Chart 46: What do you consider to be the most important catalyst for USB in 2017?
50% 45% 40% 35% 30% 29% 20% 15% 10%
5%
0%
Sustained operating Further acceleration of Using excess capital Rising interest rates
and strong currency to engage in non- depository deals
leverage, regardless of rate backdrop
capital return
Source: BofA Merrill Lynch Global Research
ele Fargo & Co (WFC), B-1-7, Buy
Chart 47: Based on your post-election outlook for 2017, how do you think WFC will perform against this 2 year target?
WFC sees modestly better benefit from steepening yield curve vs parallel shift. Following the election, the 10yr yield is up 37bp while futures currently imply a 94% probability the Fed raises rates in Dec. As such, Treasurer Neal Blinde noted that WFC could realize a modestly better benefit to spread income from a steepening yield curve vs. the current +$150mn/qtr expectation from a 25bp parallel shift. He outlined how the bank’s actions to manage an interest rate cycle via balance sheet positioning protect on the downside (i.e. post-Brexit) while at the same time allow for an uptick when rates rise. WFC received numerous investor questions on when they would deploy its dry power ($572bn in liquidity), and management noted that the rate backdrop — not question marks on deposit duration — mostly drove deployment decisions.
WFC reiterated its performance targets disclosed at its Investor Day. WFC reiterated its 2-yr performance targets: (1) 1.1-1.4% ROA; (2) 11-14% ROE; (3) 55- 59% efficiency ratio; and (4) 55-75% net capital payout. As of 3Q16, the bank is currently within these ranges on all metrics except for efficiency (3Q: 59.4%). This is consistent with the 61% of the audience polled that expect WFC to perform within the targeted ROE range as headwinds from Retail Banking is offset by an improvement in the macro-economy. That said, 50% of the audience polled believe the issues arising from the retail sales issue will modestly impact earnings (0-5%).
practices issue?
Chart 48: What do you think is the earnings impact of the retail sales
10% 61% 60% ada 50% 50% an 40% 30% 30% 20% 20% 10% ; 0% 10%
Outperform the Perform within the | Underperform the 0%
range, given likely range, as lower —_ range, as consensus higher interest rates contribution from the in underestimating
Meaningful, at over Modest, between 0- Community Bank
5% of EPS, given lost 5% of EPS earnings will be offset
than expected and Community Bank will the earnings impact revenues and higher by the rest of the less headwind from mitigate a stronger from the retail sales operating and firm, resulting in no regulation macro backdrop practices issues. marketing costs impact to EPS power Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research 32 2016 Future of Financials Conference | 17 November 2016 Bankof America 2 Merrill Lynch
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