FCF Bank Monitor Q2 2021

1 EXECUTIVE SUMMARY Executive Summary

The FCF Bank FCF Bank Monitor Recipients Monitor is a standardized report is a comprehensive quarterly analysis of the historic and current The FCF Bank Monitor targets the following audience: on Credit Default spreads of Credit Default Swaps (CDS) and ratings for banks most ■ Financial Institutions Swap spreads and active in the German and Austrian corporate lending market. The ratings of German analysis provides the short-term, medium-term and long-term market ■ Investors and foreign banks, view on such banks’ credit default risks and is an indicator for banks’ ■ Corporates with existing bank financings and with further financing most active in the (re-)financing costs in the capital markets needs German and Austrian midcap market and is a Selection of Financial Institutions Availability reference for investors, corporates The selection of financial institutions is based on FCF’s financing The FCF Bank Monitor is available on FCF’s website at 'www.fcf.de' and professionals expertise in the German midcap market and includes the most relevant institutions with respect to funding volumes in the German midcap market More advanced, Data detailed and / or ■ Only institutions with actively traded CDS instruments are included customized reports All input data is provided by S&P Capital IQ and is not independently are available upon verified by FCF. Ratio and multiple calculations are driven based on request Customized Information the input data available. For additional information and disclaimer, please refer to the last page More advanced, detailed and / or customized reports can be ordered individually, offering subscribers the possibility to customize the following criteria (among others): To recommend colleagues to be added to the mailing list, kindly send ■ Inclusion of international / US institutions an email with the respective contact information ■ Selection / deselection of specific institutions ■ Specific solvency analysis (equity or debt analysis) ■ Monthly updates If you have questions, comments or ideas, please do not hesitate to contact us

3 FCF OVERVIEW FCF Overview

FCF seeks to Who We Are Capital Markets Capabilities and Services provide its clients ■ Specialized Investment Bank and Financing Specialist ■ Venture capital ■ Private equity with financing Private / ■ Advising public and private small- / midcap companies Pre-IPO ■ Growth capital solutions ■ Advisor for structuring and placement of financing transactions: ■ Initial Public Offering pursued in tandem) (i) at the lowest (IPO) / Capital increase ■ Private investment in

Equity Public cost, − All instruments: Unbiased approach to all available corporate ■ Dual-track (IPO and Public Equity (PIPE) financing instruments (no product selling approach), allowing alternative transaction ■ Block trade (ii) with the highest for customized financing structures flexibility, ■ Receivables / Factoring / ■ Working capital / − All investors: Close and trusted relationships with senior Short-term Asset-backed securities Revolving credit facility (iii) in the shortest executives of virtually all relevant equity and debt investors Debt ■ Borrowing base / ■ Guarantees / Inventory Letter of credit period of time, − Fast process: Process management skills and direct / personal (iv) with the highest access to institutional debt and equity investors enable fast ■ Bank loan facility / ■ Promissory note Syndicated loans (Schuldscheindarlehen) closing proba- transactions Debt ■ Sale-and-lease-back / ■ Second lien / Long-term Leasing Subordinated loans bility, and with Debt ■ More than 100 transactions with a total placement volume in ■ Corporate bonds (public / ■ Venture debt (v) financing excess of EUR 4.0 billion since foundation in 2005 private placement) ■ Unitranches partners that ■ High yield / PIK bond ■ More than 15 professionals headquartered in Munich integrate well Hybrid ■ Mezzanine capital ■ Convertible bonds into their strategy Selected Transactions

European Investment European Investment Real Estate Sale & European Investment Family Office Advisory European Investment Capital Increase Syndicated Loan Factoring Facility Factoring Facility Factoring Facility Round Extension Bank Debt Facility Bank Debt Facility Lease-Back Bank Debt Facility & Acquisition Bank Debt Facility Financing Facilities

[confidential] [confidential]

Quantum Systems Quantum Systems WOCO Franz Josef KmB Technologie SNP Schneider- Hammerer Aluminium Hydrogenious LOHC Asamer Baustoffe AG Food Company Immunic AG Homegoods Company ROBART GmbH GmbH GmbH Wolf Holding GmbH GmbH Neureither & Partner SE Industries Group Technologies GmbH EUR 10m [confidential] EUR 80m EUR 25m EUR 45m [confidential] EUR 30m > EUR 20m ~ EUR 25m ~ EUR 80m [confidential] [confidential] June 2021 May 2021 May 2021 May 2021 March 2021 February 2021 December 2020 December 2020 October 2020 June 2020 February 2020 December 2019

Guarantee & Debt Syndicated Loan, Capital Increase and Syndicated Loan European Investment Transaction Support Capital Increase Factoring Facility Investment in Acquisition Financing Bilateral Loan Facility Capital Increase Facilities Factoring and Inventory Round Extension Facility Bank Debt Facility Leasing [confidential] [confidential]

Advisor to AkrosA Hydrogenious LOHC Doppstadt pfenning logistics GSE Group pfenning logistics Business Service Leading Virtual PCM Rail.One AG Vasopharm GmbH Synapticon GmbH Private Equity censhare AG Technologies GmbH Familienholding GmbH Group Acquisition by Finexx Group Provider Reality Company GmbH & Co. KG ~ EUR 20m EUR 17m EUR 80m > EUR 10m [confidential] > EUR 10m > EUR 15m [confidential] > EUR 10m < EUR 10m EUR 25m November 2019 July 2019 July 2019 June 2019 June / January 2019 March 2019 December 2018 December 2018 April 2018 April 2018 April 2018 December 2017

5 FCF Facts & Figures

More than Close to More than More than # 1 15 100 100 4 bn financing advisor in investment banking years of aggregated, completed total volume of advised & Germany, purely focusing professionals investment banking / transactions closed transactions since on corporate financing financing experience 2005 transactions

More than More than Network 2000 25 120 Leading access to more than contacts to family offices international conferences articles and research advisor for financing 4000 international and ultra-high-net-worth organized papers published transactions with EIB in financial institutions individuals worldwide the DACH region

6 KEY FINDINGS Key Findings

The FCF Bank Key Findings (Q2 2021) Monitor highlights the key develop- ■ The overall market environment during Q2 2021 showed a stable sidewards movement with CDS spreads at pre-COVID-19 levels (in line ments of German with Q4 2019). Ongoing fiscal and monetary easing and accelerating vaccinations continue to have stabilizing effects on markets, which and foreign banks have gained trust in governments and institutions within the EU to support the economy most active in the ■ CDS spreads of German banks have trended downwards and closed the gap to foreign banks, reflecting the general market situation that German and foreign banks are still perceived to be slightly more solvent than their German peers. The main drivers for the tightening gap were the Austrian mid-cap strong improvement of CDS spreads of BayernLB and Helaba financing market ■ Q2 2021 saw the first rating downgrades since 5 quarters as rating agencies begin to update their assessments based on 2020 (post- The FCF Bank COVID) financials, slow digitalization and challenging interest rate environment. The DZ Bank, Helaba and HSBC experienced rating Monitor outlines downgrades by one notch each several key factors that should be ■ The FCF league table of German and foreign banks operating in the German and Austrian midcap segments, based on CDS spreads considered when across 1-, 5- and 10-year terms and major ratings, gives an indication on the banks expected future stability and crisis resistance: selecting banks − ING (score: 70.0) heads the league table followed by SMBC (score: 66.0) and SEB (score: 64.5) during a (re)finan- − HCOB (score: 9.5) completes the league table ranking behind NordLB (score: 10.0) and UniCredit (score: 12.0) cing of existing financial liabilities ■ The variation in CDS spreads and ratings highlights the importance of considering the perceived solvency of the bank prior to selecting an institution as a lending bank or transaction counterparty: − Across 1-year CDS spreads, the lowest CDS spread lies at 6.0 bps (SMBC) whilst the highest spread lies at 46.9 bps (DZ Bank), 7.8x higher − Across 5-year CDS spreads, the lowest CDS spread lies at 22.4 bps (ING) whilst the highest spread lies at 76.6 bps (NordLB), 3.4x higher − Across 10-year CDS spreads, the lowest CDS spread lies at 36.6 bps (ING) whilst the highest spread lies at 97.9 bps (UniCredit), 2.7x higher − Across S&P ratings, the highest rating is AA- (BayernLB, LBBW) whilst the lowest rating is BBB (HCOB, UniCredit), implying a spread of 5 rating notches ■ The relationship between backward- and forward-looking indicators has strengthened over the last quarter, however, is still significantly weaker than 5 quarters prior, shown by a low correlation and explanatory power (R²) of 18% vs 40% in Q4/19. Overall, this implies a need for rating updates to adopt to current risk sentiment shown in CDS spreads ■ German banks - by number of institutions - show a higher probability of a future rating downgrade, indicated by higher CDS spreads than their current rating would indicate, where DZ Bank and NordLB appear most susceptible to future rating downgrades

8 Background Information

The FCF Bank Background Information Monitor highlights the key develop- ■ CDS spreads of banks reveal two fundamental market principles that have significant implications for borrowers: ments of German − Solvency / crisis resistance: CDS spreads put a price on the future solvency of a bank according to all information currently and foreign banks available in the market and signal the bank´s ability to remain operational in periods of crisis / illiquid markets. most active in the German and ➢ Banks with lower, more stable CDS spreads should respond less erratically during periods of stress with their borrowers (i.e. Austrian midcap breach of covenant), ceteris paribus financing market − Refinancing costs / ability to lend at low rates: CDS spreads indicate the perceived solvency of banks, hence their future ability to refinance in the future (funding costs). Consequently, banks with lower, more stable CDS spreads generally have to pay lower risk The FCF Bank premia as part of their funding costs, enabling them to offer cheaper, longer financing conditions to their customers / borrowers, Monitor outlines ceteris paribus several key factors that should be ■ Reference bonds of banks and their corresponding CDS spreads are strongly impacted by regulatory changes / events: considered when selecting banks − In ’17, the European Union created a new legal framework that allows European banks to issue senior 'preferred' bonds (lower risk to during a (re)finan- investors) cing of existing ■ All European banks (excl. German banks) have since issued 'preferred' bonds, while the German 'Sanierungs- und financial liabilities Abwicklungsgesetz' ('SAG') prohibited German commercial banks from issuing such bonds ■ The corresponding reference CDS spreads of European banks decreased sharply ('preferred', lower risk), while reference CDS spreads of German commercial banks remained unchanged ('non-preferred', higher risk) − In ’18, the SAG was modified to also allow German commercial banks to issue 'preferred' bonds as of May ’19 ■ The corresponding reference CDS spreads of German commercial banks (e.g. Deutsche Bank, Commerzbank) decreased sharply in May ’19 and can now be compared 'like-for-like' with their European competitors

9 League Table

Rank Trend Bank Country (HQ) CDS 1Y CDS 5Y CDS 10Y Rating Total FCF allocated Last Rank 90-Day Rank Last Rank 90-Day Rank Last Rank 90-Day Rank Last Rank Overall scores of 1 (low) to Q2 2021 vs. Q1 2021 Price Score Ø Price Score Price Score Ø Price Score Price Score Ø Price Score Price Score Rank 21 (high) to the 21 1 6.2 20 7.5 20 22.4 21 23.2 21 36.6 21 37.8 20 5 16 70.0

German and foreign 2 6.0 21 6.3 21 28.1 20 27.2 20 37.9 20 37.0 21 6 9 66.0 banks, based on: 3 7.8 19 8.3 19 28.1 19 29.4 19 48.0 18 48.9 19 5 16 64.5 i. 1-Year CDS spread and volatility1; 4 11.0 17 12.9 16 33.6 16 33.9 18 51.0 17 51.9 18 5 16 59.0 ii. 5-Year CDS spread 5 8.4 18 10.3 18 33.4 18 36.5 17 54.3 16 59.0 17 6 9 56.5 and volatility1; iii. 10-Year CDS sp- 6 11.3 16 12.1 17 33.4 17 54.3 7 47.2 19 75.2 7 4 20 51.5 read and volatility1; 7 14.6 13 15.1 14 36.7 15 41.5 16 61.6 13 63.4 14 7 6 45.5 iv. Public ratings (Fitch, Moody´s, S&P) 8 17.4 10 20.5 10 40.0 14 42.4 15 62.0 12 62.6 15 6 9 42.5

Based on the total 9 14.4 14 16.5 12 43.6 11 47.0 10 66.7 11 68.6 12 6 9 39.5 score, FCF created 9 31.6 4 31.9 5 45.4 8 46.8 11 57.1 15 59.2 16 4 20 39.5 a league table (high to low) 11 13.2 15 15.3 13 44.4 9 45.6 13 70.8 7 71.4 10 7 6 36.5 12 14.7 12 14.3 15 46.7 7 42.5 14 77.8 5 73.9 9 6 9 35.5 The ranking in the league table gives 13 16.1 11 18.7 11 43.0 12 45.6 12 67.8 10 70.2 11 8 3 35.0 an indication on the 14 22.3 8 26.6 8 42.6 13 54.1 8 61.3 14 74.3 8 7 6 32.5 banks’ expected 15 27.0 future stability and 21.4 9 22.7 9 44.2 10 51.3 9 70.1 8 77.1 6 8 3 crisis resistance 16 46.9 1 46.1 1 64.9 3 63.6 6 69.6 9 68.3 13 5 16 24.5 across maturities 17 28.6 6 30.9 6 56.9 6 66.9 5 72.7 6 93.8 4 6 9 21.0 and rating agencies 18 31.7 3 33.9 3 57.3 5 67.4 4 81.6 4 93.0 5 8 3 13.5 ING (score 70.0) 19 22.7 7 27.5 7 63.6 4 69.7 3 97.9 1 106.1 1 9 1 12.0 heads the league table, whereas the 20 45.9 2 46.1 2 76.6 1 83.9 1 91.0 3 101.7 2 6 9 10.0 HCOB ranks 21st 21 31.3 5 32.0 4 65.6 2 70.0 2 97.4 2 101.5 3 9 1 9.5 (score 9.5)

Source: S&P Capital IQ as of June 30th, 2021 10 Notes: 1 Volatility based on latest 90-day average CDS spread League Table Development LTM

The Dutch ING Q3 2020 Q4 2020 Q1 2021 Q2 2021 consistently heads the league table over 1. 1. 1. 1. the last four quarters 2. 2. 2. 2. The Austrian 3. 3. 3. 3. Raiffeisen Bank International shows 4. 4. 4. 4. the most positive 5. 5. 5. 5. development over the last four 6. 6. 6. 6. quarters, gaining ten 7. 7. 7. 7. places 8. 8. 8. The German Helaba 9. 9. 9. 9. has seen the largest 10. 10. 10. 9. decline over the past four quarters (losing 11. 11. 11. 11. eight places from 12. 12. 12. 12. rank 6 in Q3/20 to rank 14 in Q2/21) 13. 13. 13. 13. 14. 14. 14. While the first and last five ranks 15. 15. 15. 15. remain rather stable, 16. 16. 16. 16. BayernLB exper- 17. 17. 17. ienced the largest change in one 18. 18. 18. 18. quarter. The jump by 19. 19. 19. 19. seven places to rank 6 was driven by a 20. 20. 20. 20. sharp decline in 21. 21. 21. 21. CDS spreads

Source: S&P Capital IQ as of June 30th, 2021 11 5-YEAR CDS SPREADS

12 5-Year CDS Spreads Overview & Historical Analysis

1 10-Year Price Development (in bps) 3 3-Year Changes (in %) 4 Long-Term Ratings 5 1 Volatility Since 2011, CDS German Institutions 31.12.2011 31.12.2012 31.12.2013 31.12.2014 31.12.2015 31.12.2016 31.12.2017 31.12.2018 31.12.2019 31.12.2020 30.06.2021 Δ 18-21 Δ 19-21 Δ 20-21 90 Days S&P Moody's Fitch spreads have Bayern LB 289.5 94.6 101.0 77.2 75.8 68.6 32.9 38.3 35.3 64.4 33.4 -12.6% -5.3% -48.1% 8.0% - Aa3 A Commerzbank1 284.5 154.6 110.7 83.6 90.6 117.3 54.5 124.7 35.2 38.7 43.0 -65.6% 21.9% 11.0% 1.2% BBB+ A1 - continuously trended Deutsche Bank1 194.2 95.2 84.3 79.7 96.5 162.3 72.4 204.6 60.9 54.5 44.2 -78.4% -27.4% -18.8% 1.1% BBB+ A3 BBB+ downwards DZ Bank 165.1 92.4 82.4 75.9 78.1 78.6 70.2 66.1 62.0 62.5 64.9 -1.9% 4.6% 3.8% 1.2% A+ Aa1 AA Hamburg Commercial 373.4 170.1 189.3 193.8 187.0 172.1 147.6 149.0 109.0 75.2 65.6 -56.0% -39.8% -12.8% 0.9% BBB Baa2 - Helaba 258.3 103.9 67.2 58.3 58.2 52.3 46.2 46.9 42.3 56.0 42.6 -9.3% 0.5% -24.0% 4.1% A- Aa3 AA- 2 Change in reference LBBW 287.2 96.6 80.8 61.4 64.8 50.0 36.6 38.8 48.0 46.9 45.4 17.0% -5.4% -3.2% 1.1% - Aa3 A bonds of foreign Nord LB na na na 104.6 114.1 115.8 72.8 93.5 67.2 95.1 76.6 -18.1% 14.0% -19.5% 2.1% - A3 A Min 165.1 92.4 67.2 58.3 58.2 50.0 32.9 38.3 35.2 38.7 33.4 -78.4% -39.8% -48.1% 0.9% banks from 'non- Max 373.4 170.1 189.3 193.8 187.0 172.1 147.6 204.6 109.0 95.1 76.6 17.0% 21.9% 11.0% 8.0% 2 preferred' to Median 284.5 96.6 84.3 78.4 84.3 97.2 62.4 79.8 54.5 59.2 44.8 -15.4% -2.4% -15.8% 1.2% 'preferred' led to Mean 264.6 115.3 102.2 91.8 95.7 102.1 66.6 95.3 57.5 61.7 52.0 -28.1% -4.6% -14.0% 2.5%

sharp decline in 1 10-Year Price Development (in bps) 3 3-Year Changes (in %) 4 Volatility Long-Term Ratings 5 CDS spreads Foreign Institutions 31.12.2011 31.12.2012 31.12.2013 31.12.2014 31.12.2015 31.12.2016 31.12.2017 31.12.2018 31.12.2019 31.12.2020 30.06.2021 Δ 18-21 Δ 19-21 Δ 20-21 90 Days S&P Moody's Fitch Bank of China 278.0 108.5 113.6 120.1 130.4 142.4 66.1 81.8 35.5 34.3 46.7 -42.9% 31.5% 36.3% 2.2% A A1 A BAWAG 404.2 250.1 124.1 128.7 141.5 169.5 104.6 135.9 103.0 77.8 56.9 -58.2% -44.8% -26.9% 3.1% - A2 A- 3 In Q2/21, CDS BNP Paribas 259.0 137.0 83.3 69.6 70.8 85.6 22.5 73.0 25.4 32.0 33.6 -54.0% 32.4% 5.0% 1.6% A+ Aa3 AA- spreads for foreign Crédit Mutuel 318.6 150.1 109.1 64.8 41.9 24.0 26.5 40.6 37.2 44.2 43.6 7.5% 17.3% -1.3% 0.9% A Aa3 AA- Erste Group Bank 352.9 149.4 116.8 159.3 123.2 127.7 47.3 52.8 47.5 42.6 40.0 -24.3% -15.9% -6.2% 0.6% A A2 A banks have been HSBC 153.4 93.5 65.4 52.1 83.1 81.2 35.3 91.3 50.2 44.1 44.4 -51.4% -11.5% 0.7% 1.5% A- A3 A+ slightly lower than ING Bank 221.9 109.2 81.2 54.8 52.4 64.4 16.9 39.1 19.6 21.4 22.4 -42.7% 14.2% 4.8% 1.3% A+ Aa3 AA− NIBC 458.0 272.5 271.2 178.6 159.8 182.0 70.0 91.7 86.2 79.9 57.3 -37.5% -33.4% -28.2% 2.3% BBB+ - BBB their German peers RBI 365.1 159.5 126.4 239.6 211.5 142.4 62.8 80.8 75.5 47.0 36.7 -54.6% -51.4% -22.0% 1.1% A- A3 - by approx. 10bps Santander 355.7 270.6 123.2 79.6 139.7 119.3 31.8 74.9 27.9 35.3 33.4 -55.4% 19.6% -5.3% 1.3% A A2 A- SEB 210.0 100.5 77.5 50.8 56.6 66.3 32.3 40.8 27.6 37.2 28.1 -31.0% 1.8% -24.3% 1.4% A+ Aa2 AA- SMBC 181.0 92.5 54.8 76.2 87.5 46.9 48.7 63.1 29.2 27.2 28.1 -55.5% -3.7% 3.2% 1.0% A A1 A 4 Since 2020, two- UniCredit 537.3 299.5 146.6 128.0 132.7 173.8 61.4 177.4 76.3 71.2 63.6 -64.1% -16.7% -10.7% 1.1% BBB Baa1 BBB- thirds of banks Min 153.4 92.5 54.8 50.8 41.9 24.0 16.9 39.1 19.6 21.4 22.4 -64.1% -51.4% -28.2% 0.6% Max 537.3 299.5 271.2 239.6 211.5 182.0 2 104.6 177.4 103.0 79.9 63.6 7.5% 32.4% 36.3% 3.1% showed an improve- Median 318.6 149.4 113.6 79.6 123.2 119.3 47.3 74.9 37.2 42.6 40.0 -51.4% -3.7% -5.3% 1.3% ment of CDS Mean 315.0 168.7 114.9 107.8 110.1 109.6 48.2 80.2 49.3 45.7 41.1 -43.4% -4.7% -5.8% 1.5%

spreads 1 10-Year Price Development (in bps) 3 3-Year Changes (in %) 4 Volatility Long-Term Ratings All Institutions 31.12.2011 31.12.2012 31.12.2013 31.12.2014 31.12.2015 31.12.2016 31.12.2017 31.12.2018 31.12.2019 31.12.2020 30.06.2021 Δ 18-21 Δ 19-21 Δ 20-21 90 Days S&P Moody's Fitch Min 153.4 92.4 54.8 50.8 41.9 24.0 16.9 38.3 19.6 21.4 22.4 -78.4% -51.4% -48.1% 0.6% 5 In Q2/21, three Max 537.3 299.5 271.2 239.6 211.5 182.0 2 147.6 204.6 109.0 95.1 76.6 17.0% 32.4% 36.3% 8.0% banks (DZ Bank, Median 285.9 123.1 105.1 79.6 90.6 115.8 48.7 74.9 47.5 46.9 43.6 -42.9% -3.7% -6.2% 1.3% Helaba & HSBC) Mean 297.4 150.0 110.4 101.7 104.6 106.8 55.2 86.0 52.4 51.8 45.3 -37.6% -4.6% -8.9% 1.8% experienced rating 10-Year Price Development (in bps) 3-Year Changes (in %) Volatility Long-Term Ratings downgrades by one 5-Year Govt. Interest Rates 31.12.2011 31.12.2012 31.12.2013 31.12.2014 31.12.2015 31.12.2016 31.12.2017 31.12.2018 31.12.2019 31.12.2020 30.06.2021 Δ 18-21 Δ 19-21 Δ 20-21 90 Days S&P Moody's Fitch EU Central Government Bond 155.5 58.3 107.1 7.1 1.7 -47.3 -16.6 -26.3 -44.6 -72.4 -56.0 -113.0% -25.4% 22.7% 2.5% AAA Aaa AAA notch each United Kingdom Government Debt 86.4 84.9 204.2 113.1 125.6 48.0 72.0 90.7 60.6 -11.2 35.5 -60.9% -41.4% 417.0% 4.8% AA Aa3 AA-

Source: S&P Capital IQ as of June 30th, 2021 Notes: All calculations based on mid prices 13 * A change in Long-Term Ratings is indicated with color (upgrade / neutral / downgrade) 5-Year CDS Spreads Pricing, Rating, Volatility & Development

1 Based on the latest CDS Mid-Price as of 30/06/2021 (in bps) 12 Month Change in CDS Mid-Price (in bps) 5-year CDS spreads, Nord LB 76.6 BAWAG -70.1 the most solvent Hamburg Commercial 65.6 RBI -61.9 banks are ING Bank, DZ Bank 64.9 UniCredit -61.7 UniCredit 63.6 Deutsche Bank -51.8 SMBC and SEB with NIBC 57.3 NIBC -49.0 BAWAG 56.9 Erste Group Bank -36.9 CDS spreads below Bank of China 46.7 Hamburg Commercial -33.2 30 bps LBBW 45.4 Commerzbank -26.9 3 HSBC 44.4 Bayern LB -26.6 2 Deutsche Bank 44.2 Nord LB -24.7 HSBC 2 The ratio between Crédit Mutuel 43.6 3.4x -19.5 Commerzbank 43.0 Santander -18.9 BNP Paribas the least and most Helaba 42.6 -16.1 Bank of China Erste Group Bank 40.0 -16.0 solvent bank is 3.4x SEB RBI 36.7 -14.4 LBBW -11.0 BNP Paribas 33.6 (76.6 bps / 22.4 ING Bank -9.5 Bayern LB 33.4 SMBC -7.5 bps), signalling a Santander 33.4 Helaba -7.0 SEB 28.1 moderate gap in the 1 Crédit Mutuel -5.3 SMBC 28.1 DZ Bank 1.4 perceived medium- ING Bank 22.4 term solvency amongst the selected banks Long-Term Rating* as of 30/06/2021 3 Month (90 days) Volatility as of 30/06/2021

3 All banks except DZ UniCredit BBB Bank of China 63.3% Hamburg Commercial BBB HSBC 58.3% Bank experienced NIBC BBB+ ING Bank 56.0% Deutsche Bank BBB+ Commerzbank 55.4% lower CDS spreads Commerzbank BBB+ Deutsche Bank 54.9% than 12 months RBI A- UniCredit 52.6% HSBC A- Santander 52.5% prior. In June 2020, Helaba A- BNP Paribas 52.3% markets were still SMBC A DZ Bank 50.7% Santander A LBBW 49.3% slowly recovering Nord LB A Bayern LB 42.5% Erste Group Bank A Erste Group Bank 42.4% from the COVID-19 Crédit Mutuel A SEB 41.4% pandemic BAWAG A Helaba 40.3% Bank of China A RBI 38.8% SEB A+ Nord LB 35.4% ING Bank A+ SMBC 32.2% DZ Bank A+ Hamburg Commercial 31.7% BNP Paribas A+ NIBC 30.4% LBBW AA- Crédit Mutuel 26.7% Bayern LB AA- BAWAG 25.2%

Source: S&P Capital IQ as of June 30th, 2021 14 Note: All calculations based on mid prices, * S&P Rating notches (institutions without S&P Rating converted using best available Moody’s or Fitch rating) 5-Year CDS Spreads 36 Month Spread Development of German vs. Foreign Institutions

bps German and foreign 1 German BaFin aligns regulatory 2 The Coronavirus Pandemic 3 The 2nd wave of COVID-19 banks generally fol- 125 framework with that of the EU (COVID-19) becomes a global renews economic fears and low the same trend and allows German banks to economic challenge and leads to further governmental over the past 3 years issue 'preferred' bonds that causes significant market support measures become the new reference bonds turbulences

1 Regulatory changes introduced in May ’19 in Germany led 100 to a sharp decline in CDS spreads for DB and Commerzbank

2 COVID-19 caused 75 volatility in the financial system as economies introduced lockdown measures

3 Ongoing fiscal & 50

monetary easing and 4 accelerating vaccinations keep stabilizing markets, leading to CDS spreads 25 in line with pre- COVID levels

4 The gap between German and foreign banks substantially 0 tightened in Q2 Jun 18 Sep 18 Dez 18 Mrz 19 Jun 19 Sep 19 Dez 19 Mrz 20 Jun 20 Sep 20 Dez 20 Mrz 21 Jun 21

Germany (Median) Germany (Mean) Foreign (Median) Foreign (Mean)

Source: S&P Capital IQ as of June 30th, 2021 15 Note: All calculations based on mid prices 5-Year CDS Spreads 36 Month Spread Development of German Institutions

bps Over the last 3 German BaFin aligns regulatory 1 The Coronavirus Pandemic years, Deutsche 225 framework with that of the EU and (COVID-19) becomes a global Bank and HCOB allows German banks to issue economic challenge and were the most vola- 'preferred' bonds that become the causes significant market new reference bonds turbulences tile German banks 200 with standard deviations of 47 bps and 32 bps, respectively 175

DZ Bank and Helaba were the least vola- 150 tile (standard deviations below 5 bps) 125 1 COVID-19 caused volatility in the financial system in 100 March ‘20 as European economies entered into 75 strict lockdown measures. Since then, support 50 measures have eased pressure on

financial institutions 2 25

2 BayernLB and Helaba showed a strong improvement 0 Jun 18 Sep 18 Dez 18 Mrz 19 Jun 19 Sep 19 Dez 19 Mrz 20 Jun 20 Sep 20 Dez 20 Mrz 21 Jun 21 of spreads, driven by

large bond Bayern LB Commerzbank Deutsche Bank DZ Bank Hamburg Commercial Helaba LBBW Nord LB emissions

Source: S&P Capital IQ as of June 30th, 2021 16 Note: All calculations based on mid prices 5-Year CDS Spreads 36 Month Spread Development of Foreign Institutions

bps Over the last 3 1 The Coronavirus Pandemic (COVID-19) years, UniCredit and 250 becomes a global economic challenge and BAWAG were the causes significant market turbulences most volatile foreign banks with standard 225 deviations of 42 bps and 26 bps, 200 respectively

SEB, ING and Credit 175 Mutuel were the least volatile (standard deviations 150 below 10 bps)

The macro- 125 economic situation in Italy, France and the UK in ‘18, led to a 100 strong increase in CDS spreads 75

1 COVID-19 caused volatility in the 50 financial system in March ‘20 as Euro- pean economies 25 entered into strict lockdown measures. 0 Since then, support Jun 18 Sep 18 Dez 18 Mrz 19 Jun 19 Sep 19 Dez 19 Mrz 20 Jun 20 Sep 20 Dez 20 Mrz 21 Jun 21 measures have eased pressure on Bank of China BAWAG BNP Paribas Crédit Mutuel Erste Group Bank HSBC ING Bank financial institutions NIBC RBI Santander SEB SMBC UniCredit

Source S&P Capital IQ as of June 30th, 2021 17 Note: All calculations based on mid prices 5-Year CDS Spreads CDS vs. Rating for 5 Year Spreads

The comparison of 90 current CDS spreads implied risk for a future rating action / ‘downgrade’ Strenghtening correlation between forward- with current ratings, (CDS price higher than implied by rating and statistical regression) and backward-looking indicators (R² of 0.09 in highlights the 80 Q1/21 to 0.18 in Q2/21) result from recent rating updates for DZ Bank and Helaba relationship between Nord LB these forward- and backward-looking 70 Hamburg Commercial solvency indicators DZ Bank UniCredit A moderate corre- 60 NIBC lation exists between BAWAG CDS spreads and 50 rating (18% of the Bank of China LBBW Deutsche Bank variation in CDS Crédit Mutuel HSBC spreads can be ex- Helaba Commerzbank 40 Erste Group Bank plained via ratings) RBI Bayern LB BNP Paribas CDS Price (in bps)Price (inCDS Santander The slope implies 30 that (on average) a SEB SMBC 1- notch fall in rating ING Bank would result in a 20 higher 5-Year CDS price by approx. 4.15 R² = 0.18 bps 10 implied potential for a future rating action / ‘upgrade’ (CDS price lower than implied by rating and statistical regression) Banks above the trendline seem to 0 possess greater AAA1 AA+2 3AA AA4 - A+5 6A A7- BBB+8 BBB9 BBB10 - BB+11 BB12 solvency risk than Rating

their rating would Year -

imply; a possible PD 0.10% 0.16% 0.15% 0.52% 0.64% 0.42% 0.86% 2.30% 2.17% 4.94% 6.47% 9.98% indicator for a future rating ‘downgrade’ 5 S&P

Source: S&P Capital IQ as of June 30th, 2021 Note: All calculations based on mid prices; rating according to S&P Rating notches, if available. Institutions without S&P Rating converted using best available Moody’s or Fitch rating; 18 S&P 5-Year PD represents the 5-year probability of default for each respective rating notch ANNEX DEFINITIONS Definitions

Credit Default Swaps

Credit Default Swaps (CDS) are, in simplest terms, very much like insurance policies. The main difference between a classical insurance policy and a CDS is that those buying the CDS can trade in and out of their contracts.

A CDS is a privately negotiated contract in which one party, the Protection Buyer (the one seeking to shed the risk, for example a lender to a bank), pays a fee (also premium or 'spread') to the Protection Seller (the one taking on the risk, for example specialized financial institutions) for protection against a loss that may be incurred from the exposure to a loan in case of unforeseen developments (e.g. non-repayment of / default on the loan). The development is known as a credit event, indicating that the borrower (the reference entity) on which the CDS contract is written is unable to pay its debts. If, such a credit event occurs, the Protection Seller will make a payment to the Protection Buyer of the contract.

For example: A typical contract provides for the Protection Buyer to pay the Protection Seller 500 bps per year (5.0% p.a.) for protection against a default of Bank A on its senior debt. The contract’s notional size is for EUR 10m. This means that the Protection Buyer pays EUR 500,000 per year (4 quarterly payments of EUR 125,000). If another bank, Bank B, has a CDS spread priced at 250 bps (2.5% p.a.), Bank B is perceived to have a lower credit risk than Bank A.

The higher the credit risk of a bank (as seen in the CDS spread), the greater the funding costs that a bank incurs will be. Funding costs represent rate at which the bank is able to borrow from the institutional / inter-bank market (funding cost risk premium). As a direct consequence, the funding cost risk premium has a direct impact on the rates that a bank will charge its clients: Bank B will be able to offer i) cheaper, longer financing conditions and ii) greater flexibility during periods of stress with their clients (corporates), ceteris paribus.

Aside from the direct impact on a banks’ lending rates, the CDS spread is also a good proxy of a banks´ current / future behavior towards its corporate clients in times of market (macro) or client specific (micro) volatility / stress.

Premium

Protection Seller No Payment Protection Buyer No Credit Event (Investor) (Investor) Credit Event

Payment

Credit

Interest Repayment

Reference Borrower

Source: S&P Capital IQ 20 CONTACT DETAILS & DISCLAIMER

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