德意志银行：英国银行业研究报告2009年1月

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UK Banks
The year of the borrower
Jason Napier, CFA
Research Analyst
(44) 20 754 74433
jason.napier@db.com
Andrew Hill, CFA
Research Analyst
(44) 207 54 58493
andrew-d.hill@db.com
It's not all bad news, but it's still more bad than good
A torrid 2008 takes UK bank P/B's to half the 1990's trough and a fifth of the 03-07
average. In 2 of the last 3 recessions, stocks troughed at start of the downturn,
with bear market rallies of 125% of peak to trough real declines. Official rates near
zero confers significant benefits on households resetting to SVR. But without
government help, lower corporate lending offsets these factors in our view, with
unemployment driving loan loss and capital fears. We are cautious on Lloyds TSB
in particular, HSBC and RBS to a lesser extent, and Buyers of Barclays.
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, 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. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Forecast change
Top picks
Barclays (BARC.L),GBP153.40 Buy
Companies featured
Barclays (BARC.L),GBP153.40 Buy
2007A 2008E 2009E
EPS Adjusted (GBP)69.38 40.21 28.88
P/E Adjusted (x) 7.3 3.8 5.3
HSBC Holdings (HSBA.L),GBP662.00 Hold
2007A 2008E 2009E
P/E (x) 10.2 6.2 10.8
Div yield (%) 5.0 9.6 6.8
Price/book (x) – – –
Lloyds TSB (LLOY.L),GBP126.00 Sell
2007A 2008E 2009E
EPS Adjusted (GBP)58.59 54.23 1.93
P/E Adjusted (x) 8.1 2.3 65.4
Royal Bank of Scotland Grou (RBS.L),GBP49.40 Hold
2007A 2008E 2009E
EPS Adjusted (GBP)67.08 1.70 3.60
P/E Adjusted (x) 6.6 29.1 13.7
Standard Chartered (STAN.L),GBP875.00 Hold
2007A 2008E 2009E
EPS Adjusted (USD)2.01 2.17 1.10
P/E Adjusted (x) 18.4 5.8 11.4
UK Banks, FTSE100 performance
0
20
40
60
80
100
120
140
160
Dec-03
Apr-04
Aug-04
Dec-04
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Index, rebased to 100 at start
UK Banks FTSE100
Global Markets Research Company
Good news (1): Valuation, bear market rallies
The UK banks erased 12 years of absolute gains in 2008, bringing the sector P/B
ratio to 0.37x, half the early 1990’s trough and a fifth of the recent average despite
substantially improved capital ratios. In the recessions of the early 1980s and
1990s bank shares bottomed a quarter before the recession began and prompted
real price rallies of ~125% the peak to trough price decline. In the early 1970s,
however, shares troughed a year later in the cycle.
Good news (2): Mortgage borrowers benefit significantly from the SVR reset
UK mortgage-borrowers will benefit substantially from resets to bank standard
variable rates (SVR) as interest rates fall further. With SVR at 4.4% now, the
average borrower household adds 3% to income net of tax and 13% to disposable
income on reset. If UK rates fall another 1.5% as we forecast and SVR rates
follow, these benefits rise to 13% and 36% respectively.
Bad news (1): Balance sheet fears not gone yet
Though risk asset losses will likely be substantially lower following the
reclassification of £76bn of holdings so far (and more to follow, we believe) P&L
hits will continue in 2009, in our view. In addition, procyclicality of Basel 2 and
sharply lower profits (we see Lloyds TSB and RBS as roughly breakeven in 2009)
we expect will call capital adequacy into question in 1H09 in particular.
Bad news (2) Corporate lending troubled, more important to the economy
Most pivotal for 2009, however, is the impact on corporate profitability and
unemployment of a sharp reduction in the availability of business debt and a 6%
YoY decline in nominal GDP growth. With HBOS’ December 2008 profit warning
suggesting that corporate loan losses may already be running ahead of 1992
peaks, the economy set to slow and commercial property prices to fall further in
our view, we see significant downside risks to consensus earnings expectations.
Cutting earnings forecasts, too early to overweight the sector; risks
Notwithstanding the positive factors above, we remain cautious, reducing 2009
EPS forecasts for Barclays, HSBC, RBS and StanChart by 12% (Barclays) to 72%
(RBS). Our target prices, derived by sum of the parts valuation, are also amended
in each case (see Forecast Changes section). We are Sellers of Lloyds TSB, and
see greater risks around HSBC and RBS of our Holds. Barclays is our only Buy.
We see higher than expected loan losses as the key sector downside risk. Key
upside risks relate to a sharp improvement in sector sentiment driven by a
resumption of corporate lending volumes, likely linked to government assistance.

Table of Contents
The year of the borrower............................................................................... 4
2009: The year of the troubled borrower ..................................................................................4
How we could be wrong ............................................................................... 5
Things could be substantially better, substantially sooner........................................................5
Government help required ............................................................................. 6
Key points ................................................................................................................................6
Solving the liquidity trap invites government intervention ........................................................6
Government intervention required ............................................................................................8
Risk assets: receding risks ........................................................................... 11
Key points ...............................................................................................................................11
Plenty of balance sheet risk ....................................................................................................11
Capital raised has only recently begun to exceed risk losses .................................................12
Accounting changes significantly P&L volatility and pressure on regulatory capital ...............13
Credit quality – Achilles Heel ........................................................................ 16
Key points ...............................................................................................................................16
Economic downturn: worse than the consensus forecast......................................................16
Why are banks still hoarding capital? ......................................................................................17
The 2008/10 credit cycle would have forced most recaps anyway ........................................18
UK Household balance sheets: stretched ...............................................................................20
Sharper uptick in credit losses in corporate and SME.............................................................23
Commercial property is again shaping as a problem area.......................................................24
Don’t HBOS’ loan losses justify a more bearish view?...........................................................26
The downturn’s global – sensitivities to 1992 losses, worldwide...........................................28
Looking for the turning point......................................................................... 29
Key points ...............................................................................................................................29
Are we nearing the bottom?...................................................................................................29
Historical house price relationships ........................................................................................30
Beware of the bear .................................................................................................................31
Forecast changes ..................................................................................... 33
Lower banking revenues and higher loan losses ....................................................................33
Sector valuation approach.......................................................................................................34
Sector risks .............................................................................................................................34
Barclays................................................................................................. 35
HSBC Holdings ........................................................................................ 37
Lloyds TSB ............................................................................................. 39
Royal Bank of Scotland ............................................................................... 41
Standard Chartered ................................................................................... 43

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