Bank of America (BAC) at Deutsche Bank Global Financial Services Investor Conference (Transcript)

May.27.14 | About: Bank of (BAC)

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Bank of America (NYSE:BAC)

Deutsche Bank Global Financial Services Investor Conference

May 27, 2014, 02:25 PM ET

Executives

Christian Meissner - Head of Global Corporate & Investment Banking

Analyst

Matt O’Connor - Deutsche Bank

Matt O’Connor - Deutsche Bank

Okay. Thanks everyone. Up next is Bank of America. Obviously a lot has been going on in the past few years at Bank of America. They've been optimizing the balance sheet, reducing legacy, assets and exposures and expenses and cutting cost throughout their new Bank of America program.

However, a lot has been going on. Bank of America has also been increasing its markets share within its corporate and investment bank. For example, they ranked number two globally in reported investment banking fees in the first quarter and with us today is Christian Meissner who Heads up the Corporate & Investment Banking.

He is going to give a presentation and then we'll open it up to Q&A to the audience. So once again get your questions ready and we'll go from there. So Christian?

Christian Meissner

Thank you. Good afternoon. It's a pleasure to be here. What I thought I would do is to give a snapshot of our business and how it fits into the overall Bank of America construct. Talk a bit about current market conditions, which I know is on everybody's mind and then may be spend a few minutes at the end in terms of the outlook and things we are focused on, some of the key initiatives that we've been working on over the last number of years and which we'll keep going.

In terms of the global banking business, we are divided into two segments really by customer group. So the way to think about the global banking at Bank of America is the GCIB business, Global Corporate & Investment Banking business, which is really focused on the 5,000 or so largest global multinational financial institutions, sometimes governments, in some cases [both] (ph) individuals and secondly the global commercial bank, which is primarily a U.S. focused business, which is really focused by definition on the middle markets here in the U.S.

Now I say it's primarily a U.S. focused business and I'll talk more about this a little bit later because one of the big growth initiatives is to follow our U.S. clients as they expand outside the U.S. and you'll see that again a little bit later, but this has been one of the great I think strengths of the firm over the last number of years and as much as we are able to use our infrastructure that we have build through GCIB outside the U.S. to do a lot more with our existing client base here in the U.S. as well.

The GCIB business as I mentioned about 5,000 clients processed about $2.1 trillion of M&A volumes since 2010, $1.7 trillion in high grade issuance for clients, $800 billion in leverage. So it's a very substantial business. GCIB about 23,000 clients, again primarily here in the U.S., we account for about 18% of total Bank of America revenues.

So the revenue and profitability just to give you some snapshot, over the last year or so, we consistently generated between $4 billion and $4.2 billion a quarter in revenues, that was split roughly 50-50 between corporates, investment banking on the one hand and commercial banking on the other hand and it includes the full scope of businesses, obviously including everything from treasury services on the one hand to other corporate banking products to investment banking and M&A products on the other side.

Our pretax margin has been consistently in the 45% to 50% range, generating $1.8 billion to $2.1 billion pretax earnings, again over each over the last five quarters and our return on capital is in excess of 16%.

And to the balance sheet, we have grown the balance sheet both on -- on both sides of the equation, also you can see on this chart, the development of loans and repays and on the right hand side of the slide, the development of banking deposits.

The story here really is one of investing in our international client base and so a lot of the growth that you see on the page has been an investment in building our franchise outside the U.S. That's not to say that there isn’t loan growth in the U.S., but it's been more pronounced outside the U.S. as you would expect given our very high market share that we already have even at the start of this process in the U.S.

I would also say that an important factor here is not so much the ability to find new loan, but rather self impose constraints to find attractively priced and attractively returning the loans and when we think about that, we think about that both in the context of a loan itself, but also in the context of an overall client relationship because clearly that two go hand in hand and often one generates the other.

Clearly also the regulatory environment is not [blossomed] (ph) up and there are certain asset classes within our loan book, which we had to address over the last number of years.

To give you an example, the trade finance business, which in many ways is an attractive business, but certain of the newer measures if you are thinking about it more from an ROA business, it's less attractive by definition than it was prior to the new metrics and so we've included that to adjust that in our plans.

Now turning to GCIB, the business that I am more closely focused on, I thought I would spend a moment on client selection and coverage strategy. This is one of the areas that has really changed quite substantially over the last number of years.

You can see on the left hand side, the evolution of our client count, which has been shrinking quite dramatically, you might say well, revenues are growing, clients are shrinking, how does that make sense? What we've really been trying to do is to focus all our bankers, all of our financial capital, all of our intellectual content if you will on the most important clients around the world.

And so the way we think about that is to cover about 80% of the people in any given year and trying to figure out how many clients do we need? What clients do we need to focus on, to cover that 80%?

Now of course that client mix changes every year, so you can't just be too one dimensional. You need by definition how the larger number of clients, the number less 80% of the people is roughly what we're in that.

If you look at it historically, we had a large -- much larger number of clients and what that led to is not necessarily higher market share or higher revenues. In fact we found that many of our bankers would spend a good time on too many small opportunities, but really to focus them on the high end of the people, by definition also their most competitive end of the people, but certainly one where our platform is uniquely able to serve really what we've tried to do.

The other thing that you can see on the right hand side is our coverage model and rather than going through it line by line, but I think the key point here is that one of the great benefits of our scale and our platform is our ability to really use the different parts of our organization to optimally serve clients.

So if you think about it at the top of the page is the integrated coverage build of the largest company is about 2,000, around the world, about 35% of our total, those clients will typically have an integrated team that really spans the entire waterfront; investment banker, corporate banker, treasury sales, what have you.

As you go down the pyramid and it's not really astound by the number of clients, but just different categories, Investment banking lad would typically be technology companies in an early growth phase, response to portfolio companies, companies that would typically only have an investment bank involved. So it doesn’t make sense to lend to them. It doesn’t make sense to have the full product suite.

So we're really trying to be very targeted how we use our resources. Corporate banking by definition is the opposite. You can see that that number is actually a lot smaller. Only about 650 clients around the world and then finally dual coverage, which has really then our partnership with the commercial banks such as with the mid market U.S. segment, those will be the upper hand if you will of the commercial bank companies who may go public in the near future may access the capital markets for the first time in the near future, may expand the broads and therefore have more of an overlap between GCB, the commercial bank, and GCIB, the corporate bank.

We were number one last year in terms of reported revenue. There is of course many ways you can look at this. We figured what you would most care about is the actual revenues we generated. So we picked up also because it favored us.

We of course likely tables as much as the next firm, as we've announced, we were number two. I reported revenues in Q1 of 2014 and we were number three in terms of the [DL logic]. So that gives us some sense of how we perform across the businesses.

What is interesting though in this comparison and I will come back to that a little bit later is that you can see that we are relatively heavy on that underwriting as a percentage of our overall investment banking business.

By the way, the reason I only have investment banking revenues here is because that's really the only apples to apples comparison you can get across different firms.

Now being strong debt underwriting has been one of the great strengths of our franchise over the last number of years, but clearly the business was changing as we move away from this current environment of low rates and high liquidity. So one of the big theme for us has been to focus on our M&A and equity underwriting business point one and point two to focus also in our international operations because historically our strength in the U.S. and I'll come back to that in a few minutes.

Now switching may be a little bit to current market dynamics, just to highlight some of the things that are going on. I think the interest rate in the yield curve is relatively straightforward, suffice it to say that this has been a record period for debt underwriting, both across the high grade and also the leverage finance space that clearly has tailed off a little bit this year in leverage finance although investment grade continues to be very, very active and this has been true not only in terms of the number of deals that we've seen, but also the size if you just think back to the $49 billion that arise in rates last year.

So really the ability to do very, very, substantive financing has been a great driver of our business. Having said that, clearly as the rate environment changes this will go back a little bit to historical norms.

The M&A business is a bit of more of a contradictory story. As you can see in the middle slide, middle chart on the slide, actually for the last five years since the financial crisis, the M&A business has actually been relatively subdued.

And really frankly to much of our surprise because over the last number of years, we've really had ideal conditions, high liquidity, low rates, relatively low growth in mature markets, companies that have restructured their balance sheet and their operation feed. So you would expect M&A to really, have picked up much earlier than it did, in fact we've only seen during the first quarter of this year.

And if you look at where, we are right now, we're looking at a pace of M&A activity which will be roughly 75% or is 75% above this period last year and we think it'll be the busiest year since 2007 assuming the second half, similar level of activity as the first half.

So the M&A business has been very, very strong and has been a great area of focus for us and I'll come back to that.

And then finally this smart notion of the international markets having lag, whereas the U.S. marketplace has been above 2007 peak for some time as you can see on the chart on the right hand side, the international markets have been a lot less active.

Again on one level that's been a strength and certainly has benefited our market share but it clearly won't continue on one of the key investment themes over the last number of years for us and our business has been to invest in our international business first and be prepared when that changes.

Just to put in perspective, the European markets are about 40% to 45% below their peak, whereas again as I said the U.S. is above the 2007 peak. So you can see some sense of the discontinuity, or put differently if you go back before the financial crisis, about 60% of our total fee pool was outside the U.S. At the moment, it's in the mid 40s.

So it's clearly a big shift that is going to happen over the next number of years we believe.

In terms of some of the things that are occupying us right now, just to run through some of the market themes. Clearly the competitive environment has changed significantly.

Fewer global players to compete as we do across the water front (ph). Having said that, even though we see that in the most competitive large transactions already, if you look at the entire picture of market share or the entire picture of our competitive landscape, I wouldn't say that that impact has been that dramatic.

I think it will come but if you look at just purely on 2013 or 2012 results, I think that's still a very much work in progress that we see it happening.

I had mentioned M&A, that clearly is a big theme and something that we're right in the middle of, as is the shift away from DCM more to ECM and M&A and from the U.S. more to the international businesses.

Regulatory changes are impacting a number of our activities as we would expect. So some of the things that, we're dealing with our competitors is the ability to underwrite some of the more leverage credit.

This is the famous list creative of eight issues -- eight issue here in the U.S. for example I already mentioned some issues are on trade finance and how different metrics impact what makes sense or doesn't make sense to do and so on and so forth.

So we're in the middle of that, I would say the impact is less than in the market business. I think that's pretty clear. Remember that we are impacted as well and we're dealing with that as we go.

And then finally just to spend a moment on the transaction bank and more corporate banking side of the equation. Two points here, firstly, there is also a very, very significant shift going on in our treasury business which I think is less visible given the absence of clear statistics but is nonetheless important.

So we're moving from a world of paper based transactions to electronic and again as I mentioned at the outset a much more global approach.

So as you know we've been and are now at the tail-end of a multi-year program to really change the way our treasury business looks, if you go back three, four, five years, you would have said, mostly U.S. base, U.S. clients and mostly focused on the dollar not surprisingly, we really try to change that to make it a global business and also to invest in the technology and the capacity to be multi-currency and multi-product.

Again we are not quite done with that process yet, but it's largely complete and it's something that’s been a very, very big initiative for us and I think something that will pay-off for a long period of time.

I also think that the environment that we're moving to, taken away from paper towards electronics will really benefit us.

Think about it this way, historically many of our competitors who had broader international footprint than we did, were largely based around bricks-and-motor, not surprisingly because that was necessary.

In the new world of largely electronics as to bricks-and-motors less important and the quality of your service offering the quality of your technology, the quality of your product is far more important.

So if you're a relatively new entrance for some of these emerging markets or some of the markets outside the U.S. actually this environment is much more suitable for us than the older one would have been.

So, the treasury function, the corporate bank annuity as to the revenue streams are very, very important to us.

Now, maybe just to spend a couple of moments on strategy and some of the things that we're focused on. Clearly as I said the largest, most profitable client is, where we aim to compete, there's no surprise there, I think most people would say that.

But on the other hand I think what's important here is that only a very small number of banks are included I believe, have the platform to global scale, the breadth, the ability to invest, the ability to have the stay-in power to really crack those types of relationships.

So, it is in my opinion the most profitable market and other segment of the market I should say, and it is also I believe a place we're increasingly on the relatively small number of firms will be able to compete.

Secondly, we are -- and this is not just common GCIB, but this is common across our entire firms, we're trying very hard to connect the dots in terms of different product opportunities. I'll come back to that in a moment, but it's not just the obvious, the obvious being, you have an M&A mandate then you do the financing and hedging and some other things.

But really also trying to plug in all the capabilities of our platforms, even outside the traditional investment bank.

We are very focused on also having growth opportunities even in this relatively difficult and environment from a macro perspective. I had mentioned M&A, I think international clearly is one of the big one for us given our relatively low level of exposure there compared to some our peers and as I mentioned also the treasury services business is something we're very, very focused on.

And at last but not least, to the ongoing focus on expense discipline, capital discipline, I think the expense discipline part is obvious, I think the capital discipline in a relatively higher returning environment for us -- for our business and GCIB is important to note.

As I said at the outset, our constraint really is our self imposed return criteria as opposed to the ability to make more loans. So, to give you one example, we've been having, we've been investing heavily in Europe. Europe is a more competitive market, a market that has structurally lower margins than the U.S., it takes time to break in and what we've said to ourselves is that we don't want to increase our overall level of balance sheet exposure after today, after a period of three or four years of very strong growth until we have certain return targets.

And what - what that's forcing our bankers to do, is effectively make choices about which clients they want back to the notion of client selection and also to recycle our capital to optimize returns before they get more capital.

So, this notion of having now achieved the scale so as to effectively self -- take the resources we already have to increase return is a very, very important part of our business.

Just to give you some more sense, to give you a little bit of an update on how we're doing in some of these initiatives so the merger momentum gives you, I think a clear picture of this, this is the number of transactions above $5 billion of last number of years, it is always year-to-date and so you can see the very, significant growth rates and importantly also the dark blue is the number of transactions within that segment that we've been and advisor on, so you see that we've done a lot more and are now over 50% of transactions of that target segment, is the very large transaction.

The notion of connecting the dots across our platform again it's very, very important, cross-sell and the product relationships I think will be very familiar to you, but also will be familiar to the notion that the M&A product, the M&A fees usually just the thin edge of the wedge and clearly during financing, during risk management, during lot of the take-out that might come out of that is part of our core strategy.

But one of the things that we've also been discovering since we've built out our global capability is that there are many other services which would perhaps not been as obvious, that we also want to be in and sell through our clients.

So an example is been certain currencies offering Escrow services to a transaction to facilitate in the closing, that doesn't sound particularly flexi, but actually it's an incredibly profitable add-on to an existing relationship, to an existing mandate in certain circumstances. That's not something we would have thought three, four years ago, but today is part of core offering.

So we're focused on also filing these types of additional opportunities which greatly improves the profitability of any transaction.

And then last thing, maybe just to give you one other example, of course everybody is familiar with our driven platform, there's the Merrill Lynch network and GWIN additional requirement piece of it, historically with a very relatively limited drop of selling buy one take plans to our corporate customers.

I think that we have 22,000 customers in the corporate bank. We have 5,000 in the commercial bank, 5,000 clients in the corporate bank, obviously not all of those are in the U.S. it's a perfect opportunity to really plug that GWIN capability, that retirement services capability into our regular dialogues and so when we're in the middle of a discussion around a loan or around an overall relationship, just an obvious thing to do to make sure that the institutional retirement product is quite in center, or put differently today if you lock the horns, you’ll see many of our investment bankers actively pitching and being involved in the big RFPs that are on the treasury business, not something that you would have seen historical -- historically it perhaps sounds obvious, but it’s a very, very significant driver of revenues and also importantly culture and making sure that the firm is connected.

International momentum just to give you some numbers here. So if you look at where we were in 2009 versus in the first quarter revenues went from 29% to 38% outside the U.S. and earnings from 6% to 32%, so we have more to do and we’re investing in a relatively major way.

We have invested over last number of years. We’re beginning to see the fruits of that. We think as we’ve said we have more to go. We think about the market takes the earnings picture it's roughly 50% of the people outside the U.S. were still under represented.

I don’t think we’ll ever completely narrow the people, because structurally the U.S. market is a high margin market than outside the U.S., but nonetheless this is clearly a big growth area for us.

So the takeaways before I answer any questions or spend any time on other issues, we believe that we are in a very, very attractive markets, but it's clearly a market that also had its challenges, remains very competitive, the regulatory challenges that we faced are significant and are ones that are forcing constant adjustments to our business model.

But we believe that our strategy of focusing on the largest most profitable clients is bearing fruit. We think we are one of the few that are able to offer a comprehensive across the front platform. We also think that the scale and the nature of our business allow us to take long-term perspective.

Clearly these are long lead time businesses that we need some time to be able to get into new market segments. We believe we have the scale to be able to do that. And so as the result of that, at the end of the day it comes back down to, do you have great people covering clients and providing them with great values. And we think that really all of these put together allow us to attract and retrain great power to the industry.

So, thank very much and look forward to answer any questions.

Question-and-Answer Session

Unidentified Analyst

If you have a question raise your hand, we will get you a mic.

Matt O’Connor - Deutsche Bank

I know this isn’t your area, but I want to pose the question anyway. In retailing, with all the problems that countrywide has brought Merrill Lynch and so forth, subprime mortgages. For a period of time you were really out of the residential mortgage market and by that I mean you uncompetitive, the BOA branch and you’re not competitive with Chase and TD and people some of these others.

You’re getting much more competitive now. Does this mean your back end of the residential mortgage market both for home equity as well as first mortgages?

Christian Meissner

Well, you’re right. It’s not really my area, so I don’t really have too much to say about it. But one thing I would say, if you listen to colleagues who do focus on that area, the big difference of our business today versus in the past is that today the business we do is with our own customers as oppose to some of the correspondent banking activities that we use to be involved in. So it’s a very different business than it was historically. Beyond that I would really refer you to my colleague on the retail side.

Matt O’Connor - Deutsche Bank

And I suppose this isn’t your area, your legal counsel is not here, but I mean is there any other government agency that might be suing you, including the 49 states besides New York, its getting ridiculous?

Christian Meissner

We do not really have to comment on that.

Matt O’Connor - Deutsche Bank

I want to just say that government are not saving Lehman Brothers and turning a housing [Indiscernible] who have great recession. Thank you.

Christian Meissner

Thank you.

Matt O’Connor - Deutsche Bank

So, I’m going to tell a question [Indiscernible]. You made reference to fewer global peers and I think the references is we’re seeing some global investment banks pulling back in fixed income in particular], but some products that sort of kind of pick and chose which one to keep. You also mentioned that you haven’t seen too much impact yet from other retention. I’m just wondering you thoughts on why we haven’t seen that yet and maybe how long it will take to see?

Christian Meissner

I like to start with the second question first, so let’s take the leverage finance business for a moment, clearly a great strength of ours historically and a business which has been very, very attractive since the crisis for last five years. But equally it’s a business that’s in the latter stages of a very strong program.

Now you’d expect that in a very capital intensive business which it is, that would be exactly what this battleground that you refer to plays out. But in fact what’s happening is because the market is still so strong and because there’s such a strong demand for FHFA for origination capacity, every transaction we compete for or work on we’ll have a number of new entrance, that maybe in the last two or three years wouldn’t have been strong players.

And what that means effectively is even though that some people are recruiting you’re still in an environment where lot of people think these are pretty business which to be in and as a result are competing heavily or the equity underwriting business is a similar story.

In fact I would think that over time that will happen, but it hasn’t really happened yet. And I think in some ways we need a bit of a market collection to that could be filter out some of these new entrance across some of the smaller players, because today they are still very much in the game.

Matt O’Connor - Deutsche Bank

And what about -- just as a follow-up as we think about their capital market imagination, I think the whole, you have a bar chart showing your nice share there, I think this is an obvious question, but how dependent DCM origination on having a strong secondary business like you guys have in your markets?

Christian Meissner

It’s essential, absolutely. And so I think that -- this is one of the key parts of our strategy. You have to have the secondary market capability to be credible in the primary business. I think that what we are saying. I think at the moment maybe that [Interdependence] (ph) maybe a little bit less than its historically, because truth is obvious yields are selling very well and therefore perhaps some of the market judgment, risk judgements that at the core of having a strong business in DCM or leverage finance are -- but they are not important, but most things are getting done very well.

What we saw in 2009, 2010 is that ability to really have a differentiated secondary market offering, which I think we have with much more important relatively speaking that look through things go in cycles and I believe we’re going to go back to that in the not too distant future. So the dependence is absolutely there. It's critical to us and it's something that we’re very focus on.

Matt O’Connor - Deutsche Bank

And just lastly, a question on this topic, I think it's important, if we get some sort of corrections and there is some share cut here, what the bulk case in terms of you get more business in terms of figure pieces of what you’re going after or is it easier to get kind of some of the ancillary business or just the risk associated with this business could be less or may be afraid?

Christian Meissner

I think it’s afraid to be honest. I think we’ve been relatively successful of taking market share in a strong market environment over the last number of years. But on the other hand, I think a bit of a share cut would do us good, and I think will benefit us over time.

Because again these benefits we have around scale around having a long term perspective. I think an advantage in having a long history of being use to underwriting and also in tricky market I think will benefit us. So we out prefer to operate in good markets that what I was saying, but on the other hand I think it is the market share, it won’t necessarily be a bad thing if condition change a bit.

Unidentified Company Representative

Any questions from the audience on corporate and investment banking.

Matt O’Connor - Deutsche Bank

In Europe, because you were trying to grow the business are you taking market share from European bank and overall do you see European bank getting weaker on a global basis or are there still some large competitive bank?

Christian Meissner

I think it’s a good question. I think in Europe itself it’s still a relatively slightly balanced debate, slightly balance game. And we have very, very strong competitors amongst the European banks and I think that’s continues. But I think you’d seen the shift a little bit more is here in the U.S. where you have the big U.S. firms have taken market share from some European competitors and you’re also seeing a little bit in Asia and the emerging markets where maybe there’s a little bit of a retreats going on maybe little less emphasis, less resources, less balance sheet that some of the European firms are dedicating there.

But having said that, I would say at this point you can see that beginnings of it, but it still a little bit on the margin as oppose to necessarily being a massive shift in market share percentage [Indiscernible] maybe the other thing to mention is talent, which again in our business is critical, and there we certainly has been successful in attracting great talent in all these markets.

But I think that will take a bit of time to than see through to actual market share. So it’s beginning to happen, but it’s not the full-fledged very significant movement at this point of view.

Matt O’Connor - Deutsche Bank

Can you talk about the backlog on investment banking side, you obviously seeing very much pickup as you mentioned on M&A, CCM continues to be on an absolute level, fairly strong? Would you think growth from here based on what you’re seeing?

Christian Meissner

Well, I would say, backlog is fine. But backlog is less strong than the headlines would suggest. Not so I would characterise. So M&A we've been very strong, but as you know it’s a long lead time business and often it takes six, nine, sometime 12 months for a deal to close and therefore for revenues to materialize. So that may or may not be a 2014 event.

I would say indeed that capital market area investment grade continues to be very strong and is up year-over-year leverage finance is down a little bit for reasons which we can talk about but having to do with both market conditions and some of the regulatory pressures.

And then lastly the equity business is fine, but last year was a very, very active year, very strong year for us and for the market and was very hard to lock the growth on a very strong performance last year but it's fine.

So the backlog is strong but if you look at all the big M&A that have happened and that we had the forecast position to be involved and you might think that the numbers are stronger than they actually are just based on the headline value.

Matt O’Connor - Deutsche Bank

In terms of cumulative we often hear that its potentially negatively impacting the markets business low volatility in rates and effects, but what you think the impact of cumulative and the tapering here is having on the primary side if any?

Christian Meissner

I think it's hard to isolate just on one aspect. Couple of things to point out though, so if you look at the DCM volumes first in the investment grade side and non-investment grade side, we've been in this wave of refinancing for competitive part of eight or nine quarters.

So a lot of the logical activity is behind us. That's not to say that the company is not continuing to refinance. they are, but we try the new phenomena people are being - for this for some time.

I think also on the M&A side, again some extent there is a bit of a way rush to the finish in a sense that people think okay, maybe in 2015, where it might be where they are, or liquidity might not be -- better there might be specifically if its heavily dependent on leverage to -- I would better do my deal sooner rather than later.

So that's happening. The flip side is tapering probably or rising rates probably have a positive macro reason or macro impact, which will have many, many other second order benefits for us as well.

So it's hard to say what exactly the impact will be, but I do think that in general balance sheets are incredibly healthy. We've seen a lot of transactions to take advantage of that. I think corporates around the world have really prepared quite well.

Matt O’Connor - Deutsche Bank

And you are going to wanting aside talk about the pipeline there. You talked about pulling back a little bit in trade finance, but I think, which was still up 10%, 11% year-over-year, which is quite strong and what's the outlook in terms of magnitude if you carry out to the share, but just the key drivers from here as well.

Christian Meissner

Look I think the -- I wouldn’t say that there is a huge amount of club organic demand, people wanting to invest in their operating business and therefore meeting tomorrow. We do see that, but I wouldn’t say that's a massive factor. The deal activity obviously is very significant and so there is lots of demand from that.

We are also seeing some rotation, rotation being certain pulling back and therefore giving us an opportunity to enter certain relationships. That's a positive, but against all that, given at the end of the day what matters is the returns on the revenue potential out of some of that loan demand.

So you are continuing to see very tight spreads and spreads in general under pressure. So the ability to actually find well returning loans is not that easy and so our constraint so much loan. The availability of new loans that we could make or that we could own, it's really how many of those loans in the aggregate in terms of be it the relationship view and an isolation if terms of the loan only return. Howe many of those loans are attractive and I would say that's much more constrained.

Matt O’Connor - Deutsche Bank

May be switching to expenses, obviously the first has been very focused on expenses. You mentioned focus as well in your remarks and obviously you will hear a lot about investment in terms of how they knew people globally and filling into the U.S..

So what's kind of the net outlook on expenses in your areas?

Christian Meissner

Well I think we are aiming to keep expenses broadly flat in an environment where clearly from a revenue growth perspective if you look at it over a number of quarters, we've had reasonable revenue growth.

That said, our profits of investment whether it's in IT to grow some of the areas that historically we didn’t have the same depth of product capability of geographic spread. We've also changed the mix of our business a little bit, which has been positive from a expense perspective.

So we've grown our corporate bank and we've shrunk our investment bank a little bit again to just balance that out.

Maybe the final thing I would say that overall as the market conditions have reviewed over the last six or eight quarters, clearly there has been more upward pressure on expenses and comping are the biggest part of that -- a big part of that for us.

So that is something we've had to contain with, but broadly speaking we're clearly very focused on this and I think have done a reasonable job at it.

Matt O’Connor - Deutsche Bank

Okay. Great. Well actually we're out of time, but please join me in thanking Bank of America.

Christian Meissner

Thank you.

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