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performance, weak fundraising, principal investment and balance sheet risk, expansion risk, key person and talent risk, competition, a unique corporate structure that limits shareholder control, and share lock-ups that could weigh on the stock. Legg Mason (LM) Our $36 price objective is based on a target P/E multiple of 12x our calendar '17E, a discount to the group, given financial leverage, muted flows, and deal/integration risk. Downside risks to our price objective: an equity sell-off or weakening flows, which would pressure AUM and revenues. A return to past under-performance at key affiliates is also a risk for Legg, given its fragile recovery and brand issues. Given their affiliate model there are integration risks. Upside risks to our price objective are better than expected equity markets, performance, or flows, or an accretive acquisition. Morgan Stanley (MS) We value the brokers based on the relationship between ROE (return on equity} and PB (price to book), which has a high historical correlation. Our $43 PO is based on a target PB multiple of 1.3x our forward book value estimate, which is above our 2017E ROE of roughly 8% as we add in higher interest rate expectations and loosening regulations into our multiple. Risks are a weak economy, low rates for longer, a significant reduction in capital markets activity, weak returns, another shock to the financial system, ongoing competition and talent risk, tighter regulation, significantly higher capital requirements, and ongoing litigation risks. New York Community Bancorp (NYCB) Our price objective is $17 and we use a three factor valuation model equally weighing valuations using P/E, P/TBV and DCF models. To arrive at our P/E valuation, we assign a 14x multiple to our blended '17e EPS or inline with the median of other CCAR banks with $50-100bn in assets. To arrive at our P/TBV valuation we applied a 2.2x multiple to our 2Q17E TBY, a premium to NY/Thrift and smid cap peers given NYCB's superior return profile. We arrive at our DCF valuation using we assume a 2% terminal growth rate and a WACC of 8%. Upside risks to our price objective are: 1} Change in SIFI threshold could drive a relief rally, 2) Lower for longer rate backdrop, and 3) A period of heightened market volatility. Downside risks to our price objective are: 1) worse than expected impact on ROTE from increased capital standards from obtaining the SIF| designation and 2) higher than expected impact from increasing rates on funding cost. Prosperity Bancshares Inc (PB) We use a three-factor valuation framework (P/TBV, P/E, DCF) to arrive at our $58 price objective. We assign a 1.8x multiple to our 2Q17E TBV (40% weight} compared to 1.1x median of TX peers. We believe the 0.7x premium to Texas peers is warranted given PB's above average return on tangible equity (ROTE) profile. We place a 14x multiple on 2017E EPS, in line with historical P/E median (40% weight) net of accretable yield. Our DCF valuation ((20% weight) suggests a fair value of $45. Our DCF assumes a terminal growth rate of 3% and cost of capital of 9.9%. Risks to our price objective are worse than expected drop in the price of oil, better than expected macro environment and increasing rates which offset the effects of lower oil prices, or inability to close an M&A deal due to regulatory or capital constraints. Regions Financial (RF) We use a three-factor valuation framework (P/E, P/TBV, DCF) to arrive at our $13 price objective and assign a 1.4x multiple to 2017E TBV and 14x multiple on 2017E EPS. Our Bankof America Merrill Lynch 2016 Future of Financials Conference | 17 November 2016 71 HOUSE_OVERSIGHT_014385