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Betsy Graseck, CFA +1 (1)212 761 8473 [email protected] Christopher Chouinard, CFA +1 (1)212 761 4115 [email protected]

Fully Valued for Recovery

STOCK RATING UNDERWEIGHTPrice (May 30, 2003) $29.57Price Target NA52-Week Range $35.55 - 17.68 Stock ratings are relative to the analyst's industry (or industry team's) coverage universe. GICS SECTOR FINANCIALSUS Strategist Weight 19.7%S&P 500 Weight 20.7% WHAT'S CHANGED Earnings (2003) From $2.29 to $2.28Q3 Earnings (2003) From $0.59 to $0.58Q4 Earnings (2003) From $0.64 to $0.63

• Lots of Changes but We Believe Procyclical Behavior Remains We recently spent some quality time with the line managers of Fleet's major business segments. Management is focused on fixing the problems from the boom times and investing for the future. We are concerned that they aren't going far enough to change Fleet's procyclical behavior. Strong economic recovery already priced into shares.

• Expect Earnings to Grow Into Dividend Fleet's CFO plans on keeping the dividend flat until earnings grow into a lower payout ratio. Currently 65%, we expect that FBF's dividend payout ratio will eventually settle around 45% by 2006, above the prior banks' pre-merger 34-44% level.

• Tweaking Estimates Down $0.01 in 2003 We are tweaking down our EPS figures slightly in 2003. Commercial credit costs don't seem to be improving as quickly as we had thought. We expect slightly faster loan consumer loan and MBS growth offsets most of the higher provision expense we are forecasting.

• Industry View: Cautious With the yield curve no longer providing tailwinds and credit demand low, we expect bank earnings will be under pressure in 2003, compressing multiplies.

Fiscal Year Ends (Dec 31) 2002 2003e 2004e 2005e EPS ($) 1.49 2.28 2.46 – Prior EPS Ests. ($) – 2.29 – – First Call Consensus ($) – 2.36 2.71 – Revenue ($ mi) 11,544 11,627 11,965 – Provisions ($ m) 2,760 1,389 1,269 –

P/E 19.8 13.0 12.0 – P/E Rel to S&P 500 (%) 99 70 69 – Price / Tangible Book 2.6 2.4 2.2 – Tang. Com. Eq./Tang Assets (%) 6.40 6.47 6.54 –

Market Cap ($mn) 31,086.9Current Yield (%) 4.7LT Est EPS Growth ('02 - '06) (%) 19.4P/E to Growth 0.67Shares Outstanding (mn) 1,051.3Return on Assets (%) 1.16Leverage (x) 11.7Return on Equity (%) 13.5ROEE (%) 7.0

Q'trly 2002 2003e 2004e EPS actual curr prior curr prior Q1 0.70 0.55 – – – Q2 (0.10) 0.52e – – – Q3 0.57 0.58e 0.59e – – Q4 0.33 0.63e 0.64e – –

e = Morgan Stanley Research estimates

Morgan Stanley does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor in making their investment decision.

June 1, 2003

Equity Research North America

United States of America

Banking - Large Cap Banks

FleetBoston Financial Reuters: FBF.N Bloomberg: FBF US NYSE: FBF

Comment

Company Update

Please see analyst certification and important disclosures starting on page 19.

FleetBoston Financial - June 1, 2003


Fully Valued for Recovery Summary and Investment Conclusion We recently spent a day with FleetBoston management revisiting the fundamentals of many of the business lines, and delving into specific issues like the credit card business, commercial strategy and repositioning, as well as the environment in Latin America. Fleet is retooling almost all of its businesses. Nearly every meeting revealed some sort of repositioning within that managers business line. Additionally, nearly every meeting also revealed a focus on cutting costs and reducing staffing in one way or another. One area where we would like to see even more changes is in credit. Much of the bank’s problems stemmed from bubble-era procyclical behavior. We have not seen sufficient changes at Fleet to suggest that it will pull back on growth in the future to lower its risk.

We spoke with Brad Warner on the retail and consumer businesses, Rich Higginbotham on the large corporate and specialized lending areas, Paul Hogan on credit risk management, Bob Lamb, CFO, on strategy and Latin America, Joe Dewhirst, Treasurer, on interest rate risks management, Norman DeLuca on middle market commercial banking and Dean Athanasia and his team on Fleet’s CRM tool and how their sales force manages and monitors workflow and customer profitability.

In sum, it appears that while Fleet’s earnings would cyclically benefit from an economic improvement, the shares are already pricing in that outcome. To justify an investment in the shares, we’d have to expect either much stronger GDP growth (above our economist’s forecast of 4% in 2004) or faster acceleration than our 8-14% annual earnings growth forecast over the next several years as our intrinsic valuation model yields a $29 fair value. We believe that new investors in Fleet are not being compensated for the risks they are taking in the shares.

Overall, we feel we are right to remain Underweight the stock after our meetings. While nearly all the businesses seem to be heading in the right direction, we feel that credit risk management, which is where most of the company’s issues sprung from, is yet to undergo sufficient change to give us confidence that Fleet will be ahead of the next cycle of credit challenges that come up. We also believe that our earnings forecasts already reflect the progress being made at Fleet today, with improving growth rates and profitability already anticipated in almost every business line.

Our thesis on the stock has been that current valuation already discounts an improvement in credit, and we are not looking for the sort of strong economic recovery that would drive very strong growth in the company’s commercial business. There are also two businesses where we have a wider range of potential outcomes; Latin America and private equity. We are assuming that the loan portfolio in Latin America continues to improve while the private equity portfolio turns around in 2004. Other outcomes could have a material impact on our residual income model’s intrinsic value. Currently, with what we believe is a realistic expectation, our residual income model’s fair value for FleetBoston in 12 months is $29, just under May 30’s $29.57 close. Add in the 4.7% dividend yield and you get an expected 12-month return of just 2.8% for the shares. We believe this is too low relative to the risks in the stock.

Investment Positives Coming out of our meetings, we were able to find nuggets of positives from each of the business lines. Most of these are due to relatively recent restructuring or repositioning of the businesses.

Retail: We feel better about the very strong growth in home equity loans at Fleet recently after confirming that roughly 61% of Fleet’s total portfolio is first lien high FICO low LTV product. We also were happy to hear that the company’s balance of 0% teaser rate credit cards is declining, which we believe will help take some pressure off of margin compression this year. Fleet highlighted that it continues to invest in this business through improved branch facilities, increased advertising and some footprint fill-ins.

On the commercial businesses (large corporate and middle market), Fleet has been actively managing the cost side: headcount has been going down, and processes are being centralized where it makes sense. That said, Fleet is redirecting resources to invest in the business; specifically in a team of middle market salespeople and in a sophisticated front-end commercial account manager website. Fleet is far along the way to achieving all of the targeted downsizings in its large corporate portfolio, and the drag to balances from this phenomenon should be minimal from here on out.

New NPLs declining, as expected. Criticized assets are declining, and the portfolio of leveraged buy out credits that



caused so much pain over the past couple of years is falling. Compliance with hold limits, which had slipped in the past is becoming more important, and is now a factor in the CEO’s compensation.

High Dividend Yield . The CFO suggested that he is keen on retaining the dividend, which yields a group high of 4.7%. However, the dividend payout ratio should decline as FBF grows earnings and pushes the dividend payout ratio lower. We expect that the payout ratio will settle out at about a 45% payout ratio level in 2006.

Investment Concerns Our concerns with Fleet remain in risk management, and the company’s ability to grow if cyclical forces do not turn strongly in their favor.

Credit Culture: Fleet has made several changes to its credit policies; in particular, they have reduced overhold percentages and have stricter credit reviews. We did not hear enough, though, to have confidence that Fleet has changed its procyclical business style and would pull back from future high growth markets to prioritize lower risk over higher growth. Rather than eliminating a tolerance for overholds, for example, Fleet is just reducing them from 10% to 5%, although this will take some time. Hold limits remain high, in our opinion. Additionally, we have not seen significant structural change, or a significantly improved risk management structure put in place that would give us comfort that Fleet will outperform through whatever the next credit cycle may be.

Margin: As with most banks, a flatter yield curve is causing some margin compression. Fleet does have some levers — card margins increasing as 0% financing terms out, increasing leverage to drive more net interest income— but this may be partially offset by more competitive deposit pricing in certain markets. Fleet does not seem to have as many levers as peers to offset a flatter curve; in particular, FBF’s loan growth is low, it does not have a large first mortgage origination effort and it only has modest unrealized bond gains.

Commercial lending (middle market and large corporate). Demand for credit remains very sluggish. While FBF will continue to use its balance sheet to grow this business, and volumes are driven by the economic outlook. A weak recovery would lead to sluggish loan growth, keeping top line and earnings down in these segments.

Latin America remains highly uncertain. There is still no visibility on the potential costs from re-dollarization of certain Argentine deposits. The CFO outlined three different scenarios that ranged from negative to potentially positive. While reserves seem adequate in Argentina, the economy remains vulnerable to external shocks. Fleet is considering separating Argentine assets into a good bank/bad bank which could help increase visibility into this asset.

Valuation Methodology and Risks to Price Target We rate FleetBoston shares Underweight. Our residual income intrinsic valuation model yields $29 fair value for the shares, just under where it closed on May 30. The risk free rate that we are using in our model is 5.5%, which assumes an economic recovery in 2004; if we were to use a 3.3% current risk free rate, we would need to lower our top line growth forecasts. Our earnings assumptions and price targets for the banks are based on an expectation that a sub-par economic recovery will mute corporate loan growth and slow the pace of declines in net chargeoffs in 2003. We anticipate consumer loan demand to decelerate as savings becomes a larger priority and as the current mortgage, refinance wave runs its course. For FleetBoston shares specifically, other risks include further deterioration in the Latin American economy, commercial credit and FBF’s private equity portfolio.

Checking in with the CFO and Treasurer Bob Lamb discussed capital allocation, gave us an overview of the current scenarios that could play out in Argentina, and discussed the ALCO challenges of a flat yield curve. Joe Dewhirst, who heads up interest rate risk management for Fleet, gave us more color on Fleet’s interest rate risk management philosophy and practices, as well as some details on how the swap book is being managed and how the company is managing the growth in longer duration home equity loans.

Very comfortable with the dividend. Bob mentioned that he is very comfortable with the dividend level, and that going forward, we should expect Fleet to grow into its current dividend level, rather than grow the dividend near term. While the company is not capital constrained, in Bob’s opinion, Fleet needs to grow earnings to justify the dividend level. Fleet’s payout level is at the top of our group: it was 127% last year, and we expect it to be 60% this year. This should decline over time as Fleet grows into its dividend. A more typical dividend payout ratio in our group is 30-40%. Bob intimated that FBF’s ultimate dividend payout ratio may be above the 34%-44% range



that the predecessor banks had in the three years prior to their merger. Reason? The growth rate for today’s more focused Fleet is a slower 8-10% than the prior banks’ growth rates of 10-12%+. We expect that FBF will retain a 40-45% payout ratio and will reach that level in 2006.

Performance benchmarks driving investments. We asked about Fleet’s benchmarks when approaching investments. Bob mentioned that he thought that large investments are on hold for the time being, and any acquisitions would be smaller, fill-ins. Investments and acquisitions will be evaluated in the contexts of the company’s growth and performance goals: 8-10% annual EPS growth, mid single digit revenue growth, credit costs in the 70-80bp range, and targeted returns of 15-18%.

While these goals are below prior targets from this company, we actually view this as a positive. A business plan that does not encourage significant stretches is better for longer-term profitability and sustainability of the business. Possible areas of investment include denovo branching in eastern Pennsylvania, southern New Jersey, Manhattan and parts of upstate New York, asset management, and insurance products. We briefly touched on the alleged discussions between Fleet and John Hancock. Bob’s response was that since Boston is such a small town, it’s easy to be seen together. Our take? There may have been discussions but we don’t believe that Fleet is positioned to be the first bank to prove that the banking/insurance underwriter business model works.

On Latin America, Fleet is considering splitting Argentina into a “good bank/bad bank” which would increase transparency and improve our ability to forecast earnings for that region. We would encourage that move. It will be some time before we know whether or not that split will occur.

In the meantime, there remain many other moving parts in Latin America. Bob outlined three different scenarios for what could happen in Argentina with their current “redollarization” issue. The bank currently has about $450 million in deposits that are subject to redollarization, under which the depositors are entitled to payment for the “breakage” on these deposits. The scenarios run the gamut from requiring significant payments on Fleet’s part, to a scenario where Fleet might actually be able to recognize a gain. We cannot discount one any more than others, although it is intriguing that it is possible that Fleet could emerge from this issue better off.

• Scenario 1: Fleet is required to pay the breakage on the $450 million in deposits to the depositors. Fleet has not said what the breakage would be for this, but has said that it is less than 50% of this balance. While Fleet obviously has the capital to pay this, Bob pointed out that many Argentine banks do not (other Argentine banks also have this redollarization issue with their depositors), and smaller banks could be pushed into insolvency if these payments are required of the banks.

• Scenario 2: The government could issue bonds to depositors to pay for the breakage. Under this scenario the cost to Fleet would be much less than under the first scenario, and probably close to zero.

• Scenario 3: The government could issue bonds to the banks, release the deposits, and have the banks pay the breakage. Under this scenario, the banks would pay the depositors the breakage by giving them government bonds. This scenario would result in a gain for the bank, as current Argentine bonds are held on the balance sheet at $0.40 on the dollar, and the banks could in this scenario transfer the bonds to the depositors at face value.

Argentina reserves started 2003 with roughly $870 million, and the company believes that by year end they will use roughly $450 - $475 million in reserves, bringing reserves to roughly $400-$425 million by year end.

Longer term options for Latin America. In Argentina, over time Fleet’s presence should decline. The 135 branch network at peak is likely to be roughly 100 branches by year-end and could decline from there. Turning around the Argentina franchise will be a multi year process, and eventually they would like to extract some value, potentially through a joint venture. In the meantime, FBF is considering splitting the Argentine bank into a “good bank/bad bank” to increase to better focus resources and increase asset value. Bob sees Brazil as a relatively attractive market, they have not lost money there and they continue to grow. Growth in Brazil, however, should not increase FBF’s cross-border exposure, as they are focusing on growing funding sources within the country. Bob did note that he felt the bond market was a little ahead of Brazil’s economic reality. The country continues to have some work to do to get its economic house in shape.

Exposure to a flatter yield curve. Joe Dewhirst discussed some of the challenges in this interest rate environment.



Fleet mentioned that a flatter yield curve does impact the company, as it does all banks to one degree or another. Joe mentioned that the current environment makes things quite difficult, as the curve is flattening today by the long end falling while the short end remains stable. Without a Fed easing, it will be more difficult to adjust funding much lower. A drop in the Fed Funds rate would drive down short term borrowing rates and make it easier to reprice some deposits. A drop of long rates simply squeezes margins. While Fleet is hedged against large parallel shifts in the yield curve, a flattening curve resulting from a decline in long rates is more pernicious. Shorter periods of yield curve flattening are more manageable than a sustained flatter yield curve.

Speaking with Joe was helpful to understand how Fleet manages interest rate risk. One thing that stands out, however, is that hedging for a flatter yield curve is difficult. While we expect that flatter yield curves would mean margin pressure for our banks in general, Fleet does have some levers to pull to ease the pain: there are margin benefits from credit cards coming off of 0% teasers, and the company can increase loans and securities to generate more dollar volume of interest income (albeit at a lower spread).

Competition could pressure margins as well. In talking about interest rate risk management, Bob mentioned that the company is considering getting more aggressive in its deposit pricing in some areas to increase share. This would have a negative impact on the margin no matter what happens in the rate environment.

But improving card margins could be an offset. We think that an offset to getting more competitive on deposit pricing could be improving margins on the company’s credit card portfolio. There was roughly $2.4 billion in credit card balances at 0% teaser rates in December 2002, and those balances have declined to $1.5 billion as of April. Fleet believes that by year end those balances could be down as low as $200 million. This is clearly a benefit to margin that should play out in the second quarter and throughout the year. Quantifying the potential benefit would require knowing the number volume of balances which reprice to the “go to rate” and how much payoff, as well as what the go to rates are. Our back of the envelope calculation is that if 40% of the balances reprice to a 10% “go to rate”, then it could add 5 or 6 basis points to margin over the course of the year. This could help offset any intentional pricing impact on the deposit side, or general pressure from a flatter yield curve.

Hedging strategy has been to offset natural asset sensitivity. Fleet’s balance sheet is naturally asset sensitive due to the company’s bias towards core deposit funding and shorter duration commercial loan and consumer assets. Its hedge portfolio has historically been structured to offset this through receive fixed swaps. Today, because of higher capital levels, the company has chosen to reduce asset sensitivity through holding more long duration assets (the company’s 1Q03 purchase of a jumbo mortgage portfolio is an example of this). Other longer duration assets include the 20 year first lien home equity loans, as well as the securities portfolio. In its increase in longer duration loans, however, the company has not blindly added long duration rate risk. Fleet has a number of pay fixed swaps on its books with a start date 2 years in the future that are intended to offset some of the duration extension risk on these loans.

Fleet has structured its swap book, however, and is tweaking its interest rate risk position opportunistically so that it does not miss out on some benefit when interest rates do rise. It has been shortening the duration of its receive-fixed swap book, and has been incrementally reducing the duration of its securities portfolio somewhat. For example, the average duration of Fleet’s receive-fixed swap position has declined to 2.8 years in the first quarter from 3.4 years at year end 2000. In the securities portfolio, Fleet is more often choosing to invest in 15 year MBS over 30 year, and is also putting money into shorter term CMOs.

Latin American rate risk, largely currency driven. We have seen that asset/liability mismatch is not the major driver to Fleet’s international business. The Latin American banks manage interest rate risk using the same models that Fleet does in the U.S. Swings in currency values are the major risks to interest income on the currency operations, as well as country spreads. International loans are roughly 10% of earning assets, and so it is hard for mismatches here to have a large impact on the bottom line for Fleet.

Big fear is rising rates. What we heard from our interest rate risk discussion, however, is that the bank is still more concerned about an eventual rise in interest rates. It seems at Fleet, like at many of the other banks in our coverage, the collective thought is that rates will eventually rise. This would, in fact, be positive for Fleet and most of our other bank coverage relative to the alternative of a multi year period of stable very low interest rates or small declines which would be particularly negative for banks.



Paul Hogan - Credit Risk Our conversation with Paul Hogan, Chief Risk Officer, reinforced that much of the worst is over on the credit side, but that there are unknowns in the airline portfolio. Important for longer term investors, the degree to which credit problems have sparked changes in the credit culture at Fleet appears to be modest, hold limits remain relatively high and a 5% exception rate is tolerated. While we believe the bank is trying to lower its reliance on large corporate lending with its fast-paced consumer lending in recent quarters, it will take a long time for the consumer portfolio to balance out the quite lumpy corporate portfolio. Paul gave an update on the syndicated loan exam, now in progress, recent credit trends, and the company’s reserving policy.

SNC exam ongoing. Paul mentioned that the syndicated loan exam this year is going well. He mentioned that much of the focus this year seems to be on the differentiation between substandard and doubtful rated credits, or the so-called “8-9 split”. Paul mentioned that he does not expect any surprises, and that regulators seem to be moving faster and encouraging banks to share data earlier than in past years. Result? We could see more SNC results coming through in second quarter rather than in third quarter.

Other observations that were interesting to us: regulators seem to be looking more closely at market values for assets to assess degree to which reserves are sufficient. This could result in less loss in the energy portfolios than we’ve been looking for given the tighter spreads in energy debt. The sample size seems to have changed from last year, with more focus today on credits of $50 million and over versus $25 million last years. Paul noted that under Basel II, the structure of the SNC exam may be forced to change or take on a different dimension. Under Basel II, capital will be based on internal risk ratings that are arrived at through sophisticated systems and processes. In that type of environment, the SNC exam will likely have to focus more on the process for determining risk ratings across the company.

Still struggling with house limits. It appears that Fleet is still working to reduce the number of very large exposures in its loan portfolio, and reduce the number of exceptions it has to its credit limit guidelines. The number of credits above $100 million dollars is around 160 today, versus about 230 at its peak. However, Fleet’s exposure limits based on risk ratings seems relatively high, in our view, and the company has said that there is tolerance for a 5% exception rate to its policies. This exception rate averages

7-8% today and was 10% at its worst. This limit structure is under review, and Paul expects a new structure by year end. Paul noted that compliance with hold limits has become an input into the CEO’s compensation package. The board is committed to adhering to hold limits as well.

Portfolio trends augur some improvement. Paul noted that roughly half of credit losses come from 10% of the loan portfolio. This 10% culprit has been investment in “leveraged buyout” credits, which the old Fleet, BankBoston and Sanwa had, as well as telecom and energy lending. These portfolios are declining in size. The middle market is an area of slightly more weakness these days. These smaller businesses have done a good job managing through the weak economy; however Fleet is starting to see some capitulation. Middle market credits, however, are much more granular than the large corporate portfolio, so the impact should not be dramatic. Regarding financial institutions, FBF has made substantial technology investments to upgrade the quality and timeliness of information they track on the financial service companies they lend to. Paul noted that prospects remain good, but he is slightly cautious among life insurers, due to the lack of visibility into their derivatives and bond portfolios.

NPA and risk rating trends have been encouraging, but recoveries coming out of the credit cycle could be lower. Criticized loans have been improving, and nonperforming inflows are at their lowest levels in five years. Paul believes that it will take roughly 6-9 months to get the company back towards more “normalized” levels of credit. Due to the company’s more aggressive sales of non performing loans in this cycle, Paul expects that because of this more active management, recoveries to charge-offs will be lower when the credit cycle turns stronger.

Reserve levels and provisions. We asked Paul about the company’s net charge off and reserving goals. While commercial NCOs were 2.09% in 1Q03, Paul anticipates that FBF can get to 1.0% by the end of the year and hopes that the portfolio should average 80 bp throughout a cycle. We’ve got a lot of this baked into our model already with an expectation for NCOs to fall to 1.10% by 4Q03 and average 0.80% in 2004. On reserves, Paul generally believes that a 2.0% C&I reserve should be sufficient. FBF will likely reach this target by the end of 2003 after another round of reserve bleeding in 2Q03, after which provisions should match net charge-offs.



Consumer Update - Brad Warner Brad Warner gave an update on the consumer and retail banking businesses. We discussed credit trends, the deposit business, home equity and mortgage lending, and the credit card business.

Turning up the heat in retail banking. Fleet is increasing its emphasis on service to compete in retail banking, and is considering becoming more aggressive on rates to win more share in certain deposit markets. Expansion of the franchise is possible through smaller branch acquisitions and some de novo openings. Brad mentioned Eastern Pennsylvania, Midtown Manhattan, southern New Jersey and upstate New York as areas where they may consider increasing branch density.

Focusing on service and perception. Fleet is tackling the perception of offering poor retail customer service in two ways. First, it is investing in retail distribution to improve the customer experience. Second, it is increasing advertising to get the word out on its better service. Both are important, but it will take some time before the perception matches the improved reality.

Fleet has put a lot of emphasis on improving service in the branches. The addition of Lynn Pike from Wells Fargo was a serious step towards enhancing the branch experience, and the company has been surveying 65,000 customers quarterly to gauge how progress. Fleet now feels it has made the bulk of their improvements. One reinforcing point for them is the number of OCC complaints that they are currently getting, which Brad characterized as being at “frictional” levels.

While Fleet is continuing to work on increasing service levels, they are also pairing this effort with a large marketing campaign addressing brand image. Fleet is hoping that this can help change customer attitudes towards past poor service by reinforcing more recent positive branch experiences. This is going to cost about $40-$50 million over the first half of this year, and the company will maintain spending on this campaign to sustain it in the future. Marketing spend should be running at roughly two times previous levels.

Why is the company looking to use price to drive more deposit growth today? Fleet believes that it has the chance to win customers today with competitive rate products, and can then keep assets at the bank when interest rates rise or the equity markets recover by leveraging their retail brokerage sales force and investment capabilities.

Home equity growth is mostly first liens. We also discussed Fleet’s home equity portfolio. Fleet’s home equity portfolio boasts high quality metrics. Average FICO scores are a very high 760, and only 8% is less than 660. The bank does not do any subprime home equity lending. Average loan size is about $55,000 for the entire portfolio, and over the past year originations have averaged $98,000. About 3% of the portfolio is greater than $325,000. The average LTV is about 60% (current LTV including all liens on the property): 82% have an LTV less than or equal to 80%, only 4.5% have an LTV between 81% and 90%, and the remaining 3.5% has an LTV between 91% and 100%. Fleet’s focus is on strong underwriting, and 97% of the portfolio is in footprint and 99% is directly originated and underwritten. Year to date trends are all in line with these averages or slightly better. These numbers suggest one of the strongest portfolios we know of among our banks.

Credit quality is strong, and the portfolio holds up under Fleet’s stress tests. As of April, only 0.43% of the portfolio was more than 30 days delinquent, and in 2002, only 0.02% of the portfolio went into foreclosure. Fleet also stress tests this portfolio using scenarios similar to the 1989-1992 real estate downturn and an 8% unemployment rate without producing large losses. Stress tests that replicate conditions in the 1930’s are required to produce large losses in this portfolio according to Fleet’s tests.

However, the strong metrics, as well as the strong growth in this portfolio made much more sense to us when Brad explained that 61% of the portfolio were first liens, shedding some light on why this portfolio looks so different than some others we’ve seen. Fleet offers a first mortgage product that is a 20 year amortizing loan through its home equity channel. This type of fixed rate product would obviously have much higher balances than a traditional home equity loan or line, and Fleet would only accept very strong credit quality for this type of product. This helps explain the portfolio’s FICO/and size profile, as well as the strong growth in the home equity portfolio recently. We believe this is the type of product that would be very attractive in a strong refinance environment like today. Brad mentioned that out of $7.1 billion in home equity originations year to date, roughly $2.5 billion have been in home equity lines, and the remaining $4.6 billion has been in these first mortgages.

Are there risks with this approach? Sure. One is the interest rate risk the bank is taking on by originating and holding these loans (see our conversation with Joe Dewhirst for more on this). Second, the risk in the portfolios is



probably higher than the averages imply. Fleet recently securitized about $775 million of home equity lines of credit. A quick read through that prospectus indicated that at least with those lines, there is reasonable lumpiness in the higher balance, higher LTV portion of the portfolio. If the on-balance sheet loans are underwritten similarly, declining home prices would clearly be negative for the bank. Additionally, FBF now only reviews debt-to-income ratios for exceptions while underwriting, not for all loans. Higher unemployment levels could yield more pressure on its portfolio than recent history would suggest. FBF is, however, mitigating this risk with its first lien position which it has for a high 61% of the portfolio.

First mortgage business generating strong growth during the boom. The company’s traditional first mortgage business was sold to Washington Mutual in 2001. Since then it has continued to offer first mortgages to its customers, first through Washington Mutual, but more recently through an agreement with Cendant. Fleet mentioned that the relationship is going well and that they and customers are happy with Cendant’s service levels.

Confronting the credit card business. We dug into the numbers a bit with Brad on what is driving the credit card business, and its future. This business is being run by relatively new management, put in place just over one year ago. The business is roughly 20% in footprint, and 80% national. While Brad sees that Fleets’ customer base is higher quality than national averages, he also acknowledges that the combined business is generating the lowest returns in the retail/consumer businesses. Brad puts card returns at 12-13%, versus 27-28% at the other consumer businesses. We believe that management continues to evaluate each portfolio’s potential to generate long-term returns.

Increasing card penetration in-footprint. Fleet is increasing its focus on its in-footprint customers to drive its card business going forward. Not only does Fleet see better credit quality on comparable in-footprint customers versus out-of-footprint customers, but is also sees the benefits of potentially expanding the relationships and the brand advantages as well. Fleet is looking to grow its share of in footprint customers to 24% in 2003, and over time bring this percentage to roughly 35%.

Credit card margins should firm, and credit quality could deteriorate a bit. Fleet’s credit card margins declined meaningfully in the first quarter. A big driver of this was a significant volume of 0% interest offers extended in 2002. Balances of these 0% cards peaked in December

2002 at $2.5 billion, and were high throughout the first quarter. This put a significant crimp in the margin. Fleet stopped mailing these offers in late 2002, and expects the volume of 0% interest cards to decline to roughly $500 million by year end. The balance stood at $1.5 billion as of April. Brad believes that margins should stabilize in 2Q, and improve somewhat through the end of the year.

Specialized Lending - Rich Higgenbothem Large corporate still a big driver. We had the opportunity to meet with Rich Higgenbothem, who is responsible for the national large corporate business as well as some of the niche businesses, such as asset based lending, real estate and leasing. We discussed the weak credit demand environment, the performance of the business units, and the repositioning of the large corporate business. Bottom line? Demand for credit remains weak but the proactive shrinkage of the portfolio is nearing completion - the $5 billion left in exposure to be reduced is 90% commitments, and so further shrinkage won’t have a major impact on outstandings.

Exhibit 1

FleetBoston: Breakdown of Commercial Lending, 1Q03 ($ billions)

Customers Commitments OutstandingsBusiness Financial Services(i.e. Middle Market Lending) 30,000 $35 $15

Asset Based Lending 1,300 $18 $8Financial Institutions 1,000 $12 $1National Banking 2,000 $34 $12Leasing 54,000 $14 $14Real Estate 1,200 $19 $14Other 500 $5 $3Total Specialized Finance 60,000 $102 $52

Total Commercial 90,000 $137 $67

Source: Company data, Morgan Stanley Research A basic strategy - get paid for risk and cut costs. What we heard from Rich lead us to believe that Fleet is getting close to the end of the process of fixing past strategic mistakes. Right-sizing large corporate relationships is crucial to reduce the risk profile of the bank, in our opinion. However, it’s hard to see the vision that they are bringing to their businesses besides reversing past wrongs - nothing here leads us to believe they will have better than average results in most of these businesses going forward. Finally, Rich mentioned areas of costs savings in his businesses. Leasing and asset based lending have reduced headcount by about 100 people each.

Leasing volumes mirror the economy. Fleet’s leasing business is national in scale and operates multiple



distribution channels. They have a vendor finance division, direct origination business, a division focusing on highly structured transactions as well as divisions tailored to industry groups such as healthcare, corporate air, and other industries. Fleet competes with many of the large commercial banks, leasing companies, as well as regional banks in local markets at the lower end. Their philosophy in leasing is to focus on setting realistic residual values and realizing them. However they are not totally focused on collateral in their decision making. Growth has been challenging recently as their volumes reflect businesses’ decisions to expand capital expenditures - which has been weak.

Residual value discipline is reinforced by a staff of professional engineers, trained equipment experts and certified appraisers that manage Fleet’s book of leased assets. This staff stays on top of changes in expected residual values and is proactive in lease extension or early purchase negotiations when necessary. As a result, 90% of leased equipment is purchased by the original users and there has been less than 1% residual writedowns on average for the past five years and Fleet has realized more than $50 million in gains on equipment annually in each year since 1996. Fleet does have residual value insurance on a portion of its portfolio, but typically only on high value equipment such as corporate jets, railcars, etc…and the insurance is geared towards protecting the downside on the equipment.

Commercial airlines the trouble spot. The well publicized trouble spot in the leasing business is the commercial airline business. Half of 2002’s net charge offs were related to the commercial air businesses (about $75 million). Fleet’s commercial air leasing book stands at $1.4 billion in leases: $900 million are leveraged leases, $300 million are single investor leases and the remaining $200 million are debt obligations. Of the $1.4 billion, $600 million is fully defeased. Of the $1.4 billion, $250 million is to US major carriers and $350 million is to the regionals. Fleet’s United Airlines exposure has been written down to $0, and U.S. Airways exposure is down to $3 million. Fleet is still negotiating with American over restructuring their leases, and has set aside some reserves for this exposure (which are primarily leveraged leases), although Rich could not quantify the amount. The company is not currently negotiating with any other carriers at this time. Fleet is more comfortable with their regional exposure (they don’t see the recent problems at corporate-centric MidWest Express as indicative of an unhealthy regional airline industry), and Fleet’s foreign airline exposure is all fully defeased.

Fleet built reserves for this business in the fourth quarter of 2002 when the bank took a combined $300 million provision for exposure to merchant energy, telecom and airlines. Since then merchant energy and telecom have performed slightly better than their expectations, which gives Fleet some breathing room even if the airline losses are above their expectations.

Industry Banking in transition. Fleet’s Industry Banking business is essentially the bank’s large corporate banking business. It focuses on “Mid Cap” sized businesses. Fleet has restructured this business significantly over the past few years. Rich mentioned that Fleet has significantly reduced banking to certain segments: telecom, energy trading and transportation, for instance. With much of Fleet’s credit problems coming from this portfolio, the bank’s current focus is on making relationships more profitable. Just a few years ago, the bank had significant credit only relationships - the bank took the initiative to reduce their credit exposure where they were not getting other business to make the credit relationships worthwhile. Fleet is considered the lead bank for only 15-20% of its 2,000 customers in this segment.

Fleet has reduced outstandings in this business to about $11 billion, and Rich thinks that the bulk of the proactive reductions are largely over. There is about $5 billion in exposure to be worked down, but 90% of that are off balance sheet commitments, and the balance sheet impact from further reductions will be nominal. Challenging growth from here, however, is a relatively healthy high-yield market, and weak line utilization. Areas where Fleet is looking for growth include: the media industry (cable, publishing and radio), energy (transportation and production of raw materials), restaurants, financial institutions, and mid cap companies within their footprint.

Asset-based lending doing well. Asset based lending at Fleet is focused on larger transactions. Primary competitors include CIT, GECC as well as other several other large cap banks. Key to this business in Rich’s view is understanding and relying on the asset values (whether they be inventories or receivables, etc…) and knowing the downside. This is a discipline that this unit lost in the late 1990’s, as they integrated new operations and grew to have nearly $3 billion of credit extended based primarily on cash flows. Discipline has been restored here, and cash flow business is down to about $500 million. This is the one portfolio where Rich has seen the best up tick in demand - outstandings have risen for the past couple of months.



Good demand for asset based lending is in line with what we’ve heard from other companies, and makes sense at this point in the economic cycle. Some companies under stress are being pointed to the asset based lending divisions of banks as an alternative to the work out groups.

Real estate lending slowly losing its luster. Rich pointed out that real estate has come off five years of strength for Fleet. He is expecting that results begin to deteriorate over the next couple of years. He thinks that we will begin to see more problems at more leveraged real estate companies across the nation, not necessarily in certain geographies as we’ve seen in the past. Rich sounded comfortable with Fleet’s real estate strategy, which is more disciplined and “uptier” than it was in the prior late 80’s, early 1990’s cycle. Fleet has required more equity in projects (at least 25-30%), and has not underwritten projects based on peak rents experienced in 2000 in many markets. Losses have been almost non-existent in this portfolio. Losses in 2002 were $9 million, or 0.08% of average loans of about $11.4 billion that year. Rich believes that losses could pick up to 0.20% - 0.25% in 2003, roughly in line with what we are looking for.

Business Financial Services - Norman DeLuca We spoke with Norman Deluca, who is heading the in-footprint middle market businesses. This unit serves business with annual sales from $2 million to $1 billion annually. Fleet is pursuing a new strategy in this business. It has moved the very small business customers to the retail segment (sales of around $1 million), while forming a commercial group to serve businesses from $2 - $25 million. The larger middle market companies of $25 million to $1 billion in sales are served under a different group. It has also introduced business development specialists whose sole job is to grow the account base. While Norman thinks this segmented account management and sales development structure the right model is in place to grow the business, demand for credit remains weak among these clients. We expect that growth in loan balances will primarily reflect growth in the number of relationships for at least the next year.

Exhibit 2

Business Financial Services (Middle Market) Overview - Summary Statistics as of 1Q03

Annual Sales of

$2 - $25 million

Annual Sales of

$25 million - $1 billion

Total

Number of Customers 25K 5K 30K + Credit Commitments $7 billion $28 billion $35 billion Credit Outstanding $4 billion $11 billion $15 billion Total Deposits/Credit $5 billion $3 billion $8 billion Customers/Relationship Manager

50-75 20-25

% Secured ~ 90-95% ~ 50-55% 78% % Lead Bank Relationship

> 68% < 68% 68%

Source: Company data, Morgan Stanley Research New business model intended to cut costs, maintain service. This new business model adds a sales-only focused team and centralizes underwriting and other services (which had previously been in the field), enabling relationship managers in the field to focus on their customers. More compensation will also be coming from incentives. Norman thinks that he has taken 20% of the costs out of the “commercial” business ($2-$25 million in sales). This equates to roughly $16-$17 million at an annualized rate which will be fully realized in 2004. Over time, Norman thinks that some of this centralization can be migrated to the larger middle market business.

Business development group - aggressive acquisition. An interesting new program that Fleet is beginning is a group of full time business development officers. These are bankers and non bankers whose full time job is to call on competitors’ clients. Current target market is businesses with $10-$50 million in sales. These business development officers are a mix of former bankers, as well as non bankers and they are paid on commission in an “eat what you kill” type arrangement. Compensation is a function of their client’s revenues. They have been running this program the longest in New Jersey, where they have generated over 120 new relationships so far this year. Norman admits that this is a very early stage for this program, but it sounds like an interesting, entrepreneurial way to drive business growth. He expects it to be most active in New Jersey, Pennsylvania and in New York City, although they have an active business development group in New England too. We look forward to watching the progress of this innovative initiative.



Demand for credit weak. We were not surprised to hear that demand for credit remains weak among the middle market client base. The middle market has seen declining balances for the past 24 months - lead primarily by lower line utilization. Line utilization is now in the 30% range, versus a more normal level for Fleet of the 40% area. Generally, their customers are managing their businesses well, so that they haven’t needed a lot of credit, and they also haven’t had significantly higher middle market losses. Norman thinks that “normalized” losses for his business might be in the 70-80 bp range. 2002 losses were driven by fraud issues, including the well publicized gold fraud which was a $75 million loss out of $300 million in total losses.

Advanced CRM Platform Helping Focus Account Mgrs In addition to talking with line managers on our trip, we also spent some time with the people involved with the development of Fleet’s CRM product. Fleet uses the same CRM platform for its entire commercial customer base, and the product is in a constant evolutionary process. Fleet’s product seems powerful to us, as it is a tool that all relationship managers are required to use (many functions are only available through this tool), and it is built to improve collaboration across product types and boost cross selling. While most large banks need to make some sort of CRM commitment - Fleet’s efforts seem particularly advanced and embedded in the work process flow of its relationship managers.

Integral tool for the relationship manager. A major plus of Fleet’s CRM tool, in our opinion, is the degree to which it appears essential to a relationship manager’s job. It simply isn’t possible for relationship managers to do their job without using this tool. Fleet also had the foresight to integrate critical applications, such as email, into the platform. Usage is also boosted by the fact that some functions that have been integrated into the CRM product are not available any other way. Prospecting tools, such as Dun and Bradstreet data, are also integrated into the platform. Thus Fleet has made its product compulsory for the job. Fleet introduced this product in the first quarter of 2001, and within 9 months had deep adoption.

A very robust and productive offering. Fleet’s application also appeared to be very robust. The relationship manager’s homepage gives a snapshot of his client base parceled into its four customer segments, as well as client news, stock prices, email functionality and action items (i.e. call client XYZ on a certain matter). Customer segment rankings are updated at least quarterly, and are based on the profitability, risk profile, SVA, the client’s

market position, the pipeline value and revenue potential of that client. They are “Defend” for highly valuable clients where they have a strong relationship, “Enhance” where there are clients that they are seeking to grow the relationship, “Monitor” for clients that have deteriorating fundamentals, and “Exit” for clients where exposure needs to be reduced and the client is particularly risky. The product also gives detailed information on client revenues by product, and estimates on client profitability (based on the cost to service the customer). Relationship managers can see the percentage of revenues that are coming from credit, and importantly, all of this information is also available to supervisors.

Fleet believes that this will help improve cross sell and service levels. Fleet believes that they have achieved some improvements since implementing this system in early 2001. For their commercial customers, credit only relationships have declined from 33% of all relationships in 3Q01 to 15% in 1Q03, credit related revenue has declined from 49% of total revenues in 2000 to 39% in 2002, and cross sell has improved from 5.3 products in 4Q01 to 6.4 in 1Q03. The company also indicated improvements in sales productivity per employee as well as customer attrition. This has been done without adding incremental cost. The system cost $12 million to develop, and the company believes that savings they produced matched those costs dollar for dollar. Ongoing operating costs could be in the neighborhood of about $2 million per year, which seems like a bargain for a very robust product.

Execution is what matters. While this is clearly a great advantage for Fleet’s relationship managers, there are other inputs into the commercial businesses success. Listening to your customers and anticipating their needs cannot be replicated in this platform. Furthermore, credit underwriting is also entirely separate from this product, although it does help facilitate closer monitoring of clients. Finally, it is unclear to us whether the depth of this product can make up for strong demands on relationship managers. With 40-50 clients per relationship manager in the commercial middle market category ($2-$25 million in sales), there is the possibility that resources could be stretched a little thin. That said, the improvements in cross-sell and the focus that this front-end enables is impressive.



Exhibit 3

FleetBoston Earnings Model, 2001A-2006E — Income Statement 2001A 2002 2003E 2004E 2005E 2006EYear 1Q 2Q 3Q 4Q Year 1QA 2QE 3QE 4QE Year

Income statement:Net interest income (FTE) 7,449$ 1,712$ 1,652$ 1,531$ 1,563$ 6,481$ 1,622$ 1,681$ 1,693$ 1,694$ 6,686$ 6,841$ 7,286$ 7,732$

Noninterest income:Banking fees and commissions 1,585 383 383 386 382 1,534 378 386 395 404 1,564 1,628 1,731 1,823 Investment services revenue 1,395 405 405 380 371 1,561 354 353 363 379 1,450 1,508 1,598 1,717 Credit card revenue 756 172 155 195 263 785 111 161 197 268 737 760 790 822 Capital markets revenue 273 276 (126) 220 119 489 156 95 125 135 511 530 680 830 Other 411 176 187 155 176 694 139 180 180 180 679 699 720 742

Total noninterest income 4,420 1,412 1,004 1,336 1,311 5,063 1,138 1,175 1,260 1,367 4,941 5,124 5,519 5,933

Total revenues 11,869 3,124 2,656 2,867 2,874 11,544 2,760 2,857 2,953 3,061 11,627 11,965 12,806 13,665 Provision 2,326 408 1,250 352 750 2,760 280 383 364 361 1,389 1,269 1,189 1,104

Revenues, net of provision 9,543 2,716 1,406 2,515 2,124 8,784 2,480 2,474 2,589 2,700 10,238 10,696 11,617 12,561

Noninterest expense:Employee compensation and benefits 3,741 809 836 842 774 3,261 826 851 868 885 3,430 3,498 3,708 3,968 Occupancy 533 131 126 126 121 504 129 132 134 137 532 548 575 604 Equipment 526 123 121 118 117 479 119 121 124 126 490 505 530 557 Amortization of intangibles 385 22 22 21 28 93 20 20 20 20 80 80 80 80 Other expenses 1,938 476 483 492 542 1,993 479 489 484 479 1,930 2,007 2,128 2,255

Total noninterest expense 7,123 1,561 1,588 1,599 1,582 6,330 1,573 1,612 1,629 1,647 6,462 6,638 7,021 7,464

Operating pretax income 2,420 1,155 (182) 916 542 2,454 907 861 959 1,052 3,776 4,058 4,596 5,097 Income tax rate (FTE) 33% 36% 45% 35% 36% 35% 36% 36% 36% 36% 36% 36% 36% 36%Operating income 1,628 739 (100) 599 348 1,587 577 551 614 674 2,416 2,597 2,941 3,262

Preferred dividends 29 5 5 5 5 20 5 5 5 5 20 20 20 20 Operating income to common 1,599$ 734$ (105)$ 594$ 343$ 1,567$ 572$ 546$ 609$ 669$ 2,396$ 2,577$ 2,921$ 3,242$

Operating earnings per share 1.48$ 0.70$ (0.10)$ 0.57$ 0.33$ 1.49$ 0.55$ 0.52$ 0.58$ 0.63$ 2.28$ 2.46$ 2.85$ 3.25$

Nonrecurring items (pretax) (783) (5) (9) (4) (83) (101) - - - - - - - - Tax rate on nonrecurring items 13% 38% 38% 38% 38% 36% - - - - - - - - Nonrecurring items (after-tax) (681) (3) (6) (2) (51) (63) - - - - - - - -

Income from discontinued operations (after-tax) (1) (280) (18) (36) (335) (10) (10)

Net to common 919$ 730$ (391)$ 574$ 256$ 1,169$ 562$ 546$ 609$ 669$ 2,386$ 2,577$ 2,921$ 3,242$ Net earnings per share (diluted) 0.85$ 0.70$ (0.37)$ 0.55$ 0.24$ 1.11$ 0.54$ 0.52$ 0.58$ 0.63$ 2.27$ 2.46$ 2.85$ 3.25$

Source:



Exhibit 4

FleetBoston Earnings Model, 2001A-2007E — Balance Sheet 2001A 2002 2003E 2004E 2005E 2006E 2007EYear 1Q 2Q 3Q 4Q Year 1QA 2QE 3QE 4QE Year

Summary balance sheet, period end:Assets

Loans and leasesC&I and lease financing 62,899$ 60,701$ 55,397$ 52,893$ 50,558$ 50,558$ 49,253$ 47,775$ 46,820$ 46,352$ 46,352$ 47,742$ 49,652$ 52,135$ 54,741$ Commercial real estate 11,518 11,915 11,452 11,072 11,001 11,001 10,653 10,546 10,546 10,652 10,652 10,971 11,520 11,981 12,460 Consumer 32,349 32,077 31,678 36,831 43,168 43,168 48,883 53,771 58,073 59,234 59,234 65,158 70,371 75,296 80,567 International 21,414 19,017 17,674 16,257 15,653 15,653 15,226 14,921 14,772 14,772 14,772 14,920 15,368 16,136 16,943

Total loans and leases 128,180 123,710 116,201 117,053 120,380 120,380 124,015 127,015 130,212 131,010 131,010 138,792 146,910 155,548 164,711 Other earning assets 47,419 37,610 37,848 37,428 39,242 39,242 46,779 46,978 48,160 48,456 48,456 48,765 48,970 46,462 49,200 Ineligible intangibles 5,075 5,012 4,540 4,634 4,677 4,677 4,624 4,604 4,584 4,564 4,564 4,485 4,405 4,326 4,298 Other assets 22,964 25,832 32,451 28,073 26,154 26,154 24,374 23,720 22,069 22,252 22,252 21,091 22,306 23,221 24,872

Total assets 203,638$ 192,164$ 191,040$ 187,188$ 190,453$ 190,453$ 199,792$ 202,317$ 205,025$ 206,283$ 206,283$ 213,132$ 222,591$ 229,557$ 243,081$ Tangible assets 198,563 187,152 186,500 182,554 185,776 185,776 195,168 197,713 200,441 201,719 201,719 208,647 218,186 225,232 238,783

Liabilities and shareholders' equityLiabilities

Interest bearing liabilitiesCore deposits 111,684$ 108,419$ 111,521$ 112,436$ 116,759$ 116,759$ 120,132$ 130,495$ 133,779$ 132,805$ 132,805$ 138,792$ 144,951$ 149,488$ 158,294$ Borrowings 65,556 53,403 48,038 45,817 45,243 45,243 50,990 35,503 34,279 36,100 36,100 35,723 39,891 41,165 44,134

Total interest bearing liabilitie 177,240 161,822 159,559 158,253 162,002 162,002 171,122 165,997 168,058 168,905 168,905 174,514 184,843 190,652 202,428 Noninterest-bearing liabilities 8,790 12,756 14,665 12,069 11,618 11,618 11,538 15,659 16,053 16,152 16,152 16,880 15,670 16,161 17,113

Total liabilities 186,030 174,578 174,224 170,322 173,620 173,620 182,660 181,656 184,112 185,057 185,057 191,394 200,513 206,813 219,541 Trust preferred 2,804 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 Shareholders' equity

Preferred 271 271 271 271 271 271 271 271 271 271 271 271 271 271 271 Common 17,337 17,315 16,545 16,595 16,562 16,562 16,861 17,052 17,305 17,617 17,617 18,129 18,469 19,135 19,931

Total shareholders' equity 17,608 17,586 16,816 16,866 16,833 16,833 17,132 17,323 17,576 17,888 17,888 18,400 18,740 19,406 20,202 Total liabilities and shareholders 203,638$ 192,164$ 191,040$ 187,188$ 190,453$ 190,453$ 199,792$ 202,317$ 205,025$ 206,283$ 206,283$ 213,132$ 222,591$ 229,557$ 243,081$

Summary balance sheet, sequential change:Assets

Loans and leasesC&I and lease financing -10% -3% -9% -5% -4% -20% -3% -3% -2% -1% -8% 3% 4% 5% 5%Commercial real estate -1% 3% -4% -3% -1% -4% -3% -1% 0% 1% -3% 3% 5% 4% 4%Consumer -11% -1% -1% 16% 17% 33% 13% 10% 8% 2% 37% 10% 8% 7% 7%International 25% -11% -7% -8% -4% -27% -3% -2% -1% 0% -6% 1% 3% 5% 5%

Total loans and leases -5% -3% -6% 1% 3% -6% 3% 2% 3% 1% 9% 6% 6% 6% 6%Other earning assets -9% -21% 1% -1% 5% -17% 19% 0% 3% 1% 23% 1% 0% -5% 6%Ineligible intangibles 11% -1% -9% 2% 1% -8% -1% 0% 0% 0% -2% -2% -2% -2% -1%Other assets -16% 12% 26% -13% -7% 14% -7% -3% -7% 1% -15% -5% 6% 4% 7%

Total assets -7% -6% -1% -2% 2% -6% 5% 1% 1% 1% 8% 3% 4% 3% 6%Tangible assets -7% -6% 0% -2% 2% -6% 5% 1% 1% 1% 9% 3% 5% 3% 6%

Liabilities and shareholders' equityLiabilities

Interest bearing liabilitiesCore deposits 0% -4% 3% 1% 4% 5% 3% 9% 3% -1% 14% 5% 4% 3% 6%Borrowings -17% -18% -10% -5% -1% -31% 13% -30% -3% 5% -20% -1% 12% 3% 7%

Total interest bearing liabilitie -7% -9% -1% -1% 2% -9% 6% -3% 1% 1% 4% 3% 6% 3% 6%Noninterest-bearing liabilities -8% 45% 15% -18% -4% 32% -1% 36% 3% 1% 39% 5% -7% 3% 6%

Total liabilities -7% -6% 0% -2% 2% -7% 5% -1% 1% 1% 7% 3% 5% 3% 6%Trust preferred 22% 19% 0% 0% 0% 19% 0% 0% 0% 0% 0% 0% 0% 0% 0%Shareholders' equity

Preferred -52% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%Common -8% 0% -4% 0% 0% -4% 2% 1% 1% 2% 6% 3% 2% 4% 4%

Total shareholders' equity -9% 0% -4% 0% 0% -4% 2% 1% 1% 2% 6% 3% 2% 4% 4%Total liabilities and shareholders -7% -6% -1% -2% 2% -6% 5% 1% 1% 1% 8% 3% 4% 3% 6%

Source: Company data, Morgan Stanley Research



Exhibit 5

FleetBoston Earnings Model, 2001A-2007E — Model Drivers 2001A 2002 2003E 2004E 2005E 2006E 2007EYear 1Q 2Q 3Q 4Q Year 1QA 2QE 3QE 4QE Year

Model drivers: 1.00 4.06 4.01 3.97 3.97 1.00 4.06 3.97 3.97 3.97 1.00 1.00 1.00 1.00 1.00 Domestic

C&I and lease financing EOP Loans 62,899$ 60,701$ 55,397$ 52,893$ 50,558$ 50,558$ 49,253$ 47,775$ 46,820$ 46,352$ 46,352$ 47,742$ 49,652$ 52,135$ 54,741$ Q/Q loan growth -10% -3% -9% -5% -4% -20% -3% -3% -2% -1% -8% 3% 4% 5% 5%NCOs / average loans 1.38% 1.70% 5.54% 1.74% 1.98% 2.75% 2.09% 1.30% 1.20% 1.10% 1.44% 0.90% 0.80% 0.80% 0.80%NPLs / period end loans 2.17% 2.69% 2.82% 2.96% 2.83% 2.83% 2.19% 2.00% 1.90% 1.80% 1.80% 1.50% 1.10% 1.10% 1.10%

Commercial real estate EOP Loans 11,518$ 11,915$ 11,452$ 11,072$ 11,001$ 11,001$ 10,653$ 10,546$ 10,546$ 10,652$ 10,652$ 10,971$ 11,520$ 11,981$ 12,460$ Q/Q loan growth -1% 3% -4% -3% -1% -4% -3% -1% 0% 1% -3% 3% 5% 4% 4%NCOs / average loans -0.03% -0.03% 0.03% 0.18% 0.14% 0.08% 0.34% 0.25% 0.30% 0.30% 0.30% 0.30% 0.30% 0.25% 0.25%NPLs / period end loans 0.55% 0.50% 0.59% 0.35% 0.66% 0.66% 0.75% 0.75% 0.80% 0.80% 0.80% 0.70% 0.60% 0.50% 0.50%

ConsumerEOP Loans 32,349$ 32,077$ 31,678$ 36,831$ 43,168$ 43,168$ 48,883$ 53,771$ 58,073$ 59,234$ 59,234$ 65,158$ 70,371$ 75,296$ 80,567$ Q/Q loan growth -11% -1% -1% 16% 17% 33% 13% 10% 8% 2% 37% 10% 8% 7% 7%NCOs / average loans 1.07% 1.10% 1.11% 0.96% 0.82% 0.99% 0.85% 0.80% 0.85% 0.95% 0.87% 0.95% 0.85% 0.70% 0.70%NPLs / period end loans 0.22% 0.24% 0.24% 0.20% 0.17% 0.17% 0.16% 0.20% 0.25% 0.25% 0.25% 0.20% 0.15% 0.10% 0.10%

Total domesticNet interest margin 4.26% 4.30% 4.20% 4.26% 4.19% 4.23% 4.15% 4.10% 4.05% 4.00% 4.09% 4.00% 4.00% 4.10% 4.20%

InternationalEOP Loans 21,414$ 19,017$ 17,674$ 16,257$ 15,653$ 15,653$ 15,226$ 14,921$ 14,772$ 14,772$ 14,772$ 14,920$ 15,368$ 16,136$ 16,943$ Q/Q loan growth 25% -11% -7% -8% -4% -27% -3% -2% -1% 0% -6% 1% 3% 5% 5%Net interest margin 7.63% 7.30% 8.98% 5.67% 6.26% 7.16% 6.47% 6.50% 6.50% 6.60% 6.55% 7.00% 8.00% 8.00% 8.00%NCOs / average loans 0.67% 0.90% 1.55% 4.10% 7.41% 3.20% 8.03% 3.00% 2.50% 2.25% 3.76% 1.50% 1.25% 1.00% 1.00%NPLs / period end loans 1.50% 1.45% 9.63% 12.59% 11.69% 11.69% 11.03% 10.00% 9.00% 8.00% 8.00% 8.00% 6.00% 3.00% 3.00%

Other earning assets% of total earning assets 28% 25% 26% 26% 26% 26% 27% 27% 27% 27% 27% 26% 25% 23% 23%Net interest margin 2.51% 2.47% 1.99% 2.27% 2.41% 2.28% 2.55% 2.50% 2.40% 2.30% 2.44% 2.10% 2.00% 2.00% 2.00%

Other credit-related driversProvision = net chargeoffs? yes yes yes Yes Yes Yes Yes

or provision include reserve build? no no no No No No NoTarget reserves / loans 0.00% 0.00% 0.00% 0.00%Actual reserves / loans 2.84% 2.92% 3.33% 3.18% 3.21% 3.27% 2.75% 2.68% 2.62% 2.60% 2.69% 2.53% 2.39% 2.26% 2.14%Estimated yield on NPLs 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%

Noninterest income -- Q/Q growth ratesBanking fees and commissions

Deposit account charges -21% -9% -2% -3% 2% -14% -1% 3% 2% 2% 2% 3% 4% 5% 5%Electronic banking fees 12% -8% 11% 1% 0% 7% -9% 2% 2% 2% -3% 4% 7% 5% 5%Cash management fees 25% 27% -12% 8% -8% 23% 6% 4% 4% 4% 6% 6% 9% 6% 6%Other 3% -21% 11% -4% 4% -17% -4% -1% 1% 1% 0% 3% 5% 5% 5%

Total banking fees and commiss -1% -13% 6% -2% 2% -3% 38% 41% 47% 48% 2% 4% 6% 5% 5%Investment services revenue

Investment management revenue -4% 15% -3% -8% -2% 21% -3% 1% 2% 4% -6% 4% 6% 8% 8%Brokerage fees and commissions -25% 6% 7% -1% -4% 4% -9% -3% 5% 5% -9% 4% 6% 6% 6%

Total investment services revenu -12% 12% 0% -6% -2% 16% -5% 0% 3% 4% -7% 4% 6% 7% 7%Credit card revenue (Y/Y) 2% 5% -4% 1% 11% 4% -35% 4% 1% 2% -6% 3% 4% 4% 4%Capital markets revenue

Market-making 11% -20% -9% 29% -25% -7% -42% -14% 67% 20% -35% 14% 13% 11% 10%Foreign exchange 22% 62% -128% -287% -198% -75% -38% -215% 100% 17% 127% 27% 12% 5% 8%Syndication / agency fees -9% 0% -7% -18% -19% -18% 27% -9% 0% 0% -11% -2% 4% 4% 4%Advisory fees -11% -100% #DIV/0!UnderwritingTrading profits and commissions -5% -37% -26% 107% -10% -32% 35% -29% -20% -25% 50% -32% 0% 8% 7%Securities gains -2215% -114% -1487% -125% 190% -102% -77% -12% -33% 0% 1633% -42% 0% 0% 0%Principal investing -189% -103% -483% 48% 26% -76% -38% 42% 0% 0% 47% -46% -67% -200% 0%

Total capital markets revenue -111% -184% -150% -257% -20% -344% -34% -14% 32% 8% 1% 14% 28% 22% 7%Other -68% 1157% 6% -17% 14% 69% -21% 29% 0% 0% -2% 3% 3% 3% 3%

Noninterest expense -- Q/Q growth ratesEmployee compensation and benefits -26% -11% 3% 1% -8% -13% 7% 3% 2% 2% 5% 2% 6% 7% 7%Occupancy -11% 0% -4% 0% -4% -5% 7% 2% 2% 2% 5% 3% 5% 5% 5%Equipment -12% 0% -2% -2% -1% -9% 2% 2% 2% 2% 2% 3% 5% 5% 5%Other expenses -29% -7% 1% 2% 10% 3% -12% 2% -1% -1% -3% 4% 6% 6% 6%




Exhibit 6

FleetBoston Earnings Model, 2001A-2007E — Model Drivers (Continued) 2001A 2002 2003E 2004E 2005E 2006E 2007EYear 1Q 2Q 3Q 4Q Year 1QA 2QE 3QE 4QE Year

Resultant sequential change in:Income statement:

Net interest income -7% 0% -3% -7% 2% -13% 4% 4% 1% 0% 3% 2% 7% 6% 7%Provision 80% -70% 206% -72% 113% 19% -63% 37% -5% -1% -50% -9% -6% -7% 6%Noninterest income -49% 106% -29% 33% -2% 15% -13% 3% 7% 8% -2% 4% 8% 7% 6%Revenues, net of provision -38% 163% -48% 79% -16% -8% 17% 0% 5% 4% 17% 4% 9% 8% 7%Noninterest expense -24% -12% 2% 1% -1% -11% -1% 2% 1% 1% 2% 3% 6% 6% 6%Operating income -55% -271% -114% -697% -42% -3% 66% -4% 11% 10% 52% 7% 13% 11% 8%Net to common -76% -243% -154% -247% -55% 27% 120% -3% 11% 10% 104% 8% 13% 11% 8%

Average balance sheet:Total loans -7% -1% -4% -3% 2% -8% 3% 2% 2% 2% 6% 6% 6% 6% 6%Interest-earning assets -6% -5% -4% -1% 1% -10% 5% 2% 2% 2% 8% 5% 4% 3% 6%

0% 1% 5% 6%Capital management 1.40 1.40 1.40 1.42 1.48 1.58

Dividend payout ratio 159% 47% -98% 65% 150% 127% 64% 67% 61% 55% 61% 57% 49% 45% 43%Percentage of shares repurchased (inc -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.0% 3.0% 3.0% 3.0%

Repurchased under current authorizationShares (cumulative) 43 43 43 43 43 43 43 43 43 43 43 Percent (cumulative) 39% 38.6% 39% 39% 39% 39% 38.6% 39% 39% 39% 39%

Forward P/E assumed for repurcha 32.3 x 15.5 x 10.0 x 10.0 x 10.0 x 12.4 x 9.4 x 10.0 x 10.0 x 10.0 x 10.2 x 11.0 x 12.0 x 12.0 x 12.0 x

Other model driversOther assets / tangible assets 12% 14% 17% 15% 14% 14% 12% 14% 13% 13% 11% 12% 12% 12% 12%Core deposits / interest-earning asset 64% 67% 72% 73% 73% 73% 70% 75% 75% 74% 74% 74% 74% 74% 74%Noninterest-bearing liabilities / i.e. as 5% 8% 10% 8% 7% 7% 7% 9% 9% 9% 9% 9% 8% 8% 8%Risk-adjusted assets / total assets 99% 101% 96% 98% 96% 96% 91% 97% 97% 96% 96% 94% 94% 94% 94%Effective tax rate 33% 36% 45% 35% 36% 35% 36% 36% 36% 36% 36% 36% 36% 36% 36%




Exhibit 7

FleetBoston Earnings Model, 2001A-2007E — Key Ratios 2001A 2002 2003E 2004E 2005E 2006E 2007EYear 1Q 2Q 3Q 4Q Year 1QA 2QE 3QE 4QE Year

Key Ratios:Average balance sheet:

C&I loans and lease financing / total 51% 50% 50% 49% 47% 49% 44% 39% 37% 36% 39% 35% 34% 34% 33%Commercial real estate loans / total lo 9% 9% 10% 10% 9% 10% 9% 8% 8% 8% 8% 8% 8% 8% 8%Consumer loans / total loans 25% 26% 26% 29% 33% 28% 38% 41% 43% 45% 42% 46% 47% 48% 49%International loans / total loans 15% 14% 14% 12% 11% 13% 10% 12% 12% 11% 11% 11% 11% 10% 10%Total loans / total interest-earning ass 72% 75% 74% 74% 74% 74% 73% 73% 73% 73% 73% 74% 75% 77% 77%Other int.-earning assets / total int.-ea 28% 25% 26% 26% 26% 26% 27% 27% 27% 27% 27% 26% 25% 23% 23%Total interest-earning assets / total as 86% 85% 85% 85% 86% 85% 87% 86% 87% 87% 86% 87% 87% 87% 88%Core deposits / interest-bearing liabil 61% 66% 69% 69% 71% 69% 71% 74% 79% 79% 76% 79% 79% 78% 78%Core deposits / interest earning assets 60% 66% 69% 69% 70% 69% 70% 73% 75% 74% 73% 74% 74% 75% 74%Core deposits / total loans 83% 88% 92% 94% 95% 92% 96% 100% 103% 102% 100% 101% 99% 97% 96%Borrowings / interest-bearing liabiliti 39% 34% 31% 31% 29% 31% 29% 26% 21% 21% 24% 21% 21% 22% 22%

Income statement:Net interest income / revenues 63% 55% 62% 53% 54% 56% 59% 59% 57% 55% 58% 57% 57% 57% 57%Noninterest income / revenues 37% 45% 38% 47% 46% 44% 41% 41% 43% 45% 42% 43% 43% 43% 43%Efficiency ratio 60.0% 50.0% 59.8% 55.8% 55.0% 54.8% 57.0% 56.4% 55.2% 53.8% 55.6% 55.5% 54.8% 54.6% 54.1%Tangible efficiency ratio 56.8% 49.3% 59.0% 55.0% 54.1% 54.0% 56.3% 55.7% 54.5% 53.2% 54.9% 54.8% 54.2% 54.0% 53.9%Provision / revenues 19.6% 13.1% 47.1% 12.3% 26.1% 23.9% 10.1% 13.4% 12.3% 11.8% 11.9% 10.6% 9.3% 8.1% 8.0%

Profitability:ROE analysis

Net income / pretax income 10% 63% 218% 62% 38% 45% 62% 63% 63% 64% 63% 64% 64% 64% 64%Pretax income / operating income 151% 157% 172% 154% 158% 157% 159% 158% 158% 157% 158% 157% 157% 157% 157%Operating income / revenues, net o 17% 27% -7% 24% 16% 18% 23% 22% 24% 25% 23% 24% 25% 26% 26%Revenues, net of prov. / assets 4.69% 1.41% 0.74% 1.34% 1.12% 4.61% 1.24% 1.22% 1.26% 1.31% 4.96% 5.02% 5.22% 5.47% 5.52%

ROA 0.79% 1.55% (0.22%) 1.26% 0.72% 0.82% 1.16% 1.07% 1.18% 1.29% 1.16% 1.21% 1.31% 1.41% 1.45% Leverage effect 11.6 x 10.9 x 11.4 x 11.1 x 11.3 x 11.3 x 11.7 x 11.7 x 11.7 x 11.5 x 11.5 x 11.6 x 11.9 x 11.8 x 12.0 x

ROE 9.1% 16.9% (2.5%) 14.0% 8.1% 9.3% 13.5% 12.5% 13.7% 14.8% 13.4% 14.0% 15.6% 16.7% 17.4% Tangible ROTA 0.94% 1.62% -0.80% 1.28% 0.69% 0.69% 1.19% 1.12% 1.23% 1.34% 1.21% 1.26% 1.36% 1.46% 1.49%Tangible ROTE 15.0% 24.1% -12.1% 19.2% 10.5% 10.6% 18.6% 17.4% 19.0% 20.3% 18.3% 18.9% 20.7% 21.8% 22.4%Return on economic equity (ROEE) 4.7% 8.8% -1.3% 7.1% 4.1% 4.7% 7.0% 6.5% 7.2% 7.8% 7.0% 7.4% 8.4% 9.1% 9.7%

Yield on interest-earning assets 7.70% 6.54% 6.69% 6.05% 5.89% 6.29% 5.63% 5.49% 5.25% 5.28% 5.43% 5.79% 6.30% 6.50% 6.53%Cost of interest-bearing liabilities 4.24% 2.84% 3.11% 2.67% 2.49% 2.78% 2.25%Net interest spread 3.46% 3.70% 3.58% 3.38% 3.40% 3.51% 3.38%Contribution of free funds 0.69% 0.47% 0.54% 0.48% 0.50% 0.50% 0.51%Net interest margin 4.15% 4.17% 4.12% 3.86% 3.90% 4.01% 3.89% 3.88% 3.81% 3.76% 3.84% 3.75% 3.83% 3.94% 4.00%

Credit:Net chargeoffs as a percentage of average loans

C&I and lease financing 1.38% 1.70% 5.54% 1.74% 1.98% 2.75% 2.09% 1.30% 1.20% 1.10% 1.44% 0.90% 0.80% 0.80% 0.80%Commercial real estate -0.03% -0.03% 0.03% 0.18% 0.14% 0.08% 0.34% 0.25% 0.30% 0.30% 0.30% 0.30% 0.30% 0.25% 0.25%Consumer 1.07% 1.10% 1.11% 0.96% 0.82% 0.99% 0.85% 0.80% 0.85% 0.95% 0.87% 0.95% 0.85% 0.70% 0.70%International 0.67% 0.90% 1.55% 4.10% 7.41% 3.20% 8.03% 3.00% 2.50% 2.25% 3.76% 1.50% 1.25% 1.00% 1.00%

Total 1.07% 1.26% 3.29% 1.65% 2.03% 2.05% 2.07% 1.21% 1.12% 1.10% 1.37% 0.94% 0.83% 0.73% 0.73%Reserves / loans 2.84% 2.92% 3.33% 3.18% 3.21% 3.27% 2.75% 2.68% 2.62% 2.60% 2.69% 2.53% 2.39% 2.26% 2.14%Reserves / nonperforming loans 200% 177% 113% 100% 113% 113% 117% 129% 139% 151% 147% 166% 214% 295% 281%Nonperfoming loans / loans 1.42% 1.65% 2.93% 3.18% 2.83% 2.89% 2.35% 2.07% 1.88% 1.72% 1.83% 1.53% 1.12% 0.77% 0.76%NPLs+NPLs (HFS)/loans+loans HFS 1.62% 1.85% 2.35%NPAs+NPLs (HFS)/loans+loans HFS 1.65% 1.87% 2.40%

Capital:Common equity / assets 8.51% 9.01% 8.66% 8.87% 8.70% 8.70% 8.44% 8.43% 8.44% 8.54% 8.54% 8.51% 8.30% 8.34% 8.20%Total equity / assets 8.65% 9.15% 8.80% 9.01% 8.84% 8.84% 8.57% 8.56% 8.57% 8.67% 8.67% 8.63% 8.42% 8.45% 8.31%Tangible common equity / tangible a 6.18% 6.57% 6.44% 6.55% 6.40% 6.40% 6.27% 6.30% 6.35% 6.47% 6.47% 6.54% 6.45% 6.58% 6.55%Total tangible equity / tangible assets 6.31% 6.72% 6.58% 6.70% 6.54% 6.54% 6.41% 6.43% 6.48% 6.60% 6.60% 6.67% 6.57% 6.70% 6.66%Tier 1 capital ratio 7.36% 8.11% 8.15% 8.24% 8.24% 8.24% 8.36% 7.88% 7.91% 8.11% 8.11% 8.32% 8.16% 8.26% 8.16%Total risk-adjusted capital ratio 10.93% 11.69% 11.82% 11.78% 11.72% 11.72% 11.71% 11.08% 11.09% 11.30% 11.30% 11.48% 11.24% 11.29% 11.09%Leverage ratio 7.49% 8.20% 8.11% 8.34% 8.27% 8.27% 8.03% 7.87% 7.90% 7.99% 7.99% 8.12% 8.00% 8.04% 8.04%

Dividend payout ratio 159% 47% -98% 65% 150% 127% 64% 67% 61% 55% 61% 57% 49% 45% 43%Buyback ratio 227% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 26% 42% 37% 37%

Total distributions to shareholders 386% 47% -98% 65% 150% 127% 64% 67% 61% 55% 61% 83% 91% 82% 80%ESOP and other issuance -47% -1% 16% -4% -16% -12% -2% -2% -2% -2% -2% -2% -3% -2% -2%

Net distributions to shareholders 339% 46% -82% 61% 133% 115% 62% 65% 58% 53% 59% 80% 88% 79% 77%Implied reinvestment rate -239% 54% 182% 39% -33% -15% 38% 35% 42% 47% 41% 20% 12% 21% 23%

Total uses of capital 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

% of oper. EPS growth from change 0.7% 0.2% -0.2% 0.0% 0.0% 2.7% -0.1% -0.5% -0.1% -0.1% -0.6% 0.5% 2.1% 2.6% 2.6%




Exhibit 8

FleetBoston Earnings Model, 2001A-2007E — Capital Management 2001A 2002 2003E 2004E 2005E 2006E 2007EYear 1Q 2Q 3Q 4Q Year 1QA 2QE 3QE 4QE Year

Capital management:Begin common equity 18,795$ 17,337$ 17,315$ 16,545$ 16,595$ 17,337$ 16,562$ 16,861$ 17,052$ 17,305$ 16,562$ 17,617$ 18,129$ 18,469$ 19,135$

Net income to common 919 730 (391) 574 256 1,169 562 546 609 669 2,386 2,577 2,921 3,242 3,516 Common dividends (1,463) (341) (383) (375) (383) (1,482) (360) (368) (369) (369) (1,466) (1,456) (1,432) (1,459) (1,512) Common repurchases (2,081) - - - - - - - - - - (673) (1,228) (1,196) (1,296) Change in other comprehensive incom 734 (419) (58) (174) 52 (599) 85 - - - 85 - - - - Net other 433 8 62 25 42 137 12 13 13 13 50 64 79 79 88

End common equity 17,337 17,315 16,545 16,595 16,562 16,562 16,861 17,052 17,305 17,617 17,617 18,129 18,469 19,135 19,931 Trust preferred 2,804 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 3,338 Preferred 271 271 271 271 271 271 271 271 271 271 271 271 271 271 271

End total equity 20,412$ 20,924$ 20,154$ 20,204$ 20,171$ 20,171$ 20,470$ 20,661$ 20,914$ 21,226$ 21,226$ 21,738$ 22,078$ 22,744$ 23,540$ End ineligible intangibles 5,075 5,012 4,540 4,634 4,677 4,677 4,624 4,604 4,584 4,564 4,564 4,485 4,405 4,326 4,298

End total tangible equity 15,337 15,912 15,614 15,570 15,494 15,494 15,846 16,056 16,329 16,661 16,661 17,253 17,673 18,419 19,242

Other comprehensive income:Beginning balance 40$ 774$ 355$ 297$ 123$ 774$ 175$

Change in unrealized gains on securi (108) (76) 110 39 251 324 63 Change in translation adjustment (2) (179) (154) (41) 10 (364) (10) Cumulative effect of adopting SFAS 204 - - - - - - Change in fair values of derivatives 355 (124) 58 (85) (125) (276) 61 Net losses reclassified to noninterest 285 (40) (72) (87) (84) (283) (29)

Ending balance 774$ 355$ 297$ 123$ 175$ 175$ 260$ Other comprehensive income / net in 46% 33% -316% 18% 41% 13% 32%

Change in allowance for loan losses:Beginning balance 2,709$ 3,634$ 3,609$ 3,867$ 3,727$ 3,634$ 3,864$ 3,406$ 3,406$ 3,406$ 3,864$ 3,518$ 3,518$ 3,518$ 3,518$

Total provision 2,326 408 1,250 352 750 2,760 280 383 364 361 1,389 1,269 1,189 1,104 1,169 Net chargeoffs

C&I and lease financing 912 262 829 251 276 1,618 275 159 143 129 706 423 390 407 428 Commercial real estate (3) (1) 1 5 4 9 9 7 8 8 32 32 34 29 31 Consumer 353 88 86 82 81 337 96 103 120 140 460 591 576 510 546 International 130 40 64 148 246 498 246 114 94 84 537 223 189 158 165

Total net chargeoffs 1,392 389 980 486 607 2,462 626 383 364 361 1,735 1,269 1,189 1,104 1,169 Addition to reserve (9) (44) (12) (6) (6) 298 (112) - - - (346) - - - -

Ending balance 3,634$ 3,609$ 3,867$ 3,727$ 3,864$ 3,932$ 3,406$ 3,406$ 3,406$ 3,406$ 3,518$ 3,518$ 3,518$ 3,518$ 3,518$

Common share information:Avg. basic shares outstanding 1,074 1,044 1,045 1,046 1,046 1,045 1,047 1,052 1,053 1,054 1,051 1,046 1,024 997 971

Est'd avg. common stock equivalents 9 6 - 1 1 3 2 2 2 2 2 2 2 2 2 Avg. diluted shares outstanding 1,084 1,050 1,045 1,047 1,047 1,049 1,048 1,053 1,054 1,055 1,053 1,047 1,025 999 973 Period end shares outstanding 1,044 1,047 1,048 1,048 1,050 1,050 1,051 1,052 1,053 1,054 1,054 1,037 1,010 984 958

Common shares reconciliation:Begin common shares 1,086 1,044 1,047 1,048 1,048 1,044 1,050 1,051 1,052 1,053 1,050 1,054 1,037 1,010 984

Common stock repurchases 1 - - - - - - - - - - (21) (31) (30) (30) Net other (43) 3 1 0 2 6 2 1 1 1 5 4 4 4 4

Ending common shares 1,044 1,047 1,048 1,048 1,050 1,050 1,051 1,052 1,053 1,054 1,054 1,037 1,010 984 958 Percentage of outstanding repurchase -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.0% 3.0% 3.0% 3.0%

Avg. stock prices for repurchase:Forward year tangible EPS 1.17$ 2.31$ 2.31$ 2.31$ 2.31$ 2.31$ 2.51$ 2.51$ 2.51$ 2.51$ 2.51$ 2.90$ 3.29$ 3.29$ 3.66$ Assumed average valuation 32.3 x 15.5 x 10.0 x 10.0 x 10.0 x 12.4 x 9.4 x 10.0 x 10.0 x 10.0 x 10.2 x 11.0 x 12.0 x 12.0 x 12.0 xAverage common stock price 37.75$ 35.75$ 23.10$ 23.10$ 23.10$ 28.56$ 23.64$ 25.10$ 25.10$ 25.10$ 25.50$ 31.90$ 39.48$ 39.48$ 43.92$

Common dividend payout ratio:Net income to common 919$ 730$ (391)$ 574$ 256$ 1,169$ 562$ 546$ 609$ 669$ 2,386$ 2,577$ 2,921$ 3,242$ 3,516$ Common dividends 1,463 341 383 375 383 1,482 360 368 369 369 1,466 1,456 1,432 1,459 1,512 Common dividend payout ratio 159% 47% -98% 65% 150% 127% 64% 67% 61% 55% 61% 57% 49% 45% 43%Tangible net to common 1,196 744 (377) 588 270 1,225 574 558 621 680 2,434 2,625 2,969 3,290 3,564 Tangible common dividend payout ratio 122% 46% -102% 64% 142% 121% 63% 66% 59% 54% 60% 55% 48% 44% 42%




Exhibit 9

Large Cap Banks - Comps

U.S. Commercial Banks -- Comparable Company Analysis(Dollars in millions)

Pricing ValuationCurrent 52-Week: Common Dividend: Price Performance: Current Price To:Share Shares Market Annl. Per 1 3 5 2001A 2002A 2003E 2004E Tang.

Company Ticker Rating Price High Low (Mil.) Cap. Share Yield YTD Year Years Years EPS EPS EPS EPS BVPS BVPS

Regional Banks -- Large Cap.:Bank of America Corporation BAC EW - C 74.20$ 76.81$ 53.95$ 1,501 111,351$ 2.56$ 3.5% 7% 3% 51% 1% 15.0x 12.6x 12.0x 11.2x 2.2x 2.9xBank One Corporation ONE UW - C 37.36 41.55 31.60 1,164 43,487 0.84 2.2% 2% -9% 22% -36% 15.1x 13.4x 12.7x 11.4x 1.9x 2.1xBB&T Corporation BBT ++ 34.19 38.80 30.66 470 16,085 1.16 3.4% -7% -9% 29% 4% 14.2x 12.4x 11.8x 11.3x 2.2x 2.9xComerica Incorporated CMA NR 46.27 64.55 35.20 175 8,087 2.00 4.3% 7% -26% 9% -29% 9.8x 13.6x 11.4x 10.5x 1.6x 1.7xFifth Third Bancorp FITB OW - C 57.40 68.54 47.05 574 32,968 1.04 1.8% -2% -15% 36% 64% 24.6x 20.6x 18.5x 16.5x 3.9x 4.4xFleetBoston Financial Corporation FBF UW - C 29.57 35.55 17.65 1,050 31,043 1.40 4.7% 22% -15% -17% -31% 20.0x 19.8x 12.9x 12.0x 1.9x 2.6xKeyCorp KEY NR 26.40 27.99 20.98 424 11,192 1.22 4.6% 5% -2% 43% -32% 35.7x 11.6x 11.8x 10.9x 1.6x 2.0xNational City Corporation NCC UW - C 33.82 33.54 24.60 611 20,681 1.22 3.6% 24% 9% 99% -3% 15.8x 13.5x 12.0x 11.4x 2.2x 2.5xSunTrust Banks, Inc. STI EW - C 59.30 69.12 51.44 283 16,753 1.72 2.9% 4% -11% 17% -25% 12.4x 12.4x 12.4x 11.4x 1.9x 2.3xU.S. Bancorp USB EW - C 23.70 23.94 16.05 1,917 45,433 0.78 3.3% 12% 2% -5% 16% 20.0x 12.9x 12.0x 11.1x 2.5x 4.0xWachovia Corporation WB EW - C 40.18 40.04 28.57 1,357 54,524 1.04 2.6% 10% 7% 26% -33% 26.3x 14.4x 13.0x 12.1x 1.7x 2.8xWells Fargo & Company WFC OW - C 48.30 54.84 41.50 1,686 81,429 1.12 2.3% 3% -5% 18% 25% 23.8x 14.5x 13.4x 12.1x 2.7x 4.1x Median 3.3% 6% -7% 24% -14% 17.9x 13.5x 12.2x 11.4x 2.1x 2.7x



Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Betsy Graseck, CFA.

Important US Regulatory Disclosures on Subject Companies The information and opinions in this report were prepared by Morgan Stanley & Co. Incorporated and its affiliates (collectively, "Morgan Stanley"). Within the last 12 months, Morgan Stanley managed or co-managed a public offering of securities of FleetBoston Financial. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from FleetBoston Financial. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from FleetBoston Financial. The research analysts, strategists, or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.


Global Stock Ratings Distribution (as of May 31, 2003) Coverage Universe Investment Banking Clients (IBC)

Stock Rating Category Count% ofTotal Count

% ofTotal IBC

% of RatingCategory

Overweight 549 30% 223 37% 41%Equal-weight 858 47% 276 46% 32%Underweight 416 23% 107 18% 26%Total 1,823 606

Data include common stock and ADRs currently assigned ratings. For disclosure purposes (in accordance with NASD and NYSE requirements), we note that Overweight, our most positive stock rating, most closely corresponds to a buy recommendation; Equal-weight and Underweight most closely correspond to neutral and sell recommendations, respectively. However, Overweight, Equal-weight, and Underweight are not the equivalent of buy, neutral, and sell but represent recommended relative weightings (see definitions below). An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley or an affiliate received investment banking compensation in the last 12 months.

Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Equal-weight (E). The stocks's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. More volatile (V). We estimate that this stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative assessment of historical data, or in the analyst's view, it is likely to become materially more volatile over the next 1-12 months compared with the past three years. Stocks with less than one year of trading history are automatically rated as more volatile (unless otherwise noted). We note that securities that we do not currently consider "more volatile" can still perform in that manner. Unless otherwise specified, the time frame for price targets included in this report is 12 to 18 months. Ratings prior to March 18, 2002: SB=Strong Buy; OP=Outperform; N=Neutral; UP=Underperform. For definitions, please go to www.morganstanley.com/companycharts.

Analyst Industry Views Attractive (A). The analyst expects the performance of his or her industry coverage universe to be attractive vs. the relevant broad market benchmark over the next 12-18 months. In-Line (I). The analyst expects the performance of his or her industry coverage universe to be in line with the relevant broad market benchmark over the next 12-18 months. Cautious (C). The analyst views the performance of his or her industry coverage universe with caution vs. the relevant broad market benchmark over the next 12-18 months.

Stock price charts and rating histories for companies discussed in this report are available at www.morganstanley.com/companycharts. You may also request this information by writing to Morgan Stanley at 1585 Broadway, 14th Floor (Attention: Research Disclosures), New York, NY, 10036 USA.


Stock Price, Price Target and Rating History (See Rating Definitions)


Other Important Disclosures For a discussion, if applicable, of the valuation methods used to determine the price targets included in this summary and the risks related to achieving these targets, please refer to the latest relevant published research on these stocks. Research is available through your sales representative or on Client Link at www.morganstanley.com and other electronic systems. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. 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INDUSTRY COVERAGE: BANKING - LARGE CAP BANKS

Company Ticker Rating as of

Price at 5/30/03

Bank of America BAC.N E 5/15/02 $74.20Bank One Corp. ONE.N U 5/15/02 $37.36BB&T Corporation BBT.N NR 1/21/03 $34.19Fifth Third Bancorp FITB.O O 12/2/02 $57.40FleetBoston Financial FBF.N U 7/16/02 $29.57National City NCC.N U 8/15/02 $33.82

Company Ticker Rating as of

Price at 5/30/03

SunTrust STI.N E 8/15/02 $59.30 U.S. Bancorp USB.N E 12/2/02 $23.70 UnionBanCal UB.N E 12/13/02 $42.25 Wachovia Corporation WB.N E 8/15/02 $40.18 Wells Fargo & Co. WFC.N O 5/15/02 $48.30 Stock ratings are subject to change. Please see latest research for each company.

north america united states of america fleetboston ... · fleetboston financial - june 1, 2003 page...

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