Market Impact of TLAC Requirements FIG DCM Bank Capital Solutions - PowerPoint PPT Presentation

Market Impact of TLAC Requirements FIG DCM Bank Capital Solutions December 17, 2015

RWA vs. SLR Driven TLAC Requirements Fed's SLR driven TLAC requirement is more stringent than FSB TLAC framework 23.5% 25% 23% FSB Max 23.0% 22.5% • The Fed’s RWA driven 22.0% 21.5% 21.5% 21.5% 21.0% 21.0% minimum TLAC 21% FSB Min 21.5% requirements appear to 20% 18.5% 20.5% 20.5% be well aligned with FSB 17.5% 20.0% 10.5% 16.5% requirements 9.5% 9.0% 9.0% • The Fed’s leverage ratio 9.0% 15% driven minimum TLAC 8.0% 7.5% (9.5%) materially exceeds 7.0% FSB requirements (6.75%) 10% • The Fed’s implied minimum TLAC debt (i.e. 47%) requirement is also 13.0% more binding than FSB’s 12.0% 11.5% 11.5% 11.0% 10.5% 33% TLAC debt 5% 10.0% 9.5% requirement Key 1 0% JPM C BAC WFC MS GS STT BK TLAC 10% External LTD LTD requirement (RWA 8% approach – 6.0% + 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% FSB SLR 6.75% GSIB surcharge) 6% Capital Conservation Tier 1 4% Buffer (2.5% + GSIB Capital surcharge) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 2% 1.5% Additional Tier 1 4.5% CET1 Minimum 0% JPM C BAC WFC MS GS STT BK 1. GSIB surcharge applied to minimum LTD requirement and the capital conservation buffer is based on estimates disclosed with the GSIB capital surcharge final rule in July 2015. 1

U.S. G-SIBs Appear to be Well Positioned Capital & TLAC Shortfall Need Proposed rule is fairly benign relative to market ($Bn) 2022 LTD Shortfall 138 28 136 2019 LTD Shortfall 1 Additional TLAC Qualifying Capital Shortfall 120 12 12 31 24 28 29 36 33 72 16 20 36 146 5 122 9 170 158 173 141 10 14 10 0 72 59 6 ($Bn) expectations ($Bn) Tier 2 Additional Tier 1 Common Equity Tier 1 JPM BAC C WFC GS MS 400 40 26 27 We estimate that the US G- 350 SIBs will need $164bn of additional TLAC, $62bn of 120 120 18 300 30 26 which is capital shortfall 19 and $102bn of which is due 4 104 250 to LTD shortfall 21 40 62 1 32 8 200 20 36 2 34 25 38 Some of the LTD shortfall 1 16 2 125 can be met by refinancing 20 150 3 bank level debt with Holdco 101 leading to ~40bn 10 100 18 14 174 173 incremental supply 162 11 10 143 13 6 50 72 59 0 0 JPM BAC C WFC GS MS BK STT Avg. Annual Sr. Issuance $21.5 $29.0 $20.4 $18.5 $24.2 $19.5 $4.7 $3.3 2022 LTD Need as Multiple 1.3x 0.9x n/a 2.4x n/a n/a n/a 1.2x Sr. Bank Debt Out $52.4 $11.5 $4.8 $18.3 n/a n/a n/a n/a % of 2022 LTD Need 52% 226% n/a 245% n/a n/a n/a n/a Source: Bloomberg, SNL, Company Filings as of 6/30/15; debt outstanding as of 10/2/15. 1. We estimate that 10% TLAC / Leverage Exposure is binding for JPM relative to 16% RWA and for BNY & STT relative to 16 & 18% RWA 2

The Canadian D-SIBs Have Excess Wholesale Funding Capital Structure & TLAC Need at 16 / 18% RWAs (6.00 / 6.75% SLR) 1 Canadian D-SIBs have Incremental Grandfathered Senior Debt TLAC Required to Reach 18% TLAC Required to Reach 16% excess wholesale funding Tier 2 Additional Tier 1 Common Equity Tier 1 (CAD Bn) and regularly access the 80 unsecured funding market 160 globally 140 Given their regular access to the capital markets and 23 60 120 57 upcoming maturity profile, the Canadian banks would 100 5 be able to meet TLAC 41 24 needs through refinancing 22 8 40 14 80 However, the 7 7 26 grandfathering of the 3 21 5 60 outstanding senior 21 3 7 8 7 unsecured has made the 9 7 7 4 2 20 40 5 situation more 4 8 2 3 2 complicated 1 25 3 42 20 37 2 36 17 16 2 6 0 0 RBC BNS TD BMO CIBC CCDJ NBC Avg. Annual Sr. Issuance $18.3 $10.8 $8.7 $6.0 $24.5 $3.9 $2.0 18% TLAC Need as Multiple 1.1x 2.6x 3.2x 3.2x 0.4X 1.0x 2.0x Source: Bloomberg, SNL, Company Filings as of 7/31/15; debt outstanding as of 10/23/15. 1. We do not anticipate a 6.75% leverage requirement to be binding for any Canadian bank 3

Meaningful Uncertainty Remains in Europe For the European banks included in our analysis below, we estimate a total TLAC need at 18% of RWAS to be about €344.5bn Capital Structure & TLAC Need at 16 / 18% RWAs (6.00 / 6.75% SLR) 1 The criteria by which debt will qualify for TLAC in 2022 TLAC Shortfall (EUR Bn) Europe will vary from 2019 TLAC Shortfall 200 450 jurisdiction to jurisdiction Additional TLAC Qualifying Debt 21 For example, Deutsche 180 Tier 2 400 Bank appears to have 36 Additional Tier 1 160 ample senior unsecured 2 Common Equity Tier 1 350 and is in a regime that 8 140 8 already has a clear 9 13 8 300 114 22 solution 15 16 188 120 250 95 CS & UBS, on the other 100 16 hand, will need to issue 10 63 11 73 12 200 3 57 58 56 HoldCo debt to meet the 3 47 80 31 22 32 newly announced 10% 4 150 7 24 3 106 96 3 13 20 60 leverage requirement for 12 83 84 14 9 12 4 2 11 Swiss TLAC 16 32 4 100 7 0 11 7 9 40 4 18 2 9 19 8 59 4 129 15 3 49 50 43 43 20 40 39 35 36 75 36 68 66 59 24 0 0 DB RBS BPCE UNI BBVA SG STAN CS UBS NDA HSBC BNP BARC SAN CA Avg. Annual Sr. Issuance € 12.2 € 13.6 € 7.5 € 8.4 € 8.4 € 16.3 € 2.6 € 13.9 € 10.0 € 1.5 € 10.0 € 3.0 € 8.3 € 2.6 € 16.7 Shortfall to 18% RWAs € 56. 56.9 € 63.1 € 14.0 € 43.0 € 13.1 - € 1.8 € 21.0 € 29.6 € 23.2 € 25.6 - € 22 € 24 € 7.2 Source: Bloomberg, SNL, Company Filings as of 6/30/15; debt outstanding as of 10/23/15. 1. We estimate that the 6.75% leverage requirement is binding vs. 18% for BARC, and the 10% requirement is binding vs. both 16 and 18% for CS and UBS. 4 2. Hatch pattern represents senior debt of banks / in jurisdictions where the treatment is uncertain.

Spread Moves in U.S. Bank Senior We observed a modest 5 to 15 bps of relative widen in US Senior Holdco Spreads US$ domestic market (Spread to Treasury) Euro market (Spread to € Swap) 170 Post Fed - 170 Post Fed -NPR FSB to Fed Proposal FSB to Fed Proposal NPR Pre-TLAC Pre-TLAC Oct-Dec 15 Sep 14 –Sep 15 Sep 14 -Sep15 Oct-Dec 15 Jan – Aug 2014 Jan – Aug 2014 JPM./ PNC JPM./ PNC Spread= 15-25bps GS/JPM Spread= 15-35ps GS/JPM JPM/ PNC Spread= 0 -10bps GS /JPM Spread= 35-45bps 160 5-15bps =25-35ps 150 150 FSB Proposal FSB Proposal Nov 10, 2014 Nov 10, 2014 140 12/8/2015 JPM./ PNC= 10bps Fed -NPR GS /JPM=35bps JPM/PNC = Oct-Dec 15 5bps GS/JPM 130 130 ~30bps 120 110 110 100 12/82015 Fed NPR GS./ JPM Oct 30 30ps JPM./ PNC= 15bps 90 90 80 70 70 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 GS Feb-23 JPM Feb-23 JPM Sep-22 PNC Nov-22 Source: Bloomberg Source: Bloomberg 5

Spreads moves in German bank Senior Confirmation of Bail-in risk has seen German senior spreads widen by 28 to 34bps on a relative basis US$ domestic market (Spread to Treasury) Euro market (Spread to € Swap) 140 100 10-Mar: German Draft Law 10-Mar: German Draft Law DB / Rabobank Spread = 7bps DB / Rabobank Spread = -11bps 130 90 120 80 Current 110 70 DB / Rabobank Spread = 23bps Current DB / Rabobank Spread = 35bps 100 60 90 50 80 40 70 30 60 20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DB Feb-19 RABOBK Jan-19 DB Jan-23 RABOBK May-23 Source: Bloomberg Source: Bloomberg 6

Impact of NPR on Issuance Volume November and December GSIB Senior Holdco issuance has been impacted by the Fed's NPR The Fed's NPR provided Monthly Senior HoldCo Issuance 2013-2015 the market with clarity on 30.0% 2013 the total amount of 2014 required TLAC and LTD 2015 25.0% However, the qualification 20.0% Nov and Dec criteria (no cross-defaults, made up 5.6% of supply in must be governed by U.S. 2015 vs. 10.5% law, etc.) have left issuers 15.0% and 8.5% in 2013 and 2014, with meaningful questions respectively on whether currently 10.0% outstanding and interim- issued debt will qualify or be grandfathered 5.0% This has resulted in less 0.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec supply from GSIBs since GSIB Senior HoldCo Issuance Since November 2015 the NPR Issue Date Issuer Ranking Rating Coupon (%) Size ($mm) Maturity Date BANK OF NY MELLON 11/19/2015 CORP Senior HC A1/A 2.450 800 11/27/2020 WELLS FARGO & 11/30/2015 COMPANY Senior HC A2/A 2.550 2100 12/7/2020 WELLS FARGO & 11/30/2015 COMPANY Senior HC A2/A 1.462 400 12/7/2020 12/1/2015 CITIGROUP INC Senior HC Baa1e/BBB+ 2.050 1650 12/7/2018 12/1/2015 CITIGROUP INC Senior HC A3/BBB+ 1.312 350 12/7/2018 7