23 August 2013 US Equity Insights 3 reasons not to fear a 3%+ 10yr yield Interest expense is relatively small and likely overpowered by pension swings I figure 1. S&P ex-financials net debt/market cap at 14% is considerably lower than historical levels 70% r 70% ■ 0096 5016 • 50% 40% k 40% 30% 30% 20% 20% 10% 0% 0% Recession Met Debt/ Market Cap Sas Owlish* Sorg Figure 2: Share of long•tenn debt (>1ylat S&P ex. financials has increased to 25% from 75% in 2003 80%-1 E X in P 80% 85% w' W 75% 70% 55% 90% 85% 80% 75% 1.500 70% 85% 0016 4 . • • - . . . . . . . . • . • 60% g§ggreiii§§i1§§§rgiERI "g g Recession cleW Total OMR Sara Dame.* Earl Figure 4: S&P ex-financial interest expense/sates at 1.5% is the lowest level since 1970 100.000 4.0% 1403.000 3.5% 120000 3.0% 100.000 r:np 2.5% 50.000 2.0% 00.000 40.000 ga§g gAggligiE S ----- intent Expense -LTA Ma Wm) im est Ex pense/Sales (MO San Drustro Sant Page 2 1.5% 1.0% 1.000 - .•-•" 500 o Cement Ott San' Drab& tett EPS hit from higher interest rates is likely to be very small end should be overpowered by pension swings. If we assume that 15% of the $2.8 trillion in long-term debt rolls to a rate 100bp higher the hit to 2014 S&P EPS would be -$0.25. Pension expense is likely to fall by more and a 100bps increase in long-term rates should eliminate pension deficits Figure 3: S&P ex-financial cash, current and long-term debt (S millions) 3.000 - 3.000 2.500 4 2.500 2.000 1 2.000 1.500 1,000 500 0 Long Tom Debt -- Cash Figure 5: 10-15 year IG corporate bond yield is up 100bp from 1O13 end but still below 2011 end. MIRNIAIIMILWAR —IC (10-15 years) Corporate — 1Oy Teasuy Sane art al4nvu IlAvntiLytx, Drum A* eat 100 8.0 80 4.0 20 0.0 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0 104779 SDNY_GM_00250963 EFTA01449387