HOUSE_OVERSIGHT_014329.jpg

active in terms of M&A discussions, CBF continues to evaluate all opportunities
that promise the best returns for shareholders. Interestingly, investor sentiment
around CBF's positioning within the M&A market shifted, 75% of respondents
believing the pro forma institution is better positioned to act as an acquirer. (Note
last year, 55% of respondents believed CBF would be a takeout candidate in the
medium term.

Chart 23: Do you think the pace of M&A activity will pick-up significantly
in 2017 vs. 2016?
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
80%
Yes
Source: BofA Merrill Lynch Global Research
20%
No

Chart 24: Does the acquisition of CommunityOne better position CBF as
an acquirer or a takeout candidate?
80%
70%
60%
50%
40%
30%
20%
10%
0%
75%
Acquirer
25%
Takeout candidate
Source: BofA Merrill Lynch Global Research

Π
CBF expected to prudently grow in CRE as bank is underpenetrated. CFO Chris
Marshall acknowledged that there exist signs of frothiness within the multi-family
lending segment. That said, he noted there is still room to grow as peers pull back
in response to regulatory oversight (3Q: 161% vs. 300% threshold). That said,
management remains selective and has implemented a 25-30% concentration limit
(3Q: 22%).

Citigroup (C), B-1-7, Buy
•
Markets revenue up YoY so far, down from robust 3Q. President and CEO of ICG
Jamie Forese and CFO John Gerspach noted that at this current point in time, they
expect a seasonal sequential decline in Markets revenue in 4Q, but revenues should
be up YoY on back of stronger activity levels post the election. Moreover, banking
activity is looking consistent with prior quarters.
•
DTA impact from lower tax rates. Given the possibility of lower tax rates under
the new administration, there have been many questions around what a potential
tax cut could mean on C's ability to re-capture some of its DTA. Management noted
that the impact will depend on 1) the ultimate tax rate, 2) either a worldwide or
territorial regime, and 3) the time it takes to reflect the new changes. A federal tax
cut would directly impact the $21B timing related differences component of its
DTA balance. Assuming a 20% decline in the federal tax rate, this would imply a
$4B charge to the P&L (20% X $21B). That said, C has $7B of timing difference
DTA that is not includable in its regulatory capital. As a result, that $4B impact
would not have an impact on its CET1. In the event that there is a territorial regime,
there is an element in its foreign subs equal to ~30% of the $21B that would lose
its value at an accelerated rate. Assuming a 25% tax rate and territorial regime,
management noted that there would be roughly $12B worth of DTA that would see
some valuation adjustment and drive a $4B of reduction in its regulatory capital.
•
Aiming to improve market share in Equities. Management noted that C currently
ranks around 8-9th in the Equities business and while it is not looking to achieve a
top 3 market share, it would like to improve to around 5-6th. Management noted
that the revenue gap to reaching that ranking is ~$1B. While not all of that is

Bank of America
Merrill Lynch
2016 Future of Financials Conference | 17 November 2016 15

HOUSE_OVERSIGHT_014329