Financial Pacific - French banks, Funding - Fundamentals (third party)
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Financial Pacific - French banks, Funding - Fundamentals (third party) Financial Pacific - French banks, Funding - Fundamentals (third party) Document Transcript

  • EQUITY RESEARCH 7 September 2011FRENCH BANKS SECTOR UPDATE European BanksFunding & fundamentals 2-NEUTRAL UnchangedTrading at distressed levels: Share prices back near 2008/09 lows, and valuations For a full list of our ratings, price target and earnings changes in this report, please seeeither side of half tangible book, reflect a range of fears. Observers refer to funding table on page 2.tensions, sovereign marks and possible recapitalizations. Perhaps more likely, marketsmay be trading probabilities around more binary eurozone scenarios, in which bank European Banksshares might be worth 0x or 1x book. In this note we update forecasts after 2Q results, Jeremy Sigeeand reduce price targets on BNP Paribas from €66 to €45; on SocGen from €51 to €22; +44 (0)20 3134 3363 jeremy.sigee@barcap.comon Credit Agricole from €11 to €5 and KBC from €41 to €24. Barclays Capital, LondonFunding market tensions: Various pressures are visible (wider spreads, low issuance, Kiri VijayarajahLibor/OIS, $ money markets). Some credit investors seem to have been spooked by +44 (0)20 3134 5745recent SocGen disclosures. French bank funding structures appear skewed to short kiri.vijayarajah@barcap.comterm wholesale, light on longer-term debt, although not off the scale. Barclays Capital, LondonSovereign exposures pricing in worse than bond markets: Marking sovereign European Banksexposures to market (GR -50%, PT -40%, IR -25%, IT -6%, SP-5%) would cause Simon Samuelsrelatively limited damage to tangible book values (BNP -7%, CASA -4%, SG -3%). Wewould need to mark SP & IT by 28-100% and FR & BE by 6-12% to explain share prices. Jeremy SigeeOperating trends mixed but harmless: Back in the day-to-day businesses, the Rohith Chandra-Rajannumbers are pretty well behaved: asset quality is generally improving, margins are a Kiri Vijayarajahlittle soft, and costs performances mixed. Mike HarrisonFigure 1: Debt & interbank funding mix Antonio Rizzo 100% Carlos Cobo Catena 90% Yulia di Mambro 80% 70% Christoffer Rosquist 60% >5yrs Nimish Rajkotia 50% 1-5yrs 40% 3m - 1yr 30% 20% <3m 10% All analysts above are employed by Barclays 0% Capital, London Agricole Deutsche JPMorgan SocGen Sanpaolo BNP Paribas UniCredit Barclays UBS RBS HSBC Credit Intesa BankSource: Company reports and Barclays Capital analysis.Barclays Capital does and seeks to do business with companies covered in its research reports. As aresult, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report.Investors should consider this report as only a single factor in making their investment decision.This research report has been prepared in whole or in part by research analysts based outside the USwho are not registered/qualified as research analysts with FINRA.PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 21.
  • Barclays Capital | French BanksSummary of our Ratings, Price Targets and Earnings Changes in this Report (all changes are shown in bold)Company Rating Price Price Target EPS FY1 (E) EPS FY2 (E) Old New 05-Sep-11 Old New %Chg Old New %Chg Old New %ChgEuropean Banks 2-Neu 2-NeuBNP Paribas (BNP FP / BNPP.PA) 1-OW 1-OW 31.30 66.00 45.00 -32 7.21 7.12 -1 7.99 7.79 -3Credit Agricole SA (ACA FP / CAGR.PA) 3-UW 3-UW 5.85 11.00 5.00 -55 1.70 1.25 -26 2.15 1.91 -11KBC (KBC BB / KBC.BR) 1-OW 1-OW 16.65 41.00 24.00 -41 4.29 3.41 -21 4.67 4.36 -7Société Générale (GLE FP / SOGN.PA) 2-EW 2-EW 20.25 51.00 22.00 -57 5.16 3.85 -25 6.17 5.23 -15Source: Barclays Capital Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.FY1(E): Current fiscal year estimates by Barclays Capital. FY2(E): Next fiscal year estimates by Barclays Capital.Stock Rating: 1-OW: 1-Overweight 2-EW: 2-Equal Weight 3-UW: 3-Underweight RS: RS-Rating SuspendedSector View: 1-Pos: 1-Positive 2-Neu: 2-Neutral 3-Neg: 3-Negative7 September 2011 2
  • Barclays Capital | French BanksFUNDING In this section we explore some of the pressures in bank funding markets, and try to link them to company disclosures and balance sheet fundamentals. Our particular focus in this note is on the French banks, but in some instances we make comparisons with other European and US banks to see the relative position. Equity & credit market context Readers will be well aware that the equity share price of SocGen, for example, is back around its 2008/09 lows, as is its price/book multiple (0.3x reported book according to the DataStream series shown in Figure 2, or 0.4x tangible 2011E book on our own numbers). Similarly SocGen’s CDS spreads are as wide as KBC traded in the crisis, and other French and Belgian banks are not far behind either (Figure 3). In this report we will explore how these stressed equity and credit prices relate to funding market conditions, sovereign exposures and operating trends. But it is worth emphasising up-front that other bigger factors are at play. With many European banks trading around 0.5x tangible book value, we think it less likely that this is a true fair value based on specific adjustments or calculations, and more likely that the shares are being traded on a probability basis between macro scenarios in which banks are worth either 0x or 1x tangible book value. Values are affected by some investors stepping back from single-stock equity or credit investing until greater macro clarity returns, and other investors using bank shares and CDSs to invest/hedge/short as proxies for the macro issues themselves.Figure 2: Société Générale – share price and price/book Figure 3: French/Belgian banks – CDS spreads 100 1.8x 400 SocGen share price (left scale) SG KBC 90 1.6x 350 CASA BNP SocGen price/book multiple (right scale) 80 1.4x 300 70 1.2x 60 250 1.0x 50 200 0.8x 40 150 0.6x 30 0.4x 100 20 10 0.2x 50 0 0.0x 0 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11Source: DataStream. Source: DataStream. Funding market observations Senior bond issuance by European banks has in recent weeks dried up almost entirely (Figure 4). There has been some recent activity in covered bond markets, but at wider spreads (Figure 5).7 September 2011 3
  • Barclays Capital | French BanksFigure 4: European bank bond issuance (€bn) Figure 5: French bank covered bond spreads 90 140 Snr Unsecured Covered Bonds Credit Mutuel 80 120 Banque Populaire 70 SocGen 100 Dexia 60 Credit Agricole 80 BNP Paribas 50 60 40 40 30 20 20 10 0 0 -20 20-Dec 24-May 9-May 15-Nov 15-Mar 4-Apr 19-Apr 4-Jan 28-Jun 24-Jan 13-Jun 6-Sep 8-Feb 2-Aug 18-Jul 11-Oct 28-Feb 22-Aug Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11Source: Dealogic. Source: Bloomberg. USD funding for international (predominantly European) borrowers has fallen back since the spring, and is now at the low end of the range, although no worse than that, and indeed their share of the funding pool remains higher than pre-2009 (Figure 6). There was a flurry of excitement when a single player accessed the ECB dollar swap facility a couple of weeks back, but that appears to have been an isolated incident, and we’re not even beginning to return to what we saw in 2008/09 (Figure 7). Indeed it is interesting to note – as a number of European banks have emphasised – that they have become even bigger depositors of dollars at the Federal Reserve (Figure 8), and in a number of cases are net suppliers of dollar liquidity not net takers.Figure 6: Foreign banks in US$ funding market Figure 7: Usage of the ECB dollar swap facility 100 Non-US financial issuers CP outstanding in the US CP market (US$ bn) 600 45% allotted amount ($bn) Non-US financial issuers CP as pct of total US CP market, right scale 90 40% # bidders 500 80 35% 70 400 30% 60 25% 300 50 20% 40 200 15% $0.5bn, 1 bank 10% 30 100 5% 20 0 0% 10 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 0 Oct-08 Jul-09 Apr-10 Dec-10 Sep-11Source: Bloomberg Source: ECB, Barclays Capital7 September 2011 4
  • Barclays Capital | French Banks Figure 8: Foreign bank deposits at Federal Reserve US$bn 1200 Foreign banks 1000 800 600 400 Large domestic banks 200 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Source: Federal Reserve SocGen disclosures picked on by credit investors Against the backdrop of many other things going on, and concerns on many fronts, it appears that some investors in the credit markets picked up on some disclosures from SocGen that they found alarming. These were in a presentation to debt investors posted 30th August and dated September 2011. The first (Figure 9) sought to illustrate “consistency between the Group’s short term liquidity needs and its liquid assets” (in the words of the bullet points that accompanied the chart), ie, “net short-term funding outstanding of €148bn <1year, of which €11bn <3months” compared to “liquid assets of €105bn, of which €60bn are repo-able to central banks, net of haircuts”. The second (Figure 10) sought to emphasise “well diversified short term funding sources” and to illustrate the group’s ability to adapt to reduced availability of US$ money market funding. “Proactive management of the August pullback of US money market funds: decrease of long position with the Fed; use of €/$ swaps in interbank market; reduction of market activities needs. € funding remained abundant at all times and was increased in August. More structural actions can be implemented if $ funding durably lower, with manageable P&L impact.” But it seems that the charts were interpreted negatively by some in the jittery credit markets. From the first chart, the short-term funding (€183bn/€148bn/€112bn) is bigger than the liquid assets buffer available to replace it (€105bn). From the second chart, $ money market funding still outstanding is a big number, and if all of it ran off (as the company implies is conceivable) then it would use up pretty much all of the central bank eligible liquid assets identified in the first chart, and then the safety buffer has gone, and any pressure beyond that would need asset sales or other less desirable measures. This is not necessarily our interpretation, indeed we find the assets and liabilities being compared in the first chart a slightly odd match, but these views and fears seem to have circulated in the credit and funding markets.7 September 2011 5
  • Barclays Capital | French BanksFigure 9: Société Générale – funding chart (1)Source: Company presentation to debt investors, September 2011Figure 10: Société Générale – funding chart (2)Source: Company presentation to debt investors, September 20117 September 2011 6
  • Barclays Capital | French Banks Our own attempt to compare wholesale funding structures This begs the question what should investors think about the funding structure and resilience/vulnerability of SocGen or other banks in the spotlight, so we’ve gone through the maturity disclosures of several relevant European banks (plus JPMorgan) for comparison. We should post a big warning up front, that there are many other factors at play here, big differences in the asset and liability mixes of the different banks, differences in the depth of their local funding markets, track records, perceived sovereign support, and more besides. Also the data we analyse here is from end-2010 annual reports, and may have changed materially already since then. So this is only one perspective, and we need to interpret with care. There are a number of relevant observations that offer themselves from the numbers. The French banks in absolute terms have some of the biggest amounts of short-term debt outstanding (Figure 11). Among this peer group they have relatively smaller absolute amounts of long-term debt in place (Figure 12). As a result their wholesale funding mix is more skewed to the short term (Figure 13). The picture remains the same if we compare funding to total assets (adjusted ex derivatives), the French banks look overweight short- term funding sources and underweight long-term funding (Figure 14). Taking this a stage further, and comparing the short-term funding stock to tangible common equity, we see the French banks at the most geared end of the spectrum (Figure 15). Just to balance these observations, while the French banks are in all of these charts at the more vulnerable end of the spectrum, they are not on a dimensionally different scale, and indeed there are one or two other banks in similar situations on some metrics. And as we said up front this is only one perspective on a complex topic.Figure 11: Short term debt & interbank funding (Em) Figure 12: Long-term debt (Em) 300,000 160,000 <3m 3m - 1yr 1-5yrs >5yrs 140,000 250,000 120,000 200,000 100,000 150,000 80,000 60,000 100,000 40,000 50,000 20,000 0 0 Credit Agricole Credit Agricole JPMorgan SocGen JPMorgan SocGen Intesa Sanpaolo Intesa Sanpaolo UniCredit UniCredit BNP Paribas BNP Paribas Barclays Barclays RBS UBS RBS UBS HSBC Deutsche Bank Deutsche Bank HSBCSource: Company reports and Barclays Capital. Source: Company reports and Barclays Capital.7 September 2011 7
  • Barclays Capital | French BanksFigure 13: Debt & interbank funding mix Figure 14: Debt & interbank funding as % of assets 100% 35% 90% <3m 3m - 1yr 30% 1-5yrs >5yrs 80% 70% >5yrs 25% 60% 1-5yrs 20% 50% 3m - 1yr 40% 15% 30% <3m 10% 20% 10% 5% 0% 0% Credit Agricole JPMorgan SocGen Intesa Sanpaolo UniCredit BNP Paribas Barclays UBS RBS HSBC Deutsche Bank Credit Agricole JPMorgan SocGen Intesa Sanpaolo UniCredit BNP Paribas Barclays RBS UBS Deutsche Bank HSBCSource: Company reports and Barclays Capital. Source: Company reports and Barclays Capital. Assets here are adjusted ex derivatives PRVs. Figure 15: Debt & interbank funding as % of tangible common equity 16.0x <3m 3m - 1yr 14.0x 1-5yrs >5yrs 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x Credit Agricole SocGen JPMorgan Intesa Sanpaolo UniCredit BNP Paribas Barclays RBS UBS Deutsche Bank HSBC Source: Company reports and Barclays Capital.7 September 2011 8
  • Barclays Capital | French BanksSOVEREIGN EXPOSURES AND MARK-TO-MARKETS The funding concerns on the French banks originated from their apparent large exposures to troubled sovereigns. In this section, we revisit these exposures (see Figure 16) and reconfirm our view that overall, these sovereign exposures remain manageable. In addition to Greece, Ireland, Portugal, Spain and Italy, we also show France and Belgium. In Figure 17 we show the likely write-down implied by current trading prices of these government bonds. In the case of Greece is after the write-downs already taken in 2Q. Pricing on French and Belgian government bonds shows they remain close to par (for now) and so we ascribe no additional write-down. So in aggregate we project the largest incremental write-downs at BNP of €3.8bn, with the other 3 banks all requiring €0.8-0.9bn. In Figure 18 we show the current discounts to tangible book value in relation to the sovereign exposures. The P/TBV discount at SocGen is widest, and now represents 144% of all the peripheral countries plus French plus Belgian banking book sovereign exposures. The current discounts to book are driven by much broader macro concerns, and attributing all of the discount to a single risk factor (i.e. sovereign) is too simplistic. However, it does give a sense of how severely sovereign risks have been priced into equity valuations. In Figure 19 and Figure 20, we attempt to link bank equity valuations to sovereign bond valuations. We start with the current discount to tangible book. Then assume some portion of that is driven by a Basel-3 related capital shortfall, leaving a residual equity discount. We then back out the required level of haircuts on the peripheral countries / French/ Belgian sovereign bonds that would explain that residual equity discount. Overall, we find that the implied haircuts go well beyond what the bond market has currently priced in. So in the case of SocGen, we find the implied write down on Italian and Spanish government bonds is at 100% and on French and Belgian government bonds is 23%. At BNP the respective haircuts are 28% and 6% and at Credit Agricole are 63% and 13%. In Figure 21 and Figure 22, we add an extra degree of sophistication by applying a “warranted” price-to-book multiple to each of the 4 banks. This is to capture the fact that prior to the sovereign crisis, Credit Agricole was at a perennial discount to TBV, whereas KBC and BNP typically traded at small premiums to trailing TBV. This results in the equity market implied bonds write-downs at BNP to be larger (i.e. and closer to SocGen). For Credit Agricole the equity price implied write-downs are now the least severe of the 3 French banks.Figure 16: Sovereign banking book exposures (Euro m) Spain Greece Ireland Italy Portugal France Belgium Other TOTALBNP Paribas 3,156 3,552 433 21,835 1,785 16,287 23,723 20,545 91,316Credit Agricole 1,765 278 144 7,843 658 17,567 2,189 6,071 36,515SocGen 1,300 1,600 300 2,200 200 5,166 158 22,881 33,805KBC 2,200 500 400 6,100 300 1,539 15,819 18,879 45,737Source: Company reports and presentations7 September 2011 9
  • Barclays Capital | French BanksFigure 17: Indicative sovereign markdowns, based on current bond prices (Euro m) Spain Greece Ireland Italy Portugal France Belgium Other TOTAL As % of TBVBNP Paribas 158 1,544 108 1,310 714 0 0 0 3,834 7%Credit Agricole 88 81 36 471 263 0 0 0 939 4%SocGen 65 464 75 132 80 0 0 0 816 3%KBC 110 145 100 366 120 0 0 0 841 9%Source: Bloomberg, company presentations and Barclays CapitalFigure 18: Current discounts to tangible book relative to sovereign exposures (Euro m) Market implied ..as % of Trailing write-down ..as % of peripherals* ..as % of all Mkt Cap 2Q11 TBV P/TBV to book ..as % of GIP peripherals* +Be+Fr sovereignBNP Paribas 37,802 54,566 0.7x -16,764 291% 54% 24% 18%Credit Agricole 14,601 26,407 0.6x -11,806 1093% 110% 39% 32%SocGen 15,716 31,494 0.5x -15,778 751% 282% 144% 47%KBC 5,958 9,249 0.6x -3,291 274% 35% 12% 7%* Greece, Italy, Ireland, Portugal, Spain.GIP refers to Greece Ireland & PortugalSource: Company reports, datastream and Barclays Capital Figure 19: Market implied write-down to tangible book, relative to 1.0x P/TBV Warranted Discount to Less: Mkt implied write price to "Fair current mkt B3 Capital down, ex B3 Euro m book value" cap "gap" capital gap BNP Paribas 1.0 54,566 16,764 575 16,188 Credit Agricole 1.0 26,407 11,806 1,442 10,364 SocGen 1.0 31,494 15,778 3,828 11,951 KBC 1.0 9,249 3,291 530 2,761 Source: Barclays CapitalFigure 20: Share price implied write-downs to sovereign exposures, relative to 1.0x P/TBV Spain Greece Ireland Italy Portugal France Belgium Other TOTALBNP ParibasExposure 3,156 3,552 433 21,835 1,785 16,287 23,723 20,545 91,316Implied remaining write-down % 28% 100% 100% 28% 100% 6% 6% 6%Implied remaining write-down 886 3,552 433 6,131 1,785 915 1,332 1,154 16,188Credit AgricoleExposure 1,765 278 144 7,843 658 17,567 2,189 6,071 36,515Implied remaining write-down % 63% 100% 100% 63% 100% 13% 13% 13%Implied remaining write-down 1,109 278 144 4,929 658 2,208 275 763 10,364SocGenExposure 1,300 1,600 300 2,200 200 5,166 158 22,881 33,805Implied remaining write-down % 100% 100% 100% 100% 100% 23% 23% 23%Implied remaining write-down 1,300 1,600 300 2,200 200 1,163 36 5,152 11,951KBCExposure 2,200 500 400 6,100 300 1,539 15,819 18,879 45,737Implied remaining write-down % 10% 100% 100% 10% 100% 2% 2% 2%Implied remaining write-down 221 500 400 612 300 31 318 379 2,761Source: Barclays Capital7 September 2011 10
  • Barclays Capital | French Banks Figure 21: Market implied write-down to tangible book, relative to warranted P/TBV Warranted Discount to Less: Mkt implied write price to "Fair current mkt B3 Capital down, ex B3 Euro m book value" cap "gap" capital gap BNP Paribas 1.3 70,936 33,134 575 32,558 Credit Agricole 0.9 23,766 9,166 1,442 7,723 SocGen 1.0 31,494 15,778 3,828 11,951 KBC 1.3 12,024 6,066 530 5,536 Source: Barclays CapitalFigure 22: Share price implied write-downs to sovereign exposures, relative to warranted P/TBV (Euro m) Spain Greece Ireland Italy Portugal France Belgium Other TOTALBNP ParibasExposure 3,156 3,552 433 21,835 1,785 16,287 23,723 20,545 91,316Implied remaining write-down % 72% 100% 100% 72% 100% 14% 14% 14%Implied remaining write-down 2,279 3,552 433 15,765 1,785 2,352 3,426 2,967 32,558Credit AgricoleExposure 1,765 278 144 7,843 658 17,567 2,189 6,071 36,515Implied remaining write-down % 45% 100% 100% 45% 100% 9% 9% 9%Implied remaining write-down 794 278 144 3,527 658 1,580 197 546 7,723SocGenExposure 1,300 1,600 300 2,200 200 5,166 158 22,881 33,805Implied remaining write-down % 100% 100% 100% 100% 100% 23% 23% 23%Implied remaining write-down 1,300 1,600 300 2,200 200 1,163 36 5,152 11,951KBCExposure 2,200 500 400 6,100 300 1,539 15,819 18,879 45,737Implied remaining write-down % 28% 100% 100% 28% 100% 6% 6% 6%Implied remaining write-down 614 500 400 1,701 300 86 882 1,053 5,536Source: Barclays Capital7 September 2011 11
  • Barclays Capital | French BanksLATEST OPERATIONAL TRENDS Net interest margins sag Net interest margins in domestic retail banking seem to be weakening. In the case of BNP and SocGen, margins remain above the recent trough of late 2008 – early 2009. However, at Credit Agricole, the net interest margin is more volatile and has most recently dipped below previous lows (see Figure 24). Interestingly, this may be linked to Credit Agricole outpacing peers in domestic retail loan growth (see Figure 26), perhaps suggesting some margin sacrifice to gain market share. By contrast, Credit Agricole has lagged peers’ deposit growth, although gap started opening before the financial crisis (see Figure 27). The slight advantage that SocGen was building on retail deposit volumes compared to BNP has now closed. Similarly, life insurance volume trends are remarkably homogenous among the 3 banks (see Figure 29). Retail fees & commission have weakened for all 3 players, but post post-crisis Credit Agricole has visibly lagged peers, while this metric is the main success story for SocGen. Falling mutual fund balances (see Figure 28) have contributed to the weaker fees & commissions, and have now dipped below crisis period lows at SocGen and Credit Agricole. In international retail, BNP remains the clear winner, and Credit Agricole the visible loser (heavily influenced by Emporiki). KBC’s international retail revenues show the strongest bounce from the trough.Figure 23: Domestic retail revenues rebased, 2002=100 Figure 24: French retail net interest margins 170 2.0% Soc Gen BNP outperforms BNP Paribas 160 BNP Paribas through the crisis 1.9% Credit Agricole S.A. SocGen 150 SocGen begins to 1.8% pull away in 2005-07 Credit Agricole 140 Credit Agricole outperforms after 1.7% 130 Credit Lyonnais 1.6% 120 1.5% 110 1.4% 100 90 1.3% 80 1.2% 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: Company reports and Barclays Capital Source: Company reports7 September 2011 12
  • Barclays Capital | French BanksFigure 25: French retail fees & commissions Figure 26: French retail loans 150 180 BNP Paribas SocGen Credit Agricole BNP Paribas 170 140 SocGen 160 130 Credit Agricole 150 120 140 130 110 120 100 110 90 100 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11Source: Company reports and Barclays Capital Source: Company reports and Barclays CapitalFigure 27: French retail deposits Figure 28: French mutual funds 160 150 BNP Paribas 140 150 SocGen Credit Agricole 130 140 120 130 110 100 120 BNP Paribas 90 SocGen 110 80 Credit Agricole 100 70 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11Source: Company reports and Barclays Capital Source: Company reports and Barclays CapitalFigure 29: French life insurance Figure 30: International retail revenues 180 130 BNP Paribas SocGen BNP Paribas 125 170 Credit Agricole KBC SocGen 120 160 Credit Agricole 115 150 110 140 105 100 130 95 120 90 110 85 80 100 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11Source: Company reports and Barclays Capital Source: Company reports and Barclays Capital7 September 2011 13
  • Barclays Capital | French Banks Cost trends mixed KBC and Credit Agricole have now posted 2 successive quarters of falling cost income ratios (see Figure 32). At SocGen the cost disappointment in 1Q11 was only marginally remedied in 2Q, and so it remains the highest cost/ income ratio bank among the group of 4, and the worst year-on-year development in FY2011. Investors would hope that some of the discretionary investments that weighed on costs in 1H11 might be delayed/ postponed/ cancelled now that ambitious growth assumptions for 2012 have been abandoned. As a result, there might be scope short-term to partially offset any likely top-line weakness in 2H11. Taking a longer-term perspective of the cost performance, shows all 4 banks making solid progress on costs through the 2000s (see Figure 31). KBC in particular made substantial efficiency gains in 2005-07, led by the domestic business (see Figure 35). Moreover, KBC saw much less cost/ income volatility through the crisis than French peers. For FY2011, our cost/ income forecasts are most optimistic at KBC and Credit Agricole, and somewhat neutral at BNP.Figure 31: Group cost/ income ratio, annual Figure 32: Group cost/ income ratio, quarterly 80% 80% 75% 70% 70% 65% 60% 60% 55% 50% 50% BNP Paribas SocGen BNP Paribas SocGen 45% Credit Agricole KBC Credit Agricole KBC 40% 40% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013ESource: Company reports and Barclays Capital Source: Company reports and Barclays Capital7 September 2011 14
  • Barclays Capital | French BanksFigure 33: CIB cost/ income ratio, annual Figure 34: CIB cost/ income ratio, quarterly 90% 120% 80% 100% 70% 80% 60% 60% 50% 40% 40% 20% BNP Paribas SocGen BNP Paribas SocGen Credit Agricole KBC Credit Agricole KBC 30% 0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013ESource: Company reports and Barclays Capital Source: Company reports and Barclays CapitalFigure 35: Domestic cost/ income ratio, annual Figure 36: Domestic cost/ income ratio, quarterly 80% 80% BNP Paribas SocGen 75% 75% Credit Agricole KBC 70% 70% 65% 65% 60% 60% 55% 55% 50% 50% BNP Paribas SocGen 45% 45% Credit Agricole KBC 40% 40% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013ESource: Company reports and Barclays Capital Source: Company reports and Barclays CapitalFigure 37: International cost/ income ratio, annual Figure 38: International cost/ income ratio, quarterly 100% 75% BNP Paribas SocGen 95% Credit Agricole KBC 70% 90% 85% 65% 80% 60% 75% 55% 70% 65% 50% 60% BNP Paribas SocGen 45% Credit Agricole KBC 55% 50% 40% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013ESource: Company reports and Barclays Capital Source: Company reports and Barclays Capital7 September 2011 15
  • Barclays Capital | French Banks Loan loss charges impacted by Greek sovereign Overall, underlying asset quality trends continue to improve (see Figure 39), notwithstanding the Greek sovereign write-downs taken in banking books in 2Q (see Figure 40). Looking at trough levels of loan loss charges in 2005-06 suggests scope for further cyclical declines, although the current macro environment would suggest those very benign levels remain a number of years out. Short-term, the non-recurrence of the Greek write downs should result in lower loan loss charges in 3Q11 and 4Q11. International retail is the key areas where loan losses remain elevated (see Figure 37), and in the case of KBC and Credit Agricole, this division remains the key area for disappointment in 2H11 (specifically due to Ireland and Greece). By contrast, loan losses in CIB are abnormally low and may partially normalise upwards into 2012 (see Figure 45).Figure 39: Group loan losses, annual Figure 40: Group loan losses, quarterly 2.00% BNP Paribas SocGen 3.00% BNP Paribas SocGen Credit Agricole KBC Credit Agricole KBC 2.50% 1.60% 2.00% 1.20% 1.50% 0.80% 1.00% 0.40% 0.50% 0.00% 0.00% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013ESource: Company reports and Barclays Capital Source: Company reports and Barclays Capital7 September 2011 16
  • Barclays Capital | French BanksFigure 41: Domestic retail loan losses, annual Figure 42: Domestic retail loan losses, quarterly 0.80% 0.80% BNP Paribas SocGen Credit Agricole BNP Paribas SocGen Credit Agricole 0.70% 0.70% 0.60% 0.60% 0.50% 0.50% 0.40% 0.40% 0.30% 0.30% 0.20% 0.20% 0.10% 0.10% 0.00% 0.00% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: Company reports and Barclays Capital Source: Company reports and Barclays CapitalFigure 43: International retail loan losses, annual Figure 44: International retail loan losses, quarterly 3.00% 3.00% BNP Paribas 2.50% SocGen 2.50% Credit Agricole 2.00% 2.00% 1.50% 1.50% 1.00% 1.00% 1 BNP Paribas 0.50% SocGen 0.50% Credit Agricole 0.00% 0.00% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: Company reports and Barclays Capital Source: Company reports and Barclays CapitalFigure 45: CIB loan losses, annual Figure 46: CIB loan losses, quarterly 2.50% 3.50% BNP Paribas SocGen Credit Agricole BNP Paribas SocGen Credit Agricole 3.00% 2.00% 2.50% 1.50% 2.00% 1.00% 1.50% 1.00% 0.50% 0.50% 0.00% 0.00% -0.50% -0.50% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013ESource: Company reports and Barclays Capital Source: Company reports and Barclays Capital7 September 2011 17
  • Barclays Capital | French BanksPRICE TARGET & ESTIMATE REVISIONS We cut our price targets meaningfully across the 4 French & Belgian banks that we cover; on BNP Paribas from €66 to €45; on SocGen from €51 to €22; on Credit Agricole from €11 to €5 and KBC from €41 to €24. We raise our cost of equity assumptions across the group from 12% to 14% to reflect higher equity risk premiums from elevated funding and sovereign fears. We also trim our view of ‘sustainable’ RoEs as we indirectly try to capture some of the operational impacts from the issues discussed in this note, and realign valuations towards current market sentiment. Our sustainable RoE falls from 16% to 13% at BNP, from 13% to 8% at SocGen, from 11% to 7% at Credit Agricole and from 15% to 11% at KBC. We also update estimates as a consequence of the recent 2Q reporting season.Figure 47: BNP Paribas – Summary of estimate revisions 2011E 2012E 2013E Old New % Chg Old New % Chg Old New % ChgTotal operating income Euro m 44,041 43,817 -1% 45,505 45,166 -1% 47,242 46,889 -1%Total operating expenses Euro m -26,322 -26,382 0% -27,162 -27,132 0% -27,679 -27,584 0%Operating profit pre provisions Euro m 17,719 17,435 -2% 18,342 18,034 -2% 19,563 19,305 -1%Loan loss provisions Euro m -3,689 -4,089 11% -2,882 -3,357 16% -3,322 -3,797 14%Profit before Tax Euro m 14,417 13,866 -4% 15,880 15,097 -5% 16,701 15,968 -4%Net attributable Euro m 9,063 8,957 -1% 10,006 9,776 -2% 10,523 10,340 -2%EPS - adjusted Euro 7.21 7.12 -1% 7.99 7.79 -3% 8.42 8.26 -2%DPS Euro 2.38 2.35 -1% 2.64 2.57 -3% 2.78 2.73 -2%Source: Barclays CapitalFigure 48: SocGen – Summary of estimate revisions 2011E 2012E 2013E Old New % Chg Old New % Chg Old New % ChgTotal operating income Euro m 26,370 25,645 -3% 27,298 26,715 -2% 28,331 27,716 -2%Total operating expenses Euro m -16,956 -17,168 1% -17,405 -17,558 1% -17,666 -18,031 2%Operating profit pre provisions Euro m 9,415 8,477 -10% 9,893 9,158 -7% 10,666 9,685 -9%Loan loss provisions Euro m -3,003 -3,523 17% -2,160 -2,142 -1% -1,901 -1,883 -1%Profit before Tax Euro m 6,541 5,156 -21% 7,853 7,136 -9% 8,885 7,922 -11%Net attributable Euro m 4,152 3,224 -22% 4,930 4,355 -12% 5,577 4,835 -13%EPS - adjusted Euro 5.19 3.85 -26% 6.17 5.23 -15% 6.85 5.74 -16%DPS Euro 1.89 1.44 -24% 2.21 1.90 -14% 2.43 2.06 -15%Source: Barclays Capital7 September 2011 18
  • Barclays Capital | French BanksFigure 49: Credit Agricole – Summary of estimate revisions 2011E 2012E 2013E Old New % Chg Old New % Chg Old New % ChgTotal operating income Euro m 21,490 21,347 -1% 22,461 22,167 -1% 23,411 23,105 -1%Total operating expenses Euro m -13,234 -13,263 0% -13,598 -13,403 -1% -14,125 -13,921 -1%Operating profit pre provisions Euro m 8,256 8,085 -2% 8,863 8,764 -1% 9,286 9,184 -1%Loan loss provisions Euro m -3,107 -3,617 16% -2,055 -2,405 17% -1,643 -1,646 0%Profit before Tax Euro m 6,547 5,443 -17% 8,260 7,768 -6% 9,146 8,996 -2%Net attributable Euro m 4,073 3,057 -25% 5,168 4,763 -8% 5,723 5,516 -4%EPS - adjusted Euro 1.70 1.25 -26% 2.15 1.91 -11% 2.39 2.21 -7%DPS Euro 0.55 0.55 0% 0.65 0.65 0% 0.75 0.75 0%Source: Barclays CapitalFigure 50: KBC - Summary of estimate revisions 2011E 2012E 2013E Old New % Chg Old New % Chg Old New % ChgTotal operating income Euro m 10,043 9,602 -4% 8,642 8,493 -2% 9,003 8,849 -2%Total operating expenses Euro m -4,455 -4,418 -1% -4,507 -4,518 +0% -4,732 -4,743 +0%Operating profit pre provisions Euro m 5,588 5,184 -7% 4,134 3,975 -4% 4,271 4,106 -4%Loan loss provisions Euro m -910 -997 +10% -794 -838 +5% -742 -781 +5%Profit before Tax Euro m 4,678 4,187 -10% 3,340 3,137 -6% 3,529 3,325 -6%Net attributable - adjusted Euro m 1,456 1,159 -20% 1,587 1,481 -7% 1,989 1,893 -5%EPS - adjusted Euro 4.29 3.41 -20% 4.67 4.36 -7% 5.85 5.57 -5%DPS Euro 0.75 0.75 +0% 1.00 1.00 +0% 1.00 1.00 +0%Source: Barclays Capital7 September 2011 19
  • Barclays Capital | French BanksValuation Methodology and RisksEuropean BanksBNP Paribas (BNP FP / BNPP.PA)Valuation Methodology: We value BNP Paribas shares based on tangible book value, using 13% RoE (our 2012 estimate), 14% cost of equity and2% growth. We also compare price/earnings multiples with European universal bank peers.Risks which May Impede the Achievement of the Price Target: Downside risks for BNP Paribas shares include the generic difficulties ofadministering a large diversified business group, as well as specific. threats to its derivatives business from regulatory reforms (pressure tosimplify and shift onto central clearing). Upside risks (reflected in our Overweight rating) include bigger Fortis earnings/synergies, bigger benefitsfrom the multiple home markets, exposure to economic/credit recovery, and further benefit from funding advantages, for a stock on a cheapprice/book multiple.Credit Agricole SA (ACA FP / CAGR.PA)Valuation Methodology: We value CASA shares based on tangible book value, using 7% normalised RoE, 14% cost of equity and 0% growth. Wealso compare price/earnings multiples with European universal bank peers.Risks which May Impede the Achievement of the Price Target: The main risks for CASA shares relate to its unusual capital and ownershipstructure, with above-average gearing, and the support/influence of the caisses rgionales. There are further downside risks (reflected in ourUnderweight recommendation) around possible regulatory capital rule changes, and the groups acquisition appetite and mixed track record.Upside risks could include turnaround in Greece and Calyon, funding advantages, and exposure to economic/ credit recovery, for a stock on alow price/book multiple.KBC (KBC BB / KBC.BR)Valuation Methodology: We value KBC shares based on tangible book value, using 14% RoE (a haircut on our 16% 2013 estimate), 12% cost ofequity and 2% growth. We also compare price/earnings multiples with European universal bank peers.Risks which May Impede the Achievement of the Price Target: Downside risks for KBC shares include failure to execute the restructuring,disposal and capital repayment plan, restrictions on capital and strategic flexibility from the core shareholder structure, too-big-for-Belgiumpressures on leverage and capital ratios, and funding challenges. Upside risks (reflected in our Overweight rating) include the potential to returnto a healthy RoE and healthy capital structure, a shift away from wholesale towards strong Belgian/CEE franchise businesses, possible CDOwrite-backs, and exposure to economic/ credit recovery.Société Générale (GLE FP / SOGN.PA)Valuation Methodology: We value Socit Gnrale shares based on tangible book value, using 8% RoE (our 2012 estimate), 14% cost of equity and2% growth. We also compare price/earnings multiples with European universal bank peers.Risks which May Impede the Achievement of the Price Target: Downside risks for Socit Gnrale shares include further negative revenue impactsfollowing the reputational and regulatory damage from the Kerviel affair, as well as threats to its derivatives business from regulatory reforms(pressure to simplify and shift onto central clearing). Upside risks include potential franchise and revenue recovery, domestic merger synergies(Crdit du Nord, brokerage), eastern European growth, and exposure to economic/ credit recovery.Source: Barclays Capital7 September 2011 20
  • Barclays Capital | French BanksANALYST(S) CERTIFICATION(S)We, Jeremy Sigee and Kiri Vijayarajah, hereby certify (1) that the views expressed in this research report accurately reflect our personal viewsabout any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will bedirectly or indirectly related to the specific recommendations or views expressed in this research report.IMPORTANT DISCLOSURES CONTINUEDFor current important disclosures, including, where relevant, price target charts, regarding companies that are the subject of this research report,please send a written request to: Barclays Capital Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer tohttp://publicresearch.barcap.com or call 1-212-526-1072.The analysts responsible for preparing this research report have received compensation based upon various factors including the firms totalrevenues, a portion of which is generated by investment banking activities.Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA.These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSERule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst’saccount.On September 20, 2008, Barclays Capital acquired Lehman Brothers North American investment banking, capital markets, and privateinvestment management businesses. All ratings and price targets prior to this date relate to coverage under Lehman Brothers Inc.Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitativeanalysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in othertypes of research products, whether as a result of differing time horizons, methodologies, or otherwise.Primary Stocks (Ticker, Date, Price)BNP Paribas (BNPP.PA, 05-Sep-2011, EUR 31.30), 1-Overweight/2-NeutralCredit Agricole SA (CAGR.PA, 05-Sep-2011, EUR 5.85), 3-Underweight/2-NeutralKBC (KBC.BR, 05-Sep-2011, EUR 16.65), 1-Overweight/2-NeutralSociété Générale (SOGN.PA, 05-Sep-2011, EUR 20.25), 2-Equal Weight/2-NeutralGuide to the Barclays Capital Fundamental Equity Research Rating System:Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal Weight or 3-Underweight (see definitionsbelow) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the “sectorcoverage universe”).In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3-Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investorsshould carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.Stock Rating1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-monthinvestment horizon.2-Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-monthinvestment horizon.RS-Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable orto comply with applicable regulations and/or firm policies in certain circumstances including when Barclays Capital is acting in an advisorycapacity in a merger or strategic transaction involving the company.Sector View1-Positive - sector coverage universe fundamentals/valuations are improving.2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.3-Negative - sector coverage universe fundamentals/valuations are deteriorating.Below is the list of companies that constitute the "sector coverage universe":European BanksAllied Irish Banks PLC (ALBK.I) Banca Monte dei Paschi di Siena (BMPS.MI) Banco Bilbao Vizcaya Argentaria S.A. (BBVA.MC)Banco Popular (POP.MC) Banco Sabadell (SABE.MC) Banco Santander SA (SAN.MC)Bank of Ireland (BKIR.I) Bankia (BKIA.MC) Bankinter (BKT.MC)BNP Paribas (BNPP.PA) Commerzbank AG (CBKG.DE) Credit Agricole SA (CAGR.PA)7 September 2011 21
  • Barclays Capital | French BanksIMPORTANT DISCLOSURES CONTINUEDCredit Suisse Group AG (CSGN.VX) Deutsche Bank AG (DBKGn.DE) Deutsche Postbank AG (DPBGn.DE)HSBC Holdings PLC (HSBA.L) Intesa Sanpaolo (ISP.MI) Julius Baer (BAER.VX)KBC (KBC.BR) Lloyds Banking Group PLC (LLOY.L) Royal Bank of Scotland Group PLC (RBS.L)Skandinaviska Enskilda Banken AB (SEBa.ST) Société Générale (SOGN.PA) Standard Chartered PLC (STAN.L)Swedbank AB (SWEDa.ST) UBI Banca (UBI.MI) UBS AG (UBSN.VX)UniCredit (CRDI.MI)Distribution of Ratings:Barclays Capital Inc. Equity Research has 1771 companies under coverage.43% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 59% ofcompanies with this rating are investment banking clients of the Firm.42% have been assigned a 2-Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 52% ofcompanies with this rating are investment banking clients of the Firm.12% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 34% ofcompanies with this rating are investment banking clients of the Firm.Guide to the Barclays Capital Price Target:Each analyst has a single price target on the stocks that they cover. The price target represents that analysts expectation of where the stock willtrade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analysts pricetarget over the same 12-month period.Barclays Capital offices involved in the production of equity research:LondonBarclays Capital, the investment banking division of Barclays Bank PLC (Barclays Capital, London)New YorkBarclays Capital Inc. (BCI, New York)TokyoBarclays Capital Japan Limited (BCJL, Tokyo)São PauloBanco Barclays S.A. (BBSA, São Paulo)Hong KongBarclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)TorontoBarclays Capital Canada Inc. (BCC, Toronto)JohannesburgAbsa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)Mexico CityBarclays Bank Mexico, S.A. (BBMX, Mexico City)TaiwanBarclays Capital Securities Taiwan Limited (BCSTW, Taiwan)MumbaiBarclays Capital Securities (India) Private Limited (BSIPL, Mumbai)SingaporeBarclays Bank PLC, Singapore branch (Barclays Bank, Singapore)7 September 2011 22
  • Barclays Capital | French BanksIMPORTANT DISCLOSURES CONTINUEDBNP Paribas (BNP FP / BNPP.PA) Stock Rating Sector ViewEUR 31.30 (05-Sep-2011) 1-OVERWEIGHT 2-NEUTRALRating and Price Target Chart - EUR (as of 05-Sep-2011) Currency=EUR Date Closing Price Rating Price Target 70 25-May-2011 52.47 66.00 65 16-Mar-2011 50.34 67.00 60 03-Aug-2010 55.79 64.00 27-May-2010 47.33 60.00 55 18-Mar-2010 57.20 68.00 50 04-Jan-2010 57.24 1-Overweight 62.00 45 40 35 30 25 20 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Closing Price Target Price Rating ChangeLink to Barclays Capital Live for interactive chartingBarclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of BNP Paribas in theprevious 12 months.Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from BNP Paribas in the past 12 months.Barclays Bank PLC and/or an affiliate trades regularly in the securities of BNP Paribas.Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from BNP Paribas within the past 12 months.BNP Paribas is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.BNP Paribas is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/oran affiliate.Valuation Methodology: We value BNP Paribas shares based on tangible book value, using 13% RoE (our 2012 estimate), 14% cost of equity and2% growth. We also compare price/earnings multiples with European universal bank peers.Risks which May Impede the Achievement of the Price Target: Downside risks for BNP Paribas shares include the generic difficulties ofadministering a large diversified business group, as well as specific. threats to its derivatives business from regulatory reforms (pressure tosimplify and shift onto central clearing). Upside risks (reflected in our Overweight rating) include bigger Fortis earnings/synergies, bigger benefitsfrom the multiple home markets, exposure to economic/credit recovery, and further benefit from funding advantages, for a stock on a cheapprice/book multiple.7 September 2011 23
  • Barclays Capital | French BanksIMPORTANT DISCLOSURES CONTINUEDCredit Agricole SA (ACA FP / CAGR.PA) Stock Rating Sector ViewEUR 5.85 (05-Sep-2011) 3-UNDERWEIGHT 2-NEUTRALRating and Price Target Chart - EUR (as of 05-Sep-2011) Currency=EUR Date Closing Price Rating Price Target 16-Mar-2011 11.28 11.00 16 27-May-2010 8.94 9.00 18-Mar-2010 12.22 10.00 14 04-Jan-2010 12.82 3-Underweight 9.00 12 10 8 6 4 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Closing Price Target Price Rating ChangeLink to Barclays Capital Live for interactive chartingBarclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of Credit Agricole SA inthe previous 12 months.Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Credit Agricole SA in the past 12 months.Barclays Bank PLC and/or an affiliate expects to receive or intends to seek compensation for investment banking services from Credit Agricole SAwithin the next 3 months.Barclays Bank PLC and/or an affiliate trades regularly in the securities of Credit Agricole SA.Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Credit Agricole SA within the past 12months.Credit Agricole SA is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.Credit Agricole SA is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLCand/or an affiliate.Valuation Methodology: We value CASA shares based on tangible book value, using 7% normalised RoE, 14% cost of equity and 0% growth. Wealso compare price/earnings multiples with European universal bank peers.Risks which May Impede the Achievement of the Price Target: The main risks for CASA shares relate to its unusual capital and ownershipstructure, with above-average gearing, and the support/influence of the caisses rgionales. There are further downside risks (reflected in ourUnderweight recommendation) around possible regulatory capital rule changes, and the groups acquisition appetite and mixed track record.Upside risks could include turnaround in Greece and Calyon, funding advantages, and exposure to economic/ credit recovery, for a stock on alow price/book multiple.7 September 2011 24
  • Barclays Capital | French BanksIMPORTANT DISCLOSURES CONTINUEDKBC (KBC BB / KBC.BR) Stock Rating Sector ViewEUR 16.65 (05-Sep-2011) 1-OVERWEIGHT 2-NEUTRALRating and Price Target Chart - EUR (as of 05-Sep-2011) Currency=EUR 80 Date Closing Price Rating Price Target 04-Feb-2011 30.20 41.00 70 06-Aug-2010 34.50 43.00 60 18-Mar-2010 36.91 42.00 04-Jan-2010 32.00 1-Overweight 36.00 50 40 30 20 10 0 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Closing Price Target Price Rating ChangeLink to Barclays Capital Live for interactive chartingBarclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of KBC in the previous12 months.Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from KBC in the past 12 months.Barclays Bank PLC and/or an affiliate trades regularly in the securities of KBC.Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from KBC within the past 12 months.KBC is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.KBC is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or anaffiliate.Valuation Methodology: We value KBC shares based on tangible book value, using 14% RoE (a haircut on our 16% 2013 estimate), 12% cost ofequity and 2% growth. We also compare price/earnings multiples with European universal bank peers.Risks which May Impede the Achievement of the Price Target: Downside risks for KBC shares include failure to execute the restructuring,disposal and capital repayment plan, restrictions on capital and strategic flexibility from the core shareholder structure, too-big-for-Belgiumpressures on leverage and capital ratios, and funding challenges. Upside risks (reflected in our Overweight rating) include the potential to returnto a healthy RoE and healthy capital structure, a shift away from wholesale towards strong Belgian/CEE franchise businesses, possible CDOwrite-backs, and exposure to economic/ credit recovery.7 September 2011 25
  • Barclays Capital | French BanksIMPORTANT DISCLOSURES CONTINUEDSociété Générale (GLE FP / SOGN.PA) Stock Rating Sector ViewEUR 20.25 (05-Sep-2011) 2-EQUAL WEIGHT 2-NEUTRALRating and Price Target Chart - EUR (as of 05-Sep-2011) Currency=EUR 70 Date Closing Price Rating Price Target 65 25-May-2011 42.10 51.00 16-Mar-2011 44.60 54.00 60 05-Aug-2010 45.22 44.00 55 27-May-2010 35.93 42.00 50 18-Mar-2010 44.66 48.00 45 04-Jan-2010 50.24 2-Equal Weight 46.00 40 35 30 25 20 15 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Closing Price Target Price Rating ChangeLink to Barclays Capital Live for interactive chartingBarclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of Société Générale inthe previous 12 months.Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Société Générale in the past 12 months.Barclays Bank PLC and/or an affiliate trades regularly in the securities of Société Générale.Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Société Générale within the past 12months.Société Générale is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.Société Générale is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLCand/or an affiliate.Valuation Methodology: We value Socit Gnrale shares based on tangible book value, using 8% RoE (our 2012 estimate), 14% cost of equity and2% growth. We also compare price/earnings multiples with European universal bank peers.Risks which May Impede the Achievement of the Price Target: Downside risks for Socit Gnrale shares include further negative revenue impactsfollowing the reputational and regulatory damage from the Kerviel affair, as well as threats to its derivatives business from regulatory reforms(pressure to simplify and shift onto central clearing). Upside risks include potential franchise and revenue recovery, domestic merger synergies(Crdit du Nord, brokerage), eastern European growth, and exposure to economic/ credit recovery.7 September 2011 26
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