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for only the 2™ time in the past 20 years}. We target it to move 7.22 million carloads in 2016, with an average revenue per car of $1,371. Coal represents 14% of total revenues, down from 36% 2 years prior. Intermodal represents 22% of revenues, and Ag/Consumer/Gov’t represents 16% of revenues. SVB Financial Group (SIVB) Ebrahim H. Poonawala +1 646 743 0490 Research Analyst, MLPF&S Buy, PO $190 1Q investment thesis We view SIVB as the best positioned bank in our coverage universe by a wide margin to benefit from the combination of 1) rising interest rates — with SIVB ranking among the most rate sensitive banks in the mid-cap banks group 2) stronger economic growth - with SIVB's 2017 guidance (issued before the US elections) already calling for double digit revenue growth 3) de-regulation 4) tax reform. Our '17e EPS of $9 and '18e EPS of $12 imply YoY EPS growth of 24% and 33% respectively. SIVB trades at 18x our '17e EPS and 2x YE17e TBV. Our PO of $190 implies P/'17e EPS of 20x (and 16x ‘18e EPS) and P/YE17e TBV of 2.4x. This compares to an average P/E of 22.7x and P/TBV of 2.6x that the stock traded at heading into and during the initial stages of the 2004-2006 interest rate cycle. Table 1: SIVB key stock data Industry Commercial Banks Market Cap (mn) $8,584 Price $170.38 P/E (2017) 19.1x % of sell-side rated Buy 77.8% Short interest % of float 4.68% Source: Bloomberg and BofA Merrill Lynch Global Research estimates Deregulation/Gov’t Legislation: Among the one legislative action on the regulatory front that appears likely to be passed under the new administration is the increase in the $50bn SIFI asset threshold which brings with a heightened level of regulatory scrutiny (such as undergoing the CCAR stress test). While we were not concerned about SIVB's ability to transition into a CCAR bank, the removal of this should no doubt serve as a positive. At $43bn in assets, becoming a CCAR bank had been weighing on investor sentiment. With expectations for this threshold to be pushed higher, this should no longer be a significant concern when thinking about SIVB's growth trajectory. Another issue that has not been discussed much but could occur is any changes in the Volcker rule that would allow the bank to once again participate in investing capital in PE/VC funds. We view this restriction as an unintended consequence on SIVB stemming from the Volcker rule and the ability once again participate in these funds would be a significant positive given the potential for getting equity exposure in the early stages of the life cycle of start-up companies. Tax Policy: With SIVB paying an effective tax rate of 40.6% in 2016 YTD, the bank will undoubtedly be a beneficiary from a lower corporate tax rate. While we believe it is too soon to adjust estimates for this, we note that a 500bp reduction in the tax rate would equate to 8.4% upside to SIVB's 2018 EPS estimate. Moreover, the potential for hundreds of billion dollars in tax repatriation by the US tech giants also augurs well for greasing the wheels for the start-up sector. While some of this repatriated capital will no doubt go to buy backs and higher dividends, we expect some of this to flow into the Start-up space as tech giants pursue M&A. At the very least it mitigates the risk of any Bankof America 12 Top 10 US Ideas Quarterly | 03 January 2017 Merrill Lynch HOUSE_OVERSIGHT_014633