FINANCIAL INSTITUTIONSSECTOR IN-DEPTH9 APRIL 2015TABLE OF CONTENTSUS financial institutions1Non-US financial institutions3Market-implied ratings tables for globalbanking regions and companies6Monthly Bank Risk Report: key creditmetrics: CDS, bonds7Appendix : Moody’s Capital MarketsResearch recent publications on thefinance sector22ANALYST CONTACTSAllerton G. Smith212-553-4058Sr Dir-Sr Research Analyst250 Greenwich Streetallerton.smith@moodys.comLisa Hintz212-533-7151Assc Dir-Sr Research Analyst250 Greenwich Streetlisa.hintz@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moody’s Capital MarketsResearch, Inc. (CMR) focus on explainingsignals from the credit and equity markets.The publications address whether marketsignals, in the opinion of the group’sanalysts, accurately reflect the risks andinvestment opportunities associated withissuers and sectors. CMR research thuscomplements the fundamentally-orientedresearch offered by Moody’s InvestorsService (MIS), the rating agency.CMR is part of Moody’s Analytics, whichis one of the two operating businessesof Moody’s Corporation. Moody’sAnalytics (including CMR) is legally andorganizationally separated from Moody’sInvestors Service and operates on an arm’slength basis from the ratings business.CMR does not provide investment advisoryservices or products.View the CMR FAQ Contact the CMR team Follow us on Twitter Moody’s Analytics markets and distributes all Moody’s Capital Markets Research, Inc. materials. Moody’s Capital MarketsResearch, Inc. is a subsidiary of Moody’s Corporation. Moody’s Analytics does not provide investment advisory services orproducts. For further detail, please see the last page.Bank Risk ReportDeveloped Markets Steady; EmergingMarkets Less SoUS Financial Institutions: Steady As She GoesBy Allerton (Tony) SmithCredit market signals for the US banks have shown overall consistency since theirannouncements of fourth-quarter 2014 results. First quarter earnings results will startto be released on April 14 (Wells Fargo is first), and expectations for constructive trendsare evident in present credit spreads. The Q4’2014 earnings releases were for the mostpart unremarkable. Trends in capitalization, liquidity, and asset quality continue to showimprovement. Profitability measures were slightly weaker versus prior periods and overalllacked much excitement. Continued headwinds from low interest rates, regulation, andlitigation were apparent, reflecting the current more challenging elements of the banks’operating environment. Credit markets took these developments in stride, and bank creditspreads have been narrowly range bound for the last few months. In addition, the banks’regulatory stress tests did not prove to be very eventful for credit market participants. Wedo not foresee any looming significant developments that would push the US bank creditspreads significantly in either direction.The Moody’s ratings on all 12 banks with CDS-implied ratings are under review due to thepotential impact of the revised bank rating methodology, which is in the process of beingrolled out. Thus far the review has had very limited, if any, impact on the banks’ creditspreads.The average CDS five-year mid spread for the 12 US institutions in our sample was 57 bpon April 1. This level matches exactly the average of one month ago, and is just 1 bp tighterthan the 58 bp average level observed three months ago. Credit spreads for investment gradecompanies are very tight, and even modest market moves may result in shifts in impliedratings.As we have observed in prior months, the widest CDS spreads within the US banking arenaare at Goldman Sachs (87 bp), Morgan Stanley (76 bp) and Citigroup (76 bp). MOODY'S ANALYTICSFINANCIAL INSTITUTIONS2 9 APRIL 2015BANK RISK REPORT: DEVELOPED MARKETS STEADY; EMERGING MARKETS LESS SODespite the stability in the group’s CDS spreads, its average CDS-implied rating slipped one notch from A3 at the end of March to Baa1on April 1. As a result the CDS-implied ratings gap declined from zero notches to -1 notch at present. This worsening indicates that thebank group underperformed the broad market over the last 30 days, but it does not suggest to us any important shifts in the entities’overall credit quality. The only bank to experience deterioration over the last month in its CDS-implied rating was The Bank of NewYork Mellon, where the CDS-implied rating worsened from A1 to A2. The lowest CDS-implied rating is Baa3 at Goldman Sachs, whichhas held that dubious distinction for a prolonged period.Turning to bond-implied ratings, the average metric for the 39-member US bank peer group was unaltered from A3 one monthago. In fact the average bond implied rating was A3 three months ago and 12 months ago, as well. Since March 1, eight of the banksexperienced an improvement in their bond-implied ratings while seven of the banks suffered declines in their bond-implied ratings. Allof the banks included in our sample have investment grade im