Abu Dhabi Banks First Update

2,036 views

Published on

Huge potential for mortgage lending.

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
2,036
On SlideShare
0
From Embeds
0
Number of Embeds
31
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Abu Dhabi Banks First Update

  1. 1. abc Banks Abu Dhabi/UAE Global Research Abu Dhabi Banks Volumes still accelerating, corporate spreads improving, potential revaluation Raise ADCB to OW (V); raise price impact limited targets; lower NBAD to N (V) We upgrade ADCB to OW(V) from N(V), raise target price to AED8.4 from AED7.9. We downgrade NBAD to N(V) from OW(V), raise TP to AED26 from AED24.8 We maintain OW on UNB (raise TP to AED 12.8 from AED12.7), and OW(V) on FGB (raise TP to AED26.2 from AED23.7) Still plenty of potential return…. The landscape for the Abu Dhabi banks remains very benign. 3Q07 numbers showed that volumes were generally stronger than our numbers (up 40% YoY), which is not surprising given the negative real interest rate environment. The real surprise is that spreads are behaving better than we thought; while liability spreads are indeed under pressure (particularly at FGB and UNB), they have been more than offset on the asset side, not only through mix changes in favour of retail but also widening margin on corporate, we believe (particularly at ADCB). Most banks have narrowed, squared or even reversed their long dollar positions (ADCB), hence the economic hit on equity is likely to be marginal (+1/-1%). However, we're likely to see translation (accounting) loss stemming from foreign subsidiaries’ earnings and domestic FX denominated business (2-3% for a potential 10% revaluation). Most banks have so far been immune to the sub prime 4 December 2007 turmoil, except for ADCB with AED283m loss in 3Q07. Using the ABX index we estimate ADCB's underlying Walid Khalfallah* CFA Analyst exposure at ca. AED900mn. With the index further down by +9714 5077458 walid.khalfallah@hsbcib.com ca. 50% in 3Q07, more losses are probably on the way (we Arsalan Mustafa* estimate AED 330m) and staggered over the coming quarter. Analyst We think the equity market has over-reacted with market cap +9714 5077642 arsalanmustafa@hsbc.com shedding over AED3bn since 2Q07, almost the size of ADCB’s entire investment portfolio. Since the beginning of *Employed by a non-US affiliate of HSBC Securities (USA) Inc, November, ADCB has underperformed its peers by c30% and is not registered/qualified pursuant to NYSE and/or NASD (on sub prime exposure and tight liquidity with Loans to regulations Issuer of report: HSBC Bank Middle East Ltd deposit of 131%). As we believe that these issues are now in the price, we upgrade the stock to Overweight (V). Despite Disclaimer & Disclosures. the run in UNB and FGB we still see plenty of potential This report must be read with the return (36% and 25% respectively). disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, that form part of it.
  2. 2. abc Banks Abu Dhabi/UAE 4 December 2007 Still plenty of potential return… Volumes still accelerating- We revise loan growth estimates to 2006-2009e CAGR of 30% Margin pressure not as profound. Spreads on corporate are improving, we believe Long dollar positioned closed Upgrade ADCB to Overweight (V). Potential return still remains on UNB (36%), and FGB (25%). Downgrade NBAD to Neutral (V) Net additions in loans and deposits per quarter. (2008e- Closing price on 29 Nov 2007 2009e is a simple quarterly average) (AED) Target Current Pot’l 25,000 140% price price return 120% 20,000 National Bank NBAD.AD N(V) (was 26 22 18% 100% of Abu Dhabi OW(V)) (was 22) 15,000 80% Abu Dhabi ADCB.AD OW(V) 8.4 6.4 32% Commercial (was N(V)) (was 7.9) 60% 10,000 Bank 40% First Gulf Bank FGB.AD OW(V) 26.2 20.95 25% 5,000 20% (was 23.7) 0 0% Union National UNB.AD OW(V) 12.8 9.44 36% Bank (was 12.7) Source: Bloomberg and HSBC estimates lo ans Depo sits Lo ans/Depo sits Volumes still accelerating Source: HSBC and company financials. Loan volumes have continued to accelerate in the Lower savings resulting from negative real third quarter. Our sample of four banks added interest rates slowed deposit growth with net AED 20 billion in new loans in Q307 compared to additions of only AED 5.7billion in Q3-07, net additions of AED 10.8b and AED15.5b in Q2- compared to net addition of AED9.2billion and 07 and Q3-07 respectively. On the back of strong AED7.4billion Q2-07 and Q3-07 respectively. Q3 numbers, we revise loan growth estimates upward to a CAGR (2006-2009e) of 30%. 2
  3. 3. abc Banks Abu Dhabi/UAE 4 December 2007 ADCB funding pressured resulted in lower net addition in Spread improved on the corporate book loans in Q3. (2008-2009e is simple quarterly average) 2007e 2008e 2009e 2010e 2011e 8,000 FGB (new) 1.25% 1.35% 1.30% 1.25% 1.25% Increase (bp) 0.10% 0.10% 0.05% 0.00% 0.00% 6,000 4,000 UNB (new) 1.10% 1.20% 1.20% 1.20% 1.20% UNB (old) 0.15% 0.10% 0.10% 0.10% 0.10% 2,000 ADCB (new) 1.30% 1.35% 1.35% 1.35% 1.35% 0 Increase (bp) 0.05% 0.00% 0.00% 0.00% 0.00% Q1-07 Q2-07 Q3-07 Q4-07(e) 2008e 2009e NBAD- (new) 1.10% 1.15% 1.20% 1.20% 1.20% Increase (bp) 0.00% 0.00% 0.00% 0.00% 0.00% Source: HSBC NB A D ADCB FGB UNB Source: HSBC and company financials. Overall spread was better than our expectations, which improved not only because of better asset Although overall deposit growth numbers were mix (loans/total assets, 68% Q307; 64% Q207) broadly in line with our forecast, FGB gained but also because of improvement in corporate significant deposits at the expense of NBAD (AED spread, we believe. Large corporate customers 6billion). NBAD management has indicated that seeking to raise money in the international debt these are large interest rate sensitive government markets have been forced to borrow on local bank deposits. Consequently we have increased our FGB terms after the credit crunch. ADCB management growth deposits estimates, but at a lower spread (who control c 13% of total loans) have indicated assumption. ADCB loan growth continues to be that in the future they will not lend anything slower than peers because of its tighter liquidity below 150bp over EIBOR. position and a focus on profitability (re-pricing of the corporate loan book). Quarterly spreads improved. ADCB decline in spread not as profound Net addition to deposits/ quarter 2.45% Q4-06 Q1-07 Q2-07 Q3-07 Q407 e 2008e 2009e 2.25% NBAD 13,447 781 5,921 -6,542 8,330 3,507 3,427 2.05% ADCB 2,532 6,275 -1,180 5,313 2,612 3,244 3,123 1.85% FGB 11,460 1,711 1,846 6,534 1,961 2,905 2,634 UNB 4,294 -1,626 2,632 387 1,310 1,598 1,614 1.65% 1.45% Loans/deposit 1.25% NBAD 81% 86% 85% 103% 97% 105% 108% ADCB 144% 129% 140% 131% 132% 134% 133% Q1-07 Q2-07 Q3-07 Q4-07e 2008e 2009e 2010e FGB 73% 80% 90% 90% 99% 119% 127% UNB 92% 101% 101% 111% 113% 119% 122% NB A D A DCB FGB UNB Sector 97% 99% 102% 109% 109% 118% 121% Source: HSBC and Company financials ADCB was adjusted for accounting reversal of AED 88m in Q3-07. Source: HSBC and company financials. Margin supported by corporate spread improvement, we believe As expected, slower deposit growth resulted in pressure on the deposit spreads. We revised our downward deposit spread assumption for FGB and UNB to reflect market share gains. 3
  4. 4. abc Banks Abu Dhabi/UAE 4 December 2007 Spread on deposits revised downwards Long (short) dollar positions 2007e 2008e 2009e 2010e 2011e AED 000's 2007(e) 2006 2005 FGB 0.50% 0.50% 0.50% 0.50% 0.50% NBAD 0 4,350,036 2,585,655 Change -0.25% -0.23% -0.20% -0.20% -0.20% ADCB -1,460,000 1,625,406 -5,064,082 FGB 1,387,000 3,987,463 4,903,421 UNB 0.80% 0.70% 0.65% 0.65% 0.65% UNB 0 3,341,448 4,083,909 Change -0.20% -0.20% -0.20% -0.15% -0.15% ADCB 1.20% 1.05% 0.90% 0.85% 0.80% 10% loss as a % of equity Change 0.00% 0.05% 0.00% 0.00% -0.05% NBAD 0.0% ADCB 1.3% NBAD 1.05% 0.90% 0.80% 0.80% 0.80% FGB -1.4% Change 0.00% 0.00% 0.00% 0.00% 0.00% UNB 0.0% Source: HSBC estimates Source: HSBC and company financials. 2007e based on discussion with management Narrowing open FX position Although we didn’t tackle the second issue previously - translation losses from foreign We expect that the potential impact of currency subsidiaries and UAE domestic business - the revaluation will be on two grounds. The first impact is also immaterial in our view. The could be an economic gain or loss on the equity, disclosure of FX denominated earnings is not depending on the open FX position on the date of available; we have approximated it using proportion revaluation. The second is more accounting of foreign assets to earnings. Given a possible 10% oriented loss, pertaining to the translation of FX revaluation of the Dirham, we estimate the losses in denominated earnings generated from foreign earnings will range from 2-3%. subsidiaries and domestic, FX business. Estimated impact on earnings from a 10% increase in the value Regarding the open FX position, while of Dirham historically the banks had long dollar positions % of foreign earnings(e) Potential translation losses (c40% of equity), this has narrowed significantly. NBAD 34% 3% ADCB 28% 3% With the central bank hinting at a possible FGB 29% 3% revaluation of the Dirham, managements of the UNB 28% 3% banks under coverage have indicated that they Source: HSBC and company financials. have significantly reduced their long dollar Undervalued currency may position. In our initiation on Abu Dhabi banks on justify additional upside Oct 15 2007, we estimated a decline in net asset value ranging between 3-6% of equity for a 10% An undervalued currency typically translates into possible revaluation. The most recent data from inflated asset classes (real estate and/or equity management suggests that losses (in case of markets). In order to understand its effect on ADCB, gains) in equity will be even smaller, at banks’ valuations, we should look at the discount +1% to -1%. rate, more specifically the risk free rate. Since bond yields in the UAE are approximated by the US long yields, under normal circumstances, the higher country risk should translate into a higher risk free rate. However, given that the Dirham is undervalued, the UAE should require a lower risk free rate (interest rate parity), reducing overall cost of capital, thus boosting valuations. 4
  5. 5. abc Banks Abu Dhabi/UAE 4 December 2007 As such, if we were to assume a 3.5% risk free, asset) as a proxy for the underlying exposure we rate (vs. 4.5% currently used), our UAE banks worked backward to derive an estimate for the valuations would increase on average by 15%. size of the exposure. While these are rough This represents the theoretical premium at which estimates which can understate or overstate the these banks should trade, in our view. As the peg problem, our main assumptions are that: 1) ADCB gets adjusted, this premium should shrink as the reflected the whole loss in 3Q07. If some of the risk free rate increases again. As we aim to be exposure is classified as ‘held to maturity’ it will conservative, our valuation does not take into not be marked to market and hence would take account this effect. longer to materialize; 2) the exposure is on the balance sheet. UAE spread premium now negative (EIBOR-LIBOR) Looking at ABX index shows that the 0.30 0.25 deterioration has been widespread with the most 0.20 significant declines coming from the lower rated 0.15 (AA, A and BBB) tranches which have declined 0.10 60% and 68% since 2Q07. Non-rated or equity 0.05 portions have most probably been wiped out. 0.00 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 -0.05 Taking into account the size of ADCB overall -0.10 securities portfolio (AED 3.6bn in 3Q07) and the -0.15 decline in ABX index in 2Q07 (ranging from -5% Source: Reuters. for AAA to -30% for BBB), we estimate the overall position to ca. AED900m. 4Q07 showed Upgrade ADCB to Overweight further decline of the ABX index (ranging from (V), potential return still 30-60%), which implies further write-down of remains on UNB (36%), and AED330m on our estimates. We believe the bank FGB (25%). Downgrade is likely to smooth this over the coming quarters NBAD to Neutral (V) AED90m in 4Q07 and AED100m in 2008 on the P&L, the rest will be taken directly to equity in We revise our ADCB earnings estimates upward 4Q07). Overall we believe that the equity market by an average of 7% in 2008e-2011e based on our has overreacted with ADCB’s market cap assumption of improving spread on the corporate shedding over AED3bn since 2Q07, almost the book and stronger fees. Earnings for 2007 size of the entire investment portfolio. however remain unchanged- because of an expected loss on the US sub prime exposure. ADCB sub prime woes overdone in our view ADCB has exposure to structured products the value of which eroded significantly following the US sub prime turmoil. In 3Q07 ADCB took a loss of AED283m (AED213m directly to equity and AED90m through the P&L), however did not disclose the size of the underlying position. Using the ABX index (synthetic credit derivative index with mortgage backed securities as the underlying 5
  6. 6. abc Banks Abu Dhabi/UAE 4 December 2007 to Overweight (V). Given the limited potential ABX INDEX return to our target on NBAD, we downgrade our rating to Neutral (V). Stock performance (% return) 40% 30% 20% 10% 0% 10-Oct 17-Oct 24-Oct 31-Oct 07-Nov 14-Nov 21-Nov 28-Nov -10% Source: Markit -20% NB A D A DCB FGB UNB Average earning revision of 3% over 2007e-2011e Source: HSBC and company financials. Report was initiated on Oct 15 2007 AED in m 2007e 2008e 2009e 2010e 2011e Valuations NBAD (new) 2,381 2,721 3,108 3,551 4,030 NBAD 2,361 2,673 3,047 3,475 3,949 We re-evaluated the Abu Dhabi banks using a Increase 1% 2% 2% 2% 2% residual income valuation methodology, whereby ADCB 1,947 2,311 2,644 2,927 3,217 the intrinsic value of a bank is the sum of its ADCB 1,953 2,194 2,471 2,711 3,008 0% 5% 7% 8% 7% current NAV and the present value of future FGB 1,841 2,185 2,546 2,713 2,935 residual income, i.e. returns achieved over the FGB 1,726 2,159 2,525 2,709 2,942 cost of equity. The model consists of three stages: 7% 1% 1% 0% 0% the first includes residual income based on the FGB bank 1,291 1,580 1,941 2,199 2,498 1,276 1,529 1,832 2,086 2,380 explicit forecast period; the second maturity 1% 3% 6% 5% 5% stage) assumes a constant growth rate in net UNB (new) 1,117 1,294 1,477 1,669 1,848 profit, and the final (declining stage) where 1,090 1,243 1,438 1,623 1,829 returns converge to the cost of equity. 2% 4% 3% 3% 1% Source: HSBC and company financials Regarding the cost of equity (10%), we have continued to use the CAPM model whereby the For the remainder of the sector earning numbers cost of equity is equal to the risk free rate (4.5% have on average increased by 3% over our in line with US long bond yields) and an equity forecast horizon. risk premium of 5.5%. Price targets increased Risks New target price Old target price % increase If the central bank increases the quantitative NBAD 26 24.8 5% ADCB 8.4 7.9 7% restrictions for the banks, this may lead to slower FGB 26.2 23.7 10% UNB 12.8 12.7 1% volumes and/or higher cost of funding which will Source: HSBC affect income and hence earnings. International credit conditions have deteriorated With the stock price of ADCB underperforming following the US sub-prime turmoil. If conditions the peers by an average of c30% since the worsen further, it could impact the UAE banks as beginning of November 2007, we upgrade ADCB 6
  7. 7. abc Banks Abu Dhabi/UAE 4 December 2007 it restricts funding and therefore lending growth as well as the overall cost of funding. Although none of the banks (except ADCB) commented on potential sub-prime CDO exposure, the banks may incur losses. Fast loan growth could have been achieved by relaxing risk management procedures; this may result in increased provisioning level compared to our forecasts. Company Specific Risks FGB: Higher than expected wholesale funding can materially affect our earnings and volume forecasts. In addition the bank is increasing its exposure to the real-estate sector, which can be volatile. UNB: Fee and interest income breakdown is not available; hence our estimates bear a higher forecast risk compared to the other banks. NBAD: We’re looking for a progressively increasing provisioning level, a sharper than expected rise in particular would affect our valuation. ADCB: We are expecting the bank to reprice its corporate book: given the high sensitivity of ADCB’s NIM to corporate spreads, higher or lower than expected expansion could materially affect our earnings forecasts. 7
  8. 8. abc Banks Abu Dhabi/UAE 4 December 2007 FGB-Valuation methodology (AED ms) Dec-07e Dec-08e Dec-09e Dec-10e Dec-11e Net Profit (core bank) 1,291 1,580 1,941 2,199 2,498 NAV (core bank) 6,886 7,545 8,394 9,320 10,461 ROE (core bank) 15% 23% 26% 26% 27% CoE (core bank) 10% PV of Residual Income (core bank) 442 804 972 1,013 1,061 Growth Pay-out Total value Maturity Phase (12e-26e) 10% 36% 11,998 Decline Phase (27e-35e) 36% 2,773 Total Residual Income 18,620 NAV (2007) 6,828 Intrinsic Value 25,449 No of shares 1,250 Value per share (core bank) 20.4 12m Target Price 22.4 Potential return 21% Real-estate investment at book (2007) 3,135 Value per share 2.5 Mark up 1,567 Value per share 3.8 Intrinsic value per share FGB 24.1 12m target price FGB 26.2 Potential return to 1yr target price FGB 25% Core Bank Current P/E 17.9 14.6 11.9 10.5 9.2 Implied P/E (intrinsic value) 19.7 16.1 13.1 11.6 10.2 FGB Current P/E 14.2 12.0 10.3 9.7 8.9 Implied P/E (intrinsic value) 16.4 13.8 11.8 11.1 10.3 Core bank Current P/B 3.3 3.1 2.7 2.5 2.2 Implied P/B (intrinsic value) 3.7 3.4 3.0 2.7 2.4 FGB Current P/B 2.6 2.3 2.1 1.9 1.7 Implied P/B (intrinsic value) 3.0 2.7 2.4 2.1 1.9 Source: HSBC estimates and company financials 8
  9. 9. abc Banks Abu Dhabi/UAE 4 December 2007 ADCB Valuation methodology AED m Dec-07e Dec-08e Dec-09e Dec-10e Dec-11e Net Profit 1,943 2,303 2,636 2,919 3,208 NAV 11,457 12,550 13,976 15,365 16,881 ROE 18% 20% 21% 21% 21% CoE 10% PV of Residual Income 864 1,044 1,133 1,134 1,133 Growth Pay-out Total value Maturity Phase (12e-26e) 8% 45% 12,158 Decline Phase (27e-35e) 8% 45% 2,505 Total Residual Income 19,971 Intrinsic value 30,695 No of shares 4,000 Value per share 7.7 12m Target Price 8.4 Potential return 32% Current P/E 13.2 11.1 9.7 8.8 8.0 Implied P/E (intrinsic value) 15.8 13.3 11.6 10.5 9.6 Current P/B 2.2 2.0 1.8 1.7 1.5 Implied P/B (intrinsic value) 2.7 2.4 2.2 2.0 1.8 Source: HSBC estimates and company financials 9
  10. 10. abc Banks Abu Dhabi/UAE 4 December 2007 UNB Valuation methodology AED m Dec-07e Dec-08e Dec-09e Dec-10e Dec-11e Net Profit 1,117 1,294 1,477 1,669 1,848 NAV 6,497 7,230 8,060 8,990 10,004 ROE 19% 20% 20% 21% 21% CoE 10% PV of Residual Income 520 580 618 643 643 Growth Pay-out Total value Maturity Phase (12e-26e) 9% 50% 7,556 Decline Phase (27e-35e) 50% 1,760 Total Residual Income 12,320 Intrinsic Value 18,247 No of shares 1,563 Value per share 11.7 12m Target Price 12.8 Potential return 36% Current P/E 13.2 11.4 10.0 8.8 8.0 Implied P/E (intrinsic value) 16.3 14.1 12.4 10.9 9.9 Current P/B 2.3 2.0 1.8 1.6 1.5 Implied P/B (intrinsic value) 2.8 2.5 2.3 2.0 1.8 Source: HSBC estimates and company financials NBAD-Valuation methodology AEM m Dec-07e Dec-08e Dec-09e Dec-10e Dec-11e Net Profit 2,381 2,721 3,108 3,551 4,030 NAV 10,896 13,023 15,315 17,933 20,898 ROE 26% 25% 24% 23% 22% CoE 10% PV of Residual Income 1,468 1,471 1,480 1,504 1,515 Growth Pay-out Total value Maturity Phase (12e-26e) 9% 54% 17,125 Decline Phase (27e-35e) 54% 4,074 Total Residual Income 28,636 Intrinsic value 37,641 No of shares 1,591 Value per share 23.7 12m Target Price 26.0 Potential return 18% Current P/E 14.7 12.9 11.3 9.9 8.7 Implied P/E (intrinsic value) 15.8 13.8 12.1 10.6 9.3 Current P/B 3.2 2.7 2.3 2.0 1.7 Implied P/B (intrinsic value) 3.5 2.9 2.5 2.1 1.8 Source: HSBC estimates and company financials 10
  11. 11. abc Banks Abu Dhabi/UAE 4 December 2007 NBAD- Balance Sheet 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e Assets ___________________ YOY growth ___________________ Cash and Central Bank 7,761,065 19,555,387 7,394,661 8,481,653 147% 152% -62% 15% Interbank 22,268,144 10,493,735 19,673,981 18,368,244 22% -53% 87% -7% Customers loans, net 57,485,714 77,145,315 98,021,652 115,085,130 12% 34% 27% 17% Securities 10,934,952 10,106,155 12,632,694 15,159,233 11% -8% 25% 20% Tangible assets 424,051 530,064 583,070 629,716 9% 25% 10% 8% Other Assets: 2,092,060 2,958,317 3,429,827 3,904,937 9% 41% 16% 14% TOTAL ASSETS 100,965,986 123,804,759 143,537,328 163,420,560 19% 23% 16% 14% Liabilities Interbank 12,078,660 19,325,856 21,258,442 23,384,286 14% 60% 10% 10% Customer Deposits 70,737,899 79,226,447 93,256,016 106,964,348 19% 12% 18% 15% Debt securities 6,022,499 10,840,498 11,924,548 13,117,003 93% 80% 10% 10% Other liabilities 3,121,664 3,515,488 4,075,803 4,640,396 -29% 13% 16% 14% Equity 9,005,264 10,896,470 13,022,519 15,314,528 23% 21% 20% 18% Share Capital 1,224,080 1,591,304 1,591,304 1,591,304 Reserves & Share Premium 7,131,184 6,763,960 6,763,960 6,763,960 Retained Earnings 650,000 2,541,206 4,667,255 6,959,264 TOTAL LIABILITIES & EQUITY 100,965,986 123,804,759 143,537,328 163,420,560 19% 23% 16% 14% Source: HSBC estimates and company financials NBAD profit and Loss Statement 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e _____________________ YOY growth _____________________ Interest Income 5,457,794 6,855,394 7,837,474 8,746,740 42% 26% 14% 12% Interest Expense -3,436,847 -4,491,126 -5,100,505 -5,591,961 58% 31% 14% 10% Net Interest Income 2,020,947 2,364,268 2,736,969 3,154,779 21% 17% 16% 15% Fee Income, net 732,423 822,727 1,073,067 1,314,018 -45% 12% 30% 22% Trading Income 161,060 257,696 296,350 325,985 -57% 60% 15% 10% Other Operating Income 41,397 35,515 38,568 60,693 45% -14% 9% 57% Total non interest income 934,880 1,115,938 1,407,985 1,700,697 -46% 19% 26% 21% Total Income 2,955,827 3,480,206 4,144,954 4,855,476 -13% 18% 19% 17% Staff Cost -414,114 -610,915 -791,785 -936,066 15% 48% 30% 18% General Costs & Other -226,543 -317,160 -380,592 -437,681 12% 40% 20% 15% Depreciation -59,220 -74,025 -85,129 -93,642 14% 25% 15% 10% Total Costs -699,877 -1,002,100 -1,257,506 -1,467,388 12% 43% 25% 17% Operating profit 2,255,950 2,478,106 2,887,448 3,388,087 -19% 10% 17% 17% Provision Charge on IS -99,019 -36,254 -96,422 -200,002 -36% -63% 166% 107% Provisioning for credit risk/av. 0.17% 0.05% 0.11% 0.19% Gross loans Pre-Tax Profit 2,156,931 2,441,852 2,791,026 3,188,086 -18% 13% 14% 14% Income Tax (overseas branch)/write -51,046 -61,046 -69,776 -79,702 back Profit before minorities 2,105,885 2,380,806 2,721,251 3,108,384 Net Profit to Shareholders 2,105,885 2,380,806 2,721,251 3,108,384 -18% 13% 14% 14% Source: HSBC estimates and company financials 11
  12. 12. abc Banks Abu Dhabi/UAE 4 December 2007 NBAD Spread assumptions and ratios. 2006 2007e 2008e 2009e Spreads Over EIBOR Consumer retail loans 6.00% 6.00% 5.75% 5.50% Corporate Loans 0.67% 1.10% 1.15% 1.20% Debt/ Investments 0.66% 0.80% 0.80% 0.80% Interbank lending -1.24% -0.65% -0.20% 0.00% Mortgages 2.20% 2.10% 1.90% Total Deposits 1.59% 1.05% 0.90% 0.80% Interbank borrowing -0.15% 0.00% 0.00% 0.00% Debt Securities -0.90% -0.30% -0.35% -0.40% Yield on IEAs 6.03% 6.27% 6.03% 5.86% Yield on IBLs 4.24% 4.53% 4.33% 4.14% Spread 1.79% 1.74% 1.71% 1.72% Net Interest Margin 2.23% 2.16% 2.11% 2.11% Ratios EPS 1.32 1.50 1.71 1.95 Total cost(+prov)/Income 27.0 29.8 32.7 34.3 Cost/income 23.7 28.8 30.3 30.2 Cost/Av. Assets 0.8 0.9 0.9 1.0 ROE 25.8 23.9 22.8 21.9 ROA 2.3 2.1 2.0 2.0 Loans/Assets 57% 62% 68% 70% Loans/Deposits 81% 97% 105% 108% Deposits/Assets 70% 64% 65% 65% Loans/Stable resources 67% 77% 83% 85% Source: HSBC estimates and company financials 12
  13. 13. abc Banks Abu Dhabi/UAE 4 December 2007 ADCB Balance Sheet 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e Assets _____________________ YOY Growth ______________________ Cash and Central Bank 1,898,457 5,719,698 4,523,356 5,337,560 12% 201% -21% 18% Interbank 10,065,209 15,432,433 17,505,787 19,157,834 1% 53% 13% 9% Customers loans, net 62,424,649 74,441,418 92,723,492 108,646,368 48% 19% 25% 17% Securities 3,778,374 4,156,211 4,447,146 5,215,286 75% 10% 7% 17% Investments Tangible assets 512,024 552,986 591,695 633,114 27% 8% 7% 7% Other Assets: 2,409,665 4,125,427 4,926,994 5,716,631 127% 71% 19% 16% TOTAL ASSETS 81,088,378 104,428,173 124,718,470 144,706,793 41% 29% 19% 16% Liabilities Interbank 7,970,187 7,173,168 8,607,802 9,898,972 32% -10% 20% 15% Customer Deposits 43,396,851 56,415,906 69,391,565 81,882,046 28% 30% 23% 18% Debt securities 16,610,194 24,084,781 27,697,498 31,298,173 114% 45% 15% 13% Other liabilities 2,386,968 5,496,270 6,564,190 7,616,217 111% 130% 19% 16% Minorities 65,800 151,057 257,627 385,512 Equity 10,658,378 11,106,991 12,199,787 13,625,872 24% 4% 10% 12% Share Capital 4,000,000 4,000,000 4,000,000 4,000,000 Reserves & Share Premium 4,105,486 5,031,286 5,031,286 5,031,286 Retained Earnings 1,342,892 2,075,705 3,168,501 4,594,586 TOTAL LIABILITIES & EQUITY 81,088,378 104,428,173 124,718,470 144,706,793 41% 29% 19% 16% Source: HSBC estimates and company financials ADCB profit and loss statement 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e _____________________ YOY Growth ______________________ Interest Income 4,127,608 5,819,734 6,801,294 7,796,197 69% 41% 17% 15% Interest Expense -2,353,617 -3,586,920 -4,229,001 -4,813,497 119% 52% 18% 14% Net Interest Income 1,773,991 2,232,815 2,572,294 2,982,700 29% 26% 15% 16% Fee Income, net 1,129,246 840,720 1,092,138 1,334,529 3% -26% 30% 22% Trading Income 153,248 38,312 99,611 108,576 1% -75% 160% 9% Other Operating Income 40,693 30,426 32,451 53,940 27% -25% 7% 66% Total Non Interest Income 1,323,187 909,458 1,224,200 1,497,046 4% -31% 35% 22% Total Income 3,097,178 3,142,272 3,796,494 4,479,745 17% 1% 21% 18% Staff Cost -440,218 -530,597 -643,190 -777,693 41% 21% 21% 21% General Costs & Other -272,597 -368,006 -460,007 -542,809 54% 35% 25% 18% Depreciation -41,064 -47,224 -54,307 -60,824 50% 15% 15% 12% Total Costs -753,879 -945,827 -1,157,505 -1,381,325 46% 25% 22% 19% Operating profit 2,343,299 2,196,445 2,638,989 3,098,420 10% -6% 20% 17% Provision Charge on IS -193,470 -165,329 -226,002 -330,298 -9% -15% 37% 46% Provisioning for credit risk/av. 0.36% 0.24% 0.27% 0.32% Gross loans Pre-Tax Profit 2,149,829 2,031,116 2,412,987 2,768,122 12% -6% 19% 15% Income Tax (overseas -2,630 -3,047 -3,619 -4,152 branch)/write back Profit before minorities 2,147,199 2,028,069 2,409,367 2,763,970 12% -6% 19% 15% Minority Interest -65,582 -85,257 -106,571 -127,885 Profit before minorities 2,147,199 2,028,069 2,409,367 2,763,970 Net Profit to Shareholders 2,081,617 1,942,813 2,302,796 2,636,085 9% -7% 19% 14% Source: HSBC estimates and company financials 13
  14. 14. abc Banks Abu Dhabi/UAE 4 December 2007 ADCB spread assumption and ratios 2006 2007e 2008e 2009e Spreads Over EIBOR Consumer retail loans 4.50% 5.75% 5.50% 5.50% Corporate Loans 1.05% 1.30% 1.35% 1.35% Debt/ Investments 0.54% 0.80% 0.80% 0.80% Interbank lending 0.12% 0.00% 0.00% 0.00% Motgage 2.20% 2.10% 1.90% Deposits 1.19% 1.20% 1.05% 0.90% Interbank borrowing 1.49% 0.00% 0.00% 0.00% Debt Securities 0.23% -0.30% -0.40% -0.40% Yield on IEAs 6.15% 6.54% 6.21% 6.05% Yield on IBLs 4.07% 4.61% 4.37% 4.21% Spread 2.08% 1.93% 1.84% 1.85% Net Interest Margin 2.64% 2.51% 2.35% 2.32% Ratios Total cost(+prov)/Income 30.6 35.4 36.4 38.2 Cost/income (as Reported) 24.3 30.1 30.5 30.8 Cost/Av. Assets 1.1 1.0 1.0 1.0 ROE 19.5 17.9 19.8 20.4 ROA 3.1 2.1 2.0 2.0 Loans/Assets 77% 71% 74% 75% Loans/Deposits 144% 132% 134% 133% Deposits/Assets 54% 54% 56% 57% Risk Ratio 11% 7% 9% 11% Loans to stable resources 89% 82% 85% 86% Source: HSBC estimates and company financials 14
  15. 15. abc Banks Abu Dhabi/UAE 4 December 2007 FGB Balance Sheet 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e Assets ______________________YOY growth_______________________ Cash and Central Bank 4,171,623 4,848,289 6,060,362 7,159,262 77% 16% 25% 18% Interbank 12,211,804 1,163,130 1,056,295 667,011 77% -90% -9% -37% Customers loans, net 25,160,769 46,015,892 69,157,306 87,404,562 85% 83% 50% 26% Securities 4,722,117 9,444,234 6,138,752 4,911,002 65% 100% -35% -20% Investments in 787,671 3,367,114 4,032,114 4,757,114 402% 327% 20% 18% associates+properties Tangible assets 334,311 1,002,933 1,103,226 1,213,549 53% 200% 10% 10% Other Assets: 370,780 1,048,897 1,394,694 1,690,437 97% 183% 33% 21% TOTAL ASSETS 47,759,075 66,890,488 88,942,749 107,802,936 82% 40% 33% 21% Liabilities Interbank 297,433 3,271,763 4,907,645 6,134,556 63% 1000% 50% 25% Customer Deposits 34,434,346 46,486,367 58,107,959 68,644,436 99% 35% 25% 18% Debt securities 3,397,525 5,777,475 12,845,000 18,092,500 429% 70% 122% 41% Other liabilities 644,281 1,403,088 1,865,655 2,261,264 111% 118% 33% 21% Minorities Equity 8,985,490 9,951,795 11,216,491 12,670,180 15% 11% 13% 13% Share Capital 1,250,000 1,250,000 1,250,000 1,250,000 Reserves & Share Premium 5,864,009 5,818,357 5,646,335 5,465,827 Retained Earnings 996,481 1,962,786 3,227,482 4,681,171 Div 875,000 920,652 1,092,674 1,273,182 Bank Equity 8,452,778 6,885,621 7,545,317 8,394,006 TOTAL LIABILITIES & EQUITY 47,759,075 66,890,488 88,942,749 107,802,936 82% 40% 33% 21% Source: HSBC estimates and company financials FGB Profit and Loss Statement 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e ______________________YOY growth_______________________ Interest Income 2,884,025 3,624,858 4,691,387 5,802,177 52% 26% 29% 24% Interest Expense -1,675,834 -2,293,581 -3,046,438 -3,741,136 66% 37% 33% 23% Net Interest Income 1,208,191 1,331,277 1,644,949 2,061,042 37% 10% 24% 25% Fee Income, net 281,638 465,971 692,952 890,366 33% 65% 49% 28% Trading Income 86,097 189,413 208,355 197,937 -72% 120% 10% -5% Other Operating Income 492,125 669,347 793,250 884,227 1599% 36% 19% 11% Government grants 164,584 Gain on revaluation of 177,341 550,000 605,000 605,000 investment properties Total Income 2,068,051 2,656,009 3,339,506 4,033,572 45% 28% 26% 21% Staff Cost -224,814 -348,226 -528,831 -717,700 63% 55% 52% 36% General Costs & Other -155,287 -217,402 -293,492 -366,866 94% 40% 35% 25% Depreciation -20,131 -23,151 -31,253 -35,941 34% 15% 35% 15% Total Costs -400,232 -588,778 -853,577 -1,120,507 71% 47% 45% 31% Operating profit 1,667,819 2,067,231 2,485,929 2,913,065 40% 24% 20% 17% Provision Charge on IS -131,969 -225,926 -300,580 -366,702 7% 71% 33% 22% Provisioning for credit risk/av. 0.67% 0.63% 0.52% 0.46% Gross loans Pre-Tax Profit 1,535,850 1,841,305 2,185,348 2,546,363 44% 20% 19% 17% Income Tax (overseas branch)/write back Profit before minorities 1,535,850 1,841,305 2,185,348 2,546,363 Minority Interest Net Profit 1,535,850 1,841,305 2,185,348 2,546,363 44% 20% 19% 17% Source: HSBC estimates and company financials 15
  16. 16. abc Banks Abu Dhabi/UAE 4 December 2007 FGB- spread assumptions and ratios. 2006 2007e 2008e 2009e Consumer retail loans 7.00% 6.00% 6.00% 5.75% Corporate Loans 1.70% 1.25% 1.35% 1.30% Debt/ Investments 1.22% 0.90% 0.90% 0.90% Interbank lending 1.32% 0.00% 0.00% 0.00% IPO financing 12.95% Mortgages 2.20% 2.10% 1.90% Deposits 0.69% 0.50% 0.50% 0.50% Interbank borrowing 0.00% 0.00% 0.00% 0.00% Debt Securities -2.75% -0.30% -0.60% -0.60% Yield on IEAs 8.01% 6.73% 6.52% 6.36% Yield on IBLs 5.96% 4.90% 4.64% 4.43% Spread 2.06% 1.83% 1.88% 1.92% Net Interest Margin 3.36% 2.47% 2.29% 2.26% Ratios EPS 1.23 1.47 1.75 2.04 Total cost(+prov)/Income 25.7 30.7 34.6 36.9 Cost/income 19.4 22.2 25.6 27.8 Cost/Av. Assets 1.1 1.0 1.1 1.1 ROE 18.3 19.4 20.6 21.3 ROE (core bkg) 13.6 16.8 21.9 24.4 ROA 4.1 3.2 2.8 2.6 Loans/Assets 53% 69% 78% 81% Loans/Deposits 73% 99% 119% 127% Deposits/Assets 72% 69% 65% 64% Central bank/Stable resources 54% 75% 85% 89% Source: HSBC estimates and company financials 16
  17. 17. abc Banks Abu Dhabi/UAE 4 December 2007 UNB Balance Sheet 2005 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e Assets ___________________ YOY growth ___________________ Cash and Central Bank 2,865,163 2,634,708 2,871,832 3,432,387 3,998,451 -8% 9% 20% 16% Interbank 8,266,960 7,719,097 3,655,912 1,481,294 231,480 -7% -53% -59% -84% Customers loans, net 20,702,915 27,493,904 36,852,823 46,607,964 55,716,341 33% 34% 26% 20% Securities 2,149,435 2,339,495 2,690,419 2,824,940 2,966,187 9% 15% 5% 5% Tangible assets 133,670 230,256 264,794 296,570 326,227 72% 15% 12% 10% Other Assets: 814,090 1,121,594 1,605,388 1,893,212 2,191,020 38% 43% 18% 16% TOTAL ASSETS 34,932,233 41,539,054 47,941,168 56,536,367 65,429,706 19% 15% 18% 16% Liabilities Interbank 419,096 522,638 1,332,727 1,665,909 1,999,090 25% 155% 25% 20% Customer Deposits 25,786,686 30,046,079 32,750,226 39,142,770 45,598,141 17% 9% 20% 16% Debt securities 2,479,275 3,855,441 5,783,162 6,650,636 7,648,231 56% 50% 15% 15% Other liabilities 1,013,748 1,085,556 1,578,064 1,860,989 2,153,728 7% 45% 18% 16% Equity 5,232,510 5,927,072 6,496,989 7,230,018 8,060,405 13% 10% 11% 11% Share Capital 1,250,000 1,562,500 1,562,500 1,562,500 1,562,500 Reserves & Share Premium 2,282,116 2,283,438 2,283,438 2,283,438 2,283,438 Retained Earnings 1,700,394 2,081,134 2,651,051 3,384,080 4,214,467 TOTAL LIABILITIES & 34,932,233 41,539,054 47,941,168 56,536,367 65,429,706 19% 15% 18% 16% EQUITY Source: HSBC estimates and company financials UNB Profit and Loss Statement 2005 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e ___________________ YOY growth ___________________ Interest Income 1,558,414 2,444,109 2,720,978 3,266,503 3,716,319 57% 11% 20% 14% Interest Expense -867,746 -1,555,486 -1,634,946 -1,967,541 -2,203,707 79% 5% 20% 12% Net Interest Income 690,668 888,623 1,086,032 1,298,961 1,512,612 29% 22% 20% 16% Fee Income, net 705,815 559,115 380,198 494,258 617,822 -21% -32% 30% 25% Other Operating Income 38,813 48,800 76,453 82,769 92,060 26% 57% 8% 11% Non Interest Income 999,601 646,517 591,758 721,591 866,011 -35% -8% 22% 20% Total Income 1,690,269 1,535,140 1,677,790 2,020,553 2,378,624 -9% 9% 20% 18% Staff Cost -211,820 -263,258 -354,891 -445,413 -536,181 General Costs & Other -67,094 -99,422 -121,295 -143,128 -167,460 48% 22% 18% 17% Depreciation -18,177 -24,184 -38,694 -46,433 -53,398 33% 60% 20% 15% Total Costs -297,091 -386,864 -514,881 -634,974 -757,039 30% 33% 23% 19% Operating profit 1,393,178 1,148,276 1,162,909 1,385,579 1,621,585 -18% 1% 19% 17% Provision Charge on IS -239,147 -138,772 -33,844 -77,704 -128,135 -42% -76% 130% 65% Provisioning for credit 1.24% 0.56% 0.10% 0.18% 0.25% risk/av. Gross loans Pre-Tax Profit 1,154,031 1,009,504 1,129,065 1,307,875 1,493,450 -13% 12% 16% 14% Income Tax (overseas -226 -262 -299 branch)/write back Profit before minorities 1,154,031 1,009,504 1,128,839 1,307,613 1,493,151 Minority Interest -793 -1,722 -12,047 -13,955 -15,935 Net Profit 1,154,031 1,009,504 1,128,839 1,307,613 1,493,151 -13% 12% 16% 14% Net Profit to Shareholders 1,153,238 1,007,782 1,116,792 1,293,658 1,477,216 -13% 11% 16% 14% Source: HSBC estimates and company financials 17
  18. 18. abc Banks Abu Dhabi/UAE 4 December 2007 UNB spread assumptions and ratios 2005 2006 2007e 2008e 2009e Consumer retail loans 6.28% 6.28% 6.50% 6.25% 6.00% Corporate Loans 1.10% 1.10% 1.25% 1.30% 1.30% Debt/ Investments 1.00% 1.00% 0.80% 0.80% 0.80% Interbank lending 0.00% 0.00% 0.00% 0.00% 0.00% Mortgages 2.00% 2.00% 1.90% Deposits 0.90% 0.80% 0.80% 0.70% 0.65% Interbank borrowing 0.00% 0.00% 0.00% 0.00% 0.00% Debt Securities -0.30% -0.30% -0.30% -0.40% -0.40% Yield on IEAs 5.42% 6.59% 6.31% 6.51% 6.34% Yield on IBLs 3.47% 4.93% 4.40% 4.51% 4.29% Spread 1.95% 1.66% 1.91% 2.00% 2.05% Net Interest Margin 2.40% 2.40% 2.52% 2.59% 2.58% Ratios EPS 0.92 0.64 0.72 0.85 0.97 Total cost(+prov)/Income 31.7 34.2 32.7 35.3 37.2 Cost/income 17.6 25.2 30.7 31.4 31.8 Cost/Av. Assets 1.0 1.0 1.2 1.2 1.2 ROE 31.0 18.1 18.0 18.8 19.3 ROA 3.9 2.6 2.5 2.5 2.5 Loans/Assets 59% 66% 77% 82% 85% Loans/Deposits 80% 92% 113% 119% 122% Deposits/Assets 74% 72% 68% 69% 70% Risk Ratio 35% 16% 3% 6% 8% Central bank Loans/Stable 62% 69% 82% 88% 91% resources Source: HSBC estimates and company financials 18
  19. 19. abc Banks Abu Dhabi/UAE 4 December 2007 Disclosure appendix Analyst certification The following analyst(s), who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Walid Khalfallah and Arsalan Mustafa Important disclosures Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below. This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website. HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice. Rating definitions for long-term investment opportunities Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis: For each stock we set a required rate of return calculated from the risk free rate for that stock's domestic, or as appropriate, regional market and the relevant equity risk premium established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the implied return must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral. Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change. *A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, 19
  20. 20. abc Banks Abu Dhabi/UAE 4 December 2007 stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change. Prior to this, from 7 June 2005 HSBC applied a ratings structure which ranked the stocks according to their notional target price vs current market price and then categorised (approximately) the top 40% as Overweight, the next 40% as Neutral and the last 20% as Underweight. The performance horizon is 2 years. The notional target price was defined as the mid-point of the analysts' valuation for a stock. From 15 November 2004 to 7 June 2005, HSBC carried no ratings and concentrated on long-term thematic reports which identified themes and trends in industries, but did not make a conclusion as to the investment action that potential investors should take. Prior to 15 November 2004, HSBC's ratings system was based upon a two-stage recommendation structure: a combination of the analysts' view on the stock relative to its sector and the sector call relative to the market, together giving a view on the stock relative to the market. The sector call was the responsibility of the strategy team, set in co-operation with the analysts. For other companies, HSBC showed a recommendation relative to the market. The performance horizon was 6-12 months. The target price was the level the stock should have traded at if the market accepted the analysts' view of the stock. Rating distribution for long-term investment opportunities As of 03 December 2007, the distribution of all ratings published is as follows: Overweight (Buy) 52% (22% of these provided with Investment Banking Services) Neutral (Hold) 29% (23% of these provided with Investment Banking Services) Underweight (Sell) 19% (11% of these provided with Investment Banking Services) Share price and rating changes for long-term investment opportunities Recommendation & price target history National Bank of Abu Dhab Share Price performance AED Vs HSBC rating From To Date history N/A Overweight (V) 15 October 2007 Target Price Value Date 28 Price 1 24.80 22 October 2007 23 Source: HSBC 18 13 8 3 D ec - 02 J un- 03 D ec - 03 J un- 04 D ec - 04 J un- 05 D ec - 05 J un- 06 D ec - 06 J un- 07 D ec - 07 Source: HSBC 20
  21. 21. abc Banks Abu Dhabi/UAE 4 December 2007 Recommendation & price target history Abu Dhabi Comm Bank Share Price performance AED Vs HSBC rating history From To Date N/A Neutral (V) 22 October 2007 10 Target Price Value Date 9 Price 1 7.90 22 October 2007 8 Source: HSBC 7 6 5 D ec - 02 J un- 03 D ec - 03 J un- 04 D ec - 04 J un- 05 D ec - 05 J un- 06 D ec - 06 J un- 07 D ec - 07 Source: HSBC Recommendation & price target history Union National Bank Share Price performance AED Vs HSBC rating history From To Date N/A Overweight 15 October 2007 13 Target Price Value Date 12 11 Price 1 12.70 22 October 2007 10 Source: HSBC 9 8 7 6 5 D ec - 02 J un- 03 D ec - 03 J un- 04 D ec - 04 J un- 05 D ec - 05 J un- 06 D ec - 06 J un- 07 D ec - 07 Source: HSBC Recommendation & price target history First Gulf Bank Share Price performance AED Vs HSBC rating history From To Date N/A Overweight 15 October 2007 39 Target Price Value Date 34 Price 1 23.70 18 October 2007 29 Price 2 23.70 22 October 2007 24 Source: HSBC 19 14 9 4 D ec - 02 J un- 03 D ec - 03 J un- 04 D ec - 04 J un- 05 D ec - 05 J un- 06 D ec - 06 J un- 07 D ec - 07 Source: HSBC 21
  22. 22. abc Banks Abu Dhabi/UAE 4 December 2007 HSBC & Analyst disclosures Disclosure checklist Company Ticker Recent price Price Date Disclosure ABU DHABI COMM BANK ADCB.AD 6.40 30-Nov-2007 11 FIRST GULF BANK FGB.AD 20.50 30-Nov-2007 4, 6, 7 NATIONAL BANK OF ABU DHAB NBAD.AD 22.00 30-Nov-2007 6, 7, 11 UNION NATIONAL BANK UNB.AD 9.48 30-Nov-2007 2, 6, 7 Source: HSBC 1 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. 4 As of 31 October 2007 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 October 2007, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 October 2007, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking-securities related services. 7 As of 31 October 2007, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company. Analysts are paid in part by reference to the profitability of HSBC which includes investment banking revenues. For disclosures in respect of any company, please see the most recently published report on that company available at www.hsbcnet.com/research. * HSBC Legal Entities are listed in the Disclaimer below. Additional disclosures 1 This report is dated as at 04 December 2007. 2 All market data included in this report are dated as at close 29 November 2007, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Chinese Wall procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. 4 As of 31 October 2007, HSBC beneficially owned 2% or more of a class of common equity securities of the following company(ies) : FIRST GULF BANK 22

×