EFTA01449292.pdf

23 August 2013 US Equity Insights 3 reasons not to fear a 3%+ 10yr yield EPS hit from higher interest Interest expense is relatively small and likely overpowered by pension swings rates is likely to be very small end should be overpowered Ifigure 1. S&P ex-financials net debt/market cap at 14% is considerably lower than historical levels by pension swings. If we assume that 15% of the 70% r 70% $2.8 trillion in long-term debt ■ 0096 rolls to a rate 100bp higher 5016 • 50% the hit to 2014 S&P EPS 40% k 40% would be -$0.25. 30% 30% 20% 20% Pension expense is likely to 10% fall by more and a 100bps increase in long-term rates 0% 0% shouldeliminate pension deficits Recession Met Debt/ Market Cap Sas Owlish* Sorg Figure 2: Share of long•tenn debt (>1ylat S&P ex. Figure 3: S&P ex-financial cash, current and long-term financials has increased to 25% from 75% in 2003 debt (S millions) 80%-1 90% 3.000 - 3.000 E X in P 85% w' W 85% 2.500 4 2.500 80% 80% 2.000 1 2.000 75% 75% 1.500 1.500 70% 70% 1.000 - .•-•" 1,000 55% 85% 500 500 0016 4 . • • - . . . . . . . . • . • 60% o 0 g§ggreiii§§i1§§§rgiERI " g g Recession cleW Total OMR Cement Ott Long Tom Debt -- Cash Sara Dame.*Earl San' Drab& tett Figure 4: S&P ex-financial interest expense/sates at 1.5% Figure 5: 10-15 year IG corporate bond yield is up 100bp is the lowest level since 1970 from 1O13 end but still below 2011 end. 100.000 4.0% 100 1403.000 3.5% 8.0 120000 3.0% 100.000 r :np 2.5% 80 50.000 2.0% 4.0 00.000 1.5% 20 40.000 1.0% 0.0 ga§g gAggligiE S ----- intent Expense -LTA Ma Wm) im est Ex pense/Sales (MO MIRNIAIIMILWAR —IC (10-15 years) Corporate — 1Oy Teasuy San Drustro Sant Sane art al4nvuIlAvntiLytx, DrumA* eat Page 2 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0104636 CONFIDENTIAL SDNY_GM_00250820 EFTA01449292