Workshop “Bank Capital”
Advisory & Primary Markets | DCM Bonds Origination | May 2016
The Global Banking Landscape 30 G-SIBs are around the globe
Europe: 15 GSIBs
Asia: 7 GSIBs
USA: 8 GSIBs
China: 4 GSIBs Industrial and Commercial Bank of China China Construction Bank Agricultural Bank of China Bank of China
Source: FSB 1
Major Chinese & European Banks: Total Assets USD trillion
4
3
2
1
0 NDA BOCOM SANT
BARC
DB
BNP
BOC
ABC
CCB
ICBC
Source: Commerzbank Corporates & Markets, Bloomberg Please note that BoCom is not a G-SIB
2
RWAs USD trillion
2
1
0 NDA
DB
BOCOM BARC
SANT
BNP
BOC
CCB
ABC
ICBC
Source: Commerzbank Corporates & Markets, Bloomberg 3
CET1 Ratio Basel III Transitional in % 20
15
10
5
0 ABC
BNP
BOC BOCOM BARC
SANT
ICBC
CCB
DB
NDA
Source: Commerzbank Corporates & Markets, Bloomberg 4
Profitability and Return on Equity 2015 profits attributable to shareholders (USDbn) 50
50.0%
40
40.0%
30
30.0%
20
20.0%
10
10.0%
0
0.0%
-10
-10.0%
-20
-20.0% DB
BARC
SANT
BNP
NDA
BOCOM
BOC
ABC
ICBC
CCB
Source: Commerzbank Corporates & Markets, Bloomberg 5
Profitability Return on Averaged Equities has declined since 2012 25
%
20
15
10
5
0 2006
2007
2008
2009
2010
2011
Bank of China
ICBC
Agricultural Bank
Bank of Communications
2012
2013
2014
2015
China Construction Bank
Source: Commerzbank Corporates & Markets, Bloomberg 6
Loans to Deposits
200
150
100
50
0 ABC
ICBC
CCB
DB
BOC BOCOM BARC
BNP
SANT
NDA
Source: Commerzbank Corporates & Markets, Bloomberg 7
Senior Unsecured Ratings
Moody's
S&P
ICBC
A1
A
CCB
A1
A
ABC
A1
A
BOC
A1
A
BOCOM
A2
BNP
A1
DB BARC
AA
Baa1
BBB+
Baa3
BBB
SANT NDA
AAa3
AA-
Source: Commerzbank Corporates & Markets, Bloomberg Average rating uplift for Chinese banks is 2-4 notches by S&P and 4-5 notches by Moodys
8
Senior Unsecured Issuance Volume Senior Unsecured Volumes in USD bn Currencies 300
250
European G-SIBs
200
EUR 34%
Other 40%
USD 26%
150
Currencies
100
Other 19%
50
Chinese G-SIBs
CNY 32%
0 2011
2012
2013
Chinese G-SIBs
2014
European G-SIBs
2015
USD 49%
Source: Commerzbank Corporates & Markets, Bloomberg 9
in bp
Senior Unsecured Secondary Market Performance
300
ICBCAS 2.905 11/13/20 CCB 3 1/4 07/02/19
250
AGRBK 2 3/4 10/20/20 BCHINA 2 7/8 06/30/20
200
BNP 2 3/8 05/21/20 DB 2.95 08/20/20 BACR 2 7/8 06/08/20
150
ABBEY 2 7/8 10/16/20
100
50 Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Source: Commerzbank Corporates & Markets, Bloomberg 10
Bank Capital Issuance Volume Bank Capital Volumes in USD bn
Total European GSIBS Tier 2 Issuance TierVolume 2: European in USD bn
Total Chinese GSIBS Tier 2 Issuance TierVolume 2: Chinese in USD bn
G-SIBs Currencies
G-SIBs Currencies
Tier 2 Other 6%
60
USD 15% EUR 39%
40
20 USD 55%
CNY 85%
0 2011
2012
2013
European G-SIBs
2014
2015
Total European GSIBS AT1 Issuance Volume in USD bn AT1: European
Chinese G-SIBs
G-SIBs Currencies
Additional Tier 1 60
Other 11%
EUR 22%
AT1: Chinese G-SIBs Currencies
Other Other 3% 3%
USD 18%
40
20
0 2011
2012
European G-SIBs
2013
2014
2015
USD 67%
CNY 79%
Chinese G-SIBs
Source: Commerzbank Corporates & Markets, Bloomberg 11
Bank Capital Issuance Volume Bank Capital Volumes in USD bn Tier 2
Currencies
60 Other 7%
40
EUR 33%
European G-SIBs
20
USD 60%
0 2011
2012
2013
European G-SIBs
2014
2015
Chinese G-SIBs
Additional Tier 1 Other 1%
60
40
USD 16%
Chinese G-SIBs
20
0 2011
2012
European G-SIBs
2013
2014
2015
CNY 83%
Chinese G-SIBs
Source: Commerzbank Corporates & Markets, Bloomberg 12
Tier 2 Secondary Market Performance in bp
Tier 2 650 ICBCAS 4 7/8 09/21/25
600
CCB 3 7/8 05/13/25
550
BCHINA 5 11/13/24
500
DB 4 1/2 04/01/25
450
BACR 4 3/8 09/11/24 ABBEY 4 3/4 09/15/25
400 350 300 250 200 Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Source: Commerzbank Corporates & Markets, Bloomberg 13
Additional Tier 1 Secondary Market Performance in bp
Tier 2 1600
ICBCAS 6 12/29/49 CCB 4.65 12/29/49
1400
DB 6 1/4 05/29/49 BACR 6 5/8 06/29/49
1200
BNP 7 5/8 12/29/49
1000
800
600
400
200 Jan-16
Feb-16
Mar-16
Apr-16
May-16
Source: Commerzbank Corporates & Markets, Bloomberg 14
Basel III Implementation and Key Regulatory Initiatives
Europe
China
Basel III
Implemented
Implemented
TLAC
Phase in from 2019: 16% minimum*
Phase in from 2025: 16% minimum
2022: 18% minimum*
Bail-in
Since 1st January
2028: 18% minimum
TBD
Source: Commerzbank Corporates & Markets, Bloomberg * Plus buffer requirements
15
TLAC Gap: $359bn needed! Chinese banks need TLAC capital to plug the gap
•
TLAC shortfall: AgBank most exposed, EM banks’ TLAC shortfall higher than DM banks’
$bn $bn
600 500
Up to 2.5% exemption
140
532
120 400
117
359
300
100
90
100
72
80 60
200
40 100
28
28
29
37
20 0
0 DM G-SIBs
EM G-SIBs
Ag Bank of China
Bank of China
China Construction Bank
ICBC
Source: Commerzbank Corporates & Markets, Bloomberg, Research, FSB, BCBS, USD in bn FY 14 data 16
Non-CNY denominated bond offerings Senior
Tier 2
AT1
Headquarter
Branch
Headquarter
Branch
Headquarter
Branch
Bank of China
N
Y
Y
Y
Y
N
ICBC
N
Y
Y
Y
Y
N
China Construction Bank
N
Y
Y
N
Y
N
Agricultural Bank
N
Y
N
N
N
N
Bank of Communications
N
Y
Y
N
Y
N
Source: Commerzbank Corporates & Markets, Bloomberg 17
Issuance Structures HoldCo / OpCo / Opco - Branch
•
Structural subordination • •
•
Statutory subordination •
•
HoldCo-OpCo concept needs a complete overhaul of existing corporate structure Taxation issue arising from capital gains
Secondary market liquidity of both existing and new senior unsecured bonds will be evaporated by possible Tier 2 deduction
Contractual subordination •
Higher funding costs for banks
Source: Commerzbank Corporates & Markets, Bloomberg 18
Commerzbank Corporates & Markets Frankfurt
London
New York
Singapore Branch
Hong Kong Branch
Commerzbank AG
Commerzbank AG London Branch
Commerzbank Capital Markets Corporation
Commerzbank AG
Commerzbank AG
DLZ - Gebäude 2, Händlerhaus Mainzer Landstraße 153 60327 Frankfurt am Main
30 Gresham Street, London EC2V 7PG
2 World Financial Center, 31st Floor, New York, NY 10281
71 Robinson Road, #12-01 Singapore 068895
15/F, Lee Garden One 33 Hysan Avenue Causeway Bay Central Hong Kong
Tel: + 49 69 136 21200 Fax: + 49 69 136 23097
Tel: + 44 20 7623 8000
Tel: + 1 212 703 4000 Fax: + 1 212 703 4001
Tel: + 65 6311 0000
Tel: +852 3988 0988
This document has been created and published by the Corporates & Markets division of Commerzbank AG, Frankfurt/Main or the group companies mentioned in the document ("Commerzbank"). Commerzbank Corporates & Markets is the investment banking division of Commerzbank, integrating research, debt, equities, interest rates and foreign exchange. This is a financial promotion/marketing communication (together “communication”). It is not “investment research” or “financial analysis” as these terms are defined in applicable regulations and has not been prepared by a research analyst. The views in this communication may differ from the published views of Commerzbank Corporates & Markets Research Department and the communication has been prepared separately of such department. This communication may contain short term trading ideas. Any returns or future expectations referred to are not intended to forecast or predict future events. Any prices provided herein (other than those that are identified as being historical) are indicative only, and do not represent firm quotes as to either size or price. This communication is for information purposes only. The information contained herein does not constitute the provision of investment advice. It is not intended to be nor should it be construed as an offer or solicitation to acquire, or dispose of, any of the financial instruments and/or securities mentioned in this communication and will not form the basis or a part of any contract. Potential counterparties/ distributors should review independently and/or obtain independent professional advice and draw their own conclusions regarding the suitability/appropriateness of any transaction including the economic benefit and risks and the legal, regulatory, credit, tax and accounting aspects in relation to their particular circumstances. Levels, bases and relief from taxation may change from time to time. Any information in this communication is based on data obtained from sources believed by Commerzbank to be reliable, but no representations, guarantees or warranties are made by Commerzbank with regard to the accuracy, completeness or suitability of the data. The past performance of financial instruments is not indicative of future results. No assurance can be given that any financial instrument or issuer described herein would yield favourable investment results. This communication is intended solely for distribution to Professional Clients and/or Eligible Counterparties of Commerzbank. It is not intended to be distributed to Retail Clients or potential Retail Clients. Neither Commerzbank nor any of its respective directors, officers or employees accepts any responsibility or liability whatsoever for any expense, loss or damages arising out of or in any way connected with the use of all or any part of this communication. Commerzbank and/or its principals or employees may have a long or short position or may transact in financial instrument(s) and/or securities referred to herein or may trade in such financial instruments with other customers on a principal basis. The information may have been discussed between various Commerzbank personnel and such personnel may have already acted on the basis of this information (including trading for Commerzbank’s own account or communication of the information to other customers of Commerzbank). Commerzbank may act as a market maker in the financial instruments or companies discussed herein and may also perform or seek to perform investment banking services for those companies. No part of this communication may be reproduced, distributed or transmitted in any manner without prior written permission of Commerzbank. This communication or the manner of its distribution may be restricted by law or regulation in certain countries. Persons into whose possession this document may come are required to inform themselves about, and to observe any such restriction. By accepting this communication, a recipient hereof agrees to be bound by the foregoing limitations. This communication is issued by Commerzbank. Commerzbank AG, London Branch is authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request. Japan: Not for distribution in Japan Copyright © Commerzbank 2016. All rights reserved.