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European Banking Barometer 1H14 Confidence masks challenges

EY's European Banking Barometer - 1H14

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EY's fifth European Banking Barometer identifies the views of 294 senior European bankers across 11 markets regarding the macro-economic outlook and regulations, and their impact on the banking industry over the next six months. For further information visit: www.ey.com/ebb

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Page 1: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

Confidence masks challenges

Page 2: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

Contents

Page

1 Economic environment 8

2 European sovereign debt crisis 11

3 Business outlook and focus areas 14

4 Business priorities and product line expectations 31

5 Headcount and compensation 45

6 Contacts 54

Page 2

Page 3: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

Introduction

We have developed the European Banking Barometer to provide our clients with a benchmark and overview of

the macro-economic outlook and its impact on the European banking industry, as well as the priorities banks will

focus on over the next six months.

Now in its fifth edition, the latest biannual study consists of 294 interviews with senior bankers across 11 markets: Austria,

Belgium, France, Germany, Italy, the Netherlands, the Nordics, Poland, Spain, Switzerland and the UK.

The fieldwork was conducted via an online questionnaire and telephone interviews between March and April 2014. We

interviewed respondents from a range of financial institutions covering at least 50%* of banking assets in each market.

A range of bank types were interviewed in each market to help ensure the study was a fair reflection of each country’s

banking industry. Interviews were not conducted with subsidiaries of member/group banks.

The results in this report are presented in an aggregate market format and shown in percentages. Aggregated European-

wide results have been weighted in proportion to countries’ banking assets. All country-level data is unweighted.

Please note, some charts may not add up to 100%, and net increase totals may differ slightly from the numbers shown in

the charts, as percentages have been rounded to the nearest whole number. Where possible, we have compared and

contrasted the data against our European Banking Barometer – 2H13.

We would like to thank all the research participants for their contributions to the study.

If you would like to take part in our next European Banking Barometer study, please speak to your usual EY contact

or refer to your local country contact on page 55.

Page 3

* Except in Austria, where they represent 45% of banking assets, Italy 39% and the Nordics 42%.

Page 4: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14 Page 4

Composition of the survey sample by bank type

15

14

12

12

47

Bank type*

Universal (large-scale banking group/major bank)

Corporate and investment

Private bank/wealth manager

Specialist (e.g., consumer credit, savings, or a bank that doesn’t offer a current account)

Retail and business (SME business banking)

* Numbers in the pie chart reflect the percentage of respondents who answered. Percentages were calculated using unweighted data. Please note that given the structure of the German and Swiss banking markets, respondents in these two countries were provided with country-specific bank types that have been reallocated to our five European bank types as follows: For Germany, big banks and regional banks were reallocated to universal banks; foreign banks (not headquartered in Germany) were reallocated to corporate and investment banks; private bankers were reallocated to private banks/wealth management; savings banks and cooperative banks were reallocated to retail and business banks; and central building societies, building loan associations and mortgage banks were reallocated to specialist banks. For Switzerland, major banks were reallocated to universal banks; investment banks were reallocated to corporate and investment banks; private bankers (general or limited partnership) and banks under foreign control were reallocated to private banks/wealth management; cantonal banks, and regional and savings banks were reallocated to retail and business banks; and securities traders were reallocated to specialist banks.

Page 5: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

Composition of the survey sample by bank type

Market Total Universal

Corporate and

investment

Private bank/

wealth

management Specialist

Retail and

business

(cooperative)

Retail and

business

(state owned)

Retail and

business

(privately

owned)

Austria 13 7 2 0 2 2 0 0

Belgium 17 2 3 2 1 3 1 5

France 30 6 5 5 2 3 2 7

Germany 103 6 7 6 7 28 44 5

Italy 20 3 4 2 3 6 0 2

Netherlands 7 3 0 0 2 1 0 1

Nordics 20 4 2 3 8 1 0 2

Poland 12 7 1 0 2 0 2 0

Spain 20 2 1 6 3 0 2 6

Switzerland 17 2 0 5 1 1 3 5

UK 35 3 16 6 4 0 0 6

Europe** 294 45 41 35 35 45 54 39

Page 5

Type of bank*

* Given the structure of the German and Swiss banking markets, respondents in these two countries were provided with country-specific bank types that have been reallocated to our five European bank types as follows: For Germany, big banks and regional banks were reallocated to universal banks; foreign banks (not headquartered in Germany) were reallocated to corporate and investment banks; private bankers were reallocated to private banks/wealth management; savings banks and cooperative banks were reallocated to retail and business banks; and central building societies, building loan associations and mortgage banks were reallocated to specialist banks. For Switzerland, major banks were reallocated to universal banks; investment banks were reallocated to corporate and investment banks; private bankers (general or limited partnership) and banks under foreign control were reallocated to private banks/wealth management; cantonal banks, and regional and savings banks were reallocated to retail and business banks; and securities traders were reallocated to specialist banks.

** European totals in the table reflect the unweighted number of respondents who answered. All European aggregated percentages in the report are weighted in proportion to markets’ banking assets, as reported by The Banker database, June 2013. All market level figures in this report reflect unweighted data.

Page 6: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

European overview

The gradual recovery of European banks is expected to continue. Most bankers remain positive about the economy and

their bank’s performance, but the sector isn’t out of the woods yet. After a significant swing towards optimism in our

previous edition, our latest survey reveals that a few more bankers expect the economy to improve but most only anticipate

slight improvement.

Most respondents also expect improved financial performance from their banks but, again, this will only be slight. Investors

might hope that a sector with stronger balance sheets, and an increased focus on growth initiatives, would hasten a return

to greater profitability. However, with bankers expecting only an average 1.6% increase in return on equity (ROE), and

remaining preoccupied by risk and regulatory issues, there is little evidence that this will happen anytime soon.

The recovering economy has yet to translate into a meaningful improvement in bank profitability.

► Economic optimism is now more pronounced, with 64% of respondents expecting their market’s economic outlook to improve,

compared with 54% in 2H13. Concerns about the exposure of banks to sovereign debt have also stabilized.

► As a result, 60% of respondents expect their bank’s financial performance to improve over the next six months. Bankers are

positive about the outlook for most business lines, particularly private banking and wealth management where 59% believe the

outlook is good – reflecting its capital-light model and the growing wealth of high net worth individuals since the global financial

crisis.

► However, with bankers anticipating an average revenue increase of just 2.4%, and cost reduction of a mere 0.5%, any improved

financial performance will be modest. EY’s analysis suggests that, without more meaningful restructuring, bankers will struggle to

achieve even the 1.6% uplift in ROE they are hoping for. Furthermore, we estimate that banks would need to simultaneously

reduce costs by about 12% and increase revenues by about 15% just to exceed their cost of equity.

Balance sheets continue to strengthen and more banks are beginning to focus on growth.

► Although most banks will continue to shrink their balance sheets, only 8% anticipate raising additional capital following the Asset

Quality Review (AQR) and stress tests. Furthermore, due to the improving economic climate, 23% of banks expect to be able to

release reserves, compared with just 14% in our previous survey.

Page 6

Page 7: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

European overview

► Stronger balance sheets will allow banks to focus more on growth. Fifty-seven percent of respondents now expect their banks to

launch initiatives to promote growth, compared with 49% in our previous survey. Furthermore, 51% now expect to increase

lending to customers, compared with 44% in 2H13.

► Corporate lending policies will continue to loosen for many sectors – with small and medium-sized enterprises (SMEs) expected

to benefit most. Forty-five percent of bankers expect lending policies to the SME sector will become less restrictive in the next six

months.

Industry restructuring is slowing.

► Compared with the last edition slightly fewer respondents expect to buy or sell assets in the next year. Nevertheless, 65% of

banks still expect to see significant consolidation in the industry within the next three years.

► Following significant restructuring across the industry, fewer banks now expect to see further headcount reductions with just 38%

of respondents forecasting additional cuts, compared to 42% six months ago. In some markets, such as the UK and the Nordics,

banks expect to recruit staff into growth businesses. But in retail banking and back office functions most are expecting more cuts.

But banks are still grappling with the impact of new regulation.

► The top three priorities for banks relate to risk and regulation. Compliance is one of the few business areas where headcount is

expected to grow – suggesting that banks continue to struggle with the regulatory burden.

► With regulators increasingly concerned by conduct and consumer protection issues, reputational risk and cybersecurity have

emerged as key priorities for banks, especially in Belgium, France, the Netherlands and Switzerland.

They may also struggle to justify expected pay rises.

► Twenty-seven percent of respondents expect pay to rise in the coming year. The small minority of respondents anticipating

double-digit pay hikes at their banks will need to deliver returns well above the industry average, or risk angering investors.

Page 7

Page 8: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14 Page 8

Section 1: Economic environment

Page 9: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

1 8 27 56 8

Across Europe, more bankers are becoming optimistic about their market’s economic recovery …

How do you expect the general economic outlook in your market to change over the next six months?*

Page 9

* Numbers reflect the percentage of respondents who answered. Base excludes respondents who answered “Don’t know.”

Comments: The economic optimism of European bankers is now even more pronounced than in our European Banking Barometer – 2H13.

Our previous survey was the first in which a majority (54%) of respondents expected the economic outlook for their country to improve. Even

more banks (64%) now anticipate economic recovery. This positivity reflects broader macro-economic improvements; the IMF has recently

revised its Eurozone GDP forecast upwards, and the region is expected to see increased demand driven by higher consumption and a

revival of investment. Only French bankers remain uncertain about the outlook. The greatest improvement is expected in Italy and the

Netherlands – but with both economies contracting in the first quarter, this optimism may be short-lived.

1 10 36 50 4

Worsen significantly Worsen slightly Stay the same Improve slightly Improve significantly

2H13

1H14

Page 10: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

How do you expect the general economic outlook in your market to change over the next six months?*

7

1

6

5

10

5

6

17

8

6

23

14

24

10

8

10

14

20

43

52

27

35

31

57

76

65

58

80

86

75

50

21

56

59

46

23

20

33

1

3

8

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Worsen significantly Worsen slightly Remain at today's levels Improve slightly Improve significantly

1H14

… except in France, which is struggling to regain competitiveness and boost exports

Page 10

2H13 Net

increase

Net

increase

23

53

54

0

46

70

86

70

92

80

76

74

* Numbers reflect the percentage of respondents who answered. Base excludes respondents who answered “Don’t know.”

5

1

14

20

6

5

29

10

20

26

50

23

14

29

40

50

37

33

36

38

40

65

50

69

86

36

40

44

59

33

50

63

40

9

8

21

4

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria 20

63

43

-1

54

38

20

43

86

77

50

74

Page 11: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14 Page 11

Section 2: European sovereign debt crisis

Page 12: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

Despite a stronger economic outlook, concerns about the sovereign debt crisis refuse to diminish completely ...

What level of impact do you think the Eurozone sovereign debt crisis will have on the banking sector in your

market over the next six months compared with the previous six months?*

Page 12

* Numbers reflect the percentage of respondents who answered.

8 29 46 15 2

5 31 48 15 1

Significantly decreased impact Slightly decreased impact About the same Slightly increased impact Significantly increased impact

2H13

1H14

Comments: Concerns about the exposure of the European banking sector to sovereign debt have stabilized. Our European Banking

Barometer – 2H13 showed a remarkable change in the views of respondents on the impact of the sovereign debt crisis as growth returned to

the Eurozone. In 1H13, over one-third of respondents expected the impact of the sovereign debt crisis would increase, but that has fallen to

one-sixth in our most recent survey, while over one-third now expect its impact to diminish. However, a small group of bankers are likely to

remain concerned about sovereign debt until economic growth becomes truly embedded across the Eurozone, or full banking union breaks

the link between banks and sovereigns.

Page 13: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

… particularly in Austria and France, where more banks expect sovereign debt problems to increase rather than decrease

What level of impact do you think the Eurozone sovereign debt crisis will have on the banking sector in your

market over the next six months compared with the previous six months?*

Page 13

* Numbers reflect the percentage of respondents who answered.

6

25

10

14

15

5

7

8

8

43

35

20

8

25

43

15

31

17

29

35

15

43

59

20

92

50

43

45

56

47

46

53

38

9

6

25

15

20

7

27

15

12

31

10

5

1

3

2

8

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Significantly decreased impact Slightly decreased impact About the same Slightly increased impact Significantly increased impact

1H14

9

15

7

2

5

5

6

35

30

46

50

30

33

29

19

31

38

20

57

50

23

100

36

50

39

44

52

48

50

60

20

15

7

28

24

24

15

6

20

20

1

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

2H13 Net

increase

15

-24

-20

7

-28

-5

-57

-20

-8

-10

-29

-40

Net

increase

0

-38

-19

0

-7

-5

-10

-50

0

-46

-10

-44

Page 14: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14 Page 14

Section 3: Business outlook and focus areas

Page 15: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

Most bankers still expect their institution’s financial performance to improve …

How do you expect your bank’s overall performance to change over the next six months?*

Page 15

* Numbers reflect the percentage of respondents who answered. Base excludes respondents who answered “Don’t know.”

11 27 53 9

Weaken significantly Weaken slightly Stay the same Strengthen slightly Strengthen significantly

2H13

Comments: Sixty percent of banks expect their financial performance to improve over the next six months. With the leading European banks

reporting average full year returns on equity of 3.8%, substantial improvements in financial performance will be required for them to achieve

returns that exceed their cost of equity. Sluggish economic growth, persistent ultra-low interest rates, and the potential that the European

Central Bank (ECB) will launch its own quantitative easing program mean that if banks want to improve their financial performance they will

need to grow revenues through non-interest income and continue to reduce costs aggressively. However, with banks expecting to reduce

costs by an average of only 0.5% and grow their revenues by an average of just 2.4% they will struggle to achieve even the 1.6% ROE uplift

they are anticipating. EY’s analysis suggests banks would only achieve an uplift in ROE of 0.6% with their revenue growth and cost reduction

expectations. Moreover, European banks would need to reduce costs by about 12% and simultaneously increase revenues by about 15% just

to exceed their average FY13 cost of equity (9.7%).

1 13 26 50 10

1H14

Page 16: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

-5.00 -4.00 -3.00 -2.00 -1.00 0.00 1.00 2.00 3.00 4.00 5.00

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

… but an inability to increase revenues and cut costs means they will struggle to deliver meaningful ROE growth

How do you expect your bank’s performance measures to change over the next six months?*

Page 16

* Numbers reflect the mean percentage change expected. Base excludes respondents who answered “Don’t know.”

Increase Percentage increase

Revenue

Average percentage change

0.46

0.46

2.39

2.73

0.96

0.61

2.14

2.47

4.63

3.71

0.02

5.00

Cost

base

0.12

-1.67

-0.49

0.50

-0.50

-1.96

-0.91

0.64

-3.77

-2.20

-1.16

0.10

ROE

-0.95

0.02

1.62

1.37

0.37

1.17

1.00

2.36

-0.27

2.97

-0.31

3.88

0.46

0.46

2.39

2.73

0.96

0.61

2.14

2.47

4.63

3.71

0.02

5.00

0.12

-1.67

-0.49

0.50

-0.50

-1.96

-0.91

0.64

-2.20

-1.16

0.10

-0.95

0.02

1.62

1.37

0.37

1.17

2.36

-0.27

2.97

-0.31

3.88

1.00

-3.77

Page 17: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

83

71

40

67

75

71

75

93

67

74

71

62

14

24

25

25

20

29

10

2

30

19

18

31

3

6

35

8

5

15

4

3

8

12

8

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

No Maybe Yes

Most banks believe they have already raised sufficient capital to weather the ECB’s AQR and stress test

Does your bank plan to raise capital following the ECB’s AQR and stress test?*

Page 17

* Numbers reflect the percentage of respondents who answered. Base excludes respondents who answered “Don’t know.”

Comments: Just 8% of respondents anticipate raising additional capital following the AQR and stress test. However, the fact that a further

19% think they might have to raise additional capital illustrates a degree of uncertainty and apprehension across the industry about what the

AQR will reveal. Several banks have already raised capital levels ahead of the AQR and stress tests. According to Thomson ONE, by the

time we completed fieldwork for this survey, Eurozone banks had already raised over US $11 billion of equity this year, compared with just

over US $2 billion in the same period in 2013. Since we completed the fieldwork, banks have raised an additional US $24 billion, bringing the

total equity raised this year to over US $35 billion.

8

74

19

Page 18: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

Nevertheless, almost one-third of bankers still expect a further increase in loan loss provisions …

Over the next six months, what do you expect your bank’s total provisions against loan losses to do?*

Page 18

* Numbers reflect the percentage of respondents who answered. Base excludes respondents who answered “Don’t know.”

Comments: Slightly fewer banks now expect to raise loan loss provisions (LLPs) than in our last survey. However, despite improving

economic indicators, almost a third still expect to raise LLPs in anticipation of the AQR. This is particularly true in Spain, where banks have

been required to revalue their real estate portfolios, and in Austria where banks have significant exposure to Eastern Europe. Nevertheless,

the improving economic climate across Europe means 23% of banks now expect to be able to release provisions to boost their financial

performance, compared with just 14% in our previous survey.

1 22 46 27 3

2 12 54 24 8

Decrease significantly Decrease slightly Stay the same Increase slightly Increase significantly

2H13

1H14

Page 19: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

… although in the UK strong economic growth means bankers expect to be able to release provisions

Over the next six months, what do you expect your bank’s total provisions against loan losses to do?*

Page 19

* Numbers reflect the mean scores of respondents who answered on a scale of 1 to 5 where 1 denotes “Decrease significantly” and 5 denotes “Increase significantly.” Base excludes respondents who answered “Don’t know.”

1 2 3 4 5

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria3.50

3.25

3.23

3.33

3.61

3.50

3.00

3.00

3.77

2.87

3.69

3.12

3.10

3.20

3.01

3.25

3.00

2.90

3.00

3.8

3.24

2.69

1H14

2H13

3.10

3.14

Decrease

significantly

Increase

significantly Stay the same

Page 20: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

28

28

30

17

30

25

15

34

21

12

16

16

19

19

21

24

26

26

27

29

33

36

39

45

More restrictive Less restrictive

31

21

25

11

32

18

12

40

22

9

11

22

17

29

17

30

20

33

29

22

25

42

34

45

Transport (incl. automotive and shipping)**

Media and telecommunications

Financial services

Information technology

Construction

Energy, mining and minerals**

Commercial and professional services**

Commercial real estate

Retail and consumer products**

Health care

Manufacturing and industrials (incl. chemicals, eng.)**

SMEs 23

23

33

3

-17

17

15

-12

18

-8

8

-14

Further easing of corporate lending policies is anticipated for many sectors, reflecting the improved economic outlook

How do you expect the corporate lending policies of banks in your market to change in each of the following

sectors over the next six months?*

Page 20

* Numbers reflect the percentage of respondents who answered. Respondents answering “Remain unchanged” are not displayed. Base excludes respondents who answered “Don’t know.” ** Energy and mining includes minerals; manufacturing includes industries, chemicals and engineering; commercial services includes professional services; retail includes consumer products and; transport includes automotive and shipping.

1H14 2H13 Net less

restrictive

Net less

restrictive

Comments: The prospects for corporate lending continue to improve for most sectors. The outlook is most positive for the SMEs, where 45% of

respondents expect lending to be less restrictive. Notably, even the tightening of lending policies to the construction and commercial real estate

sectors has slowed dramatically from our previous surveys. Nevertheless, despite banks being more willing to lend, overall access to bank credit

remains limited and a further loosening of lending policies will be required for Europe to see a return to loan growth.

29

23

24

12

-5

12

1

-4

7

-8

-9

-9

■ More restrictive ■ Less restrictive

Page 21: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

32

48

38

19

41

25

19

41

19

14

29

30

14

5

5

24

27

25

14

23

19

29

29

35

39

28

34

20

31

38

15

34

30

17

17

18

14

9

7

23

21

12

23

28

18

31

42

44

Transport**

Media and telecomms

Financial services

Information technology

Construction

Energy and mining**

Commercial services**

Commercial real estate

Retail**

Health care

Manufacturing**

SMEs

Austria

Germany

Belgium

Italy

France

Netherlands

Lending to SMEs is expected to be less restrictive in all countries except Austria …

How do you expect the corporate lending policies of banks in your market to change in each of the following

sectors over the next six months?*

Page 21

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents who answered “Don’t know.” ** Energy and mining includes minerals; manufacturing includes industries, chemicals and engineering; commercial services includes professional services; retail includes consumer products and; transport includes automotive and shipping.

31

42

42

38

23

17

15

38

15

8

42

25

38

38

67

54

31

92

54

69

69

33

17

50

20

50

50

17

17

17

40

33

33

17

33

17

33

17

40

50

20

Transport**

Media and telecomms

Financial services

Information technology

Construction

Energy and mining**

Commercial services**

Commercial real estate

Retail**

Health care

Manufacturing**

SMEs

30

40

20

20

40

11

10

40

36

9

40

27

10

10

10

30

11

30

20

45

36

40

36

25

33

33

33

75

33

67

100

67

33

33

25

33

33

33

25

33

33

33

33

33

25

■ More restrictive ■ Less restrictive

Page 22: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

Nordics

Switzerland

Poland

UK

Spain

… and the Netherlands

How do you expect the corporate lending policies of banks in your market to change in each of the following

sectors over the next six months?*

Page 22

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents who answered “Don’t know.” ** Energy and mining includes minerals; manufacturing includes industries, chemicals and engineering; commercial services includes professional services; retail includes consumer products and; transport includes automotive and shipping.

24

12

12

6

12

19

12

29

18

18

12

18

6

18

24

24

18

13

18

24

29

35

29

35

Transport**

Media and telecomms

Financial services

Information technology

Construction

Energy and mining**

Commercial services**

Commercial real estate

Retail**

Health care

Manufacturing**

SMEs

18

18

18

9

36

18

27

45

45

82

36

27

36

55

36

55

55

64

73

22

11

25

22

56

22

13

11

22

56

44

13

33

67

22

22

44

38

22

67

33

43

43

29

14

43

29

29

57

29

14

29

43

14

14

29

29

43

14

29

43

29

29

29

Transport**

Media and telecomms

Financial services

Information technology

Construction

Energy and mining**

Commercial services**

Commercial real estate

Retail**

Health care

Manufacturing**

SMEs

12

6

25

6

5

11

6

6

18

5

6

29

29

35

17

26

28

35

47

35

37

32

59

■ More restrictive ■ Less restrictive

Page 23: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

1 2 3 4 5

Launching initiatives to promote growth

Introduction/increasing incentives to increase customer deposits

Lending to customers

Seeking funding from wholesale capital markets

Repaying central bank funding programs

Reducing loan to deposit ratios

Selling assets outside home markets

Selling assets outside Europe

Reducing the balance sheet

Accessing central bank funding programs

An increasingly favorable operating environment means that more bankers are beginning to prioritize growth initiatives

How likely are the banks in your market to be engaged in the following activities over the next six months?*

Page 23

* Numbers reflect the mean scores of respondents who answered on a scale of 1 to 5 where 1 denotes “Significantly less” and 5 denotes “Significantly more.”

Comments: An improving economy and stronger balance sheets mean the emphasis bankers are placing on growth, first identified in EY’s

European Banking Barometer – 2H13, is now even more prominent. Fifty-seven percent of bankers now anticipate launching initiatives to

promote growth, while 51% expect to increase lending to customers – up from 49% and 44%, respectively, in our last survey. Banks in Italy,

the Netherlands, Poland and Spain are most focused on growing lending and developing new initiatives to promote growth. That does not

mean balance sheets are fully repaired, however, and banks are still recalibrating their funding profiles by repaying central bank funding

programs, and turning to deposit funding. Fifty-one percent of bankers expect their banks to introduce incentives to increase customer

deposits over the next six months and loan to deposit ratios are also expected to improve.

Significantly

less

Significantly

more

3.49

3.64

3.30

3.36

3.50

3.19

3.32

3.29

3.33

2.68

3.59

3.44

3.42

3.32

3.27

3.26

3.24

3.22

3.17

2.61

Significantly

less

Significantly

more Stay the same

1H14

2H13

Page 24: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

30

5

5

15

10

5

5

10

5

5

10

10

10

5

5

35

20

30

40

40

35

65

35

55

10

10

25

20

5

15

20

5

10

30 28

40

39

14

22

29

21

23

25

14

4

8

9

2

4

2

1

7

1

13

8

10

18

16

10

13

10

19

23

2

5

2

13

10

11

14

13

10

12

23

37

43

30

40

30

40

23

50

43

3

3

3

10

3

13

3

20

10

20

13

3

7

7

3

7

23

3

7

7

3

3

3

6

24

35

12

35

59

41

53

41

41

12

6

12

18

6

12

41

18

6

6

6

24

6

29

12

24

12

6

6

8

15

23

8

8

38

31

15

8

15

15

23

8

15

15

23

15

15

31

8

23

23

23

38

8

8

31

8

8

8

8

8

8

23

29

43

43

29

71

71

29

43 29

29

14

43

43

29

14

14

14

Austria

Germany

Belgium

Italy

France

Netherlands

They also continue to rebalance their funding profiles by reducing reliance on central banks …

How likely are the banks in your market to be engaged in the following activities over the next six months?*

Page 24

* Numbers reflect the percentage of respondents who answered.

Significantly more Slightly more Significantly less Slightly less

Launching initiatives to promote growth

Introduction/increasing incentives to increase customer deposits

Lending to customers

Seeking funding from wholesale capital markets

Repaying central bank funding programs

Reducing loan to deposit ratios

Selling assets outside home markets

Selling assets outside Europe

Reducing the balance sheet

Accessing central bank funding programs

Launching initiatives to promote growth

Introduction/increasing incentives to increase customer deposits

Lending to customers

Seeking funding from wholesale capital markets

Repaying central bank funding programs

Reducing loan to deposit ratios

Selling assets outside home markets

Selling assets outside Europe

Reducing the balance sheet

Accessing central bank funding programs

Page 25: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

25

25

40

35

35

35

50

60

35

70

5

10

10

20

5

15

15

25

15

5

35

20

20

15

25

5

15

20

15

5

5

5

29

29

31

26

46

43

49

34

51

6

9

14

3

6

11

9

17

51

29

20

17

17

6

6

11

9

6

11

11

6

6

6

6

3

8

8

17

42

58

67

58

33

8

17

8

42

8

8

25

8

25

25

17

8

8

6

44

35

24

35

12

35

63

41

6

6

6

6

6

12

29

19

6

29

12

24

24

19

24

18

6

6

45

15

15

40

15

10

35

45

40

5

5

10

10

5

10

5

5

20

15

5

20

5

20

5

15

15

5

5

Nordics

Switzerland

Poland Spain

… and introducing initiatives to increase customer deposits

How likely are the banks in your market to be engaged in the following activities over the next six months?*

Page 25

* Numbers reflect the percentage of respondents who answered.

Significantly more Slightly more Significantly less Slightly less

UK

Launching initiatives to promote growth

Introduction/increasing incentives to increase customer deposits

Lending to customers

Seeking funding from wholesale capital markets

Repaying central bank funding programs

Reducing loan to deposit ratios

Selling assets outside home markets

Selling assets outside Europe

Reducing the balance sheet

Accessing central bank funding programs

Launching initiatives to promote growth

Introduction/increasing incentives to increase customer deposits

Lending to customers

Seeking funding from wholesale capital markets

Repaying central bank funding programs

Reducing loan to deposit ratios

Selling assets outside home markets

Selling assets outside Europe

Reducing the balance sheet

Accessing central bank funding programs

Page 26: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

The current restructuring of the banking sector is slowing, with fewer banks anticipating buying or selling assets …

Which, if any, of the following is your bank likely to consider over the next six months in relation to the countries

in which it operates?*

Page 26

* Numbers reflect the percentage of respondents who answered. Respondents could select more than one option.

29

33

25

38

23 24 24

45

Sell assets Buy assets Partnerships orjoint ventures

None of these

2H13 1H14

Comments: Over the past five years, many banks have sold assets as they have restructured their businesses to reduce complexity, raise

capital or focus on core strengths. As a result, the number of bankers expecting asset sales (and accompanying purchases) has fallen.

The majority of remaining asset sales are expected to be in Europe, as most banks have already exited non-core overseas franchises.

Most asset purchases will also be in Europe. Where banks are considering overseas expansion, alliances are often the most attractive

option. This is not only due to regulatory requirements in these markets, but also because many banks have learned from their previous

mistakes of over-expansion. Joint ventures or partnerships can help banks gain exposure to high-growth markets without major upfront

investment, as highlighted in EY’s 2014 report Banking in emerging markets: investing for success.

Page 27: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

… except in Spain and the Nordics where more banks expect to buy and sell assets

Which, if any, of the following is your bank likely to consider over the next six months in relation to the countries

in which it operates?*

Page 27

* Numbers reflect the percentage of respondents who answered. Respondents could select more than one option.

Sell assets Buy assets Partnerships or joint ventures None of these

35

40

38

10

39

17

43

29

31

40

26

12

45

17

15

14

35

7

23

23

35

38

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

43

30

15

13

21

30

11

15

57

33

38

10

17

18

40

0

30

14

15

10

40

24

24

31

1H14

2H13

30

20

46

25

14

40

28

15

24

25

13

10

23

29

30

17

10

14

20

14

37

24

29

15

22

40

23

63

71

40

50

63

19

38

38

50

51

59

5

67

50

57

45

73

30

45

35

23

0

0

Page 28: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

For banks thinking about expansion, particularly outside of Europe, collaboration is seen as increasingly important

In which regions is your bank likely to sell assets, buy assets or consider joint ventures over the next

six months?*

Page 28

* Numbers represent the total number of mentions for that particular region. Respondents could state more than one region.

1

5

4

9

9

12

0 5 10 15

Joint ventures

Sell assets

Buy assets

North America

5

7

5

15

5

8

0 2 4 6 8 10 12 14

Joint ventures

Sell assets

Buy assets

Asia Pacific

31

36

41

43

46

47

0 20 40

Joint ventures

Sell assets

Buy assets

Europe

2

1

2

8

4

1

0 5 10

Joint ventures

Sell assets

Buy assets

South America

1

2

2

5

6

0 2 4 6 8

Joint ventures

Sell assets

Buy assets

Middle East

4

5

3

6

5

2 4 6 8 10

Joint ventures

Sell assets

Buy assets

Across the world

1H14

2H13

Page 29: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

I do not anticipate any consolidation Small-scale consolidation Medium-scale consolidation Large-scale consolidation

21

44

29

6

Despite a slowdown in industry restructuring, 65% of banks expect significant consolidation within the next three years

To what extent do you anticipate consolidation of the banking industry over the next 12 months and within

the next three years?*

Page 29

* Numbers reflect the percentage of respondents who answered. 1H14 base excludes respondents who answered “Don’t know.”

Within three years 12 months

Comments: Despite the significant strides banks have made in strengthening their balance sheets, not only is it still early days for the

European economic recovery, but the AQR is in progress. As a result, most institutions remain cautious of major acquisitions in the near

term. As a result, only 7% of respondents anticipate large-scale consolidation in the next 12 months – the majority in Spain and France.

However, over the next three years 63% of respondents expect medium- or large-scale consolidation. This longer-term consolidation will be

focused in countries with a large number of small local banks (such as Spain and Italy) and may be accelerated by the AQR. In countries

where the sector is already fairly concentrated (such as the UK), fewer bankers anticipate significant consolidation even in the medium term.

7

28

43

22

1H14 2H13

Within three years 12 months

7

25

43

26

13

41

30

13

Page 30: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

5

16

40

53

35

32

20

I do not anticipate any consolidation Small-scale consolidation Medium-scale consolidation Large-scale consolidation

Italian banks expect the greatest consolidation of their sector – both in the short and medium term

To what extent do you anticipate consolidation of the banking industry in your market over the next 12 months

and within the next three years?*

Page 30

* Numbers reflect the percentage of respondents who answered. Base excludes respondents who answered “Don’t know.”

Austria Belgium

Germany

Europe

Netherlands

15

8

31

46

46

46

8

3 years

12 months

Nordics

Switzerland Poland UK Spain

24

35

65

53

6

12

6

8

27

58

64

33

9 3 years

12 months

6

22

29

43

44

28

21

7

14

57

57

29

14

14

14 11

42

58

47

21

11

11

20

44

40

35

26

18

14

3

6

6

12

41

47

41

35

12

Italy

5

35

74

60

21

5

France

8

28

62

53

28

18

2

3 years

12 months

17

21

41

54

28

25

14

Page 31: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14 Page 31

Section 4: Business priorities and product line expectations

Page 32: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

12

14

18

18

18

20

27

31

42

46

47

51

56

8

12

13

13

24

37

40

47

15

16

21

23

33

39

Off-shoring

Disposing of assets or businesses

New remuneration systems

Outsourcing

Reducing the number of products

Diversity requirements relating to CRD IV³

Acquiring new assets or businesses

Developing partnerships with non-banks

Restructuring the business to comply with regulations

Financial Transaction Tax

Developing recovery and resolution plans

Current changes in financial reporting/IFRS

Establishing new business segments

New foreign markets/internationalization

Restructuring the business to cut costs

The threat of financial crime

Compliance with consumer regulation/remediation

Developing/introducing new products

Minimizing non-essential expenditure

Investing in customer-facing technology

Cutting costs

Compliance with capital market regulations

Capital and liquidity and the leverage ratio²

Streamlining processes

Cybersecurity/data security

Reputational risk¹

Risk management1H14

Page 32

Risk and regulation remain at the top of banks’ agendas in all markets, but there is a growing division over whether …

* Respondents were asked to rank the importance of activities on a scale of 0 to 10, where 0 denotes “Not at all important” and 10 denotes “Very important.” Numbers show the percentage of respondents selecting either 8, 9 or 10. Base excludes respondents answering “Does not apply.” 1 Reputational risk includes tax transparency; compliance with capital markets regulations, i.e., MiFID II/EMIR; and investing in new customer-facing technology, e.g., mobile solutions. 2 For 2H13 survey, capital and liquidity and the leverage ratio were referred to as "Preparing for Basel III/CRD IV." 3 Diversity requirements relating to CRD IV – putting in place a policy to promote diversity on management board.

Rank the importance of the following agenda items for your organization*

Comments: There are no signs that the regulatory burden for banks is diminishing – and with many European regulators increasingly concerned about banks’ conduct, including customer

protection, it is no surprise that risk and regulation remain at the top of bankers’ priorities. Reputational risk is seen as particularly important. Recent analysis by the LSE revealed that between

2008 and 2012, conduct costs (including provisions and contingent liabilities), for just 10 leading banks in Europe and the US exceeded US $230bn4 – underscoring the importance of resolving

these issues. In this survey we have, for the first time, asked specifically about cybersecurity. This has emerged as a major issue for many financial institutions and is a key concern for banks in

Belgium, France, the Netherlands and Switzerland. Beyond risk and regulation, the shift in banks’ focus from survival to growth is highlighted by most items related to innovation and growth

moving up several places in our ranking. More banks are now moving from preservation to expansion.

2H13 1H14

Rank order of importance

2

7

-

3

1

6

8

9

4

13

5

-

12

19

16

10

11

-

14

17

18

-

23

21

15

20

22

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

Risk and regulation

Cost cutting and efficiency

Innovation and growth

4 http://blogs.lse.ac.uk/conductcosts/bank-conduct-costs-results/

Page 33: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

33

50

67

67

43

33

71

83

71

71

86

14

43

43

43

0

17

14

29

11

6

12

13

6

29

37

50

37

14

47

15

49

40

51

3

4

8

23

Restructuring the business to comply with regulations

Financial Transaction Tax

Developing recovery and resolution plans

Current changes in financial reporting/IFRS

Establishing new business segments

New foreign markets/internationalization

Restructuring the business to cut costs

The threat of financial crime

Compliance with consumer regulation/remediation

Developing/introducing new products

Minimizing non-essential expenditure

Investing in customer-facing technology

Cutting costs

Compliance with capital market regulations

Capital and liquidity and the leverage ratio²

Streamlining processes

Cybersecurity/data security

Reputational risk¹

Risk management

Italy Germany

33

33

36

27

17

10

36

67

17

67

50

50

42

50

67

16.7

9

27

55

Restructuring the business to comply with regulations

Financial Transaction Tax

Developing recovery and resolution plans

Current changes in financial reporting/IFRS

Establishing new business segments

New foreign markets/internationalization

Restructuring the business to cut costs

The threat of financial crime

Compliance with consumer regulation/remediation

Developing/introducing new products

Minimizing non-essential expenditure

Investing in customer-facing technology

Cutting costs

Compliance with capital market regulations

Capital and liquidity and the leverage ratio²

Streamlining processes

Cybersecurity/data security

Reputational risk¹

Risk management

19

21

19

21

38

48

29

37

60

45

41

37

34

48

53

24

44

45

57

31

25

6

24

12

50

44

53

65

59

65

44

41

71

41

6

0

12

47

19

29

7

17

17

17

35

41

17

58

63

32

40

35

45

45

28

47

22

Page 33

… their next priority is cost-cutting and efficiency, as in Austria, Germany and the Netherlands …

* Respondents were asked to rank the importance of activities on a scale of 0 to 10, where 0 denotes “Not at all important” and 10 denotes “Very important.” Numbers show the percentage of respondents selecting either 8, 9 or 10. Base excludes respondents answering “Does not apply.” 1 Reputational risk includes tax transparency; compliance with capital markets regulations, i.e., MiFID II/EMIR; and investing in new customer-facing technology, e.g., mobile solutions. 2 For 2H13 survey, capital and liquidity and the leverage ratio were referred to as "Preparing for Basel III/CRD IV."

Rank the importance of the following agenda items for your organization* Risk and regulation

Cost cutting and efficiency

Innovation and growth

Austria Belgium France

Netherlands

Page 34: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

22

17

24

6

50

32

37

42

40

55

55

15

55

50

45

32

60

35

35

12 0

16

21

11

0

50

33

37

63 47

0

17

16

47

11

6

21

35

Restructuring the business to comply with regulations

Financial Transaction Tax

Developing recovery and resolution plans

Current changes in financial reporting/IFRS

Establishing new business segments

New foreign markets/internationalization

Restructuring the business to cut costs

The threat of financial crime

Compliance with consumer regulation/remediation

Developing/introducing new products

Minimizing non-essential expenditure

Investing in customer-facing technology

Cutting costs

Compliance with capital market regulations

Capital and liquidity and the leverage ratio²

Streamlining processes

Cybersecurity/data security

Reputational risk¹

Risk management

Switzerland

Nordics Poland

UK

18

0

0

29

18

29

59

59

71

53 82

24

35

53

35

18

0

35

47

Restructuring the business to comply with regulations

Financial Transaction Tax

Developing recovery and resolution plans

Current changes in financial reporting/IFRS

Establishing new business segments

New foreign markets/internationalization

Restructuring the business to cut costs

The threat of financial crime

Compliance with consumer regulation/remediation

Developing/introducing new products

Minimizing non-essential expenditure

Investing in customer-facing technology

Cutting costs

Compliance with capital market regulations

Capital and liquidity and the leverage ratio²

Streamlining processes

Cybersecurity/data security

Reputational risk¹

Risk management

Page 34

… or innovation and growth, as in Spain, Poland and the UK

* Respondents were asked to rank the importance of activities on a scale of 0 to 10, where 0 denotes “Not at all important” and 10 denotes “Very important.” Numbers show the percentage of respondents selecting either 8, 9 or 10. Base excludes respondents answering “Does not apply.” 1 Reputational risk includes tax transparency; compliance with capital markets regulations, i.e., MiFID II/EMIR; and investing in new customer-facing technology, e.g., mobile solutions. 2 For 2H13 survey, capital and liquidity and the leverage ratio were referred to as "Preparing for Basel III/CRD IV."

Rank the importance of the following agenda items for your organization* Risk and regulation

Cost cutting and efficiency

Innovation and growth

Spain

13

20

19

15

34

27

45

41

41

65

59

25

27

24

44

32

23

47

38

11

20

36

25

45

27

27

73

55

67

83

17

27

50

50

27

0

45

58

Page 35: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

Many bankers continue to anticipate an improved outlook for all business lines …

How do you rate the outlook for your bank over the next six months in each of the following business lines?*

Page 35

* Numbers reflect the percentage of respondents who answered. Respondents answering “Neither good, nor poor” are not displayed. Base excludes respondents answering “Does not apply” or chose not to answer.

19

12

8

10

8

8

10

10

5

3

3

6

3

2

1

3

2

3

35

36

33

32

43

43

40

44

57

3

4

6

9

6

7

13

10

10

Securities trading

Securities services

Transaction advisory (e.g., M&A)

Debt and equity issuance

Deposit business

Corporate banking

Asset management

Retail banking

Private banking and wealth management

27

37

32

33

44

44

39

42

48

7

5

9

9

9

6

10

9

12

15

11

20

9

10

12

9

7

8

1

3

2

3

1

2

4

2

Securities trading

Securities services

Transaction advisory (e.g., M&A)

Debt and equity issuance

Deposit business

Corporate banking

Asset management

Retail banking

Private banking and wealth management

Net

increase

50

40

37

40

41

28

19

32

18

Net

increase 1H14 2H13

59

42

41

40

39

28

26

24

16

Very good Fairly good Very poor Fairly poor

Comments: Bankers remain most optimistic about the outlook for private banking and wealth management. It is a particularly attractive

segment, given its capital-light business model, and it is also a growing market. The wealth of EU28 billionaires has almost doubled since

2009 and grew around 23% in the last year alone, and is illustrative of increasing affluence of high net worth individuals. However, while the

majority of bankers in all markets expect the outlook to improve for this business, it is also likely to be a very competitive segment. Bankers

also expect an improved outlook for retail and corporate banking. With signs of an economic recovery in Europe, respondents are clearly

hopeful that both businesses and individuals will look to borrow and invest. The outlook is less positive for securities services and trading;

investment banks continue to suffer from the decline in fixed income businesses.

Page 36: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

19

6

20

50

6

5

13

10

7

8

6

10

6

3

2

19

44

61

64

40

50

47

55

46

44

36

25

19

6

6

18

20

11

8

10

21

8

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

63

44

68

70

75

33

53

63

48

57

77

40

4

6

21

10

13

33

6

8

12

10

0

10

4

13

5

33

3

4

5

10

4

2

8

3

10

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

… with the strongest performance expected in wealth management, retail banking …

How do you rate the outlook for your bank over the next six months in each of the following business lines?*

Page 36

* Numbers reflect the percentage of respondents who answered. Respondents answering “Neither good, nor poor” are not displayed. Base excludes respondents answering “Does not apply” or chose not to answer.

Retail banking Private banking and wealth management

Corporate banking

56

36

42

80

25

40

56

39

38

43

42

23

7

16

10

13

2

12

7

8

14

20

6

8

15

8

17

15

6

2

1

8

8

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Very good Fairly good Very poor Fairly poor

38

44

60

25

55

25

30

33

42

40

46

30

25

6

30

9

20

3

8

13

10

4

13

5

9

75

5

9

4

10

15

4

2

4

3

8

20

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Asset management

Page 37: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

30

53

63

30

43

50

24

33

25

36

27

27

5

11

6

3

4

9

9

20

13

5

20

25

6

16

13

12

6

1

4

3

27

9

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

13

17

12

13

17

5

10

8

11

6

12

3

8

39

17

6

55

36

80

13

20

43

32

42

11

4

29

45

6

3

5

9

22

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

36

31

50

64

33

20

22

53

53

43

69

33

8

6

17

9

11

5

3

6

8

4

13

11

20

11

8

7

8

13

20

6

1

2

17

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Deposit business

4

7

6

17

20

18

9

8

33

4

7

6

7

9

6

10

22

43

20

50

44

17

40

29

19

35

33

30

22

9

17

11

6

3

4

6

10

11

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

… and asset management. The outlook also remains very positive for corporate banking …

How do you rate the outlook for your bank over the next six months in each of the following business lines?*

Page 37

* Numbers reflect the percentage of respondents who answered. Respondents answering “Neither good, nor poor” are not displayed. Base excludes respondents answering “Does not apply” or chose not to answer.

Securities services

Debt and equity issuance

Very good Fairly good Very poor Fairly poor

Transaction advisory

Page 38: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

28

56

53

20

38

20

37

26

32

35

20

45

4

16

3

9

28

19

11

10

13

60

11

13

12

19

30

9

5

2

4

3

10

18

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

… but is more mixed for investment banking, with securities trading continuing to struggle

How do you rate the outlook for your bank over the next six months in each of the following business lines?*

Page 38

* Numbers reflect the percentage of respondents who answered. Respondents answering “Neither good, nor poor” are not displayed. Base excludes respondents answering “Does not apply” or chose not to answer.

Very good Fairly good Very poor Fairly poor

Securities trading

Page 39: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

5

8

4

5

13

1

2

3

2

41

45

47

48

50

3

7

7

6

8

Credit cards

Personal savings and deposits

Personal investment products

Personal loans

Personal real estate loans

36

54

46

48

50

3

5

8

5

6

4

8

5

8

16

2

1

2

2

Credit cards

Personal savings and deposits

Personal investment products

Personal loans

Personal real estate loans

Bankers expect growth in demand for credit and investment products to persist as the economy recovers …

How do you expect customer demand for retail products at your bank to change over the next six months?*

Page 39

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Does not apply.”

1H14 2H13 Net

increase

39

44

47

49

35

Net

increase

44

49

48

42

38

Comments: The improved outlook for retail banking is clearly driven by an anticipated increase in demand for all credit and investment

products. The combination of falling unemployment, a more stable economy and ultra-low rates across Europe will allow more individuals –

at least for the moment – to take on debt at low interest rates. Fifty-eight percent of banks expect demand to increase for real estate and

51% for personal loans, respectively. Low interest rates are also driving the increased demand for personal investment products. With

deposit rates at minimal levels, we expect customers across Europe to look for alternative ways to improve the return on their savings.

Increase significantly Increase slightly Decrease significantly Decrease slightly

Page 40: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

6

5

11

5

4

4

13

1

4

3

8

14

39

38

53

56

86

33

77

45

43

47

46

43

6

6

21

8

4

7

8

14

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Personal loans

56

38

72

67

25

33

54

48

43

48

42

38

11

6

11

13

1

5

6

13

33

8

9

5

5

8

13

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

… with much greater demand for real estate loans anticipated in the Nordics and Italy, for personal loans in Spain …

How do you expect customer demand for retail products at your bank to change over the next six months?*

Page 40

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Does not apply.”

41

31

61

89

25

67

31

37

57

45

46

33

6

6

15

5

13

7

11

19

11

11

8

18

8

8

22

33

2

11

Personal savings and deposit products

Personal real estate loans

31

69

50

33

100

33

77

58

33

50

62

38

19

11

11

9

10

8

13

6

11

11

67

8

5

24

13

23

6

6

1

2

8

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Personal investment products

Increase significantly Increase slightly Decrease significantly Decrease slightly

Page 41: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

… the UK and Poland, and for credit cards in the Netherlands

How do you expect customer demand for retail products at your bank to change over the next six months?*

Page 41

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Does not apply.”

Credit cards

6

7

6

21

2

5

5

1

1

8

31

40

53

33

25

100

43

37

43

41

42

13

6

3

5

3

13

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Increase significantly Increase slightly Decrease significantly Decrease slightly

Page 42: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

11

11

10

11

12

7

6

6

6

1

29

24

28

32

53

2

7

3

7

5

Hedging products

Equity issuance/IPOs

M&A advisory

Debt issuance

Corporate loans

27

21

33

36

50

5

9

8

5

10

15

13

11

7

7

7

4

2

3

Hedging products

Equity issuance/IPOs

M&A advisory

Debt issuance

Corporate loans

Demand is still expected to increase for corporate products, albeit at a lower rate than in 2H13

Page 42

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Does not apply.”

1H14 2H13 Net

increase

54

32

29

12

11

Net

increase

44

22

16

13

13

Comments: A more stable economy is also allowing companies to begin to think about expansion. Improvement in the Composite European

Purchasing Managers Index, which tracks projected spending and production levels, suggests that European corporations will increase their

capital expenditure. This expansion and investment will drive demand for advisory services and financing in the coming months. The

greatest rise in demand is expected to be for corporate loans, and is most stark in Poland and the Nordics where 100% and 75% of

respondents, respectively, expect this to increase. Demand for capital markets financing is also expected to increase, though much less

rapidly, suggesting that a structural shift in the way European companies raise money is some way off.

Increase significantly Increase slightly Decrease significantly Decrease slightly

How do you expect customer demand for corporate products at your bank to change over the next six months?*

Page 43: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

30

36

50

67

57

50

31

17

28

32

13

43

10

11

15

3

11

7

13

14

15

14

10

8

14

11

11

29

10

14

11

6

13

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Demand for debt, in the form of corporate loans and bonds, is expected to increase in almost all markets …

How do you expect demand for corporate products at your bank to change over the next six months?*

Page 43

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Does not apply.”

55

27

60

89

75

60

54

59

52

53

33

30

5

7

10

11

15

4

5

20

18

7

13

40

8

5

10

12

22

30

7

1

1

10

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Corporate loans Debt issuance

33

8

40

75

20

50

50

12

22

28

43

17

5

0

0

7

2

6

3

17

14

23

0

8

11

10

14

17

7

14

11

6

14

17

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

M&A advisory

Increase significantly Increase slightly Decrease significantly Decrease slightly

6

18

10

13

33

9

16

6

11

14

17

19

11

6

14

33

18

30

38

40

33

27

9

22

24

29

17

0

10

9

2

6

7

17

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Equity issuance/IPOs

Page 44: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

… but demand for equity financing will be more subdued, especially in Germany and Belgium

How do you expect demand for corporate products at your bank to change over the next six months?*

Page 44

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Does not apply.”

5

14

10

17

25

8

21

5

11

7

10

8

13

10

7

14

13

55

14

30

78

17

75

38

12

10

29

43

13

7

5

2

13

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

Hedging products

Increase significantly Increase slightly Decrease significantly Decrease slightly

Page 45: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14 Page 45

Section 5: Headcount and compensation

Page 46: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

1H14

27 3 31 7

23 2 34 8

A decline is anticipated in overall headcount, but the pace of cuts is expected to slow in most countries ...

Over the next six months, how do you expect the headcount of your bank to change?*

Page 46

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Don’t know.”

Comments: The number of bankers expecting headcount reductions has fallen and the number expecting job growth has risen. Thirty-eight

percent of bankers now expect headcount to fall, compared with 42% in our last survey. Thirty percent of respondents expect headcount to

increase, up from 25% in 2H13. A significant number of job losses are anticipated in Austria (53%), France (40%) and Switzerland (35%),

where cost-cutting remains a key concern. However, in the Nordics and the UK, where institutions are beginning to focus on growth, 47%

and 49% of respondents, respectively, actually expect to increase headcount.

Increase significantly Increase slightly Decrease significantly Decrease slightly

2H13

Net

increase

-8

-18

Page 47: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

23

35

20

27

16

57

50

32

33

31

29

38

3

20

18

5

14

5

3

7

7

18

15

40

18

30

27

47

14

25

21

20

27

29

23

9

5

3

6

8

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria -23

-12

-8

-20

-14

-30

-57

26

-18

-5

-18

23

… and in the Nordics and the UK many bankers now expect staff numbers to increase

Over the next six months, how do you expect the headcount of your bank to change?*

Page 47

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Don’t know.”

1H14

26

50

31

75

21

30

44

24

43

34

25

40

4

23

7

10

6

12

10

8

13

20

35

20

15

25

43

40

28

12

14

23

31

10

4

10

2

2

6

UK

Switzerland

Spain

Poland

Nordics

Netherlands

Italy

Germany

France

Europe

Belgium

Austria

2H13 Net

increase

-50

-1

-18

-39

-22

-22

10

15

-50

-39

-30

9

Net

increase

Increase significantly Increase slightly Decrease significantly Decrease slightly

Page 48: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

4

7

8

9

10

11

11

11

26

27

7

12

18

8

10

27

2

3

6

9

14

14

12

9

25

28

9

10

21

14

12

35

Other head office functions

Operations and IT

Compliance, risk and finance

Corporate banking

Investment banking

Private banking and wealth management

Asset management

Retail and business banking

Recruitment will be focused on growth sectors, such as private banking, as well as compliance functions …

In which areas of the business do you expect headcount to increase or decrease?*

Page 48

* Numbers reflect the percentage of respondents who answered. Base excludes respondents answering that headcount would “Stay the same.”

■ Decrease ■ Increase

1H14 2H13

-25

0

0

-7

-1

-3

-25

-23

Net

increase

Net

increase

-16

0

3

-7

-3

2

-21

-22

Comments: A seemingly unending wave of regulation and more assertive supervision continues to force banks to recruit staff to strengthen

their compliance departments. Banks are also recruiting in growth areas, such as private banking. However, job losses are expected across

other parts of the business. The greatest cuts will continue to be in the head office, operations and IT. A majority of bankers in almost all

markets expect cuts to these functions. Twenty-seven percent of respondents also anticipate cuts in retail and business banking, with only

bankers in the Nordics anticipating overall job growth in this segment; 31% expect headcount to increase and just 15% expect it to decrease.

The outlook is also pretty gloomy for investment bankers – only in the UK, Italy, Spain and Poland do more respondents expect investment

bank staff numbers to increase rather than decrease.

Page 49: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

6

6

13

13

6

13

25

44

6

6

6

6

50

17

17

33

50

17

17

33

17

17

50

7

14

21

14

21

7

14

43

36

7

7

29

14

7

21

11

17

17

17

33

6

11

22

28

9

18

18

27

9

36

18

36

45

18

18

36

Other head office functions

Operations and IT

Compliance, risk and finance

Corporate banking

Investment banking

Private banking and wealth management

Asset management

Retail and business banking

Germany

Belgium

Italy

France

Netherlands

… while job cuts in retail banking …

In which areas of the business do you expect headcount to increase or decrease?*

Page 49

* Numbers reflect the percentage of respondents who answered. Base excludes respondents answering that headcount would “Stay the same.”

Austria

5

10

12

9

5

3

5

9

26

21

9

10

9

3

12

33

Other head office functions

Operations and IT

Compliance, risk and finance

Corporate banking

Investment banking

Private banking and wealth management

Asset management

Retail and business banking

■ Decrease ■ Increase

Page 50: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

4

8

8

19

27

15

15

12

23

23

8

12

23

4

12

13

13

13

50

25

13

13

13

25

7

7

7

7

27

33

13

47

27

7

13

13

20

20

27

8

8

15

15

31

23

8

15

8

8

8

15

Other head office functions

Operations and IT

Compliance, risk and finance

Corporate banking

Investment banking

Private banking and wealth management

Asset management

Retail and business banking

… and the head office continue unabated

In which areas of the business do you expect headcount to increase or decrease?*

Page 50

* Numbers reflect the percentage of respondents who answered. Base excludes respondents answering that headcount would “Stay the same.”

Switzerland

Poland

UK

Spain Nordics

22

11

22

11

22

Other head office functions

Operations and IT

Compliance, risk and finance

Corporate banking

Investment banking

Private banking and wealth management

Asset management

Retail and business banking

■ Decrease ■ Increase

Page 51: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

4

1

5

15

3

28

2

2

1

5

1

11

+/- 10+%

+/- 8-10%

+/- 5-8%

+/- 2-5%

+/- 1-2%

Total

Even though staff numbers are expected to fall, 28% of bankers expect their pay to increase

Compared to last year (FY13), to what extent will aggregate (i.e., total fixed and performance-related)

compensation change at your bank this year (FY14)?

Page 51

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Don’t know.”

Decrease Increase

Comments: It is perhaps surprising that, given respondents’ expectations of continued industry restructuring and the apparent inability of the

sector to meaningfully improve ROE, 25% of banks expect aggregate pay to rise by over 2% in FY14 – above the current rate of inflation in

both the euro area and the UK – with 4% expecting double-digit pay rises. There is a risk that with caps on bonuses, some of this rise will

become an additional fixed cost for banks at a time when they are struggling to reduce their cost base or grow their revenues. Furthermore,

with average ROE expected to remain well below the average cost of equity, banks will need to be able to justify any significant increases for

individuals, or risk criticism from shareholders and politicians.

Net

increase

17

2

10

4

-1

3

Page 52: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

15

16

30

3

1

2

1

7

+/- 10+%

+/- 8-10%

+/- 5-8%

+/- 2-5%

+/- 1-2%

Total

8

8

8

17

25

+/- 10+%

+/- 8-10%

+/- 5-8%

+/- 2-5%

+/- 1-2%

Total

43

43

14

14

14

43

Austria

Germany

Belgium

Italy

France

Netherlands

Page 52

While most bankers across Europe expect their pay to stay the same …

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Don’t know.”

6

6

12

6

6

12

10

14

24

5

10

5

20

10

5

15

Decrease Increase

Net

increase

-17

0

-8

0

-8

0

Net

increase

0

0

0

0

-6

6

Net

increase

24

0

14

10

0

0

Net

increase

23

15

13

0

-1

-3

Net

increase

5

5

5

0

-10

5

Net

increase

0

-14

29

0

-14

0

Compared to last year (FY13), to what extent will aggregate (i.e., total fixed and performance-related)

compensation change at your bank this year (FY14?)?

Page 53: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

10

5

15

10

10

+/- 10+%

+/- 8-10%

+/- 5-8%

+/- 2-5%

+/- 1-2%

Total

Nordics

Switzerland

Poland

UK

Spain

Page 53

… more than 10% of respondents in Spain and the UK expect double-digit increases!

* Numbers reflect the percentage of respondents who answered. Respondents answering “Stay the same” are not displayed. Base excludes respondents answering “Don’t know.”

27

9

36

11

17

17

6

50

11

11

12

3

9

18

41

3

6

9

6

12

18

6

12

6

24

+/- 10+%

+/- 8-10%

+/- 5-8%

+/- 2-5%

+/- 1-2%

Total

Net

increase

5

0

5

0

10

-10

Net

increase

36

9

27

0

0

0

Net

increase

39

6

6

17

0

11

Net

increase

-6

-6

0

0

0

0

Net

increase

32

0

12

6

3

12

Decrease Increase

Compared to last year (FY13), to what extent will aggregate (i.e., total fixed and performance-related)

compensation change at your bank this year (FY14?)?

Page 54: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14 Page 54

Section 6: Contacts

Page 55: EY's European Banking Barometer - 1H14

European Banking Barometer – 1H14

Contacts

For more information on how we can help, please contact our team.

EMEIA:

Robert Cubbage

+44 20 7951 2319

[email protected]

Steven Lewis

+44 20 7951 9471

[email protected]

Austria:

Friedrich Hief

+43 1 21170 1352

[email protected]

Belgium:

Jean-François Hubin

+32 2 774 9266

[email protected]

France:

Luc Valverde

+33 1 46 93 63 04

[email protected]

Germany:

Dirk Müller-Tronnier

+49 6196 996 27429

[email protected]

Italy:

Massimo Testa

+39 02 7221 2306

[email protected]

Netherlands:

Wouter Smit

+31 88 407 1574

[email protected]

Nordics:

Lars Weigl

+46 8 520 590 45

[email protected]

Poland:

Iwona Kozera

+48 22 557 7491

[email protected]

Spain:

José Carlos Hernández Barrasús

+34 91 572 7291

[email protected]

Switzerland:

Philippe Zimmermann

+41 58 286 32 19

[email protected]

UK:

Omar Ali

+44 20 7951 1789

[email protected]

Page 55

Page 56: EY's European Banking Barometer - 1H14

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markets and in economies the world over. We develop

outstanding leaders who team to deliver on our promises

to all of our stakeholders. In so doing, we play a critical role

in building a better working world for our people, for our

clients and for our communities.

EY refers to the global organization, and may refer to one

or more, of the member firms of Ernst & Young Global

Limited, each of which is a separate legal entity.

Ernst & Young Global Limited, a UK company limited by

guarantee, does not provide services to clients. For more

information about our organization, please visit ey.com.

About EY’s Global Banking & Capital Markets Center

In today’s globally competitive and highly regulated

environment, managing risk effectively while satisfying an

array of divergent stakeholders is a key goal of banks and

securities firms. EY’s Global Banking & Capital Markets

Center brings together a worldwide team of professionals

to help you succeed – a team with deep technical

experience in providing assurance, tax, transaction and

advisory services. The Center works to anticipate market

trends, identify the implications and develop points of view

on relevant sector issues. Ultimately it enables us to help

you meet your goals and compete more effectively.

© 2014 EYGM Limited.

All Rights Reserved.

EYG no. EK0289

ED None

This material has been prepared for general informational purposes only and is not intended to

be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for

specific advice.

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