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Income Truffling in EU financials: Our Top Investment Ideas

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									                                                                                                                                                                                        MORGAN STANLEY RESEARCH




May 20, 2013

European Financials & Equity Strategy

European Financials & Equity Strategy
                                                                                                                                                                                   MORGAN STANLEY RESEARCH
Income Truffling in EU financials: Our Top Investment Ideas                                                                                                                        Europe

Our Strategists have recently upgraded Financials to OW, as they believe the sector offers some of the best                                                                        Morgan Stanley & Co. International plc+
opportunity to add value back into portfolios. In addition, they continue to believe that demand for stocks offering
                                                                                                                                                                                   Banks
quality yield characteristics will remain high, given a structural desire for income. Financials' dividend yield is currently
                                                                                                                                                                                   Huw van Steenis
comparable to that of the wider market; however, given large scale dividend cuts in recent years and a depressed ROE, we                                                           Huw.vansteenis@morganstanley.com
think the sector offers some of the best dividend potential in the years ahead. For example, Banks currently offers the                                                            +44 (0) 20 7425 9747
highest 'Shiller' dividend yield in the market (compares current share prices to average dividends of the last 10 years).                                                          Alice Timperley
                                                                                                                                                                                   Alice.timperley@morganstanley.com
We think the market may underestimate the potential to unlock value at a handful of EU financials, especially when
                                                                                                                                                                                   +44 (0) 20 7425 9094
we look ahead 2 years. Banks remains the most contentious sector, and our new analysis shows that 2014e dividend
revisions have been a key driver of bank stocks this year – better than earnings – given incredulity on ability to pay. Whilst                                                     Equity Strategy
still a minority sport for many, particularly in the South, we think portfolio restructuring, cost discipline and faster non-core                                                  Graham Secker
run off could help unlock the path to higher dividends for some. The core issue is one of duration: we forecast no increase                                                        Graham.Secker@morganstanley.com
in aggregate divis for the sector in 2013e on 2012e, but we forecast this could double to 5% in 2015e when we expect that                                                          +44 (0) 20 7425 6188
at least 12 of the banks we cover will attain a dividend yield of 5%, with Swiss (UBS – the highest of any stock, as we
model a special divi – and CS), Swedish (e.g. SWED) and French (GLE, BNP) banks being the stand outs (vs. historical                                                               Diversified Financials
                                                                                                                                                                                   Bruce Hamilton
sector average of 4%). But to be clear, we are well below consensus for divis for the majority of Eurozone banks – rather                                                          Bruce.Hamilton@morganstanley.com
the risks of more capital raising and asset divestments remain very high, given grinding austerity and low rates hitting                                                           +44 (0) 20 7425 7597
earnings power and bad debts.
Our Top Investment Ideas across European Financials                                                                                                                                Insurance
                                                                                                                                                                                   Maciej Wasilewicz
Screen of focus EU financials with higher divis 13e-15e: UBS, CS, BARC, HSBC, BNP, GLE, NATX, KBC, NDA, SEB,                                                                       Maciej.Wasilewicz@morganstanley.com
SWED, Aberdeen, Partners, DB1, Ashmore, Direct line, Munich Re, Aegon, British Land & Unibail-Rodamco.                                                                             +44 (0) 20 7425 9104
“Most preferred” in Banks/Div Fins: BNP, BARC, KBC, DNB, UBS, SDR & SWED; “Least Preferred” BP, POP, CBK,
BME, MPS, RBI & SAB.                                                                                                                                                               Property
“Most preferred” in Insurance: Aviva, Axa, Direct Line, Munich Re, Prudential; “Least Preferred”: Ageas, Generali,                                                                 Bart Gysens
                                                                                                                                                                                   Bart.Gysens@morganstanley.com
Scor, Standard Life, Swiss Life
                                                                                                                                                                                   +44 (0) 20 7425 5862
“Most preferred” in Property: BLND; “Least Preferred”: Corio


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a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in
making their investment decision.
For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
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trading securities held by a research analyst account.
                                                                                                                                                          MORGAN STANLEY RESEARCH

                                                                                                                                                              European Financials & Equity Strategy
                                                                                                                                                                                        May 20, 2013



 Unlocking dividend value: Focus on higher yielding EU financial stocks in next 3 years
EU financials screen: Names that offer the                                                           Banks are most contentious area: Our choices for
opportunity to uncover dividend value, though                                                        our divi screen are largely based on names where
patience is required in some cases                                                                   we are ahead of street and have highest conviction
MSe Dividend Yield (incl. buybacks & specials): 2014e ranked                                         MSe vs. Consensus for 2014 & 2015: ranked on 2014 high to low
high to low
     DLG                                                                                              KBC       Eurozone (2014e): On
                                                                           DB1 & ADN:                 ACA       average we are -0.8% below
     DB1                                                                                            BARC
                                                                           Includes buybacks                    street
                                                                           2014-15                  ERST
     ADN
                                                                                                      BNP
    MUV2                                                              MUV2: Includes                CSGN
                                                                      buybacks 2013-15                UBS
   SWED                                                                                                 ISP
                                                                                                    NATIX       Eurozone (2015e): On
  AEGON                                                                                                         average we are -0.2% below
                                                                                                    HSBC
                                                                                                                street
     BNP                                                                                            STAN
                                                                    2013e avg = 3.9%                BBVA
    HSBC                                                                                              SHB
                                                                    2014e avg = 4.7%
    NATX                                                                                             SWE
                                                                    2015e avg = 5.7%                  BKT
    UNBP                                                                                              DNB
                                                                                                    BMPS
     NDA                                                                                              RBS
                                                               NDA & SEB: 2013e                       UCG
      CS
                                                               includes estimated                   DANS
    BLND                                                       buyback of 2.7%                        SEB
                                                                                                      NDA
     SEB
                                                                                                      DBK
     GLE                                                                                              GLE
                                                                                                     RIBH
    BARC                                                                                             LLOY
                                                                                                       UBI
   PGHN                                                        UBS: 2015e includes                  CABK
                                                               approx half special
   ASHM                                                                                                ING
                                                               dividend
                                                                                                      POP                                                                   MS vs. Cons (2014)
     UBS                                                                                              SAB
                                                                                                      SAN                                                                   MS vs. cons (2015)
     KBC
                                                                                                       PMI
           0%    1%       2%      3%    4%     5%      6%     7%      8%      9%    10%                   -4%         -3%        -2%         -1%         0%         1%          2%          3%
                      Div Yield 2015e     Div Yield 2014e        Div Yield 2013e

Source: Thomson Reuters, Morgan Stanley Research estimates (e). Data as May 17th 2013. For important disclosures regarding covered companies that are the subject of this screen, please see the Morgan
Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures. Note: Stock recommendations are OW: DLG, MUV2, SWED, AEGON, BNP, BLND, CS, ADN, BARC, PGHN, UBS, KBC. All             2
other names shown are EW.
                                   MORGAN STANLEY RESEARCH

                                     European Financials & Equity Strategy
                                                            May 20, 2013




European Strategy: Graham Secker




                                                                             3
                                                                                                                                                                                                                                    MORGAN STANLEY RESEARCH

                                                                                                                                                                                                                                        European Financials & Equity Strategy
                                                                                                                                                                                                                                                                            May 20, 2013



  Strategy: A structural demand for yield continues to drive stock outperformance


   Central bank policy is keeping interest rates very low at a time                                                                                                         Yield compression has been a common feature across fixed
   when investors’ demand for income and yield is high and rising.                                                                                                          income assets in recent years, increasing the relative attractions of
   One illustration of this is that our basket of European stocks                                                                                                           equities. As we show below, the (real) dividend yield on European
   offering a ‘High & Secure’ dividend yield would have outperformed                                                                                                        stocks exceeds the (nominal) yield on offer from corporate bonds.
   strongly over the last year despite a rising market. See our report                                                                                                      In addition, our credit strategists see little scope for significant
   ‘Spring Update – More Upside on a 12m View, 17 March 2013’ for                                                                                                           price appreciation going forward, hence further increasing the
   more details on this basket.                                                                                                                                             relative attractions of stocks where the potential upside is greater.




                                                        Dividend strategies are outperforming in a rising                                                                       Eurozone non-financials dividend yield is above
                                                                             market                                                                                                              credit yield
                                                        160                                                                                1600                             8        Euro STOXX ex Financials Dividend Yield vs iBoxx EUR Non-Financials Credit Yield             200
     H&S DY Price Performance relative to MSCI Europe




                                                                                                                                           1500
                                                        150                                                                                                                 7                                                                                                     100

                                                                                                                                           1400
                                                                                                                                                                            6                                                                                                     0
                                                        140
                                                                                                                                                  MSCI Europe Price Index



                                                                                                                                           1300

                                                                                                                                                                            5                                                                                                     -100
                                                                                                                                           1200
                                                        130
                                                                                                                                           1100                             4                                                                                                     -200
                                                        120
                                                                                                                                           1000
                                                                                                                                                                            3                                                                                                     -300

                                                        110                                                                                900
                                                                                                                                                                            2                                                                                                     -400
                                                                                                        High & Secure DY Basket Relative   800
                                                                                                                                                                                                                               Dividend Yield (%)
                                                        100                                             to MSCI Europe
                                                                                                                                                                            1                                                  Credit Yield (%)                                   -500
                                                                                                        MSCI Europe Price Index            700
                                                                                                                                                                                                                               Dividend Yield less Credit Yield (bp, RHS)
                                                        90                                                                                 600                              0                                                                                                     -600
                                                         Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12                                           00   01     02     03     04     05     06     07     08      09     10     11      12       13




Source (1): Datastream, MSCI, Morgan Stanley Research. Data as May 15th 2013.
Source (2): Datastream, STOXX, iBoxx, Morgan Stanley Research                                                                                                                                                                                                                              4
                                                                                                                                                                                                          MORGAN STANLEY RESEARCH

                                                                                                                                                                                                                   European Financials & Equity Strategy
                                                                                                                                                                                                                                                        May 20, 2013



 Where to look for dividend stories at the sector level
                                                                                                 Financials offer above market yield at below market
   In the below table we equal-weight rank European sectors based on                               80                  cover…
   consensus expectations for dividend yield, cover and growth. As
   illustrated, the sectors that offer the best mix of yield, growth and cover                                                              70
                                                                                                                                                                                                                                                      Utilities
   are Autos, Banks and Diversified Financials. The sectors with the




                                                                                                 Consensus 2013 Payout Ratio (%)
                                                                                                                                                                                                                                          Telecoms
   worst mix show up as Property, Consumer Services and Media.
                                                                                                                                            60                                        Retailing
                                                                                                                                                                                                            MSCI Europe
                                                                                                                                                                             Food/Bev/Tob
                                                                                                                                                                                                  Media
                                                                                                                                            50
                                                                                                                                                                                                                            Insurance
                                                                                                                                                                                                                 Banks
                                                                                                                                                                                                                            Energy
                                                                                                                                            40                                        Materials


                                                                                                                                            30                                                      Autos

                                                                                                                                                                           Div Fins

                                                                                                                                            20
                                                                                                                                                  1.0       1.5      2.0    2.5         3.0        3.5       4.0         4.5       5.0     5.5        6.0         6.5
                                                                                                                                                                                  Consensus 2013 Dividend Yield (%)

      Autos, Banks and Div Fins offer the best mix of                                            … and with a good chance of growing shareholder
             dividend growth, yield and cover                                                       payouts much faster than the wider market
                                                                     2012-15   2013     2013
             Overall                                                    DPS           Dividend
              Rank Industry Groups                                     CAGR    DY      Cover
                                                                                                                                                 20
           1         Automobiles & Components                          10.1    3.5      3.2                                                                                 Div Fins (2.3% DY, 34% DPS CAGR)
           2         Banks                                             13.2    4.2      2.2                                                      18
           3         Diversified Financials                            33.8    2.3      3.7
           4         Energy                                             5.5    4.6      2.3




                                                                                                                Consensus 2012-15 DPS CAGR (%)
                                                                                                                                                 16
           5         Consumer Durables & Apparel                       12.6    1.9      3.1
           6         Health Care Equipment & Services                  12.1    1.4      3.5                                                      14
           7         Software & Services                               10.8    1.7      3.3                                                                                                                         Banks
           8         Transportation                                    11.7    3.2      2.1
                                                                                                                                                          Cons Dur                    Transport
                                                                                                                                                 12
           9         Commercial & Professional Services                 9.8    2.6      2.2                                                                       Software
           10        Insurance                                          5.0    4.6      2.1                                                      10                                        Autos
                                                                                                                                                                  Comm Serv    Food & Bev
           11        Materials                                          6.4    3.1      2.5                                                                                            Retailing
           12        Food & Staples Retailing                           6.3    3.5      2.1                                                      8                          Cap Goods                 MSCI Europe
           13        Capital Goods                                      8.1    3.3      2.1                                                                                              Pharma
           14        Technology Hardware & Equipment                   14.2    2.4      1.9                                                      6                   Cons Serv   Materials               Energy
           15        Household & Personal Products                      7.9    2.2      2.3                                                                                                  Food Retail
                                                                                                                                                                                                            Insurance
           16        Pharmaceuticals Biotechnology & Life Sciences      6.6    3.3      2.0                                                      4
           17        Retailing                                          8.9    3.2      1.7                                                                                                                     Real Estate
           18        Food Beverage & Tobacco                            9.0    2.9      1.9                                                      2                                                Media                                  Telecomms
           19        Semiconductors & Semiconductor Equipment           8.5    1.2      2.2                                                                                                                                                     2
           20        Telecommunication Services                         1.4    5.6      1.6                                                                                                                                                    R = 0.3342
                                                                                                                                                 0
           21        Utilities                                         -1.2    5.9      1.4
           22        Media                                              2.1    3.5      2.0
                                                                                                                                                                                                                                                 Utilities
                                                                                                                                                 -2
           23        Consumer Services                                  6.1    2.7      2.1
           24        Real Estate                                        3.9    4.5      1.2                                                           1               2                 3                   4                  5                  6                     7
                                                                                                                                                                                      Consensus 2013 Dividend Yield (%)


Sources: Factset, IBES, Morgan Stanley Research                                                                                                                                                                                                                             5
                                                                                                                                                                                                                                 MORGAN STANLEY RESEARCH

                                                                                                                                                                                                                                      European Financials & Equity Strategy
                                                                                                                                                                                                                                                                         May 20, 2013

 Financials dividend payouts have fallen sharply in recent years: banks now account for
 ~10% of the SXXP Index
                                                                                                                                                                  Financials’ relative DY is in-line with its 40Y
   As we show here, the dividend yield for European financials relative to                                                                                                          average…
   the wider market is exactly in-line with its 40-year average. (Note that                                                                                      1.8

   some of this dividend is script.)
                                                                                                                                                                 1.6


   This lack of relative undervaluation on dividend yield reflects the fact




                                                                                                                                       Relative Dividend Yield
                                                                                                                                                                 1.4
   that Financials’ payouts to shareholders have fallen sharply in recent
   years. E.g., the % of market dividends paid out by financials is at its
   lowest level in 30 years.                                                                                                                                     1.2



                                                                                                                                                                 1.0



                                                                                                                                                                 0.8



                                                                                                                                                                 0.6
                                                                                                                                                                       73   75   77   79     81   83   85   87   89   91   93   95   97   99   01   03   05   07   09   11        13


                                      Proportion of market dividends paid by                                                          Financials contribution to SXXP dividends is 10%,
                                              Financials at a 30Y low                                                                                  half that in 2004
                                 45                                                                                                                      100%


                                                                                                                                                                 90%
                                 40
                                                                                                   All Financials                                                80%                                                                                                         TELCOS
                                 35
                                                                                                                                                                                                                                                                             HCARE
                                                                                                                                                                 70%                                                                                                         UTILS
     % o f M a r k e t D iv id




                                 30
                                                                                                                                                                                                                                                                             IT
                                                                                                                                                                 60%
                                 25                                                                                                                                                                                                                                          CONS DISC

                                                                                                                                                                 50%                  20%                                                                                    MAT
                                                                                                                                                                                                                      14%
                                 20                                                                                                                                                                                                                  10%                     FINS
                                                                                                                                                                 40%
                                                                                                                                                                                                                                                                             INDS
                                 15                                                                                                                                                                                                                                          CONS STAP
                                                                                                                                                                 30%
                                                                                                                                                                                                                                                                             ENERGY
                                 10
                                                                                                               Banks                                             20%

                                  5                                                                                                                              10%

                                 0                                                                                                                               0%
                                 Jan-73   Jan-77   Jan-81   Jan-85   Jan-89   Jan-93   Jan-97   Jan-01   Jan-05     Jan-09   Jan-13                                                   2004                            2008                           2012




Sources: Datastream, MSCI, Bloomberg, Morgan Stanley Research                                                                                                                                                                                                                            6
                                                                                                                                                                     MORGAN STANLEY RESEARCH

                                                                                                                                                                       European Financials & Equity Strategy
                                                                                                                                                                                                      May 20, 2013



 Banks offer the highest cyclically adjusted or ‘Shiller’ dividend yield


      While financials were over-distributing in the mid 2000s, it is                                                    Post the financial crisis and great recession, European Financials’
      nevertheless interesting to look at cyclically adjusted dividend                                                   ROE is significantly depressed relative to the wider market. This
      yields to try and smooth the cycle. When we divide 10-year                                                         divergence highlights the potential for Financials to produce
      average DPS by the current price, this shows Banks as offering                                                     superior EPS growth going forward, as profitability starts to mean
      the highest ‘Shiller’ dividend yield.                                                                              revert. Better EPS trends also imply better DPS trends.




     On a Shiller calculation (10Y avg DPS/Price) Banks                                                                      European Financials’ ROE is significantly lower
               offer the highest dividend yield                                                                                      than that of the wider market
         Banks
                                                                                                                        20
        Utilities
    Telecomms                                                                                                                                                                                MSCI Europe
        Div Fin
                                                                                                                        18
    Real Estate
        Energy                                                                                                          16
     Insurance
        Europe                                                                                                          14



                                                                                                 Return on Equity (%)
         Media
    Food Retail
                                                                                                                        12
     Cons Serv
     Transport
      Retailing                                                                                                         10
    Cap Goods
      Materials                                                                                                         8
       Pharma
         Autos                                                                                                          6
   Food & Bev
   Comm Serv
                                                                                                                        4                                                                Financials
      Cons Dur
      Software
                                                                                                                        2
                0.0   1.0   2.0       3.0              4.0               5.0   6.0   7.0   8.0
                                                                                                                        Jan-80   Jan-84   Jan-88   Jan-92   Jan-96     Jan-00   Jan-04      Jan-08       Jan-12
                                            Shiller Dividend Yield (%)




Sources: MSCI, Datastream, Morgan Stanley Research. Note: Shiller DY is calculated as inflation adjusted 10Y average DPS dividend by current price.                                                                  7
                                                                                                                                                                                                       MORGAN STANLEY RESEARCH

                                                                                                                                                                                                             European Financials & Equity Strategy
                                                                                                                                                                                                                                          May 20, 2013



 Strong DPS growth generally leads to strong price performance


                               Leaving aside the dividend yield argument, the potential for strong                                                  When we look at the correlation between YTD total returns and
                               dividend growth from some financial companies should also                                                            changes to consensus 2014 DPS estimates, we find that Banks
                               provide a positive backdrop for share price performance. As we                                                       and Insurers both score higher than the wider market – i.e. their
                               show below, stocks that produce strong DPS growth also tend to                                                       share prices are relatively more sensitive to changes to DPS
                               see the strongest price appreciation.                                                                                forecasts.




                                                        Stocks that produce good DPS growth generally                                               The correlation of YTD % changes in total returns
                                                                          outperform                                                               and 2014 DPS forecasts is higher for Banks than the
                                                                                                                                                                       wider market
                                                       4                                                           58%                           Cons Durables
                                                                                                                                                    Telecomms
      Median relative performance CAGR (1997-2011) %




                                                       3                                                           56%                                Materials
                                                                                                                                                         Media
                                                                                                                                                        Banks
                                                       2                                                           54%
                                                                                                                                                    Cap Goods
                                                                                                                                                     Insurance
                                                                                                                         Average Hit Ratio (%)


                                                       1                                                           52%                               Transport
                                                                                                                                                        Market
                                                       0                                                           50%                                  Energy
                                                                                                                                                        Div Fin

                                                       -1                                                          48%                                Retailing
                                                                                                                                                      Software
                                                                                                                                                    Food & Bev
                                                       -2                                                          46%
                                                                                                                                                       Pharma
                                                                 Median Rel Perf CAGR for Quintiles of                                              Real Estate
                                                       -3        Dividend Growth                                   44%                              Comm Serv
                                                                 Hit Ratio - RHS                                                                       Utilities
                                                       -4                                                          42%                                   Autos
                                                                                                                                                 Consumer Serv

                                                       -5                                                          40%                              Food Retail

                                                            Q1                 Q2                Q3      Q4   Q5
                                                                                                                                                              -0.2   -0.1       0.0         0.1        0.2         0.3         0.4            0.5   0.6
                                                                                                                                                                        Correlation between YTD total return and % ch in 2014 DPS estimates




Sources: Factset, Worldscope, IBES, Morgan Stanley Research.                                                                                                                                                                                              8
                                          MORGAN STANLEY RESEARCH

                                            European Financials & Equity Strategy
                                                                   May 20, 2013




European Banks & Diversified Financials:
Huw van Steenis, Alice Timperley, Bruce Hamilton
& colleagues




                                                                                    9
                                                                                                                              MORGAN STANLEY RESEARCH

                                                                                                                                  European Financials & Equity Strategy
                                                                                                                                                          May 20, 2013

 Given the “retail rut” across most of Europe, we prefer names with portfolio
 restructuring, cost cutting and divi optionality – e.g., UBS
 Retail rut as a low growth EU environment offers                                       Restructuring potential is perhaps best illustrated by
 little respite for traditional banking models – we                                     UBS; non-core expected to be more than halved over
 remain 10% below street for Eurozone 13 EPS                                            the next five years – offers potential for capital return
 2013 MS Bank Estimates vs. Consensus                                                   UBS RWA evolution over the coming 5 years

   CABK                                                                                       425
     SAB
     POP
        BP                                                                                                                                            Legacy
     BKT
    BBVA                                                                                       130
     SAN                                                                                                                                              I-bank
     RBS                                                                                                  321
     UCG
                                                                                                                                                      SNB Stabfund
   BARC                                                                                                              294
       ISP
     BNP                                                                                                  80

    RIBH                                                                                                             62
     KBC
      ING
     NDA                                                                                                                        211
    LLOY
     SHB
                                                                                                                                49
     SEB
                                                                                                                                             155
   NATIX                                                                                       270
    STAN
     DBK                                                                                                  220
                                                                                                                     212
  ERSTE                                                                                                                                                        95
                                                                                                                                              85
     DNB
   HSBC
                                                                                                                                162                            25
   SWED                 Eurozone
                        avg -10%
     GLE
     ACA
                       European
  DANSK                                                                                                                                       70               70
                       avg. -4%
   CSGN
                                                                                               25         21         20
     UBS

         -60%   -50%    -40%      -30%   -20%   -10%   0%   10%   20%   30%   40%            Dec 2010   Sep 2011   Dec 2011   Sep 2012     Dec 2013      Dec 2017




Source: Thomson Reuters, Morgan Stanley Research estimates. Data as at May 17th 2013.                                                                                 10
                                                                                                                                              MORGAN STANLEY RESEARCH

                                                                                                                                                   European Financials & Equity Strategy
                                                                                                                                                                          May 20, 2013

                    Our key call since November has been for greater differentiation amongst bank stocks
                    to reflect very different positions in growth, balance sheet repair and divi paying ability
                    Greater Differentiation in banks’ performance is                                   Intra-sector correlation exhibits significant
                    evident once a peak in NPLs is reached – best                                      compression post systemic phases – e.g., MSCI bank
                    exemplified in the late 1990s’ Asian crisis                                        correlation has fallen 25% since OMT announcement
                    Outperformers & Underperformers vs. NPL stock levels                               MSCI Banks: 3m Realised Rolling Correlation
                     200%                                                           30%                90
                                NPL Level   Underperformers   Outperformers

                     180%
                                                                                                       80
                                                                                    25%
                     160%
                                                                                                                                                                     OMT

                     140%                                                                              70
                                                                                    20%

                     120%
Stock Performance




                                                                                                       60



                                                                                          NPL Levels
                     100%                                                           15%


                                                                                                       50
                      80%

                                                                                    10%
                      60%
                                                                                                       40


                      40%
                                                                                    5%
                                                                                                       30
                      20%



                      0%                                                            0%                 20
                                                                                                        2005    2006   2007   2008   2009   2010     2011     2012     2013
                              8



                              8



                              9


                             99



                              0



                              1



                              1



                              2



                              2
                              7


                           99



                           99




                           00



                           00



                           00



                           00



                           00
                           99




                           99


                          19
                         /1



                         /1



                         /1




                         /2



                         /2



                         /2



                         /2



                         /2
                         /1




                        8/
                       16



                       14



                       12




                       05



                       01



                       30



                       25



                       23
                       21




                      /0




                     7/



                     2/



                     9/
                     7/



                     2/



                     9/



                     4/




                     6/



                     1/
                    11




         Source: Bloomberg, Company data, Morgan Stanley Research estimates. Correlation data as at May 2013.                                                                          11
                                                                                                                                             MORGAN STANLEY RESEARCH

                                                                                                                                                European Financials & Equity Strategy
                                                                                                                                                                       May 20, 2013

  Dividend revisions have been a critical driver of banks & div fins total return YTD - in part due
  to the incredulity of the market toward higher divis & focus on balance sheet repair
 Financials total return performance shows a strong relationship with DPS revisions
 YTD Total Return vs. YTD 2014 DPS revisions
    60% YTD Total Return (%)
                                                                                       SDR                                                 The importance of capital return
                                                                                                                                           in banks rehabilitation in
    50%                                                                                                                                    investors portfolios has been a
                                                                               BKT                                                         key part of our thought process
                                                                                             NATX                                          when thinking about the
                                                            DNB                                            SWED
    40%                                                                                                                                    differentiation of EU banks this
                                                                                      CS
                                                                                                                                           year.
                                                                              SHB                  SEB

    30%                                                                                            NDA                   KBC
                                                                               LLOY          ADN
                                                                        LSE

                                                                               UBS         BARC
    20%                                                      ACA
                                                                        HSBC
                                                         UCG TULLETISP PGHN
                                                                          BME
                                                            MB                  DBK SG
    10%                                                          ICAP
                                                                      BBVA
                                                                DAN          BNP
              BMPS                          POP                       ERSTE
                                                               DB1
                               RBS                        UBI          STAN
     0%                                            ING
                                                                              BPM
                                                                   BP
                                                                               SAN
   -10%                                                                                                  = MS Most Preferred
                                                                      RBI

                                                                   SAB
   -20%                                                                                                  = MS Least Preferred

                     CBK
   -30%




   -40%
       -90%            -70%          -50%         -30%         -10%             10%           30%         50%              70%

                                                                                                                YTD DPS Revisions (2014)
Source: Thomson Reuters, Morgan Stanley Research estimates (e). Data as May 17th 2013.                                                                                              12
                                                                                                                                                        MORGAN STANLEY RESEARCH

                                                                                                                                                           European Financials & Equity Strategy
                                                                                                                                                                                  May 20, 2013

  EPS revisions have been a little less correlated this year, given the focus on capital
  and balance sheet repair
 Financials performance has been less impacted by earnings revisions
 YTD Total Return vs. YTD 2014 EPS revisions
   Share Price Performance YTD

                                                                                                                                                      Earnings revisions historically
  50%                                                                                                                                                 have been the best proxy for
                                                                                                                                                      bank share performance
                                                                                                    NATX BKT

  40%
                                                                                                                                   DNB
                                                                                                                        CS
                                                                                                                                       SWED
  30%                                                                                                          LLOY          NDA
                                                                                                                               SHB
                                                                                                                                 SEB
                                                                                                  UBS
                                                                                                                    BARC
                                                                                           CASA                  KBC
  20%
                                               UCG

                                                                                       ISP                            HSBC
                                                                       MB                           DBK
                                                                                                       BBVA
  10%                                                                                             SG      BNP
                                                                                     DAN
                                                                                   ERSTE
            POP
                                                     UBI                                                               STAN
                                                                         BPM
                                                                       RBS
   0%                                                                                                          ING
                                                                  BP
                                                                                       SAN


 -10%                                                                                      RBI


                                         SAB

 -20%


                                   CBK
 -30%
     -90%         -80%           -70%      -60%            -50%             -40%       -30%             -20%           -10%            0%       10%
                                                                                                                      Consensus EPS 14e change YTD



Source: Thomson Reuters, Morgan Stanley Research estimates (e). Data as May 17th 2013.                                                                                                         13
                                                                                                                                 MORGAN STANLEY RESEARCH

                                                                                                                                    European Financials & Equity Strategy
                                                                                                                                                           May 20, 2013

 European banks are facing a “magnetic pull” towards a CT1 of 10%, before they are
 permitted to return capital; Southern names still have a lot more work to do
 Basel 3 Look-through for European Banks
 Fully loaded, ranked high to low on 2013e figures
                             2012       2013e       2014e        2015e   •   Our ‘greater differentiation‘ theme has focused our attentions on a few
 Handelsbanken              14.4%       15.5%       15.9%        16.2%       cheap banks with strong core franchises, reasonable odds of accelerating
 Swedbank                   13.9%       14.8%       15.1%        15.4%       their restructuring plans and, critically, the ability to start paying good
 Danske                     12.5%       13.6%       13.6%        14.0%       dividends. Whilst we see a number of banks with reasonable divi prospects, we
 SEB                        12.8%       13.3%       13.0%        13.7%       equally see quite a few banks, especially in the South, still well below where they
 Nordea                     11.1%       13.1%       13.7%        14.4%       should be on a capital level – e.g., BMPS, SAB, RBI.
 UBS                         9.8%       12.2%       13.9%        14.1%
 St. Chartered              10.7%       11.3%       11.8%        12.3%
 DNB                        10.4%       11.2%       12.0%        12.7%   •   We think that there is a “magnetic pull” on European banks towards a CT1
 Bankinter                  10.5%       11.0%       11.5%        12.2%       of 10%, before they can pay a much higher dividend. We think that sector-
 KBC                        10.4%       10.8%       10.1%        10.1%       wide upgrades of dividend payout ratios are unlikely to materialise until banks
 HSBC                        9.0%       10.8%       11.5%        12.3%       reach a minimum CT1 of ~10% by 2015. Based on our current estimates, almost
 Intesa                     10.5%       10.7%       10.5%        10.6%       three-quarters of the banks that we cover should have reached this milestone by
 ING                        10.0%       10.4%       10.9%        11.6%       2015 and half of these names by a margin of more than 1%.
 BNP Paribas                 9.9%       10.4%       10.7%        11.1%
 Deutsche Bank               7.8%       10.0%       11.0%        11.9%
 Lloyds                      8.1%       10.0%       11.4%        13.4%   •   For the banks that are already there today, we see a case for a higher dividend
 UniCredit                   9.6%        9.8%        9.9%        10.3%       payout ratio – for example, we think that post BNP’s Q1 results, excess capital
 Credit Suisse               8.0%        9.6%       10.6%        11.5%       may result in management increasing the payout from the current 33-40%
 UBI                         8.8%        9.4%        9.6%         9.8%       guidance. We see uplift too at Soc Gen, but cast further out in 2015, when we
 SocGen                      8.5%        9.4%        9.9%        10.4%       think the payout could rise to 30-50%, if it is able to rationalise its cost base
 RBS                         7.7%        9.3%       11.2%        11.6%       further and meet its cost of equity.
 Erste                       9.1%        9.1%        9.7%        10.4%
 Barclays                    8.2%        9.0%        9.7%        10.7%
 CBK                         7.2%        8.7%        9.1%         9.7%   •   Nordic banks too not only have scope for higher payout ratios but for greater flex
 BBVA                        7.8%        8.5%        9.3%        10.5%       around buyback capabilities in H2 2013 – we currently model that both NDA and
 Natixis                     8.0%        8.4%        9.1%         9.8%       SEB will commence buybacks in H2, lifting annual dividend yields by 2.7%
 Popular                     8.1%        8.4%        9.0%         9.8%       apiece. High capital generation at DNB sees it reach the expected 12%
 Santander                   7.3%        7.8%        9.0%         9.9%       Norwegian minimum by 2015, meaning that all Nordic names clear the 10%
 BPM                         6.4%        7.8%        7.9%         7.9%       hurdle by a significant margin.
 Mediobanca                  7.9%        7.8%        8.2%         8.7%
 Credit Agricole             6.8%        7.6%        8.8%         9.9%
 CaixaBank                   7.0%        6.9%        7.4%         8.3%
 Raiffeisen                  6.3%        6.7%        7.3%         7.8%
 Sabadell                    4.4%        4.7%        5.1%         5.8%
 Monte dei Paschi            4.1%        4.6%        5.2%         5.4%

Source: Morgan Stanley Research estimates. Data as at May 17th 2013.                                                                                                    14
                                                                                                      MORGAN STANLEY RESEARCH

                                                                                                        European Financials & Equity Strategy
                                                                                                                               May 20, 2013

  In a lower return world, dividend paying ability will be critical: still a minority sport, although we see
  growing potential in 2014/2015, which should help the rehabilitation of banks in investors’ minds
 Cash dividend yield in 2013e, 2014e and 2015e for MS banks universe
 Divi yields incl. buybacks and specials, ranked by 2015e highest to lowest
   12%
                     UBS: 2015e includes                                                                  Div Yield 2015e
                     approx half special
                     dividend                                                                             Div Yield 2014e
                                                                               12 banks paying
   10%                                                                        >5% cash dividend           Div Yield 2013e
                                                                                 yield in 2015

    8%                                                                      NDA & SEB: We factor in
                                                                            2.7% apiece at of share
                                                                            buybacks in H2 2013



    6%
                                                                                                                2015 Avg. 5.0%

    4%
                                                                                                                2014 Avg. 3.2%
                                                                                                                2013 Avg. 2.4%
    2%                                                                                                          2012 Avg. 2.3%



    0%
           HSBC*




               UBI
             SAN*




             ACA*




            STAN*




               PMI
           DANSK
              NDA




              DNB
            BBVA*
             GLE*




              BKT




              UCG
              SHB

              DBK
           ERSTE
              UBS




              BNP




             CABK

              RBS
            CSGN
            BARC




             RIBH




             LLOY
               ING
                ISP




            NATIX




              SEB




              SAB
              KBC




            BMPS
            SWED




Source: Thomson Reuters, Morgan Stanley Research estimates (e). Data as May 17th 2013.
Note: * denotes banks that pay scrip dividends in addition to cash portion.                                                                 15
                                                                                                                      MORGAN STANLEY RESEARCH

                                                                                                                         European Financials & Equity Strategy
                                                                                                                                                May 20, 2013

  Our recent Blue Paper underscored the structural headwinds that face IDBs, and BME will constrain
  earnings, thus placing downward pressure on future dividends; prefer some of the asset managers
 Dividend yield in FY 2013e, 2014e and 2015e for MS diversified financials universe
 FY Divi yields incl. buyback & specials, ranked by 2015e highest to lowest

  9%                                                                                                                Average sector yields for the
                                                                                              FY Divi Yield 2015e   European asset managers are
                                                                                                                    c.3% in 2013 and rising on
                                                                                              FY Divi Yield 2014e
                                                                                                                    healthy earnings growth (sector
  8%                                                                                          FY Divi Yield 2013e   average c. 20% CAGR 2012-14)
                                                                                                                    and improving payouts (e.g.
                                                                                                                    Aberdeen).
  7%
                                                                                                2015e avg = 6.5%    Exchanges and IDBs equally
                                                                                                                    offer divi yields of c.4% and c.6%
                                                                                                                    respectively on 2013e. Whilst
  6%
                                                                                                2014e avg = 5.7%    weaker top line visibility (e.g. due
                                                                                                                    to regulatory reform) sees us
                                                                                                                    continue to prefer stocks with
  5%                                                                                                                more compelling earnings
                                                                                                 2013e avg = 4.2%   growth and consensus revision
                                                                                                                    risk (e.g. SDR) if not top quartile
  4%                                                                                                                divi yields, we nevertheless
                                                                                                                    recognise the broader attractions
                                                                                                                    of market infrastructure names
  3%
                                                                                                                    on this theme.


  2%


  1%


  0%
         DB1    MAN     BME     ADN TLPR ICAP FCAM MOEX HGG                    III   PGHN ASHM BAER SDR       LSE


Source: Thomson Reuters, Morgan Stanley Research estimates (e). Data as May 17th 2013.                                                                       16
                                                                                                                                                                                                                                   MORGAN STANLEY RESEARCH

                                                                                                                                                                                                                                         European Financials & Equity Strategy
                                                                                                                                                                                                                                                                               May 20, 2013



              One of our screens of how we think about dividend paying capacity
          We think that banks will be magnetised towards a minimum of ~10% CT1, before increasing payout significantly
                   Cash Dividend Payout 2013e vs. B3 CT1 2013e                                                                                                     Cash Dividend Payout 2014e vs. B3 CT1 2013e
                        80%                                                                                                                                       80%
                                                                                                                   SWED
                                Dividend                                                                                                                                  Dividend
                               Payout Ratio                                                                                                                              Payout Ratio
                                 2013e                                                                                                                                     2014e                                                                                SWED
                                                                                   ISP

                        70%                          BP                                                                                                           70%
                                                                                                                                                                                                                                                                             High conviction on
                                                                                                                                                                                                                                                                              strong payouts

                                      Potential for
                                                                                     BKT                                                                                       Potential for                                 ISP
                        60%                                                                                                                                       60%          Dividends or
                                      dividends or
                                     scrips to be at                                                                                                                          scrips to be at
                                                                                                                          SHB                                                                                                                                          SHB
                                          risk?                                                                                                                                    risk?              POP

                                                               NATIX                                                                                                                                                   BNP
                                                                                                       SEB                                                                                                                   BKT
                        50%                                                                                                                                       50%                                        NATIX                                   NDA
Cash Divi Payout 2013




                                                                                                      NDA                                                                                                                                           SEB




                                                                                                                                          Cash Divi Payout 2014
                                                                                                                                                                                            BP
                                                                                                                                                                                                      BBVA
                                                          MB                                                                                                                                                                                  UBS
                                                                               BNP
                        40%                                                                                                                                       40%                                                UCG
                                                                                                                                                                                                                                 HSBC
                                                                                                                                                                                                             CSGN
                                    SAB                                UBI                                                                                                                        MB
                                                                                   HSBC                                                                                 SAB
                                                                                                                                                                                                                GLE                                                HSBC Payout upside
                                                               POP     CSGN
                                                                                                                     High conviction on                                                                                                                             still limited in light of
                        30%
                                                                                                                      strong payouts                              30%                                   CBK                                               DANSK     growth strategy and
                                                                  ERSTE                  STAN                                                                                               SAN                                                                    regulation uncertainty
                                                                                                                                                                                                                 UBI                STAN
                                                                                                                                                                                                                        KBC
                                                                         GLE                                                                                                                           ERSTE
                                                                  BARC                                                                                                                                          BARC               DNB
                                                          BBVA                        DNB
                                                                                                                                                                                                                                                          At CS, we model
                        20%                      RIBH
                                                                             DBK
                                                                                                       DANSK                                                      20%
                                                                                                                                                                                                                           DBK                             2013e 10.7%
                                                                                                                                                                                         RIBH                                                                Swiss CT1
                                                                                                UBS

                                                                                                                                                                                                                                        Increased dividend
                        10%                                                                                                                                                                     ACA
                                                                                                                                                                  10%                                                 LLOY                payout at UBS,
                                                                                                                                                                                                                                        BNP, CS & KBC in
                                                            SAN        RBS                                                                                                                                                                     2014
                                                        PMI                       ING
                                                                               LLOY
                                   BMPS       CABK      ACA     CBK              KBC                                                                                                                           RBS          ING
                                                                                                                                                                         BMPS                     PMI
                        0%
                                                                                                                                                                  0%
                              4%            6%             8%                10%                12%          14%            16%     18%
                                                                                                                                                                        4%          6%             8%                 10%               12%               14%            16%           18%
                                                                             Basel III CT1 2013e
                                                                                                                                                                                                                      Basel III CT1 2013e


Source: Morgan Stanley Research estimates. Data as at May 17th 2013. Note that ‘NATIX ADJ’ is ex DTA’s.                                                                                                                                                                                      17
                                                                                                                                             MORGAN STANLEY RESEARCH

                                                                                                                                                 European Financials & Equity Strategy
                                                                                                                                                                         May 20, 2013

 We remain broadly below consensus for most of our coverage in 2013, though as balance sheet
 repair and earnings trajectories start to normalise, we see signs of divis being switched on in 2014
  MSe vs. 2013 Consensus Divi Yield                                                          MSe vs. 2014 Consensus Divi Yield

   SEB                                                                                       KBC         Broadly, we remain
   NDA     SEB & NDA: We include                                                             ACA         cautious on capital
   ACA     ~2.7% share buybacks in                                                         BARC          return in 2014; -0.8%
 NATIX     our divi yield estimates for                                                   ERSTE          below street on average
   SAN     2013.                                                                             BNP         in the Eurozone.
 BARC                                                                                      CSGN
ERSTE                                                                                        UBS         For those names in the
   DNB                                                                                         ISP       midst of re-structuring
   SHB                                                                                     NATIX         and scaling back
  BBVA                                                                                     HSBC          businesses, we see early
  STAN                                                                                      STAN         signs of divis being
 BMPS                                                                                       BBVA         switched on.
   CBK                                                                                       SHB
   RBS                                                                                     SWED
   UCG                                                                                       BKT                        Eurozone
 HSBC                                                                                        DNB                        Avg. -0.8%
 SWED                                                                                      BMPS
     ISP                                                                                     RBS
   BNP                                                                                       UCG                           European
   DBK                                                                                    DANSK                            Avg. -0.4%
 CSGN                                                                                        SEB
   KBC                                                                                       NDA
  LLOY                                                                                       DBK
   BKT                                                                                       GLE
 CABK                                                   Eurozone                             CBK
    ING                                                 Avg. 0%                             RIBH
   POP                                                                                      LLOY
    UBI                                                 European                              UBI
   UBS                                                                                     CABK
                                                        Avg. 0.1%
DANSK                                                                                         ING
   GLE                                                                                       POP
    PMI                                                                                      SAB
  RIBH                                                                                       SAN
   SAB                                                                                        PMI
      -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5%                                  -4%          -3%          -2%          -1%          0%           1%           2%


Source: Thomson Reuters, Morgan Stanley Research estimates. Data as of May 17th 2013. Note that numbers are a comparison of MS divi yield vs. consensus implied divi yield.           18
                                                                                                                                             MORGAN STANLEY RESEARCH

                                                                                                                                                 European Financials & Equity Strategy
                                                                                                                                                                         May 20, 2013

 Greater flex around 2015 dividend shapes our above-consensus view for almost half of the banks
 we cover – though we still remain cautious on Southern divi potential
 MSe vs. 2015 Consensus Divi Yield                                                           MSe 2014 DPS vs. 2015 Divi Swap Rates

   UBS                                                                                        If we compare our 2014 DPS estimates with quoted divi swaps
    ING                                                                                       (pay 2015 declared 2014), then we remain ahead of market
   BNP                                                                                        expectations for several of the more liquid names that we cover –
                        We think names with
ERSTE                                                                                         BNP, CS & HSBC
                        the ability to
   GLE
 BARC
                        restructure – e.g.,
     ISP
                        UBS –will lead to
                        higher than expected                                                  BNP
   KBC
 CSGN                   capital return
                                                                                                CS
   ACA
   BKT
 NATIX                                                                                       HSBC
   DBK
  STAN                                                                                         GLE
                                     Eurozone
  BBVA
 SWED                                Avg. -0.2%
                                                                                             BBVA
   SHB
 HSBC
   POP                                European                                                SAN
                                                                                                              MSe <                             MSe >
   RBS                                Avg. -0.2%                                                                                                Street
                                                                                              UCG
                                                                                                              Street
   SEB
             Despite being above
   NDA
             consensus for half of
   DNB                                                                                         ISP
             the banks we cover,
   UCG
DANSK
             we remain -0.2%
             below consensus for                                                             BARC
  RIBH
 BMPS        Eurozone banks we
             cover                                                                            UBS
 CABK
    UBI
   SAB                                                                                         ING
   SAN
  LLOY                                                                                        DBK
    PMI
                                                                                                  -0.60     -0.40     -0.20     0.00     0.20      0.40      0.60     0.80      1.00
       -5%       -4%        -3%        -2%       -1%        0%         1%        2%


Source: Thomson Reuters, Morgan Stanley Research estimates. Data as of May 17th 2013. Note that numbers are a comparison of MS divi yield vs. consensus implied divi yield.            19
                                                                                                            MORGAN STANLEY RESEARCH

                                                                                                               European Financials & Equity Strategy
                                                                                                                                      May 20, 2013
What we learned from the US: Balance sheet repair leading was critical to stock performance over the last few
years. But now the market seems comfortable with the new standards and stress tests, and earnings revisions
have once again re-asserted dominance in driving stock prices
Higher earnings momentum has been the driver for higher buybacks in the past
2011 Total Return vs. 2012 consensus EPS revisions (through 2011)

 2011 Total Return
                                                                                      Our colleagues Betsy Graseck and Mike Cyprus
  60%                                                                                 show that better earnings should drive rising
                                                                    2
                                                                   R = 0.8032
                                                                                      stock buybacks, a bigger driver of share
                                                                                      performance than rising dividends.
  40%
                                                                          DFS
                                                                                      For further detail, please see Top Investment
                                                                                      Ideas in Financials Post 1Q13 Earnings Zerbe,
  20%                                               AXP                               Graseck et al., 8th May 2013.
                                    BBT PNC     USB         COF
    0%
                                    STT    WFC
 -20%                       NTRS
                                         JPM
                           BK       RF
                      GS
 -40%                           C    STI
             BAC

 -60%


 -80%
     -60%          -40%         -20%           0%         20%     40%    60%    80%

                                     2012 Cons EPS Revisions (throughout 2011)




Source: Thomson Reuters, Morgan Stanley Research.                                                                                                  20
                                                                                                                                                                                                                                                                                                  MORGAN STANLEY RESEARCH

                                                                                                                                                                                                                                                                                                     European Financials & Equity Strategy
                                                                                                                                                                                                                                                                                                                                  May 20, 2013

We’ve seen in Australia that once banks are back on a stronger capital footing with
stable earnings momentum, regulators have permitted higher payout & special divis
Our colleague Richard Wiles shows how growing payouts and special divis at Australian banks have helped drive
bank stocks higher
Australian banks have been re-rated from 9.6x in May                                                                                                                                                                   Attaining required capital levels has triggered higher
2012 to 13.8x today                                                                                                                                                                                                    payouts
                                                                                                                                                                                                                                          90%

  17.0x                                                                                                                                                                                                                                                                                                    WBC

                                                                                                                                                                                                                                          85%
  15.0x                                                                                                                                                                                                13.8x




                                                                                                                                                                                                                       Divi Payout 2013
  13.0x                                                                                           12.4x                                                                                                                                   80%
                                                                                                                                                          11.8x                                                                                                                      CBA
  11.0x                                                                                                                                                                                                                                                        NAB
                                                                                                                                                                                                                                          75%

   9.0x

                                                                                                                                                                                                                                          70%                                ANZ
   7.0x
          Mar-96

                    Mar-97

                              Mar-98

                                       Mar-99

                                                Mar-00

                                                         Mar-01

                                                                   Mar-02

                                                                             Mar-03

                                                                                        Mar-04

                                                                                                   Mar-05

                                                                                                               Mar-06

                                                                                                                           Mar-07

                                                                                                                                        Mar-08

                                                                                                                                                     Mar-09

                                                                                                                                                                  Mar-10

                                                                                                                                                                                Mar-11

                                                                                                                                                                                              Mar-12

                                                                                                                                                                                                            Mar-13
                                                                                                                                                                                                                                          65%
                                                                                                                                                                                                                                             9.5%          10.0%        10.5%               11.0%         11.5%           12.0%
                                                                  Major Banks One-Year Forward P/E                                                                                                                                                                          Basel III CT1 2013e


The search for “fully franked” yield in a falling interest                                                                                                                                                           While subdued loan growth and strong capital positions
rate environment has been the key share price driver                                                                                                                                                                 have supported a lift in payout ratios
 14.0%                                                                                                                                                                                                                15.0%                                                                                       77%             80%
 12.0%                                                                                                                                                                                                                                                                                        74%
                                                                                                                                                                                                                                                                                                                                  75%
                                                                                                                                                                                                                      12.0%                                           71%                                         10.7%
 10.0%                                                                                                                                                                                                                                              70%
                                                                                                                                                                                                                                                                                                                                  70%
  8.0%                                                                                                                                                                                                                                                                                                            2.3%
                                                                                                                                                                                                                       9.0%
                                                                                                                                                                                                       7.9%
  6.0%                                                                                                                                                                                                                                                                                                                            65%
                                                                                                                                                                                                       5.5%            6.0%
  4.0%
                                                                                                                                                                                                                                                                                                                                  60%
  2.0%                                                                                                                                                                                                                                                                8.0%                    8.3%                8.5%
                                                                                                                                                                                                       2.8%                                         7.3%
                                                                                                                                                                                                                       3.0%
                                                                                                                                                                                                                                                                                                                                  55%
  0.0%
           Mar-96

                     Mar-97

                              Mar-98

                                       Mar-99

                                                Mar-00

                                                         Mar-01

                                                                  Mar-02

                                                                            Mar-03

                                                                                      Mar-04

                                                                                                 Mar-05

                                                                                                            Mar-06

                                                                                                                        Mar-07

                                                                                                                                    Mar-08

                                                                                                                                                 Mar-09

                                                                                                                                                              Mar-10

                                                                                                                                                                           Mar-11

                                                                                                                                                                                         Mar-12

                                                                                                                                                                                                   Mar-13




                                                                                                                                                                                                                       0.0%                                                                                                  50%
                                                                                                                                                                                                                                                    FY10              FY11            FY12                     FY13E
                    Major Banks Div Yield                                   Major Banks "Grossed Up" Div Yield                                                                       Cash Rate                                                  APRA CET1 Ratio (LHS)      BIS CET1 Ratio (LHS)              Payout Ratio (RHS)

Note: “Grossed Up” refers to the dividend yield adjusted for franking credits.
Note 2: “Payout Ratio” is before take-up of dividend reinvestment plan. Actual payout ratio following take-up of dividend reinvestment plan was ~55% in FY12.
Sources: ThomsonOne, Company data, Morgan Stanley Research (E) estimates. Data as at May 17th 2013.                                                                                                                                                                                                                                          21
                                                                                                             MORGAN STANLEY RESEARCH

                                                                                                                European Financials & Equity Strategy
                                                                                                                                       May 20, 2013



 What impediments could there be to higher dividend payout ratios?

                                   • Grinding economic stagnation in Eurozone will continue to concern policy makers, particularly in
                                   the Eurozone, to permission dramatically higher payouts without balance sheet restructuring. EU financials
    Systemic fears put the         could be thrown back into the “Bermuda Triangle” scenario we’ve regularly discussed. Banking Union
                                   progress is too slow and timid and risks remain around restructuring some banks
    break on capital return



                                   • The ongoing regulatory overhang continues to underpin the uncertainty around the future
        Greater regulatory         operational structures of banks and thus their earnings power. Recent policy maker rhetoric has
                                   focused on proposals for a EU 3% leverage ratio, a metric that is already a required disclosure for UK and
         requirements &            Swiss banks. If implemented in the current draft form, several Eurozone banks would face challenges in
           uncertainty             meeting the requirement – especially names that are heavily involved in trade finance and derivative
                                   businesses, leading to further balance sheet shrinkage. But we think Basel leverage ratio likely to be
                                   refined to be more a “net” one along US/Swiss lines

                                   • A deeper, more prolonged economic contraction than our economists forecast in Spain (-1.5%
                                   13e) & Italy (-1.7% 13e) could result in unemployment grinding higher and pushing the peak in provisions
   Bad debts accelerate &          out yet further than we currently estimate (H2 2013 in Spain & H1 2014 in Italy).
 slower non-core run down          • Favourable market reaction to better than expected non-core run down (e.g. UBS) has been a key driver
                                   of performance and has fed investors dividend expectations. With many banks still in full deleveraging
                                   mode, weaker than anticipated economic fundamentals, as well as softer credit markets, could impede
                                   banks stated targets and ultimately limit capital return.

                                   • Risks of subsidiarisation from FBO proposals & Liikanen could be meaningful for some names
                                   we cover – e.g. DBK – as national regulators seek to ring-fence certain, more risky elements of cross
          Balkanisation &          border finance and thus cushion against future global financial frailties. See our recent Blue Paper:
          Subsidiarisation         Wholesale & Investment Banking Outlook: Global Banking Fractures: The Implications
                                   • More onerous regulation than expected on this front could lead to even higher capitalisation
                                   requirements.



Source: Morgan Stanley Research.                                                                                                                    22
                                                                                                                                                               MORGAN STANLEY RESEARCH

                                                                                                                                                                    European Financials & Equity Strategy
                                                                                                                                                                                                  May 20, 2013



 Potential for income truffling and higher operational leverage informs our most preferred ideas
 Our focus is on just a few cheap banks with strong earnings power in their core franchises and that we believe can
 accelerate restructuring, exit non-core assets effectively, and, critically, start to pay good dividends.
                               MS 13e
                      MS                          Price at
  Most preferred               EPS vs.    CCY                Investment thesis
                     Rating                       16/05/13
                                Cons.
  Barclays              O        -13%      GBP      3.19     Barclays is trading on a current level of 0.9x 2013e TNAV for 11.5% RoTE in 2014e. We see three key ways that the new management
                                                             team can unlock value: (1) Exiting EU periphery, (2) Re-shaping the i-bank, (3) gain share in UK retail banking. Furthermore, we see
                                                             opportunity for uplift in dividend payout guidance to 30%, which we estimate would result in a ~5% 2015e dividend yield.

  BNP Paribas           O        -10%      EUR      45.75    Lower tail risk reduces scope and pace of deleveraging as French banks have regained their relative funding advantage vs. Euro peers.
                                                             However, cyclical / structural headwinds are here to stay, and we still expect weakening earnings momentum, given uncertainty on top
                                                             line and provisions. Thus, alpha generation would come from (1) management action on costs / restructuring, and (2) ability to gain
                                                             market shares. We think BNP Paribas has strong ability to manage costs, while its cheaper funding cost and strong balance sheet should
                                                             allow for market share gains and increase cash dividend payouts next year. With the stock trading on 0.8x 2013e for ~9% 2014e
                                                             normalised RONAV, we still see interesting risk-reward in the shares.

  KBC                   O        -3%       EUR      31.33    We like the new strategic focus of KBC and we see room for a LT re-rating to c.1.4x P/TE vs. 1.2x now for a 13.5% ROTE. We believe
                                                             KBC will return to high levels of profitability, with above-average FCF generation and payout ratios. This looks reasonable to us, as KBC
                                                             holds strong positions in two of the most interesting markets in Europe, while the BS risks have receded substantially. Looking at FCF
                                                             yields, KBC’s LT capital return story looks under-estimated.



  DnB                   O         1%       NOK      94.95    We see DNB posting better margins than peers, due to better repricing trends, higher lending growth of 4% and NIBOR falling less
                                                             sharply than the other interbank rates. Importantly, we think 100bp p.a. capital accumulation pre-dividend should relieve capital concerns
                                                             and include just under 25% dividend payout ratio for 2013-15e. On this basis, we think there is still further room for multiple expansion;
                                                             DNB is trading at 1.1x P/TBV vs. an RoNAV of 12.1% 2014e.



  Schroders             O        17%       GBP      25.60    We see the biggest delta in MSe vs. Cons ~20% in 2013e and ~25% 2014e − as we believe consensus underestimates growth, given (i)
                                                             product strength in key structural demand areas (e.g. multi-asset, Global/EM, income); (ii) global distribution potential (including Asia); (iii)
                                                             improving mix shift on sales mix (product and channel). In our base case, we believe SDR consensus underestimates potential
                                                             Cazenove deal accretion, which we model at ~6%. However, we believe SDR could plausibly deliver double this.


  Swedbank              O         6%       SEK     165.60    The stock remains attractive given its high capital level, improving funding situation and supportive macro backdrop. Lower funding costs,
                                                             leave room for some improvement in NIM and together with a 3.5% average loan growth, we estimate a 5% average NII growth in 2012-
                                                             2015e. We estimate a 75% dividend payout, which will still allow Swedbank to reach a 14.8% fully loaded B3 2013e (including 15% RWA
                                                             for mortgages). The stock trades on 1.9x for a 16.7% ROTE in 2014.

  UBS                   O        26%       CHF      17.65    We see successful restructuring at UBS from greater earnings from A&WM and believe non-core wind-down can drive higher
                                                             ROTE(>15%) leading to a re-rating and potential for higher capital returns. Our RWA expectations on deleveraging forecast B3 CT1 to
                                                             be best-in-sector at 12.2% by end of 2013, reducing the risk of negative outcomes. On ~1.5x 2013e TNAV, valuation looks undemanding
                                                             for >15% ROTE and potential for payout of ~50%.




Source: DataStream, Thomson Reuters (price and consensus data), Morgan Stanley Research; e = Morgan Stanley Research estimates. Data as at May 16th 2013.                                                        23
                                                                                                                                                            MORGAN STANLEY RESEARCH

                                                                                                                                                                European Financials & Equity Strategy
                                                                                                                                                                                             May 20, 2013



 Weak top line growth and continued bad debt formation are key drivers of our Least Preferred names
 Our outlook for bank earnings continues to be plagued by a weakening economic backdrop, deleveraging,
 low/negative rates, and higher bad debts. As a result, we are on average ~10% below consensus 13e EPS for
 Eurozone banks.
                                MS 13e
                      MS                           Price at
 Least preferred                EPS vs.    CCY                Investment thesis
                     Rating                        16/05/13
                                 Cons.
 Banco Popolare         U        -41%      EUR       1.19     Valuation is optically cheap but still not attractive on a relative basis as we believe the bank’s low profitability and asset quality vis-à-vis
                                                              its peers will continue to weigh on the stock. Macro concerns on Italy remain prevalent, in our view, especially in the absence of a
                                                              concrete policy response at the European level. Profitability remains a key issue for midcap Italian banks. Low Euribor has eroded LTRO
                                                              benefits, and we do not see BP generating its cost of equity (12%) in the near future, given a RoNAV of only 3.8% in 2014.
 Commerzbank            U         0%       EUR       7.79     Management's efforts in restructuring the bank are laudable. However, even when all is done, a targeted 10% Roe 2016 for the core
                                                              bank and likely c. 8% for group does not indicate an attractive investment case, in our view. Beside the execution risk linked to the
                                                              restructuring, we think CBK suffers from a difficult domestic business environment, which sets it at a disadvantage to other restructuring
                                                              stories, such as UBS, RBS, Lloyds. Valuation appears low at 0.2x 2013e P/TNAV, but a RONAV of 3.2% in 2014 in our base case is not
                                                              attractive.
 BME                    U        -21%      EUR       20.18    We believe competition in the Spanish cash equity market is intensifying. Alternative platforms such as Chi-X have seen market share
                                                              double from ~3% to 6% since removal of the short sale ban, now averaging ~15% 2Q13TD. Chi-X has increased user participation ~50%
                                                              from c20 to 30 clients over the last six months and with >40% of BME revenues linked to cash equity trading, we continue to see
                                                              downside risk for BME. With our estimates ~10% below consensus and trading on ~13.5x CY14e vs the sector on ~13x, we see better
                                                              risk reward at asset managers such as SDR & ADN (OW)
 Monte dei Paschi       U         0%       EUR       0.23     Government support will result in significant dilution once replaced and coupon payments eliminate profits for years to come.
                                                              Management's efforts in restructuring the bank are laudable. However, macro concerns on Italy remain prevalent, in our view, and loan
                                                              loss provisions will be a major drag on bank earnings. We see valuation as unattractive, with cost of equity of 12%; stock trades on
                                                              2014e P/NAV of 0.4x for 4.3% RoNAV.
 Popular                U        -67%      EUR       0.60     Real estate loans still represent 14% of the performing loan book. As NPLs continue to increase in this segment and POP reduces its
                                                              exposure to sustainable levels, we anticipate pressure on NII to build and stay into 2014. POP’s loan book is highly geared to
                                                              corporates/SME loans, which we think will drive an increasingly higher proportion of losses. We see an improvement in 2015 due to its
                                                              higher-margin business and tight cost control, and we expect RoTE to reach 8% in 2015. However, with it trading at 0.7x P/TBV in
                                                              2013e, we consider the stock fully valued.
 Raiffeisen             E         -9%      EUR       27.95    Question marks over its capital position, combined with macro headwinds across much of CEE suggest further downside risks. Even
                                                              though RBI closed the EBA gap (at RBZ level), it still has a significant amount of government capital that needs to be replaced. With a
                                                              pro-forma B3 ratio of c. 7%, RBI is at the bottom of European banks (excl. PC capital). Asset quality trends in CEE also are a cause for
                                                              concern, especially in Hungary and Poland, and as such we see better value elsewhere in this region.


 Sabadell               U        -95%      EUR       1.60     We believe SAB has significant room to cut costs post its merger with CAM. However, revenues headwinds suggest it will take more time
                                                              to increase its ROTE, in our view. CAM was auctioned and awarded to SAB in late 2011. We believe its poor asset quality will transform
                                                              into higher margin pressure than consensus expects. SAB’s NII is also less geared to the increase in interest rates that we expect in
                                                              2014/15, as most of its mortgages have floors. However, with it trading at 0.6x P/TBV in 2013e, we consider the stock fully valued.




Source: DataStream, Thomson Reuters (price and consensus data), Morgan Stanley Research; e = Morgan Stanley Research estimates. Data as at May 16th 2013.                                                    24
                                    MORGAN STANLEY RESEARCH

                                        European Financials & Equity Strategy
                                                               May 20, 2013




European Insurance: Maciej Wasilewicz




                                                                            25
                                                                                                    MORGAN STANLEY RESEARCH

                                                                                                       European Financials & Equity Strategy
                                                                                                                              May 20, 2013



Insurance: High dividend yields, yet RoE constrained by low yield environment
At the high level, the insurance sector is facing significant pressure from the low yield environment. In our recent blue paper
(Releasing the Pressure from Low Yields, March 15 2013), we highlighted that the low yield environment could reduce sector
returns by 40% in next five years…

… as a result of this factor and the substantial stock rally over the past 18 months, we see weighted average 3% downside to
our price targets for the coverage universe; we think income offered continues to remain a major attraction for the sector.

Yet the impacts are somewhat unevenly spread. The negative driver impacts European life exposed names the most, while
UK life, non-life and short-tail non-life reinsurers are less impacted. We therefore have several stocks with high dividend
paying potential and manageable exposure to declining investment returns.

Weighted average dividend yield for the sector was                  Insurance sector currently trades at 2x P/TBV 13e with
estimated at 4.3% for 2013e                                         16.3% RoTBV 14e.
                                                                                            RoTBV            P/TBV
 5.3%
                                                    5.1%
                                                                   17.5%                                                                   2.5
 5.0%                                                                            2.2x
                                                                   17.0%                                                                   2.3
 4.8%                                                                                               2.0x
                                                                   16.5%                                                                   2.0
                                            4.5%                                                                          1.8x
 4.5%
                  4.3%                                             16.0%                                                                   1.8
                                                                                                  17.2%
 4.3%                                                              15.5%                                                                   1.5
                                                                                                                         16.3%

 4.0%                                                                           15.7%
                                                                   15.0%                                                                   1.3

 3.8%                                                              14.5%                                                                   1.0
                  2013e                     2014e   2015e                        2012             2013e                  2014e
Source: Morgan Stanley Research estimates
                                                                                                                                           26
                                                                                                                                                                                                                                                                                                       MORGAN STANLEY RESEARCH

                                                                                                                                                                                                                                                                                                                European Financials & Equity Strategy
                                                                                                                                                                                                                                                                                                                                                                May 20, 2013

Of our Most Preferred insurance names, the key picks for dividend yield
are Munich Re, Direct Line and Aegon.
Dividend yield in 2013e, 2014e and 2015e for our coverage universe
 9.0%

                                                                                                                                                                                                                                                                                         2013e                              2014e                                  2015e

 7.5%




 6.0%




 4.5%




 3.0%




 1.5%




 0.0%
                                                                       Delta Lloyd




                                                                                                                                                                                             Aviva




                                                                                                                                                                                                                                                                                                                                    Tryg
                                                                                                                                                                                                                                                       Allianz




                                                                                                                                                                                                                                                                                          Old Mutual




                                                                                                                                                                                                                                                                                                                                                   Prudential


                                                                                                                                                                                                                                                                                                                                                                                     Generali
                Swiss Re




                                                                                                                                                                                                                                      Sector Average
                                                                                                                                                                                                                        Hannover Re
          RSA




                                   Resolution




                                                                                                                                                            Scor SE


                                                                                                                                                                            Aegon




                                                                                                                                                                                                                                                                                                                                           Uniqa
                                                                                                                                                                                                           Storebrand
                                                          Lancashire




                                                                                                       Zurich




                                                                                                                                                   Catlin
                                                                                     Munich Re
                                                                                                 PZU


                                                                                                                Direct Line




                                                                                                                                                                                    Mapfre




                                                                                                                                                                                                                                                                                                                       Swiss Life
                           Ageas




                                                                                                                                                                                                                                                                                                       Hiscox
                                                Admiral




                                                                                                                              Gjensidige




                                                                                                                                                                      AXA




                                                                                                                                                                                                     L&G




                                                                                                                                                                                                                                                                                                                 VIG




                                                                                                                                                                                                                                                                                                                                                                                                ING
                                                                                                                                                                                                                                                                         Standard Life
                                                                                                                                           Amlin




                                                                                                                                                                                                                                                                                                                                                                 St. James's Place
                                                                                                                                                                                                                                                                 Sampo

Source: Morgan Stanley Research estimates. Note that data for Munich Re includes potential capital returns through buybacks.                                                                                                                                                                                                                                                                     27
                                                                                                                               MORGAN STANLEY RESEARCH

                                                                                                                                 European Financials & Equity Strategy
                                                                                                                                                        May 20, 2013



For dividend yield, our top picks are Aegon, Munich Re and Direct Line
AEGON (Overweight)

 We are Overweight because we think the market fails to appreciate Aegon’s reduced market sensitivity due to the shift
towards fee based businesses and the effectiveness of its hedging program.

The stock has a 6.8% 13e dividend yield – amongst the sector’s highest – and we think this is easily supported by a very
strong solvency position and a high free cash flow generation.

Munich Re (Overweight)

 We are negative on the reinsurance sub-sector, as we think that low yields, alternative capital and medium term risk to
reserving makes for weak long-term spreads…

 … yet we think that of the sub-sector, Munich Re remains relatively attractive for its low leverage and high capital discipline.
We anticipate that buybacks could raise the overall dividend yield up to ~8% p.a. over the next few years – a level that can
be sustained due to relatively low growth in capital requirements and strong capital buffers.

Direct Line (Overweight)

 Against the backdrop of a competitive UK motor operating outlook, we expect capital management to move further up the
agenda at Direct Line.

The group is not capital constrained, in our view, and will see a build up in additional excess capital on balance sheet as
muted top line (and by extension capital requirement) growth is outstripped by that in book value.

 We assume the token start of special dividends from 2013 (at 2.5p per share), these stepping up from 2014 (to 9p per
share) accompanied by a 30% rebasing of the regular dividend.



Source: Morgan Stanley Research estimates. Note that data for Munich Re includes potential capital returns through buybacks.                                         28
                                 MORGAN STANLEY RESEARCH

                                   European Financials & Equity Strategy
                                                          May 20, 2013




European Property: Bart Gysens




                                                                       29
                                                                                                                   MORGAN STANLEY RESEARCH

                                                                                                                      European Financials & Equity Strategy
                                                                                                                                             May 20, 2013

Property
Around 4.2% yield with 5% DPS growth


          Pan-European property sector: Dividend yield and dividend growth, MSe 2013          Observations:
  7                                                                                           - Investors pay up for growth;
          DY (%)                                                                              - Growth is higher on the continent, but a big
                                                                                              part of this is due to shorter debt maturities,
                                                                                              so cheaper debt cost driving EPS growth;
  6                                                                                           -Limited scope to change pay-out ratios, as
                                                                                              most companies (REITs) pay out around 90%.


  5                                                                                Unibail-
                                                            Continent
                                                                                   Rodamco


                          British           UK
  4                       Land                          Sector




  3




                                                                                                                 Divi growth (%)
  2
      0                     2                    4                      6                 8                 10                     12




Source: Morgan Stanley Research estimates                                                                                                                 30
                                                                                                                       MORGAN STANLEY RESEARCH

                                                                                                                          European Financials & Equity Strategy
                                                                                                                                                 May 20, 2013

Property
Lowly geared compared other financials, and gearing matters


          Pan-European property sector: Dividend yield and financial gearing, MSe 2013        Observations:
 7                                                                                            Property companies are lowly geared in a
          DY (%)                                                                              broader financials context, using more than
                                                                                              60% equity to finance their portfolios.

 6




 5
                                             Unibail-         Continent
                                             Rodamco

                                                            British
 4                                                Sector    Land

                                        UK

 3




                                                                                         Net debt/gross assets less cash (%)
 2
     25                  30                  35               40                 45      50               55                   60




Source: Morgan Stanley Research estimates                                                                                                                     31
                                                                                                MORGAN STANLEY RESEARCH

                                                                                                  European Financials & Equity Strategy
                                                                                                                         May 20, 2013

Property
Unibail-Rodamco and British Land: Two stocks yield-focused investors should consider


      Unibail-Rodamco (EW rated)                               British Land (OW rated)
      We rate the shares EW for the medium-term because        We rate the shares OW for the medium-term because
      of its demanding NAV valuation (around a 30% NAV         we think NAV growth is set to pick up (so the rating is
      premium, so the rating is not EPS/DPS driven).           not EPS/DPS driven).


      We believe any DPS focused investors giving any          British Land has very long-dated leases to quality
      credibility to the company’s 5-year guidance should      assets, financed with very long-dated debt (both more
      consider owning the shares on a long-term view.          than 10 years duration).


      Company guidance is for Unibail-Rodamco to produce       As such, the group’s earnings (and dividends) are
      EUR 14 of recurring EPS by 2017.                         highly-resilient, in our view.


      This suggests 7.9% annual EPS (and likely DPS)           The downside of financing with long-dated fixed rate
      CAGR for the next 5 years.                               debt is that when interest rates fall, the lower financing
                                                               cost only feeds through to the P&L very slowly.

      Assuming a 90% pay-out ratio, 2017e DPS of EUR
      12.6, and assuming the shares were to trade at a 5%      As such, British Land’s cost of debt (at 4.4%) remains
      DY in 2017, the shares are set to return more than 60%   more than 1pp higher than continental peers. But this
      cumulative (double-digit per annum), of which around     also means its cost base has more scope to reduce if
      half through dividends.                                  interest rates stay low, and that its EPS would be more
                                                               resilient if interest rates were to rise.



Source: Morgan Stanley Research estimates                                                                                             32
                                     MORGAN STANLEY RESEARCH

                                          European Financials & Equity Strategy
                                                                 May 20, 2013




Appendix: European Financials Valuation




                                                                              33
                                                                                                                                                                                            MORGAN STANLEY RESEARCH

                                                                                                                                                                                               European Financials & Equity Strategy
                                                                                                                                                                                                                            May 20, 2013



 European Banks: Valuation & Key Metrics
             Company name                MS       Mkt    Curr. Price    Price Up/Down     Earnings per share        TNAV/Shr              Price to earnings               Div Yld                  P/NAV                  RoTNAV
                                        Rating    cap                  Target   side        MS Estimates           MS Estimates             MS Estimates                MS Estimates           MS Estimates             MS Estimates
17 May 13                                         (€bn)                                  2013E 2014E 2015E      2013E 2014E 2015E      2013E     2014E 2015E       2013E 2014E 2015E        2013E 2014E 2015E     2013E    2014E     2015E
France                                           109.7                                                                                    9.6x     8.3x    7.4x     3.8% 4.9%       6.1%     0.8x 0.7x 0.7x        8.3%     9.1%      9.6%
GLE          Societe Generale             E         23.9 EUR     30.8     36.6     19%     3.6     4.2    4.8     48.9   52.1   55.9       8.5x     7.3x    6.5x     2.3%   3.8%     6.8%     0.6x   0.6x  0.6x     7.8%     8.6%      9.0%
NATIX        Natixis                      O         11.1 EUR       3.6      4.2    15%     0.3     0.4    0.4      4.4    4.6    4.8      11.8x    10.1x    9.4x     4.4%   5.0%     5.4%     0.8x   0.8x  0.8x     6.7%     7.9%      8.2%
ACA          Credit Agricole              E         18.0 EUR       7.3      8.8    20%     1.1     1.2    1.3     10.9   11.5   12.1       6.7x     5.9x    5.5x     5.7%   5.5%     6.0%     0.7x   0.6x  0.6x    10.6%    11.1%     11.3%
BNP          BNP Paribas                  O         56.8 EUR     45.8     54.6     19%     4.3     5.1    5.7     54.8   57.8   61.0      10.6x     9.1x    8.1x     3.6%   5.1%     6.0%     0.8x   0.8x  0.8x     8.0%     9.0%      9.5%
Benelux                                            40.0                                                                                   8.0x     7.9x    6.4x     0.0% 1.1%       4.5%     0.8x 0.7x 0.7x        9.4%     9.1% 10.6%
KBC          KBC                          O         13.6 EUR     32.5     33.8      4%     3.4     3.5    3.9     24.7   26.7   28.1       9.7x     9.4x    8.3x     0.0%   3.2%     2.3%     1.3x   1.2x  1.2x    13.3%    13.5%     14.2%
ING          ING                          E         26.4 EUR       6.8      7.3     7%     1.0     0.9    1.3     13.5   14.1   15.1       7.2x     7.2x    5.4x     0.0%   0.0%     5.6%     0.5x   0.5x  0.5x     7.3%     6.9%      8.7%
Investment banks                                  130.5                                                                                  10.9x     9.9x    8.1x     1.7% 3.2%       6.9%     1.3x 1.2x 1.1x       12.9% 12.7% 13.8%
UBS          UBS                          O         56.8 CHF     17.5     18.0      3%     1.2     1.4    1.8     11.3   12.3   13.3      14.3x    12.8x    9.8x     0.9%   3.4%    10.0%     1.6x   1.4x  1.3x    11.3%    11.8%     14.2%
DBK          Deutsche Bank                E         37.1 EUR     36.5     39.0      7%     5.2     5.3    5.9     43.3   46.6   51.4       7.0x     6.8x    6.2x     2.1%   2.1%     4.1%     0.8x   0.8x  0.7x    12.5%    11.9%     12.1%
CSGN         Credit Suisse                O         36.6 CHF     28.8     31.0      8%     3.0     3.5    3.9     22.7   25.1   27.4       9.5x     8.3x    7.4x     2.6%   4.2%     4.9%     1.3x   1.1x  1.0x    15.5%    14.8%     15.1%
Italy                                              62.0                                                                                  18.4x 10.3x       6.9x     2.4% 3.3%       4.1%     0.6x 0.6x 0.5x        3.5%     5.6%      7.9%
UCG          UniCredit                    O         24.3 EUR       4.3      5.5    28%     0.2     0.4    0.7      8.1    8.4    9.0      25.9x    10.5x    6.1x     1.9%   2.4%     2.8%     0.5x   0.5x  0.5x     2.0%     4.9%      8.1%
UBI          UBI Banca                    U          3.1 EUR       3.5      3.7     6%     0.2     0.3    0.4      7.0    7.2    7.4      17.3x    12.2x    9.4x     1.4%   1.4%     1.4%     0.5x   0.5x  0.5x     2.9%     4.1%      5.1%
BMPS         Monte dei Paschi             U          2.7 EUR       0.2      0.3     9%     0.0     0.0    0.0      0.6    0.6    0.6        NM      8.9x    5.7x     0.0%   0.0%     0.0%     0.4x   0.4x  0.4x     1.4%     4.3%      6.3%
MB           Mediobanca                   U          4.5 EUR       5.2      5.5     6%     0.6     0.6    0.7      7.4    7.9    8.4       8.8x     8.1x    6.9x     3.3%   4.3%     4.8%     0.7x   0.7x  0.6x     8.1%     8.3%      9.2%
ISP          Intesa SPI                   E         23.8 EUR       1.5      1.8    22%     0.1     0.1    0.2      2.2    2.3    2.4      14.8x    10.5x    7.5x     3.5%   4.8%     6.1%     0.7x   0.6x  0.6x     4.6%     6.3%      8.4%
BP           Banco Popolare               U          2.1 EUR       1.2      1.4    13%     0.1     0.1    0.2      3.4    3.5    3.6      20.8x     9.1x    6.3x     1.7%   4.1%     5.8%     0.4x   0.3x  0.3x     1.7%     3.8%      5.4%
PMI          Banca Popolare di Milano     U          1.5 EUR       0.4      0.3   -21%    0.03    0.04   0.05     1.02   1.04   1.08      15.9x    11.0x    8.8x     0.0%   0.0%     0.0%     0.4x   0.4x  0.4x     2.8%     3.9%      4.7%
Nordics                                           133.5                                                                                  11.9x 11.1x 10.4x          3.7% 4.2%       4.5%     1.5x 1.4x 1.3x       13.0% 12.9% 13.0%
SWED         Swedbank                     O         21.9 SEK    165.6    170.0      3%    14.1 14.5 15.1          85.1 88.8 92.6          11.8x    11.4x 11.0x       6.0%   6.3%     6.6%     1.9x   1.9x  1.8x    16.8%    16.7%     16.7%
SHB          Svenska Handelsbanken        U         22.0 SEK    296.3    250.0    -16%    21.0 22.0 22.9         155.0 165.0 175.3        14.1x    13.5x 13.0x       3.9%   4.0%     4.2%     1.9x   1.8x  1.7x    14.0%    13.7%     13.4%
SEB          SEB                          E         18.0 SEK     71.2     72.0      1%     5.7   6.1   6.6        44.6 48.0 51.7          12.6x    11.6x 10.7x       3.9%   3.9%     4.2%     1.6x   1.5x  1.4x    13.2%    13.3%     13.3%
NDA          Nordea                       E         37.3 SEK     79.1     78.0     -1%   €0.78 €0.84 €0.91       €6.70 €7.14 €7.60        11.8x    11.0x 10.1x       3.7%   4.3%     4.9%     1.4x   1.3x  1.2x    12.2%    12.1%     12.4%
DNB          DNB                          O         20.6 NOK     95.0    105.0     11%     9.4 10.2 10.9          81.3 89.0 97.3          10.1x     9.4x    8.7x     2.4%   2.5%     2.6%     1.2x   1.1x  1.0x    12.1%    11.9%     11.7%
DANSK        Danske Bank                  E         13.8 DKK    102.4    110.0      7%    10.1 11.3 12.8         122.6 130.1 138.8        10.2x     9.0x    8.0x     1.5%   3.4%     3.9%     0.8x   0.8x  0.7x     8.5%     9.0%      9.5%
Spain                                             125.8                                                                                  11.3x 10.7x       7.2x     7.8% 5.7%       6.5%     1.1x 1.0x 0.9x        7.3% 11.6% 13.5%
SAB          Sabadell                     U          4.7 EUR       1.6      1.5    -5%      0.0    0.1    0.2      2.4    2.5    2.6        NM     26.3x 10.2x       0.1%   1.3%     3.4%     0.6x   0.6x  0.6x     0.2%     2.4%      6.1%
CABK         Caixabank                    U         13.5 EUR       2.6      2.8     6%    (0.0)    0.1    0.3      4.6    4.7    4.8        NM     18.5x    8.6x     7.1%   5.4%     5.5%     0.6x   0.6x  0.5x     0.0%     3.7%      7.7%
BBVA         BBVA                         O         41.2 EUR       7.4      8.5    14%      0.6    0.9    1.1      6.4    6.9    7.5      13.4x     8.7x    7.1x     5.6%   5.6%     6.0%     1.2x   1.1x  1.0x     9.1%    12.8%     14.6%
BKT          Bankinter                    E          2.5 EUR       2.9      2.9     2%      0.1    0.2    0.3      3.4    3.5    3.6      20.1x    12.7x    9.5x     3.0%   3.9%     5.3%     0.8x   0.8x  0.8x     4.2%     6.5%      8.4%
POP          Popular                      U          5.2 EUR       0.6      0.6    -9%      0.0    0.0    0.1      0.9    0.9    0.9        NM     21.1x    8.4x     0.2%   2.5%     6.0%     0.7x   0.7x  0.7x     0.6%     3.3%      8.0%
SAN          Santander                    O         58.8 EUR       5.4      6.5    19%      0.4    0.7    0.8      4.4    5.1    5.6      13.9x     8.1x    6.6x    11.0%   6.4%     7.4%     1.2x   1.1x  1.0x     9.0%    14.2%     15.3%
UK                                                139.4                                                                                  14.0x 10.0x       7.9x     1.0% 1.4%       2.4%     0.9x 0.9x 0.8x        7.1%     9.3% 11.2%
RBS          Royal Bank of Scotland       E         40.8 GBp    318.8    314.0     -2%    16.8    29.7   38.8    462.3 465.7 483.5        19.0x    10.7x    8.2x     0.0%   0.0%     1.6%     0.7x   0.7x  0.7x     3.7%     6.4%      8.2%
LLOY         Lloyds BG                    E         50.0 GBp     60.9     54.0    -11%     4.4     5.4    6.6     55.7 58.8 63.6          13.8x    11.3x    9.3x     0.0%   0.3%     0.8%     1.1x   1.0x  1.0x     7.9%     9.4%     10.7%
BARC         Barclays Bank                O         48.6 GBp    320.4    424.0     32%    31.7    40.3   52.1    349.0 355.0 375.9        10.1x     7.9x    6.1x     2.8%   3.7%     4.7%     0.9x   0.9x  0.9x     9.2%    11.5%     14.3%
UK/Asia                                           211.8                                                                                  11.2x 10.1x       9.4x     4.3% 4.9%       5.0%     1.4x 1.4x 1.3x       13.3% 13.8% 13.9%
STAN         Standard Chartered           O         45.3 GBp 1,583.0 1,830.0       16%   $2.31 $2.58 $2.86       $16.7 $18.5 $20.4        10.5x     9.4x    8.5x     3.8%   4.2%     4.6%     1.4x   1.3x  1.2x    14.7%    14.8%     14.9%
HSBC         HSBC                         E        166.5 GBp    749.0    737.0     -2%   $1.01 $1.12 $1.19       $7.94 $8.40 $8.95        11.4x    10.2x    9.6x     4.5%   5.1%     5.2%     1.4x   1.4x  1.3x    13.0%    13.6%     13.6%
Austria                                            19.7                                                                                  11.2x     7.5x    6.4x     2.2% 3.1%       3.6%     1.0x 0.9x 0.8x        9.2% 12.6% 13.3%
ERSTE        Erste Bank                   O         11.9 EUR     25.7     31.0     21%     2.0     3.1    3.7     22.4   25.0   27.8      12.5x     8.2x    6.9x     2.3%   3.4%     3.9%     1.1x   1.0x  0.9x     9.5%    13.2%     14.0%
RIBH         Raiffeisen International     E          7.8 EUR     26.9     30.0     11%     2.9     4.2    4.9     34.5   37.7   41.6       9.1x     6.4x    5.5x     1.9%   2.5%     3.0%     0.8x   0.7x  0.6x     8.8%    11.7%     12.3%
ALL European                                      980.8                           8%                                                      11.7      9.8     8.2     3.4%   3.8%     5.0%     1.13   1.06   0.98    10.0%    11.3%    12.2%
All Europe ex UK/Asia                             769.0                          10%                                                      11.9      9.8     7.9     3.2%   3.6%     5.0%     1.04   0.97   0.91     9.1%    10.5%    11.8%
Eurozone Banks                                    402.7                          15%                                                      11.0      9.0     6.9     4.1%   4.0%     5.3%     0.84   0.78   0.72     7.6%     9.6%    10.9%
Nordics, Swiss, UK/Asia                           438.7                           2%                                                      11.7     10.6     9.6     3.5%   4.4%     5.5%     1.46   1.36   1.27    13.2%    13.4%    13.7%



For valuation methodology and risks associated with any price targets above, please email morganstanley.research@morganstanley.com with a request for valuation methodology and risks on a
particular stock.
Source: Thomson Reuters, Morgan Stanley Research estimates. Data as May 17th 2013
                                                                                                                                                                                                                                              34
                                                                                                                                                                    MORGAN STANLEY RESEARCH

                                                                                                                                                                      European Financials & Equity Strategy
                                                                                                                                                                                             May 20, 2013
Our conviction is largely around a clutch of restructuring stories with strong core franchises that can
accelerate restructuring, enhance returns and restart payout – such as BNP, BARC, KBC, UBS; also
Schroders, DNB, SWED
Price to book vs RoTE in 2014e
Eurozone banks on 0.84x TNAV for 7.6% MSe RoTE in 13e & 9.6% in 14e. Using ~11% CoE and g=1% would imply modest upside using 2014 RoE.

Nordic/Swiss/Global banks are trading on 1.46x TNAV for ~13.2% MSe RoTE in 13e & ~13.4% in 14e. Using ~10.75% CoE and g=2.5% would imply
limited upside using 2014 RoE.
                                      2.0x
                                                                                                                                            SHB              SWED


                                      1.8x

                                      1.6x                                                                                                SEB
                                                                                                                                UBS Adj

                                                                                                                                  HSBC    NSW         STAN
                                      1.4x                                                                                        NDA     KBC

                                                                                                                                                      CSGN
                                      1.2x                                                                             DNB       BBVA
                         P/TNAV 13e




                                                                                                                                                SAN
                                                                                                                          EUROPE
                                                                                                              LLOY                 ERSTE
                                                                                                                     EU EX UK/ASIA
                                      1.0x
                                                                                                                           BARC
                                                                                                           DANSK
                                                                                       BKT                  BNP EUROZONE        DBK
                                      0.8x                                           RBS
                                                                                                   NATIX

                                                    SAB                        ISP                   MB                  RIBH
                                                                                                                        ACA
                                                                                                       GLE
                                      0.6x                        CABK
                                                                 UBI
                                                                                           ING
                                                                         UCG
                                                           PMI
                                      0.4x                           BMPS
                                                          CBK
                                                                BP

                                      0.2x

                                      0.0x
                                             0%   2%            4%             6%                8%      10%               12%            14%            16%           18%
                                                                                                 RoTE 14e
Source: Thomson Reuters Data as at May 17th 2013
Note: ‘Adj UBS’ refers to expected return for 2015e-16e post restructuring. NSW = Nordics, Swiss and UK/Asia banks.                                                                                       35
                                                                                                                                                                                                                           MORGAN STANLEY RESEARCH

                                                                                                                                                                                                                               European Financials & Equity Strategy
                                                                                                                                                                                                                                                                    May 20, 2013



 Asset managers: key metrics and valuations
       Selected Asset Managers & Private Banks
                                                                                                                          Last 6M                                                                                 Market
       17 May 2013                     Price    Mkt. Val. Latest AuM            EPS                      P/E              Flows /   EPS CAGR              Absolute Performance (%)                  Div. Yield     Cap                          Sell Side Recs
       Public Company                 Local    (USDMM) (USDBn)         2012    2013e   2014e   2012     2013e   2014e   BoP AuM (%) 12-14e (%)   1D      1W     1M       3M    12 M        YTD        2013e      AuM (%)    Ticker   Rating   Buy    Hold    Sell
       European Asset Managers
       Schroders (ex-surplus)         £25.33     10,905     359.3      0.93     1.37    1.70   25.0x    16.9x   13.7x        9.7       35.1      (0.5)    3.8    17.2    29.5     108.6    50.2        2.1         3.0      SDR LN    OW      55%    30%     15%
       Schroders                      £25.33     10,905     359.3      1.01     1.48    1.79   25.0x    17.1x   14.1x        9.7       32.9      (0.5)    3.8    17.2    29.5     108.6    50.2        2.1         3.0      SDR LN    OW      55%    30%     15%
       Partners Group               SFr 238.8    6,358       35.4      9.64    11.92   14.60   24.8x    20.0x   16.4x      12.1        23.0      (0.7)   (1.3)    1.9    12.1     49.2     13.1        3.0        17.9     PGHN SW    OW      30%    50%     20%
       Aberdeen                        £4.70      8,558     322.5      0.25     0.33    0.41   18.9x    14.2x   11.5x        4.8       28.1      (0.6)    1.1    15.5     9.8     87.8     28.0        4.2         2.7      ADN LN    OW      65%    35%      0%
       Henderson                       £1.78     3,021       94.3      0.12     0.12    0.14   14.6x    14.4x   12.8x       (5.7)      6.9        1.0     2.3    13.6    11.4     84.3     34.8        4.2         3.2      HGG LN    EW      15%    65%     20%
       Jupiter                         £3.43      2,385      44.3      0.19     0.24    0.27   17.8x    14.5x   12.9x        7.2       17.7       0.7     0.0     4.7     3.3     70.4     23.2        3.0         5.4      JUP LN    NC      56%    44%      0%
       F&C                             £0.93       794      150.1      0.06     0.09    0.11   15.3x    10.1x    8.4x      (13.2)      35.1       3.4    (4.5)   (2.6)   (9.2)    33.2     (9.0)       3.8         0.5     FCAM LN    EW      46%    46%      8%
       GAM                           SFr 17.5     3,298     119.4      0.83     1.20    1.42   21.1x    14.6x   12.3x        2.7       31.0       0.3     0.9    14.8     9.4     66.7     41.7        3.3         2.8      GAM VX    NC      40%    50%     10%
       Liontrust                       £1.90       115        4.5      0.04     0.12    0.18   43.2x    16.3x   10.8x      25.1        99.6       0.0     0.0    13.8    21.4     90.0     61.7        0.8         2.5      LIO LN    NC      50%     0%     50%
       Mean                                                                                    21.6x    16.1x   13.4x        5.3       34.3       0.5     0.3     9.9    11.0     73.8     30.5        3.0         4.8                        45%    40%     15%
       Median                                                                                  20.0x    14.6x   12.6x        6.0       29.6       0.1     0.4    13.7    10.6     77.3     31.4        3.1         2.9                        48%    45%     13%
       European Asset Managers (material performance fees)
       Man Group                       £1.31      3,643      54.8      0.07    0.06    0.09    17.6x    23.1x   13.9x      (21.3)      12.8       4.0    4.6     24.5    22.2     67.4     58.9        4.2        6.6       EMG LN    EW      33%    43%     24%
       Man Group (ex-perf)             £1.31      3,643      54.8       0.06   0.03    0.06    22.1x    38.7x   23.7x      (21.3)      (3.4)      4.0    4.6     24.5    22.2     67.4      58.9       4.2        6.6       EMG LN    EW      33%    43%     24%
       Ashmore                         £4.33      4,653      77.7      0.27    0.29    0.33    16.2x    15.0x   13.0x      24.4       11.7        1.0    3.7      8.7    15.4     30.5     20.5        3.6        6.0      ASHM LN    EW      35%    60%      5%
       Gottex                        SFr 2.32       73        6.4      -0.10   0.12    0.19     NA      19.3x   12.2x      (21.9)       NA       (5.3)   (5.7)   (5.3)   (20.8)    (8.7)   (16.2)      NA         1.2      GFMN SW    NC       0%    50%     50%
       Charlemagne                     £0.11        47        2.7      0.01    0.01    0.01     NA      22.0x   22.0x      11.3       (15.5)     0.0     0.0      0.0     2.3      8.6     25.7        4.5        1.7      CCAP LN    NC       0%    33%     67%
       Polar Capital                   £3.65       458        6.0      0.13    0.19    0.25    28.8x    18.9x   14.7x       37.6       39.8       0.0    6.6      9.4    30.4     82.5      75.4       4.1        7.6      POLR LN    NC      67%    33%      0%
       Azimut                        € 15.72      2,223      23.6      1.08    1.02    1.15    14.5x    15.5x   13.6x      14.0         3.2       1.3    2.6     20.7    23.5     121.4    44.9        3.4        9.4       AZM IM    NC      80%    10%     10%
       Banca Generali                € 18.11      2,044       0.0      1.14    1.22    1.32    16.0x    14.9x   13.7x       0.0         8.0       0.9     4.7    23.1     24.9    132.2     40.3       5.1        NA        BGN IM    NC      57%    43%      0%
       Mediolanum                     € 5.63      4,113      66.2      0.48    0.44    0.44    11.6x    12.8x   12.7x       1.1        (4.4)      0.5     4.8    32.6    27.8     115.2     46.8       3.8        6.2       MED IM    NC      38%    38%     23%
       Mean                                                                                    15.4x    16.4x   13.3x       5.6         7.9       0.3    2.7     14.2    15.7     68.6     37.0        4.1        5.5                         39%    39%     22%
       Median                                                                                  16.1x    17.2x   13.7x       6.2         8.0       0.7    4.2     15.1    22.8     75.0     42.6        4.1        6.2                         37%    41%     17%
       US Asset Managers
       AllianceBernstein              $25.62      7,155     443.0       1.28    1.44    1.60   20.0x    17.8x   16.0x        3.6       11.8       1.5     1.3    14.4    19.7      81.1    47.0        6.1        1.6        AB.N     EW      33%    56%     11%
       Franklin                      $168.32     35,786     823.7       9.30   10.44   11.60    18.1x   16.1x   14.5x        5.2       11.7       1.4     4.4    13.9    16.4      55.4    33.9        2.0        4.3       BEN.N     EW      50%    45%      5%
       BlackRock                     $290.95     54,902    3,629.3     13.67   15.56   17.79   21.3x    18.7x   16.4x       5.1       14.1       1.9      5.2    15.9    19.8     67.2     40.8        2.3        1.5       BLK.N     OW      62%    38%      0%
       Federated                      $27.18      2,849      90.6       1.64    1.74    1.92   16.6x    15.6x   14.1x        1.4       8.3       4.1     12.8    19.8     7.9     35.3     34.4        3.6        3.1        FII.N    UW       8%    42%     50%
       Invesco                        $34.59     15,380     729.3       1.71    2.08    2.39    20.2x   16.6x   14.5x        4.6       18.2       0.8     1.4    20.6    26.4      60.1    32.6        2.5        2.1       IVZ.N     EW      68%    32%      0%
       Janus                           $8.81      1,677     163.8       0.60    0.67    0.80   14.6x    13.1x   11.1x       (9.5)      14.9       2.1    (1.2)    2.8    (8.3)    26.6      3.4        3.1        1.0       JNS.N     UW       7%    43%     50%
       Legg Mason                     $36.13      4,659     664.6       1.77    1.97    2.32    20.4x   18.3x   15.6x       (5.6)      14.3       2.4     5.8    20.1    31.3      47.9    40.5        1.3        0.7        LM.N     EW      17%    61%     22%
       T. Rowe Price                  $78.36     20,322     617.4       3.36    3.85    4.31    23.3x   20.4x   18.2x       (0.3)      13.3       1.4     4.2     5.1     7.2      35.1    20.3        1.9        3.3      TROW.O     EW      42%    58%      0%
       AMG                           $167.22      8,819     462.5       7.58    9.40   10.84    22.0x   17.8x   15.4x        8.2       19.5       1.9     4.2    14.8    14.1      64.1    28.5        NA         1.9        AMG      NC      89%    11%      0%
       Artio                           $2.74       114       11.5       0.21   -0.12   -0.08    12.9x    NA      NA        (78.9)       NA       (0.4)    0.0     0.4     0.4     (10.5)   44.2        0.7        1.0        ART      NC       0%    67%     33%
       Calamos                        $10.78       258       29.3       0.85    0.61    0.62    12.7x   17.6x   17.4x      (32.9)     (14.6)      0.3    (1.9)   (2.7)    1.7      (3.4)    2.0        4.6        0.9       CLMS      NC       0%    25%     75%
       Cohen & Steers                 $42.15      1,864      49.3       1.44    1.73    2.12    29.4x   24.3x   19.9x        1.9       21.6       0.9     4.4    12.6    28.0      29.2    38.3        2.0        3.8        CNS      NC      40%    20%     40%
       Waddell & Reed                 $47.46      4,078     103.8       2.26    2.69    2.97    21.0x   17.6x   16.0x        3.3       14.7       1.8     6.6    20.9    11.1      69.3    36.3        2.3        3.9       WDR.N     EW      23%    69%      8%
       Wisdom Tree                    $13.41      1,712      25.1       0.08    0.38    0.64   168.0x   34.9x   20.8x       82.8      184.0       2.4    11.4    25.3    48.0      87.3    119.1       NA         6.8      WETF.O     EW      75%    25%      0%
       Mean                                                                                     22.2x   18.2x   15.4x       (0.7)      25.9       1.6     4.6    13.2    15.2      46.3    36.6        2.5        2.6                         35%    43%     22%
       Median                                                                                   20.4x   17.8x   16.0x        2.6       14.7       1.8     4.4    15.0    12.6      51.7    35.3        2.3        2.1                         32%    42%     15%
       US Alternative Asset Managers
       Blackstone (ENI)               $23.45     25,873     167.9      1.64    2.28    2.74    14.3x    10.3x   8.6x       10.6       29.3       2.2     6.8     14.8    21.4     103.2    50.4       5.4         15.4       BX.N     OW      80%    20%     0%
       KKR (ENI)                      $20.91     14,305      60.8      2.91    2.39    2.31     7.2x     8.7x    9.0x      33.2       (10.8)     1.8      1.0     6.2    16.0      82.3    37.3       6.8         23.5      KKR.N     EW      86%    14%     0%
       Oaktree ANI                    $54.72      8,252      66.8      4.23    5.06    4.56    12.9x    10.8x   12.0x       0.8        3.9       0.1     (3.1)    7.0      8.4     42.7    20.3       3.8         12.4      OAK.N     OW      38%    63%     0%
       Oaktree ENI                    $54.72      8,252      66.8      5.74    4.04    3.60     9.5x    13.5x   15.2x       0.8       (20.8)     0.1     (3.1)    7.0      8.4     42.7    20.3       3.8         12.4      OAK.N     OW      38%    63%     0%
       Carlyle                        $30.19      9,208     123.1      2.10    3.61    3.35    14.4x     8.4x    9.0x      (5.6)      26.3       0.7     (0.0)   (5.3)   (15.0)   43.1     16.0       6.6          7.5      CG.O      EW      42%    58%     0%
       Apollo Global                  $27.34     10,335      81.9      N/A     3.92    3.17     N/A      7.0x    8.6x       9.9         NA       2.5     10.0    13.2     23.2    154.1    57.5       8.8         12.6       APO      NC      75%    25%     0%
       Fortress                        $7.45      3,953      53.4      0.43    0.65    0.70    17.4x    11.5x   10.6x      10.4        27.8      1.2      5.7    28.7     17.9    145.9    69.7       4.2          7.4        FIG     NC      60%    40%     0%
       Och-Ziff                       $11.58      4,807      32.6      1.13    1.35    1.37    10.3x     8.6x    8.5x       4.8        10.0      0.3      5.0    21.5     22.5     54.0    21.9       10.3        14.7       OZM      NC      67%    33%     0%
       Mean                                                                                    10.7x     9.7x    9.8x       8.1        9.4       1.1      2.8    11.6     12.8     83.5    36.7       6.2         13.2
       Median                                                                                  12.9x     9.5x    9.0x       7.3        10.0      0.9      3.0    10.1     16.9     68.1    29.6       6.0         12.5
       Swiss Wealth Managers
       Julius Baer                   SFr 40.5     9,322     226.1      2.14    2.32    2.95    18.9x    17.5x   13.7x       4.7        17.4       1.5     5.0    18.4     8.3     28.7     25.3        1.7        4.1      BAER VX    EW      52%    38%     10%
       EFG                           SFr 12.8     1,922      80.9      0.76    0.98    1.13    16.7x    13.0x   11.3x       4.7        21.9       1.2    (0.4)   10.9    15.4     84.6     43.3        1.5        2.4      EFGN SW    NC      44%    44%     11%
       Vontobel                      SFr 31.1     2,078     101.2      1.97    2.29    2.70    15.8x    13.6x   11.5x       7.3        17.1       0.0    2.5      6.1    (0.5)    49.2     10.3        4.2        2.1      VONN SW    NC      27%   36%      36%
       LLB                           SFr 38.8     1,230      51.3      2.91    3.11    3.44    13.4x    12.5x   11.3x      (1.6)       8.7        1.2    (2.5)    2.9    23.7     (2.9)    33.7        3.9        2.4       LLB SW    NC      50%    50%      0%
       Sarasin                       SFr 26.8     1,418     101.8      1.76    2.39    2.65    15.2x    11.2x   10.1x       1.0        22.7       0.0     0.2     0.6    (0.9)    (1.1)     0.0        4.5        1.4      BSAN SW    NC       0%   100%      0%
       VP Bank                       SFr 74.4      407       29.3      3.38    4.62    5.29    22.0x    16.1x   14.1x       0.0        25.1      (3.0)   (4.2)    0.6    (1.6)     2.0     14.5        4.7        1.4       VPB SW    NC       0%   100%      0%
       Mean                                                                                    17.6x    15.5x   12.7x       2.7        18.8       0.1    0.1     6.6     7.4      26.7     21.2        3.4        2.3                         29%   61%      9%
       Median                                                                                  16.3x    13.3x   11.4x       2.8        19.6       0.6    (0.1)    4.5     3.9     15.3     19.9        4.0        2.2                         36%   47%       5%

Source: Thomson Reuters, Company data, Morgan Stanley Research estimates (e). EPS based on Morgan Stanley Research estimates for Aberdeen, Ashmore, Julius Baer, Partners Group, Man, Schroders, Henderson, F&C, Alliance Bernstein,
Franklin, BlackRock, Federated, Invesco, Janus, T.Rowe, Oaktree, and KKR; others are Thomson Reuters consensus. 6m ending Dec 12 flows used except for Ashmore, Azimut, EFG, Vontobel, LLB, Sarasin and VP Bank. P/E is calculated using
calendarised EPS. AuM latest reported. For Blackstone: ACFO=Adjusted cash flow from operations; ENI=Economic net income. UK Long only average based on Schroders, Aberdeen, F&C, Henderson & Jupiter, total flows and total assets and market
cap weighted average of P/E ratios. Average based on market cap weighted average of P/E ratios, and simple average of company flows/assets. Likewise US Avg based on BlackRock, Franklin, T Rowe, Fortress, Federated, Janus, Artio, Waddell &
Reed, Calamos, AMG, Alliance Bernstein and Invesco. EBITDA CAGR used for Partners Group instead of EPS. N/AV = Not available, NC = Not covered by Morgan Stanley, NM = Not meaningful Note: prices as of close 17/05/2013.
                                                                                                                                                                                                                                                                               36
                                                                                                                                                                                                        MORGAN STANLEY RESEARCH

                                                                                                                                                                                                            European Financials & Equity Strategy
                                                                                                                                                                                                                                             May 20, 2013



  Global exchanges: Key metrics and valuations
                                                Price     Mkt. Val.            EPS                       P/E                     Performance (%)                   Div. Yield       EPS CAGR (%)                 Revenue (LTM)               Sell Side Recs
                              Rating         17/05/2013   (US$ bn)    2012    2013e   2014e    2012     2013e   2014e   1W      1M     3M     12 M        YTD      CY13e        10-12  11-13e 12-14e    (US$m)    Growth y/y mkt cap/rev   Buy    Hold    Sell
European Exchanges
BME (Spain)                   Underweight     €20.16         2,177     1.63   1.54     1.48    12.4x    13.1x   13.6x   (0.0)    5.7    (6.2)     27.8     9.3      10.1         (5%)    (9%)   (5%)     411         (6%)      5.30x       26%    37%     37%
Deutsche Börse                Equal-weight    €46.63        12,227     3.53   3.61     4.14    13.2x    12.9x   11.3x   (3.4)    2.4    (2.4)     15.1     0.9      4.6          (9%)   (11%)    8%     3,063        (3%)      3.99x       48%    45%     7%
Hellenic Ex                   NC               €6.79           573     0.18   0.29     0.35    37.7x    23.7x   19.6x   15.1    38.0    25.7     232.2    56.1       3.0        (25%)    (4%)   39%       41        (52%)      14.16x      40%    60%      0%
LSE                           NA              £13.86         5,835     0.96   0.90     0.98    14.5x    15.3x   14.2x    2.7     8.1     7.6      43.7    27.4       2.2         17%     (1%)    1%     1,248        13%       4.68x       21%    58%     21%
Moscow Exchange               Equal-weight   RUB 50.1        3,514     4.85   4.92     4.99    10.3x    10.2x   10.0x    3.1    15.7    (8.9)    (20.6)   (5.8)      3.6          0%     18%     1%      624         19%        5.63x       n/a    n/a     n/a
Warsaw SE                     NC             PLN 40.75         528     2.52   2.76     2.99    16.2x    14.8x   13.6x    3.3     6.0    (1.7)     21.5     4.8       4.0          6%     (7%)    9%       81         (3%)      6.49x       30%    60%     10%
European Median                                              4,675                             14.2x    14.2x   13.6x    2.7     8.1    (1.7)     27.8     9.3       3.6          0%     (4%)    1%      624         (3%)      5.30x       28%    58%     16%
European Average                                             4,752                             16.9x    14.9x   13.6x    3.4    12.0     3.1      51.9    17.2      4.2          (2%)    (2%)    8%     1,055        (2%)      6.18x       31%    53%     16%
Mkt Cap weighted Mean                                                                          13.8x    13.6x   12.3x    0.4     7.1     0.9      27.0    11.9       3.9         (1%)    (3%)    4%     1,925         5%       4.45x
US/Canadian Exchanges
CBOE                          NC              $40.3          3,514     1.69   1.96     2.20    23.8x    20.6x   18.3x    2.4    11.2     12.0    64.0     36.7       1.5        28%     11%     14%      518         (1%)       6.79x       6%    88%      6%
CME Group                     NC              $64.2         21,426     3.02   3.13     3.56    21.3x    20.5x   18.0x    2.7     9.4      9.8    26.6     26.8       2.9        (1%)    (4%)    9%      3,224       (10%)       6.65x      43%    38%     19%
ICE (ICE)                     NC              $174.0        12,664     7.60   8.51     9.55    22.9x    20.4x   18.2x    1.1    13.0     11.2    43.4     40.6       0.0        16%     10%     12%     1,384         6%        9.15x      71%    24%      6%
Nasdaq OMX                    NC              $30.8          5,100     2.50   2.66     3.03    12.3x    11.6x   10.2x    0.9     8.7     (1.0)   33.7     23.1       1.7        12%      2%     10%     1,682        (1%)       3.03x      44%    56%      0%
NYSE Euronext                 NC              $40.7          9,885     1.84   2.30     2.79    22.1x    17.7x   14.6x    0.7     9.3      8.2    65.8     29.0       2.9         0%     (4%)    23%     4,250       (14%)       2.33x      29%    59%     12%
Toronto Ex                    NC             CAD 49.0        2,592     2.95   3.09     3.93    16.6x    15.9x   12.5x   (4.5)   (6.5)   (12.3)    4.5     (3.4)      3.3         5%     (7%)    15%      649         (1%)       3.99x      11%    44%     44%
N American Median                                            7,493                             21.7x    19.1x   16.3x    1.0     9.3      9.0    38.6     27.9       2.3         9%     (1%)    13%     1,533        (1%)       5.32x      36%    50%      9%
N American Average                                           9,197                             19.8x    17.8x   15.3x    0.6     7.5      4.6    39.7     25.4       2.1        10%      1%     14%     1,951        (3%)       5.32x      34%    52%     15%
Mkt Cap weighted Mean                                                                          20.9x    18.9x   16.5x    1.5     9.5      7.9    39.5     29.2       2.1         6%      1%     13%     2,550        (5%)       6.00x
Other Exchanges
Australian Stock Ex (ASX)     Overweight     AUD 39.3        7,014     1.96   2.00     2.10     20.0x   19.7x   18.7x    1.7     5.9     10.7    31.6      26.1      4.7         (1%)    (0%)    3%      813         (2%)        8.6x      20%    47%    33%
BM&F Bovespa                  Equal-weight    R 14.07       13,759     0.57   0.61     0.70     24.7x   23.1x   20.1x   (2.5)    8.1      1.2    52.9       0.5      3.9          0%      3%     11%     992          7%        13.9x      59%    35%     6%
Bolsa Mexicana                NC             Ps. 33.48       1,623     1.15   1.32     1.54     29.1x   25.4x   21.8x   (3.1)   (4.0)    10.9    34.0       2.7      3.4          0%      3%     16%     173          5%         9.4x       9%    55%    36%
Bursa Malaysia                NC             MYR 7.99        1,412     0.28   0.32     0.35     28.1x   25.3x   22.6x    1.8    10.5     20.7    24.8      28.5      3.7         15%      7%     12%     139         (2%)       10.1x      60%    20%    20%
Dubai Financial Mkt           NC             AED 1.37        2,984     0.00   0.02     0.03    342.5x   65.2x   40.3x    2.2    21.2     12.3    42.9      34.3      1.2        (37%)     n/a    0%       0          16%                    0%     0%    100%
Hong Kong Ex                  Underweight    HK$130.7       19,357     3.79   4.37     4.68     34.5x   29.9x   27.9x   (1.3)    3.6    (11.6)   18.0      (0.9)     3.0        (10%)    (4%)    11%     900        (18%)       21.5x      24%    43%    33%
Japan Exchange Group          Equal-weight     ¥411          5,897    280.50 355.75   452.29    39.3x   31.0x   24.4x   (4.9)   (2.6)    79.5    146.0    156.3      0.7         25%     14%     27%     223         (6%)       26.4x      59%    35%      6%
Jo'burg SE (JSE)              NA             ZAR 76.1          712     7.15   4.75     5.10     10.6x   16.0x   14.9x   (1.2)    5.7      3.7    (0.2)     (2.8)     3.2         18%    (12%)   (16%)    148          7%         4.8x      33%     0%    67%
Multi Commodity EX of India   Equal-weight   INR 945.3         880     58.43 64.88    74.25     16.2x   14.6x   12.7x    2.5    10.3    (20.5)   (2.0)    (35.8)     1.8         28%     12%     13%       0          0%                    0%     0%      0%
New Zealand Ex                NC              NZD 1.4          291     0.04   0.06     0.07     37.6x   24.4x   20.7x    3.0     3.7      6.9     1.4      14.9      3.9          1%      1%     35%      46        (25%)        6.4x      75%    17%      8%
SingEx                        NC             SGD 7.78        6,665     0.29   0.31     0.34     27.3x   25.4x   22.9x    1.0    (0.1)    (0.3)   24.5      11.0      3.7         (2%)     3%     9%      518         (7%)       12.9x      30%    30%    40%
Other Exchange Median                                        2,984                              28.1x   25.3x   21.8x    1.0     5.7      6.9    24.8      11.0      3.4          0%      3%     11%     173         (2%)      10.13x      30%    30%     33%
Other Exchanges Average                                      5,508                             55.4x    27.3x   22.5x   (0.1)    5.7     10.3    34.0      21.3      3.0          3%      3%     11%     359         (2%)      12.67x      34%    26%     32%
Mkt Cap weighted Mean                                                                           44.6x   27.9x   24.1x   (1.0)    4.8      6.7    41.9      21.2      3.2         (2%)     1%     11%     695         (5%)      15.58x
Global Exchanges
Global Exchange Median                                       4,307                             21.7x    20.1x   18.1x   1.4     8.1      7.3     29.7     19.0       3.1         0%      0%     10%      571         (2%)       6.57x
Global Exchange Average                                      6,103                             35.3x    21.3x   18.1x   1.1     8.0      6.8     40.6     21.1       3.1         3%      1%     11%      960         (3%)       8.60x
Mkt Cap weighted Mean                                                                          29.2x    21.5x   18.8x   0.2     7.1      5.9     37.9     22.3       2.9         1%      0%     10%     1,652        (3%)       9.64x
Interdealer Brokers
BGC Partners                  NC              $5.67            949    0.58    0.53     0.63    9.8x     10.8x   9.1x    (1.9)    2.7    20.9      (5.5)   63.9       5.7         (7%)   (18%)    4%     1,540         8%        0.62x      40%    60%      0%
GFI                           NC              $4.25            511    0.07    0.22     0.35    60.7x    19.3x   12.1x    3.9    21.4    24.3      62.8    31.2       4.7        (49%)     2%    124%    1,014        (5%)       0.50x      80%    20%      0%
ICAP                          Under-weight    £3.39          3,355    0.33    0.32     0.34    10.3x    10.6x   10.1x   12.7    19.1    (2.1)     (0.8)   10.5       5.9         (7%)   (10%)    1%     2,573       (10%)       1.30x      23%    55%     23%
Tradition                     NC              SFr 52           333    N/A     N/A      N/A     0.0x      0.0x    0.0x    3.9     5.9    (7.4)    (20.0)    3.7                    n/a     0%     0%     1,099        (6%)       0.30x       0%     0%      0%
Tullett                       Equal weight    £2.75            914    0.40    0.36     0.37    6.8x     7.6x    7.3x     2.5     8.4    (2.7)     (2.9)    9.3       6.1         (6%)   (11%)   (4%)    1,422         0%        0.64x      44%    50%      6%
Median                                                         914                              9.8x    10.6x   9.1x    3.9      8.4    (2.1)    (2.9)    10.5       5.8         (7%)   (10%)   1%      1,422        (5%)       0.62x      40%    50%     0%
Average                                                      1,212                             17.5x    9.7x    7.7x    4.2     11.5     6.6      6.7     23.7       5.6        (17%)    (7%)   25%     1,530        (3%)       0.67x      37%    37%     6%
Mkt Cap weighted Mean                                                                          13.4x    10.3x   9.1x    7.6     14.4     3.3      2.4     20.0       5.5        (10%)   (10%)   11%     2,025        (5%)       0.97x


  NA = Not applicable. Source: Thomson Reuters, Company Data, Morgan Stanley Research estimates (e). Morgan Stanley estimates used for BME, DB1, Moscow Exchange, ASX, BM&F, HKex, Japan Exchange Group, Multi Commodity Exchange of
  India, ICAP and TLPR; Thomson Reuters used for others. Share prices as of close 17/05/2013. European median, average and market cap. Weighted P/E ratios, EPS Growth, EPS CAGR and revenue statistics exclude Oslo Bors. NC – Not Covered .




                                                                                                                                                                                                                                                                 37
                                                                                                                                                                                                                                                                                                                                                                                     MORGAN STANLEY RESEARCH

                                                                                                                                                                                                                                                                                                                                                                                                      European Financials & Equity Strategy
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           May 20, 2013



European Financials: Risk-Reward


 120%

 100%

  80%

  60%

  40% 32% 28%                                                                                                                                                                     28%
                                21% 19%19%                                                                                                                                               22% 20%
                                                                  16%16% 15% 14%                                                                                                                                    19%
  20%                                                                                                         11% 8%                                                                                                          11%                                                                                                                                                    13%
                                                                                                                     7% 4%                                                                                                                 8% 7% 7% 7%                                                                                                                                                9% 6% 6%
                                                                                                                           3% 3%                                                                                                                       4% 2% 2% 1%
                                                                                                                                                                                                                                                                                                                                                                                                                                                  0%


                                                                                                                                                                       -1%                                                                                                                                          -1% -2% -2%
                                                                                                                                                                                                                                                                                                                                          -7% -9% -9%                                                                                                     -5%
  -20%                                                                                                                                                                                                                                                                                                                                               -11%                                                                                                            -9%
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     -16%-17%
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             -21%
  -40%

  -60%

  -80%
         Barclays




                                                                                                                                                                                                                                                                                                                                                                            Lloyds
                                                                                                                                                                                                                                                                                                         3i




                                                                                                                                                                                                                                                                                                                                                                                                                                                          Sabadell
                                                                                                                                                                                                                                                                                                                                                                                                      Monte dei Paschi
                    Unicredit
                                Erste
                                        Santander




                                                                                                                                                                                                                    Soc Gen




                                                                                                                                                                                                                                                                                                                                                                                                                         MedioBanca
                                                                  Aberdeen




                                                                                                       BBVA
                                                                                                              DNB
                                                                                                                    Credit Suisse




                                                                                                                                                      UBS




                                                                                                                                                                                         Intesa




                                                                                                                                                                                                                                                                  Deutsche
                                                                                                                                                                                                                                           Julius Baer




                                                                                                                                                                                                                                                                                                              SEB
                                                                                                                                                                                                                                                                                                                    Nordea
                                                                                                                                                                                                                                                                                                                             RBS




                                                                                                                                                                                                                                                                                                                                                    Man Group
                                                                                                                                                                                                                                                                                                                                                                Henderson




                                                                                                                                                                                                                                                                                                                                                                                                                                      UBI Banca
                                                                                                                                                                                                                                                                                                                                                                                                                                                  Caixa


                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Banco Popular
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     SHB
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           ICAP
                                                                                                                                                                       Partners




                                                                                                                                                                                                                                                                                                                                                                                     Banco popolare
                                                    BNP Paribas


                                                                             St. Chartered




                                                                                                                                                            Swedbank




                                                                                                                                                                                  FCAM


                                                                                                                                                                                                  Credit Agricole




                                                                                                                                                                                                                                                                                                                                          Tullett
                                                                                             Natixis




                                                                                                                                    Schroders
                                                                                                                                                KBC




                                                                                                                                                                                                                                                                                                                                   HSBC




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Banca Pop di Milano
                                                                                                                                                                                                                                                         Danske


                                                                                                                                                                                                                                                                             ING


                                                                                                                                                                                                                                                                                             Bankinter
                                                                                                                                                                                                                              Raiffeisen




                                                                                                                                                                                                                                                                                   Ashmore
                                        OW                                                                                                                                                                                                               EW                                                                                                                                                                       UW




For valuation methodology and risks associated with any price targets above, please email morganstanley.research@morganstanley.com with a request for valuation methodology and risks on a
particular stock.
Source: Morgan Stanley Research estimates. Data as of May 17th 2013.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        38
                                                                                                                                                                                                          MORGAN STANLEY RESEARCH

                                                                                                                                                                                                             European Financials & Equity Strategy
                                                                                                                                                                                                                                              May 20, 2013



 Insurance: key metrics and valuations
                               Ccy      Price at     Market Cap   Rating     Price     Upside     Life EV Basis    P/EV   RoEV      P/EV      P/BV    RoE     P/E     P/E       EPS       P/E      P/E    P/TBV   RoTBV   Div Yield   Div Yield   FCF Yield   FCF Yield
                                       15/05/13      (USD mn)               Target    Potential                   2013e   2014e   earnings   2013e   2014e   2013e   2014e     CAGR     (cons)   (cons)   2013e   2014e     2012       2013e        2012       2013e
                                                                                                                                   2013e                                     2013-16e    FY1      FY2
Composites
Allianz                        EUR       118.2         69,289        E      119.0       1%           MCEV          1.1    12.5%     9.8       0.9    10.6%    9.6     8.8     3.8%       9.7      9.3      1.2    13.9%    3.8%        4.2%        7.0%        8.4%
Aviva                          GBp       323.1         14,497        O      350.0       8%           MCEV          0.8    10.3%     9.2       1.1    15.7%    7.7     6.7     8.9%       7.5      7.1      1.4    21.3%    5.9%        4.6%        11.9%       13.6%
AXA                            EUR        15.0         46,032        O       16.0       7%           MCEV          0.8    16.1%     5.1       0.7    9.7%     7.8     7.2     7.5%       7.7      7.0      1.1    15.3%    4.8%        5.2%        9.1%        8.5%
Delta Lloyd                    EUR        15.6         3,556         O       16.8       7%           MCEV          0.7    10.6%     7.4       1.1    18.3%    6.3     6.0     5.7%       6.6      6.2      1.2    20.5%    6.6%        6.6%        12.6%       12.7%
Ageas                          EUR        28.8         9,004         E       30.4       6%           MCEV          0.8    7.0%      8.2       0.6    7.0%     8.3     9.1     -0.5%     10.0      9.8      0.7    7.9%     4.2%        7.6%        6.8%        10.6%
Generali                       EUR        14.6         29,276        U       12.3      (16%)         MCEV          0.9    11.9%     8.0       1.1    11.5%   11.0     9.8     10.6%     11.1     10.1      2.2    22.3%    1.4%        1.6%        3.7%        6.9%
ING                            EUR        6.9          33,950        E        7.3       6%            EEV          NA      NA       NA        0.5    6.5%     7.2     7.3     14.6%      6.8      6.1      0.5    7.0%     0.0%        0.0%        10.6%       10.0%
Old Mutual                     GBp       221.0         16,471        E      171.0      (23%)         MCEV          1.2    11.6%    10.7       1.4    10.3%   15.5    13.2     13.8%     11.1     10.0      2.9    21.2%    11.1%       3.5%        3.3%        8.5%
Zurich                         CHF       270.3         41,168        E      261.0      (3%)          MCEV          1.4    16.0%     9.3       1.2    12.3%   10.0     9.7     3.4%       9.7      9.2      1.5    15.5%    6.3%        6.3%        6.1%        6.7%
Weighted Average                                                                       (1%)                        0.9    11.6%     7.4       0.9    10.5%    9.4     8.7     7.3%       9.1      8.5      1.4    15.2%    4.2%        4.0%        7.4%        8.6%
Life Insurers
Aegon                          EUR        5.0          12,702        O        5.7       14%           EEV          0.5    6.9%      7.1       0.4    7.4%     6.7     6.0     9.8%       8.4      7.6      0.5    8.4%     3.8%        5.2%        -0.6%       6.6%
Hargreaves Lansdown            GBp      1,024.0        7,395         E      759.0      (26%)           NA         27.6    91.8%    35.8      27.3    91.0%   35.8    30.2     16.3%     32.8     27.6      27.6   91.8%    2.2%        2.6%        2.6%        2.8%
L&G                            GBp       186.3         16,776        E      184.0      (1%)           EEV          1.2    10.1%    10.0       1.9    15.7%   12.5    12.1     5.7%      12.3     11.5      1.9    16.0%    4.1%        4.5%        6.4%        7.8%
Phoenix                        GBp       646.5         2,212         E      564.5      (13%)         MCEV                 -2.5%                      2.4%                                N/A      N/A             -4.8%
Prudential                     GBp      1,181.0        46,018        O      1,191.0     1%            EEV          1.2    14.3%     9.7       2.5    20.2%   13.7    12.4     11.8%     14.3     13.1      2.9    23.4%    2.5%        2.7%        4.2%        6.2%
Resolution                     GBp       285.0         6,154         O      300.0       5%           MCEV          0.6    7.3%      9.1       0.8    0.7%    11.8    10.7     8.4%      11.9     10.5      5.1    4.2%     7.4%        7.6%        7.6%        8.4%
Standard Life                  GBp       411.5         14,774        U      322.0      (22%)          EEV          1.2    7.4%     15.0       2.3    11.9%   18.3    19.1     3.4%      16.5     15.1      2.4    12.6%    6.7%        3.8%        3.8%        3.9%
St. James's Place              GBp       605.5         4,709         E      497.0      (18%)          EEV          1.1    13.9%     6.8       3.7    18.3%   24.1    20.8     18.0%     22.6     19.1      3.9    19.3%    1.8%        2.3%        2.9%        3.8%
Storebrand                     NOK        26.8         2,056         O       35.0       31%          MCEV          0.4    8.1%      3.8       0.6    9.4%     6.7     5.9     8.6%       6.0      5.8      0.8    12.9%    0.0%        4.5%        11.2%       11.2%
Swiss Life                     CHF       154.0         5,105         U      114.0      (26%)         MCEV          0.8    6.1%     13.3       0.5    5.5%     8.9     8.6     2.8%       8.4      7.9      0.6    6.8%     3.1%        3.2%        2.5%        2.2%
Weighted Average                                                                       (3%)                        1.0    10.3%     9.4       1.9    14.5%   13.4    12.6     8.4%      12.5     11.4      2.1    16.2%    3.2%        3.3%        3.6%        5.5%
Non-life Insurers
Direct Line                    GBp       205.1         4,684         O      226.0       10%            NA          1.2    14.7%    13.9       1.1    12.6%   13.9     8.5     21.5%      9.7      8.7      1.2    14.7%    3.9%        6.0%        4.1%        7.7%
Admiral                        GBp      1,283.0        5,351         E      1,257.0    (2%)            NA          8.3    63.0%    13.4       7.2    54.6%   13.4    13.2     4.0%      13.3     12.8      8.3    63.0%    7.1%        7.5%        7.6%        7.6%
Amlin                          GBp       434.0         3,305         O      428.0      (1%)            NA          1.4    16.0%    10.1       1.2    14.0%   10.1     8.8     7.1%       9.7      9.0      1.4    16.0%    5.5%        5.8%        9.4%        3.6%
Catlin                         GBp       539.0         2,970         E      503.0      (7%)            NA          1.2    13.1%     9.6       1.0    10.5%    9.6     9.8     1.4%       9.2      8.3      1.2    13.1%    5.5%        5.7%        3.8%        2.4%
Gjensidige                     NOK        90.2         7,700         E       81.2      (10%)           NA          2.1    16.0%    13.7       1.8    13.8%   13.7    13.1     2.4%       N/A      N/A      2.1    16.0%    7.0%        5.9%        8.7%        7.3%
Hiscox                         GBp       570.0         3,065         E      546.1      (4%)
Lancashire                     GBp       819.0         2,053         E      856.0       5%             NA          1.4    15.6%     9.8       1.4    15.6%    9.8    10.2     -2.6%      9.9      9.9      1.4    15.6%    8.0%        7.2%        10.6%       11.5%
Mapfre                         EUR        2.9          11,308        O        2.9       1%             NA          1.0    15.0%     7.1       1.0    12.0%    8.8     8.3                9.1      8.7      1.3    15.8%    3.9%        4.9%        10.0%       14.4%
RSA                            GBp       113.5         6,239         U      124.0       9%             NA          1.7    20.0%     8.4       1.1    13.1%    9.0     9.0     4.7%       9.4      8.8      1.7    18.7%    8.2%        8.4%        6.7%        5.1%
Sampo                          EUR        32.1         23,043        E       21.8      (32%)           EV          1.9    13.6%    14.6       1.7    12.6%   14.6    13.7     4.8%      13.2     12.4      1.9    13.6%    4.3%        4.1%        6.3%        6.2%
Topdanmark                     DKK       148.3         3,519         E      117.7      (21%)
Tryg                           DKK       510.0         5,396         E      430.3      (16%)           NA          3.0    18.6%    17.3       2.7    17.0%   17.3    15.8     7.6%      15.1     14.9      3.0    18.6%    3.7%        2.9%        7.0%        4.8%
Weighted Average                                                                       (14%)                       1.6    13.9%    10.9       1.4    11.9%   11.2    10.6     3.2%       9.1      8.7      1.6    13.9%    4.6%        4.6%        6.8%        6.8%
Reinsurers
Hannover Re                    EUR        61.3         9,505         U       58.4      (5%)          MCEV          0.9    15.1%     5.6       1.1    12.6%    7.5     8.8     -9.3%      8.9      8.9      1.1    12.9%    4.9%        4.4%        5.3%        1.2%
Munich Re                      EUR       150.2         34,647        O      161.3       7%           MCEV          0.9    8.9%      8.4       0.9    10.1%    7.8     8.8     -6.5%      9.0      9.0      1.1    12.4%    4.7%        4.7%        2.7%        13.1%
Scor SE                        EUR        22.8         5,627         U       21.1      (7%)          MCEV          1.2    14.1%     8.7       0.8    8.3%    10.1    10.0     2.9%       9.0      8.3      1.2    12.1%    5.3%        5.7%        10.9%       2.1%
Swiss Re                       CHF        74.1         28,386        E       71.7      (3%)           EVM          0.7    7.3%      7.5       0.8    8.9%     7.5     9.0                8.9      9.1      1.0    10.8%    9.3%        7.6%        10.1%       5.0%
Weighted Average                                                                        1%                         0.8    9.5%      7.8       0.9    9.8%     7.8     9.0     -3.8%      9.0      9.0      1.1    11.9%    6.4%        5.8%        6.3%        7.9%
EEMEA Insurers
PZU                            PLN       440.8         11,689        U      367.0      (17%)           NA          1.4    12.4%    11.9       2.7    18.2%   14.0    14.6     -2.5%     13.3     13.3      2.7    18.4%    7.5%        6.4%        5.8%        5.3%
Uniqa                          EUR        10.3         2,834         +        ++
VIG                            EUR        40.0         6,585         E       38.8      (3%)          MCEV          1.1    11.1%    10.3       1.0    9.5%    11.1    10.9     3.6%      11.4     10.8      2.1    18.9%    3.0%        3.3%        5.7%        7.9%
Weighted Average                                                                       (10%)                       1.1    10.3%     9.8       1.8    13.1%   11.2    11.5     -0.3%     10.9     10.7      2.1    16.1%    5.1%        4.6%        5.0%        5.4%
Weighted Average (Total)                              559,050     In-line              (3%)                        1.4    12.9%     8.9       1.6    13.0%   10.6    10.1     5.5%      10.3      9.6      2.0    16.3%    4.5%        4.3%        6.3%        7.5%
* Aviva and Resolution P/E multiples calculated based on operating EPS


 Source: DataStream, Company data, Morgan Stanley Research. For valuation methodology and risks associated with any price targets above, please email morganstanley.research@morganstanley.com with a request for valuation methodology and
 risks on a particular stock. ++Rating, price target and estimates for this company have been removed from consideration in this report because, under applicable law and/or Morgan Stanley policy, Morgan Stanley may be precluded from issuing such
 information with respect to this company at this time.
 e = Morgan Stanley Research estimates, NA = Not applicable, NM = Not meaningful. Admiral and Hargreaves Lansdown have been excluded from the weighted average calculations within their respective sub-categories.                                              39
                                                                                                                                                                                        MORGAN STANLEY RESEARCH

                                                                                                                                                                                             European Financials & Equity Strategy
                                                                                                                                                                                                                            May 20, 2013



Property: key metrics and valuations
                                                                                                         Discount to headline                   Growth in headline
                                                                                  Share Price                        NAV (%)                              NAV (%)                          Dividend yield (%)
           Company                                  Stock rating                  price target                 2013e 2014e                          2013e 2014e                               2013e 2014e
           alstria office REIT AG                     Overweight   €                9.7   10.8                    -19     -22                            4       4                               5.1      5.4
           Big Yellow                               Equal-Weight   p                424    395                     12      12                           -1      -1                               3.9      NA
           British Land                               Overweight   p                639    630                      0      11                            6       7                               4.3      4.4
           Capital & Counties                         Overweight   p                338    340                     11       7                           49       4                               0.5      0.6
           Castellum                                  Overweight SKr                104    105                     -4     -11                            8       8                               4.0      4.3
           Corio                                     Underweight   €                 35     31                    -13     -13                           -2       0                               6.3      6.3
           Derwent London                             Overweight   p              2,506 2,450                      23      16                            8       6                               1.4      1.5
           Deutsche Wohnen AG                         Overweight   €               15.1   14.2                      7      -8                           14      15                               2.1      2.6
           Fabege                                     Overweight SKr                  75     71                   -11     -15                            4       5                               4.2      4.4
           Fonciere des Regions                     Equal-Weight   €                  66    64                    -15     NA                             0       3                               6.4      6.4
           Gecina                                     Overweight   €                  98    93                    -10     NA                             3       3                               4.5      4.7
           Great Portland Estates                     Overweight   p                596    570                     25      22                            7       3                               1.5      1.5
           GSW Immobilien AG                          Overweight   €               33.0   33.0                      0      -8                            9       9                               3.0      3.1
           Hammerson                                Equal-Weight   p                552    530                     -1      -5                            3       4                               3.4      3.5
           Icade                                    Equal-Weight   €                  74     70                   -14     NA                             2       3                               5.2      5.4
           Immofinanz AG                            Equal-Weight   €               3.31   2.50                    -29     -31                            3       3                               6.8      6.8
           Intu                                      Underweight   p                356    310                     -6      -6                           -4       0                               4.3      4.4
           IVG Immobilien                            Underweight   €               0.35     NA                    -88     -88                           -8      -4                               0.0      NA
           Klepierre                                Equal-Weight   €                  34 29.00                     -1      -4                            2       3                               4.5      4.7
           Land Securities                            Overweight   p                987    900                      6       0                            7       7                               3.1      3.0
           LEG Immobilien                           Equal-Weight   €               46.0   44.1                     -4     -11                            7       8                               3.7      3.9
           LondonMetric                              Underweight   p                117    102                      8       7                           -3       1                               6.0      6.0
           PSP Swiss Property                       Equal-Weight SFr                  91    89                     -8      -9                            2       1                               3.6      3.9
           SEGRO                                    Equal-Weight   p                300    250                      3       0                            0       2                               4.9      5.0
           Shaftesbury PLC                            Overweight   p                655    590                     25      19                            5       5                               1.9      2.0
           TAG Immobilien                            Underweight   €                 9.2    7.4                     1      -6                            8       7                               2.5      2.6
           Unibail-Rodamco                          Equal-Weight   €                203    163                     28      19                            6       8                               4.4      4.8
           Unite Group                                Overweight   p                380    400                     -1     -12                            9      13                               1.4      1.7
           Continental Europe                                                                                       2       0                            4       5                               4.6      4.8
           United Kingdom                                                                                           6       5                            8       5                               3.2      3.2
           Pan-Europe                                                                                               4       2                            6       5                               4.0      4.2
Source: DataStream, Company data, Morgan Stanley Research. For valuation methodology and risks associated with any price targets above, please email morganstanley.research@morganstanley.com with a request for valuation methodology and
risks on a particular stock.
e = Morgan Stanley Research estimates, NA = Not applicable, NM = Not meaningful. Admiral and Hargreaves Lansdown have been excluded from the weighted average calculations within their respective sub-categories.
                                                                                                                                                                                                                                             40
                                                                                                                                  MORGAN STANLEY RESEARCH

                                                                                                                                     European Financials & Equity Strategy
                                                                                                                                                            May 20, 2013




Morgan Stanley & Co. Limited ("Morgan Stanley") is acting as financial advisor to KBC Bank NV ("KBC") in relation to the proposed sale of Absolut Bank to Non-
State Pension Fund "Blagosostoyanie", as announced on 24th December 2012. KBC has agreed to pay fees to Morgan Stanley for its financial services. Please
refer to the notes at the end of the report.

Morgan Stanley & Co. International plc ("Morgan Stanley") is acting as financial advisor to Crédit Agricole S.A. ("CASA") and Crédit Agricole Consumer Finance
("CACF" together with CASA, "Crédit Agricole") in relation to the proposed restructuring of Agos Ducato SpA, a joint venture between CACF and Banco
Popolare Sc, as announced on 8th May 2013. Crédit Agricole has agreed to pay fees to Morgan Stanley for its financial services. Please refer to the notes at the
end of the report.




                                                                                                                                                                         41
                                                                                                                                                                                                     MORGAN STANLEY RESEARCH

                                                                                                                                                                                                           European Financials & Equity Strategy
                                                                                                                                                                                                                                            May 20, 2013



Disclosures
Morgan Stanley & Co. International plc, authorized and regulated by Financial Services Authority, disseminates in the UK research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services and Markets Act 2000,
research which has been prepared by any of its affiliates. As used in this disclosure section, Morgan Stanley includes RMB Morgan Stanley (Proprietary) Limited, Morgan Stanley & Co International plc and its affiliates.

For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your
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For valuation methodology and risks associated with any price targets referenced in this research report, please email morganstanley.research@morganstanley.com with a request for valuation methodology and risks on a particular stock or contact your
investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY 10036 USA.

Analyst Certification

The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for
expressing specific recommendations or views in this report: Huw Van Steenis.

Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.

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Important US Regulatory Disclosures on Subject Companies

As of April 30, 2013, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: Aberdeen Asset Management, Ashmore Group PLC, BNP Paribas, British Land,
Castellum, Commerzbank, Corio NV, Deutsche Bank, Deutsche Boerse, Direct Line Group Plc, Intu Properties, Klepierre, Lloyds Banking Group, Man Group, Munich Re, SEGRO, Societe Generale, Swiss Re, Unibail-Rodamco, UniCredit S.p.A., Vienna
Insurance Group.

Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Banca Monte dei Paschi di Siena S.p.A., Banco Popular (ES), Barclays Bank, BBVA, British Land, Credit Agricole S.A., Danske Bank,
Deutsche Bank, Deutsche Boerse, Direct Line Group Plc, DNB, Generali, HSBC, ING, Intesa SanPaolo S.p.A., KBC Group NV, National Bank of Greece, Partners Group, Prudential Financial, Royal Bank of Scotland, Santander, SEB, Societe Generale,
Svenska Handelsbanken, Swiss Re, UBS, Unibail-Rodamco, UniCredit S.p.A..

Within the last 12 months, Morgan Stanley has received compensation for investment banking services from AEGON, Ageas, Aviva, AXA, Banca Monte dei Paschi di Siena S.p.A., Banco Popular (ES), Barclays Bank, BBVA, BNP Paribas, British Land,
CaixaBank SA, Commerzbank, Credit Agricole S.A., Credit Suisse Group, Danske Bank, Deutsche Bank, Deutsche Boerse, DEXIA, DNB, Erste Bank, Generali, Henderson Group, HSBC, ING, Intesa SanPaolo S.p.A., KBC Group NV, Klepierre, Lloyds
Banking Group, Man Group, National Bank of Greece, Natixis, Nordea, Partners Group, Prudential Financial, Royal Bank of Scotland, Santander, SEB, SEGRO, Societe Generale, Svenska Handelsbanken, Swiss Life, Swiss Re, UBS, Unibail-Rodamco,
UniCredit S.p.A., Unione di Banche Italiane SCPA, Uniqa.

In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from 3i, Aberdeen Asset Management, AEGON, Ageas, Amlin PLC, Ashmore Group PLC, Aviva, AXA, Banca Monte dei Paschi di
Siena S.p.A., Banca Popolare di Milano S.c.a.r.l., Banco Popolare, Banco Popular (ES), Banco Sabadell, Bankinter, Barclays Bank, BBVA, BNP Paribas, Bolsas y Mercados Espanoles, British Land, CaixaBank SA, Capital & Counties, Commerzbank,
Corio NV, Credit Agricole S.A., Credit Suisse Group, Danske Bank, Deutsche Bank, Deutsche Boerse, DEXIA, Direct Line Group Plc, DNB, Erste Bank, F&C Asset Management, Generali, Hannover Re, Henderson Group, HSBC, ING, Intesa SanPaolo
S.p.A., Intu Properties, IVG Immobilien, Julius Baer, KBC Group NV, Klepierre, Lloyds Banking Group, Man Group, Mapfre SA, Mediobanca Banca Di Credito Finanziario, Munich Re, National Bank of Greece, Natixis, Nordea, Partners Group, Prudential
Financial, PZU, Raiffeisen Bank International, Royal Bank of Scotland, Santander, Schroders, Scor SE, SEB, SEGRO, Societe Generale, Standard Chartered Bank, Standard Life, Svenska Handelsbanken, Swedbank, Swiss Life, Swiss Re, Unibail-
Rodamco, UniCredit S.p.A., Unione di Banche Italiane SCPA, Uniqa, Vienna Insurance Group.

Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from 3i, Aberdeen Asset Management, AEGON, Ageas, Ashmore Group PLC, Aviva, AXA, Banca Monte dei Paschi
di Siena S.p.A., Banca Popolare di Milano S.c.a.r.l., Banco Popolare, Banco Popular (ES), Banco Sabadell, Bankinter, Barclays Bank, BBVA, BNP Paribas, British Land, CaixaBank SA, Catlin Group Ltd, Commerzbank, Credit Agricole S.A., Credit Suisse
Group, Danske Bank, Deutsche Bank, Deutsche Boerse, DEXIA, DNB, Erste Bank, F&C Asset Management, Generali, Hannover Re, Henderson Group, HSBC, ICAP, ING, Intesa SanPaolo S.p.A., Intu Properties, IVG Immobilien, Julius Baer, KBC Group
NV, Lloyds Banking Group, Man Group, Mapfre SA, Mediobanca Banca Di Credito Finanziario, Munich Re, National Bank of Greece, Natixis, Nordea, Partners Group, Prudential Financial, PZU, Raiffeisen Bank International, Royal Bank of Scotland,
Santander, Schroders, Scor SE, SEB, Societe Generale, Standard Chartered Bank, Standard Life, Svenska Handelsbanken, Swedbank, Swiss Life, Swiss Re, Tullett Prebon, UBS, Unibail-Rodamco, UniCredit S.p.A., Unione di Banche Italiane SCPA,
Uniqa, Vienna Insurance Group.

Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: 3i, Aberdeen Asset Management, AEGON, Ageas, Amlin PLC, Ashmore
Group PLC, Aviva, AXA, Banca Monte dei Paschi di Siena S.p.A., Banca Popolare di Milano S.c.a.r.l., Banco Popolare, Banco Popular (ES), Banco Sabadell, Bankinter, Barclays Bank, BBVA, BNP Paribas, Bolsas y Mercados Espanoles, British Land,
CaixaBank SA, Capital & Counties, Commerzbank, Corio NV, Credit Agricole S.A., Credit Suisse Group, Danske Bank, Deutsche Bank, Deutsche Boerse, DEXIA, Direct Line Group Plc, DNB, Erste Bank, F&C Asset Management, Generali, Hannover Re,
Henderson Group, HSBC, ING, Intesa SanPaolo S.p.A., Intu Properties, IVG Immobilien, Julius Baer, KBC Group NV, Klepierre, Lloyds Banking Group, Man Group, Mapfre SA, Mediobanca Banca Di Credito Finanziario, Munich Re, National Bank of
Greece, Natixis, Nordea, Partners Group, Prudential Financial, PZU, Raiffeisen Bank International, Royal Bank of Scotland, Santander, Schroders, Scor SE, SEB, SEGRO, Societe Generale, Standard Chartered Bank, Standard Life, Svenska
Handelsbanken, Swedbank, Swiss Life, Swiss Re, UBS, Unibail-Rodamco, UniCredit S.p.A., Unione di Banche Italiane SCPA, Uniqa, Vienna Insurance Group.

Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following
company: 3i, Aberdeen Asset Management, AEGON, Ageas, Ashmore Group PLC, Aviva, AXA, Banca Monte dei Paschi di Siena S.p.A., Banca Popolare di Milano S.c.a.r.l., Banco Popolare, Banco Popular (ES), Banco Sabadell, Bankinter, Barclays
Bank, BBVA, BNP Paribas, British Land, CaixaBank SA, Catlin Group Ltd, Commerzbank, Credit Agricole S.A., Credit Suisse Group, Danske Bank, Deutsche Bank, Deutsche Boerse, DEXIA, DNB, Erste Bank, F&C Asset Management, Generali,
Hannover Re, Henderson Group, HSBC, ICAP, ING, Intesa SanPaolo S.p.A., Intu Properties, IVG Immobilien, Julius Baer, KBC Group NV, Klepierre, Lloyds Banking Group, Man Group, Mapfre SA, Mediobanca Banca Di Credito Finanziario, Munich Re,
National Bank of Greece, Natixis, Nordea, Partners Group, Prudential Financial, PZU, Raiffeisen Bank International, Royal Bank of Scotland, Santander, Schroders, Scor SE, SEB, Societe Generale, Standard Chartered Bank, Standard Life, Svenska
Handelsbanken, Swedbank, Swiss Life, Swiss Re, Tullett Prebon, UBS, Unibail-Rodamco, UniCredit S.p.A., Unione di Banche Italiane SCPA, Uniqa, Vienna Insurance Group.




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                                                                                                                                                                                                     MORGAN STANLEY RESEARCH

                                                                                                                                                                                                          European Financials & Equity Strategy
                                                                                                                                                                                                                                            May 20, 2013



Disclosures
Within the last 12 months, Morgan Stanley has either provided or is providing non-securities related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: Commerzbank.

Morgan Stanley & Co. LLC makes a market in the securities of 1-800-Flowers.com, Inc, AEGON, Aviva, AXA, Barclays Bank, BBVA, Credit Suisse Group, Deutsche Bank, HSBC, ING, Lloyds Banking Group, Prudential Financial, Royal Bank of
Scotland, Santander, UBS.

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Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.

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Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-
weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete
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Global Stock Ratings Distribution

(as of April 30, 2013)

For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not
assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory
requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.




                                        Coverage Universe                 Investment Banking Clients (IBC)

                                                             % of                              % of     % of Rating
 Stock Rating Category                     Count             Total           Count        Total IBC       Category

 Overweight/Buy                           1034              36%               399             39%               39%
 Equal-weight/Hold                        1250              44%               479             47%               38%
 Not-Rated/Hold                             105               4%                27              3%              26%
 Underweight/Sell                           473             17%               123             12%               26%
 Total                                   2,862                              1028




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                                                                                                                                                                                                         MORGAN STANLEY RESEARCH

                                                                                                                                                                                                              European Financials & Equity Strategy
                                                                                                                                                                                                                                               May 20, 2013



Disclosures
Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients
are companies from whom Morgan Stanley received investment banking compensation in the last 12 months.

Analyst Stock Ratings

Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18
months.

Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.

Analyst Industry Views

Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below.

In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below.

Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below.

Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index.

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                                                                                                                                                                                                       MORGAN STANLEY RESEARCH

                                                                                                                                                                                                            European Financials & Equity Strategy
                                                                                                                                                                                                                                              May 20, 2013



Disclosures
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