Earnings Per Share ($) P/E (x) %Chg.

L/Term
Year End Dec 2010A 2011E 2012E 11E 12E 12/11 Grth. Rate(%)
KBW (Curr.) 0.73 (0.23) 1.35 (28.3) 4.8 (686.96) 5.0
KBW (Prev.) (686.96) 5.0
FC (Cons.) (0.24) 1.52 27.1 4.3 533.33 12.8
2010 2011 2012
NIM 2.78% 2.59% 2.70%
Fees/Total Rev. 50.9% 46.3% 54.8%
Efficiency Ratio 64.1% 87.1% 66.4%
NCOs/Avg. Loans 3.58% 2.46% 2.11%
ROA (0.15)% (0.15)% 0.61%
ROE (%) (1.5) (1.5) 6.0
Quarterly Earnings Per Share ($)
Q1 Q2 Q3 Q4 YR
2010A 0.27 0.23 0.25 (0.01) 0.73
2011E 0.15a (0.77)a 0.20 0.20 (0.23)
2012E 1.35
2013E 2.00
Historical and forecasted EPS exclude certain one time in nature items.
s
We expect the call to focus on capital, capital planning, potential CCB sale,
servicing settlement, Europe, the $8.5 billion private label settlement, rep and
warranty costs, ultimate single family and HELOC losses, the timing of
higher rates and NIM expansion.
s
Contrary to what the market is now expecting in our opinion, we believe the
most likely outcome is that BAC will not have to raise capital, but believe
management will be reticent to reveal its specific capital plan on tomorrow's
call.
s
We believe that the key $8.5 billion private label settlement on $422 billion of
originations (60% of CFC's originations) is at serious risk of unraveling -- but
believe the BAC will also have a hard time addressing due to its legal and
uncertain nature.
s
We remain on the sidelines for the time being, despite the intriguing
valuation, as we are concerned that economic and legal headwinds could
continue to hold the shares down.
s
Due to the increased chances of recession and concern over the $8.5 billion
settlement breaking apart, we are lowering our price target to $10 from
$11.50. Our $10 target is 80% of tangible book, below peers, but deservedly
so in our opinion due to the aforementioned risks.
Large Cap Banks
August 9, 2011
Bank of America Corp.
(BAC, $6.51, Market Perform, Target: $10.00)
Fairholme Call: What Investors Want to Hear, but BAC Probably Can't
Talk About
Event--Bruce Berkowitz and Fairholme are hosting a call with BAC CEO Brian
Moynihan tomorrow at 1:00 pm to defend Fairholme's position in the stock. The
unusual call is designed for Mr. Moynihan to allay investors' fears of credit and
capital, but it could be difficult since BAC cannot know the ultimate losses or
reveal its specific capital plan, in our opinion.
Analysis of Sales/Earnings
Price Target Change
Jefferson Harralson, CFA
404-231-6540
jharralson@kbw.com
Brady Gailey, CFA
404-231-6546
bgailey@kbw.com
Stephen Scouten
404-231-6547
sscouten@kbw.com
Market Price: $6.51
Target Price: $10.00
Proj. Total Return: 54.2%
52 Wk. Range $15.31-$6.31
Yield: 0.61%
Shr.O/S-Diluted (mm): 10,095.0
Insider Ownership: 0.4%
Market Cap: 65.7Bn
Book Value/Share: $20.29
Tangible BookValue/Share: $12.65
Tang. Equity/Assets: 5.9%
Tier 1 Common Ratio: 8.2%
Q2 Q3 Q1 Q2 Q3
3
6
9
12
15
18
2011
1 Year Price History for BAC
Created by BlueMatrix
Company Description:
Bank of America is one of the world's
largest financial institutions, serving
individual consumers, small and
middle market businesses, and large
corporations. The company serves
more than 53 million consumer and
small business relationships.
Industry Opinion:
Despite expectations for improving
credit costs, we believe the BKX is
trading near fair value. Given current
valuations coupled with the
challenging prospects for revenue
growth, we recommend investors be
market weight large-cap banks.
Please refer to important disclosures and analyst certification information on pages 7 - 10.
Risk
The economy is our chief risk as BAC's consumer-laden book is affected by the
unemployment rate. BAC has largely addressed its capital needs, but regulatory risks
still exist for BAC. Finally, financial regulation continues to evolve, which could
significantly alter our forward estimates and resulting price target.
1. Investors Want to Know Bank of America's Capital Plan - But Management
Probably Has to Keep Its Cards Close to the Vest for a Few Reasons.
s
BAC does not want to quantify exactly how much excess capital it has, because it
could ultimately limit their options in the future if losses occur.
s
With the potential for a recessionary economy, loan losses are harder to estimate
and a capital raise is more likely than before - but still an unknown -- making
capital planning more difficult to discuss in our opinion.
s
In our opinion, the capital plan almost definitely includes the sale of China
Construction Bank -- but BAC does not want to front run its $15 billion sale (down
19% since June 30), so we believe BAC will be limited in its discussion here.
We think BAC has enough capital. Here is how we get there:
1. BAC's current TCE and T1C ratios are 5.87% and 8.23%, respectively -- In dollar
terms, we believe this represents more than $20 billion of capital cushion.
s
The servicing settlement could take up $3 to $5 billion of this cushion,
s
However, BAC also makes $2.5 to $3.0 billion per quarter (ramping up to $5.0
billion over time).
2. Basel 3 --BAC is well above current minimums and grows faster than the Basel 3
ramp.
3. While BAC did not give guidance on its pro forma Basel 3 Tier 1 Common capital,
we estimate that its around $85 to $90 billion or roughly 4.9% of mitigated
risk-weighted assets under Basel 3 of $1.8 trillion.
BAC has given guidance that it believes it will reach a 6.75% to 7.00% Basel 3 Tier 1
Common ratio six quarters from now, or by the end of 2012. In dollar terms, this is
roughly a $120-$125 billion target -- $30 to $40 billion higher than today. How does
BAC add $30 to $40 billion in capital in six quarters? Importantly, BAC Needs to
Monetize Some Assets to Reach Its Goals
1. We believe BAC will earn $20 billion in net income over the next six quarters.
2. The $20 billion in net income monetizes about $10 billion of DTA that is currently
being excluded from the calculations.
3. Plus, monetization of up to $20 billion in Basel 3 threshold exclusions
s
The deferred tax asset (DTA), China Construction Bank (CCB) investment and
mortgage servicing rights (MSR) in combination can only contribute 15% of
core tier one common or individually can only contribute 10% of core tier one
common. Putting math to that, these three can only contribute about $17 billion.
Currently, these three combine to about $37 billion, by our estimate, taking
about $20 billion out of the Basel 3 numerator.
s
Importantly, BAC has several levers to pull to get this $20 billion back into
capital.
s
A CCB sale would monetize about $15.0 billion of investments into capital and
BAC could also sell some of its $12.4 billion in MSRs to help monetize assets.
s
All said, BAC should be able to generate the $20 billion in one form or another
with optimization of its DTA, CCB (BAC call sell on August 28
th
) or MSR
sales.
4. Servicing settlement is an unknown but we are estimating $3 to $5 billion after
Please refer to important disclosures and analyst certification information on pages 7 - 10. 2
August 9, 2011
BAC, Fairholme Call: What Investors Want to Hear, but BAC Probably Can't Talk About
tax capital impact.
s
We estimate that BAC will be responsible for 25% to 40% of the ultimate fine
amount. We do believe that a portion of the fine will most likely be tax
deductible, as RF's recent regulatory fines had a 20% tax rate.
5. Rep and Warranty Settlements - the current $8.5 billion settlement is in our capital
estimates. There is fear that the settlement could break apart leaving BAC open to
significantly higher costs (we explore this later in the note). Still, if the potential
settlement costs move significantly higher, BAC does have the option to litigate
and spread the costs over time.
So, we believe the $85-$90 billion in current Basel 3 Tier 1 Common capital will
grow over the next six quarters by $20 billion in earnings, by $10 billion for the
recovery of DTA and at least $15 billion via the monetization of disallowed assets
taking 4Q12 capital to $130-$135 billion higher than the $123 billion needed to
reach the mid-point of the 6.75% to 7.00% range. That said, layer in a $3-$8 billion
servicing settlement and our forecast T1C capital is in the $122-$132 billion range
again higher than the $123 billion mid-point. All said, we believe BAC can take its
~5% current estimated T1C above the 6.75%-7.00% range but will need to
monetize assets to do so.
From 2012 to 2019 An Easier Longer-Term Hurdle
Assuming BAC reaches the 7% T1C level by year-end 2012, the capital journey is
still not over as it needs to reach 9.5% by year-end 2018. On the same risk-weighted
asset level, we estimate that BAC will need to take its $130 billion 2012 level range
to $170 billion or $40 billion over the next six years.
We believe that BAC will earn $20 billion or more per year in 2013-2018, which
would add 110 basis points of T1C per year. Plus, BAC will have $18 billion of NOL
add back left which would be added in over the next two years adding another 50 or
so basis points to T1C in 2013 and 2014. Hence, with no dividends, BAC should
reach the 9.5% T1C hurdle sometime in 2014 at least four years ahead of the Basel
3 requirements. In the following graph, which projects our T1C estimate versus the
required thresholds, we are assuming a 25% dividend payout ratio in 2014 and 2015,
followed by a 50% payout in 2016 and beyond. Throughout we assume BAC is
generating $20 billion of earnings.
0.625%
1.25%
1.875%
2.5%
0.625%
1.25%
1.875%
2.5%
3.5%
4.0%
4.5%
5.75%
7.0%
8.25%
9.5%
7.1%
8.7%
10.0%
10.8%
11.4%
11.9%
12.5%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Basel Capital Requirements
3.50%
4.00%
4.50% 4.5% 4.5% 4.5% 4.5%
0.625%
1.25%
1.875%
2.5%
0.625%
1.25%
1.875%
2.5%
3.5%
4.0%
4.5%
5.75%
7.0%
8.25%
9.5%
7.1%
8.7%
10.0%
10.8%
11.4%
11.9%
12.5%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
YE 2012 YE 2013 YE 2014 YE 2015 YE 2016 YE 2017 YE 2018
Basel Capital Requirements
T1C M i n Cap i t al Co nser vat i o n Bu f f er SIFI @ 250 bp s KBW Est T1Cfor BAC
Source: Company reports and KBW Research.
2. Investors Want to Know What the Rep and Warranty Losses Are -- But We
Believe Management Cannot Know and Wants to Maintain Its Options of Settling vs
Litigating
Please refer to important disclosures and analyst certification information on pages 7 - 10. 3
August 9, 2011
BAC, Fairholme Call: What Investors Want to Hear, but BAC Probably Can't Talk About
s
BAC will most likely not be able to talk about the $8.5 billion settlement (a key
piece of rep and warranty ring fencing) and the potential for its unraveling.
s
BAC will most likely be able to speak on its 10Q verbiage stating that the GSEs
have become more "rigid" and that it expect GSE putbacks to increase. That said, it
could still be tough to get investors comfortable with GSE loss content.
The chart below looks at GSE and non-GSE rep and warranty risks and estimates how
much of the exposure is currently covered under settlements. On the GSE side, BAC
has settled with Freddie Mac, and also settled its current (at the time) pipeline of
problem loans with Fannie Mae. BAC did not disclose the unpaid balances associated
with the Fannie Mae settlement. BAC has taken $8.5 billion in GSE losses and has,
by our estimation, $5.4 billion in reserves for future losses.
The non-GSE Paper, or private label, losses have been seemingly ring fenced by the
$8.5 billion settlement on 60% of the CFC outstanding UPB plus defaults, which
translates into 45% of the total BAC UPB plus defaults. This $8.5 billion settlement,
reasonably, led BAC to set aside $5.5 billion on the 40% of CFC originations not
settled. All that said, with the NY AG's and AIG's opposition to the settlement, it
could take a key piece of risk ring fencing away from BAC, leaving it open to higher
losses on both the settled and non-settled private label risk.
Rep & War. Details 2004-2008
Outstanding Plus DeIaults GSE Paper Cost
($s in millions)
Settled FHLMC 127 1.3 1.02
Settled FNMA na 1.5 na
Non-Settled 432 na na
Total 559
2004-2008
Non-GSE Paper Cost
Settled 221 8.5 3.85
Non-Settled 256 na na
Total 477
* BAC also settled with AGO for $1.6 billion on $35.8 billion of first mort and HELOC originations
Source. Companv Reports and KBW Research
The chart below captures our estimated rep and warranty losses versus the losses
taken thus far. We have been estimating that BAC would take $35 billion in total
losses. We believe that the $35 billion is still a reasonable figure, with $26 billion
already lost or reserved for -- and another $9.0 billion let to take by our estimation.
Please refer to important disclosures and analyst certification information on pages 7 - 10. 4
August 9, 2011
BAC, Fairholme Call: What Investors Want to Hear, but BAC Probably Can't Talk About
Rep & War. Details 2004-2008 2004-2008 2004-2008
($s in millions) GSE Paper Non-GSE Paper Total
Total Originations 1,118,000 $ 963,000 $ 2,081,000 $
Less Paydowns (604,000) (604,000) (1,208,000)
Currently Outstanding 514,000 $ 359,000 $ 873,000 $
Past Dues plus DeIaults 112,000 $ 222,000 $ 334,000 $
as a oI Originations 10 23 16
Estimated Total DeIaults 13 22 17
In Dollars 143,104 $ 214,749 $ 357,853 $
Amount Putback 42 33 37
Success Rate 50 40 45
Severity 60 60 60
Estimated BAC Losses 1.6 1.8 1.7
In Dollars 18,031 $ 17,008 $ 35,039 $
Losses Taken 8,471 $ - $ 8,471 $
Reserves Held 5,430 $ 12,350 $ 17,780 $
Remaining Losses 4,130 $ 4,658 $ 8,788 $
Source. Companv Reports and KBW Research
A Side Note on the AIG Lawsuit
AIG is suing BAC, asking for 35%, or $10 billion, (presumably 100% of its losses) of
its $28 billion of purchases when Blackrock et al settled for 2%. While AIG is asking
for $10 billion, it would get $560 million proportional for the proposed settlement.
While we believe that $10 billion is not close to reasonable, in our opinion, we are
concerned that its opposition to the $8.5 billion settlement does damage the
settlement's chances, which could increase overall loss content.
The Stock - Leaving at Market Perform Despite Recent Value Decline
BAC stock has fallen 37% in value since June 30, nearly double the BKX at 20%. At
current levels, BAC's shares are valued at just 54% tangible book value and just
slightly above 3 times our normalized EPS estimate of $2/shr, both of which screen
appealing for long-term investors. That said, we believe the near term may be a
volatile one for BAC with more headwinds still present.
While it is disappointing that BAC has gone from believing there would be a dividend
increase in the second half of 2011, to our belief that it will take BAC into 2014 to
meet the Basel 3 hurdles, we still believe that the bank does not need to and will not
raise capital and will stay $60 to $80 billion over Basel 3 minimums as the
requirements ramp through 2019. Management sounded less confident on its recent
earnings conference call, but significant unknowns still exist such as: the net proceeds
from CCB, the size of the servicing settlement, whether or not the $8.5 billion private
label settlement stands, the remaining rep and warranty costs, the ultimate single
family and HELOC losses, Europe exposure/spillover, the timing of higher rates and
NIM expansion, etc. That said, as a large bank, regulators may be conservative
and require BAC to raise capital, -- hence, it's in BACs best interest to begin
making significant money in the near future, because the trough ratios are lower
than we and possibly BAC expected.
At this price, it appears to us that the market is factoring in a capital raise into
expectations. If we are right and BAC has the earnings power to produce $20 billion
in earnings in the future, we roughly estimate that the company will have a $140
billion to $160 billion market capitalization at that time - about three years out. At a
12% discount rate this $140 billion to $160 billion equates to $100 to $115 million in
present value terms -- backing into the market's expectation that $30 to $45 billion in
new capital expected to be raised at BAC. At $7 per share, this would take the share
Please refer to important disclosures and analyst certification information on pages 7 - 10. 5
August 9, 2011
BAC, Fairholme Call: What Investors Want to Hear, but BAC Probably Can't Talk About
count to 14 - 16 billion (taking the normalized earnings power to the $1.30 range),
from its current 10 billion count. While the stock does seem to be discounting a
greater share count, we stand by our opinion that the most likely outcome is no capital
raise at BAC.
Please refer to important disclosures and analyst certification information on pages 7 - 10. 6
August 9, 2011
BAC, Fairholme Call: What Investors Want to Hear, but BAC Probably Can't Talk About
IMPORTANT DISCLOSURES
RESEARCH ANALYST CERTIFICATION: We, Jefferson Harralson, CFA, Brady Gailey, CFA and Stephen Scouten, hereby certify that the
views expressed in this research report accurately reflect our personal views about the subject companies and their securities. We also certify that We
have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation in this report.
Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors,
including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among
other business units, Institutional Equities and Investment Banking.
COMPANY SPECIFIC DISCLOSURES
KBW expects to receive or intends to seek compensation for investment banking services from Bank of America Corp. in the next three months.
KBW currently makes a market and/or acts as a liquidity provider in Bank of America Corp. securities.
Jefferson Harralson, CFA or a household member has a financial interest in the security of Bank of America Corp..
For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see the most recently published
company report or visit our global disclosures page on our website at https://kbw3.bluematrix.com/sellside/Disclosures.action or see the section below
titled "Disclosure Information" for further information on how to obtain these disclosures.
AFFILIATE DISCLOSURES: This report has been prepared by Keefe, Bruyette & Woods Inc. (KBWI) and/or its affiliates Keefe, Bruyette &
Woods Limited and Keefe, Bruyette & Woods Asia Limited all of which are subsidiaries of KBW, Inc. (collectively KBW). Keefe, Bruyette &
Woods Inc. is regulated by FINRA, NYSE, and the United States Securities and Exchange Commission, and its headquarters is located at 787 7th
Avenue, New York, NY 10019. Keefe, Bruyette & Woods Limited is registered in England and Wales, no. 04605071 and its registered office is 7th
Floor, One Broadgate, London EC2M 2QS. KBWL is authorised and regulated by the UK Financial Services Authority ("FSA"), entered on the FSA's
register, no. 221627 and is a member of the London Stock Exchange. Keefe, Bruyette & Woods Asia Limited is a licensed corporation regulated by
the Securities and Futures Commission of Hong Kong ("SFC") (CE No.: AUI281). Its headquarters is located at 3101, 31/F Central Plaza, 18 Harbour
Road, Wanchai, Hong Kong. Disclosures in the Important Disclosures section referencing KBW include one or all affiliated entities unless otherwise
specified.
Registration of non-US Analysts: Any non-US Research Analyst employed by a non-US affiliate of KBWI contributing to this report is not
registered/qualified as research analyst with FINRA and/or the NYSE and may not be an associated person of KBWI and therefore may not be subject
to NASD Rule 2711 or NYSE Rule 472 restrictions on communications with a subject company, public appearances, and trading securities held by a
research analyst account.
Disclosure Information: For current company specific disclosures please write to one of the KBW entities: Keefe, Bruyette & Woods Research
Department at the following address: 787 7th Avenue, 4th Floor, New York, NY 10019. The Compliance Officer, Keefe, Bruyette and Woods
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Plaza, 18 Harbour Road, Wanchai, Hong Kong. Or visit our website at http://www.kbw.com/research/disclosures.html. KBW has arrangements in
place to manage conflicts of interest including information barriers between the Research Department and certain other business groups. As a result,
KBW does not disclose certain client relationships with, or compensation received from, such companies in its research reports.
Bank of America Corp. (BAC)
Target Price: $10.00
Risk Factors:
The economy is our chief risk as BAC's consumer-laden book is affected by the unemployment rate. BAC has largely addressed its capital needs, but
regulatory risks still exist for BAC. Finally, financial regulation continues to evolve, which could significantly alter our forward estimates and
resulting price target.
RATING AND PRICE TARGET HISTORY
Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3
0
8
16
24
32
40
2009 2010 2011
09/10/08
UN:$25
10/08/08
MP:$25
11/24/08
MP:$13
01/20/09
MP:$9
06/03/09
MP:$12
06/11/09
OP:$16.5
08/06/09
OP:$19
04/19/10
OP:$22
07/19/10
OP:$18
10/20/10
OP:$14
12/16/10
MP:$14
01/24/11
MP:$16
06/30/11
MP:$12.5
07/20/11
MP:$11.5
Rating and Price Target History for: Bank of America Corp. (BAC) as of 08-08-2011
Created by BlueMatrix
Please refer to important disclosures and analyst certification information on pages 7 - 10. 7
August 9, 2011
BAC, Fairholme Call: What Investors Want to Hear, but BAC Probably Can't Talk About
Rating KEY: OP Outperform MP MarketPerform U Underperform RS Restricted S Suspended
Note: The boxes on the Rating and Price Target History Chart above indicate the date of Report/Note, the
rating and price target. Each box represents a date on which an analyst made a change to a rating or price
target.
Distribution of Ratings/IB Services
KBW
*IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
Outperform [BUY] 246 35.14 57 23.17
Market Perform [HOLD] 390 55.71 76 19.49
Underperform [SELL] 50 7.14 6 12.00
Restricted [RES] 0 0.00 0 0.00
Suspended [SP] 14 2.00 3 21.43
*KBW maintains separate research departments; however, the above chart, "Distribution of Ratings/IB
Services," reflects combined information related to the distribution of research ratings and the receipt of
investment banking fees globally.
Explanation of Ratings: KBW Research Department provides three core ratings: Outperform, Market Perform and Underperform, and three ancillary
ratings: Suspended, Restricted, and Not Rated. For purposes of New York Stock Exchange Rule 472 and FINRA Rule 2711, Outperform is classified
as a Buy, Market Perform is classified as a Hold, and Underperform is classified as a Sell. Suspended indicates that KBWs investment rating and/or
target price have been temporarily suspended due to applicable regulations and/or KBW policies. Restricted indicates that KBW is precluded from
providing an investment rating or price target due to the firm's role in connection with a merger or other strategic financial transaction. Not Rated
indicates that KBW is not providing an investment rating and/or price target due to the lack of publicly available information and/or its inability to
adequately quantify the publicly available information to sufficiently to produce such metrics.
North American Stocks are rated based on an absolute rate of return (percentage price change plus dividend yield).Outperform represents a total rate
of return of 15% or greater. Market Perform represents a total rate of return in a range between -5% and +15%.Underperform represents a total rate of
return at or below -5%.
European and Asian Stocks are rated based on the share price upside to target price relative to the relevant sector index performance on a 12-month
horizon. Outperform rated stocks have a greater than 10 percentage point (pp) relative performance versus the sector, Market Perform rated stocks
between +10pp to -10pp relative performance versus the sector, and Underperform rated stocks a lower than 10pp relative performance versus the
sector. The 12-month price target may be determined by the stocks fundamentally-driven fair value and/or other factors (e.g., takeover premium or
illiquidity discount).
KBW Model Portfolio: "Model Portfolio Buy" - Companies placed on this list are expected to generate a total rate of return (percentage price change
plus dividend yield) of 10% or more over the next 3 to 6 months.
"Model Portfolio Sell" - Companies placed on this list are expected to generate a total rate of return (percentage price change plus dividend yield) at or
below -10% over the next 3 to 6 months.
The purpose of the Model Portfolio is to inform institutional investors of KBWIs short-term (as described above) outlook for a particular industry
sector. The Portfolio is not available for purchase or sale, cannot be duplicated as shown, is hypothetical and is for illustrative purposes only. For a
more detailed description of the selection criteria and other specifics related to the construction of the Model Portfolio, please refer to the January 5,
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The Model Portfolio should be viewed as a short-term outlook of a particular industry sector, not as individual security recommendations. The Model
Portfolio uses a three-to-six-month time horizon and should not be considered when making longer term investments. KBWI Research publishes
research with a 12-month outlook on each issuer of securities contained in the Model Portfolio. Investors who are interested in a particular security
should request KBWI Researchs coverage of such securities by contacting your KBWI representative. KBW research contains analyses of
fundamentals underlying each issuer.
KBWIs long-term recommendations may differ from recommendations made for the Model Portfolio. These differences are the result of different
time horizons -- KBWI research has a 12-month outlook and the Model Portfolio has a three-to-six-month outlook.
Although the model portfolio is based upon actual performance of actual investments, KBWI did not recommend that investors purchase this
combination -- or hypothetical portfolio -- of investments during the time period depicted here. As this hypothetical portfolio was designed with the
benefit of hindsight, the choice of investments contained in it reflects a subjective choice by KBWI. Accordingly, this hypothetical portfolio may
reflect a choice of investments that performed better than an actual portfolio, which was recommended during the depicted time frame, would have
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Other Research Methods: Please be advised that KBW provides to certain customers on request specialized research products or services that focus
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Please refer to important disclosures and analyst certification information on pages 7 - 10. 8
August 9, 2011
BAC, Fairholme Call: What Investors Want to Hear, but BAC Probably Can't Talk About
OTHER DISCLOSURES
Indices: The following indices: U.S.: KBW Bank Index (BKX), KBW Insurance Index (KIX), KBW Capital Markets Index (KSX), KBW Regional
Banking Index (KRX), KBW Mortgage Finance Index (MFX), KBW Property & Casualty Index (KPX), and KBW Premium Yield Equity REIT
Index (KYX); KBW Financial Sector Dividend Yield Index (KDX); Europe: KBW Large-Cap Banks Index (KEBI), KBW Mid/Small Cap Banks
Index (KMBI), KBW Large-Cap Insurance Index (KEII), KBW Miscellaneous Financials Index (KMFI), KBW Emerging Europe Financials Index
(KEEI); and Global: KBW Global ex-U.S. Financial Sector Index (KGX), are the property of KBWI. KBWI does not guarantee the accuracy and/or
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Please refer to important disclosures and analyst certification information on pages 7 - 10. 9
August 9, 2011
BAC, Fairholme Call: What Investors Want to Hear, but BAC Probably Can't Talk About
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Please refer to important disclosures and analyst certification information on pages 7 - 10. 10
August 9, 2011
BAC, Fairholme Call: What Investors Want to Hear, but BAC Probably Can't Talk About