See page 17 for Analyst Certification and Important Disclosures

Austrian Banks
Comparing Erste Bank and Bank Austria post 3Q04 results
Simon Nellis +44-20-7986-4012 17 November 2004
Kiri Vijayarajah +44-20-7986-4258
Jeremy Sigee +44-20-7986-4203

Summary

Europe
➤ Both Bank Austria (BACA) and Erste Bank reported a generally solid set of 3Q04
results.
➤ Nine month year-on-year earnings growth amounted to 39% at BACA and 50% at Erste
Bank, reaffirming their status as growth stocks.

➤ We have done a comprehensive review of our earnings model following a move of

stock coverage from Kiri Vijayarjah to Simon Nellis

➤ As a result of this review, we have increased our earnings forecasts substantially for
BACA; the large upward revision to our earnings estimates has led us to rate the stock
a Buy/ Medium Risk (1M) from Hold/ High Risk (2H) previously, with a new target price
of €71, up from €50, for an estimated total return of 19.3%.

➤ We have made only a minor upward revision to our Erste Bank numbers, as we
significantly upgraded our earnings forecasts for the bank prior to the results release;
our rating and target price on the stock remain unchanged.

➤ In this note we compare the financial performance and valuation of both stocks and
conclude that while we like both stocks as they provide exposure to strong banking
franchises in the rapidly growing banking markets of Central & Eastern Europe (CEE),
we currently favour BACA over Erste Bank.

Overview
Both of the Austrian banks reported a generally solid set of 3Q04 results. Both companies delivered impressive year-
on-year earnings growth — 39% at BACA and 50% at Erste Bank in the nine month results — reaffirming their
status as growth stocks. At first glance, Erste Bank’s results appeared more robust, with the bank posting stronger
nine-month earnings growth and stronger quarterly earnings growth than BACA. However, BACA’s 2Q04 earnings
were positively impacted by extraordinarily high one-off dividend income booked in net interest income and one-off
gains from the sale of GBG, a small Polish bank. Additionally, Erste’s 3Q04 result was inflated by €19 million in
one-off gains from revaluing participations held by the company’s Czech subsidiary.

In this note we compare the two banks recent financial performance and present new earnings estimates for both
banks. Our earnings forecast for Erste Bank have been only slightly modified upwards. Our earnings revisions for
BACA, however, have been significant. This is less due to the 3Q04 results rather than a comprehensive review of

Smith Barney is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could
affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment
decision.
the model. We are positive on the growth outlook for both stocks driven by their strong franchises in the rapidly
growing markets of the Central and Eastern Europe (CEE) and efforts to improve profitability in Austria and rate
both stocks Buy/ Medium Risk. Nevertheless, our valuation work and our view that BACA has more potential for
future upgrades as the Street remains more pessimistic than the management leads us to favour BACA over Erste
Bank at present.

Opinion

BACA growing CEE revenues faster, but Erste more leveraged to CEE growth
Revenue growth remained solid at both banks, which grew by 6% at both banks in the nine-month results. The key
driver, as in the past, was strong double-digit revenue growth from the Central & Eastern European (CEE)
operations. In CEE BACA stood out, growing revenues by 22% in the nine-month results, faster than the 15%
growth posted by Erste Bank. Nevertheless, Erste Bank is still higher leveraged to CEE growth than BACA, with
CEE revenues accounting for 35% of total revenue (a higher 49% excluding revenues of the Savings Banks, most of
which are deducted from Group earnings through the minorities line) at end September, compared with 31% for
BACA.

Figure 1. Austrian Banks — Quarterly Revenues, 1Q03-3Q04 (Euro in Millions)

Erste Bank - Revenues 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 Chg yoy Chg qoq 9M03 9M04 Chg yoy

Savings Banks 276 315 286 315 302 281 292 2% 4% 877 875 0%
Retail & Mortgage 199 204 206 194 200 202 196 -5% -3% 609 597 -2%
Large Corporate 49 49 51 53 52 51 51 1% 0% 150 155 4%
Treasury & Investment Banking 64 57 73 50 68 60 59 -19% -2% 193 186 -3%
AUSTRIA 588 625 616 612 622 594 598 -3% 1% 1,828 1,814 -1%
Ceska Sporitelna 182 183 185 201 195 201 195 6% -3% 550 592 8%
Slovenska Sporitelna 64 87 73 73 64 68 68 -6% 0% 224 200 -11%
Erste Bank Hungary 22 23 28 26 58 56 62 123% 11% 73 176 141%
Erste Bank Croatia 23 22 24 29 28 25 32 34% 26% 69 84 22%
CENTRAL EUROPE 291 315 310 330 344 351 358 16% 2% 916 1,052 15%
INTERNATIONAL BUSINESS 35 48 42 43 41 44 45 8% 2% 125 130 4%
CORPORATE CENTRE -7 -8 -21 -19 -6 1 10 -149% 843% -37 5 -114%
ERSTE GROUP 907 980 946 966 1,001 990 1,011 7% 2% 2,833 3,002 6%
ERSTE GROUP ex - Savings Banks 631 665 660 650 699 709 719 9% 1% 1,956 2,126 9%
CEE Revenue / Total Revenue 32% 32% 33% 34% 34% 35% 35% 32% 35%
CEE Revenue / Total Revenue, ex - Savings Banks 46% 47% 47% 51% 49% 49% 50% 47% 49%

BACA - Revenues 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 Chg yoy Chg qoq 9M03 9M04 Chg yoy

Private Customers 314 302 330 351 316 319 324 -2% 1% 946 959 1%
Corporate Customers 236 252 293 281 262 263 268 -8% 2% 781 794 2%
International Markets 69 79 27 -12 54 64 80 197% 24% 175 198 14%
AUSTRIA 620 632 650 620 633 647 672 3% 4% 1,902 1,951 3%
CENTRAL EUROPE 249 238 229 252 266 309 301 31% -3% 717 877 22%
CORPORATE CENTRE 27 18 12 0 -5 19 0 -100% -100% 57 15 -74%
BA-CA GROUP 896 888 891 873 894 976 973 9% 0% 2,675 2,843 6%
CEE Revenue / Total Revenue 28% 27% 26% 29% 30% 32% 31% 27% 31%
Source: Company reports.

Page - 2 -
Figure 2. Austrian Banks — Quarterly Revenues from CEE Operations, 1Q03-4Q05E (Euro in Millions)

450
Forecast
397
400 387
371 378 377
358 365
351 347 355
344 337
350 330
315 310 309 314
301
300 291
266
249 252
250 238 229

200

150

100

50

0
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04E 1Q05E 2Q05E 3Q05E 4Q05E

Erste BACA
Source: Company reports.

Bullish volume developments bode well for continued strong CEE revenue growth
We are positive on the outlook for continued strong revenue growth from the CEE divisions at both banks. This is
because:

➤ We expect continued strong loan volume growth in the region, particularly in mortgage lending, as penetration
remains low and interest rates have finally come down to attractive levels.
➤ We anticipate a largely stable margin outlook as rates have been stable or trending up in most markets (Hungary
being the exception).
➤ Last, we forecast continued healthy fee growth in the region supported by continued strong growth in
transactions and healthy loan volumes.
A comparison of growth of risk-weighted assets by division at both banks clearly indicates that the trend of robust
volume growth remains intact. Again, volume growth is driven by developments in CEE, which is growing at a
significantly higher rate than Austria. In contrast to recent revenue growth developments, Erste Bank is clearly
growing CEE volumes faster than BACA, with average risk-weighted assets up 32% year-on-year at end September,
versus the 20% growth reported by BACA over the same period. We attribute this to Erste Bank’s strong presence in
fast growing retail lending markets in the region but also to the consolidation of Postabank in Hungary. Indeed,
excluding the acquisition of Postabank, we estimate that growth in risk-weighted assets would have been a slower
23% year-on-year. CEE risk amounted to 20% of Erste Group risk-weighted assets at end September 2004, less than
the 24% share reported by BACA. However, excluding the Savings Banks, the CEE operations account for a higher
30% of group risk weighted assets at Erste Bank.

Page - 3 -
Figure 3. Austrian Banks — Average RWA, 1Q03-3Q04 (Euro in Millions)
Erste – Average RWA 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 Chg yoy Chg qoq

Savings Banks 21,872 22,208 22,134 22,180 22,573 22,797 23,052 4% 1%

Retail & Mortgage 12,296 12,178 12,158 12,186 12,440 12,687 12,869 6% 1%
Large Corporate 6,561 6,451 6,748 6,919 6,660 6,678 6,823 1% 2%
Treasury & Investment Banking 3,713 3,417 3,721 3,487 3,678 3,819 3,827 3% 0%
AUSTRIA 44,441 44,254 44,762 44,771 45,351 45,981 46,570 4% 1%
Ceska Sporitelna (Czech) 6,154 6,040 6,292 6,288 6,315 7,022 7,336 17% 4%
Slovenska Sporitelna (Slovakia) 1,102 1,224 1,354 1,493 1,666 1,716 1,829 35% 7%
Erste Bank Hungary 752 723 829 921 1,842 1,910 1,977 139% 4%
Erste Bank Croatia 1,288 1,392 1,387 1,461 1,591 1,716 1,836 32% 7%
CENTRAL EUROPE 9,297 9,379 9,861 10,162 11,414 12,363 12,978 32% 5%
INTERNATIONAL BUSINESS 6,232 5,811 5,769 6,388 6,419 6,200 6,200 7% 0%
CORPORATE CENTRE 322 218 249 567 567 474 439 76% -7%
ERSTE GROUP 60,292 59,662 60,640 61,888 63,752 65,018 66,187 9% 2%
ERSTE GROUP ex - Savings Banks 38,420 37,453 38,506 39,708 41,179 42,221 43,135 12% 2%
CEE RWA / Total RWA 15% 16% 16% 16% 18% 19% 20%
CEE RWA / Total RWA, ex - Savings Banks 24% 25% 26% 26% 28% 29% 30%

BACA – Average RWA 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 Chg yoy Chg qoq

Private Customers 11,478 11,740 11,943 12,473 12,275 12,773 13,254 11% 4%
Corporate Customers 32,354 32,638 32,854 32,719 32,325 32,772 32,807 0% 0%
International Markets 3,793 3,372 3,001 2,136 2,838 2,972 3,074 2% 3%
AUSTRIA 47,625 47,750 47,798 47,328 47,438 48,516 49,136 3% 1%
CENTRAL EUROPE 13,440 13,562 14,271 14,864 15,610 16,789 17,186 20% 2%
CORPORATE CENTRE 6,228 6,100 6,348 5,341 5,107 4,019 4,605 -27% 15%
BA-CA Group 67,293 67,412 68,417 67,533 68,155 69,324 70,927 4% 2%
CEE RWA / Total RWA 20% 20% 21% 22% 23% 24% 24%
Source: Company reports.

Erste Bank appears to be generating more revenue with less risk than BACA
What we find particularly interesting is that despite significantly lower revenue contribution from the CEE
operations, BACA has a considerably higher absolute risk exposure to the region with €17 billion in average RWA in
the region versus slightly less than €13 billion in the case of Erste Bank as of end September 2004. We attribute this
to BACA’s strong presence in the corporate lending market in the region. We find that Erste Bank’s largely retail
oriented franchise in the region provides a better risk-reward profile. Indeed, if we compare revenue/average RWA of
the two banks, it is clear that Erste has the potentially more profitable business in the region, assuming management
can keep operating costs of its large retail franchise and risk cost under control. As the figure below indicates, Erste
Bank is squeezing almost twice as much revenue out of its risk-weighted assets than BACA in the region. While this
is certainly a virtue currently, this contrast between bank’s CEE franchises does lead to the question of whether Erste
will be able to maintain this gap.

Page - 4 -
Figure 4. Austrian Banks — Revenue / Average RWA, 9M04 (Percentage)

10.0%

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
Austria Central Europe Group

Erste Bank BACA

Source: Company reports and Smith Barney calculations.

BACA showing more impressive cost performance

On the cost front, BACA appears to be demonstrating more attractive developments than Erste Bank. As illustrated
in the figure below, BACA managed to keep Group costs flat year-on-year in the nine-month results, in contrast to
Erste Bank, which witnessed a 6% increase over the same period. Even adjusting for the acquisition of Postabank in
Hungary, Erste’s Group costs still increased by 3% year-on-year. BACA’s positive performance in this area was
primarily due to continued progress in taking costs out of its Austrian business. We anticipate this trend to continue
as the bank recently left the Association of Austrian Savings Banks, which has allowed it to revise its internal service
regulations to limit automatic wage drift of its Austrian employees.

Page - 5 -
Figure 5. Austrian Banks — Quarterly Operating Expense, 1Q03-3Q04 (Euro in Millions)

Adjusted* Adjusted*
Erste - OPEX 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 Chg yoy Chg yoy Chg qoq 9M03 9M04 Chg yoy Chg yoy
Savings Banks -202 -204 -204 -211 -206 -205 -205 1% 1% 0% -609 -615 1% 1%
Retail & Mortgage -167 -161 -165 -160 -162 -160 -160 -3% -3% 0% -493 -481 -2% -2%
Large Corporate -19 -19 -22 -21 -20 -21 -21 -1% -1% 1% -60 -62 3% 3%
Treasury & Investment Banking -25 -27 -25 -24 -24 -24 -25 1% 1% 5% -77 -72 -6% -6%
AUSTRIA -413 -411 -415 -416 -411 -409 -411 -1% -1% 0% -1,239 -1,230 -1% -1%
Ceska Sporitelna (Czech) -117 -120 -118 -119 -118 -123 -117 -1% -1% -5% -356 -358 1% 1%
Slovenska Sporitelna (Slovakia) -35 -38 -40 -44 -39 -39 -40 1% 1% 4% -113 -118 4% 4%
Erste Bank Hungary -16 -18 -17 -18 -41 -43 -44 158% 4% 4% -51 -128 151% 28%
Erste Bank Croatia -13 -15 -16 -23 -15 -16 -17 8% 8% 8% -43 -48 10% 10%
CENTRAL EUROPE -181 -191 -191 -204 -212 -220 -219 14% 3% -1% -563 -651 16% 5%
INTERNATIONAL BUSINESS -9 -8 -9 -8 -8 -7 -8 -7% -7% 11% -26 -23 -9% -9%
CORPORATE CENTRE -2 -7 0 5 -12 -13 -22 nm nm 64% -9 -47 403% 403%
ERSTE GROUP -605 -618 -614 -624 -642 -649 -659 7% 4% 2% -1,837 -1,951 6% 3%
ERSTE GROUP ex - Savings Banks -403 -414 -410 -413 -437 -445 -454 11% 5% 2% -1,228 -1,336 9% 4%
CEE Costs/Total Costs 30% 31% 31% 33% 33% 34% 33% 31% 33%
CEE Costs/Total Costs, ex-Savings Banks 45% 46% 47% 49% 49% 49% 48% 46% 49%

BACA - OPEX 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 Chg yoy Chg qoq 9M03 9M04 Chg yoy
Private Customers -260 -246 -260 -267 -255 -243 -259 -1% 6% -766 -757 -1%
Corporate Customers -139 -137 -155 -182 -138 -147 -126 -19% -14% -431 -411 -5%
International Markets -48 -52 -17 -9 -34 -36 -37 125% 3% -116 -108 -7%
AUSTRIA (total) -447 -435 -432 -458 -427 -426 -422 -2% -1% -1,314 -1,276 -3%
CENTRAL EUROPE -155 -174 -148 -159 -162 -174 -178 20% 2% -477 -514 8%
Corporate Centre -16 -13 -17 -25 -14 -11 -19 12% 68% -46 -45 -3%
BA-CA Group -619 -622 -598 -641 -604 -612 -620 4% 1% -1,838 -1,835 0%
CEE Costs/Total Costs 25% 28% 25% 25% 27% 28% 29% 26% 28%
Note: * - Adjusted for Postabank’s operating expenses; Postabank (Hungary) was consolidated into the Hungarian division in 1Q03.
Source: Company reports.

Growth in operating expense, as was the case for revenues, is driven by an increase in costs at the CEE franchises.
BACA again stands out as having a lower cost base in the region despite being spread over a much larger geographic
area than Erste Bank. While BACA’s cost growth in CEE was somewhat higher than that of Erste Bank — 8%
growth versus 5% growth on a adjusted basis for Erste year-on-year in the nine-month results — BACA saw an
impressive decline in the cost/income ratio of its CEE business to 59% from 65% a year earlier in contrast to largely
stable developments at Erste. We expect BACA to continue to improve its cost to income ratio at its CEE business
relative to Erste over the next twelve months, while we expect both banks to show roughly similar performance at
their Austrian businesses going forward. This view is based on the assumption, which is by no means certain, that
Erste Bank will be able to reach an agreement with its trade unions to limit automatic wage drift.

Page - 6 -
Figure 6. Austrian Banks — Quarterly Cost-to-Income Ratio of Austrian and CEE Divisions, 1Q03-4Q05E (Euro in Millions)

75%
Forecast

70%

65%

60%

55%

50%
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04E 1Q05E 2Q05E 3Q05E 4Q05E

Erste - CEE BACA - CEE Erste - Austria, ex-Savings Banks BACA - Austria

Source: Company reports and Smith Barney estimates.

Declining cost of risk in Austria, converging cost of risk in CEE

Loan loss provisioning developments remain positive with both banks showing a decline in risk cost in Austria over
the year. In CEE, however, developments diverge, with BACA showing a decline in provisioning — largely due to
lower provisioning at its Polish subsidiary — while Erste Bank reported a surge in provisioning related to a return to
more normalised provisioning levels at the Czech business, which last year reported a net provision release, and the
impact of acquiring Postabank in Hungary.

Page - 7 -
Figure 7. Austrian Banks — Quarterly Provisioning Charge, 1Q03-3Q04 (Euro in Millions)
Erste - Provisions 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 Chg yoy Chg qoq 9M03 9M04 Chg yoy
Savings Banks -45 -47 -40 -66 -49 -38 -47 17% 21% -132 -134 1%
Retail & Mortgage -29 -38 -31 -35 -29 -28 -28 -11% -1% -98 -85 -13%
Large Corporate -13 -14 -14 -4 -13 -12 -12 -9% 3% -40 -37 -7%
Treasury & Investment Banking 0 0 0 0 0 0 0 -101% na 0 0 na
AUSTRIA -86 -99 -85 -105 -90 -78 -87 2% 11% -270 -255 -5%
Ceska Sporitelna (Czech) 2 2 2 -5 -9 -3 -6 -363% 117% 7 -19 -378%
Slovenska Sporitelna (Slovakia) 0 -2 2 3 0 3 0 -111% -107% 0 3 863%
Erste Bank Hungary -2 -3 -4 1 -6 -3 -8 108% 140% -8 -17 101%
Erste Bank Croatia -2 0 -1 -4 5 -3 -6 521% 93% -3 -3 25%
CENTRAL EUROPE -1 -3 0 -6 -10 -6 -20 nm 228% -4 -36 776%
INTERNATIONAL BUSINESS -10 -7 -8 -1 -8 -4 -3 -56% -17% -25 -15 -38%
CORPORATE CENTRE 0 -1 0 4 0 0 0 -138% -176% 0 0 -76%
ERSTE GROUP -97 -109 -92 -108 -108 -88 -110 19% 25% -298 -307 3%
ERSTE GROUP ex - Savings Banks -52 -62 -53 -42 -60 -50 -64 21% 27% -167 -173 4%
CEE Provisions / Total 1% 2% 0% 5% 9% 7% 18% 1% 12%
CEE Revenue / Total Revenue, ex - Savings Banks 2% 4% 1% 14% 16% 12% 32% 2% 21%

BACA - Provisions 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 Chg yoy Chg qoq 9M03 9M04 Chg yoy
Private Customers -24 -25 -48 -43 -24 -24 -24 -51% 0% -97 -71 -27%
Corporate Customers -74 -56 -50 -48 -60 -64 -62 25% -2% -180 -186 3%
International Markets 0 0 0 0 0 0 0 nm nm 0 0 nm
AUSTRIA (total) -98 -81 -98 -90 -84 -87 -86 -12% -2% -277 -257 -7%
CEE -29 -20 -23 -18 -26 -19 -21 -10% 10% -73 -66 -10%
Corporate Centre -1 0 -6 -3 0 0 0 -100% nm -7 0 -100%
BA-CA Group -128 -101 -127 -111 -109 -107 -107 -16% 0% -356 -323 -9%
CEE Provisions / Total 23% 20% 18% 16% 23% 18% 20% 20% 20%
Source: Company reports.

We would argue the rise in CEE provisioning at Erste Bank is of little concern as risk cost is simply returning to
more normalised levels. As illustrated by the figure below, following a protracted period of low provisioning in CEE,
Erste Bank’s risk cost in the region (measured by provision charge divided by average risk weighted assets) is
converging to that of BACA.

Page - 8 -
Figure 8. Austrian Banks — Quarterly Provision Charge / Average RWA, 1Q03-3Q04 (Euro in Millions)

0.25%

0.20%

0.15%

0.10%

0.05%

0.00%
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

Erste, CEE Erste, ex-CEE & Savings Banks BACA, CEE BACA, ex-CEE

Source: Company reports and Smith Barney calculations.

Erste Bank – Slight upward earnings revision post 3Q04 results

We have revised upwards our earnings forecast for Erste Bank following the 3Q04 results. We present the main
changes to our forecast:

➤ A 1% increase in revenues this year driven by better than expected revenue developments in the International
Business segment and higher revenues at the Corporate Centre; in 2005-06 are revenue forecasts are largely
unchanged.
➤ We have lowered our cost forecast by 1% next year and the year after, reflecting better than expected cost
developments at Ceska Sporitelna in 3Q04.
➤ Higher provisioning in the 3Q04 results has led us to increase our estimates of provisioning throughout our
forecast horizon, but has not been large enough to offset the impact of lower cost forecasts.
Despite the minor earnings upgrade, we are maintaining our current rating at target price.

Page - 9 -
Figure 9. Erste Bank — Estimate Changes, 2004E-06E (Euro in Millions)
2004E 2005E 2006E

E millions OLD NEW % chg OLD NEW % chg OLD NEW % chg
GROUP P&L
Net interest income 2,662 2,678 +1% 2,758 2,749 -0% 2,885 2,875 -0%
Net commission income 1,127 1,153 +2% 1,187 1,194 +1% 1,273 1,281 +1%
Trading profit 205 201 -2% 214 207 -3% 221 214 -3%
Total operating income 3,995 4,032 +1% 4,159 4,150 -0% 4,380 4,370 -0%
Staff expenses -1,480 -1,480 +0% -1,531 -1,531 +0% -1,592 -1,592 +0%
Other expenses (incl depreciation) -1,124 -1,132 +1% -1,124 -1,092 -3% -1,114 -1,081 -3%
Total operating expenses -2,604 -2,612 +0% -2,655 -2,623 -1% -2,707 -2,674 -1%
Operating profit pre provisions 1,391 1,420 +2% 1,504 1,527 +2% 1,673 1,696 +1%
Provisions -384 -420 +9% -400 -427 +7% -412 -440 +7%
Result from insurance business 25 34 +33% 24 30 +25% 25 31 +25%
Other income/expense ex goodwill 34 76 +127% -54 -48 -11% -52 -45 -12%
Goodwill -80 -80 +0% 0 0 nm 0 0 nm
Profit before tax 986 1,029 +4% 1,074 1,082 +1% 1,234 1,242 +1%
Taxes -252 -261 +4% -259 -262 +1% -293 -296 +1%
Net profit 734 768 +5% 815 820 +1% 941 946 +0%
Minority interests -215 -237 +11% -180 -180 +0% -212 -211 -0%
Attributable profit 519 531 +2% 635 639 +1% 729 734 +1%
Attributable profit (SB) 540 552 +2% 635 639 +1% 729 734 +1%
Dividends paid -130 -120 -8% -159 -147 -7% -182 -169 -7%

PER SHARE FIGURES

EPS - basic, as reported 2.17 2.22 +2% 2.65 2.67 +1% 3.05 3.07 +1%
EPS - basic, ex-goodwill 2.50 2.55 +2% 2.65 2.67 +1% 3.05 3.07 +1%
EPS - basic, SB 2.26 2.31 +2% 2.65 2.67 +1% 3.05 3.07 +1%
Dividend per share 0.54 0.50 -8% 0.66 0.61 -7% 0.76 0.71 -7%
Book value per share 13.7 13.7 +0% 15.7 15.8 +1% 18.0 18.1 +1%

RATIOS
Cost / income ratio 65% 65% 64% 63% 62% 61%
Provision charge / customer loans 0.55% 0.61% 0.54% 0.58% 0.52% 0.55%
Effective tax rate (ex goodwill) 24% 24% 24% 24% 24% 24%
Return on Equity (as reported) 17.1% 17.5% 18.1% 18.1% 18.1% 18.1%
Return on Equity (SB) 17.8% 18.2% 18.1% 18.1% 18.1% 18.1%
BIS Tier 1 ratio 6.5% 6.4% 6.9% 6.6% 7.2% 6.9%

Balance sheet items — yr end

Total Assets 140,971 140,971 +0% 148,584 148,584 +0% 157,499 157,499 +0%
Gross customer loans 72,265 72,265 +0% 77,323 77,323 +0% 82,736 82,736 +0%
Provisions on customer loans -2,897 -2,897 +0% -3,071 -3,071 +0% -3,255 -3,255 +0%
Net customer loans 69,368 69,368 +0% 74,252 74,252 +0% 79,481 79,481 +0%
Customer deposits 68,428 68,428 +0% 71,165 71,165 +0% 74,012 74,012 +0%
Shareholders equity ex minorities 3,275 3,283 +0% 3,751 3,776 +1% 4,298 4,341 +1%
Source: Smith Barney estimates.

BACA – Significant increase to earnings estimates

As part of a shift in stock coverage we have undertaken a comprehensive review of our earning model on BACA,
including the development of a full divisional model of the P&L. This work has led us to better understand the
positive impact of the strong revenue growth outlook from the company’s CEE franchise on Group earnings. We
present our new forecasts below; the figure illustrates clearly that the sole driver of the upgrade is a more bullish
outlook for revenues.

Page - 10 -
Figure 10. Bank Austria — Estimate Changes, 2004E-06E (Euro in Millions)
2004 2005 2006

(E millions) OLD NEW % chg OLD NEW % chg OLD NEW % chg

Net interest income 2,326 2,407 +3% 2,444 2,556 +5% 2,567 2,708 +6%
Commission income 1,231 1,254 +2% 1,317 1,342 +2% 1,396 1,423 +2%
Trading profit 151 184 +22% 159 185 +16% 166 191 +15%
Total revenues 3,708 3,844 +4% 3,920 4,083 +4% 4,129 4,323 +5%
Total costs -2,451 -2,471 +1% -2,512 -2,521 +0% -2,613 -2,576 -1%
Operating profit pre-provisions 1,257 1,373 +9% 1,408 1,562 +11% 1,516 1,747 +15%
Loan losses -431 -434 +1% -431 -445 +3% -450 -463 +3%
Operating profit after provisions 826 939 +14% 977 1,117 +14% 1,066 1,284 +20%
Income from Investments 11 -7 -163% 11 -20 -282% 11 -13 -215%
Goodwill -72 -72 -1% 0 0 nm 0 0 nm
Other income/exp -13 -12 -5% -13 9 nm -13 8 nm
Pre-tax profit 752 848 +13% 975 1,106 +13% 1064 1,279 +20%
Tax -184 -201 +9% -234 -254 +9% -255 -256 +0%
Profit after tax 568 648 +14% 741 852 +15% 809 1,023 +26%
Minorities -61 -64 +4% -87 -85 -3% -104 -82 -21%
Net attributable profit 506 584 +15% 653 767 +17% 705 941 +33%
Net attributable profit - SB Basis 570 661 +16% 645 782 +21% 697 951 +36%

PER SHARE FIGURES

EPS (as reported) 3.44 3.97 +15% 4.44 5.21 +17% 4.80 6.40 +33%
EPS (SB-basis) 3.88 4.50 +16% 4.39 5.32 +21% 4.74 6.47 +36%
Dividend per share 1.10 1.35 +23% 1.20 1.70 +42% 1.30 1.95 +50%
Book value per share 43.0 44.3 +3% 46.2 47.9 +3% 49.7 52.3 +5%

RATIOS
Cost / income ratio 66% 64% 64% 62% 63% 60%
Provision charge / customer loans 0.55% 0.56% 0.52% 0.55% 0.51% 0.54%
Tax rate 23% 22% 24% 23% 24% 20%
Return on Equity (as reported) 8.3% 9.5% 10.0% 11.3% 10.0% 12.8%
Return on Equity (ex gains and goodwill) 9.4% 10.7% 9.8% 11.5% 9.9% 12.9%
Tier 1 ratio 8.0% 7.5% 8.3% 7.8% 8.6% 8.3%

Balance sheet items — yr end

Total assets 141,070 141,346 +0% 148,123 147,086 -1% 155,529 154,440 -1%
Gross customer loans (year-end) 80,075 80,013 -0% 84,879 83,262 -2% 89,972 88,258 -2%
Gross customer loans (average) 78,036 78,005 -0% 82,477 81,638 -1% 87,426 85,760 -2%
Loan Loss Provisions (B/S) -3,622 -3,622 +0% -3,622 -3,622 +0% -3,622 -3,622 +0%
Equity (year-end) 6,322 6,520 +3% 6,799 7,037 +3% 7,314 7,691 +5%
Source: Smith Barney estimates.

We present below a divisional breakdown of our new earnings model to illustrate what is driving our expectations of
continued strong earnings growth. As can been see in the figure below, the key driver is strong earnings growth at the
CEE division. We are also expecting the Austrian division to contribute to earnings growth, largely through keeping
costs flat. We note that our new numbers are below the company’s targets as our 2006E ROE forecast amounts to
12.8%, or below the >13% target provided by the company. Furthermore, we would expect the company to increase
this target, as it was made assuming no changes to accounting principles. As the company will no longer amortise
goodwill through the P&L next year, the previous >13% ROE target translates into roughly a 13.7% ROE target
under the new accounting methodology.

Page - 11 -
Figure 11. Bank Austria — Pretax Profit by Division, 2003-06E (Euro in Millions)
AUSTRIA (total) 2003 2004E % chg 2005E % chg 2006E % chg

Net interest income (NII) 1,618 1,675 4% 1,685 1% 1,696 1%

Net fee and commission income (NFCI) 787 835 6% 848 2% 870 3%
Net trading result 100 114 15% 118 3% 124 5%
Bal. of other oper. income and expenses 17 -8 -145% -8 5% -8 5%
Operating income (TOI) 2,522 2,616 4% 2,643 1% 2,682 1%
Losses on Loans and advances (LLP) -367 -347 -5% -347 0% -345 -1%
General administrative expenses -1,771 -1,710 -3% -1,715 0% -1,732 1%
Operating profit 384 559 46% 581 4% 604 4%
Net income from investments 88 -15 -118% -12 -22% -6 -48%
Amortisation of goodwill -15 -12 -20% 0 -100% 0 nm
Balance of other income and expenses -5 -1 -73% 0 -100% 0 nm
Net income before taxes 452 531 17% 569 7% 598 5%
Cost income ratio 65.4% 64.9% 64.6%
ROE before taxes 15.2% 15.3% 15.3%
RWA (avg., credit and market risk) 47,328 49,761 5% 52,284 5% 56,467 8%
Allocated equity (avg.) 3,313 3,493 5% 3,714 6% 3,900 5%

CENTRAL EUROPE 2003 2004E % chg 2005E % chg 2006E % chg

Net interest income (NII) 544 729 34% 891 22% 1,034 16%
Net fee and commission income (NFCI) 353 419 19% 489 17% 548 12%
Net trading result 66 49 -26% 40 -19% 42 5%
Bal. of other oper. income and expenses 6 -6 -208% -4 -37% -4 5%
Operating income (TOI) 969 1,191 23% 1,416 19% 1,619 14%
Losses on Loans and advances (LLP) -90 -87 -4% -98 13% -118 20%
General administrative expenses -636 -696 9% -746 7% -783 5%
Operating profit 242 408 69% 572 40% 718 26%
Net income from investments 20 -12 -158% -8 -32% -6 -20%
Amortisation of goodwill -42 -49 16% 0 -100% 0 0%
Balance of other income and expenses -2 0 -82% 0 -100% 0 0%
Net income before taxes 218 347 60% 564 62% 712 26%
Cost income ratio 58.4% 52.7% 48.4%
ROE before taxes 19.9% 28.7% 34.5%
RWA (avg., credit and market risk) 14,864 17,702 19% 19,923 13% 22,513 13%
Allocated equity (avg.) 1,486 1,744 17% 1,964 13% 2,062 5%

CORPORATE CENTRE 2003 2004E % chg 2005E % chg 2006E % chg

Net interest income (NII) 14 3 -80% -20 -789% -21 5%

Net fee and commission income (NFCI) -7 0 -94% 5 -1362% 5 2%
Net trading result 54 20 -63% 27 34% 25 -5%
Bal. of other oper. income and expenses -5 -1 -76% 13 -1162% 14 5%
Operating income (TOI) 57 21 -63% 25 19% 24 -6%
Losses on Loans and advances (LLP) -10 0 -100% 0 nm 0 5%
General administrative expenses -71 -64 -10% -60 -7% -61 1%
Operating profit -24 -43 81% -35 -20% -37 6%
Net income from investments 12 20 62% 0 -100% 0 5%
Amortisation of goodwill -10 -11 9% 0 -100% 0 0%
Balance of other income and expenses 0 4 -1938% 8 92% 8 0%
Net income before taxes -22 -30 38% -27 -11% -29 8%
RWA (avg., credit and market risk) 5,341 4,605 -14% 4,605 0% 5,204 13%
Allocated equity (avg.) 925 1,099 19% 1,088 -1% 1,142 5%
Source: Company reports and Smith Barney estimates.

BACA – Earnings revision prompts upgrade

The significant earnings upgrade and the prospect of continued strong double-digit earnings growth has prompted us
to reverse our previously neutral view on the stock and we are changing our rating from a Hold/ High Risk to a Buy/

Page - 12 -
Medium Risk. The change to our risk rating reflects the fact that a number of the bank’s CEE markets have recently
joined the EU and a longer track record in delivering solid financial results following the bank’s IPO. We are
increasing our target price on the stock to €71 per share, which values the bank at 13.6x 2005 forecast earnings and
1.48x 2005 forecast book value.

Favouring BACA on valuation, potential for upgrades...

Our valuation work suggests that BACA offers more upside than Erste Bank. Our new target price on BACA implies
a total expected return of 19.3% over the next twelve months, exceeding the 12.3% return expected from Erste Bank.
Moreover, we see the potential for more upgrades from the Street on BACA, potentially supporting a continued re-
rating of the stock. We believe that we are now not far from consensus earning estimates, which are still below
management targets. With the Street singularly sceptical that management will achieve its targets, the outlook for
further upgrades and a continued re-rating of the stock is likely should the company demonstrate in subsequent
quarters that it is working its way to its 2006 target. This is perhaps in contrast to Erste Bank where we believe the
Street is largely in-line with management targets, putting pressure on the company to exceed its stated goals to
impress the market. While we remain positive on the Austrian banks as an asset class, at present we would favour
BACA over Erste Bank as an investment.

...but franchise value suggests a different story

This view should be tempered by the realisation that from a franchise perspective in CEE, Erste Bank appears the
much stronger party. To illustrate this point, we have also valued both banks on a per customer basis. We note that
we do not take this valuation method into account when arriving at our target prices due to the fact that customer
numbers themselves don’t actually take into account the value of individual customers. This is an important
distinction when comparing customer numbers of Erste Bank and BACA, particularly in CEE, as in the region Erste
Bank acquired savings banks with high customer numbers, many of them of relatively low individual value. On the
other hand, BACA setup greenfield operations or bought primarily corporate banking franchises and those retail
customers that have been acquired are arguably of much higher individual value than Erste’s customers, at least
currently. With these caveats mentioned we have valued the CEE business of both bank by applying the average
market capitalisation per customer of the pure play CEE banks to both Erste and BACA. Given Erste Bank’s
substantially higher customer numbers in the region — over nine million, compared with just over four million at
BACA — the analysis values Erste Bank’s CEE business at €15.6 billion, or at 140% of the current market
capitalisation. On the other hand, the analysis values BACA’s CEE business at just €6 billion or 57% of the current
market capitalisation, suggesting the Austrian business has to be worth c €4.6 billion for the bank to be trading at fair
value currently. The analysis, in our view, is telling not so much in that it raises concerns about BACA’s valuation
but in that it highlights Erste Bank’s long-term value should management be able to sell effectively to its large
customer base.

Page - 13 -
Figure 12. Austrian Banks — Per Customer Valuation (Euros in Millions)
CEE pure play banks Customers (m) MCAP (€m) MCAP per Customer (€)
Komercni Banka (Czech) 1.4 5,572 4,070
Bank Pekao (Poland) 3.8 4,992 1,314
BPH Bank (Poland) 2.8 2,946 1,052
OTP Bank (Hungary) 6.1 5,572 916
CEE AVERAGE 1,838

Erste Bank Customers (m) Implied MCAP for 100% (€m) Erste's Share Implied Value of Erste's Share (€m)
Slovakia 2.4 4,411 80.0% 3,529
Czech 5.3 9,794 97.9% 9,588
Hungary 0.9 1,654 99.7% 1,649
Erste Bank Croatia 0.6 1,103 77.3% 852
Implied Value of CEE Business 15,618
Erste Bank's Current Market Cap. (€m) 9,022
Implied Value of CEE Business/MCAP 140%
Difference 6,597

BACA Customers (m) Implied MCAP for 100% (€m) BACA Share Implied Value of BACA's Share (€m)
BACA CEE Customers 3.3* 6,019 100.0% 6,019
Implied Value of CEE Business 6,019
BACA's Bank's Market Cap. (€m) 10,651
Implied Value of CEE Business/MCAP 57%
Difference -4,632
Note: * - BACA’s CEE clients amount to 4.1m, but we have adjusted the number downward to account for minorities at BPH (Poland) where BACA has a 70% shareholding. BPH accounts for c 2.8m of
the Group's 4.1m CEE customers.
Source: Company reports and Smith Barney estimates.

Bank Austria

Investment thesis
Bank Austria has strong franchises and market shares in its domestic Austrian market together with a broad
collection of banking operations in the adjacent central and eastern European region (CEE). While the business has a
history of lacklustre core profitability (10-year average 5% RoE ex capital gains), it has made progress through the
in-market Creditanstalt merger (1997) and its expansion into more profitable CEE markets. We expect strong growth
in earnings from the CEE division and continued restructuring in Austria to drive double-digit earnings growth over
the next two years and bring ROE close to the management’s 2006 target of 13% or above. We rate the shares Buy/
Medium Risk (1M).

Valuation
We value the bank using two methodologies, the first is a warranted equity approach, using a standard P/B formula1
and the second is a sum of the parts valuation.
➤ The warranted equity approach is based on our 2006 RoE (ex-goodwill) forecast of 15%, a 4.5% growth rate, and
a 10.5% cost of equity. Using these assumptions our RoE-g/CoE-g model indicates a value per share of €70.
➤ Our sum of the parts model is based on applying 2004 price-earnings multiples of peer group listed companies to
the forecast 2005 after-tax earnings of the bank’s various divisions. Key to the valuation is the high trading
multiple of 15.5x earnings that is applied to profits of the bank’s CEE division. This valuation method arrives at
a value per share of €72.
Our price target of €71 is based on the average of these two valuation techniques.

1
Warranted P/B = (RoE – g) / (CoE – g)

Page - 14 -
Risks
We rate Bank Austria Medium Risk. Since its IPO management has consistently delivered strong earnings growth and
improved profitability in line with its targets. This track record, albeit short, reduces the perceived risks of owning
the stock given previous pre-IPO weak financial performance. Additionally, we would argue that the risks stemming
from the bank’s exposure to the emerging markets of CEE has also diminished as three of the countries in which the
bank is active have now joined the European Union.

The risk rating on the stock is derived after consideration of a number of factors. These factors include an assessment
of industry-specific risk, financial risk and management risk. In addition, we consider historical share price volatility,
based upon the input of the Smith Barney quantitative research team, as a possible indicator of future stock-specific
risk. With regard to Bank Austria, we would highlight in particular
substantial earnings and balance sheet exposure to emerging markets.
In addition there are a number of risks to both our recommendation and earnings forecasts, which could cause the
share price to deviate significantly from our target price:
➤ Bank Austria is majority controlled (77.5%) by HVB Group (rated 3S (Sell/ Speculative; current price € 15.61).
This brings with it the generic risk of investing in a minority free float, and certain additional risks specific to this
situation, including the following.
➤ The objectives and priorities of the majority ‘strategic’ shareholder may conflict with and override the interests
of the minority free float shareholders.
➤ The company cannot be taken over without the consent of the majority shareholder, denying M&A both as a
potential source of upside and as a source of potential downside protection in the event of poorly performing
management.
➤ Bank Austria’s flexibility in capital management will be restricted by the HVB group’s capital adequacy
requirements. The IPO has brought in additional capital into Bank Austria over and above its own requirements,
which must be held for the benefit of the consolidated HVB Group ratios, and cannot be redeployed by Bank
Austria until HVB has rebuilt its own capital position.
➤ The track record of the controlling HVB Group has been heavily questioned by the market in the past few years,
on a range of strategic, operational and risk issues. Investors in the new Bank Austria will need to evaluate the
management and strategy of the controlling HVB Group as well as of Bank Austria itself.
➤ Bank Austria in its domestic market and in CEE is the sole or main representation of the HVB Group, and
conducts business there for the parent bank and its customers (among others). Indeed, in several countries Bank
Austria’s operations are branded as HVB Bank Austria. This means that (1) Bank Austria has a partial
dependency on its parent’s customer relationships and brand value, and (2) there is likely to be a directing
influence from the parent in certain business transactions undertaken by Bank Austria.

Erste Bank
Investment Thesis
Strong growth potential from the bank’s Central & Eastern European franchises and the potential for positive
surprises coming from a restructuring of the bank’s domestic Austrian business lead us to be positive on the stock.
Furthermore, we expect additional acquisitions, potentially in Romania, and Group-wide synergy projects to support
long-term earnings growth. We rate the stock a Buy/ Medium Risk (1M).

Page - 15 -
Valuation

In our valuation of this stock we place most emphasis on two valuation approaches:
➤ P/B versus RoE models, in which estimates of sustainable medium-term RoE determine the warranted P/B level
(using the standard (ROE-g)/(CoE-g) formula).
➤ A sum of the parts (SOP) model based on applying peer P/E multiples to our forecasts of Erste Bank’s divisional
profits.
Our price target of €41.79 is arrived by taking the average implied values determined by these two models. We use the
following assumptions in our P/B-ROE model: A sustainable ROE ex-goodwill of 28.6%, a discount rate of 10.5% and
4.5% growth rate. Our SOP valuation model values the bank on a 2005E P/E multiple of 15.3x by applying a target P/E
multiple of 11.9x 2005E earnings to the Austria business and a P/E multiple of 15.8x 2005E earnings to the CEE
business.

Risks

We rate Erste Bank Medium Risk. The risk rating on the stock is derived after consideration of a number of factors.
These factors include an assessment of industry-specific risk, financial risk and management risk. In addition, we
consider historical share price volatility, based upon the input of the Smith Barney quantitative research team, as a
possible indicator of future stock-specific risk. With regard to Erste Bank, we would highlight in particular:
1 Substantial earnings and balance sheet exposure to emerging markets, however this has been tempered by the
recent entry of the Czech Republic, Hungary, and Slovakia to the European Union, where the bank has large
presence.
2 Complexity and transparency of the group which capture risks from numerous fully consolidated (but not fully
controlled) small Austrian savings banks.
3 Operational and financial leverage.
In addition there are a number of risks to both our recommendation and earnings forecasts, which could cause the share
price to deviate significantly from our target price:
➤ Low risk cost despite strong volume growth in the bank’s CEE division.
➤ Any difficulties in restructuring the bank’s Austrian Retail & Mortgage division could lead to lower earnings
growth than we forecast.
➤ Deal risk — management is likely to expand further in the CEE region, raising the risk of dilutive acquisitions.
However, this risk is tempered by a respected management team that has a proven track record in successfully
executing M&A transactions in Central & Eastern Europe (CEE).

Page - 16 -
ANALYST CERTIFICATION Appendix A-1
I, Simon Nellis, hereby certify that all of the views expressed in this research report accurately reflect my personal views about any and
all of the subject issuer(s) or securities. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the
specific recommendation(s) or view(s) in this report.

IMPORTANT DISCLOSURES

Bank Austria (BACA.VI)

Ratings and Target Price History Target Closing
Analyst: Simon Nellis (covered since Oct 28 2004) EUR # Date Rating Price Price
1: 6 Sep 02 Stock rating system changed

Chart current as of 13 November 2004

2: 11 Jul 03 *2H *31.00 28.38
3: 12 Aug 03 2H *29.00 27.98
60 4: 12 Sep 03 Stock rating system changed
5: 12 Sep 03 2H 29.00 32.00
6: 3 Nov 03 2H *40.00 37.14
7: 27 Feb 04 2H *46.00 43.00
50 8: 24 Jun 04 2H *50.00 48.15
7 8 *Indicates change.

40
6
5
4 30
1 2 3

20
D J FMAM J J A SO ND J FMAM J J A S O ND J FM AM J J A S ON
2002 2003 2004
Covered See "Important Disclosures" at the end of this report for
Not covered a description of the firm’s current and former rating systems

Erste Bank (ERST.VI)

Ratings and Target Price History Target Closing
Analyst: Simon Nellis (covered since Oct 28 2004) EUR # Date Rating Price Price
1: 8 Feb 02 2H *17.00 15.25
Chart current as of 13 November 2004

2: 25 Mar 02 *3H 17.00 17.04

3: 14 May 02 3H *19.00 20.11
40 4: 20 Aug 02 3H *16.25 15.00
5: 6 Sep 02 Stock rating system changed
6: 6 Sep 02 *2H 16.25 16.93
14 7: 6 Jan 03 2H 16.25 NA
13 30 8: 19 May 03 2H *18.50 19.00
11 9: 20 Aug 03 2H *20.75 21.23
12
10 10: 12 Sep 03 Stock rating system changed
6 11: 12 Sep 03 2H *22.50 22.43
3 9 20
5 12: 8 Mar 04 2H *29.50 29.00
2 8 13: 14 Jul 04 2H 29.50 32.33
1 4 7 14: 11 Nov 04 *1M *41.79 36.19
10 *Indicates change.

0
D J FMAM J J A SO ND J FMAM J J A S O ND J FM AM J J A S ON
2002 2003 2004
Covered See "Important Disclosures" at the end of this report for
Not covered a description of the firm’s current and former rating systems

Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of a public offering of
securities of Erste Bank.
Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12
months from Bank Austria and Erste Bank.
Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services
from Bank Austria and Erste Bank in the past 12 months.
Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following company(ies) as investment banking client(s):
Bank Austria and Erste Bank.
Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following company(ies) as clients, and the services
provided were non-investment-banking, securities-related: Bank Austria and Erste Bank.
Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following company(ies) as clients, and the services
provided were non-investment-banking, non-securities-related: Bank Austria and Erste Bank.
Citigroup Global Markets Inc. or an affiliate received compensation in the past 12 months from Erste Bank.
Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global
Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm

Page - 17 -
profitability, which includes revenues from, among other business units, the Private Client Division, Institutional Equities, and Investment
Banking.
Smith Barney Equity Research Ratings Distribution
Data current as of 30 September 2004 Buy Hold Sell
Smith Barney Global Equity Research Coverage (2473) 40% 44% 17%
% of companies in each rating category that are investment banking clients 55% 55% 47%
Banks -- Europe (45) 33% 56% 11%
% of companies in each rating category that are investment banking clients 73% 80% 80%
Guide To Investment Ratings:
Smith Barney's stock recommendations include a risk rating and an investment rating.
Risk ratings, which take into account both price volatility and fundamental criteria, are: Low [L], Medium [M], High [H], and Speculative
[S].
Investment ratings are a function of Smith Barney's expectation of total return (forecast price appreciation and dividend yield within the
next 12 months) and risk rating.
For securities in developed markets (US, UK, Europe, Japan, and Australia/New Zealand), investment ratings are: Buy [1] (expected total
return of 10% or more for Low-Risk stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for
Speculative stocks); Hold [2] (0%-10% for Low-Risk stocks, 0%-15% for Medium-Risk stocks, 0%-20% for High-Risk stocks, and 0%-35%
for Speculative stocks); and Sell [3] (negative total return).
Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in risk rating, or a
change in target price. At other times, the expected total returns may fall outside of these ranges because of price movement and/or
volatility. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management.
Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after
evaluating the stock's expected performance and risk.
Between September 9, 2002, and September 12, 2003, Smith Barney's stock ratings were based upon expected performance over the
following 12 to 18 months relative to the analyst's industry coverage universe at such time. An Outperform (1) rating indicated that we
expected the stock to outperform the analyst's industry coverage universe over the coming 12-18 months. An In-line (2) rating indicated
that we expected the stock to perform approximately in line with the analyst's coverage universe. An Underperform (3) rating indicated
that we expected the stock to underperform the analyst's coverage universe. In emerging markets, the same ratings classifications were
used, but the stocks were rated based upon expected performance relative to the primary market index in the region or country. Our
complementary Risk rating system -- Low (L), Medium (M), High (H), and Speculative (S) -- took into account predictability of financial
results and stock price volatility. Risk ratings for Asia Pacific were determined by a quantitative screen which classified stocks into the
same four risk categories. In the major markets, our Industry rating system -- Overweight, Marketweight, and Underweight -- took into
account each analyst's evaluation of their industry coverage as compared to the primary market index in their region over the following 12
to 18 months.
Prior to September 9, 2002, the Firm's stock rating system was based upon the expected total return over the next 12 to 18 months. The
total return required for a given rating depended on the degree of risk in a stock (the higher the risk, the higher the required return). A Buy
(1) rating indicated an expected total return ranging from +15% or greater for a Low-Risk stock to +30% or greater for a Speculative
stock. An Outperform (2) rating indicated an expected total return ranging from +5% to +15% (Low-Risk) to +10% to +30% (Speculative).
A Neutral (3) rating indicated an expected total return ranging from -5% to +5% (Low-Risk) to -10% to +10% (Speculative). An
Underperform (4) rating indicated an expected total return ranging from -5% to -15% (Low-Risk) to -10% to -20% (Speculative). A Sell (5)
rating indicated an expected total return ranging from -15% or worse (Low-Risk) to -20% or worse (Speculative). The Risk ratings were
the same as in the current system.

OTHER DISCLOSURES
Within the past 5 years, Citigroup Global Markets Inc. or its affiliates has acted as manager or co manager of a public offering of equity
securities of Erste Bank.
Within the past 5 years, Citigroup Global Markets Inc. or its affiliates has acted as manager or co manager of a public offering of fixed
income securities of Erste Bank.
For securities recommended in this report in which the Firm is not a market maker, the Firm usually provides bids and offers and may act
as principal in connection with such transactions. The Firm is a regular issuer of traded financial instruments linked to securities that may
have been recommended in this report. The Firm regularly trades in, and may, at any time, hold a trading position (long or short) in, the
shares of the subject company(ies) discussed in this report. The Firm may engage in securities transactions in a manner inconsistent with
this research report and, with respect to securities covered by this report, will buy or sell from customers on a principal basis.
Securities recommended, offered, or sold by the Firm: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not
deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including
the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources that the Firm
believes to be reliable, we do not guarantee its accuracy and it may be incomplete and condensed. Note, however, that the Firm has
taken all reasonable steps to determine the accuracy and completeness of the disclosures made in the Important Disclosures section of
this report. All opinions, projections and estimates constitute the judgment of the author as of the date of the report and are subject to
change without notice. Prices and availability of financial instruments also are subject to change without notice. If this is a fundamental
research report, it is the intention of Smith Barney to provide research coverage of this/these issuer(s), including in response to news
affecting this issuer, subject to applicable quiet periods and capacity constraints. This report is for informational purposes only and is not
intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in this research
must take into account existing public information on such security or any registered prospectus.
Investing in non-U.S. securities, including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with,
nor be subject to the reporting requirements of the U.S. Securities and Exchange Commission. There may be limited information
available on foreign securities. Foreign companies are generally not subject to uniform audit and reporting standards, practices and

Page - 18 -
requirements comparable to those in the U.S. Securities of some foreign companies may be less liquid and their prices more volatile than
securities of comparable U.S. companies. In addition, exchange rate movements may have an adverse effect on the value of an
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