Deutsche's Question Bank September 2010

Deutsche Bank has posed some key questions currently facing banks: 1. With NII/NIMs being pressured by continued declines in interest rates, how will banks increase/maintain revenues? 2. After being net sellers of securities in 2Q, the largest US banks have been net buyers of securities so far in 3Q, despite a further decline in rates. Why are banks buying securities now? 3. BBT recently pulled a large portfolio of distressed loans from the sales market. What drove this decision and will this have read-throughs for other banks' ability to sell NPAs? 4. With recent signs of some weakening in the economy, will this increase the amount of DTA that is excluded from regulatory/GAAP capital (after seeing declines at some banks in 2Q)? 5. CMA recently announced it will redeem all of its $500M of TruPs at par. Should we expect similar moves from other banks? (Note that the largest 17 US banks have over $100B of TruPs outstanding). 6. Given improved capital/reserves at many banks and an outlook for a continued sluggish revenue environment, a number of banks believe M&A will pick up soon. 7. Mortgage rates have declined about 25bps since 6/30 and refinancing application activity has increased meaningfully. Given this how will prepayments effect reinvestment risk in banks' securities portfolios? Deutsche Bank's current ratings for these banks: Bank of America BAC,USD13.50 Hold BB&T BBT,USD23.56 Hold Citigroup C,USD3.91 Buy Comerica CMA,USD36.93 Hold First Horizon FHN,USD10.60 Hold Fifth Third FITB,USD11.92 Hold Huntington HBAN,USD5.73 Hold JPMorgan Chase JPM,USD39.17 Buy KeyCorp KEY,USD8.03 Hold Marshall & Ilsley MI,USD7.07 Hold M&T Bank MTB,USD88.93 Hold PNC PNC,USD54.93 Buy Regions Financial RF,USD6.89 Hold SunTrust STI,USD24.18 Buy TCF Financial TCB,USD15.52 Hold US Bancorp USB,USD22.67 Hold Wells Fargo WFC,USD25.84 Buy Zions ZION,USD20.36 Hold