OCTOBER 19, 2012

BANKING

BANKING SYSTEM OUTLOOK

Germany

Our outlook for the German banking system remains negative. The outlook expresses our expectation of how bank creditworthiness will evolve in this system over the next 12-18 months.

Table of Contents:
SUMMARY OPINION KEY DEVELOPMENTS SINCE PRIOR BANKING SYSTEM OUTLOOK RATING UNIVERSE OPERATING ENVIRONMENT PROFITABILITY AND EFFICIENCY ASSET QUALITY AND CAPITAL FUNDING AND LIQUIDITY MOODYS RELATED RESEARCH APPENDIX 1 GLOBAL COMPARISON CHARTS 1 3 3 5 7 10 15 19 20 24

Summary Opinion
Our outlook for the German banking system is negative, as it has been since 2008. The outlook reflects (1) margin pressure for banks owing to intense competition, limited loan growth and low interest rates; (2) a weakening operating environment in Germany amid recessionary trends across Europe; (3) rising risk charges and deteriorating asset quality; and (4) the limited loss-absorption capacity of many banks. These negative drivers are only partly offset by relatively stable funding conditions compared with European peers and the progress some banks have made in repairing their franchises and reducing legacy problem assets. The negative banking system outlook pertains mainly to the larger, wholesale-oriented German banks, which are the focus of this report. Many of the more retail-oriented German savings banks and local cooperative banks are less stressed, although they, too, face growth and margin pressures. We downgraded several large German banking groups in June 2012 and subsequently assigned stable outlooks to most of those bank ratings that now incorporate the above-mentioned challenges.1 However, a worsening euro area crisis would create additional pressures for many banks. Also, Germanys Aaa government bond rating carries a negative outlook, reflecting the sovereigns level of exposure to the ongoing crisis. Operating environment. We expect banks to face challenging operating conditions in the next 12-18 months, despite Germanys so-far sound economic indicators (high employment, modest household leverage, and fair overall corporate sector health). Under our central scenario, gross domestic product (GDP) will grow between 1%-2% in 2013, although downside risks from the ongoing euro area crisis are significant. Moreover, many banks still need to repair their franchises and further reduce their risk exposures, while loan growth prospects are low. Profitability and efficiency. Intense competition and low interest rates are causing margin pressure that will likely further erode already-weak bank revenues and profits. Before 2008, many German banks ventured into foreign markets, not least because of low margins at home. Now, they are re-focusing on domestic operations, which reduces risk exposures but will add to structural margin pressure, raising concerns about the sustainability of some bank franchises. Uneven profitability across sub-sectors will likely persist, with savings banks and local cooperative banks benefiting from their strong retail franchises, while German wholesale banking will remain fiercely competitive.

Analyst Contacts:
FRANKFURT +49.69.70730.700

Katharina Barten +49.69.70730.765 Vice President Senior Credit Officer katharina.barten@moodys.com Carola Schuler +49.69.70730.766 Managing Director Banking carola.schuler@moodys.com

See Key Drivers of German Bank Rating Actions, 6 Jun 2012, and Key Drivers of Rating Actions on Firms with Global Capital Markets Operations, 21 Jun 2012

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Asset quality and capital. Domestic asset quality is gradually deteriorating, as indicated by rising risk charges in individual bank results in 2012 to date. Legacy exposures to stressed euro area countries and concentrations in highly-cyclical sectors (like commercial real estate and shipping) leave many German banks vulnerable to a worsening of the sovereign debt crisis in Europe and to macroeconomic stress. Over the outlook period, high balance-sheet leverage and low pre-provision profits will make it difficult for many German banks to cope with major (unforeseen) losses. Funding and liquidity. Most German banks face only modest funding risk, which is a relative strength of this banking system. They benefit from broadly matched maturity profiles, recurring access to intrasector funds (for the Landesbanken and cooperative central institutions), improved liquidity buffers and gradually decreasing dependence on market funds. Systemic support. After reducing the support assumptions implied in our ratings of German banks during 2011,2 we expect a more stable support environment over the coming 12-18 months. Our expectation reflects the governments commitment to contributing to financial stability, particularly in a crisis. Whilst the German government has enacted an advanced bail-in regime, it has not utilised the regime to date. However, if the government deployed the resolution regime, this could trigger a review of our current support assumptions.
EXHIBIT 1

Outlook Overview
Key credit drivers Assessment (negative/positive/stable)

Operating environment Asset quality and capital Funding and liquidity Profitability and efficiency Systemic support Banking system outlook

Negative Negative Stable Negative Stable Negative

Banking System Outlook Definition Banking system outlooks represent our forward-looking assessment of fundamental credit conditions that will affect the creditworthiness of banks in a given system over the next 12-18 months. As such, banking system outlooks provide our view of how the operating environment for banks, including macroeconomic, competitive and regulatory trends, will affect asset quality, capital, funding, liquidity and profitability. Banking system outlooks also consider our forward-looking view of the systemic support environment for bank creditors.

Since banking system outlooks represent our forward-looking view on credit conditions that are factored into our bank ratings, a negative (positive) outlook suggests that negative (positive) rating actions are more likely, on average.

During 2011, we excluded systemic support from all senior subordinated debt ratings in Germany and reduced the support content in our senior debt and deposit ratings for most private-sector banks and all of the Landesbanken.

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Key Developments Since Prior Banking System Outlook

Portigon AG, formerly WestLB, had to discontinue banking business as of 1 July 2012, as the required change of ownership previously agreed with the EC was not feasible. Portigons senior debt remains unaffected as the owners committed additional capital funds to ensure a partial sale (to Landesbank Hessen-Thueringen), combined with an orderly unwinding. In March 2012, the government re-opened the so-called SoFFin support fund that was first established in 2008 to provide capital and liquidity support. 3 We note that the banks have not drawn on these funds in 2012. Deutsche Bank AG (A2, stable; C-/baa2, stable)4 and Commerzbank AG (A3, negative; D+/baa3 negative) were included on the initial list of global systemically important financial institutions (G-SIFIs) released in November 2011 by the Financial Stability Board.5 G-SIFIs will face additional capital requirements, closer supervision, and resolution-related requirements. Since January 2011, a new restructuring act for German bank financial institutions6 has been in effect, granting the government major intervention powers to deal with cases of bank distress, by orchestrating a bail-in, for example.

Rating Universe
This report focuses on the 41 German banks, mortgage credit institutions and special lenders that we rate (see Exhibit 2 below). These institutions account for the bulk of the German banking and mortgage market, holding roughly 85% of market share of system loans as of year-end 2011. The remainder of the banking system is characterised by smaller regional and specialised institutions and the cooperative retail banks. The trends discussed in this report mainly apply to privately-held German banks and the central institutions of the two other large banking sectors in Germany, i.e., the public-sector banks and cooperative sector banks. Besides the Landesbanken covered in our report, the public-sector banking group comprises a large number of savings banks (Sparkassen) that pursue public policy mandates and are mostly controlled by local municipal authorities.7 Similarly, the cooperative banking sector includes many local cooperative banks (Volksbanken and Raiffeisenbanken). These two groups have leading franchises in German retail banking, but very limited international and wholesale operations. Not all of the trends discussed in this report apply to them. This report also largely excludes so-called development banks (such as Kreditanstalt fuer Wiederaufbau, Aaa, negative), which are government-controlled. These institutions differ from typical commercial banks in that they focus on politically-mandated activities like lending programmes for small businesses or public finance. Their creditworthiness is mainly driven by the credit profile of their government owners.

The Sonderfonds Finanzmarktstabilisierung (SoFFin) was established under the German Financial Market Stabilisation Agency (FMSA), based on the Second Financial Market Stabilisation Act, effective since 1 March 2012. Source: FMSA, see http://www.fmsa.de The ratings shown are the banks deposit rating, its standalone bank financial strength rating/baseline credit assessment and the corresponding rating outlooks. Source: Financial Stability Board; see http://www.financialstabilityboard.org/publications/r_111104bb.pdf See http://www.bafin.de/EN/Supervision/BanksFinancialServicesProviders/Measures/Restructuring/restructuring_artikel.html For more information on German savings banks, see our latest Credit Analysis on Sparkassen Finanzgruppe

4 5 6 7

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The average (asset-weighted) standalone bank financial strength rating (BFSR) for German banks was D+/baa3 as of end-September 2012 (excluding Sparkassen-Finanzgruppe and the development banks). The asset-weighted average global local-currency deposit rating was A3.

EXHIBIT 2

Rated German Banks

Rating Universe Total Group Assets at YE2011 (EUR million) Loan market share at YE2011 (%) Deposit market share at YE2011 (%) LT Bank Deposit Rating and Outlook BFSR and Outlook Standalone Credit Assessment

Sparkassen-Finanzgruppe 7) Deutsche Bank AG

1)

2,384,200 2,164,103 661,763

5)

38.0 12.9 9.4 3.7 3.7 4.4 3.8 4.9 3.6 3.2 3.4 3.1 2.6 2.0 2.8 1.0 1.5 2.3 2.3 1.7 1.1 0.1 2.0 0.7 0.7 0.6 0.8 1.0 0.8 0.6 0.7 0.7 0.6 0.6

36.6 18.7 7.9 -2.9 3.3 2.5 2.9 2.0 1.0 4.2 3.5 1.3 0.7 1.3 0.8 1.2 2.5 2.8 0.4 0.6 0.2 0.9 0.3 0.0 0.6 0.6 0.8 0.3 0.3 0.3 0.5 0.5 0.1

Aa2/STA A2/STA A3/NEG Aaa/NEG A1/STA A3/NEG A3/STA Baa1/STA A3/STA Baa2/NEG A2/STA Aa3/STA A2/STA Aa1/NEG Baa2/RUR A1/STA A1/STA Aa3/STA A2/NEG A3/RUR A1/NEG Aaa/NEG A3/POS Aaa/NEG Aa3/NEG Baa1/STA A2/NEG A3/POS A2/NEG Baa2/STA A3/STA A1/STA Aa2/STA Baa1/STA

C+/STA C-/STA D+/NEG C-/STA C-/NEG D+/STA D-/STA D/STA E/NOO D+/STA D+/STA E+/RUR C-/STA D+/STA C/NEG E+/RUR C-/NEG C-/STA D+/NEG D/NEG C-/STA D/NEG E+/STA D+/STA D-/STA C/STA D-/STA

a2 baa2 baa3 baa2 baa2 ba1 ba3 ba2 caa1 ba1 baa3 b3 baa2 baa3 a3 b1 baa2 baa1 ba1 ba2 baa1 ba2 b1 baa3 ba3 a3 ba3

Commerzbank AG 1) Kreditanstalt fuer Wiederaufbau DZ BANK AG

2) 1) 3)

494,818 405,926 385,514 373,059 309,144 227,630 202,981 191,982

7)

UniCredit Bank AG

Landesbank Baden-Wuerttemberg Bayerische Landesbank 3) Norddeutsche Landesbank GZ 3) Hypothekenbank Frankfurt AG (previously Eurohypo AG) 6) Deutsche Postbank AG 1)

Sparkassenverband Baden-Wuerttemberg Landesbank Hessen-Thueringen GZ NRW.Bank

5) 3)

175,470 163,985 152,546 135,906 133,738 131,175

HSH Nordbank AG 3) DekaBank Deutsche Girozentrale 3) Landesbank Berlin AG ING DiBa AG

1) 3) 7)

Sparkassenverband Westfalen-Lippe Deutsche Pfandbriefbank AG 6) WGZ BANK AG

2) 5) 1)

114,343 109,478 108,779 93,945 88,877 76,946 67,992 46,393 43,831

2)

Landwirtschaftliche Rentenbank L-Bank

5)

Volkswagen Financial Services AG KfW IPEX-Bank GmbH 5) SEB AG 1)

Deutsche Apotheker- und Aerztebank eG Volkswagen Bank GmbH

1) 2)

38,840 37,866 37,348 34,998

3)

Muenchener Hypothekenbank eG

Deutsche Hypothekenbank AG 3), 6) Bremer Landesbank Kreditanstalt Oldenburg GZ Sparkasse KoelnBonn Kreissparkasse Koeln DVB Bank S.E.
2) 4) 4)

34,862 29,333 24,427 22,031

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EXHIBIT 2

Rated German Banks

Rating Universe Total Group Assets at YE2011 (EUR million) Loan market share at YE2011 (%) Deposit market share at YE2011 (%) LT Bank Deposit Rating and Outlook BFSR and Outlook Standalone Credit Assessment

LfA Foerderbank Bayern 5) Landesbank Saar

3) 6)

21,945 19,760 9,422 8,658 5,408

1)

0.1 0.3 0.2 0.0 0.1 0.0 0.1

0.1 0.2 0.2 0.1 0.0 0.0 0.1

Aaa/NEG A3/STA A3/STA Baa2/STA A1/STA Ba3/STA Baa1/STA

D/STA C/STA C-/STA E+/STA C-/STA

ba2 a3 baa2 ba2 b2 baa1

Debeka Bausparkasse AG Siemens Bank GmbH 1)

UBS DEUTSCHLAND AG 1) Volvo Auto Bank Deutschland GmbH Bausparkasse Mainz AG

6)

2,620 2,602

1) private sector bank; 2) cooperative sector bank; 3) Landesbank (public sector); 4) savings bank (public sector), 5) development bank, 6) mortgage bank, 7) carries a corporate family rating that does not apply to single members (public sector). Note: Table includes all Moody's-rated German banks, banking groups and financial corporations. BFSR = standalone bank financial strength rating, on a scale from A (highest) to E (lowest). Standalone Credit Assessment (or, Baseline Credit Assessment, BCA), on a scale from aaa (highest) to c (lowest). Both BFSRs and BCAs reflect a banks standalone credit strength. Source: Moodys, Deutsche Bundesbank

Operating Environment
While macro-economic indicators may remain relatively benign for some time yet, the operating environment for German banks is nonetheless challenging given growing competition, low interest rates, risk aversion and rising risk charges. In addition, the ongoing euro area debt crisis implies substantial downside risks.

Economic environment: gradually more challenging and with substantial downside risk
The weaker economic prospects for Germany are partially mitigated by low levels of unemployment (5.5% as of August 20128), modest household leverage (at around 90% of German GDP, see Exhibit 4 below) and high savings. Whilst we do not expect these favourable metrics to deteriorate quickly, various market indicators point towards a notable cooling of the German economy.9 Our central scenario for German GDP growth is that it will slow down significantly in 2012, and range between 1% and 2% in 2013. This is significantly weaker than annual growth above 3% recorded in 2010 and 2011.10

8 9 10

Source: Eurostat Source: IFO Institute, June 2012: Ifo Economic Forecast 2012/2013: Increased Uncertainty Continues to Curb German Economy See our report Update to the Global Macro-Risk Outlook 2012-13, August 2012

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EXHIBIT 3

Real GDP (% change)

France 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0 Germany Italy Spain United Kingdom

2012 F

2013 F

2015 F

2010

Source: Moodys Country Credit Statistical Handbook, May 2012 EXHIBIT4

Gross debt-to-income ratio of households

Austria Netherlands 250% 200% 150% 100% 50% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 France Spain Germany United Kingdom Italy

Source: Eurostat

Our growth forecast for Germany is based on our central scenario, which does not include major economic shocks (see Exhibit 3). However, given the high risk of setbacks on the path to resolving the euro area debt crisis, the respective uncertainty represents another important factor in our negative banking system outlook. Considering the high dependence of the German economy on other EU countries for its exports (the share was 58% in H1 2012),11 and the resulting economic interdependence with the other European nations, an escalation of the crisis would further weaken Germanys trading partners. In our view, this implies a substantial downside risk to our base-case expectations for the German economy, which is reflected in the negative outlook assigned to Germanys Aaa rating in February 2012. At the same time, if the continued risk mutualisation between European sovereigns unduly affects Germanys credit profile (Aaa negative), German banks would also be affected because they partly rely on implicit systemic (government) support for their overall risk profiles, stability and investor confidence.

11

Source: Destatis, Press Releases August 2012

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BANKING SYSTEM OUTLOOK: GERMANY

2014 F

2016 F

2007

2001

2008

2004

2006

2009

2003

2005

2002

2011

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Regulatory environment
The transition to the EUs current proposal on capital requirements under Basel III (CRD IV) poses challenges to some German institutions, although higher capital levels, once reached, will ultimately benefit creditors. Challenges are primarily: 1) The lack of transparency regarding core Tier 1 (CT1) ratio-compliance under Basel III, considering that very few German banks have started reporting respective pro-forma ratios; 2) The planned SIFI capital surcharges, effective from 2016, affecting Deutsche Bank and Commerzbank; and 3) The implementation of the total exposure-based 3% leverage ratio. The formal definition of the CT1-leverage ratio is expected only in 2013 and implementation targeted for 2018. While this offers a comfortable phase-in period, we expect that the classic covered bond franchises12 that generally rely on very thin (non-risk weighted) capital levels will be under pressure from a regulatory perspective. We also caution that investors will demand compliance with the Basel III criteria for capital ratios long before regulatory timelines and will likely penalise banks that need to take full advantage of the phase-in periods. Several European banks already show pro forma ratios of > 9%; however, Commerzbanks 7.7% ratio is the highest that German banks have reported so far.

Profitability and Efficiency

Over the outlook period, system profitability will remain weak or even deteriorate, reflecting eroding revenues, increased funding costs and rising provisioning needs; risk-adjusted profitability is weak and likely to deteriorate further.

Weak prospects for German banks profitability are a key driver for the negative banking system outlook, because loss-absorption in the income statement and internal capital generation will likely remain weak or erode even further.

Banking market will remain fiercely competitive

Unfavourable market factors mostly ancillary effects of the European debt and banking crisis offset the relatively benign economic factors and materially counteract German banks efforts to improve their weak performance. These factors are

The low interest-rate environment and the prospect of rates remaining at low levels for an extended period, implying sustained pressure on margins; Risk aversion of retail clients, and the resulting low level of transaction volumes in asset management; Low levels of activity in mergers & acquisitions and other areas of investment banking in response to the uncertain economic outlook; and Weakening loan demand from the corporate sector in an environment where banks compete fiercely for market shares in corporate banking.

12

Four banks in our rating universe fall into this category: Deutsche Pfandbriefbank, Hypothekenbank Frankfurt, Mnchener Hypothekenbank, Deutsche Hypothekenbank.

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Collectively, these factors result in sustained pressure on bank revenues. The pressure is exacerbated by the fact that major franchise-adjustments and further deleveraging remain urgent for many German banks so that they are able to either (1) comply with Basel IIIs higher capitalisation requirements; or, in some cases (2) compensate for earlier state aid measures. However, the current market conditions mean that banks can only sell assets at a loss. Moreover, the long-standing structural weaknesses of the banking industry have not changed; the system remains overbanked, fragmented and fiercely competitive. With almost all banks adjusting their focus towards their domestic market, the above-described market conditions thus exacerbate the banking systems intrinsic limited potential to generate commensurate risk-adjusted returns. Consequently, we consider the adverse market factors to be key drivers of our negative outlook for the German banking system.

Margins will likely stay at the lower end of international peer range
At 1.5%, the systems risk-adjusted returns before risk provisions are the lowest in our peer group (pre-provision income as a percentage of RWA, see Exhibit 5). Moreover, earnings are very unevenly distributed across the system, with below-average performance from specialised mortgage lenders (i.e., specialised in mortgage and public-sector finance) and the Landesbanken. The savings banks and private-sector banks achieve risk-adjusted earnings above the German average, but at the system level, margins significantly lag banks in many other countries (see Exhibit 5).

EXHIBIT 5

System Aggregates for Pre Provision Income (PPI) / RWA

AUSTRIA NETHERLANDS 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% 2008 YE 2007 YE 2009 YE 2010 YE Note: Savings banks are missing from the underlying data pool in 2011. Averages for rated banks; data as of year-end. Source: Moodys Banking Financial Metrics 2011 YE FRANCE SPAIN GERMANY UNITED KINGDOM ITALY

The systems average net interest margin (NIM) has been in the range of 1.0%-1.2% since 2009. Whilst Germanys savings banks typically achieve NIMs between 2.5%-2.8%, most other subsegments struggle to generate a NIM of 0.8%. Specialised mortgage lenders and Landesbanken show particularly weak margins, and are therefore considerably more vulnerable to margin erosion and cyclical credit losses. The private-sector banks margins are broadly in line with the system average.

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EXHIBIT 6

Net Interest Margin (Net Interest Income / Average Interest Earning Assets)
AUSTRIA 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2007 YE 2008 YE 2009 YE 2010 YE 2011 YE FRANCE GERMANY ITALY NETHERLANDS SPAIN

Note: Savings banks are missing from the underlying data pool in 2011. Data as of year-end. Source: Moodys Banking Financial Metrics

In addition, ongoing restructuring and franchise adjustments leave many banks below their full earnings potential, which is a weakness that the affected banks may overcome in time; however, we expect progress to be slow. Several banks remain considerably behind self-set earnings targets, partly because the sale of assets and participations below book value repeatedly cause losses. If the euro area debt crisis worsens, we expect additional losses from accelerated asset sales and/or credit losses and write-downs. Given these various pressures, as well as rising risk charges in the home market, net income has little potential to improve from the 2011 level (which, at 0.7% of RWA on average, was at a sixyear high), partly because net profits last year were strongly supported by unusually low risk charges. However, the exceptionally benign credit environment in the domestic market turned in late 2011 and most banks performance in H1 2012 increases the likelihood of considerably higher risk costs in 2012-13.

Efficiency expected to remain at the weaker end of the peer group

Revenue erosion, loss of economies of scale and additional costs more than offset cost savings

The efficiency of German financial institutions remains poor. A combination of weak economies of scale and additional expenses, such as costs required to respond to regulatory changes and the German bank levy introduced last year, have translated into eroding efficiency metrics for German banks. Due to persistent revenue pressures, we believe that there is little room for improvement, if any. At year-end 2011, the system cost-to-income (CTI) ratio was 71.8% up from 66.6% in 2010 (see Exhibit 7). In both years, these were the weakest ratios in our peer group.

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EXHIBIT 7

System Aggregates for Cost Income Ratio (Operating Expense / Net Revenues)
AUSTRIA 110% 100% 90% 80% 70% 60% 50% 40% 2007 YE 2008 YE 2009 YE 2010 YE 2011 YE FRANCE GERMANY ITALY NETHERLANDS SPAIN

Note: Savings banks are missing from the underlying data pool in 2011. Averages for rated banks; data as of year-end. Source: Moodys Banking Financial Metrics

The banks with the weakest CTI ratios are under pressure to improve their cost positions and boost profits to ensure the viability of their business models. This is particularly relevant for banks that received government support and need to comply with compensation measures agreed with the EU Commission.13 Most of these banks need to continue deleveraging and will therefore face headwinds in their efforts to improve efficiency, as visible cost reduction usually lags revenue losses.

Asset Quality and Capital

German banks regulatory capitalisation is in line with that of peers, but high leverage and risk concentrations in loan books and investment portfolios leave them more vulnerable to unexpected losses

Asset quality is weakening as Germanys credit cycle has turned

Ship finance assets and exposure to Europes periphery are key areas of concern

Domestic asset quality will likely deteriorate gradually to manageable levels, but large exposures to cyclical asset classes pose considerable risks under macroeconomic stress. The extent of assetquality deterioration will depend on how the euro area crisis develops. Under our central macroeconomic scenario, which assumes no significant worsening of the crisis, German banks will see their asset quality weaken, but not beyond our through-the-cycle expectations. However, banks are vulnerable to the noteworthy downside risks, as described in this section. Notwithstanding the solid indicators shown to date, we expect German banks asset quality to decline. The notable cooling of the German economy in Q2 2012 and the implications of the recessionary trends across large parts of Europe on German economic activity will likely be felt over the next few quarters. Importantly, the still-sizeable non-domestic exposures including risks relating to sovereigns and banks pose major downside risks for the banking system.

13

Banks under state aid proceedings: Aareal Bank (NR), BayernLB, Commerzbank and subsidiary Frankfurter Hypothekenbank, Deutsche Pfandbriefbank / HRE Group, DsselHyp (NR), HSH Nordbank, IKB Deutsche Industriebank (NR), Landesbank Baden-Wuerttemberg, NORD/LB, Portigon AG (former WestLB, NR). Note: NR (not rated) refers to senior debt and deposit ratings.

10

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However, system problem loans remained stable at a modest 4% of gross loans at year-end 2011 (see Exhibit 8). Individual bank results so far in 2012 have shown moderate deterioration in asset quality. Whilst we expect the ratio to increase gradually from this low level, it shows the German banks low impairment levels compared with many other systems in Europe, afforded by the recent growth and the German economys relative resilience.

EXHIBIT 8

System Aggregates for Problem Loans / Gross Loans to Customers

2008 YE 12% 10% 8% 6% 4% 2% 0% AUSTRIA FRANCE GERMANY ITALY NETHERLANDS SPAIN UNITED KINGDOM UNITED STATES 2009 YE 2010 YE 2011 YE

Note: Savings banks are missing from the underlying data pool in 2011. Averages for rated banks; data as of year-end. Source: Moodys Banking Financial Metrics

German banks lending operations include activities that are particularly vulnerable to the risk of a worsening euro area debt crisis and the likely knock-on effects of even deeper and/or prolonged recessionary trends in Europe. In our view, the asset classes below will be most affected by a weakening European and global economy, along with loans to German export-oriented manufacturers. Asset-side vulnerabilities can have severe implications for the following:

The global shipping sector, which faces weakened demand amid sluggish global economic growth and evolving structural overcapacity. For the top-ten banks, shipping-related exposures were 98 billion, or 60% of that groups Tier 1 capital, at year-end 2011 (see Exhibit 9). International and German CRE markets, with non-domestic CRE exposures of several German banks concentrated in markets that will likely see further falling prices after corrections in previous years. The total non-domestic CRE exposure of Germanys top ten banks was 170 billion at the end of 2011, equivalent to 104% of their Tier1 capital (see Exhibit 9). Legacy exposures to structured credit products, including complex and subprime-related securitisations, comprising 106 billion, or 65% of that groups Tier1 capital (see Exhibit 9). Exposures to stressed euro area countries, i.e. Greece, Ireland, Italy, Portugal, Spain (or GIIPS) are vulnerable to the ongoing euro area crisis. Government-related GIIPS exposures of the top ten German banks amounted to 43 billion, or 26% of their Tier1 capital (see Exhibit 9) at year-end 2011. Some banks also have large interbank, corporate and household exposures to GIIPS countries, but consistent data is not available for all top ten German banks.

11

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EXHIBIT 9

Investments in highly cyclical and higher-risk Asset Classes by the top ten German banks
300% 250% 65% Non-domestic CRE GIIPS (Gov.) Shipping Structured credit products 450 400 350 106.3 42.5 98.1 Non-domestic CRE GIIPS (Gov.) Shipping Structured credit products

% of Tier 1 capital

26% 150% 100% 50% 0% 104% 60%

in EUR billion

200%

300 250 200 150 100 50 0

169.7

Note: Data as of year-end 2011. Banks included in this chart are BayernLB, Commerzbank, DekaBank, Deutsche Bank, DZ BANK, Helaba, HSH, LBBW, NORD/LB, and UniCredit Bank AG, Source: Company Reports, Moodys Investors Service

We also note that Germanys export-dependent manufacturing industries, in particular for capital goods, are very sensitive to the global economic cycle. According to Germanys statistics office DESTATIS, 59% of German exports were sold to other EU countries in 2011.

Thin absolute capital levels imply modest resilience to shocks

Modest loss-absorption capacity leaves German banks vulnerable to stressed scenarios; balance-sheet leverage is a key weakness.

Notwithstanding their strengthened regulatory capital ratios compared with low historical levels, we believe that the capital positions of several German banks remain vulnerable to erosion under stress. One key reason for this is their high balance-sheet leverage (see Exhibit 10 below) in the context of (1) their above-described exposure to cyclical and higher-risk asset classes, which is likely to be affected by any worsening of the operating environment in Europe; (2) elevated risks from the ongoing euro area crisis; and (3) their low pre-provision earnings. For the rated German banks, Tier 1 capital as a percentage of total assets (see Exhibit 10) was only 3.7%;14 based on this measure, it is one of the most weakly capitalised systems in Europe. This is partly due to the focus of many institutions on asset-based finance activities that require low regulatory capital because of available collateral. In addition, many German banks in particular the Landesbanken and cooperative central institutions hold large interbank and sovereign assets that far exceed their liquidity buffer needs.

14

The 3.7% ratio as of 2011 does not contain data for Germanys savings banks; including these banks, the ratio would be closer to 4%.

12

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EXHIBIT 10

System Aggregates for Tier 1 Leverage Ratio (Tier 1 Capital / Average Total Assets)
2008 YE 8% 7% 6% 5% 4% 3% 2% 1% 0% AUSTRIA FRANCE GERMANY ITALY NETHERLANDS SPAIN UNITED KINGDOM UNITED STATES 2009 YE 2010 YE 2011 YE

Note: 1. Averages for rated banks; data as of year-end. 2. Aggregated data for Germanys savings banks which improved their Tier1 leverage in 2011 are included for the years 2006-2010, but missing for the year 2011. Source: Moodys Banking Financial Metrics

Moreover, leverage varies considerably among the sub-segments within the German banking system. The savings banks display non-risk-weighted (or absolute) capital levels of more than 5% and private-sector banks of close to 4%. However, absolute capitalisation levels that are considerably below the German average are those of the mortgage banks (2.7% as of 2011), the central institutions of the cooperative sector (2.8%) and the Landesbanken (3.6%).15 Exhibit 11 below shows the aggregate of the expected loss (EL) of 28 rated banks (23 groups) that we included in stress-testing simulations, and an estimate of the total capital needs for those banks that show a shortfall below a 9% Tier 1 hurdle level. Our central scenario analysis, which includes mild stress assumptions, results in a modest total shortfall of 5 billion, incurred by eight (mostly smaller) banks. However, our adverse scenario results in a major capital shortfall incurred by 17 groups, which would require 32 billion in order to replenish a 9% Tier 1 ratio.

EXHIBIT 11

System Aggregates for Expected Losses and additional Capital Needs in Moodys Base/Stress Case Simulations
Moodys Scenario Analysis on System Tier 1 Capital (in billion)
160 140 120 100 80 60 40 20 0 Gross EL Net EL (after LLR/Tax) vs. 9% Tier 1 hurdle Capital Replenishment Needs Gross EL Net EL (after LLR/Tax) vs. 9% Tier 1 hurdle Capital Replenishment Needs Stress Test Losses Central Scenario Stress Test Losses Stressed Scenario

154 92 69 30 32 5

Source: Bank Annual Reports, Moodys Estimates

15

Source: Moodys Banking Financial Metrics

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Rated German banks boosted their average regulatory Tier 1 ratio to 12.3% at year-end 2011, up from 9.1% at year-end 2008 (see Exhibit 12). However, German banks Tier 1 capital ratios are not directly comparable to some European peers because of differences in regulatory rules.

These differences include that German banks are generally not subject to the limitations of the benefits from lower risk weights under their internal rating-based (IRB) models compared with a standard approach. These so-called transitional floors reduce the reported Tier 1 ratios of some of their European peers. Moreover, some government-injected capital will have to be repaid, and asset-portfolio guarantees or risk shields16 will be gradually reduced. We expect capital repayments (or guaranty reductions) to offset further improvements in regulatory capitalisation for the respective banks,17 as they aim to reduce costs of capital and accept reductions of what they may consider to be excess capital.

EXHIBIT 12

System Aggregates for Tier 1 Capital Ratio

2008 YE 14% 12% 10% 8% 6% 4% 2% 0% AUSTRIA FRANCE GERMANY ITALY NETHERLANDS SPAIN UNITED KINGDOM UNITED STATES 2009 YE 2010 YE 2011 YE

Note: 1. Averages for rated banks; data as of year-end. 2. Aggregated data for Germanys savings banks which improved their Tier1 in 2011 are included for the years 2007-2010, but missing for the year 2011. Data as of year-end. Source: Moodys Banking Financial Metrics

We recognise that most German banks have not only improved their regulatory capital ratios, but also the quality of their capital through various measures over recent years. This process accelerated in late 2011, following the EBAs higher CT1 capital requirements, which some German banks could not meet initially because of the relatively high levels of hybrids that the EBA does not include in its definition of core Tier 1. However, in our opinion, the improved capitalisation of most banks is more than offset by the elevated and rising risk of external shocks and losses that may arise in the context of the evolving European debt crisis. Many German banks aim to reduce low-yielding assets in the context of deleveraging strategies, which would reduce balance-sheet leverage. However, they face a difficult choice between holding these investments until they mature, thus maintaining the risk exposure with the aim of being repaid in full, or selling and crystallising losses on assets that trade below par. We expect non-core asset sales to continue, given the uncertainty about the risk profiles of sovereign and bank assets in parts of Europe, which will weigh on earnings and thus limit internal capital generation.

16 17

Risk shields transfer credit risk to a guarantor to achieve RWA-relief; risk shields were used by public-sector stakeholders to support Landesbanken in distress. Four Landesbanken currently benefit from portfolio risk shields: BayernLB, HSH Nordbank, LBBW and NORD/LB.

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Funding and Liquidity

German banks display only modest funding risk, underpinned by broadly matched maturity profiles, recurring access to intra-sector funds, decreasing reliance on market funds and improved liquidity buffers.

Deleveraging and reliable upstream funding within sub-sectors provide funding stability
Notwithstanding German banks partial reliance on wholesale funding, we consider their dependence on confidence-sensitive funding sources as manageable; in some cases, the banks have low dependence. German banks relatively limited and decreasing funding risks reflect a number of factors, including:

Ongoing deleveraging is gradually leading to less dependence on market funds, in particular for several of the larger universal banks and wholesale lenders. The dependence of the Landesbanken and the central institutions of the cooperative sector on market funds is mitigated by their access to intra-sector funds, i.e., funds from their partner institutions, savings banks (for Landesbanken) and local cooperative banks (for DZ BANK and WGZ BANK). Members of the group of public-sector banks have strong incentives to maintain liquidity in the group, as intra-group lending carries a zero risk weight under local regulation, since the German regulator recognises the groups cross-support schemes. Some specialised lenders that would be critically exposed to challenging market conditions as standalone entities, are well embedded in their respective groups (and/or sectors) and benefit from transfer funding from their parent banks (and/or partner institutions). Examples include Commerzbank-owned Hypothekenbank Frankfurt AG (formerly Eurohypo AG) and Deutsche Hypothekenbank (owned by NORD/LB). Covered bonds represent a major share of total market funds in the system, comprising 18% of system market funds at the end of 2011,18 as well as pass-through funds provided by development banks. German issuers maintain good access to the covered bond market 73 billion new Pfandbriefe were issued during 201119 as reflected by over-subscribed benchmark issuances and very attractive, low pricing. Of the development banks, Kreditanstalt fuer Wiederaufbau (KfW; Aaa negative) alone raised 80 billion in long-term debt during 2011, most of which was channelled into the domestic banking system. KfW aims to raise the same amount in 2012.

Our statistics of loans and deposits (see Exhibit 13) show the relative strength of the German system with regard to its increasing capability to internally fund lending operations. Total loans were about 10% less than total deposits at year-end 2011.

18

German covered bonds outstanding at year-end 2011: EUR 586 billion (7.4% of system liabilities, or 18% of system market funds as of Dec-2011). Source: Deutsche Bundesbank, Monthly Report, July 2012 Source: 2011 ECBC European Covered Bond Fact Book; see http://ecbc.hypo.org

19

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EXHIBIT 13

Loans / Deposits for rated banks, averages by system

2008 YE 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% AUSTRIA FRANCE GERMANY ITALY NETHERLANDS SPAIN UNITED KINGDOM UNITED STATES 2009 YE 2010 YE 2011 YE

Note: Averages for rated banks; data as of year-end. Source: Moodys Banking Financial Metrics

The positive effects of deleveraging were further underpinned by rising deposits in the system (an increase of 400 billion between 2007-11), fuelled by steady growth of German households cash assets and savers reluctance to invest in stocks, bonds and mutual funds.20 At the same time, total bank loans to non-bank borrowers decreased by 1.4% during 2011 due to subdued loan demand, although lending volumes recovered in H1 2012. Exhibit 14 shows market funds ratios (MFR, defined as market funds less liquid assets as a percentage of total assets) by banking system. Since 2008, the German banking system has reduced its net reliance on market funds to 13% from 22%. We believe the 13% MFR as of 2011 somewhat overstates the risk attached to their reliance on market funds, partly because the more stable sector funds and pass-through funds are included in total market funds (which includes interbank borrowings).

EXHIBIT 14

Market Funds Ratio ((Market Funds - Liquid Assets) / Total Assets)

2008 YE 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% AUSTRIA GERMANY Note: Averages for rated banks; data as of year-end. Source: Moodys Banking Financial Metrics ITALY NETHERLANDS SPAIN UNITED KINGDOM UNITED STATES 2009 YE 2010 YE 2011 YE

20

Source: Deutsche Bundesbank, Monthly Report, July 2012; Ergebnisse der gesamtwirtschaftlichen Finanzierungsrechnung fr Deutschland, June 2012

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Special lenders with long asset durations may face funding risks

Liquidity is ample in the system. However, Exhibit 14 reflects that many of the larger institutions cannot fully meet their funding requirements internally (or through intra-sector funds), and continue to rely on market access. This applies in particular to special lenders that focus on assetbased finance with long asset maturities (and partly in US dollars), as these require long-term funds to limit duration mismatches between assets and liabilities. Ship financiers in particular may face challenges to raise long-term funds, given the high pressure in the shipping sector. However, within the group of Moodys-rated banks, most of these specialised lenders belong either to the cooperative or the public sector and would likely be able to rely on intra-group liquidity support, if required.

Systemic Support
The key supportive factor for system support assumptions, i.e. the governments commitment to maintaining financial stability, is likely to remain unchanged over the next 12-18 months because we do not expect the current euro area crisis to be resolved during this timeframe. However, once markets stabilise, the extent and predictability of future systemic support may decline.

We recognise the governments commitment to improving stability in the European financial markets. As such, our bank ratings continue to include a degree of systemic support, even though the German government introduced an advanced bail-in regime in January 2011. Following support-related rating actions during 2011, our outlook on support is stable over the coming 1218 months. The bail-in regime has not been deployed to date, but we consider the governments readiness to deploy the new restructuring tools to be high in principle. However, we expect a very cautious approach during times of financial market instability,21 in particular with regard to including senior bond holders. Whilst the government has made promises to the public to shield taxpayers from the costs of future bank rescues, it also reopened the so-called SoFFin fund under the German Financial Market Stabilisation Agency22 in March 2012, which offers 60 billion of capital support,23 amongst other measures. The reopening of the SoFFin fund, which was first established in late 2008 and discontinued at the end of 2010, was partly aimed at enabling banks to respond to the higher regulatory capital requirements demanded by the European Banking Authority (EBA) in Q3 2011, following a dedicated capital stress testing exercise that included haircuts on certain sovereign exposures. Our current assumptions for support may be subject to a review once the financial crisis subsides and markets return to sustained stability. However, over the 12-18 month outlook period we do not expect a return to sustained stability. A first-time deployment of the resolution regime that includes burden sharing by senior bond investors could trigger a review of current support assumptions across the German banking system.

21 22 23

See our report German Bank Restructuring Act Reduces Systemic Support for Subordinated Debtholders, February 17, 2011. Based on the Second Financial Market Stabilisation Act, effective since 1 March 2012; source: FMSA, see http://www.fmsa.de/de/fmsa/soffin/ The exact amount is 60.2 billion, as 19.8 billion are drawn under the existing 80 billion facility; source: FMSA

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EXHIBIT 15

Uplift in Ratings due to systemic, cooperative and parental support

Aaa Aa2 A1 A3 Baa2 Ba1 Ba3 B2 Caa1 Caa3 C Standalone Rating (BCA) Parental / Coop Support Systemic Support

Note: The average weighted uplift for systemic support of 2 notches is based on the rated banks excluding Sparkassen Finanzgruppe and development banks. Source: Moodys Investors Service

For German banks, we factor parental, cooperative, regional government and systemic support into our ratings, as applicable. For the Landesbanken, we consolidate various sources of support into one, because past experience has shown that the readiness of concerted support actions remains high, whilst the likelihood of support for each individual source is difficult to predict. On average, our support assumptions translate into two notches of uplift for systemic support from the standalone ratings, and another 1.8 notches for support from non-government sources. The level of systemic support is below the average uplift for systemic support compared with European peers, in recognition of the German bail-in regime. The remaining two-notch uplift recognises both the governments Aaa (negative) rating and its commitment to maintaining financial market stability during the ongoing crisis.

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Moodys Related Research

Credit Opinion:

Germany, Government of

Analysis: Germany, Government of, March 2012 (140932) Special Comments:

Update to the Global Macro-Risk Outlook 2012-13: Euro Area Debt Crisis Continues to Pose the Greatest Risk, August 2012 (145035) Investor Losses in Modern-Era Sovereign Bond Restructuring, August 2012 (144129) Key Drivers of German Bank Rating Actions, June 2012 (142787) Challenges for Firms With Global Capital Markets Operations: Moodys Rating Reviews and Rationale, February 2012 (139659) Global Macro-Risk Outlook 2012-2013: Further Slowdown in Growth and Increase in Uncertainty, February 2012 (139852) European Banks: How Moodys Analytic Approach Reflects Evolving Challenges, January 2012 (139207) Euro Area Debt Crisis Weakens Bank Credit Profiles, January 2012 (137981) A New ECB Stance on Burden-Sharing Would Be Credit Negative for Senior Bank Creditors, July 2012 (144087)

Sector Comment:

Recent Rating Actions: Moodys takes multiple actions on German banks' ratings; most outlooks now stable

Moodys changes outlook on 17 German banking groups to negative following outlook change on German sovereign and sub-sovereigns

Rating Methodologies: Moodys Consolidated Global Bank Rating Methodology, June 2012 (143152)

Local Currency Country Risk Ceiling for Bonds and Other Local Currency Obligations, August 2012 (140182)

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. Not all research may be available to all clients.

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Appendix 1
Excerpt from Sovereign Credit Opinion (24 July 2012)
Credit Strengths The credit strengths of Germany include:

Diversified and export-oriented economic base Track record of social and political stability Tradition of prudent and flexible macroeconomic policies Ready market access due to safe haven status

Credit Challenges The credit challenges facing Germany include:

Contingent liabilities due to financial support in the context of the euro area debt crisis Pension liabilities and rising healthcare expenditure

Rating Rationale On 23 July 2012, the outlook on Germany's Aaa government bond ratings was changed to negative from stable.

The first rating driver underlying Moody's decision to change the outlook on Germany's Aaa bond rating to negative is the level of uncertainty about the outlook for the euro area and the impact that this has on the country's susceptibility to event risk. Specifically, the material risk of a Greek exit from the euro area exposes Germany to a risk of shock that is not commensurate with a stable outlook on their Aaa rating. The elevated event risk in turn increases the probability that further contingent liabilities will eventually crystallise, with Germany bearing a significant share of the overall liabilities. The second and interrelated driver of the change in outlook to negative is the increase in contingent liabilities that is associated with even the most benign scenario of a continuation of European leaders' reactive and gradualist approach to policymaking. The likelihood is rising that the strong euro area states will need to commit significant resources in order to deepen banking integration in the euro area and to protect a wider range of euro area sovereigns, including large member states, from market funding stress. As the largest euro area country, Germany bears a significant share of these contingent liabilities. The contingent liabilities stem from bilateral loans, the EFSF, the European Central Bank (ECB) via the holdings in the Securities Market Programme (SMP) and the Target 2 balances, and once established - the European Stability Mechanism (ESM). The third rating driver is based on the German banking system's vulnerability to the risk of a worsening of the euro area debt crisis. German banks have sizable exposures to the most stressed euro area countries, particularly to Italy and Spain. Moody's cautions that the risks emanating from the euro area crisis go far beyond the banks' direct exposures, as they also include much larger indirect effects on other counterparties, the regional economy and the wider financial system. The German banks' limited loss-absorption capacity and structurally weak earnings make them vulnerable to a further deepening of the crisis.

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Germany remains Aaa-rated as its creditworthiness is underpinned by the country's advanced and diversified economy and a tradition of stability-oriented macroeconomic policies. High productivity growth and strong world demand for German products have allowed the country to establish a broad economic base with ample flexibility, generating high income levels. Germany's current account surplus supports the resiliency of the economy. Moreover, Germany enjoys high levels of investor confidence, which are reflected in very low debt funding costs, leading to very high debt affordability.
Rating Outlook The negative outlook reflects the rising uncertainty regarding the outcome of the euro area debt crisis given the current policy framework, and the increased susceptibility to event risk stemming from the increased likelihood of Greece's exit from the euro area, including the broader impact that such an event would have on euro area members. Moreover, it is underpinned by the rising contingent liabilities that the German government will assume as a result of European policymakers' reactive and gradualist policy response, which comes on top of a marked deterioration in the country's own debt levels relative to pre-crisis levels. We also see a vulnerability of the German banking system to the risk of a worsening of the euro area debt crisis. The German banks' sizable exposures to the most stressed euro area countries, particularly to Italy and Spain, together with their limited loss-absorption capacity and structurally weak earnings make them vulnerable to a further deepening of the crisis. What Could Change the Rating - Down Germany's Aaa rating could potentially be downgraded if Moody's were to observe a prolonged deterioration in the government's fiscal position and/or the economy's long-term strength that would take debt metrics outside scores that are commensurate with a Aaa rating. This could happen if (i) the German government needed to use its balance sheet to support the banking system, leading to a material increase in general government debt levels; (ii) any country were to exit the European monetary union, as such an event is expected to set off a chain of financial-sector shocks and associated liquidity pressures for sovereigns that would entail very high cost for wealthy countries such as Germany, and cause contingent liabilities from the euro area to increase; (iii) debt-refinancing costs were to rise sharply following a loss of safe-haven status. Recent Developments Against the backdrop of fiscal consolidation and ongoing deleveraging in Germany's main European trading partners, net exports are expected to act as a drag on growth going forward. Real GDP growth is likely to slow to around 0.7% in 2012 from 3.0% in 2011. However, with inflation staying positive in an environment of very low interest rates, nominal GDP is likely to expand fast enough to help to build up a downward trend in the government debt to GDP ratio. That said, the German economic recovery has further broadened into the domestic economy. Apart from investment, inventories and private consumption - backed by an ongoing rise in employment - are contributing to overall GDP growth. Given tight labour market conditions, substantial increases in wages and real disposable income, high competitiveness, sound corporate balance-sheet positions and the overall limited need for household and public balance sheet adjustments, domestic demand is likely to remain a growth driver. However, the euro area sovereign debt crisis remains a key risk to the German growth outlook.

The 2011 general government deficit has come in substantially below initial projections, at 1.0% of GDP instead of 2.5% as originally planned. This is mainly due to the stronger-than-anticipated economic recovery which led to declining unemployment and higher than anticipated tax revenue increases. Despite the better than expected deficit outcome in 2011, the general government debt in relation to nominal GDP is still relatively high at around 81% in 2011, but down from 83.0% in 2010. As a reminder, the bulk of the jump in the public debt ratio from 74.4% in 2009 to 83.0% in

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2010 was a reflection of the take-over of gross bank debt due to the statistical classification (in the government sector) of the newly established winding-up institutions for banks ("bad banks"), i.e. FMS Wertmanagement for Hypo Real Estate and EAA for West LB. The further development of this debt burden for the government's balance sheet will depend on the speed and conditions of the windingdown of assets accumulated in the two institutions. The moderated growth outlook, together with recent agreements for wage increases of more than 6% for the public sector at federal and municipal level represent revenue and expenditure factors that constitute some risk for the government's target of a budget close to balance in 2013. At the same time, fiscal consolidation will continue to benefit from the ongoing phasing-out of stimulus measures. As a consequence - and in combination with the denominator effect of nominal GDP growth - we expect that Germany's general government debt in relation to nominal GDP will stabilise at around 82% in 2012. German public finances seem structurally set for a medium term downward trend in the general government debt ratio. However, the ongoing euro area debt crisis remains an important risk to the baseline scenario.

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Banking System Outlook Table

As of 1 October 2012
Banking System
Argentina Australia Azerbaijan Bahrain Baltic Countries Belarus Belgium and Luxembourg Bolivia Brazil Bulgaria Chile China Colombia Cyprus Czech Republic Denmark Egypt Finland France Germany Greece Hong Kong Hungary India Indonesia Ireland Israel Italy Japan Kazakhstan Korea Kuwait Lebanon Malaysia Mexico Netherlands New Zealand Norway Oman Pakistan Peru Philippines Stable Stable Stable Negative Stable Negative Stable Stable Negative Stable Stable Negative Stable Negative Negative Negative Negative Negative Stable Negative Negative Stable Stable Stable Negative Negative Negative Negative Negative Negative Negative Negative Stable Stable Negative Stable Stable Negative Negative Negative Negative

Positive

Stable

Negative
Negative

Banking System
Poland Portugal Qatar Russia Saudi Arabia Singapore Slovakia Slovenia South Africa Spain Sweden Switzerland Taiwan Thailand Turkey Ukraine United Arab Emirates United Kingdom United States Uruguay Uzbekistan Vietnam

Positive

Stable

Negative
Negative Negative

Stable Negative Stable Stable Negative Negative Stable Negative Negative Stable Stable Stable Stable Negative Negative Negative Negative Stable Stable Negative

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Global Comparison Charts

Average* Bank Financial Strength Ratings by Country (as of 1 October 2012)
E
Singapore (B)(4) Canada (B-)(7) Liechtenstein (B-)(1) Hong Kong (B-)(17) Australia (B-)(16) Andorra (C+)(1) Chile (C+)(7) Saudi Arabia (C)(10) New Zealand (C)(5) United States (C)(87) Finland (C)(5) Netherlands (C)(10) Sweden (C)(8) Japan (C-)(33) Switzerland (C-)(15) South Africa (C-)(6) Malaysia (C-)(8) Norway (C-)(13) Channel Islands (C-)(2) Jersey (C-)(3) Trinidad & Tobago (C-)(1) Bermuda (C-)(2) Germany (C-)(33) Luxembourg (C-)(6) Korea (C-)(13) Czech Republic (C-)(4) Denmark (C-)(9) Global Universe (C-)(969) United Kingdom (C-)(24) Qatar (C-)(5) Israel (C-)(5) Brazil (C-)(43) Mexico (C-)(20) Kuwait (C-)(8) Oman (C-)(5) Italy (D+)(40) Slovakia (D+)(4) Jordan (D+)(3) Mauritius (D+)(2) Taiwan (D+)(10) Panama (D+)(4) Belgium (D+)(6) Colombia (D+)(4) United Arab Emirates (D+)(11) Macao (D+)(1) Peru (D+)(2) Poland (D+)(12) Turkey (D+)(17) Spain (D+)(27) Thailand (D+)(8) Austria (D+)(13) France (D+)(19) India (D+)(14) Uruguay (D+)(6) Bulgaria (D+)(3) Bahrain (D)(8) China (D)(11) Indonesia (D)(5) Guatemala (D)(1) Morocco (D)(2) Hungary (D)(7) Russia (D)(101) Philippines (D)(7) Georgia (D-)(2) Tunisia (D-)(5) Bolivia (D-)(14) Ireland (D-)(15) Romania (E+)(3) Armenia (E+)(4) Portugal (E+)(7) Egypt (E+)(6) Albania (E+)(2) Argentina (E+)(33) Azerbaijan (E+)(7) Ghana (E+)(1) Lebanon (E+)(3) Lithuania (E+)(1) Mongolia (E+)(4) Montenegro (E+)(1) Pakistan (E+)(5) Paraguay (E+)(1) Slovenia (E+)(3) Sri Lanka (E+)(2) Vietnam (E+)(8) Kazakhstan (E+)(12) Ukraine (E+)(14) Belarus (E+)(5) Uzbekistan (E+)(11) Latvia (E+)(5) Cyprus (E+)(4) Greece (E)(7)

E+

D-

D+

C-

C+

B-

B+

A-

* Chart shows asset-weighted average standalone Bank Financial Strength Rating (BFSR) of all banks in each specified domicile. The rating next to each domicile is the rounded asset weighted average BFSR for banks in that domicile. The number next to each domicile is the number of banks with active BFSRs in that domicile.

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Average* Long-Term Bank Deposit Ratings by Country (as of 1 October 2012)

Domestic Currency
Caa3 Baa3 Caa2 Caa1 Baa2 Baa1 Aa3 Ba3 Ba2 Aa2 Ba1 B3 B2 Ca B1 A1 Aa1 A3 A2 Aaa C
25 OCTOBER 19, 2012

* Chart shows asset-weighted average local-currency deposit rating of all banks in each specified domicile. The rating next to each domicile is the rounded asset weighted average local-currency deposit rating for banks in that domicile. The number next to each domicile is the number of banks with active local-currency deposit ratings in that domicile.

BANKING SYSTEM OUTLOOK: GERMANY

BANKING

Average* Long-Term Bank Deposit Ratings by Country (as of 1 October 2012)

Foreign Currency
Caa3 Caa2 Baa3 Ba1 Ba3 Ba2 Ba1 Caa1 Baa2 Baa1 Ca B2 Aa3 Aa2 Aa1 Aaa B3 B1 A3 A2 C A1

* Chart shows asset-weighted average foreign-currency deposit rating of all banks in each specified domicile. The rating next to each domicile is the rounded asset weighted average foreign-currency deposit rating for banks in that domicile. The number next to each domicile is the number of banks with active foreign-currency deposit ratings in that domicile.

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Report Number: 145492

Author Katharina Barten

Production Associates Kerstin Thoma Ginger Kipps

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However, MOODYS is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall MOODYS have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODYS or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODYS is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODYS IN ANY FORM OR MANNER WHATSOEVER. MIS, a wholly-owned credit rating agency subsidiary of Moodys Corporation (MCO), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MISs ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading Shareholder Relations Corporate Governance Director and Shareholder Affiliation Policy. Any publication into Australia of this document is by MOODYS affiliate, Moodys Investors Service Pty Limited ABN 61 003 399 657, which holds Australian Financial Services License no. 336969. This document is intended to be provided only to wholesale clients within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODYS that you are, or are accessing the document as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to retail clients within the meaning of section 761G of the Corporations Act 2001. Notwithstanding the foregoing, credit ratings assigned on and after October 1, 2010 by Moodys Japan K.K. (MJKK) are MJKKs current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. In such a case, MIS in the foregoing statements shall be deemed to be replaced with MJKK. MJKK is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly owned by Moodys Overseas Holdings Inc., a wholly-owned subsidiary of MCO. This credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser.

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OCTOBER 19, 2012

BANKING SYSTEM OUTLOOK: GERMANY