July 26, 2010

Europe: Banks

Stress test: more than meets the headlines, a conditional thumbs up
Stress-test potential for confidence-building
The European bank stress test fell short of expectations (as expressed by our survey) by identifying a €3.5 bn capital shortfall vs. €37.6 bn expected. However, the credibility of the exercise will ultimately be determined by its underlying assumptions and associated disclosure. We assess the assumptions – Tier 1 hurdle, sovereign risk, macro/loss assumptions and pre-provision profit – and new disclosure, concluding that the test represents a substantial step forward.

Sovereign exposures; disclosure is king
Only the trading books were stressed. However, investors now have the information to gauge the impact from various scenarios on their own. For example, marking all sovereign exposure in South Europe and Ireland would increase the capital shortfall to €16 bn. On Greece, exposures seem well distributed and manageable, in our view.
WHY READ THIS REPORT?
1) Summary of European stress-test results 2) Assessment of severity of CEBS assumptions (macro backdrop, cumulative losses, pre-provision profit generation) 3) Multi-scenario analysis of bank-by-bank capital impact of more severe assumptions for: a) capital hurdles, and b) haircuts on peripheral European sovereigns

Macro and loss assumptions reflect cycle
The headline macro assumptions of the European stress test seem less severe than the US; a closer comparison shows a different picture as: (i) Europe is one year further into the credit cycle, and (ii) assumptions employed for countries facing particularly challenging macro conditions (Greece, Spain, Ireland) are severe, in our view.

RELATED RESEARCH
Europe: Banks: Stress-test survey: Participants expect an 89% pass rate and €38 bn capital raises, July 22, 2010 Europe: Banks: Stress test – value added is in stressing public-sector banks; hurdle rate is key, July 16, 2010 Europe: Banks: Stress-test adds to transparency, for private and public sector banks, June 23, 2010 Coverage view: Neutral

Capital hurdle; 6% subject to assumptions
While the minimum Tier 1 hurdle set in the test (6%) is above current regulatory minimums (4%) and in line with the US test (4% Tier 1 common), some may take the view that it is not sufficiently conservative. However, the stress test provides market participants with sufficient information to locate capital shortfalls against the capital ratio of their choosing. Our analysis suggests scaling the capital hurdle to 7% increases capital shortfall from €3.5 bn to €11.3 bn, and number of banks with a capital shortfall from 7 to 24, for example.
Jernej Omahen +44(20)7774-6324 jernej.omahen@gs.com Goldman Sachs International Aaron Ibbotson, CFA +44(20)7774-6661 aaron.ibbotson@gs.com Goldman Sachs International Frederik Thomasen +44(20)7552-9363 frederik.thomasen@gs.com Goldman Sachs International Domenico Vinci +44(20)7552-9360 domenico.vinci@gs.com Goldman Sachs International

Pre-impairment income below GS estimates
Pre-impairment income assumptions under the adverse scenario are more conservative than our GS base-case estimates for most banks; however, there are multiple outliers.

See the Financial Advisory Disclosure section of this document for important disclosures about transactions in which The Goldman Sachs Group, Inc. or an affiliate is acting as financial advisor.

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html. 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 Overview of stress test: Scope: 91 banks comprising private and public sector banks Assumptions comprise stress on macro developments and asset values Test implementation: standardized results and sovereign disclosure add to transparency Overview of results: Overview of analysis: assessing the credibility of the test Company-specific notes Capital hurdle; 6% subject to assumptions Scaling up the Tier 1 ratio hurdle A core capital hurdle rate implies limited capital shortfall for banks under our coverage Sovereign debt; disclosure is king The CEBS approach Scenario 1: extending CEBS haircuts to the banking book; reversing haircuts on stable sovereigns Scenario 2: testing for the extreme – a Greek restructuring; new disclosure suggests contagion risk very limited Macro assumptions: Putting European stress assumption to the US test Comparing the past with potential prologue? Pre-impairment income assumptions by CEBS allow for meaningful deterioration to GS(E) Credit Section: Results positive for credit spreads, even raising the minimum Tier 1 to 8% Appendix: Rankings of Tier 1 capital ratios Appendix: Rankings of core Tier 1 capital ratios Appendix: Relative changes in Tier 1 ratios and stress-test rankings Appendix: Writedowns on SE4 and Ireland exposures 3  4  4  4  5  5  6  7  8  8  11  12  12  15  18  21  24  25  28  31  33  34  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.

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Europe: Banks

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 announced intention to raise fresh capital
€ mn
Bank Stress test shortfall Hypo Real Estate Diada Banca Civica Unnim ATE bank (ABG) Cajasur Espiga Sub-total Other capital raises Piraeus NLB d.d. Banca Civica (in addition to shortfall) NBG Sub-total Total shortfall and other raises Private Private Public Private Greece Slovenia Spain Greece 1,000 400 44 450 1,894 5,425 Public Public Public Public Private Public Public Germany Spain Spain Spain Greece Spain Spain 1,245 1,032 406 270 243 208 127 3,531 Nature Country Capital (€mn)

Exhibit 2: Stress-test outcome vs. GS Survey
€ bn where applicable
Item Banks not passing Capital shortfall (€bn) Tier 1 ratio threshold in test Proportion of capital raised in public sector Top 3 countries where the capital is being raised Actual 7 5.4 6% 61% 1. Spain 2. Greece 3. Germany
(*) by the GS survey published July 22, 2010

Expected (*) 10 38.0 6% 51% 1. Spain 2. Germany 3. Greece

Deviation -3 -86% 10% -

Source: CEBS, Reuters, Financial Times.

Source: CEBS, Reuters, Financial Times.

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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 2010 Euro area 2011 Unemployment 2010 2011 House prices 2010 2011

- Benchmark assumptions - Adverse scenario assumptions
EU 27

0.7% -0.2%

1.5% -0.6%

10.7% 10.8%

10.9% 11.5%

-1.5% -5.9%

-0.3% -5.0%

- Benchmark assumptions - Adverse scenario assumptions
Source: CEBS.

1.0% 0.0%

1.7% -0.4%

9.8% 10.5%

9.7% 11.0%

NA NA

NA NA

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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.

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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
Discussion item Hurdle rate 6% = LEVEL IS TOO LOW CONCERN - banks would recap before they hit 6% - does not capture capital quality

#2
Sovereign Risk NOT ALL EXPOSURES ARE STRESSED - Banking book not stressed - Assumptions on some countries too soft

#3
Macro and loss assumptions ASSUMPTIONS ARE TOO LENIENT - US stress test was harsher for GDP… - … and also for house price decline… - … and therefore cumulative losses

#4
PII used by CEBS PII IS TOO OPTIMISTIC - CEBS PII assumptions under adverse scenario overly optimistic

ASSESS SENSITIVITY TO THRESHOLD - based on 7 and 8% tier 1 ratio GS APPROACH - based on 6% core tier 1 ratio

WE RUN 3 SCENARIOS 1. CEBS haircuts on SE4+I banking book and reversal of other losses 2. Greek debt restructuring + shock CEBS 3. Combination of the above (1 & 2)

BENCHMARKING THESE ASSUMPTIONS 1. vs US stress test 2. vs GS expectations

BENCHMARKING THESE ASSUMPTIONS - v GS base case forecast for 2010-11E

AT THE FOLLOWING THRESHOLDS: RESULT - 7%, €11 bn cap need, 24 failures - 8%, €30 bn cap need, 39 failures

IN SCENARIO 1. €16 bn cap need 2. €28 bn cap need 3. €34 bn cap need

HEADLINE LOWER IN EU, BUT DEVIATION SAME - Headline numbers reflect timing of test - US, EU assume similar stress v baseline - Stress losses vary across countries

PII UNDER ADVERSE SCENARIO - On aggregate, CEBS is 6% below GS est. - For 26 out of 39 banks, CEBS below GS = Reasonable assumptions

Source: Goldman Sachs Research.

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Europe: Banks

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.

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July 26, 2010

Europe: Banks

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%). 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.

2.

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.

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Exhibit 5: Scaling up the hurdle rate, towards investor expectations
Cumulative capital needs under scaled-up capital hurdle rates

Exhibit 6: As always, pass rate is a function of hurdle rate
Pass rate under scaled-up cut-off rates

€40.0bn €35.0bn €30.0bn €25.0bn €20.0bn Total capital required o/w GS coverage €30.2bn

€37.6bn

45 40 35 30 25 20

92% 39 74%
# banks < threshold o/w GS coverage Pass rate (%)

100% 89% 90% 80% 70% 24 57% 60% 50% 40% 10 30% 20% 10% 0% 8% Consensus

€15.0bn €10.0bn €5.0bn €0.0bn 6% €3.5bn

€11.3bn

15 10 5 1 0 7 9 6% 7% 16

7%

8%

Consensus (8.25%)

Source: CEBS, Goldman Sachs Research estimates.

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

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Europe: Banks

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
Rank 1 2 3 4 5 6 7 HRE Diada Banca Civica UNNIM ABG Caja Sur ESPIGA Bank € mn 1,245 1,032 406 270 243 208 127 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Capital required to meet 7% Tier 1 threshold
Bank HRE Diada Jupiter BMPS NordLB Banca Civica UNNIM ESPIGA ABG Piraeus Bank Allied Irish Bank Caja Sur Deutsche Postbank Caja SOL Banco Pastor UBI Banca CAI NLB Ibercaja Banco Guipuzcoano Banco Espirito Santo Bankinter Caja de Ontinyent Caja Colonya  € mn 2,146 1,522 1,498 981 865 692 459 404 391 371 369 328 248 212 187 171 135 82 76 70 68 61 3 1 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

Capital required to meet 8% Tier 1 threshold
Bank Jupiter HRE BMPS Diada NordLB Allied Irish Bank UBI Banca Banca Civica Unicredit Banco Popolare Banco Popular Deutsche Postbank Bank of Ireland Banco Espirito Santo Piraeus Bank ESPIGA UNNIM ABG HeLaBa Caixa WestLB Banco Sabadell Caja Sur Mare Nostrum NBG Caja SOL Breogan Banco Pastor Bankinter Ibercaja CAI Marfin RZB NLB CAM Banco Guipuzcoano Caja de Vitoria y Alava Caja de Ontinyent Caja Colonya  € mn 3,637 3,078 2,207 2,013 1,946 1,107 1,029 993 942 931 926 869 777 747 742 692 642 539 501 489 472 464 449 449 427 425 375 374 368 329 285 216 212 199 168 148 67 10 3 30,246 11,917 18,329 39 16 23 57% 60% 55%

Total capital required to reach threshold o/w GS coverage o/w other Institutions below the threshold o/w GS coverage o/w other Stress test pass rate o/w GS coverage o/w other

3,531 243 3,288 7 1 6 92% 98% 88%

Total capital required to reach threshold o/w GS coverage o/w other Institutions below the threshold o/w GS coverage o/w other Stress test pass rate o/w GS coverage o/w other

11,340 2,780 8,560 24 9 15 74% 78% 71%

Total capital required to reach threshold o/w GS coverage o/w other Institutions below the threshold o/w GS coverage o/w other Stress test pass rate o/w GS coverage o/w other

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

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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
Rank 1 Banco Pastor Bank € mn 36 Rank 1 2 3 4 5 Deutsche Postbank Banco Pastor Marfin ABG Bank of Cyprus

Capital required to meet 5% Core Tier 1 threshold
Bank € mn 607 224 97 95 86 Rank 1 2 3 4 5 6 7 8 9 10

Capital required to meet 6% Core Tier 1 threshold
Bank Deutsche Postbank BMPS Banco Pastor Marfin Bank of Cyprus Banco Popolare ABG Piraeus Bank Allied Irish Bank Bankinter € mn 1,228 487 411 337 308 269 243 200 195 22 3,698 10 73%

Total capital required to reach threshold Institutions below the threshold Stress test pass rate

36 1 97%

Total capital required to reach threshold Institutions below the threshold Stress test pass rate

1,108 5 86%

Total capital required to reach threshold Institutions below the threshold Stress test pass rate

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).

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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.
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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 Benchmark Country Austria Belgium Cyprus Finland France Germany Greece Ireland Italy Luxembourg Malta Netherlands Portugal Slovakia Spain Slovenia Czech Republic Denmark Poland Sweden UK Other non Euro area countries EU Average 2010 1.00 1.40 0.30 0.00 1.50 0.10 3.90 1.60 1.20 1.40 0.70 1.10 2.30 0.10 1.30 0.00 0.00 0.00 2.60 1.30 5.00 1.30 1.30 2011 2.80 3.10 3.20 3.30 3.00 2.50 4.30 4.20 2.90 3.10 3.60 2.50 3.70 2.40 4.10 1.10 2.70 1.40 6.10 2.30 6.90 4.40 3.30 2010 3.10 4.30 3.00 1.90 3.70 2.30 20.10 8.60 4.90 4.30 2.90 3.00 11.10 1.60 6.70 1.40 4.60 2.10 6.40 5.00 7.70 5.50 5.20 Adverse 2011 5.60 6.90 6.70 6.10 6.00 4.70 23.10 12.80 7.40 6.90 6.40 5.20 14.10 5.00 12.00 4.20 11.40 5.20 12.30 6.70 10.20 11.80 8.50 Scenario 1 Trading ------23.10 12.80 7.40 ---14.10 -12.00 -------Banking ------23.10 12.80 7.40 ---14.10 -12.00 -------GS Scenario 2 Trading 5.60 6.90 6.70 6.10 6.00 4.70 60.00 12.80 7.40 6.90 6.40 5.20 14.10 5.00 12.00 4.20 11.40 5.20 12.30 6.70 10.20 11.80 Banking ------60.00 ---------------Scenario 3 Trading ------60.00 12.80 7.40 ---14.10 -12.00 -------Banking ------60.00 12.80 7.40 ---14.10 -12.00 --------

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

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:

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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).

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Exhibit 10: Capital increase under three GS stress scenarios
40 35 30 25 20 15 Total capital required €34.1bn o/w GS coverage €27.8bn €37.6bn

Exhibit 11: Number of banks below 6% hurdle rate under GS stress scenarios
30 # banks < threshold 81% 22 76% 73% 20 17 o/w GS coverage 25 Pass rate (%) 89% 100% 90% 80% 70% 60% 50% 10 40% 30% 10 10 12 20% 10%

25

€16.2bn

15

10
10 5 0 Scen. 1 Scen 2. Scen 3. Consensus…

5

0 Scen. 1 Scen 2. Scen 3. Consensus

0%

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.

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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 book exposures
(€ bn)Trading book and banking book exposures)
400 350 300 250 200 150 108 100 50 0 Italy Spain Greece Portugal Ireland 47 22 100 50 0 336 Banking Book Trading Book 400 350 300 250 200 150

Exhibit 13: We arrive at additional hits of €65 bn, applying haircuts on banking book of SE and Ireland countries; and reversing trading mark downs on other sovereign debt (€ bn)
40 30 20 10 0 -10 -11 -20 Spain (Sovereign debt) Greece (Sovereign debt) Italy (Sovereign debt) Portugal (Sovereign debt) Ireland Reversal of (Sovereign trad. losses debt) on other sov. debt 29 22 18

263

6

2

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

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

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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  haircut net of  30% tax (€ mn) 845 1,539 2,929 3,058 1,157 597 1,190 485 511 794 338 3,956 182 1,780 212 2 203 648 3,953 2,039 1,517 251 991 564 173 116 711 49 136 419 182 350 3,790 470 534 297 419 131 46 2,162 253 146 12 104 666 Tier 1  Ratio (%) Diff ‐12.2% ‐10.4% ‐4.1% ‐3.3% ‐3.1% ‐2.3% ‐2.2% ‐2.0% ‐1.8% ‐1.6% ‐1.5% ‐1.3% ‐1.2% ‐1.2% ‐1.1% ‐1.1% ‐1.1% ‐1.0% ‐1.0% ‐1.0% ‐0.9% ‐0.8% ‐0.8% ‐0.8% ‐0.8% ‐0.8% ‐0.8% ‐0.7% ‐0.7% ‐0.7% ‐0.7% ‐0.7% ‐0.6% ‐0.6% ‐0.6% ‐0.6% ‐0.6% ‐0.6% ‐0.6% ‐0.6% ‐0.6% ‐0.5% ‐0.5% ‐0.4% ‐0.4% Incremental  haircut net of  30% tax (€ mn) 1,169 2,269 280 447 230 1,091 199 115 701 15 450 104 1 60 9 109 208 2 320 256 96 5 0 0 0 0 0 ‐1 ‐1 ‐21 ‐8 ‐22 ‐24 ‐87 ‐255 ‐59 ‐11 ‐61 ‐55 ‐857 ‐53 ‐66 ‐643 ‐267 ‐60 ‐187 Tier 1  Ratio (%) Diff ‐0.4% ‐0.3% ‐0.3% ‐0.3% ‐0.2% ‐0.2% ‐0.2% ‐0.2% ‐0.2% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.2% 0.2% 0.4% 0.5% 0.5% 0.6%

Rank

Bank

Rank

Bank

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45

Greek Postal Savings Bank ABG NBG HRE Piraeus Bank Banco BPI EFG Eurobank Marfin Popular Bank ESPIGA Alpha Bank Bank of Cyprus BBVA BCEE Dexia Banco Pastor Caja Colonya  Caja BBK Deutsche Postbank Deutsche Bank Jupiter Caixa Banca Civica BMPS Caixa General de Depositos Unicaja CAI Banco Popular Espanol Caja de Vitoria y Alava UNNIM Banco Sabadell Ibercaja Diada Santander Allied Irish Bank CAM Breogan Banco Espirito Santo Caja SOL Banco Guipuzcoano Intesa SanPaolo Mare Nostrum Bankinter Banque Raiffeisen SNS BANK Landesbank Baden‐Württemberg

46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91

Commerzbank BNP Paribas UBI Banca KBC Banco Popolare Unicredit Norddeutsche Landesbank BCP ING Bank Caja Sur Societe Generale Bank of Ireland Caja de Ontinyent HSH Nordbank Banca March ABN / Fortis Bank Rabobank Bank of Valletta Credit Agricole Group Barclays BPCE Lloyds Banking Group WGZ Bank FHB DZ Bank Landesbank Berlin Caja Kutxa Erste Bank SYDBANK Bayerische Landesbank OP‐Pohjola Group Svenska Handelsbanken Swedbank Nordea Royal Bank of Scotland RZB JYSKE BANK SEB Landesbank Hessen‐Thüringen HSBC OTP Bank PKO BP Danske Bank WestLB NLB Dekabank

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

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Europe: Banks

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.

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Exhibit 15: Potential hits from Greek debt restructuring largest in Greece
€ bn

Exhibit 16: Potential pre-tax hits from Greek debt restructuring by bank
€ bn
0.0 2.0 4.0 6.0 8.0 10.0 12.0 11.5 6.0 4.7 4.7 4.5 3.2 3.0 3.0 2.2 2.1 1.8 1.7 1.6 1.3 1.2 1.1 0.9 0.8 0.8 14.0

Total exposure to Greek debt

108

NBG ABG Piraeus Bank

o/w Greek banks

56

HRE EFG Eurobank Greek Postal Savings Bank

o/w others

52

Alpha Bank BNP Paribas Dexia Societe Generale

- 40% recovery rate (post / pre-tax loss) Scenario losses for Greek banks 24 10

Marfin Popular Bank Commerzbank Deutsche Bank ING Bank Royal Bank of Scotland

Scenario losses for other banks

22

9

Bank of Cyprus Deutsche Postbank Landesbank Baden-Württemberg BPCE

Source: CEBS, Goldman Sachs Research estimates, S&P.

Source: CEBS, Goldman Sachs Research estimates, S&P.

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Exhibit 17: Scenario 2: Outside of Greece, only five banks experience a >1% fall in Tier 1 from a Greek restructuring
€ mn
Incremental  haircut net of  30% tax (€ mn) 2,232 4,171 8,037 3,315 3,117 1,236 2,104 795 3,276 655 1,563 209 13 301 1,485 1,218 592 51 2,067 1,092 195 379 119 937 35 317 41 54 855 82 585 4 266 17 301 9 83 63 312 83 35 105 277 433 123 Tier 1  Ratio (%) Diff ‐32.2% ‐28.2% ‐11.3% ‐8.9% ‐5.8% ‐5.2% ‐4.3% ‐3.6% ‐3.5% ‐1.1% ‐1.0% ‐0.8% ‐0.5% ‐0.5% ‐0.4% ‐0.4% ‐0.4% ‐0.3% ‐0.3% ‐0.3% ‐0.3% ‐0.3% ‐0.2% ‐0.2% ‐0.2% ‐0.2% ‐0.2% ‐0.2% ‐0.2% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% ‐0.1% 0.0% 0.0% 0.0% 0.0% 0.0% Incremental  haircut net of  30% tax (€ mn) 17 23 167 26 135 17 4 17 5 26 3 3 11 6 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Tier 1  Ratio (%) Diff 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Rank

Bank

Rank

Bank

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45

Greek Postal Savings Bank ABG NBG Piraeus Bank EFG Eurobank Marfin Popular Bank Alpha Bank Bank of Cyprus HRE Deutsche Postbank Dexia Banco BPI Banque Raiffeisen BCP Societe Generale Commerzbank Landesbank Baden‐Württemberg BCEE BNP Paribas Deutsche Bank Banco Espirito Santo KBC WestLB ING Bank JYSKE BANK Erste Bank SNS BANK Dekabank Royal Bank of Scotland HSH Nordbank BPCE Bank of Valletta Rabobank Banco Pastor Intesa SanPaolo NLB Norddeutsche Landesbank SEB Unicredit Bayerische Landesbank Landesbank Hessen‐Thüringen Nordea Credit Agricole Group HSBC BBVA

46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91

Breogan Caixa General de Depositos Santander Banco Popolare Barclays Allied Irish Bank UNNIM CAM OP‐Pohjola Group Jupiter Unicaja Banca Civica BMPS UBI Banca RZB WGZ Bank FHB Bank of Ireland Swedbank Caja de Vitoria y Alava Banco Popular Espanol Caja BBK Banco Sabadell ESPIGA DZ Bank Svenska Handelsbanken Caja SOL Caja Sur Landesbank Berlin Caja Kutxa CAI Danske Bank Bankinter OTP Bank Caixa Banca March Lloyds Banking Group SYDBANK Mare Nostrum ABN / Fortis Bank Caja Colonya  Ibercaja Caja de Ontinyent Banco Guipuzcoano PKO BP Diada

Source: Company data, Goldman Sachs Research estimates.

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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 than those used in the US stress test, on a headline basis
GDP growth in adverse scenario, Euro area and US
Year 1 1.0% 0.5%
GDP growth ‐ adverse scneario

Exhibit 19: Loan loss assumptions are also lighter in Europe, reflecting the less severe assumed macro backdrop
2-year cumulative loan losses, Euro area and US
14.0% 12.6%
Cumulative loan losses ‐ adverse scneario

Year 2 0.5%

12.0% 10.0% 8.0% 6.0%

Euro area (CEBS) US (Federal Reserve)

0.0% ‐0.5% ‐1.0% ‐1.5% ‐2.0% ‐2.5% ‐3.0% ‐3.5% ‐3.3% Euro area (CEBS) US (Federal Reserve) ‐0.2% ‐0.6%

7.0%

4.4% 4.0% 2.1% 2.0% 0.0% 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).

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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 conservative relative to base-line estimates…
GDP growth in adverse scenario relative to base line, Euro area and US
Year 1 0.0%
GDP growth ‐ adverse scneario vs base‐line

Exhibit 21: …But the European stress test is taking place in the aftermath of a substantial GDP drawdown during 2008
2007-2011 GDP (indexed), Europe and US
102 101 100 99
GDP indexed

Year 2

Cumulative

‐0.5% ‐1.0% ‐1.5% ‐2.0% ‐2.1% ‐2.5% Euro area (CEBS) ‐3.0% US (Federal Reserve) ‐3.5% ‐3.0% ‐2.9%

‐0.9% ‐1.3% ‐1.6%

98 97 96 Europe 95 94 93 2007 2008 2009 2010E 2011E US

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.

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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 Italy Malta Cyprus Greece Denmark France Portugal Hungary UK Germany Netherlands Finland Belgium Ireland Sweden US peak (2Q07) to date Spain Average (Europe) Commercial real estate -4% -4% -4% -7% -8% -9% -10% -13% -19% -19% -19% -19% -19% -24% -26% -41% -55% -16% 2 year cumulative price decline - adverse scenario Italy Malta Cyprus Greece Denmark France Portugal Finland UK Germany Netherlands Belgium Sweden Hungary Ireland Spain US stress test Average Residential real estate -4% -4% -4% -7% -8% -9% -10% -10% -19% -19% -19% -19% -19% -20% -21% -23% -27% -13%

Cumulative loss rate (%) - adverse scenario Malta Germany Finland France Netherlands Sweden Belgium Luxembourg Denmark Austria Italy UK Slovenia Portugal Ireland Poland Cyprus Greece US stress test - adverse scenario Spain Hungary Average (Europe)

Corporate 0.7% 1.6% 1.8% 2.0% 2.1% 2.3% 2.3% 2.9% 2.9% 3.0% 3.1% 3.2% 3.8% 4.6% 5.4% 5.5% 6.6% 6.8% 7.0% 8.2% 9.5% 4.4%

Cumulative loss rate (%) - adverse scenario Luxembourg Netherlands Sweden Portugal Germany Finland Slovenia Denmark Spain Belgium Malta France Italy UK Ireland Hungary Poland Greece Austria Cyprus US stress test Average (Europe)

Retail 0.9% 0.9% 0.9% 0.9% 1.1% 1.2% 1.2% 1.6% 1.7% 1.8% 2.1% 2.3% 2.7% 4.3% 4.4% 4.8% 5.7% 8.3% 9.1% 9.5% 12.6% 2.1%

Source: Datastream, NCREIF/MIT, Federal Reserve, CEBS, Goldman Sachs Research.

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Europe: Banks

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 preprovision earnings during 2009
2008-2009 capital ratio development, top 10 European banks (by assets)
12.0%

Exhibit 24: CEBS analysis indicates that, given time, European banks can cover loan losses with pre-provision earnings
2009-2011 capital ratio development, European banks (CEBS adverse scenario)
16.0%

Capital ratios - top 10 European banks (by assets)

2.0% 0.2% - 0.5%

Capital ratios - based on CEBS adverse scenario

10.0%

2.4%

-2.0%

14.0% 4.5% -4.5%

12.0%

8.0%

10.0%

-0.7%

- 0.1%

NA

6.0%

10.8%

8.0%

4.0%

8.8%

6.0% 10.3% 4.0% 9.2%

2.0%

2.0%

0.0% Tier 1 (2008) Pre-provision Post-tax loan earnings (post- loss provisions tax) and write-downs RWA Other (including dividend) Capital Tier 1 (2009)

0.0% Tier 1(2009) Pre-provision Post-tax loan earnings (post- loss provisions tax) and write-downs RWA Other Capital Tier 1 (2011E)

Source: Company data, Goldman Sachs Research estimates.

Source: CEBS, Goldman Sachs Research.

Goldman Sachs Global Investment Research

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Europe: Banks

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.

Goldman Sachs Global Investment Research

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July 26, 2010

Europe: Banks

Exhibit 25: Pre-impairment income resilience key component of banks’ loss absorption capacity
European banks aggregated figures – CEBS sample (91 banks)
2009 Benchmark Pre-impairment income Change. YoY (%) Total impairments Change. YoY (%) Pre impairment income / Total losses (%) Pre-impairment income / RWA (%) Advesre scenario Pre provision income ch. YoY (%) Total impairments ch. YoY (%) Pre impairment income / Total losses (%) Pre-impairment income / RWA (%) 206 --2.4% 270 251 -7% 234 14% 107% 2.2% 258 3% 239 2% 108% 2.1% 509 -473 -108% 4.2% 254.5 -237 -108% 2.1% -6% -15% -‐‐ ‐‐ 2010 2011 Cum. 2010-11E 107% 108% 108% (1) 270 -206 --2.4% 2010 (2) 261 -3% 177 -14% 147% 2.3% 2011 (3) 277 6% 152 -14% 182% 2.4% Cum. 2010-11E (4) = (2)+(3) 538 -329 -164% 4.7% Run rate 2010-11E (5) = (4) / 2 269 -165 -164% 2.4% 0% --20% -‐‐ ‐‐ Adverse scenario: PII still higher than impairments 2010 2011 Cum. 2010-11E 182% 147% 164% vs 2009 (%) Base case: PII covers 164% of impairment losses

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, preagreed 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.

Goldman Sachs Global Investment Research

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Europe: Banks

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 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Bank** Deutsche Bank ABG Barclays Svenska Handelsbanken Danske Bank Marfin Popular Bank Intesa SanPaolo Royal Bank of Scotland Banco Popular Espanol Nordea Commerzbank OTP Bank Swedbank Erste Bank Bank of Cyprus Banco Sabadell Santander Lloyds Banking Group Alpha Bank Bank of Ireland % 42% 18% 17% 12% 7% 5% 5% 4% 2% 1% 0% 0% -4% -4% -4% -5% -5% -6% -6% -7% % of RWA* 1.3% 0.6% 0.8% 0.3% 0.2% 0.2% 0.1% 0.2% 0.1% 0.0% 0.0% 0.0% 0.1% 0.1% 0.2% 0.1% 0.3% 0.2% 0.2% 0.2% Rank 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Bank** SEB PKO BP Bankinter BBVA BNP Paribas EFG Eurobank Piraeus Bank HSBC NBG BMPS Unicredit UBI Banca Societe Generale Banco Pastor Banco Popolare Greek Postal Savings Bank Deutsche Postbank KBC Allied Irish Bank Average % -8% -8% -8% -10% -11% -12% -13% -13% -14% -15% -18% -19% -20% -24% -27% -43% -58% -60% -72% -6% Difference % of RWA* 0.2% 0.7% 0.2% 0.6% 0.4% 0.5% 0.4% 0.6% 0.7% 0.4% 0.7% 0.4% 0.8% 0.8% 0.5% 1.5% 1.6% 2.6% 2.6% 0.2%

* adjusted for corporate tax impact, ** excludes Dexia

Source: CEBS, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

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Europe: Banks

Credit Section: Results positive for credit spreads, even raising the minimum Tier 1 to 8%
This section was written by our Global Banks and Finance Credit Research Analyst, Louise Pitt. The positive takeaways for credit investors are: a) the increased disclosure provided by the standardized results of the stress tests, 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 almost all of the banks under our coverage “pass” even when raising the minimum Tier 1 ratio to 8%, d) the resulting balance sheet restructuring that is taking place among the European banking sector, e) confidence that additional losses on highly subordinated 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 are carried forward
Half of 2-year cumulative losses in the banking book as % of 2009 actual
200% 180% 160% 18% Tier 1 Capital 16% Core Tier 1 Capital

Exhibit 28: Banks are likely to improve core capital levels
Most recently reported core Tier 1 and total Tier 1 capital ratios

Adverse / 2009 Actual

140% 120% 100% 80% 60% 40% 20% 0%

14%

12%

10%

8%

6%

ACAFP

BBVA

SANTAN

BACR

HSBC

SOCGEN

ISPIM

UCGIM

Nordea

BKIR

LLOYDS

BPCE

BNP

RBS

AIB

DB

ING

4%

BBVA

SOCGEN

SANTAN

STANLN

ACAFP

BACR

HSBC

BKIR

LLOYDS

UCGIM

Nordea

ISPIM

Source: CEBS, Goldman Sachs Research.

Source: Company data, Goldman Sachs Research.

Goldman Sachs Global Investment Research

BPCE

UBS

RBS

BNP

ING

AIB

CS

DB

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July 26, 2010

Europe: Banks

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
Historical CDS spreads
300

Exhibit 30: Bank cash spreads are still wide across the capital structure
We still recommend moving down the capital structure
1,500 1,400 1,300

250

1,200 1,100

Mid Spread (bp)

200

Treasury spread (bp)

1,000 900 800 700 600 500 400 300 200 100
LT2 Senior IG Corp - A Tier 1

European Banks 150 US Banks iTraxx Sen. Fin. Non-Financial CDX Non-Financial iTraxx CDX

100

50 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

0 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 other than BPCE and ALLY. Non-financial CDX is average of sector indices.

Source: iBoxx, Goldman Sachs Research

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Europe: Banks

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 Banking book BACR RBS LLOYDS HSBC SANTAN BBVA ISPIM UCGIM ACAFP SOCGEN BNP BPCE BKIR AIB NORDEA INTNED
1 2 1

Select exposures Aggregate 42,418 90,449 7,670 80,565 60,337 64,775 71,400 81,757 52,592 42,478 95,950 47,586 1,314 9,564 23,977 46,651 Portugal 1,024 660 0 698 5,118 646 25 186 1,478 404 2,526 456 0 257 0 1,773 Italy 787 3,919 0 6,247 1,184 6,230 63,681 38,832 12,347 5,149 23,196 7,493 30 671 709 6,443 Greece 388 2,010 0 101 513 293 828 801 854 4,225 5,005 1,540 0 41 249 2,425 Spain 4,376 821 0 1,935 50,642 52,131 556 560 2,286 901 3,021 384 0 391 37 1,380

Trading book 7,362 23,527 65 37,708 13,801 11,883 24,820 23,001 16,077 8,673 4,634 13,002 77 0 4,089 5,332

35,056 66,922 7,605 42,857 46,536 52,892 46,580 58,756 36,515 33,805 91,316 34,584 1,237 9,564 19,888 41,319

1 2

LLOYDS as of 1H10, Nordea as of FY09

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. Not disclosed

3

Source: Company data, Goldman Sachs Research.

Goldman Sachs Global Investment Research

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Europe: Banks

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
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Tier 1 Ratio (2009) as reported by CEBS Bank Banca March GPSB Caja BBK WestLB RBS Rabobank OTP Bank JYSKE BANK Dexia LBB PKO BP SYDBANK ABN / Fortis Bank Caja Kutxa Barclays OP‐Pohjola Group Deutsche Bank SEB KBC Unicaja Danske Bank Alpha Bank BCEE NBG Caja de Vitoria y Alava EFG Eurobank BayernLB HSBC Societe Generale SNS BANK RZB Bank of Cyprus Commerzbank HSH Nordbank Bank of Valletta Banco Pastor Erste Bank Swedbank Caixa Caja SOL ING Bank Nordea BNP Paribas Marfin Santander DZ Bank Caja Colonya  LBBW Dekabank Credit Agricole Group % 19.7% 17.1% 14.6% 14.4% 14.4% 14.1% 13.8% 13.5% 13.4% 13.3% 13.3% 13.1% 13.0% 13.0% 13.0% 12.6% 12.6% 12.4% 12.2% 11.8% 11.7% 11.6% 11.4% 11.3% 11.3% 11.2% 10.9% 10.8% 10.7% 10.7% 10.6% 10.5% 10.5% 10.5% 10.5% 10.5% 10.4% 10.4% 10.3% 10.3% 10.2% 10.2% 10.1% 10.0% 10.0% 9.9% 9.9% 9.8% 9.8% 9.7% Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Tier 1 Ratio (2011) under "Benchmark" scenario Bank Banca March OTP Bank Caja BBK GPSB PKO BP Barclays HSH Nordbank SYDBANK Rabobank BCEE JYSKE BANK FHB RBS Dexia OP‐Pohjola Group Deutsche Bank LBB Caja Kutxa WestLB Alpha Bank KBC ABN / Fortis Bank SNS BANK Societe Generale BayernLB Unicaja SEB Danske Bank NBG EFG Eurobank HSBC Banco BPI Bank of Valletta BNP Paribas Nordea ING Bank Dekabank Santander Bank of Cyprus Piraeus Bank WGZ Bank Lloyds ABG Swedbank RZB Credit Agricole Group BBVA Caixa Commerzbank CAM % 20.8% 18.0% 17.4% 17.0% 16.5% 15.8% 14.9% 14.8% 14.8% 14.2% 14.1% 14.1% 14.1% 13.4% 13.4% 13.2% 12.8% 12.6% 12.4% 12.3% 12.2% 12.0% 12.0% 11.9% 11.9% 11.8% 11.8% 11.7% 11.7% 11.7% 11.7% 11.6% 11.5% 11.4% 11.3% 11.2% 11.1% 11.0% 10.9% 10.9% 10.8% 10.8% 10.7% 10.7% 10.6% 10.6% 10.6% 10.6% 10.5% 10.5% Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Tier 1 Ratio (2011) under "Sovereign Shock" scenario Bank Banca March OTP Bank PKO BP Caja BBK Barclays SYDBANK JYSKE BANK Rabobank OP‐Pohjola Group BCEE LBB RBS Dexia FHB Caja Kutxa SNS BANK SEB Banco BPI HSBC GPSB Nordea Danske Bank Societe Generale Santander ABN / Fortis Bank Swedbank Deutsche Bank HSH Nordbank BNP Paribas KBC Bank of Valletta BBVA Lloyds Commerzbank WGZ Bank Credit Agricole Group Unicaja Svenska Handelsbanken BayernLB ING Bank DZ Bank BPCE Dekabank BCP Alpha Bank Intesa SanPaolo Banque Raiffeisen Caixa CGD EFG Eurobank LBBW % 19.0% 16.2% 15.4% 14.1% 13.7% 13.2% 12.5% 12.5% 12.3% 11.3% 11.2% 11.2% 10.9% 10.6% 10.6% 10.5% 10.3% 10.2% 10.2% 10.1% 10.1% 10.0% 10.0% 10.0% 9.9% 9.9% 9.7% 9.7% 9.6% 9.4% 9.3% 9.3% 9.2% 9.1% 9.1% 9.0% 9.0% 8.9% 8.8% 8.8% 8.7% 8.5% 8.4% 8.4% 8.2% 8.2% 8.2% 8.2% 8.2% 8.1%

Source: CEBS.

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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 Rank Bank 51 WGZ Bank 52 Banca Civica 53 Lloyds 54 HRE 55 BBVA 56 Ibercaja 57 CAI 58 BCP 59 CAM 60 Bank of Ireland 61 BPCE 62 Piraeus Bank 63 Banco Popular 64 Banco Guipuzcoano 65 Svenska Handelsbanken 66 Banco Sabadell 67 Mare Nostrum 68 Caja de Ontinyent 69 HeLaBa 70 FHB 71 Unicredit 72 Jupiter 73 Breogan 74 ESPIGA 75 Banque Raiffeisen 76 Banco BPI 77 ABG 78 Caixa CGD 79 Intesa SanPaolo 80 UBI Banca 81 Banco Popolare 82 Banco Espirito Santo 83 NordLB 84 BMPS 85 NLB 86 Bankinter 87 UNNIM 88 Deutsche Postbank 89 Allied Irish Bank 90 Diada 91 Caja Sur Median o/w GS coverage o/w other Minimum o/w GS coverage o/w other Maximum o/w GS coverage o/w other % 9.7% 9.6% 9.6% 9.4% 9.4% 9.4% 9.4% 9.3% 9.3% 9.2% 9.1% 9.1% 9.1% 9.1% 9.1% 9.0% 9.0% 8.9% 8.8% 8.6% 8.6% 8.6% 8.6% 8.6% 8.5% 8.5% 8.4% 8.4% 8.3% 8.0% 7.7% 7.7% 7.5% 7.5% 7.5% 7.5% 7.2% 7.1% 7.0% 6.6% 1.8% 9.9% 10.3% 9.7% 1.8% 7.0% 1.8% 19.7% 17.1% 19.7% Tier 1 Ratio (2011) under "Benchmark" scenario Rank Bank 51 Erste Bank 52 DZ Bank 53 BPCE 54 Svenska Handelsbanken 55 Breogan 56 Marfin 57 Unicredit 58 LBBW 59 Intesa SanPaolo 60 Banque Raiffeisen 61 Mare Nostrum 62 Banco Sabadell 63 Allied Irish Bank 64 Caja de Vitoria y Alava 65 BCP 66 Banco Espirito Santo 67 Banco Popular 68 Caixa CGD 69 Ibercaja 70 Caja Colonya  71 Bank of Ireland 72 HeLaBa 73 Jupiter 74 CAI 75 Banco Pastor 76 Caja SOL 77 Bankinter 78 Caja de Ontinyent 79 ESPIGA 80 Banco Guipuzcoano 81 NordLB 82 Deutsche Postbank 83 HRE 84 Banco Popolare 85 BMPS 86 UBI Banca 87 Banca Civica 88 NLB 89 UNNIM 90 Caja Sur 91 Diada Median o/w GS coverage o/w other Minimum o/w GS coverage o/w other Maximum o/w GS coverage o/w other % 10.4% 10.4% 10.2% 10.2% 10.1% 10.0% 10.0% 9.8% 9.8% 9.8% 9.7% 9.6% 9.5% 9.5% 9.4% 9.2% 9.2% 9.1% 9.1% 9.1% 9.0% 8.9% 8.8% 8.8% 8.7% 8.7% 8.4% 8.4% 8.2% 8.1% 8.0% 7.9% 7.8% 7.8% 7.6% 7.6% 7.6% 7.0% 6.6% 6.6% 6.4% 10.6% 10.9% 10.4% 6.4% 7.6% 6.4% 20.8% 18.0% 20.8% Tier 1 Ratio (2011) under "Sovereign Shock" scenario Rank Bank 51 Erste Bank 52 Bank of Cyprus 53 RZB 54 Unicredit 55 CAM 56 Caixa 57 NBG 58 HeLaBa 59 Banco Sabadell 60 Breogan 61 Marfin 62 WestLB 63 Bank of Ireland 64 Banco Popolare 65 Banco Popular 66 Mare Nostrum 67 Caja de Vitoria y Alava 68 Banco Espirito Santo 69 UBI Banca 70 Bankinter 71 Ibercaja 72 Deutsche Postbank 73 Caja de Ontinyent 74 Allied Irish Bank 75 NLB 76 Jupiter 77 NordLB 78 BMPS 79 Caja Colonya  80 CAI 81 Banco Guipuzcoano 82 Piraeus Bank 83 Banco Pastor 84 Caja SOL 85 ESPIGA 86 HRE 87 Banca Civica 88 UNNIM 89 ABG 90 Caja Sur 91 Diada Median o/w GS coverage o/w other Minimum o/w GS coverage o/w other Maximum o/w GS coverage o/w other % 8.0% 8.0% 7.8% 7.8% 7.8% 7.7% 7.4% 7.3% 7.2% 7.2% 7.1% 7.1% 7.1% 7.0% 7.0% 7.0% 7.0% 6.9% 6.8% 6.8% 6.7% 6.6% 6.6% 6.5% 6.3% 6.3% 6.2% 6.2% 6.2% 6.1% 6.1% 6.0% 6.0% 6.0% 5.6% 4.7% 4.7% 4.5% 4.4% 4.3% 3.9% 8.2% 8.6% 8.2% 3.9% 4.4% 3.9% 19.0% 16.2% 19.0%

Source: CEBS.

Goldman Sachs Global Investment Research

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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) Rank Bank 1 GPSB 2 Swedbank 3 Svenska Handelsbanken 4 SEB 5 RBS 6 EFG Eurobank 7 Nordea 8 Alpha Bank 9 Barclays 10 NBG 11 Danske Bank 12 HSBC 13 KBC 14 Commerzbank 15 Bank of Ireland 16 Piraeus Bank 17 Deutsche Bank 18 Santander 19 Banco Popular 20 Unicredit 21 Societe Generale 22 ABG 23 Erste Bank 24 Banco Pastor 25 Lloyds 26 BNP Paribas 27 BBVA 28 Allied Irish Bank 29 Marfin 30 Banco Sabadell 31 UBI Banca 32 Bank of Cyprus 33 Intesa SanPaolo 34 BMPS 35 Bankinter 36 Banco Popolare 37 Deutsche Postbank Median Minimum Maximum % 17.1% 12.0% 11.7% 11.7% 11.0% 10.3% 10.3% 10.3% 10.0% 9.9% 9.5% 9.4% 9.2% 9.1% 8.9% 8.8% 8.7% 8.6% 8.6% 8.5% 8.5% 8.4% 8.3% 8.3% 8.1% 8.0% 8.0% 7.9% 7.7% 7.7% 7.4% 7.4% 7.1% 6.9% 6.5% 6.4% 4.4% 8.6% 4.4% 17.1% Core Tier 1 Ratio (2011E) under "Benchmark" scenario Rank Bank 1 GPSB 2 Barclays 3 RBS 4 Alpha Bank 5 ABG 6 NBG 7 Piraeus Bank 8 HSBC 9 KBC 10 Nordea 11 EFG Eurobank 12 SEB 13 Societe Generale 14 Lloyds 15 Deutsche Bank 16 Santander 17 Erste Bank 18 Swedbank 19 BBVA 20 BNP Paribas 21 Commerzbank 22 Unicredit 23 Banco Popular 24 Allied Irish Bank 25 Svenska Handelsbanken 26 Intesa SanPaolo 27 Banco Sabadell 28 Bank of Ireland 29 Danske Bank 30 Bank of Cyprus 31 Marfin 32 Bankinter 33 UBI Banca 34 BMPS 35 Banco Pastor 36 Banco Popolare 37 Deutsche Postbank Median Minimum Maximum % 17.0% 13.0% 10.9% 10.8% 10.7% 10.4% 10.4% 10.4% 10.4% 10.3% 9.8% 9.8% 9.8% 9.7% 9.7% 9.6% 9.5% 9.4% 9.3% 9.3% 9.1% 8.9% 8.7% 8.7% 8.5% 8.5% 8.4% 8.0% 8.0% 7.6% 7.5% 7.5% 7.1% 7.0% 6.5% 6.5% 5.5% 9.3% 5.5% 17.0% Core Tier 1 Ratio (2011E) under "Sovereign Shock" scenario Rank Bank % 1 Barclays 11.0% 2 GPSB 10.1% 3 Nordea 9.2% 4 HSBC 8.9% 5 Santander 8.6% 6 Swedbank 8.6% 7 SEB 8.3% 8 Lloyds 8.2% 9 RBS 8.1% 10 Societe Generale 8.0% 11 BBVA 8.0% 12 Commerzbank 7.8% 13 KBC 7.8% 14 BNP Paribas 7.7% 15 Svenska Handelsbanken 7.4% 16 Erste Bank 7.2% 17 Intesa SanPaolo 7.0% 18 Deutsche Bank 6.8% 19 Unicredit 6.8% 20 Alpha Bank 6.6% 21 Banco Popular 6.5% 22 Danske Bank 6.4% 23 EFG Eurobank 6.3% 24 UBI Banca 6.3% 25 NBG 6.1% 26 Bank of Ireland 6.1% 27 Banco Sabadell 6.0% 28 Bankinter 5.9% 29 Allied Irish Bank 5.7% 30 Banco Popolare 5.7% 31 BMPS 5.6% 32 Piraeus Bank 5.5% 33 Bank of Cyprus 4.6% 34 Marfin 4.6% 35 ABG 4.4% 36 Deutsche Postbank 4.0% 37 Banco Pastor 3.8% Median 6.8% Minimum 3.8% Maximum 11.0%

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

Goldman Sachs Global Investment Research

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Europe: Banks

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 Rank Bank % 1 GPSB 6.9% 2 ABG 6.3% 3 WestLB 5.3% 4 HSH Nordbank 5.2% 5 Piraeus Bank 4.9% 6 NBG 4.3% 7 Alpha Bank 4.1% 8 EFG Eurobank 3.5% 9 Deutsche Bank 3.5% 10 FHB 3.5% 11 Caja BBK 3.3% 12 HRE 3.1% 13 BayernLB 3.1% 14 Allied Irish Bank 3.0% 15 Marfin 2.9% 16 Bank of Cyprus 2.9% 17 BCEE 2.9% 18 Caixa 2.9% 19 Breogan 2.9% 20 Banca Civica 2.9% 2.9% 21 Caja Colonya  22 RBS 2.9% 23 RZB 2.8% 24 KBC 2.8% 25 Unicaja 2.8% 26 Dekabank 2.7% 27 CAM 2.7% 28 Mare Nostrum 2.7% 29 Banco Pastor 2.7% 30 Caja SOL 2.7% 31 CAI 2.7% 32 ESPIGA 2.6% 33 Dexia 2.5% 34 Jupiter 2.5% 35 Diada 2.5% 36 Caja de Vitoria y Alava 2.5% 37 Erste Bank 2.4% 38 ING Bank 2.4% 39 Banco Sabadell 2.4% 40 Ibercaja 2.4% 41 Rabobank 2.3% 42 Banco Espirito Santo 2.3% 43 Caja Sur 2.3% 44 Unicredit 2.2% 45 Bank of Valletta 2.2% 46 Banco Popular 2.2% 47 ABN / Fortis Bank 2.1% 48 UNNIM 2.1% 49 Barclays 2.1% 50 Caja Kutxa 2.0% Tier 1 Ratios (2011) ‐ Reported 2009 figures less "Sovereign Shock"  Rank Bank % 1 WestLB 7.3% 2 GPSB 7.0% 3 Banca Civica 4.9% 4 HRE 4.7% 5 Banco Pastor 4.5% 6 Caja SOL 4.3% 7 Caja de Vitoria y Alava 4.3% 8 ABG 4.0% 9 NBG 3.9% 10 Caja Colonya  3.7% 11 Alpha Bank 3.4% 12 CAI 3.3% 13 RBS 3.2% 14 Piraeus Bank 3.1% 15 ABN / Fortis Bank 3.1% 16 EFG Eurobank 3.0% 17 ESPIGA 3.0% 18 Banco Guipuzcoano 3.0% 19 Deutsche Bank 2.9% 20 Unicaja 2.8% 21 Diada 2.7% 22 Ibercaja 2.7% 23 UNNIM 2.7% 24 Caixa 2.6% 25 Bank of Cyprus 2.5% 26 Caja Kutxa 2.4% 27 Marfin 2.3% 28 Jupiter 2.3% 29 Caja de Ontinyent 2.3% 30 BayernLB 2.1% 31 LBB 2.1% 32 Bank of Ireland 2.1% 33 Banco Popular 2.1% 34 SEB 2.1% 35 Mare Nostrum 2.0% 36 Banco Sabadell 1.8% 37 Danske Bank 1.7% 38 LBBW 1.7% 39 Rabobank 1.6% 40 RZB 1.5% 41 KBC 1.5% 42 HeLaBa 1.5% 43 CAM 1.5% 44 Dexia 1.4% 45 Commerzbank 1.4% 46 Dekabank 1.4% 47 ING Bank 1.4% 48 Breogan 1.4% 49 NordLB 1.3% 50 BMPS 1.3% Change in Tier 1 ranking ‐ "Benchmark" less "Sovereign Shock" scenarios Rank Bank # 1 BCP 21 2 Banco Popolare 20 3 Caixa CGD 20 4 Swedbank 18 5 UBI Banca 17 6 Svenska Handelsbanken 16 7 Commerzbank 15 8 BBVA 15 9 HeLaBa 14 10 Banco BPI 14 11 Santander 14 12 Nordea 14 13 Intesa SanPaolo 13 14 Banque Raiffeisen 13 15 NLB 13 16 HSBC 12 17 BPCE 11 18 DZ Bank 11 19 Credit Agricole Group 10 20 Deutsche Postbank 10 21 SEB 10 22 Lloyds 9 23 LBBW 8 24 Bank of Ireland 8 25 BMPS 7 26 SNS BANK 7 27 Bankinter 7 28 Danske Bank 6 29 OP‐Pohjola Group 6 30 LBB 6 31 WGZ Bank 6 32 BNP Paribas 5 33 Caja de Ontinyent 5 34 JYSKE BANK 4 35 NordLB 4 36 Unicredit 3 37 Banco Sabadell 3 38 Caja Kutxa 3 39 SYDBANK 2 40 Bank of Valletta 2 41 PKO BP 2 42 Banco Popular 2 43 Dexia 1 44 Societe Generale 1 45 Rabobank 1 46 UNNIM 1 47 RBS 1 48 Barclays 1 49 Erste Bank 0 50 OTP Bank 0

Source: CEBS

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

Source: CEBS

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

Belgium

Cyprus

Denmark

Finland France

Germany

Greece

Hungary

Ireland

Italy

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

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Exhibit 38: Total writedowns on SE4 and Ireland exposures and incremental impact on Tier 1 ratios from haircuts on banking book (continued)
( € bn)
Luxembourg

Malta Netherlands

Poland Portugal

Slovenia Spain

Sweden

UK

BCEE Banque Raiffeisen Total Bank of Valletta ING Bank Rabobank ABN / Fortis Bank SNS BANK Total PKO BP Caixa CGD BCP Banco Espirito Santo Banco BPI Total NLB Santander BBVA Jupiter Caixa CAM Banco Popular Banco Sabadell Diada Breogan Mare Nostrum Bankinter ESPIGA Banca Civica Ibercaja Unicaja Banco Pastor Caja SOL Caja BBK UNNIM Caja Kutxa CAI Caja Sur Banca March Banco Guipuzcoano Caja de Vitoria Caja de Ontinyent Caja Colonya  Total Nordea SEB Svenska Handelsbanken Swedbank Total RBS HSBC Barclays Lloyds Total

IT 2.5 0.1 2.6 ‐ 6.4 0.9 1.9 1.1 10.3 ‐ ‐ 0.1 ‐ ‐ 0.1 ‐ 1.2 6.2 ‐ 3.1 ‐ 0.2 ‐ 0.1 0.2 ‐ 0.1 ‐ ‐ 0.4 ‐ 0.1 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 11.6 0.7 0.1 ‐ ‐ 0.8 4.6 4.8 0.9 0.1 10.4

ES 0.2 ‐ 0.2 ‐ 1.4 0.8 0.5 0.2 2.9 ‐ 0.3 ‐ 0.1 ‐ 0.4 0.2 50.6 52.1 24.2 20.1 6.2 7.6 4.9 4.1 3.3 2.9 1.7 6.1 3.0 1.9 2.1 2.7 1.6 2.4 1.6 1.4 1.4 0.2 0.1 0.6 0.6 ‐ ‐ 203.4 ‐ 0.2 ‐ ‐ 0.2 1.0 0.1 5.1 ‐ 6.2

SE and Ireland Exposures PO GR 0.2 0.1 ‐ ‐ 0.2 0.1 ‐ ‐ 1.8 2.4 0.4 0.6 0.1 ‐ ‐ 0.1 2.3 3.1 ‐ ‐ 6.8 0.1 1.0 0.7 4.7 0.5 4.2 0.5 16.7 1.8 ‐ ‐ 5.1 0.5 0.6 0.3 ‐ 0.1 ‐ ‐ ‐ ‐ 0.7 ‐ 0.1 ‐ ‐ ‐ ‐ ‐ 0.1 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 0.1 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6.7 0.9 ‐ 0.2 0.1 0.2 ‐ ‐ ‐ ‐ 0.1 0.4 0.8 2.4 0.5 1.5 1.2 0.5 0.2 ‐ 2.7 4.4

IE ‐ ‐ ‐ ‐ ‐0.1 0.2 0.2 0.2 0.5 ‐ 0.2 0.2 ‐ 1.1 1.5 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 5.0 0.6 0.2 ‐ 5.8

Total 3.0 0.1 3.1 1.0 11.9 2.9 2.7 1.6 19.1 6.4 7.4 2.0 5.3 5.8 20.5 2.6 57.4 59.2 24.3 23.2 6.2 8.5 5.0 4.2 3.5 3.0 1.8 6.1 3.0 2.3 2.1 2.9 1.6 2.4 1.6 1.4 1.4 0.2 0.1 0.6 0.6 ‐ ‐ 222.6 0.9 0.6 ‐ ‐ 1.5 13.8 7.5 7.9 0.3 29.5

IT 0.13 0.00 0.13 ‐ 0.24 0.05 0.09 0.06 0.44 ‐ ‐ 0.00 ‐ ‐ 0.00 0.00 0.04 0.26 0.00 0.00 0.00 0.01 ‐ 0.01 0.01 ‐ ‐ ‐ ‐ 0.02 ‐ 0.01 ‐ ‐ 0.00 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 0.36 0.02 0.01 ‐ ‐ 0.03 0.06 0.02 0.01 0.01 0.08

ES 0.02 0.00 0.02 ‐ 0.15 0.07 0.04 0.01 0.28 ‐ 0.01 ‐ 0.00 ‐ 0.02 0.00 3.61 3.66 2.03 1.52 0.52 0.63 0.41 0.34 0.27 0.24 0.15 0.51 0.25 0.16 0.17 0.19 0.13 0.20 0.13 0.11 0.11 0.02 0.01 0.05 0.05 0.00 0.00 15.49 0.00 0.01 ‐ ‐ 0.02 0.02 0.00 0.44 ‐ 0.46

SE and Ireland Writedowns PO GR 0.02 0.02 0.00 0.00 0.02 0.02 0.00 0.00 0.14 0.31 0.04 0.10 0.01 ‐ ‐ 0.02 0.19 0.43 ‐ ‐ 0.58 0.01 0.06 0.12 0.34 0.08 0.42 0.08 1.39 0.28 0.00 0.00 0.39 0.03 0.06 0.05 ‐ 0.01 ‐ ‐ 0.00 0.01 0.06 ‐ 0.01 ‐ ‐ ‐ 0.00 0.01 0.01 ‐ ‐ ‐ 0.00 ‐ ‐ 0.00 ‐ ‐ ‐ 0.00 0.01 0.01 ‐ ‐ ‐ ‐ ‐ 0.00 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 0.55 0.11 ‐ 0.04 0.01 0.02 ‐ ‐ ‐ ‐ 0.01 0.06 0.06 0.24 0.04 0.05 0.10 0.02 0.02 ‐ 0.21 0.31

IR ‐ 0.00 0.00 0.00 ‐ 0.02 0.02 0.02 0.05 ‐ 0.01 0.02 ‐ 0.10 0.13 0.00 0.00 0.00 ‐ ‐ 0.00 ‐ ‐ 0.00 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 0.00 ‐ 0.00 ‐ ‐ ‐ ‐ ‐ ‐ 0.01 ‐ ‐ ‐ ‐ ‐ 0.35 ‐ 0.01 ‐ 0.36

Total 0.18 0.01 0.19 0.00 0.84 0.28 0.16 0.10 1.38 ‐ 0.62 0.19 0.42 0.60 1.83 0.01 4.07 4.03 2.04 1.52 0.53 0.71 0.42 0.35 0.30 0.25 0.15 0.51 0.25 0.18 0.17 0.21 0.13 0.20 0.14 0.11 0.12 0.02 0.01 0.05 0.05 0.00 0.00 16.52 0.06 0.05 ‐ ‐ 0.12 0.73 0.10 0.58 0.02 1.43

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

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Financial Advisory Disclosures
Goldman Sachs is acting as financial advisor to Turk Ekonomi Bankasi As in an announced strategic transaction.

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Reg AC
We, Jernej Omahen, Aaron Ibbotson, CFA, Frederik Thomasen, Domenico Vinci, Jean-Francois Neuez, Pawel Dziedzic, Heiner Luz and Louise Pitt, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

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The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and regulations. Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. Canada: Goldman Sachs & Co. has approved of, and agreed to take responsibility for, this research in Canada if and to the extent it relates to equity securities of Canadian issuers. Analysts may conduct site visits but are prohibited from accepting payment or reimbursement by the company of travel expenses for such visits. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited; Japan: See below. Korea: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. Russia: Research reports distributed in the Russian Federation are not advertising as defined in the Russian legislation, but are information and analysis not having product promotion as their main purpose and do not provide appraisal within the meaning of the Russian legislation on appraisal activity. Singapore: Further information on the covered companies referred to in this research may be obtained from Goldman Sachs (Singapore) Pte. (Company Number: 198602165W). Taiwan: This material is for reference only and must not be reprinted without permission. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial Services Authority, should read this research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent to them by Goldman Sachs International. A copy of these risks warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs International on request.
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Ratings, coverage groups and views and related definitions
Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a

stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return.
Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership. Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.

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Europe: Banks

Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and price target for this stock, because

there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

Global product; distributing entities
The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs, and pursuant to certain contractual arrangements, on a global basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on macroeconomics, currencies, commodities and portfolio strategy. This research is disseminated in Australia by Goldman Sachs JBWere Pty Ltd (ABN 21 006 797 897) on behalf of Goldman Sachs; in Canada by Goldman Sachs & Co. regarding Canadian equities and by Goldman Sachs & Co. (all other research); in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs JBWere (NZ) Limited on behalf of Goldman Sachs; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 198602165W); and in the United States of America by Goldman Sachs & Co. Goldman Sachs International has approved this research in connection with its distribution in the United Kingdom and European Union.
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