but quality must not be overlooked.
Sergio Ermotti, CEO, UBS

Global banking and capital markets sector

10

BAC BBVA BCS BK BNP C CA CBK CS DB GS HSBC ING INT JPM LLD MS NOM RBS SG STAN STD STT UBS UCG WFC

Estimated leverage ratio disclosures as of 2Q13 Basis of calculation Estimate US supplementary leverage ratio (holding company) 4.9-5.0 Basel III fully loaded 4.8 CRD IV 2.5 US supplementary leverage ratio (holding company) low 4s Basel III fully loaded US supplementary leverage ratio (holding company) CRD IV Basel III phase-in Swiss phase-in Adjusted fully loaded CRD IV US supplementary leverage ratio (holding company) BIII fully loaded CRD IV Not specified US supplementary leverage ratio (holding company) Basel III fully loaded US supplementary leverage ratio (holding company) BIII Basel III fully loaded CRD IV Basel III fully loaded IMF criteria US supplementary leverage ratio (holding company) Swiss fully loaded BIII US supplementary leverage ratio (holding company) 3.4 4.9 35 4 4.8 3 comfortable 4.1-4.2 >3.5 well above 4 4.7 4.2 4.2 best effort basis about 3 3.4 above 3 4.6 6.8 5.4 2.9 Already in compliance Exceeds requirements

Note: See Appendix for legend.

Global banking and capital markets sector

11

Theme 5.2: Cross-border activities cross-border strategies remain unchanged

So, no change in commitment [to our growth market strategy]. In terms of the strategic approach of the firm, [we are] very, very committed to and very focused on those markets.
Harvey Schwartz, CFO, Goldman Sachs

Banks execute on previously announced cross-border plans and activities. Banks are continuing to pursue investments and expansion in markets in which they have sufficient scale to succeed or which have been defined as strategically important regions. Dan Henry, CFO, American Express: China is an important market for us, and were focused on the partners that we have and the product launches that will take place. Michael Corbat, CEO, Citigroup: You saw us take some actions in the first quarter in terms of continuing to refine parts of our Consumer portfolio. We obviously saw the numbers come out of China early this morning in terms of the slight slowdown, the 7.5% versus the 7.6%, [and the economy is] a bit slower in Mexico. But I dont think those things have caused us to rethink where we are. Shigesuke Kashiwagi, CFO, Nomura: Nomura management is really committed to turn around our overseas operation to bring it back to the normal sustainable profitability and to achieve 50 billion in pre-tax income by March 2016. The US operation has been performing pretty nicely during the last year. We have to fix the European operation. Jos Antonio Alvarez Alvarez, EVP of Financial Management, Banco Santander: We get 56% of our profits from emerging markets, of which 25% is Brazil, 12% is Mexico, and Chile and Poland are 6% and 5%, respectively. In mature markets, we have the US and UK with12% and 13%, respectively; Spain represents 8% and Germany 5%. Stuart Gulliver, Group CEO, HSBC: There has been a slowdown in the fast-growing markets in recent quarters. Even emerging markets go through business cycles, and this has impacted our revenue and profit growth. So the reality is that those markets continue to grow relatively quickly, and HSBC remains well positioned with strong market shares across these fast-growing economies. Peter Sands, Group CEO, Standard Chartered: One of the things that differentiates us is the network. It's not just the fact that we are present in so many countries and have been for a very long time, but it's the way we work across borders, collaborating to support our clients as they trade and invest within Asia, Africa and the Middle East, and to and from Asia, Africa and the Middle East. For most banks, the vast majority of their cross-border business is between their home countries and their international networks. More than any other, we are multi-nodal, facilitating trading investment across multiple corridors across our network.

Global banking and capital markets sector

12

Theme 7: M&A strategies banks have little appetite for inorganic growth
Asset sales continue as banks work to reshape their businesses, but management remains largely uninterested in acquisitions. During 2Q13, a number of banks discussed asset sales as they continue to run down non-core businesses and align operations and geographies with core strategies. Management noted that they will continue to pursue such divestments, but only at prices that generate value. David Mathers, CFO, Credit Suisse: We have exited a significant number of small, non-core and loss-making markets, and we've divested a number of businesses no longer relevant to our strategy. Sergio Ermotti, CEO, UBS: We have established a seven-quarter track record of consistent, rapid, economic risk-weighted asset reduction. Regarding a potential acceleration, rapid sales that sacrifice capital or create the illusion of shareholder value enhancement are not part of our agenda. For sure, speed is important, but long-term value creation remains paramount. Stephan Engels, CFO, Commerzbank: The successful sale of our UK Commercial Real Estate portfolio of 5 billion [was] one of the largest transactions in Commercial Real Estate loans in Europe in the past years. The transaction as a whole has had no notable impact on capital while clearly improving our risk profile. We are successfully delivering on reducing risks, and we will continue to take advantage of market opportunities while optimizing our shareholders value. ngel Cano Fernandez, President, Grupo BBVA: The reason behind the sale [of our Panama banking business] has been published. Its pretty clear. It was impossible to generate critical mass in order to be leaders because thats our aspiration in any country. And the multiple that we got from the sale was something that made it very easy to come to this decision. Stuart Gulliver, Group CEO, HSBC: We continue to reshape HSBC. We have announced the disposal or closure of 11 non-strategic businesses since the beginning of this year. That brings the total transactions announced since 2011 to 54. With one notable exception, few banks talked about acquisition transactions, and appetite for inorganic growth remained low. Morgan Stanley bucked this trend, completing the acquisition of the Wealth Management joint venture from Citigroup in a transaction that marked the achievement of its long-held ambition and allowed Citigroup to reduce non-core assets significantly. Ed Clark, CEO, Toronto Dominion: We would not want to run our capital down to a point where we have to issue shares for a small acquisition. ... In todays market, we dont see any large acquisitions that are of interest to us. Carlo Messina, General Manager, Intesa Sanpaolo: On domestic consolidation, I can only reiterate what I said before, [there is] no desire from our side to participate in the bailout of any domestic player. Javier Marn Romano, CEO, Banco Santander: We need to consider all the circumstances in order to decide whether an offer for either Novacaixagalicia or Catalunya Bank [in Spain] would make sense. Richard Davis, CEO, US Bancorp: Weve had no approaches of any significance. Were not approaching anyone. Like you, I read about the small banks continuing to cobble together to find some critical mass, which makes total sense to me, because the cost of compliance and regulatory costs are easier with a larger base, but really no approaches. I mean, it couldn't be more dormant. And our interest couldn't be lower either.

We are not shopping for large acquisitions. You know my drill. As long as [analysts] insist that I am below book value, it is very unlikely that things are going to happen.
Lars Machenil, CFO, BNP Paribas

Global banking and capital markets sector

13

Theme 8.1: Lending trends positive loan growth is more evident in North America
Lending is not falling off to protect capital. It is falling off because, basically, demand has fallen significantly.
ngel Cano Fernandez, President, Grupo BBVA

In general, North American lenders reported better loan growth trends than their European counterparts. In 2Q13, meaningful loan growth failed to materialize for all but a few lenders, reflecting varied economic conditions across regions. Stronger growth trends were evident in the US and Canada, while Eurozone countries posted weaker lending performances. Banks with lending operations in emerging markets reported that they were moderating expectations for coming quarters. Management across regions expressed the desire to grow loan balances but cited muted demand and strict underwriting standards as barriers to extending credit. Tim Sloan, CFO, Wells Fargo: Our commercial loan growth has been pretty strong its the tenth consecutive quarter that wholesale lending has grown, and its certainly in certain segments and industries within the wholesale portfolio. But my guess is itll be a quarter or so before we start to see a big pickup. Bruce Van Saun, Group Finance Director, Royal Bank of Scotland: We have a liquidity buffer of 158 billion. We probably have room to take [that buffer] down 20 billion to 25 billion with time. So that is probably the amount that is sitting there in cash, ready to fund increased loan demand as that materializes. Javier Marn Romano, CEO, Banco Santander: What we want to do in Spain is grow in clients. So we need to grow deposits, we need to grow credit. We're not going to relax our practices with respect to risk, which has been stable over time. So once the economy recuperates, and there is more demand for credit, definitely, we will grow. But this will not be done at the cost of relaxing our risk standards. Alfredo Egydio Setubal, Investor Relations Director, Banco Ita: For the rest of the year we are changing our expectation from 11% to 14% [loan] growth to 8% to 11% growth. This is more realistic, considering that we have still some adjustments to make in the car financing portfolio and the slower pace of economic growth. Federico Ghizzoni, CEO, Unicredit: On the lending side, we have a problem in Italy for sure, but there is also an issue in Germany and in Austria. So we hope, first of all, to see economic recovery everywhere, and we hope to see customer demand coming back. Any opportunity for lending is, for us, an opportunity, provided that we have good risk and we have also good pricing. Because we're not prepared to lend at any cost. While North American lenders reported stronger loan growth trends than counterparts in other regions, it is not clear that this will be sustainable given that rising interest rates are expected to impact mortgage lending. Marianne Lake, CFO, JPMorgan Chase: The environment in late May and June drove mortgage rates up significantly, around 100 basis points. If mortgage rates stay at or above current levels, the market could be reduced by an estimated 30% to 40%. Richard Davis, CEO, US Bancorp: [Mortgage lending] will be down unless rates were to turn. But it will definitely be down, and we're projecting the second half of the year to be less than the first half.
End of period net loans, percentage change from 30 June 2012
6% 6% 4% 5% 3% 3% 4% 9% 8% 9% 14%

0% 0% -2% -1% -1%

-10% -12%-11%

-9% -8%

-4% -4% -4% -6% -5% -4%

Note: See Appendix for legend.

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Theme 8.2: Credit quality trends credit performance reflects economic conditions
Our strong risk management and prudent provisioning has resulted in a further substantial reduction in the impairment charge and significantly improved asset quality ratios, as well as a continued reduction in impaired loans and prudent increase in the coverage ratio.
Mark Culmer, Group Finance Director, Lloyds Banking Group

Credit quality performance is in line with management expectations and economic growth trends. In 2Q13, management assessments of credit quality ranged from excellent to stable to resilient, reflecting the economic conditions in banks operating regions. In the US and Canada, strong and outstanding credit-quality metrics have improved steadily over the last several quarters, driven by a strengthening US economy and banks conservative approaches to underwriting new loans in the years since the crisis. In Europe, credit performance was mixed, with UK banks reporting improvements and certain Eurozone-based banks reporting elevated risk indicators in line with expectations. Bruce Thompson, CFO, Bank of America: Credit quality across the board, and particularly as you look at early stage delinquencies, is quite strong. John Stumpf, CEO, Wells Fargo: Our credit performance was outstanding, benefiting from our conservative underwriting and improving economic conditions. Iain Mackay, Group CFO, HSBC: We saw declines in the majority of our regions, notably in North America, where loan impairment charges fell by $1.1 billion. This primarily reflected improvements in US housing markets, and the continued runoff of our US Consumer and Mortgage Lending portfolio and lower delinquency levels. These factors were partly offset by an increase in Latin America. Alfredo Egydio Setubal, Investor Relations Director, Banco Ita: The non-performing loans (NPLs) between 15 days and 90 days have decreased Its good to see that our policy of reducing the risk of the credit portfolio, which we started more than 18 months ago, continues to show a very positive trend in terms of quality and in terms of decreasing the provisions for loan loss. Stephan Engels, CFO, Commerzbank: We provisioned 190 million for the Core Bank in 2Q13. As stated before, this increase is in line with our expectations and previous guidance. Jan Hommen, CEO, ING: Risk costs were elevated in the second quarter, reflecting the weak macroeconomic environment. We expect our risk cost will stay elevated in line with the weak economic environment we still see in Europe. Enrico Cucchiani, CEO, Intesa Sanpaolo: In Italy, in the second quarter, the banking sector has registered signs of mild improvement in NPL formation. However, I believe it is too soon to claim a clear trend reversal because we are still going through a period of prolonged and deep recession. In any case, its important to note that there is a significant time lag between real economy recovery and credit quality improvement. Javier Marn Romano, CEO, Banco Santander: We have no surprise on the NPL ratio, [which was] 16 basis points more than the first quarter, coming from 4.76 to 4.92. The NPL entries were the same as in the first quarter and below the quarterly average for the past two years. We see new NPLs in some countries like Spain or Brazil basically coming down.

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Theme 8.3: Strategic progress banks look towards the future as legacy issues are resolved
Management expressed confidence that strategic actions will bring future success. During 2Q13, management across regions affirmed that the strategic decisions made in the past several years which range from maintaining to significantly reshaping business models were the right ones for their respective banks. Retail-focused banks in North America attributed earnings growth to their long-standing, low-risk diversified business models. While net income growth for many of these banks was in the single digits, management highlighted their consistent and predictable nature. Banks with capital markets operations reported on the progress they have made in adapting their business models. While some are in the early stages of adaptation and others have completed strategic plans, all confirmed they are on the correct path to deliver sustainable profits in coming quarters and years, even if benefits were not yet visible in 2Q13 results. Brady Dougan, CEO, Credit Suisse: Switzerland was an early mover in defining its regulatory framework and rules, which required us to accelerate the transformation of our business. As a result, we were one of the first global banks to reach full Basel III compliance. We are now able to spend the majority of our time and effort focused on advancing our client franchise rather than implementing changes to our business model. Brian Moynihan, CEO, Bank of America: We have built our company over the last several quarters to maintain stability while continuing to make progress and to withstand the volatility that we saw at the end of this quarter while delivering for our customers and shareholders, and that came through. Gord Nixon, CEO, Royal Bank of Canada: The strength and complementary nature of our diversified business continues to contribute to our earnings power. Even as the Canadian Banking industry is facing slower growth, we remain confident in our ability to successfully execute on our strategy, extend our leadership position and invest for long-term growth. Tom Naratil, CFO, UBS: Our focused business model works. It fits our clients needs and plays to our strengths. Our model is also clearly different relative to the industry, making comparisons less meaningful. By concentrating on our strengths in capital-light businesses, we have created an efficient model designed to deliver return on attributed equity in excess of 15%. Chris Lucas, Group Finance Director, Barclays: Weve made a strong start to our Transform program, which will help us deliver our 2015 targets, though it also impacts our financial performance in the intervening periods. Despite a challenging operating environment, the underlying performance of the business continues to build momentum. Stephen Hester, CEO, Royal Bank of Scotland: We are getting quite close to delivering a bank that will allow [incoming CEO Ross McEwan] to focus on the future, rather than on the past, and to drive the operational improvements that, together with an improving economy, are the next thing that we need. James Gorman, CEO, Morgan Stanley: We've been on a long journey to generate stronger, more sustainable, long-term returns with businesses that balance each other in volatile markets. With the acquisition of 100% of Wealth Management, that business model is solidly in place.

The results of this quarter are the results not just of one quarter but of the long-term and determined transformation that started a few years ago. The top priority is, of course, to pursue this transformation, the adaptation of the business model, and I think that this first halfs results are very encouraging for us. And may I say that the most important thing to me as the CEO is to have in mind and to feel that six years after the beginning of the financial crisis, we have teams with the appetite and motivation to pursue this transformation and to deliver growth, and I'm convinced that we have a business model that can deliver growth.
Frdric Ouda, CEO, Socit Gnrale

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Appendix
Summary of key banking sector themes
2Q13 earnings season This table provides a summary of the top 10 key themes. Top initiatives and issues (arranged from most common to least common) Drivers of earnings performance Macroeconomic environment Capital position Expense trends New regulatory proposals Cross-border activities M&A strategies Lending trends Credit quality trends Strategic progress
AXP ITU STD BAC BK BCS BNP CIBC C CBK CA CS DB GS BBVA HSBC

32

32 32 32 30

30 27 26 26

26

Legend AXP American Express BK BNY Mellon C Citigroup DB Deutsche Bank ITAU Banco Ita BCS Barclays CBK Commerzbank GS Goldman Sachs STD Banco Santander BNP BNP Paribas CA Crdit Agricole BBVA Grupo BBVA BAC Bank of America CIBC Canadian Imperial Bank of Commerce CS Credit Suisse HSBC HSBC Holdings

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Summary of key banking sector themes (cont.)

2Q13 earnings season This table provides a summary of the top 10 key themes.

ING INT JPM LLD MS NOM RBC RBS SG STAN STT TD UBS UCG USB WFC Top initiatives and issues (arranged from most common to least common)

Drivers of earnings performance Macroeconomic environment Capital position Expense trends New regulatory proposals Cross-border activities M&A strategies Lending trends Credit quality trends Strategic progress

32

32 32 32 30 30 27 26 26 26

Legend ING ING Groep MS Morgan Stanley SG Socit Gnrale UBS UBS AG INT Intesa Sanpaolo NOM Nomura Holdings STAN Standard Chartered UCG Unicredit Group JPM JPMorgan Chase RBC Royal Bank of Canada STT State Street USB US Bancorp LLD Lloyds Banking Group RBS Royal Bank of Scotland TD Toronto-Dominion WFC Wells Fargo

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Select key performance indicators

Market Value Company American Express Banco Itau Banco Santander Bank of America Bank of New York Mellon Barclays BBVA BNP Paribas CIBC Citigroup Commerzbank Credit Agricole Credit Suisse Deutsche Bank Goldman Sachs HSBC ING Groep Intesa Sanpaolo JPMorgan Chase Lloyds Morgan Stanley Nomura Royal Bank of Canada Royal Bank of Scotland Societe Generale Standard Chartered Bank State Street Toronto-Dominion UBS UniCredit US Bancorp Wells Fargo (US$m) $ 81,594.48 $ 64,890.74 $ 78,802.19 $ 160,609.75 $ 36,815.26 $ 56,779.73 $ 54,523.41 $ 81,757.14 $ 30,360.15 $ 160,747.26 $ 10,134.63 $ 24,954.81 $ 46,341.34 $ 46,685.31 $ 78,469.07 $ 212,216.85 $ 40,358.69 $ 31,402.90 $ 214,246.98 $ 79,961.51 $ 54,704.38 $ 28,648.99 $ 89,274.52 $ 56,219.84 $ 34,136.53 $ 56,845.33 $ 32,244.29 $ 77,701.83 $ 73,535.13 $ 31,910.77 $ 69,657.52 $ 234,418.09 Assets (US$m) $ $ 151,933.00 437,305.51 Capital ratio Basis of calculation of capital ratio 12.5 Basel I Tier 1 common ratio 11.7 Basel II 11.1 Basel 2.5 Core Tier 1 ratio 10.8 Basel I Tier 1 common ratio 13.2 Basel I Tier 1 common ratio 11.1 Basel 2.5 Core Tier 1 ratio 11.3 Basel 2.5 Core Tier 1 ratio 12.2 Basel 2.5 Common Equity Tier 1 ratio 9.7 Basel III Common Equity Tier 1 ratio (all-in basis) 12.2 Basel I Tier 1 common ratio 12.1 Basel 2.5 Core Tier 1 ratio 11.3 Basel 2.5 Core Tier 1 ratio 9.5 Basel III Common Equity Tier 1 ratio (fully loaded) 13.3 Basel 2.5 Core Tier 1 ratio 13.5 Basel I Tier 1 common ratio 12.7 Basel 2.5 Core Tier 1 ratio 11.8 Basel 2.5 Core Tier 1 ratio 11.7 Basel 2.5 Core Tier 1 ratio 10.4 Basel I Tier 1 common ratio 13.7 Basel 2.5 Core Tier 1 ratio 11.8 Basel I Tier 1 common ratio 11.9 Basel III Common Equity Tier 1 ratio 9.1 Basel III Common Equity Tier 1 ratio (all-in basis) 11.1 Basel 2.5 Core Tier 1 ratio 11.1 Basel 2.5 Core Tier 1 ratio 11.4 Basel 2.5 Core Tier 1 ratio 14.9 Basel I Tier 1 common ratio 8.8 Basel III Common Equity Tier 1 ratio (all-in basis) 11.2 Basel III Common Equity Tier 1 ratio (fully loaded) 11.4 Basel 2.5 Core Tier 1 ratio 9.2 Basel I Tier 1 common ratio 10.7 Basel I Tier 1 common ratio

$ 1,590,013.65 $ 2,123,320.00 $ $ $ $ $ $ 360,505.00 804,033.80 394,877.68 828,031.20 971,981.78 938,456.00 $ 2,329,558.48 $ 2,419,678.91 $ 1,883,988.00 $ 2,320,318.49 $ 2,482,780.63 $ 2,645,316.00 $ 1,486,640.23 $ 842,099.45 $ 2,439,494.00 $ 1,332,592.14 $ $ $ 802,691.00 422,739.80 861,362.64

$ 1,848,512.81 $ 1,630,265.84 $ $ $ 649,957.00 227,300.00 820,531.99

$ 1,192,991.48 $ 1,156,492.69 $ 353,415.00 $ 1,440,563.00

Source: Capital IQ and company reports. Notes: Market value as of 1 August 2013; assets as of 30 June 2013 for US, European and Japanese banks and 30 April 2013 for Canadian banks.

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