TheChek News Flow

In this note we are cutting our earnings estimates by 6-7% for ISP and 10-

12% for UCG in 2016-17 as we incorporate lower interest rates, an increasingly

competitive environment and, in the case of UCG, lower currencies, the Polish

levy and generally more conservative Turkish, Polish and Russian earnings.

We expect a rather weak set of Q4 results, with the quarter impacted by the

contribution to the bail out of the 4 small banks (€380n for ISP, €200mn for

UCG), seasonally higher costs and provisions and, in the case of UCG the c.

€200mn loss on the sale of Ukraine, c. €0.8bn of restructuring charges and the

unwinding of the Austrian pension funds (capital neutral).

■ We maintain our Outperform stance on ISP - with a new TP of €3.3/sh

(from €3.7/sh) we are still expecting the bank to overdeliver on its dividend

commitments for the year (we estimate €2.5bn payment (€0.15 DPS) vs. the

€2bn (€0.12 DPS) commitment) and maintain a 12.5-12.8% FL CET 1 ratio.

Earnings wise, we remain below management's guidance on fees (5%YoY

in 2016 vs. double digit guidance), assume NII declines for 2016E (-1%YoY)

and incorporate no additional cost efforts into 2016-17E (+2% CAGR) – with

the gradual reduction of LLPs (to 65bps from 85bps in 2015) standing as the

main driver of improving profitability levels (9% in 2016 from 8% in 2015).

■ On UCG, we maintain our Neutral stance - We see the bank's valuation

penalized by the comparatively lower FL CET 1 levels (10.5% as of Q3), the

volatility of its CEE exposures and by management's lack of credibility in the

market. We await for signs of "execution" and delivery of the business plan

targets, but do not anticipate anything tangible before Q1 results (10th of

May). Our new TP of €4.6/sh (from €5.8/sh) is based on the capital adjusted

RoTBV levels (7.2% in 2017E) and incorporates a capital shortfall of €2.7bn

(€0.45/sh) which is partly offset by the dividend forecasts for 2015-16

(€0.26/sh). Earnings wise, our numbers stand c. €1bn below 2018's targets

(on lower revenues) – with a stable NII, 6%YoY fee growth and with the

gradual implementation of cost strategies (-3%YoY in 2016E) and LLP

declines (from 76bps in 15E to 67 in 16E) explaining most of the profitability

uplift (from 5% to 6% in 2016E).