Fitch Ratings FI Ratings Methodology

1. Fitch Ratings FI Ratings Methodology Joo-Yung Lee, Managing Director Presentation to Capital Markets Credit Analysts Society 28 March 2012

2. Agenda • Fitch’s Approach to Rating Banks • US Banks • Bank Support • Viability Ratings Definition • Overview of Fitch’s Bank Rating Methodology • Notching • Rating Banks in a Changing World • Global Trading and Universal Bank Review

3. Fitch’s Approach to Rating Banks Five key elements to FI ratings analysis Ownership, support and group factors Industry profile and operating environment Company profile and risk management Financial profile Profitability, funding, liquidity and capitalization Management strategy and corporate governance

4. US Bank Ratings Stabilized at Lower Levels Than Pre­Crisis (2007); Outlooks Mostly Stable Bank Rating Distribution Bank Rating Outlooks Source: Fitch

5. Support Meaningful for Banks Failed banks Defaulted corporate finance Defaulted banks (%) 8 6 4 The value of support 2 0 1yr 2yr 3yr 4yr 5yr Support is meaningful for banks as history has proven they ‘fail’ far more often than they ‘default’ – with the difference being support. Comparative Failure/Default Rates 1990-2009 Source: Fitch, not dollar weighted

6. Fitch Considers Bank Stand-Alone Financial Strength Coupled with View of Support Viability Rating Support Rating Changed from Individual Rating in July 2011 • ‘aa’ – very high fundamental credit quality • ‘a’ – high fundamental credit quality • ‘bbb’ – good fundamental credit quality • ‘bb’ – speculative fundamental credit quality • ‘b’ – highly speculative fundamental credit quality Support scale from ‘1’ to ‘5’ • ‘1’ – Minimum long-term rating floor of ‘A-’ • ‘2’ – Minimum long-term rating floor of ‘BBB-’ • ‘3’ – Minimum long-term rating floor of ‘BB-’ • ‘4’ – Minimum long-term rating floor of ‘B’ • ‘5’ – Support possible but not relied upon

7. Viability Ratings Defined Viability ratings (VRs) are designed to be internationally comparable and represent Fitch’s view of the intrinsic creditworthiness of an issuer Together with the agency’s support ratings framework, the VR is a key component of a bank’s Issuer Default Rating (IDR) and considers various fundamental factors VRs represent not only the capacity of a rated entity to meet its obligations in the absence of extraordinary sources of financial strength but also in the absence of extraordinary constraints (eg transfer and convertability risk)

8. Overview of Fitch’s Bank Rating Methodology A Bank’s Issuer Default Rating (IDR) is the Higher of the VR or SRF SRF > VR, IDR = SRF Support Likely – Support Rating on Scale of 1-4 Support Rating Floor (SRF) Viability Rating (VR) – Intrinsic Creditworthiness ‘aaa’ Scale SRF < VR IDR = VR Support Unlikely Support Rating = 5 IDR = VR IDR on ‘AAA’ Scale

9. National Depositor Preference Results in Deposit Ratings Notched Above IDR in US With national depositor preference, Fitch rates uninsured deposit obligations one notch above the IDR reflecting the superior recovery in receivership Deposits often assumed by acquiring bank due to value of relationship Even liquidated banks recover 77% from FDIC Policymakers reluctant to impose losses on depositors Retroactive features to increase deposit insurance in the US (Indymac) UK and Dutch bailout of domestic customers of Icelandic banks Depositor preference puts pressure on recovery for other unsecured creditors Expect to see other jurisdictions implement similar type of depositor preference

10. Hybrid Notching From Stand-Alone (VR) Wider for Bank Capital Securities of Investment Grade Issuers Implemented changes to bank regulatory capital instruments (hybrids) 1 notch down from VR for traditional subordinated debt Generally 4 notches down from VR for trust preferred securities (US issuers) Generally 5 notches down from VR for straight preferred stock Example Bank, Hybrid Ratings Source: Fitch

11. Holding Company vs. Bank Ratings Fitch typically equalizes bank and holding company IDRs May notch holding company down when double leverage considered high (>1.25x) or liquidity profile of holding company considered relatively weak vs. bank Typically notch if there are dividend or other financial restrictions between bank and holding company IDR measures default risk Holding companies often default at the same time with receivership of bank thus default probability assumed to be the same Sometimes holding company default occurs AFTER bank receivership Could be more of a loss severity issue for holding company creditors FDIC Orderly Liquidation Authority could alter this view over time

12. Bank Holding Company (Holdco) and Bank Operating Company (Bank) Ratings Examples Without Support With Support Source: Fitch

13. Rating Banks in a Changing World Ratings framework consistent – formal review of largest global banks announced Oct 2011 Stressed economic environment persists Confidence sensitive business Enhanced but uncertain regulatory regimes Propensity for support diminishing in US and scope of support Fitch believes is narrower Downgraded support rating floors to ‘A’ in US (Dec 2011) 2 US banks had IDRs lowered, Bank of America (VR downgraded to ‘bbb+’ and Citigroup (VR maintained at ‘a-’ – support rating floors still higher than VRs)) 1 US bank, Morgan Stanley kept at its support floor, VR downgraded to ‘a-’

14. Global Trading and Universal Bank Review Downgrades across the Global Trading and Universal Banks Reflected sector challenges Challenges remain Structural aspects of their funding, earnings and leverage make them vulnerable to market sentiment and confidence, particularly during periods of stress Complex business models and exposure to potential bulky losses from various sources make it difficult to assess the size of loss that could emerge from unexpected events Regulation and profitability dynamics Business environment still difficult But GTUBs defensively positioned Better liquidity and capitalization

15. Trading Revenues Likely to Remain Volatile with Global Capital Markets Slowdown Trading Revenues Securities Business Pre-Tax Profit/Total Pre-Tax Profit Source: FR Y 9-C Source: Fitch Ratings, includes FV of debt adjustments

16. Global Trading Universal Bank Ratings – Many at Support Floors and Therefore Outlooks are Stable Ratings Source: Fitch

17. Disclaimer Fitch Ratings’ credit ratings rely on factual information received from issuers and other sources.Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings are inherently forward-looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be affected by future events or conditions that were not anticipated at thetime a rating was issued or affirmed. The information in this presentation is provided “as is” without any representation or warranty.A Fitch Ratings credit rating is an opinion as to the creditworthiness of a security and does notaddress the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned.A Fitch Ratings report is not a substitute for information provided to investors by the issuer and its agents in connection with a sale of securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion ofFitch Ratings. The agency does not provide investment advice of any sort. Ratings are nota recommendation to buy, sell, or hold any security. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT WWW.FITCHRATINGS.COM.