CONFIDENTIAL

1. Year Ahead 2012 Riders on the Storm: the rocky road to recovery in 2012 Bill O’Neill – Chief Investment Officer Merrill Lynch Wealth Management, Europe, Middle East and Africa CONFIDENTIAL DRAFT

2. Key points CIO View – key points for 2012 • Global growth and profits weaker in 2012 • Deleveraging – the contraction of debt held- to persist as key influence in developed economies • Opposing this trend will be policy loosening or stimulus- its extent and timing are crucial • Quantitative easing (money printing) will become a global phenomenon • China will have a ‘soft landing’ in 2012 – again the key development is when policy eases • Look for portfolio diversification, focus on a strategic framework to respond to the ‘New Normal’ • Equity outperformance versus corporate debt will be modest • On equities, prefer U.S. and U.K. over Japan and Europe; stress theme of yield - quality - growth • Little value in core sovereign bonds • We shall see a weaker euro into 2012 especially if ECB buys government debt • Upside on gold above $2000 p/oz.; oil price flat for first half, moving higher as demand improves 2

3. Overview The pressing need for mature economies to contain debt burdens has taken us to the edge of a second global recession in less than 3 years 2011 asset class performance % Source: Bloomberg. Data as of 30 December 2011. 3

4. Overview Eurozone sovereign crisis is also a banking crisis Cost of protection for European banks and sovereigns Basis points Source: Bloomberg. Data as of November 2011. *European sovereigns average is a simple average of French and Italian government debt credit default swaps (CDS) 4

5. Overview U.S. bonds following Japan’s example sofar, only this time real rates likely to remain low Japan and superimposed U.S. 10 year real bond yield, 13 years later (%)* % 2000 2011 Source: Bloomberg. Data as of November 2011. *U.S .10-year bond yield superimposed over Japan, with a lead . U.S. data from November 2000 to November 2011 5

6. Economics The U.S. recovery in the ‘New Normal’ is very subdued compared to history The Zarnowitz Law, looking at strength of recovery against peak-to trough fall in business cycle 8 quarter gain from recession trough (%) 8.7% difference Source: Bureau of Economic Research, National Bureau of Economic Research, TrendMacro calculations. Data as of September 2011. 6

7. Economics Reluctance of businesses to investrisks persistently higher structural unemployment U.S. average number of weeks unemployed and business investment as % of GDP % of GDP % of total The Federal Reserve will respond to high unemployment with direct support to housing. No rate hike until at least 2014 Source: Absolute Strategy Research, Bloomberg. Data as of November 2011. 7

8. Economics Optimistic growth forecasts still markthe path to debt stabilisation in the eurozone Differing expectations for real GDP growth rates in several eurozone nations in 2012 % Source: Factset, Bloomberg, BofA Merrill Lynch Global Research. Data as at November 2011. 8

9. Economics European debt deleveraging has a large banking component Eurozone* and U.S. total debt to GDP as of Q1 2011**, with sectoral breakdown Source: BofA Merrill Lynch Rates and Currency Research. Created 15 December 2011. Data as at Q1 2011, except French household (2010). *Eurozone countries = Germany, France, Italy, Spain, Greece, Portugal, Ireland, Belgium, Netherlands & Slovakia ** Latest data available given lack of data from Greece, inter alia, since start of 2011. 9

10. Policy China’s next 5-year plan to focus on supporting consumption following 2009 fiscal expansion Chinese exports, fixed asset investment and retail sales as a percentage of GDP % Source: Absolute Strategy Research. Data as of October 2011. 10

11. Policy Debt reduction options 11

12. Policy ECB’s QE* response tiny compared to other central banks, will have to change in 2012 Central banks’ holdings of their nation’s government bonds, as a percentage of relevant GDP €1 trillion more would take ECB action to same size as Fed’s response % of GDP Source: Bank of England, Bank of Japan, European Central Bank, U.S. Federal Reserve, Bloomberg. Data as of 15 December 2011 *QE = quantitative easing 12

13. Potential risks Divergence in bond yield spreads suggests ECB already confronted with Euro disintegration Cash spreads of selected European 2 year bonds over Germany Spread over Germany (basis points) Source: Bloomberg. Data as of 24 November 2011. *arithmetic average of France, Austria, Netherlands and Finland ** arithmetic average of Spain, Italy and Portugal 13

14. Potential risks German export story vulnerableto an investment slowdown in China German exports to China and German capital goods orders, in millions of euros € m China should experience a soft landing next year. Lower inflation will see policy focus on growth again. The risk is that the shift in stance fails to head off a sharp slowdown in investment spending € m Source: Bloomberg. Data as of November 2011. 14

15. Potential risks Softer Chinese residential property activity maysignal weaker investment in 2012 Chinese residential investment growth and sales growth (year-on-year) Growth rate Source: Gavekal. 3 month moving average data, as of 14 December 2011 15

16. Potential risks Higher inflation remains the key area of vulnerability for emerging economies Inflation across developed and developing economies Good news is that consumers’ purchasing power will be supported by easing inflation, but limited to mature economies %, year-on-year Projection Source: International Monetary Fund. Data as of September 2011. 16

17. Israel economics Israeli GDP growth should be resilient in 2012, despite weakening net exports Israel GDP growth, decomposed into consumption, investment and net exports Solid domestic consumption shouldcushion GDP in 2012 amid external headwinds from the eurozone Estimates % Source: BofA ML Global Economic Research. Data as of 3 January 2012. 17

18. Forecast update No global recession in 2012 but G5 growth sluggish and China below 9% growth Growth forecasts 2011-2012 Source: BofA Merrill Lynch Economics Research. Data as of 1 December 2011. *G5 refers to the Group of 5, namely Eurozone, Canada, Japan, the United Kingdom and the United States . 18

19. Macro summary CIO View - macro summary for 2012 • We expect a worldwide slump to be avoided in 2012 but the scene is set for a fragile expansion, with U.S. growth at only 2% and emerging economies again the mainstay of the advance • A persistent failure to address the systematic issue in the Euro debt crisis - risk of default - means Europe will see a contraction in activity in 2012 • The dominant policy story in 2012 will be stabilising the euro zone and a global pattern of monetary stimulus involving monetisation in the developed world • We do expect US to avoid a recession but weak recovery in business spending will limit pace of expansion • China’s GDP growth rate should bottom out at around 8% per annum. Easy money stimulus will come sooner than expected but the price will be persistent higher inflation • A weak consumer and ripples from the eurozone sovereign debt crisis should push the Bank of England into further quantitative easing (QE) - this should limit the rise in sterling through 2012 • We expect the euro to weaken as ECB offers a back stop to euro bonds and U.S. consumer gains from lower inflation • Global coordinated response is crucial to re-balance the global economy, as political differences pose ongoing threats to the recovery • Risks in 2012: Positive: Rebound in business spending/ ECB support/ stronger U.S. housing/ China pro -growth • Negative: Euro disintegration/ government defaults/ bank runs/ currency wars/ excess austerity 19

20. Strategy Household equity holdings look set to continue shrinking despite better value, earnings growth Households’ direct holdings of listed equities as a % of total financial assets Investors are deeply sceptical about the recovery, worried about the risks of even greater disappointment % Source: U.S. Federal Reserve, BofA Merrill Lynch Global Research. Data as of December 2011. 20

21. Strategy More assets performing in the same way -a huge challenge for true diversification Correlation heat maps for 2005 and 2011 2005 2011 Source: Bloomberg, HSBC. Data as of November 2011 21

22. Strategy A strategic framework for navigating the ‘New Normal’ 2012 may be characterised by low returns, high risk and a polarised environment • Low returns • Overpriced safe-haven assets • Risky assets suffering from uncertainty • Strategy: sector selection (high dividends, high quality stocks) • Polarised environment • Shift between “risk-on” and “risk-off” environments • Deeply divided currencies, industries and countries /regions • Strategy: separating markets and currency management (funds of currencies) • High risk • More frequent high volatility bubbles • Increasing correlations • Strategy: macro/CTA hedge funds Source: CIO, EMEA Merrill Lynch Wealth Management 22

23. Equities Optimism on earnings growth fades, especially in Europe – any improvement modest in 2012 U.S. (S&P 500) and European (Stoxx 600) 2012 earnings per share (EPS) forecasts $ per share € per share Source: Factset. Data as of November 2011. 23

24. Equities Market valuation discounts a 10-20% decline in profits 12 month forward price to earnings ratio for the MSCI AC World equity market % Valuation of equities and positioning reflect the multiple dangers ahead. Upside limited by level of profits’ growth slowdown 10% reduction in earnings Source: Factset. Data as of 17 November 2011. 24

25. Equities Relative to developed, emerging equity markets are at cheapest valuations since 2009 12 month forward relative price to earnings ratio for the MSCI Emerging Markets Index* Ratio Prefer U.S., U.K. equities over Japanese and European stocks Source: Factset. Data as at 17 November 2011. * relative to the MSCI World Index 25

26. Equities Tech, consumer staples and discretionary stand out – focus on yield, quality and growth U.S. S&P 500 sector ranking model Source: BofA Merrill Lynch Global Research. Data as of November 2011. *Sector position (overweight/neutral/underweight) reflects the sector weighting of BofA-ML US Equity Strategy Research.**Price momentum ranked by 3 month change in the sector’s relative price versus the S&P500; Estimate revisions ranked by 3 month change in relative next 12 month’s consensus earnings estimates versus S&P 500; Valuation ranked by the ratio of current relative Price/Earnings ratio of the sector compared to its long-term average relative P/E. Combined rank is the equal weighted average of individual ranks. 26

27. Equities Large-cap stocks favoured styles for next year, favouring high quality Growth versus value* relative performance and large versus small ** cap stocks in the U.S. Relative Performance Relative Performance Growth outperforms value Source: Bloomberg. Data as of 17 November 2011. *MSCI US Growth total return vs. MSCI US Value total return indices ** S&P 500 total return vs. Russell 2000 total return indices, 3 month moving average 27

28. Equities In periods of decelerating profit, continue with dividend yield theme in the U.S. Performance of dividend yield and dividend growth in different profit environments for S&P 500 Source: Factset, Bloomberg., BofA Merrill Lynch Global Research. Data as of October 2011. 28

29. Fixed income U.S. high yield debt in favour, as long as defaults remain low High yield price index and default rate for the U.S. Estimates % Index level Source: Bloomberg. Data as of November 2011. 29

30. Fixed income Extending duration will not pay in 2012 unless deflation fears rise or Fed is aggressive with QE3* U.S. Treasury real yield curves for January and November 2011 % Core sovereign bonds unattractive in all scenarios other than a global recession Source: Bloomberg. Data as of 17 November 2011. *QE3 = third round of quantitative easing 30

31. Commodities Unless there is another global recession in 2012, copper prices look unusually cheap Ratio of gold price to copper price (average shown by dotted line) Ratio Source: Bloomberg. Data as of November 2011. 31

32. Commodities Rebound in industrial metals in coming months, with energy prices following in second half of 2012 Oil, base and precious metal forecasts into 2012 Source: BofA Merrill Lynch Global Commodity Research estimates. Data as of 5 January 2012. * WTI = West Texas Intermediate 32

33. Currencies - Israel Although interest rates will likely fall in 2012, the shekel should remain supported by fundamentals Israeli shekel (ILS) per U.S. dollar (USD) exchange rate and real effective exchange rate We expect modest shekel appreciation versus the U.S. dollar by end of 2012, with USD-ILS at 3.65 from around 3.85 currently. ILS per USD Index Source: BofA ML Global Economic Research. Data as of 3 January 2012. 33

34. Currencies A good first six months for the dollar - renminbi appreciation to continue Developed majors BRIC (Brazil, Russia, India and China) group Source: BofA Merrill Lynch Global Research. Data as of 12 December 2011 34 34 34

35. Market outlook CIO View - market outlook for 2012 • The task of ensuring diversification across investment portfolios is complicated by a shrinking set of ‘safe havens’ • We continue to stress the need for a strategic framework to deal with ‘New Normal’ (sluggish growth, higher risks), including managing for scenarios involving big losses (drawdown); volatility bubbles and constant switching between ‘risk on /risk off’ • Equity outperformance relative to higher risk corporate debt will be modest • We stress yield, quality and growth in selecting equities, supporting: • Within fixed income, bias to investment grade credit, particularly the U.S., persists. • Tight control of supply and inventories limits a possible fall in the crude oil price. • Copper would benefit from China’s easing. Upside to gold price above $2,000 • Risks in 2012 • Positive: Better performance for U.S. banks, M&A pick up, recovery in U.S. housing and cyclical stocks • Negative: Profits contraction, tax raids on corporates, financial repression, protectionism 35

36. Questions and answers CONFIDENTIAL DRAFT

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