Global Equity Research 21 June 2010 Global Investment Banking Tracker FICC resilient in 2010E but cutting EPS due to Equities disappointment: OW Swiss IBs Banks Kian AbouhosseinAC (44-20) 7325-1523 kian.abouhossein@jpmorgan.com Delphine Lee (44-20) 7325-3971 delphine.x.lee@jpmorgan.com J.P. Morgan Securities Ltd. See page 61 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan 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. Global IBs: Weighted Average Revenue Progression % 10E/09 11E/10E FI -10% -2% Equity -14% 13% IB -2% 14% Total IB -9% 5% Source: J.P. Morgan estimates, Company data. Note: Weighted Average including UBS, CSG, GS, MS, BNP and SG only. For more details Please refer to our Notes: "UBS: Gruebel's 'make or break' year: Remain OW on risk reward analysis", Published on 15th April, 2010 “Credit Suisse: Blue Sky analysis – Sfr90: Remain OW” ", Published on 15th April, 2010 "Global Investment Banks Dodd/Lincoln Bill Analysis: implications for the future structure of the IB industry", Published on 29th April, 2010 We downgrade our EPS for IBs by 6% in 2010E and 3% in 2011E triggered by the EU sovereign crisis. Within IB, FICC will have weathered the market volatility better in 2Q than equities as well as ECM/DCM. The downgrade is not FI related, but Equities. Consensus will need to adjust equity revenues materially downward, in our view. Beyond 2Q2010E, the market may be yet again surprised by the FICC resiliency in 2010E accounting for 56% of clean revenue. Equity revenues should disappoint in 2010E accounting for 24% of clean revenues – with ECM not contributing in 2H10 in our assumptions. • Despite our EPS cuts, European IBs should continue to outperform traditional credit geared banks at just 7x 2011E and 1.0x P/tangible BV ex Swiss PB business at 11x. In addition, Euro-IBs relative to retail banks are i) the banking counterparty of choice, ii) non-Eurozone such as Swiss Banks, and iii) have limited exposure to Sovereign risk countries both in terms of lending and AFS exposure. Our IB top-picks are both CSG and UBS. Globally, we remain concerned about US IBs due to section 716 (see our note “Global Investment Banks US Derivative Regulation - better for European IBs”, publ, 27 May 2010) and hence unattractive rel. to Swiss despite attractive valuations, especially relative to DB and Barclays. Hence our preference order is CSG, UBS, DB, BARC, MS and GS. • We expect Fixed Income to decline 27% in 2Q/1Q2010E and 10% in 2010E/09, with credit trading more than -50% compared to 1Q10 due to correlation hedging losses between cash and synthetic, offset partially by increasing spreads driven by increased volatility in both Rates and FX. We expect volatility to continuously support rates and FX revenues in 2010E. DCM issuance has been affected by sovereign risk concerns but we expect refi to restart post summer break. • Equities continue to disappoint, declining -28% in 2Q/1Q2010E, now expecting a lower equity revenue run-rate at -14% in 2010E relative to clean 2009 with clients volumes increasing in low-touch electronic trading only to c.80% in US leading to -15% flow revenues in 2QE/1Q10. Most importantly, Equity derivative revenues were impacted negatively by E50-200m in 2Q i) due to difficult to hedge Dividend Swaps positions, ii) short correlation, and iii) steepening of the volatility curve. Equity raisings is very slow as sellers such as PE firms are highly price sensitive. Summary Overview, local currency (revenues in millions) lcl ccy, mn Rec. Price PT*** EPS adj. 09 EPS adj. 10E EPS adj. 11E Equity Rev. 2QE FI Rev. 2QE IB div. Rev2QE B3 ET1* 2011E TBV/Share** 2011E CS OW 45.6 66 5.9 5.4 6.5 1,271 1,997 4,029 8.3% 27.1 UBS OW 15.5 23 0.1 1.5 2.2 1,050 1,400