Workshop Bank Capital

Workshop “Bank Capital” Advisory & Primary Markets | DCM Bonds Origination | May 2016 The Global Banking Landscape 30 G-SIBs are around the globe ...
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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

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