Europe Banks 2017 Outlook

Europe Banks 2017 Outlook
BI Banking, Europe Dashboard
Jonathan Tyce Arjun Bowry

BI Senior Industry Analyst BI Industry Analyst
1. BI 2017 Outlook: Banks, Europe

12/01/16
(Bloomberg Intelligence) -- The timing and possible dilution of Table of Contents

regulatory demands on European banks, coupled with ECB Performance & Valuation Topics
action and its impact on the shape and steepness of the yield
Peer Performance Interest Rate Cycle
curve, will be key determinants of the industry's 2017 Peer Valuation Regulatory Easing?
performance. Success in cleaning up $1.2 trillion of bad loans Brexit Fallout
at Monte Paschi, UniCredit and ultimately more European Jobs 'vs' Fintech
banks will also be crucial. Conduct risk remains high for Italy, Bad Debt
Deutsche Bank, RBS and others. The shift toward
preparations for IFRS 9, harmonization and loss-absorbing needs is a key sensitivity.
The roll-out of digital strategies, as well as branch closure and headcount culls, will likely continue, accompanied
by high initial investment strategies. French banks BNP, Credit Agricole and Societe Generale will likely follow
where ING and BBVA, for example, have spent aggressively.
Key Points:
Interest Rate Cycle: Political Risk, Bad Debt to Drive Euro Bank
Profit: 2017 Outlook
Regulatory Easing?: Cryan Comments Epitomize Basel Infighting to
Come: 2017 Outlook
Brexit Fallout: Bankers Must Wait and See Where Brexit Takes
Them: 2017 Outlook
Performance & Valuation
Peer Performance
2. HSBC, Nordics Lead the Haves; Deutsche, UniCredit the Have-Nots

11/15/16
Large-cap EU banks have recovered the ground lost after a sharp selloff following the U.K. referendum in June,
and the index is virtually flat for the year. With yields rising and the yield curve steepening, as well as expectations
that a Trump presidency will drive a softening of regulatory pressures, momentum has turned for the banks in
Europe. Performance remains split, with Asia-focused restructuring names HSBC and Standard Chartered joining
Nordic lenders as the best performers, up more than 10%.
Conversely, Italian banks UniCredit and Intesa continue to discount concens about the impact of addressing $400
billion of non-performing loans and potential capital increases. Deutsche Bank, RBS and Credit Suisse also reflect
litigation concerns and a lack of visibility for trading revenues into 2017.
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European Bank Performance 2016
3. UniCredit Set for Make-or-Break 2017 as HSBC, Nordics Power On

12/06/16
Contributing Analysts Philip Richards
UniCredit and Italian peers (excluding Intesa) will continue to materially underperform their EU competitors in
2017, unless a credible bad-debt workout, restructuring and recapitalization are announced and implemented.
HSBC and Standard Chartered are restructuring stories where further delivery should continue to underpin
performance, while Swedish and Nordic banks need interest-rates increases to drive earnings, while continuing to
pay out hefty dividends from their comfortable capital bases.
Deutsche Bank and RBS both continue to be weighed down by fears surrounding the size of their respective fines
from RMBS litigation. Together with Commerzbank and Credit Suisse, seemingly interminable restructuring plans
are likely to be protracted by further headcount cuts and strategy rejigs in 2017.
2016 Large-Cap Bank Performance
Peer Valuation
4. Barclays, HSBC Drive Sector P/E to 2016 High on Brighter Outlook

11/16/16
Contributing Analysts Scott Mc Evatt (Banks)
Strong 3Q trading and prospects for margin relief via a steeper yield curve, and a moratorium on further
regulatory pressure have driven European banks (SX7P) to a 2016 high, based on P/Es. Restructuring lenders
including Deutsche Bank, RBS, Commerzbank and Barclays trade above the industry median P/E of 11.4x for
2017, as investors reassess underweighting of the sector in light of a shift in global rates and regulatory direction.
A 5% median 2017 dividend yield also underpins valuations as capital concerns ease.
Intesa, Nordea, HSBC, Natixis and Swedbank all yield more than 6%, based on 2017 consensus dividend
expectations. Key risks to P/Es include difficulties for Italy as it addresses its banks' mountain of bad debt,
adverse forex moves and a rise in bad debts if rates rise faster than expected.
Rally Drives Banks Toward Top of P/E Range
5. Dividend vs. Growth Is Key Debate for Bank Valuations Into 2017
11/29/16
Dividend visibility and capital comfort, as evidenced at ING, KBC, Danske Bank and the Nordic banks has been a
feature of outperfomance for banks since 2014. Currently trading at an average 1x tangible net asset value, the
EU banks discount a 2017 expected return on TNAV of 9%, while the average dividend yield has fallen below 5%
as an end to regulatory tightening is expected. With higher rates and a steeper curve, as well as new cost
measures, 2017 bank winners may be more growth than quality driven.
Companies Impacted: UniCredit and Deutsche Bank trade at the steepest discount to equity, reflecting
expectations of dilutive capital increases and limited visibility, hampering investor sentiment. Restructuring lenders
HSBC and Standard Chartered require more positive surprises to maintain 2016 outperformance.
Sector Trading at 1x Tangible Book
6. EU Bank 2H Rally Erodes Potential, 2017 Analyst Rollover Needed

11/29/16
A 25% average rally across the largest banks in Europe, Switzerland and the Nordics has eroded the gap
between share prices and analyst price targets to 5%, with Italian banks the key outliers heading into 2017.
Traditionally, analysts roll over their one-year forward price targets at year-end, which could drive increased
targets. The most significant restructuring stories, where consensus is widest and opinion most divided, include
HSBC, Standard Chartered, Deutsche Bank, Credit Suisse and RBS.
Analyst Targets Likely to Change in 2017 Rollover
Topics
Interest Rate Cycle
7. Political Risk, Bad Debt to Drive Euro Bank Profit: 2017 Outlook
11/29/16
Contributing Analysts Tomasz Noetzel (Banks)
Political risk will be key for EU banks into 2017, driving the level and direction of bond yields, regulatory stance
and macro-economic outlook, which remain largely at the mercy of elections and political change. Progress on
Brexit, as well as the manner and speed with which President-elect Donald Trump pushes reform, notably of
Dodd-Frank regulation, will also determine the steepness and shape of the yield curve, and thereby net interest
margins and capital drag.
Companies Impacted: Pressure on net interest margins continues to be prevalent in Spain and Italy, where large
sovereign portfolios and competition have compounded the effect of low rates despite cheap ECB cash and
repricing. BBVA, Santander, Intesa and UniCredit are the largest banks in these countries.
Key Points:
Interest Rate Cycle: Interest-Rate Dynamics Are Last Key Bank
Differentiator Globally
Interest Rate Cycle: Higher Sovereign Yields Promise Better 2017
for Sabadell, Peers
Interest Rate Cycle: Rising Rates Likely to Be Boon to EU Banks'
2017 Client Trading
8. Interest-Rate Dynamics Are Last Key Bank Differentiator Globally

09/01/16
Globally, banks have restructured, repositioned, boosted capital quality and strength and cut costs and jobs in the
aftermath of the financial crisis. While European banks still have most to do, the banking revenue and profitability
outlook is now largely at the mercy of interest-rate cycles across respective regions. This will determine when the
benign credit cycle turns, net interest margin direction and loan demand. Interest-rate changes will also be key for
currency and liquidity conditions.
Regulatory change, including the net stable funding ratio, liquidity coverage ratio and higher minimum-capital
requirements have begun to level the global banking playing field. That said, business model, product mix and
risk appetite still ensure that banks' gearing to rate moves varies dramatically
Company Press Release
"IRRBB is an important risk that arises from banking activities, and is

encountered by all banks. It arises because interest rates can vary
significantly over time, while the business of banking typically involves
intermediation activity that produces exposures to both maturity mismatch
(eg long-maturity assets funded by short-maturity liabilities) and rate
mismatch (eg fixed rate loans funded by variable rate deposits). In
addition, there are optionalities embedded in many... banking products"
Basel Committee on Banking Supervision - Bank For International Settlements
Interest Rate Risk in the Banking Book, April 30, 2016
Quote located on page 4, click to view entire press release
9. Italian 50-Year Bond Slump Speaks to Bank, Political Woes Ahead

11/28/16
Contributing Analysts Maxime Sbaihi (Economics)
Political consequences of a No vote in the forthcoming Italian referendum are serious and numerous. They
include the difficult task of finding a new Prime Minister with enough support in parliament, further damage to an
already weak economic outlook, and more uncertainty surrounding the bank system's ability to offload some of its
$400 billion of nonperforming loans and recapitalize itself. The 15% slump in Italy's recently-issued 5 billion-euro
50-year sovereign bond underscores growing political risk.
Companies Impacted: Italian bad loans, "Sofferenze," have remained largely flat at 200 billion euros for 12
months, and are a growing source of concern at the ECB. Monte Paschi, UBI, Banco Popolare, UniCredit and
Intesa are five of the largest domestic banks, with BNP Paribas and Credit Agricole also present.
Italian 50-Year Sovereign Bond Decline
10. Higher Sovereign Yields Promise Better 2017 for Sabadell, Peers
11/15/16
EU banks can expect revenue contributions from sovereign portfolios to improve in 2017 as yields rise. This will
be partially offset by a decline in unrealized gains and book values. Euro zone banks held nearly $1.9 trillion of
sovereign debt at the end of September, nearly 10% below an early 2015 peak, but 25% higher than the of start
2011. Banks in Portugal, Italy and Spain are particularly geared to this aspect of revenue sensitivity, with
sovereigns representing more than 10% of total system assets.
Companies Impacted: Intesa, UniCredit, UBI and the combined Banco Poplare/Banca Popolare di Milano are the
largest Italian banks. In Spain, trading and sovereigns are most significant to Bankia, BBVA and Sabadell. Greater
revenue from sustainably higher yields should more than offset any negative impact on equity.
Yields on EMEA Sovereign Bonds
11. Rising Rates Likely to Be Boon to EU Banks' 2017 Client Trading

11/15/16
Higher euro-zone yields, together with a swift and dramatic steepening of the yield curve in the last three months,
have increased market expectations for European banks' revenue prospects into 2017. With the ability to reprice
deposits limited, net interest income relief comes at a critical time, and high demand-deposit balances and cheap
ECB cash (TLTRO) boost banks' gearing to rising rates. Higher yields should also stoke an increase in client
activity, bolstering private-client and trading revenue globally.
Companies Impacted: Barclays, BNP Paribas, SocGen and Deutsche Bank could see the most-improved revenue
outlooks if the boost to 3Q trading is maintained. Beyond this, UBS, Julius Baer and Credit Suisse's private-client
and wealth-management franchises are well positioned for an uptick in client activity.
Euro Yield Curve is Steepening
Regulatory Easing?
12. Cryan Comments Epitomize Basel Infighting to Come: 2017 Outlook

11/22/16
Following years of global debate about appropriate levels and structure of capital, bail-in requirements, risk
harmonization and IFRS vs. U.S. GAAP accounting, limited global agreement has been reached. Deutsche Bank's
CEO, John Cryan, said in November that global banking rules were in fact "only for the benefit of the U.S." Fitch
ratings also noted that restrictions to the use of internal risk models, part of the so-called Basel IV reforms
discussed, would deepen divisions between EU and U.S. banks.
Hopes that President-elect Trump's plans to "dismantle the Dodd-Frank Act" may reverse the regulatory burden
will likely be answered in the coming months. The outcome will affect the EU's largest systemically important
banks including HSBC, Deutsche, BNP Paribas, RBS, Societe Generale and UniCredit.
Key Points:
Regulatory Easing?: BNP, Bankia, Santander's SREP Relief Is
Subtle, Important Shift
Regulatory Easing?: Tit-for-Tat Bank Regulation May Hasten U.S.
Bank European Exodus
Regulatory Easing?: Any Dodd-Frank Change Will Take Time,
Impact Banks Differently
13. BNP, Bankia, Santander's SREP Relief Is Subtle, Important Shift

11/30/16
A subtle shift in banks' minimum capital requirements for 2017, as disclosed by the ECB, marks an end to years of
regulatory tightening and confirmation of the fragmentation of global-financial regulation. Minimum capital targets
for European banks, as set out under the so-called Supervisory Review and Evaluation Process (SREP), have
been reduced for a number of large-cap banks, including Santander, Societe Generale, BNP Paribas, Credit
Agricole SA, Bankia and ING. Similar disclosure will likely ensue at peers.
The two drivers of lower targets are a fall in Pillar 2 requirements, capital conservation buffers (CCB), and in the
case of some global systemically important banks, their G-SIB buffers. In most cases the CCB has halved, with
Pillar 2 decreasing by a full percentage point.
SREP Requirements Fall on Pillar 2, CCB
14. Tit-for-Tat Bank Regulation May Hasten U.S. Bank European Exodus
11/23/16
The prospect of an EU regulatory push for additional liquidity and capital for large foreign banks threatens to
exacerbate Brexit fallout, accelerating financial retrenchment and protectionist policies. An EU version of umbrella
legal structures required for foreign banks whose U.S. assets exceed $50 billion, effective July 1 in the U.S., could
speed U.S. banks' repatriation of business. This would affect JPMorgan, Goldman Sachs, Bank of America and
Citigroup, potentially encouraging post-Brexit moves.
Companies Impacted: While Deutsche Bank, Monte Paschi and UniCredit are emblematic of much that is wrong
with the European bank system, increased tension between U.S. and European regulators could have negative
repercussions for BNP Paribas, Barclays, Santander, HSBC and BBVA, all of which transact U.S. business.
Deutsche Bank and U.S. HoldCo Structure
15. Any Dodd-Frank Change Will Take Time, Impact Banks Differently
11/10/16
A moratorium on new agency regulations and Republican plans to drive regulatory reform effectively put an end in
the near-term to increasing regulatory burdens and complexity. This raises questions for banks about the ultimate
direction and impact of Basel IV, and raises hopes that bail-in and total-loss absorbing capital needs may slow or
diminish. While wholesale change, such as stymying the Volcker Rule, may be wishful thinking, financial
regulatory easing globally is more likely.
Companies Impacted: EU banks continue to do significant business in the U.S., with HSBC, BNP Paribas,
Santander, BBVA, Deutsche Bank, Barclays and Swiss investment banks UBS and Credit Suisse all heavily
exposed. Any regulatory loosening may be just balanced by higher foreign bank holding company requirements.
Company Website
"The Dodd-Frank economy does not work for working people.

Bureaucratic red tape and Washington mandates are not the answer.
The Financial Services Policy Implementation team will be working to
dismantle the Dodd-Frank Act and replace it with new policies to
encourage economic growth and job creation."
Donald J. Trump - President-Elect
Nov. 10, 2016
16. Wall Street Wooing of Brexit Bankers May Step Up on Trump Win
11/10/16
President-elect Donald Trump's pledge to "dismantle the Dodd-Frank Act" and replace it with new policies that
encourage economic growth is feeding hopes it could be a catalyst to spur pre-emptive banking moves to New
York from London. If the banking environment becomes less onerous, with a moratorium on new agency
regulations and the potential for dilution of bail-in requirements (orderly liquidation, as per Title 2 of Dodd-Frank),
domestic, euro zone, Swiss and Asian banks could look to increase U.S. headcount.
Companies Impacted: Goldman Sachs, JPMorgan, Citigroup and Bank of America currently have significant
headcount in London. Deutsche Bank, Credit Suisse, UBS and French peers BNP Paribas and Societe Generale
may look to relocate investment-banking roles to Wall Street. Asian and Japanese banks may follow.
Wall Street May Repatriate Business, Headcount
17. Ending Dodd-Frank May Tilt Scales in Banks' Internal-Model Spat

11/14/16
U.S. regulators' bargaining power in global discussions over tougher capital requirements could be undermined
should President-elect Trump follow through with plans to halt further financial regulation and repeal Dodd-Frank.
Under such a scenario, European banks are likely to be the major beneficiaries, given the key bone of contention
for U.S. regulators is the use of lenders' own models. European Banking Authority data show KBC, ING and ABN
Amro rely on internal models to determine more than 90% of credit risk.
The EU, in contrast to the U.S., was opposed to the introduction of capital floors and restrictions on the use of
banks' internal models, Bloomberg reported on Sept. 23. KBC, ING and ABN Amro all use internal models
extensively, yet they also rank among Europe's best-capitalized banks.
European Banks' Credit Risk-Weighted Assets
Brexit Fallout
18. Bankers Must Wait and See Where Brexit Takes Them: 2017 Outlook
11/22/16
Contributing Analysts Georgi Gunchev
The fallout from June's EU referendum, uncertainty about loss of passporting and President-elect Donald Trump's
pledge to dismantle Dodd-Frank and "make America great again" complicate London's ability to retain its financial
status. The battle for clearing, with euro derivatives considered at risk, could cost tens of thousands of jobs if lost.
New York, Paris, Frankfurt, Amsterdam and latterly Tokyo, driven by the city's governor, Yuriko Koike, have all
stepped up efforts to woo bankers and business from London.
Companies Impacted: Language and time zone, as well as a pool of related expertise (IT, Legal, Accounting), and
sterling's sharp drop, set London in good stead to retain business. JPMorgan, Goldman Sachs, Deutsche Bank,
Morgan Stanley, UBS, BNP Paribas and Societe Generale all retain significant U.K. headcount.
Key Points:
Brexit Fallout: Passporting Rights Questions Dominate as Battle
Lines Are Drawn
Brexit Fallout: DCM, Non-Euro Businesses Are Main Bank Brexit-
Fallout Unknowns
Brexit Fallout: Passporting Services at Risk Will Determine Banks'
Contingencies
19. Passporting Rights Question Dominates as Battle Lines Are Drawn

10/07/16
Should the U.K. leave the EU without retaining membership to the European Economic Area, it would adopt one
of two strategies with regards to passporting rights. It could negotiate some form of bilateral agreement, similar to
those that exist in Switzerland, though this would be time consuming and cumbersome. Failing this, no
passporting agreement would mean significant costs involved in relocating businesses. Either option would impair
the U.K.'s financial-services standing.
Early comments from Theresa May, the U.K. Prime Minister, suggests that the financial sector will receive no
preferential treatment during Brexit negotiations. From a language, time-zone and skills perspective, the U.K.
financial services sector still retains many attractions to overseas businesses.
Company Filing
"A passport is a mechanism through which firms may exercise their right
to provide services and their right to establishment. With a passport, an
entitys authorisation to do business in one EU Member State (and under
certain directives in EEA states, too) is recognised by all other Member
States as an authorisation to do business in their territory as well.As
such, a passport obviates the need to obtain separate authorisations
from other Member States."
Andrew Bailey - CEO, The Financial Conduct Authority
The Financial Conduct Authority , Aug. 17, 2016
Quote located on page 1, click to view entire filing
20. DCM, Non-Euro Businesses Are Main Bank Brexit-Fallout Unknowns

10/20/16
The ultimate location of product desks that may be affected by a loss of passporting rights is a growing area of
debate for non-U.K.-domiciled banks. While it is increasingly agreed that euro-denominated business is probably
fair game, with relocation likely, many non-euro lines of business fall into a grey area where consensus is lacking.
Research from The Boston Consulting Group shows that cash equities, prime services and debt capital markets
also fall into this category.
The largest non-domestic banks with a significant London presence include Deutsche Bank, UBS, Credit Suisse
and U.S. peers JPMorgan, Morgan Stanley and Bank of America. Together with Asian and emerging-market
banks active in Europe, they will need to identify the best location for each business.
Banking Business Lines at Risk From Brexit
21. Passporting Services at Risk Will Determine Banks' Contingencies

10/10/16
EU Directive 2013/36/EU of the European Parliament and the Council details the list of activities that credit
institutions are allowed to undertake within the Union. Numbering 15 in total, the list is subject to mutual
recognition, with activities split between traditional banking (deposit taking, leasing, lending), custody and
administration services, portfolio management and more typical investment-banking services such as underwriting
and M&A advisory.
The directive sets the lines for banks' contingency plans. Complicated, universal-business banking models will
need a multi-faceted approach to resolving the challenges that any passporting loss brings to the U.K. The
retrenchment of RBS, Barclays and Lloyds' in recent years may simplify this process.
CRD IV Activities - EU Directive 2013/36/EU
22. French 'Frog vs. Fog' Campaign Steps Up Wooing of City's Banks
10/31/16
Measures and campaigns to poach business from the City of London financial district will be stepped up in coming
months, even as the ultimate shape of post-Brexit Britain remains an unknown. Paris launched a campaign in
mid-October, with advertisements featuring a green frog wearing a tie, in the French tricolore. The somewhat
tongue-in-cheek slogan, "Tired of the Fog? Try the Frogs. Choose Paris La Defense," will be displayed at
Heathrow and the London-terminus of the Eurostar.
Office space and cultural fit for staff play well to Paris as a destination for banking personnel, though bank taxes
and employment laws are more onerous than in London. BNP Paribas, Societe Generale, Credit Agricole, Natixis
are the largest public French banks. HSBC has a meaningful presence in France.
Number of Credit Institutions in the EU
Jobs 'vs' Fintech
23. Banks' Job Cuts to Follow ING's Tech-Driven Lead: 2017 Outlook
11/22/16
Digitalization plans, increased investment and future cost synergies derived from financial technology will be a key
feature of European (and banks globally) banks' full-year results in early 2017. ING's October strategic update
targeted almost $1 billion of annual savings from its digital transformation plans by 2021, with the loss of 7,000
jobs. Further cuts, as well as branch closures across Italy, France, Spain and Germany are likely, and will
probably be accompanied by new synergy targets in 2017.
Companies Impacted: Fintech will address cost pressures in the retail space near term, while more wholesale-
driven solutions, such as Blockchain, will likely take longer to be implemented. Santander, BBVA, UniCredit,
Societe Generale, Credit Agricole and Intesa have some of the largest retail networks of EU banks.
Key Points:
Jobs 'vs' Fintech: ING $1 Billion Plan Shows How Digital Will Soon
Replace Bankers
Jobs 'vs' Fintech: Technology Is Threat and Opportunity to EU Jobs,
2017 and Beyond
Jobs 'vs' Fintech: Barclays' Desk Cull Sets Tone for Banks' Next
Cost-Cutting Steps
24. ING $1 Billion Plan Shows How Digital Will Soon Replace Bankers
10/03/16
The painful acceptance by banks across Europe that low rates are set to persist will spark headcount-reduction
plans and some strategic shifts in the next few months. ING is one of the better-placed banks globally to fund
investment in digital banking, and exemplifies the cost-benefit and headcount direction that financial technology
will continue to drive. Euro-zone markets suffer from significant fragmentation and too many branches. Banks on
the front foot with digital plans will secure a competitive advantage.
Lenders with the greatest need to further downsize headcount and manage domestic retail costs include French
banks Societe Generale, BNP and Credit Agricole. In the U.K., Lloyds and Barclays are relatively vocal with their
digitalization strategies, as are Spanish banks, including BBVA and Santander.
ING's Digital Plans Will Fund Headcount Losses
25. Technology Is Threat and Opportunity to EU Jobs, 2017 and Beyond

11/21/16
Contributing Analysts Jitendra Waral (Technology)
Tens of thousands of job losses at EU banks in 2016, many ascribed to changes wrought by digitalization and
financial technology, epitomize a sea change in employment opportunities for years to come. Skill-set
requirements are evolving rapidly, and this transition will affect industries in vastly different ways, boosting
productivity, rendering some obsolete, and opening entire new avenues of revenue and innovation for others.
Near term, IT and computer specialists will be required to future-proof businesses.
With Facebook, Google and Amazon blazing the trail for new employment opportunities and working practices,
Europe's employment law will be driven by a seismic shift in job descriptions, flexibility and needs. Policy and
demographic change will shape the global job market's direction.
Key Points:
Tech vs. Jobs?: Technology Will Shift, Not Destroy, Work
Opportunities Globally
Auto, CRE, Luxury: Technology Surprisingly Boosts BMW, Peers'
Headcount, for Now
Auto, CRE, Luxury: Tech's Impact on London Space Here to Stay,
Regardless of Brexit
26. Barclays' Desk Cull Sets Tone for Banks' Next Cost-Cutting Steps
10/28/16
While headcount reductions have grabbed most of the headlines as the banking industry has endured a painful
restructuring since 2008, property and desk culls are next in line. The impact of technology, as well as relocation
risks heightened by Brexit and passporting concerns, point to further structural cost reductions that could involve
significant real-estate retrenchment. Barclays took a $180 million charge in 3Q that will cover the reduction of
about 25%, or 5,000 desks from its London footprint.
Companies Impacted: Deutsche Bank, Commerzbank, RBS, Lloyds and continental peers, including Societe
Generale and ING, will likely detail further real-estate reductions in coming quarters. The structural benefit to the
fixed-cost base will become increasingly meaningful, and more than offset upfront charges.
Bloomberg Transcript
"The three big levers to tackle costs in any bank are people, technology,
and real estate. We have already made strong progress on addressing
the first two of these in the past year, but we need to do more in the
third...We have taken a charge of 150 million in the Corporate and
Investment Bank's numbers. This relates to a reduction in our real estate
footprint..and equates to the elimination of around 5,000 desks, or 25% of
our London office space..a structurally lower real estate cost base."
Jes Staley - CEO, Barclays
Oct. 27, 2016
Quote located on page 2, click to view entire transcript
27. Commerzbank, ING Set Job Cuts Pace That BNP, Deutsche May Follow
10/17/16
Heading into 2017, many EU banks have detailed updated headcount plans and more restructuring, with new
goals at Commerzbank, ING and Banco Popular introducing more than 15,000 net job cuts announced since
September. Deutsche Bank and BNP Paribas are expected to announce further rationalization, according to press
reports, that will likely be followed by peers as branch rationalization and excessive fixed-cost bases are
addressed. Commerzbank's dividend cancellation to fund charges may also be replicated elsewhere.
Barclays' CEO Jes Staley announced at the company's September global financial services conference that it had
reduced headcount by 13,600 in the first nine months of 2016. The largest 25 European public banks employed
more than two million staff at end-2015, led by HSBC, Santander and BNP.
Recently Announced Headcount Plans
28. Next Round of Bank Job Losses to Become Stark Reality for 2017
09/30/16
Combined, technological advances and revenue pressures all but guarantee that staff headcount at European
banks must continue to fall. Radical restructuring at many banks makes a comparison between 2008 and current
headcount meaningless in some cases, as evidenced by a 57% drop in headcount at ING after numerous
disposals, including its insurance businesses. Banks for which staff numbers have increased significantly since
2008 via M&A and growth include BNP Paribas, Santander, Lloyds, BBVA and Commerzbank.
Companies Impacted: Further rationalization appears inevitable for euro-zone banks. Much-needed domestic
consolidation in Italy may impact UniCredit, Intesa, UBI and Banco Popolare. Streamlining French retail is also
long overdue and should reduce branch numbers at BNP, Societe Generale and Credit Agricole.
More Headcount Reduction to Come
Italy, Bad Debt
29. Italy Is Acid Test of $1.2 Trillion Bank Time Bomb: 2017 Outlook
11/29/16
The failure of many of the euro area's largest banking markets to address legacy nonperforming loans in the
aftermath of the sovereign crisis promises to be one of the steepest challenges for the ECB into 2017. With about
$1.2 trillion of nonperforming loans reported across the region, recently rising rates and ongoing solvency
pressures are exacerbating the issue. Banks' minimal capital cushions also suggest that significant additional
capital will be required to resolve the problem.
Risk-weighted asset harmonization and IFRS 9 will likely be key battlegrounds as domestic regulators in Europe
try to buy time with transitional arrangements. The banking systems of Portugal, Greece, Cyprus and Spain face
similar cleanup challenges to Italian banks including UniCredit and Monte Paschi.
Key Points:
Italy, Bad Debt: Higher Coverage Targets, Yields Raise Italian Bank
CET1 Hurdles
Italy, Bad Debt: ECB's Bad Debt Task Force Has $1.2 Trillion
Mountain to Climb
Italy, Bad Debt: Monte Paschi, Popolare, Peers' CET1 at Risk From
Sovereign Move
30. Higher Coverage Targets, Yields Raise Italian Bank CET1 Hurdles
11/24/16
Ongoing ECB pressure to increase coverage ratios for so-called sofferenze (bad credit) and total nonperforming
loans, as well as rising yields, continue to pressure Italian banks' solvency levels and accelerate cash calls and
restructuring -- including debt-for-equity swaps. There's speculation that a 67% coverage ratio will be required for
the worst category of impaired loans, with UniCredit rumored to be targeting 75%, and 40% or above for the
remaining impaired book. This would wipe out significant equity.
Companies Impacted: Simultaneously, rising sovereign yields will reverse unrealized gains on Italian banks' $470
billion of sovereign-bond holdings, in the available-for-sale (AFS) reserves within equity. Monte Paschi, UBI and
Banco Popolare will be more affected than Intesa and UniCredit.
3Q Coverage Levels Must Be Increased
31. ECB's Bad Debt Task Force Has $1.2 Trillion Mountain to Climb
09/18/16
Contributing Analysts Scott Mc Evatt (Banks)
Addressing stubbornly high levels of nonperforming debt, notably in Italy, Spain, Cyprus, Greece, Portugal and
Ireland, is a key and increasing priority for the ECB's single supervisory mechanism. Recognizing this, the ECB
has established a task force charged with establishing appropriate prudential guidance for measurement,
management and oversight of the 1.1 trillion euros ($1.2 trillion) of nonperforming loans in the euro region.
Harmonizing standards in the trading bloc will likely be the steepest challenge.
Key Recommendations
32. Monte Paschi, Popolare, Peers' CET1 at Risk From Sovereign Move
11/28/16
A 10% slump in the value of Italian 10-year bonds will reverse unrealized gains held in banks' available-for-sale
(AFS) reserves, pressuring CET1 capital as the bank system looks to shore up solvency and offload bad loans.
While the impact varies bank-by-bank, CET1 ratios could fall 15-50 bps, with concerns most severe at Monte
Paschi, Banco Popolare and UBI. Italian banks' sovereign holdings exceeded $470 billion in September,
comfortably above Spanish banks' $300 billion.
Companies Impacted: Rising bond yields affect book values of many EU banks, which recognize unrealized gains
within AFS reserves. In Spain, not all banks include gains, or a component of them in solvency calculations for
CET1 ratios. Sabadell and Bankia exclude them, while BBVA and Santander include them.
Italian, Spanish Banks Sovereign Bond Holdings
33. Monte Paschi's Debt-Swap Conversion Leaves a Mountain to Climb

11/25/16
Monte Paschi's voluntary bond swap will reduce the lender's cash call to the market, but means an estimated 4
billion euros ($4.2 billion) would be needed to meet its capital-increase target. At 6x market capitalization, that's a
tall order. Guidance for a 25% takeup of its buyback should boost capital by 1 billion euros, but leaves the
business plan in question until it's attained. The high buy-back price, at an average 89.4% of par for Tier 1 bonds
(with the coupon), highlights the extent of challenges.
Though shareholders have agreed to continue with the capital plan, and the ECB approved the capital increase,
the key issue remaining is the extent of market participation, as the bank has already tapped the market twice
since 2014, for a total of 8 billion euros.
BMPS Interactive Buyback Bond Calculator
34. $45 Billion of Italian Bad-Loan Sales Is Key to UniCredit, Peers

10/19/16
The details on, and completion of, announced Italian bad-loan sales is vital to showing the depth and health of the
market. By 1H, more than $30 billion of Italian nonperforming loans (NPL) had been sold since the start of 2015,
Deloitte research shows, with an estimated $45 billion of ongoing transactions. Intesa and UniCredit ranked fourth
and sixth in terms of the most-active sellers across Europe in the period, behind the Irish Agency NAMA, tasked
with running down Ireland's nationalized bank assets.
Companies Impacted: Monte Paschi's plan to sell its nonperforming loan portfolio at 33% of gross face value is
likely to be revised, as the difficulty of finding buyers, and time pressure for a capital increase intensify. Along with
Banco Popolare and UBI, the five lenders have the greatest NPL exposures in Italy.
Proposed NPL Sales
To contact the analyst for this research:

Jonathan Tyce at jtyce6@bloomberg.net

Europe Banks 2017 Outlook

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Europe Banks 2017 Outlook

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Europe Banks 2017 Outlook

BI Banking, Europe Dashboard

Jonathan Tyce Arjun Bowry

1. BI 2017 Outlook: Banks, Europe

(Bloomberg Intelligence) -- The timing and possible dilution of Table of Contents

Performance & Valuation

2. HSBC, Nordics Lead the Haves; Deutsche, UniCredit the Have-Nots

3. UniCredit Set for Make-or-Break 2017 as HSBC, Nordics Power On

2016 Large-Cap Bank Performance

4. Barclays, HSBC Drive Sector P/E to 2016 High on Brighter Outlook

Rally Drives Banks Toward Top of P/E Range

Sector Trading at 1x Tangible Book

6. EU Bank 2H Rally Erodes Potential, 2017 Analyst Rollover Needed

Interest Rate Cycle

8. Interest-Rate Dynamics Are Last Key Bank Differentiator Globally

"IRRBB is an important risk that arises from banking activities, and is

9. Italian 50-Year Bond Slump Speaks to Bank, Political Woes Ahead

Italian 50-Year Sovereign Bond Decline

11. Rising Rates Likely to Be Boon to EU Banks' 2017 Client Trading

Euro Yield Curve is Steepening

12. Cryan Comments Epitomize Basel Infighting to Come: 2017 Outlook

13. BNP, Bankia, Santander's SREP Relief Is Subtle, Important Shift

SREP Requirements Fall on Pillar 2, CCB

"The Dodd-Frank economy does not work for working people.

17. Ending Dodd-Frank May Tilt Scales in Banks' Internal-Model Spat

European Banks' Credit Risk-Weighted Assets

19. Passporting Rights Question Dominates as Battle Lines Are Drawn

20. DCM, Non-Euro Businesses Are Main Bank Brexit-Fallout Unknowns

21. Passporting Services at Risk Will Determine Banks' Contingencies

CRD IV Activities - EU Directive 2013/36/EU

Jobs 'vs' Fintech

25. Technology Is Threat and Opportunity to EU Jobs, 2017 and Beyond

Recently Announced Headcount Plans

Italy, Bad Debt

33. Monte Paschi's Debt-Swap Conversion Leaves a Mountain to Climb

BMPS Interactive Buyback Bond Calculator

34. $45 Billion of Italian Bad-Loan Sales Is Key to UniCredit, Peers

To contact the analyst for this research:

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