!"# Global Equity Research

Global UBS Investment Research Banks Post-crisis banking Equity Strategy

B asel III proposal 17 December 2009 ! Consultation paper www..com/investmentresearch Today, the Basel Committee for Bank Supervision published a consultation paper on financial regulatory reforms that set out to enhance capital and liquidity standards. The consultation paper is subject to an impact assessment and at this stage lacks definitive quantifications. Philip Finch Analyst ! Key proposals [email protected] Proposed changes to financial regulations include: 1) a capital ratio based on +44-20-7568 3456 common equity and retained earnings (excluding hybrids and DTAs); 2) an Peter Carter introduction of a leverage ratio based on a harmonised definition; 3) a 30-day Analyst liquidity ratio; 4) counter-cyclical buffers; and 5) a new risk weighting to reflect [email protected] counter-party risk. +44 20 7568 4043

! Potential timeframe The proposed measures are subject to an impact assessment to be carried out in the first half of 2010. Feedback on the consultative documents should be submitted by 16 April 2010. The implementation deadline is year-end 2012, although extended transition arrangements might be permitted.

! Initial conclusion While the proposed framework appears to be robust and comprehensive, regulatory uncertainty will likely persist, given the absence of definitive quantifications, and could continue to weigh on sector growth and risk appetite. As such, we maintain our preference for banks that are well capitalised and strongly funded. Following coverage initiation, we add BAC to our preferred list.

This report has been prepared by UBS Limited ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 8. UBS 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.

Post-crisis banking 17 December 2009

Basel III proposal Today, the Basel Committee on Banking Supervision published its consultative proposals to strengthen the resilience of the banking sector. The proposals set out to enhance capital and liquidity standards within the banking system. The proposals build on the previous "Enhancements to the Basel II framework (July 2009)" and "Report and recommendations of the Cross-border Bank Resolution Group (September 2009)”.

There was little in terms of surprise in the broad themes of the document in that it seems a logical extension of the July 2009 and September 2009 documents. We would characterise this as a cautious follow-up on that work. A key theme running throughout the document is the requirement for harmonisation of standards globally to prevent capital and regulatory arbitrage, along with increased disclosure to both regulators and shareholders. Key proposals

! Capital base and risk coverage: raising the quality, transparency and consistency of the capital base, reducing the possibility of capital and regulatory arbitrage. This is an extension and modification of the existing tier 1 capital regime, with an increased emphasis on the importance of common equity capital as the primary means of ensuring solvency and reducing the usage of non-equity tier 1 capital.

! Leverage ratio: to be introduced as a supplementary measure to Basel II, and to be “calculated in a comparable manner across jurisdictions, adjusting for any remaining differences in accounting standards. It will include a 30- day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio.

! Countercyclical capital measures: to promote more forward-looking provisions, conserve capital to build buffers at individual banks and in the banking sector that can be used in times of stress, and achieve the broader macro prudential goal of protecting the banking sector from periods of excess credit growth;

! Global liquidity standard: for internationally active banks with a minimum 30-day liquidity coverage ratio and a longer-term structural liquidity ratio. To enable implementation of this standard, there will a common set of liquidity metrics to assist supervisors to understand liquidity risks at a bank and system level. Capital base measures Tier 1 capital is to be predominantly comprised of common shares and retained equity. Non-equity tier 1 must be subordinated and have discretionary dividends/coupons with no incentive to redeem in times of stress. Tier 2 capital instruments will be harmonised, and tier 3 capital will be phased out.

There will be a calculation of a stressed VaR capital requirement based on a 12m period of financial stress. Banks must calculate capital requirements for counterparty credit risk, similar to those that have been proposed for market risk.

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Banks will be subject to a capital charge for mark-to-market losses (i.e. credit valuation adjustments) and increased margining requirements for large and illiquid derivative exposures. Exclusions from tier 1 capital The committee is proposing a number of measures to harmonise the types of capital that can comprise tier 1 capital and the exclusions from that capital. The key tenet is that common equity and retained earnings are the key capital to protect depositors in a going concern. Tier 2 capital is only expected to be used to protect depositors in the event of a failure of the bank.

The proposal is that there will be additional types of capital tier 1 capital (Tier 1 Additional Going Concern Capital), but this will be limited in both scale and types of capital. All of these additional tier 1 capital types must be perpetual, callable at the initiative of the issuer after regulatory authorisation, have fully discretionary dividends/coupon and be capable of principal loss absorption at pre-specified trigger points, and cannot have features that hinder recapitalisation.

There are a number of detailed proposals, but these are mostly to prevent loopholes being exploited to require less common equity than would otherwise be required.

Key exclusions from tier 1 capital are:

! Goodwill and other intangibles.

! Minority interests.

! Stock surplus, i.e. share premium can only be included if the shares to which it relates can also be included in tier 1 capital. This is to prevent, for example, the share premium from preference shares being included in tier 1 capital, given that the share premium might need to be repaid in the event of the (non-tier 1 preference shares) being repaid.

! Unrealised gains on debt instruments, loans and receivables, equities and own-use properties and investment properties – all unrealised gains/losses will be applied to the tier 1 capital.

! Deferred tax assets that rely on future profitability to be realised will be excluded from the common equity component of tier 1 capital. In the case that the assets do not require future profitability (because local laws vary in this respect), the assets would be assigned the relevant sovereign risk weighting.

! Investments in own shares: to prevent double-counting of a bank's own capital, all investments in own shares would be excluded from tier 1 capital, except gross long positions that can be netted with shorts without any counterparty risk. Also to be excluded from tier 1 capital would be a bank’s investments in itself via its holdings in relevant index securities.

! Investment in certain other types of banking, financial and entities: to prevent the double-counting of system-wide tier 1 capital. For example, reciprocal cross-shareholdings and large investments in other banks. These restrictions will apply irrespective of whether the investments occur in the

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banking book or the trading book. Investments via index securities would be included in this provision.

! Shortfalls in the stock of provisions to expected losses, which are currently only charged 50% to tier 1 capital and 50% to tier 2.

! Gains or losses due to changes in own credit risk on fair-values financial liabilities.

! Defined benefit pension fund assets and liabilities: if assets in the fund to which the bank has unregistered access can be used to offset the deduction once the relevant risk weight has been applied for that asset class, but only with regulator's approval.

In addition, banks will be required to disclose a full reconciliation of all regulatory capital elements back to the balance sheet in the audited accounts, along with a disclosure of regulatory adjustments and a description of all limits. All banks will be required to make available all the terms and conditions related to all regulatory capital instruments. Leverage ratio measures A harmonised leverage ratio including certain off-balance sheet assets will be introduced to limit overall leverage levels so that there is non-risk based "backstop" based on gross exposure. The measure is to be based on measures consistent with company accounts. No netting of positions is to be allowed and no allowance for collateral or other credit risk mitigation measures will be allowed.

Certain off-balance sheet items will also be included using a flat 100% credit conversion factor, and written credit protection is included at notional value. Repo transactions (without netting) will be included in this measure and there are two options being considered to calculate the exposure of derivatives. Counterparty credit risk The proposal comprises a large number of changes to the Basel II framework in the area of capital provisions for counterparty credit risk. From those changes a few key points stand out:

! The application of a multiplier of 1.25 to the asset value correlation for exposures to large regulated financial businesses (>$25bn assets) and to all unregulated financial businesses. Both the multiplier and the asset size threshold are subject to calibration.

! A supervisory haircut for all repo-style transactions using securitisation collateral and the prohibition of re-securitisations as collateral for regulatory capital purposes.

! Extending the margin period of risk to 20 days for large OTC derivatives and securities financing transactions, which have illiquid or hard-to-replace collateral.

! Place additional constraints on banks’ estimates of Alpha to promote greater consistency and reduce the mis-specification of risk.

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Potential timeframe The BIS has invited comments on its proposals by 16 April 2010. An impact assessment is expected to take place during the first half of 2010. Many of the proposals have not been “calibrated” (i.e. limits have not been set); the calibration process is expected to take place during the second half of 2010 based on the impact assessment and the comments received by the BIS.

A fully calibrated set of standard is then expected to be published by the end of 2010, with the aim of implementation by the end of 2012 with “appropriate phase-in measures and grandfathering arrangements for a sufficiently long period to ensure a smooth transition to the new standards”. Initial observation Table 1: Capital ratios based on current standards (%)

Tangible common equity/RWA Common equity/assets

2009E 2010E 2011E 2009E 2010E 2011E

Australia 9.1 9.5 10.3 5.5 5.8 6.0

Canada 9.0 9.7 10.5 4.7 4.9 5.2

Japan 7.5 7.6 7.7 3.6 3.6 3.7

US 8.4 8.7 10.0 8.2 8.4 8.9

Europe 8.8 9.0 9.6 5.1 5.2 5.4

GEM 11.9 11.7 11.8 7.6 7.5 7.5

Global 9.5 9.6 10.2 6.2 6.3 6.5

Source: UBS estimates

Although the Basel Committee’s consultation paper has not released specific guidelines on new capital requirements, discussions with a number of banks have suggested that regulators may be looking for a minimum core equity Tier 1 ratio of 4% and a 50% buffer above this by 2013. Alongside this, a leverage ratio (equity to total assets) of 5% could also be implemented (by 2013).

Using tangible common equity (which strips out hybrid capital and goodwill) to risk-weighted assets as a proxy for core equity Tier 1 ratio, global banks, on an aggregated basis, should have sufficient capital to meet the new capital requirements. In terms of equity/asset ratio, only Japanese banks look exposed in terms of capital shortfall.

Although the proposed framework will likely lower reported capital ratios across the board, based on new definitions, we believe an extended implementation period will give banks invaluable time in which to “earn their way out of trouble”, with capital buffers established organically via up to three years of retained earnings.

While we do not believe the bank recapitalisation process is over, especially in Europe and Japan where more common equity is needed, a year-end 2012 implementation timeframe (or possibly later) does significantly reduce the dilution risk arising from regulatory reforms.

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Investment conclusion While the proposed framework appears to be robust and comprehensive, it is likely to undergo changes following feedback during the consultation stage and recommendations arising from the impact assessment. Given the absence of definitive quantifications, regulatory uncertainty will likely persist and could weigh on sector growth and risk appetite.

As such, we maintain our preference for banks that have raised capital, are well funded and/or have emerging-market exposure. Such banks are likely to face less dilution risk while being well placed for future growth and market share gains in spite of regulatory changes. Following coverage initiation (see “All the pieces are in place”, Corp, 17 December 2009), we add BAC to our global banks’ preferred list in place of US Bancorp, on which we have a Neutral rating.

Table 2 Global banks – UBS top picks

Market Cap UBS Adj PE Price / Book UBS Adj RoE (%) Net Div Yield Rating (US$m) 09E 10E 09E 10E 09E 10E 09E 10E Most preferred Akbank Buy 18,502 10.4x 10.6x 2.0x 1.8x 21.4% 18.1% 2.4% 3.3% Bank of America Corp. Buy 131,924 -ve 22.8x 0.7x 0.8x 2.9% 4.0% 0.3% 0.3% Bank of Nova Scotia Buy 45,996 13.7x 13.2x 2.4x 2.2x 18.3% 17.4% 4.0% 4.0% Goldman Sachs Group Inc Buy 95,183 8.7x 10.5x 1.4x 1.3x 17.7% 13.4% 0.8% 0.8% HSBC Buy 198,507 16.3x 13.5x 1.6x 1.5x 10.7% 11.7% 2.9% 3.6% Industrial & Commercial Buy 255,849 13.6x 10.7x 2.6x 2.3x 20.2% 22.5% 3.7% 4.7% Buy 57,623 -ve 25.2x 0.8x 0.8x -20.4% 3.3% 0.0% 0.0% Sberbank Buy (CBE) 60,562 113.7x 15.8x 2.7x 2.3x 2.2% 15.1% 0.0% 0.3% Société Générale Buy 48,611 25.4x 8.9x 1.0x 1.0x 15.3% 11.7% 1.2% 3.4%

Source: UBS estimates

Table 3: Global banks – least preferred stocks

Market Cap UBS Adj PE Price / Book UBS Adj RoE (%) Net Div Yield Rating (US$m) 09E 10E 09E 10E 09E 10E 09E 10E Least preferred BBVA Sell 68,234 8.9x 11.8x 1.4x 1.3x 17.9% 11.8% 2.8% 2.8% Sell 10,871 -ve 18.7x 0.7x 0.7x -21.2% 3.8% 0.0% 0.0% Neutral 16,255 18.5x 21.4x 0.8x 0.8x 3.2% 3.8% 0.0% 0.0% Mizuho Financial Group Neutral 32,814 20.1x 17.0x 0.9x 0.9x 5.7% 5.4% 4.4% 4.4% PNC Financial Services Group Sell 23,104 17.3x 60.9x 1.0x 1.0x 8.1% 3.2% 1.8% 0.8% Santander Sell 131,408 11.6x 13.1x 1.4x 1.3x 14.0% 11.6% 3.4% 3.5% SunTrust Banks Inc. Sell 7,437 -ve -ve 0.6x 0.6x -5.5% -3.9% 1.5% 1.9% Taishin Financial Holding Sell 2,094 33.3x 27.7x 1.1x 1.1x 11.4% 3.7% 0.8% 0.9% & Company Sell 121,575 12.8x 37.0x 1.4x 1.4x 12.1% 3.9% 1.9% 0.8%

Source: UBS estimates

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Chart 1: Capital ratios based on current standards (by country), YE2012E

25.0%

Czech Republic 20.0%

Taiw an Hong Kong South Africa Turkey Kazakhstan 15.0% Sw itzerland Indonesia Poland Benelux Philippines Russia Canada Singapore India Thailand Nordic Australia US Hungary 10.0% France China Malaysia Greece Italy UK Austria Germany Japan Israel Portugal 5.0% Tangible Common Equity/RWA, YE2012E Ireland

0.0% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Equity/Assets, YE2012E

Source: UBS estimates

Chart 2: Capital ratios based on current standards (bottom quartile), YE2012E

10%

Deutsche Bank Crédit Agricole 9% BCOM Danske 8% Sabadell Public Bank Shenzhen Dev elopment Industrial Bank Banesto 7% RBS SMFG BCP State Bank of Indi 6% Mizuho Hua Xia Bank BPI 5% Agricultural Bank of Greece Banif SGPS

Tangible Equity/RWA (%) 12E Taishin 4%

3% Commerzbank

Allied Irish 2% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0 Equity/Assets (%) 12E

Source: UBS estimates

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Table 4: Global banks - valuation summary

UBS Adj PE Price / Book UBS Adj RoE (%) Net Div Yield (%) 09E 10E 11E 09E 10E 11E 09E 10E 11E 09E 10E 11E Australia 14.9x 13.4x 11.3x 2.0x 1.8x 1.7x 15.0 14.9 16.4 4.9 5.5 6.0 Canada 12.4x 12.2x 10.5x 2.0x 1.9x 1.7x 18.9 16.7 17.8 4.1 4.1 4.2 GEM 16.0x 12.1x 10.3x 2.0x 1.8x 1.6x 15.0 17.4 18.2 2.5 3.1 3.7 Asia (ex-Japan) 16.1x 12.1x 10.5x 2.1x 1.9x 1.7x 16.1 18.1 18.6 2.7 3.3 3.9 EMEA 15.9x 12.0x 9.4x 1.8x 1.6x 1.4x 10.4 14.1 16.6 1.9 2.3 3.3 Latin America 14.2x 12.1x 10.7x 2.5x 2.2x 1.9x 21.1 21.3 39.2 1.1 1.9 2.9 Japan 19.2x 11.7x 9.9x 0.8x 0.8x 0.8x 5.0 6.5 7.5 3.0 3.1 3.3 United Kingdom 13.6x 12.9x 8.8x 1.2x 1.2x 1.1x 8.0 10.7 14.3 2.1 2.7 3.2 Europe 12.1x 11.8x 8.7x 1.1x 1.0x 1.0x 10.7 10.4 12.9 2.2 2.9 4.0 United States 16.7x 19.3x 9.4x 1.0x 1.0x 0.9x 5.8 5.5 10.6 1.0 1.2 2.1 Global Banks 14.0x 13.1x 9.5x 1.3x 1.2x 1.1x 11.3 11.5 14.0 2.4 2.9 3.7

Source: UBS estimates

! Statement of Risk

Sector forecasts and ratings are subject to developments in the wider economy and the macro environment. Stock prices could be negatively affected by rapid changes in interest rates or a slower-than-expected rebound in the economy, which, among other things, could result in higher loan losses and/or slower loan growth than is currently anticipated.

! Analyst Certification

Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.

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Required Disclosures

This report has been prepared by UBS Limited, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS.

For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request.

UBS Investment Research: Global Equity Rating Allocations

UBS 12-Month Rating Rating Category Coverage1 IB Services2 Buy Buy 44% 39% Neutral Hold/Neutral 40% 35% Sell Sell 15% 27% UBS Short-Term Rating Rating Category Coverage3 IB Services4 Buy Buy less than 1% 33% Sell Sell less than 1% 0% 1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months.

Source: UBS. Rating allocations are as of 30 September 2009. UBS Investment Research: Global Equity Rating Definitions

UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition Buy: Stock price expected to rise within three months from the time the rating was assigned Buy because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned Sell because of a specific catalyst or event.

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KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months.

EXCEPTIONS AND SPECIAL CASES UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.

Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in the NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any, follows. UBS Limited: Philip Finch; Peter Carter.

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Company Disclosures

Company Name Reuters 12-mo rating Short-term rating Price Price date Akbank4, 16b AKBNK.IS Buy N/A TRY9.30 16 Dec 2009 Bank of America Corp.2, 4, 5, 6a, 6b, 6c, 7, 16b, 22 BAC.N Buy N/A US$15.28 16 Dec 2009

Bank of Nova Scotia14, 16b, 22 BNS.TO Buy N/A C$48.50 16 Dec 2009 BBVA2, 4, 5, 15, 16b, 22 BBVA.MC Sell N/A €12.55 16 Dec 2009 Commerzbank2, 4, 5, 14, 16b, 22 CBKG.DE Sell N/A €6.35 16 Dec 2009 Danske Bank2, 4, 16b DANSKE.CO Neutral N/A DKr119.25 16 Dec 2009 Goldman Sachs Group Inc6b, 6c, 7, 13, 16b, 18a, 22 GS.N Buy N/A US$164.99 16 Dec 2009

HSBC2, 4, 16a, 16b HSBA.L Buy N/A 709p 16 Dec 2009 ICBC (Asia) 0349.HK Not Rated N/A HK$17.26 17 Dec 2009 Lloyds Banking Group2, 4, 5, 12, 14, 16b, 22 LLOY.L Buy N/A 56p 16 Dec 2009

Mizuho Financial Group2, 4, 6a, 16b 8411.T Neutral N/A ¥185 17 Dec 2009 PNC Financial Services Group4, 6b, 6c, 7, 16b PNC.N Sell N/A US$52.00 16 Dec 2009

Santander2, 5, 16b, 22 SAN.MC Sell N/A €11.54 16 Dec 2009 Sberbank4, 16b, 20, 22 SBER.RTS Buy (CBE) N/A US$2.70 16 Dec 2009 Société Générale2, 4, 5, 16b, 22 SOGN.PA Buy N/A €49.15 16 Dec 2009 SunTrust Banks Inc.2, 4, 6a, 6b, 6c, 7, 16b STI.N Sell N/A US$20.85 16 Dec 2009

Taishin Financial Holding5 2887.TW Sell N/A NT$11.85 17 Dec 2009 US Bancorp4, 6a, 6b, 6c, 7, 16b USB.N Neutral N/A US$22.09 16 Dec 2009 Wells Fargo & Company2, 4, 5, 6a, 6b, 6c, 7, 16b, 18b, 22 WFC.N Sell N/A US$25.84 16 Dec 2009

Source: UBS. All prices as of local market close. Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date

2. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months. 4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity. 5. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months. 6a. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided. 6b. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking securities-related services are being, or have been, provided. 6c. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided. 7. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity. 12. Directors or employees of UBS AG, its affiliates or subsidiaries are directors of this company. 13. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end). 14. UBS Limited acts as broker to this company. 15. UBS AG, its affiliates or subsidiaries has issued a warrant the value of which is based on one or more of the financial instruments of this company. 16a. UBS Securities (Hong Kong) Limited is a market maker in the HK-listed securities of this company. 16b. UBS Securities LLC makes a market in the securities and/or ADRs of this company.

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18a. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Goldman Sachs. 18b. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Wells Fargo & Co. 20. Because UBS believes this security presents significantly higher-than-normal risk, its rating is deemed Buy if the FSR exceeds the MRA by 10% (compared with 6% under the normal rating system). 22. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month`s end (or the prior month`s end if this report is dated less than 10 working days after the most recent month`s end).

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For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Publishing Administration.

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