Mr. Lars Kalbreier Presentation

Produced by:Lars Kalbreier Comm. & Equities Trading

Research Date: April 2006 Slide 1

Global Bank OutlookOutlook in Middle East11th May 2006Lars KalbreierGlobal Head of Equity and Alternatives Research

CREDIT SUISSE PRIVATE BANKING

Produced by:Lars Kalbreier Date: May 2006 Slide 2CREDIT SUISSE PRIVATE BANKING

Global view: what is moving international banks?

Globalization Concentration, M&A activities

Slump of basic commissions (cheques, transfers,…)

Enrichment Private banking, Asset management

Pressure on traditional teller banking systems

Growth of derivatives lower dependence on interest rates and cycles

higher risk

IT, bank infrastructure development higher consumer finance

higher IT and personnel costs

Positive for global banks

Challenges for: retail banking (commission and interest rate dependent)

Key divisions to benefit: Private Banking, Asset management, Investment banking


Trend on world banks will likely follow US example of past 20 years …

The US example

US regional banks: +10% earnings growth p.a. in the 80s, +5% in the 90s

+2% in 2000s

Reasons: slump of commissions, rising competition, increased sophistication

of clients lack, Real end of Glass Steagall Act

Asset managers 10 to 15% p.a. earnings growth past 10 years, brokers +15

to +20%

Growth opportunities: IB & brokerage, asset managers, private banking, size

(economies of scale)

Same likely to happen to all banks worldwide. Catalyst: regulation.

US trend applied to EU in 80s and started in EM in the 90s


Sector trends: Investment banking, backed by M&A …

Source: Prudential

M&A will likely continue in next years: Saturated markets in US/Europe, economies of scale, globalization of markets,

deregulation

International M&A toward EM target will continue

– LatAm: move well advanced

– Asia: the current priority

Gulf countries: limited so far by

regulation,

tomorrow the next big trend ?

Global M&A

0

200'000

400'000

600'000

800'000

1'000'000

1'200'000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$MM

PENDING


… and the stronger growth of capital markets long term

Source: Prudential

1990: 50% of world GDP = total market cap debt + equity

Today: 85% (US: 120%, China: 12%, India: 7%,…)

“We will never look like the US capitalism”

Edith Cresson, French Prime Minister, 1992 CAC40 now: 70% of French GDP

80% of European companies still finance needs via corporate banking, 85% of Asian companies,

90 to 95% of non OECD companies, against 20% got US companies

The Global Debt and Equity Market Capitalization

0

20000

40000

60000

80000

100000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Equities Fixed Income


Sector trend: Asset mgt: growth in US/EU to continue… Strong and regular return of equities

markets Rise of private pension schemes

Demand for risk diversification Increasing complexity of financial

products New investment vehicle: Hedge funds

Global Fund Management Of Conventional AssetsHedge fund size and number

Source: International Financial Service, Hennessee Group LLC, Hedge Fund Research

0

200

400

600

800

1000

1200

85 90 95 96 97 98 99 00 01 02 03 04

USD bn assets Number of hedge funds Insurance Pension Mutual

05

101520253035404550

1998 1999 2000 2001 2002 2003 2004

USD


… and under representation of EM makes it the next big trend

Europe similar to the U.S. a decade ago and Asia similar to the U.S. 2

decades ago

Fund assets = 166% of GDP in USA, 85% non US

Catch up likely with more activity, liquidity, and investment confidence

Conventional Investment Management Sources of Funds Share of global GDP

OECD: 61% of GDP, 78% of funds under management

Source: International Financial Services for

assetmix and IMF for GDP mix

45%

12%8%5%

4%

2%

2%

22%30%

5%1%

6%1%

5%

33%

4%2%

11% 2% United StatesFranceSwitzerlandGermanyNetherlandsUKOtherChinaIndiaJapanKorea


Trend for Private Banking worldwide Focus on personalization, easy of contact & navigation and revival of personal

client Development of a highly dedication approach with high added value integral

financial services & products linked to UHNWI Tailor made services, incl. Ad hoc structured products, alternative

investments (hedge funds) and less liquid investment (private equity, arts,…)

+ trading scenario analysis, risk modelling and performance attribution

managements

EM Develop networks locally instead in large financial capitals to increase

personalization and availability Synergies with corporate finance (ex: sale of business RM goes to client to

offer investment ideas with the cash) One Research centre / decentralized distribution networks

Rise of local branches, Research to be leveraged to international needs

Sector trend: Private banking: moving up the value chain + be local (1)


Private banking: moving up the value chain + be local (2)Example of worldwide priorities: UHNWI

HNWI financial wealth is expected to grow by 7% p.a. and to exceed USD 40.7

trillions by 2008. The ultra-HNWI financial wealth (USD 30 millions per individual)

growth is expected even to exceed the HNWI wealth growth by 2008 (Source:

World Wealth report, Cap Gemini Merrill Lynch)HNWI Wealth distribution by regions (in USD Trillions)

0

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2009E

N. America EuropeAsia-Pacific Latin AmericaMiddle East & Africa

Annual expected growth rate 2004-09

3.00%

6.00%

9.00%

Source: World Wealth Report

PB majors all streamline their UHNWI strategy based on RM’s input in order to offer a uniform “best of breed” service


Retail banking key drivers

Europe / US: consolidation, further technological innovations (commodization

of services, electronic payments), outsourcing to low-cost countries (India,

China etc)

IT, Cost cutting and M&A key competitive advantage

EM: deployment of services: credit cards, ATMs, cash advances,

international transfers, …

Gain on fees of new services / losses of cash cows (charge for account

opening, charge for balance checking, charge for check, …)

Size and investment key competitive advantage

Likely outcome for EM banks

M&A and partnerships in emerging markets from US/EU banks

New regulation to open new services

Sector trend: Retail banking: consolidation and investment


Financial services outlook by 2010 : Engines of growthCatalysts estimated to have the highest impact on banks

Source: Survey Deloitte Touche 2005-06 in collaboration with EIU; 175 respondents: AM firms 23%, Banks 28%, Insurances 27%, Securities firms 22%

3%

22%

30%

31%

24%

46%

54%

55%

0% 10% 20% 30% 40% 50% 60%

Globalization

Regulation & Compliance

Risk management

Demographics shifts

Technology

Innovation

Home country consolidationand convergence

Others


Conclusion on global banking trends

IB, brokerage, asset management, private banking to continue flourishing

Retail banking needs to adapt

Size matters: expected sales growth long term (all banks):

5-6% mid size 8-9% large caps

Expected earnings growth: 6-7% mid size, 10-12% large cap

Worldwide standardization of services and narrowing of major differentials

between countries

Besides Private Banking: increased local distribution


Middle East banks: regulation change to unlock development ?

Main problems

Regulation / Property laws

Lack of market transparency

Ownership of large domestic companies

Solutions under development

Privatization of stock exchanges: sale of Saudi Tadawul Stock Exchange

New financial districts: Dubai Financial Center, King Abdullah International

financial district near Riyad, Qatar financial center in order to attract

international banks

Privatisations of companies: Saudi Aramco international equity offering in

March 2006, privatization calendar from the Egyptian government

Ownership of large domestic companies


Middle East banking: catalysts in the short term for Private Banking (1): new opportunities for structured products Past issues

– Sharia rules limited investment scope and hedging possibilities – Local banks lack international presence

Recent catalysts:

– lower regulation, higher liquidity new asset classes: Mortgage Backed Securities (Sukuk)

– Sharia-compliant structured products: Arboun (Islamic version of option) and Murabaha (Islamic version of future for physically owned commodity), takaful (sharia-compliant insurance)

New trend are just starting

May 2005: Deutsche Bank issued what is thought to be the first capital-protected commodity-linked product sold to Abu Dhabi Commercial Bank,

4Q05: HSBC sold CPPI on the Dow Jones Islamic Asia-Pacific index Dec 4 to 6, 2005: Inaugural Middle East Hedge Fund Investment summit in

Dubai.


Middle East banking: catalysts in the short term for Private Banking (2): expected sustainable oil revenues Islamic banking and finance: already over USD 300 bn in assets

Oil prices jump: major catalyst for 2006: countries’ oil export revenues exp. > USD 300 bn in 2006, 3 times average level in the ten years up to 2003

Long term sustainable: peak oil scenario (only 35 to 45 year of oil left according to IEA?), geopolitical risks, Chinese and Indian thirst for crude oil scenario of sustained high oil prices

HSBC estimates petro-related net new money (Russia, Middle East, Latam) in 2006 = USD 51.4 bn allocated to PB & AM.

Est. cumulative sum of new petro dollars going forward to 2025E = more than USD 1 trillion, mostly from Middle East.


Middle East banking: catalysts for other bank activities Strong GDP growth (ex: Saudi Arabia +6% 2005)

Potential for local branch development

Spending on projects 2006-07 = $150 bn, 4 x the USD 35 bn

in 2003

Potential for Corporate banking, IPOs

Gulf countries to reshape their economies from oil to tourism and trading

Potential for Investment Banking, IPO advice to government and real

estate investment


Middle East : most advanced country for banking business: UAE

No income tax

No corporate tax (besides banks, telecom and oil companies)

No control on foreign investment

Freedom for real estate investment for non nationals

Strong protection of patents and IP

New investment law 2004: local “partner” in business: only 30% of stakes


Conclusions

Trend remains positive for banks, particularly PB and IB, globally

Middle East countries to benefit from: - new investment vehicles (structured products)- sustained oil revenues- new regulation to ease international money transfer, credit card use, access to capital markets - major reforms underway in several Middle East countries

Positive outlook for economic growth in the region positive for Corporate banking


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Mr. Lars Kalbreier Presentation