NM-Fed Releases Stress Test Scenarios

U.S. Banks and Brokers

AMERICAS BROKERS & ASSET MANAGERS

EQUITY RESEARCH

Similar Test, From A Better Starting Line

Fed Releases Stress Test Scenarios

November 15, 2012

Released CCAR Assumptions Maintain Bar For Capital Returns The Fed released the new CCAR instructions and related scenario assumptions for banks with more than $50bn in assets. The severely adverse scenario assumptions are largely in-line with last year (details below). Bottom line, given similar stress testing assumptions, we think an incrementally positive outcome this year would be a baseline expectation, i.e., ~60-100% payouts, with healthy banks at the top of that range and a higher overall average. At the margin, we expect higher capital returns, as banks are starting from a better place with more capital and steadily declining legacy asset issues.

Assumptions for Severely Adverse Scenario Similar to Last Year This year’s assumptions (for the severely adverse scenario) are largely in-line with last year’s assumptions of a 1 year GDP decline of ~5%, housing index decline of ~12-20%, 11.9% unemployment, and a 40+% drop in equity prices. The severely stressed scenario assumes a deep recession and high unemployment rate, slowdown in economic activity (including a more severe outlook for Asia and the Euro area vs. last year), a 2H 2008-like market shock and the hypothetical failure of a large, interconnected globally active financial institution.

Recently Issued Stress Test Instructions Acknowledge Improvement Most important, banks will get one chance to make a downward adjustment to their planned capital distributions before the Fed makes a final decision (a mulligan reduces the likelihood of any bank not being approved). Also, we take it as a positive sign that the release acknowledged the 19 banks almost doubled their aggregate Tier 1 common capital since 1Q09. With combined consensus earnings estimates for the group (ex-Ally) at ~$111bn for 2013 and ~$118bn for 2014, that progress is expected to continue.

We Anticipate Incrementally More Capital Returns in 2013 For the 19 banks, we expect dividend yields to rise ~70bps to 2.4% (top quartile S&P 500 yield is >~3.1%) and for share repurchases to average 3.8% of shares outstanding. The biggest incremental changes in total payout are at Citi, where we think it may have a modest increase in the dividend and share repurchases of ~$3.5bn and at BAC, where we anticipate an increase in the dividend and modest share repurchases (~$1.8bn). At the top of the list, we expect STT and NTRS to have 100% payout ratios for 2013, and for NTRS’s share repurchases to more than double versus last year. Largest buybacks as a percentage of shares outstanding could be at JPM, DFS & STT at ~7%-8%.

Research analysts

Americas Brokers & Asset Managers

Glenn Schorr, CFA - NSI [email protected] +1 212 298 4074

Kevin Mixon, CPA, CFA - NSI [email protected] +1 212 298 4164

Keith Murray - NSI [email protected] +1 212 298 4257

Kaimon Chung, CFA - NSI [email protected] +1 212 667 1575

Americas Consumer Finance

Bill Carcache, CFA, CPA - NSI [email protected] +1 212 298 4117

Tulu Yunus, CPA - NSI [email protected] +1 212 298 4823

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.

Nomura | U.S. Banks and Brokers November 15, 2012

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Fed Maintains the Bar for Capital Returns The Fed released the new CCAR instructions and related scenario assumptions for banks with more than $50bn in assets. The severely adverse scenario assumptions are largely in-line with last year. Bottom line, given similar stress testing assumptions, we think an incrementally positive outcome this year would be a baseline expectation, i.e., ~60-100% payouts, with healthy banks at the top of that range. At the margin, we expect higher capital returns on average as banks are starting from a better place with more capital and steadily declining legacy asset issues. This year’s assumption (for the severely adverse scenario) are largely in-line with last year’s assumptions of a 1 year GDP decline of ~5%, housing index decline of ~12-20%, 11.9% unemployment, and a 40+% drop in equity prices (See Figure 1). The severely stressed scenario assumes a deep recession and high unemployment rate, incorporates a global slowdown in economic activity (reflecting the situation in Europe), and a 2H2008-type market shock. We expect the greater differentiation in the CCAR process among banks with higher absolute capital levels to continue and perhaps expand this year. However, we think it is unlikely we will see any approved capital plans exceed the 100% total payout level (despite some banks running excessively high capital ratios, STT and NTRS for example). See Figure 1 and 2 for the CCAR’s current and prior-years’ high level assumptions utilized in forecasting a stressed environment to evaluate bank capital adequacy. Fig. 1: Current and Prior-Years’ Supervisory Stress Scenario – Select Assumptions

1 - Percent change over the four quarters ending in the fourth quarter of the year indicated. 2 - Level in the fourth quarter

Source: Federal Reserve: Comprehensive Capital Analysis and Review: Objective and Overview 2011 and 2012, Nomura research Note: current year assumptions used are for “severely” adverse scenario

Fig. 2: Supervisory Stress Test Scenario (Severely Adverse) – Select Variables

Source: Federal Reserve and Nomura research

Some Tid Bits from This Year’s Release

See below for some excerpts we found interesting from this year’s release, including the main qualitative difference as well as some considerations related to trading positions.

Stress Test Scenario Forecast Year

CCAR Testing Year 2010 2011 2012 2010 2011 2012 2010 2011 2012

Real GDP1 ‐1.5% ‐5.0% ‐4.8% 2.4% 2.2% 2.2% 3.4% 4.2% 4.4%

Unemployment Rate2 11.0% 12.8% 11.9% 10.6% 12.8% 11.9% 9.6% 11.7% 11.1%

National House Price Index1 ‐6.2% ‐11.9% ‐11.9% ‐4.1% ‐8.9% ‐8.9% 2.7% 1.7% 1.7%

Equity Price Index1 ‐27.8% ‐40.3% ‐40.3% 36.9% 34.4% 34.4% 15.9% 57.6% 57.6%

T+3T+2T+1

OBS

Real GDP

growth

Nominal

GDP

Real

disposable

income

growth

Nominal

disposable

income

growth

Unemployment

Rate

CPI

inflation

rate

3‐month

Treasury

yield

10‐year

Treasury

yield

BBB

corporate

yield

Dow Jones

Total Stock

Market

Index

Market

Volatility

Index (VIX)

House

Price Index

Commercial

Real Estate

Price Index

Euro Area

Real GDP

Growth

Q42012 (3.50) ‐ (3.80) (2.30) 8.90 1.80 0.10 1.40 5.60 12,105 72.10 141.60 195.80 (8.70)

Q12013 (6.10) (4.70) (6.70) (5.90) 10.00 1.40 0.10 1.20 6.40 9,653 76.60 137.90 185.80 (6.80)

Q22013 (4.40) (3.30) (4.60) (4.00) 10.70 1.10 0.10 1.20 6.70 9,033 76.40 133.60 178.20 (4.30)

Q32013 (4.20) (3.60) (3.20) (2.80) 11.50 1.00 0.10 1.20 6.80 7,269 79.40 129.00 171.80 (2.30)

Q42013 (1.20) (1.20) (1.50) (1.80) 11.90 0.30 0.10 1.20 6.50 7,222 71.70 124.70 163.10 (0.80)

Q12014 ‐ 0.30 0.80 1.20 12.00 1.00 0.10 1.20 6.20 7,749 70.60 120.60 160.40 0.40

Q22014 2.20 2.20 0.90 1.30 12.10 0.90 0.10 1.50 6.20 8,134 64.50 117.20 158.80 1.20

Q32014 2.60 2.40 2.50 2.70 12.00 0.70 0.10 1.70 6.00 9,026 58.60 115.00 156.30 1.70

Q42014 3.80 3.50 2.80 2.90 11.90 0.60 0.10 1.90 5.90 9,707 53.00 113.60 157.60 2.00

Q12015 4.20 3.80 3.60 3.60 11.70 0.50 0.10 2.00 5.80 10,211 50.10 113.20 157.10 2.00

Q22015 4.10 3.70 3.70 3.60 11.50 0.50 0.10 2.10 5.80 12,646 40.90 113.60 157.40 2.00

Q32015 4.60 4.10 3.40 3.10 11.40 0.30 0.10 2.20 5.60 13,854 26.30 114.40 162.70 2.00

Q42015 4.60 4.00 3.10 2.80 11.10 0.30 0.10 2.20 5.40 15,295 17.10 115.50 166.00 2.00


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“The severely adverse scenario is similar to the 2012 CCAR supervisory stress scenario, which was released in November 2011. The main qualitative difference between this year’s supervisory severely adverse scenario and last year’s supervisory stress scenario is a much more substantial slowdown in developing Asia.”

“The Board also expects to rely less on market events of the second half of 2008 and more on hypothetical events or other historical episodes to develop the market shock, particularly as the bank holding company’s portfolio changes over time and a different combination of events would better capture material risk in bank holding company’s portfolio in the given year.”

“While the market shocks based on the second half of 2008 are of unparalleled magnitude, the shocks may become less relevant over time as the companies’ trading positions change. In addition, more recent events could highlight the companies’ vulnerability to certain market events. For example, in 2011, Eurozone credit spreads in the sovereign and financial sectors surpassed those observed during the second half of 2008, necessitating the modification of the stress scenario for the CCAR 2012 to reflect a salient source of stress to trading positions. As a result, it is important to incorporate both historical and hypothetical outcomes in market shocks for the severely adverse scenario. For the time being, the development of market shocks in the severely adverse scenario will begin with the risk factor movements in the particular historical period, such as the second half of 2008. The Board will then consider hypothetical but plausible outcomes, based on financial stability reports, supervisory information, and internal and external assessments of market risks and potential flash points.”

“… a scenario involving the failure of a large, interconnected globally active financial institution could begin with a sharp increase in credit default swaps spreads and a precipitous decline in asset prices across multiple markets, as investors become more risk averse and market liquidity evaporates.”

Banks Are Starting From a Better Place in 2012

Not only is the economy exhibiting some silent strength compared to last year, the banks themselves are better positioned to handle the impacts of the Fed’s stress testing. RF and BAC have made the most significant progress versus last year, increasing their B1 T1C buffer to the 5% minimum by more than 150 bps each versus last year. The vast majority of banks have built even more capital buffers this year (see Figure 3 and 4) and given that even under the similar assumption used in last year’s test only three banks fell below the Fed’s 5% minimum, we are rationally optimistic this year may result in incrementally higher capital returns. Figure 6 shows the minimum stressed Tier 1 common ratio reached during the stress test last year, including proposed dividends and buybacks by each company. Citi, SunTrust, and Ally were the three banks that fell short of the Fed’s 5% minimum target in the prior year. But keep in mind, every bank with the exception of Ally remained above the 5% minimum threshold, before accounting for their planned capital returns (See Figure 5).


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Fig. 3: Basel I Tier 1 Common Buffer Above the 5% Min (T1C Ratio in excess of 5% minimum)

Source: SNL Financial, Nomura research

Fig. 4: Who’s Ratios Increased the Most? 3Q12 vs 4Q11 Change in T1C Buffer to Minimum

Source: SNL Financial, Nomura research

Fig. 5: 2011 CCAR: Stressed Tier 1 Common Capital Ratio (Minimum During Stress Period, Without Planned Capital Returns)

Source: Fed Stress Test, Nomura research

Fig. 6: CCAR: Stressed Tier 1 Common Capital Ratio (Minimum During Stress Period, Including Planned Capital Returns)

Source: Fed Stress Test, Nomura research

The Glide-path to Basel III Compliance Looks Turbulence Free

Even with the recently announced G-SIB buffers by the FSB, the path to Basel III compliance seems relatively clear with a majority already reporting Basel III Tier 1 common ratios above the total requirement (See Figure 7). The new G-SIB buffers could also make the path a bit easier with BAC, GS, and MS coming in at 50 bps less punitive than expected (at 150bps) and only BK was a little worse than expected (also at 150bps vs. STT at 100)—likely due to BK’s significant share in tri-party repo and US Treasury clearing. Although in the case of BAC, we aren’t totally clear if the Fed may not still hold the bank to a higher standard (given their size and scope in the U.S. market). Based on 3Q12 reported B3T1C ratios, only Citi and JPM reported a shortfall to the total requirement (including G-SIB buffer), but each shortfall represented less than a single year’s consensus earnings (2013). With many years left until the requirements are fully phased in, we see few issues with the Basel III glide-path for the big banks and brokers. Keep in mind, the as-reported Basel III ratios in our figure below are not all apples-to-apples with varying assumptions on model approval, etc included in the reported ratios. We do note that JPM looks a bit more ordinary this year compared to its reigning Basel III positioning last year, reporting the largest shortfall to total required B3T1C this year. (In 2011, JPM’s 3Q11 B3T1C ratio was ~60 bps higher than Citi and ~180 bps higher than BAC).

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

STT MS BK GS AXP C BAC KEY COF RF JPM WFC STI FITB BBT PNC USB

T1C Buf ferDelta % Calc 2011Q4

T1C Buf ferDelta % Calc 2012Q3

-100 bps

-50 bps

bps

50 bps

100 bps

150 bps

200 bps

250 bps

RF BAC COF GS STT C MS WFC STI USB AXP JPM FITB KEY BK BBT PNC

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

STT

BK

AXP

FITB

USB

BBT

WFC

PNC

JPM

KEY

COF C

GS RF

BAC

STI

MS

MET

Ally

Stressed

Tier 1 Co

mmon

Ratio

5% minimum

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

BK

STT

AXP

COF

RF

BBT

FITB

WFC

BAC

PNC

GS

JPM

MS

USB KEY

MET C

STI

Ally

Stressed Tier 1 Common Ratio

5% minimum allowed


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Fig. 7: Reported vs Required Tier 1 Common Citigroup and JPM reported Basel III T1C ratio falls below the required T1C + G-SIB buffer ratio

Source: Company data, FactSet, Nomura research

We Anticipate Incremental Improvement in Capital Returns in 2013 We have developed some expectations, based on consensus 2013 earnings estimates, and assume the Federal Reserve continues to allow differentiation between banks based on strength and capital levels. Keeping in mind that risk management track record and earnings power both play a meaningful part of the capital return approval process (it isn’t all just about the capital ratios). All in, we expect total payouts to generally fall in the range of 60-100%, with the healthier and better capitalized banks falling at the higher end of the range (more of them this year). At BAC and Citi, we expect capital return requests to increase, given the improvement in capital ratios at both in the past year, as well as improving credit and better positioning in legacy assets (more rep & warranty reserves, more progress in mortgage litigation, and further wind-down of Holding at Citi). At BAC, we anticipate an increase in the dividend (1.7% dividend yield) and modest share repurchases (~$1.8bn); while at Citi, we think it may have a modest increase in the dividend (2.0% dividend yield) and share repurchases of ~$3.5bn (bringing our expected total payout ratios to 30% and 40% for BAC and Citi, respectively). We also expect a sizable increase in share repurchases at NTRS, given its high capital position (we estimate more than double last year, increasing to share repurchases of ~4.3% of shares out). In Figure 8, we have calculated implied share repurchases based on a total payout and dividend payout ratio assumptions. The results yield mild incremental increases in capital returns for 2012 with the most dramatic increases occurring at BAC, Citi, and NTRS. Under our assumptions STT and JPM, as you can see in Figure 10, have among the largest potential share repurchases on a gross basis (meaning pre-employee stock grants) with the capacity to buy back 8% and 7%, respectively, of shares outstanding.

Company

Minimum plus

Conservation

Buffer

G‐SIB

Buffer

Total

Required

T1C

RWA

($Bn)1 Reported

BIII T1C2 % $Bn

BAC 7.0% 1.5% 8.5% 1,501.0 9.0% 0.5% 7.0 11.2

C 7.0% 2.5% 9.5% 1,238.9 8.6% ‐0.9% (11.3) 13.9

JPM 7.0% 2.5% 9.5% 1,663.0 8.4% ‐1.1% (19.0) 20.3

GS 7.0% 1.5% 8.5% 729.0 8.5% 0.0% 0.0 6.5

MS 7.0% 1.5% 8.5% 319.2 9.0% 0.5% 1.6 3.9

BK 7.0% 1.5% 8.5% 151.7 9.3% 0.8% 1.2 2.7

STT 7.0% 1.0% 8.0% 72.1 11.3% 3.3% 2.4 2.0

(1) RWA for BAC, C, JPM, GS, and BK on Basel III basis. RWA for MS and STT on a Basel I basis.

(2) Basel III Tier 1 Common ratios as disclosed by company for 3Q12.

Consensus

FY2013E

Net Income

($Bn)

Excess (Shortfall)Tier 1 Common Capital (T1C)

Requirements

Reported Regulatory

Capital


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Fig. 8: Capital Return Scenario: 2013E Share Repurchase Detailed Calculation

Source: Nomura estimates

Note: Our estimates for MS’s total payout includes the impact of MSSB buy-in Fig. 9: Potential 2Q13 – 1Q14 (E) Gross Share Repurchases % of Outstanding

Source: Nomura estimates

A Look Back at Last Year’s Payout Shake Out Last year, when the CCAR results were announced, we tried to normalize each bank’s press release on capital returns into an expected 2012 payout ratio, as shown in Figure 10. For this we took a) the 1Q actual dividends, b) the announced increases in dividends in 2Q-4Q, and c) estimated buybacks in the remainder of 2012 (e.g., JPM said $15bn buyback with $12bn in 2012, some other banks just gave a total authorization or expected buybacks through 1Q13, in which case we made an assumption on how much would be in 2012). Our analysis shows that the average payout ratio for the sector was 45%, but perhaps more important, the top quartile was 75-100% as shown in Figure 10. Figure 11 translates these payout ratios to dividend yields and potential buybacks. Again, on average it is no great shakes – dividend yields of 1.6% with buybacks of 2.4% of market cap for total cash yields of 4.0%. That said, several banks had 2.5-3.0%

Net Income (E) YTD 2012 Div Payout Total Payout Implied Share Implied Share

Company 2Q13 ‐ 1Q14 Div Payout % % (E) % (E) Repurchases ($ mn) Repurchases (% shares out)

Big Banks, Broker & Trust

BAC 11,725 14% 15% 30% 1,759 1.7%

BK 2,743 26% 25% 85% 1,646 5.9%

C 13,983 1% 15% 40% 3,496 3.3%

GS 6,559 15% 15% 70% 3,607 6.5%

JPM 20,335 24% 25% 85% 12,201 7.9%

MS 4,429 NM 10% 35% 1,107 3.3%

NTRS 814 42% 40% 100% 488 4.3%

STT 2,054 23% 30% 100% 1,438 7.0%

Regionals & Card

AXP 5,138 18% 20% 90% 3,596 5.8%

BBT 2,179 30% 30% 40% 218 1.1%

COF 4,210 3% 10% 30% 842 2.5%

DFS 2,089 9% 20% 90% 1,462 7.0%

FITB 1,416 21% 25% 45% 283 2.2%

KEY 824 19% 25% 60% 288 3.7%

PNC 3,576 28% 30% 40% 358 1.2%

RF 1,098 6% 10% 20% 110 1.2%

STI 1,514 5% 15% 25% 151 1.1%

USB 5,717 28% 30% 75% 2,573 4.3%

WFC 19,313 27% 30% 50% 3,863 2.3%

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6.0%

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9.0%

JPM DFS STT GS BK AXP NTRS USB KEY MS C COF WFC FITB BAC RF PNC BBT STI


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dividend yields (JPM, WFC, PNC, BBT) and several banks were able to shrink their share count 4%+ (JPM, STT, AXP, USB, BK). Fig. 10: Est. Payout Ratios – Prior Year CCAR

Source: Company data, Nomura research.

Fig. 11: Est. Dividend and Buyback Yields – Prior Year CCARMCap = market cap

Source: Company data, Nomura research.

STT 23% 76% 100%

JPM 24% 67% 92%

CMA 24% 67% 91%

USB 27% 49% 75%

AXP* 19% 56% 75%

BK 24% 43% 67%

NTRS 40% 27% 67%

KEY 24% 38% 62%

HBAN 27% 29% 56%

DFS 11% 44% 55%

GS* 11% 36% 47%

WFC* 27% 17% 45%

FITB* 22% 20% 42%

PNC* 30% 8% 37%

BBT 30% 0% 30%

STI 12% 0% 12%

MS* 11% 0% 11%

RF 8% 0% 8%

BAC 5% 0% 5%

COF 3% 0% 3%

ZION 3% 0% 3%

C 1% 0% 1%

Avg 18% 26% 45%

*Nomura estimate

Dividend

Payout

Buyback

Payout

Total

Payout2012E 2012E

Dividend

Yield % MCap

Buyback

Payout % MCap

Total

Payout % MCap

JPM 2.6% 7.1% 9.7%

STT 2.0% 6.6% 8.6%

CMA 1.7% 4.7% 6.4%

DFS 1.2% 5.2% 6.4%

USB 2.3% 4.1% 6.4%

BK 2.2% 4.0% 6.2%

KEY 2.2% 3.5% 5.6%

AXP* 1.4% 4.0% 5.4%

HBAN 2.5% 2.7% 5.2%

GS* 1.1% 3.7% 4.8%

WFC* 2.6% 1.7% 4.3%

FITB* 2.3% 2.0% 4.3%

NTRS 2.5% 1.7% 4.2%

PNC* 3.0% 0.8% 3.7%

BBT 2.5% 0.0% 2.5%

MS* 1.0% 0.0% 1.0%

STI 0.8% 0.0% 0.8%

RF 0.6% 0.0% 0.6%

BAC 0.4% 0.0% 0.4%

COF 0.4% 0.0% 0.4%

ZION 0.2% 0.0% 0.2%

C 0.1% 0.0% 0.1%

Avg 1.6% 2.4% 4.0%

*Nomura estimate


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Appendix A-1

Analyst Certification

We, Glenn Schorr and Bill Carcache, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures The term "Nomura Group Company" used herein refers to Nomura Holdings, Inc. or any affiliate or subsidiary of Nomura Holdings, Inc. Nomura Group Companies involved in the production of Research are detailed in the disclaimer below.

Issuer name Ticker Price Price date

Stock rating Sector rating Disclosures

American Express Company AXP US USD 53.64 15-Nov-2012 Buy Not rated A1,A2,A13

Bank of America BAC US USD 9.10 15-Nov-2012 Neutral Not rated A1,A2,A3,A4,A5,A6,A13

Bank of New York Mellon BK US USD 23.57 15-Nov-2012 Neutral Not rated A1,A2,A4,A5,A6

Citigroup C US USD 35.21 15-Nov-2012 Buy Not rated A1,A2,A3,A4,A5,A6,A7,A13,A22

Capital One Financial Corp. COF US USD 54.77 15-Nov-2012 Neutral Not rated A13

Discover Financial Services DFS US USD 38.34 15-Nov-2012 Buy Not rated

Goldman Sachs GS US USD 115.44 15-Nov-2012 Buy Not rated A1,A2,A3,A6,A13

JPMorgan Chase JPM US USD 39.39 15-Nov-2012 Buy Not rated A1,A2,A3,A5,A13

Morgan Stanley MS US USD 16.26 15-Nov-2012 Neutral Not rated A1,A2,A3,A13,B5

Northern Trust NTRS US USD 46.52 15-Nov-2012 Neutral Not rated A1,A2,A3

State Street STT US USD 44.14 15-Nov-2012 Neutral Not rated A1,A2,A3

A1 Nomura Securities International, Inc has received compensation for non-investment banking products or services from the issuer in the past 12 months.

A2 Nomura Securities International, Inc had a non-investment banking securities related services client relationship with the issuer during the past 12 months.

A3 Nomura Securities International, Inc had a non-securities related services client relationship with the issuer during the past 12 months.

A4 A Nomura Group Company had an investment banking services client relationship with the issuer during the past 12 months.

A5 A Nomura Group Company has received compensation for investment banking services from the issuer in the past 12 months.

A6 A Nomura Group Company expects to receive or intends to seek compensation for investment banking services from the issuer in the next three months.

A7 A Nomura Group Company has managed or co-managed a publicly announced or 144A offering of the issuer's securities or related derivatives in the past 12 months.

A13 A Nomura Group Company has a significant financial interest (non-equity) in the issuer.

A22 A household member of an analyst who is involved in preparing the contents of strategy and quantitative research reports which may include recommendations on the issuer, holds a financial interest in equity securities of the issuer.

B5 An associate of the analyst responsible for the preparation of the contents of this report holds equity securities of the issuer pursuant to a 401k plan relating to prior employment.


9

Previous Rating Issuer name Previous Rating Date of change American Express Company Neutral 09-Jul-2012 Bank of America Not Rated 06-Oct-2010 Bank of New York Mellon Not Rated 06-Oct-2010 Citigroup Not Rated 06-Oct-2010 Capital One Financial Corp. Buy 09-Jul-2012 Discover Financial Services Neutral 24-Feb-2011 Goldman Sachs Not Rated 13-Apr-2010 JPMorgan Chase Not Rated 06-Oct-2010 Morgan Stanley Not Rated 13-Apr-2010 Northern Trust Not Rated 06-Oct-2010 State Street Not Rated 06-Oct-2010


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Important Disclosures Online availability of research and conflict-of-interest disclosures Nomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne. Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email [email protected] for help. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Any authors named in this report are research analysts unless otherwise indicated. Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear. Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarily responsible for marketing Nomura’s Equity Research product in the sector for which they have coverage. Marketing Analysts may also contribute to research reports in which their names appear and publish research on their sector. Distribution of ratings (Global) The distribution of all ratings published by Nomura Global Equity Research is as follows: 43% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 40% of companies with this rating are investment banking clients of the Nomura Group*. 45% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies with this rating are investment banking clients of the Nomura Group*. 12% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 22% of companies with this rating are investment banking clients of the Nomura Group*. As at 30 September 2012. *The Nomura Group as defined in the Disclaimer section at the end of this report. Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Target Price A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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NM-Fed Releases Stress Test Scenarios

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