www.jpmorganmarkets.comEurope Equity Research31 March 2016Global Investment Banks1Q earnings cut further below consensus: US money centered banks to outperform EU IBs on revenuesGlobal IBsKian Abouhossein AC(44-20) 7134-4575kian.abouhossein@jpmorgan.comBloombergJPMA ABOUHOSSEIN <GO>Amit Ranjan(44-20) 7134-4576amit.x.ranjan@jpmorgan.comJ.P. Morgan Securities plcFor Specialist Sales advice, please contact:Ghislaine Sparling(44-20) 7134-0355ghislaine.sparling@jpmorgan.comSee page 31 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.As we had highlighted in our report, from16thFeb, we see i) no liquidity crisis in European IBs, but ii) saw earnings at risk leading us to take our estimates for Global IBs -19% below consensusyet again for 2016E/17E. The commentary from several IBs recently has confirmed our cautious view; hence, we expect short-term price weakness pre-Q1 results starting on 13th April. While March client activity has improved from a difficult Feb.in FICC, Equities has deteriorated slightly.Hence, today we cut our already below consensus EPS for IBs, now estimating FICC -40% (from -32%), Equities -18% & IBD -28%(from -31%)YoY in Q1. Our IB pecking orderis: DB, GS, MS, BARC, UBS, CSG, SG & BNPP.Short-term, we believe Q1 shouldsee a divergence in trading performance between i.) larger money centered players with greater proportion of business coming from corporates vs. IBs (GS, MS) which rely more on,e.g. HF client base & ii.) more product diversified players vs. IBs which are more reliant on Credit & Securitized products in FICC (MS, CSG). Some money centered players have indicated markets’ (FICC+Equities) revenues to be down in the -15 to -20% range YoY for Q1, while comments from CSG (-40 to -45%) & MS (Q4 15 as the base to grow S&T revenues off) have been more cautious. In FICC, Rates and EM, in our view, is the best performing business,followed by FX while all credit products are weak.Long-term, we believe i) revenue scale & ii) product diversification will remainkey in generatingIB ROE sustainably above CoE, andTier II FICC players may struggle leading to further restructuring. The importance of operating leverage cannot be over emphasized in the current environment with IBs like GS which have ability to adjust costs likely to generate better returns than EU peers impacted by poor cost mgm’t & compensation rules.How do we position ourselves in the IB space?DB: we believe while Q1 trading has been difficult due to specific issues such as widening of CDSandconcerns around AT1, we would not extrapolate potentially weak Q1 as impacting the FICC franchise – but warn there may belittle positive news near-term. While we have been disappointed till now on DB cost progress, we expect to see improvement in 1Q16. GS is our top US IB pick followed by MS and we would add on any potential weakness driven by Q1 performance. Both US IBs are creating value by growing BV and buying back shares below BV, leading to 15% EPS accretion over the next 3 years. We welcome MS’announced FICC shrinkage and expect further reduction in the L-T ifre venues don’t improve. We see consensus still high on revenues for UBS with a difficult YoY comp due to Asia Equity strength & increased activity post CHF floor removal last year. For CSG, we do not see any catalysts near-term& see latest restructuring announcementsas reactive rather than strategic.Table 3: Global IBs: Summary Valuation (local currency)PriceEPS ‘16EEPS ‘17EB3 CET1* ‘16EB3 CET1* ‘17ETBV/Share ‘16ETBV/Share ‘17ERoNAV ‘17ERoNAV ‘18ECS13.70.351.1011.9%13.1%18.5820.495.7%7.7%UBS15.81.261.4114.1%13.6%12.6112.9211.0%12.3%DB15.21.902.5011.5%12.0%36.6136.886.8%8.0%GS156.012.1514.3512.1%12.4%160.63168.638.7%9.3%MS25.12.052.5014.3%14.3%30.7031.447.9%8.5%Source: J.P. Morgan estimates, Bloomberg. Priced on 30thMarch15:40 P.M. GMT; *B3CET1is fully loaded.**Adjusted EPS and RoNAV.Table 1: Global IBs: clean average IB revenues progression 1Q16E/1Q1516E/ 1517E/ 16E18E/ 17EFICC-40%-20%8%2%Equity-18%-16%5%3%IBD-28%-25%6%3%Total-32%-21%7%2%Source: J.P. Morgan estimates, Company data.Table 2: Global IBs: Q1 Adj. EPSLcl currency/shareQ1 16ECS0.11UBS0.29DB0.42GS2.54MS0.37Source: J.P. Morgan estimates.Please also see our notes:European Banks: Funding concerns overdone, but EPS at risk: risk-reward remains unattractive, published 16thFeb 2016European Banks: Top picks and Investment themes for 2016; published 6thJan, 2016 2Europe Equity Research31 March 2016Kian Abouhossein(44-20) 7134-4575kian.abouhossein@jpmorgan.comEquity Ratings and Price TargetsMkt CapPriceRatingPrice TargetCompanyTicker($ m