From: Richard Kahn

From: Richard Kahn To: Jeffrey Epstein <[email protected]> Subject: Fwd: Bank of America: Lower Rates, But Even Lower Expenses Date: Tue, 19 Jul 2016 10:04:05 +0000 Sent from my iPhone Begin forwarded message: From: "Morgan Stanley" <I Date: July 19, 2016 at 12:18:17 AM EDT To: Subject: Bank of America: Lower Rates, But Even Lower Expenses Reply-To: WEALTH MANAGEMENT Subscription Notification: July 19 Bank of America: Lower Rates, But Even Lower Expenses Betsy L. Graseck, CFA — Morgan Stanley July 19, 2016 4:01 AM GMT Yes, BAC is the most rate sensitive name in our group, but we have been highlighting it has the most flexibility to bring down expenses. Management confirmed our view today, guiding to 2018 expenses of $53B, well below our $56.5B estimate. We see 20% price upside + multiple expansion as BAC executes. Management highlighted more expense saves to comeBAC has underperformed the group every time rate expectations have gone down, but the stock has not been getting credit for the flexibility on the expense sideThis was BAC's 5th straight quarter where core expenses were below $13B... and what's more is that expenses can go even lower - management highlighted they can go as low as $53B all in by 2018 vs. $56B today, even as fees grow modestly, investment spend continues and merit/healthcare increases are accounted forWhat's driving these cost saves? Branch consolidation, headcount EFTA00823716 reduction, lower occupancy costs, electronification and technology efficiencies, and the ongoing grind down in legacy asset servicing costs What's in our numbers?While we were baking some of this in, we were previously only keeping expenses flat at $56.5B by 2018Baking in today's expense guidance alone would take our 2018 EPS up 23c or 12%, but we are partially offsetting this benefit with lower NIM and lower fees. We are also keeping our 2018 expenses at $53.5B, above management's guidance of $53B.On NII, we are baking in the forward curve (no short end hikes through 2017, long end rates go to 1.70% by 4Q17), coupled with 3-5% loan growth. We take core NIM down 6bps to 2.18% next quarter, and keep it flat through year end 2017, growing to 2.25% in 2018.This takes our expense ratio (all-in) to 58% in 2018 vs. 65% todayExpect our EPS can rise as BAC shows that it can execute on its $53B expense target, and/or if a rate rise is back on the table. Both these scenarios can also drive multiples higher.Today's guidance gives us more confidence in our forward EPSBiggest risk to our BAC call was lower I Click here to see the full report. This alert is sent from: Andrew Atlas, You received this because you asked to be alerted to: BANK OF AMERICA CORPORATION Please contact your FA if you want to unsubscribe from the alerts. Disclosures: Please see the full report for risks, disclosures and other important information. Important disclosures regarding the relationship between the companies that are referenced in Morgan Stanley research and Morgan Stanley Wealth Management research are available on the Morgan Stanley Wealth Management disclosure website at https://www.morganstanley.corn/online/researchdisclosures. Morgan Stanley Wealth Management Not Acting as Municipal Advisor Morgan Stanley Wealth Management is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the Securities Exchange Act (the "Municipal Advisor Rule") and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule. Copyright The copyright in materials provided by Morgan Stanley is owned by Morgan Stanley & Co. LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. O 2016 Morgan Stanley Smith Barney LLC. Member SIPC. EFTA00823717 I2 21 EFTA00823718