1 Stock Presentation Stock Presentation Financial Sector Financial Sector Roger Chan Roger Chan Chris Curtin Chris Curtin Jack Lu Jack Lu
Dec 19, 2015
11
Stock Presentation Stock Presentation
Financial SectorFinancial Sector
Roger ChanRoger Chan
Chris CurtinChris Curtin
Jack LuJack Lu
22
Sector AnalysisSector Analysis
Our RecommendationOur Recommendation: Maintain weighting : Maintain weighting (approximately 1.67% above S&P)(approximately 1.67% above S&P)
Class DecisionClass Decision: Reduce weighting to S&P : Reduce weighting to S&P (approximately 2% reduction) (approximately 2% reduction)
ReasoningReasoning: Fear of a sub-prime meltdown, : Fear of a sub-prime meltdown, an impending economic downturn, and an impending economic downturn, and over-exposure in the SIM portfolioover-exposure in the SIM portfolio
33
Current Sector WeightingCurrent Sector Weighting
Financial Sector as a part of the . . .Financial Sector as a part of the . . .
SIMSIM 21.52 %21.52 %
S&P 500S&P 500 19.64 %19.64 %
OverweightOverweight 1.88 % 1.88 %
as of 8/3/07as of 8/3/07
44
Current HoldingsCurrent Holdings Berkshire Hathaway (BRK.A)Berkshire Hathaway (BRK.A) 6.00 % 6.00 %
• Property and casualty insuranceProperty and casualty insurance Bank of America (BAC)Bank of America (BAC) 5.50 % 5.50 %
• Money center bankMoney center bank JP Morgan Chase (JPM)JP Morgan Chase (JPM) 4.73 % 4.73 %
• Money center bankMoney center bank Goldman Sachs (GS)Goldman Sachs (GS) 3.54 % 3.54 %
• Investment brokerageInvestment brokerage Citigroup (C)Citigroup (C) 1.75 % 1.75 %
• Money center bankMoney center bank
21.52 21.52 %%
55
RecommendationsRecommendations
Sell Sell allall JPM ~ 4.75 % JPM ~ 4.75 %• Weakest of the three money center banksWeakest of the three money center banks
Sell Sell somesome BAC ~ 2.00 % BAC ~ 2.00 %• Fairly valued, but more potential sub-prime riskFairly valued, but more potential sub-prime risk
Buy Buy moremore C ~ 1.75 % C ~ 1.75 %• Fairly valued, well positioned, strong stock in sectorFairly valued, well positioned, strong stock in sector
Buy Buy somesome SFI ~ 2.00 % SFI ~ 2.00 %• Not a MCB, undervalued, low sub-prime risk exposureNot a MCB, undervalued, low sub-prime risk exposure
Keep Keep all Brk-A & GSall Brk-A & GS ~ 9.9 % ~ 9.9 %
66
General StrategyGeneral Strategy Reduce Sector Weight by 2 %Reduce Sector Weight by 2 %
• As determined last presentationAs determined last presentation
1.1. Reduce Money Center Bank ExposureReduce Money Center Bank Exposure
• Three similar MCB’s, constituting 12 % of the SIMThree similar MCB’s, constituting 12 % of the SIM
2.2. Concentrate on Favorite MCB(s)Concentrate on Favorite MCB(s)
• At least one of the three has to be weakerAt least one of the three has to be weaker
3.3. Diversify within the SectorDiversify within the Sector
• Too much domestic MCB, little foreign banking, no REITToo much domestic MCB, little foreign banking, no REIT
4.4. Avoid Risks from Sub-Prime CrisisAvoid Risks from Sub-Prime Crisis
• Don’t sell just to buy back into the crisisDon’t sell just to buy back into the crisis
77
Current HoldingsCurrent Holdings Property and casualty insuranceProperty and casualty insurance 6.00 % 6.00 %
• Berkshire Hathaway (BRK.A)Berkshire Hathaway (BRK.A)
Money center banksMoney center banks 12.00 %12.00 %• Bank of America (BAC)Bank of America (BAC)• JP Morgan Chase (JPM)JP Morgan Chase (JPM)• Citigroup (C)Citigroup (C)
Investment brokerageInvestment brokerage 3.50 % 3.50 %• Goldman Sachs (GS)Goldman Sachs (GS)
21.50 %21.50 %
88
1. Reduce Money Center Bank Exposure1. Reduce Money Center Bank Exposure
Bank of America (BAC)Bank of America (BAC) 5.50 %5.50 %• Pros: Pros: size (#1 credit cards, #1 on-line banking)size (#1 credit cards, #1 on-line banking)• Cons: Cons: sub-prime, expansion to date via M&Asub-prime, expansion to date via M&A
JP Morgan Chase (JPM)JP Morgan Chase (JPM) 4.73 %4.73 %• Pros: Pros: credit cards, broad customer basecredit cards, broad customer base• Cons: Cons: sub-prime, inefficiency of M&Asub-prime, inefficiency of M&A
Citigroup (C)Citigroup (C) 1.75 %1.75 %• Pros: Pros: size, diversity, foreign exposuresize, diversity, foreign exposure• Cons: Cons: sub-prime, economy (investment banking)sub-prime, economy (investment banking)
99
Money Center BanksMoney Center BanksStockStock Current Current
Price Price (8/3/07)(8/3/07)
Price-Price-target target RangeRange
U/D U/D RatioRatio
Loan Loan Loss, Loss, as a % as a % of EBTof EBT
Div. Div. YieldYield
Inst. Inst. OwnerOwner
LT LT GrowthGrowth (est.)(est.)
P/EP/E
CC $47.24$47.24 $40.35 $40.35 - -
$59.56$59.56
1.81.8 20 % 20 % (28%)(28%)
4.15 %4.15 % 65.4 %65.4 % 6.69%6.69% 1010
BACBAC $47.78$47.78 $39.15 $39.15 - -
$58.47$58.47
1.21.2 16 % 16 % (26%)(26%)
4.44 %4.44 % 60.3 %60.3 % 4.99%4.99% 1010
JPMJPM $44.59$44.59 $24.72 $24.72 - -
$57.88$57.88
0.70.7 17 % 17 % (59%)(59%)
3.05 %3.05 % 68.8 %68.8 % 6.51%6.51% 1010
1010
Money Center BanksMoney Center BanksStockStock Current Current
Price Price (8/3/07)(8/3/07)
Price-Price-target target RangeRange
U/D U/D RatioRatio
Loan Loan Loss, Loss, as a % as a % of EBTof EBT
Div. Div. YieldYield
Inst. Inst. OwnerOwner
LT LT GrowthGrowth (est.)(est.)
P/EP/E
CC $47.24$47.24 $40.35 $40.35 - -
$59.56$59.56
1.81.8 20 % 20 % (28%)(28%)
4.15 %4.15 % 65.4 %65.4 % 6.69%6.69% 1010
BACBAC $47.78$47.78 $39.15 $39.15 - -
$58.47$58.47
1.21.2 16 % 16 % (26%)(26%)
4.44 %4.44 % 60.3 %60.3 % 4.99%4.99% 1010
JPMJPM $44.59$44.59 $24.72 $24.72 - -
$57.88$57.88
0.70.7 17 % 17 % (59%)(59%)
3.05 %3.05 % 68.8 %68.8 % 6.51%6.51% 1010
1111
Citigroup (C)Citigroup (C)Citigroup
59.56
53.27 52.31
47.2444.03 43.57
40.35
20.00
30.00
40.00
50.00
60.00
70.00
80.00
CAE DDM 200-D Current PV-08 PV-07 PV-08A
1212
Bank of America (BAC)Bank of America (BAC)Bank of America
58.47
50.4447.78 46.82 45.68
41.0739.15
20.00
30.00
40.00
50.00
60.00
70.00
80.00
CAE 200-D Current PV-07 PV-08 PV-08A DDM
1313
JP Morgan Chase (JPM)JP Morgan Chase (JPM)J P Morgan Chase
57.88
49.84
44.81 44.5942.56
35.16
24.72
20.00
30.00
40.00
50.00
60.00
70.00
80.00
CAE 200-D PV-07 Current PV-08 DDM PV-08A
1414
Money Center BanksMoney Center BanksStockStock Current Current
Price Price (8/3/07)(8/3/07)
Price-Price-target target RangeRange
U/D U/D RatioRatio
Loan Loan Loss, Loss, as a % as a % of EBTof EBT
Div. Div. YieldYield
Inst. Inst. OwnerOwner
LT LT GrowthGrowth (est)(est)
P/EP/E
CC $47.24$47.24 $40.35 $40.35 - -
$59.56$59.56
1.81.8 20 % 20 % (28%)(28%)
4.15 %4.15 % 65.4 %65.4 % 6.69%6.69% 1010
BACBAC $47.78$47.78 $39.15 $39.15 - -
$58.47$58.47
1.21.2 16 % 16 % (26%)(26%)
4.44 %4.44 % 60.3 %60.3 % 4.99%4.99% 1010
JPMJPM $44.59$44.59 $24.72 $24.72 - -
$57.88$57.88
0.70.7 17 % 17 % (59%)(59%)
3.05 %3.05 % 68.8 %68.8 % 6.51%6.51% 1010
1515
Money Center BanksMoney Center BanksStockStock Current Current
Price Price (8/3/07)(8/3/07)
Price-Price-target target RangeRange
U/D U/D RatioRatio
Loan Loan Loss, Loss, as a % as a % of EBTof EBT
Div. Div. YieldYield
Inst. Inst. OwnerOwner
LT LT GrowthGrowth (est.)(est.)
P/EP/E
CC $47.24$47.24 $40.35 $40.35 - -
$59.56$59.56
1.81.8 20 % 20 % (28%)(28%)
4.15 %4.15 % 65.4 %65.4 % 6.69%6.69% 1010
BACBAC $47.78$47.78 $39.15 $39.15 - -
$58.47$58.47
1.21.2 16 % 16 % (26%)(26%)
4.44 %4.44 % 60.3 %60.3 % 4.99%4.99% 1010
JPMJPM $44.59$44.59 $24.72 $24.72 - -
$57.88$57.88
0.70.7 17 % 17 % (59%)(59%)
3.05 %3.05 % 68.8 %68.8 % 6.51%6.51% 1010
1616
1. Reduce Money Center Bank Exposure1. Reduce Money Center Bank Exposure
So . . .So . . .
Reduce MCB’s from 12% to 7% . . . Reduce MCB’s from 12% to 7% . . .
OldOld ActionAction NewNewCC 1.75% + 1.75% = 1.75% + 1.75% = 3.5 %3.5 %
BACBAC 5.50% - 2.00% =5.50% - 2.00% = 3.5 %3.5 %
JPMJPM 4.75%4.75% - 4.75% = - 4.75% = 0 % 0 %
Total 12.0 %Total 12.0 % 7.0 %7.0 %
1717
General StrategyGeneral Strategy Reduce Sector Weight by 2 %Reduce Sector Weight by 2 %
• As determined last presentationAs determined last presentation
Reduce Money Center Bank ExposureReduce Money Center Bank Exposure
• Three similar MCB’s facing, constituting 12 % of the SIMThree similar MCB’s facing, constituting 12 % of the SIM
2.2. Concentrate on Favorite MCB(s)Concentrate on Favorite MCB(s)
• At least one of the three has to be weakerAt least one of the three has to be weaker
3.3. Diversify within the SectorDiversify within the Sector
• Too much domestic MCB, little foreign banking, no REITToo much domestic MCB, little foreign banking, no REIT
4.4. Avoid Risks from Sub-Prime CrisisAvoid Risks from Sub-Prime Crisis
• Don’t sell just to buy back into the crisisDon’t sell just to buy back into the crisis
1818
2. Concentrate on Favorite MCB(s)2. Concentrate on Favorite MCB(s)
Eliminate more JPM than necessary to Eliminate more JPM than necessary to reduce 2.0% and allow room to diversifyreduce 2.0% and allow room to diversify
Add to C, as the favored MCBAdd to C, as the favored MCB
Reduce BAC, to put in line with CReduce BAC, to put in line with C
1919
General StrategyGeneral Strategy Reduce Sector Weight by 2 %Reduce Sector Weight by 2 %
• As determined last presentationAs determined last presentation
Reduce Money Center Bank ExposureReduce Money Center Bank Exposure
• Three similar MCB’s facing, constituting 12 % of the SIMThree similar MCB’s facing, constituting 12 % of the SIM
Concentrate on Favorite MCB(s)Concentrate on Favorite MCB(s)
• At least one of the three has to be weakerAt least one of the three has to be weaker
3.3. Diversify within the SectorDiversify within the Sector
• Too much domestic MCB, little foreign banking, no REITToo much domestic MCB, little foreign banking, no REIT
4.4. Avoid Risks from Sub-Prime CrisisAvoid Risks from Sub-Prime Crisis
• Don’t sell just to buy back into the crisisDon’t sell just to buy back into the crisis
2020
3. Diversify within the Sector3. Diversify within the Sector
Add 2.0% = iStar Financial, Inc. (SFI)Add 2.0% = iStar Financial, Inc. (SFI)• Primary business is lending and corporate tenant leasing Primary business is lending and corporate tenant leasing • Web-site: Web-site: http://www.istarfinancial.com/home.htmlhttp://www.istarfinancial.com/home.html• Part REIT and part financial servicesPart REIT and part financial services• Business is high-end commercial real estate financingBusiness is high-end commercial real estate financing• But, it pays dividends like a REIT (i.e., taxed like a REIT)But, it pays dividends like a REIT (i.e., taxed like a REIT)
• Market Cap: Market Cap: $4.45 B (mid-cap; $1 - $10 B)$4.45 B (mid-cap; $1 - $10 B)• Shares outstanding: Shares outstanding: 128.2 M128.2 M• Average volume: Average volume: 1.2 M/day 1.2 M/day
• Beaten down by the sub-prime crisis, even though its not a Beaten down by the sub-prime crisis, even though its not a sub-prime player and has little sub-prime exposuresub-prime player and has little sub-prime exposure
2121
Compare to Money Center BanksCompare to Money Center BanksStockStock Current Current
Price Price (8/3/07)(8/3/07)
Price-Price-target target RangeRange
U/D U/D RatioRatio
Loan Loan Loss, Loss, as a % as a % of EBTof EBT
Div. Div. YieldYield
Inst. Inst. OwnerOwner
LT LT GrowthGrowth (est.)(est.)
P/EP/E
CC $47.24$47.24 $40.35 $40.35 - -
$59.56$59.56
1.81.8 20 % 20 % (28%)(28%)
4.15 %4.15 % 65.4 %65.4 % 6.69%6.69% 1010
BACBAC $47.78$47.78 $39.15 $39.15 - -
$58.47$58.47
1.21.2 16 % 16 % (26%)(26%)
4.44 %4.44 % 60.3 %60.3 % 4.99%4.99% 1010
JPMJPM $44.59$44.59 $24.72 $24.72 - -
$57.88$57.88
0.70.7 17 % 17 % (59%)(59%)
3.05 %3.05 % 68.8 %68.8 % 6.51%6.51% 1010
SFISFI $34.74$34.74 $34.74 $34.74 – –
$83.24$83.24
NANA 6 % 6 % (4%)(4%)
8.87 %8.87 % 76.1 %76.1 % 6.67%6.67% 1515
2222
iStar Financial, Inc. (SFI)iStar Financial, Inc. (SFI)J P Mor gan Chase
83.24
46.63
41.59 41.48 40.96
34.74 34.74
20.00
30.00
40.00
50.00
60.00
70.00
80.00
DDM 200-D P V-08A P V-07 P V-08 CAE Cur r ent
2323
Money Center BanksMoney Center BanksStockStock Current Current
Price Price (8/3/07)(8/3/07)
Price-Price-target target RangeRange
U/D U/D RatioRatio
Loan Loan Loss, Loss, as a % as a % of EBTof EBT
Div. Div. YieldYield
Inst. Inst. OwnerOwner
LT LT GrowthGrowth (est.)(est.)
P/EP/E
CC $47.24$47.24 $40.35 $40.35 - -
$59.56$59.56
1.81.8 20 % 20 % (28%)(28%)
4.15 %4.15 % 65.4 %65.4 % 6.69%6.69% 1010
BACBAC $47.78$47.78 $39.15 $39.15 - -
$58.47$58.47
1.21.2 16 % 16 % (26%)(26%)
4.44 %4.44 % 60.3 %60.3 % 4.99%4.99% 1010
JPMJPM $44.59$44.59 $24.72 $24.72 - -
$57.88$57.88
0.70.7 17 % 17 % (59%)(59%)
3.05 %3.05 % 68.8 %68.8 % 6.51%6.51% 1010
SFISFI $34.74$34.74 $34.74 $34.74 – –
$83.24$83.24
NANA 6 % 6 % (4%)(4%)
8.87 %8.87 % 76.1 %76.1 % 6.67%6.67% 1515
2424
Money Center BanksMoney Center BanksStockStock Current Current
Price Price (8/3/07)(8/3/07)
Price-Price-target target RangeRange
U/D U/D RatioRatio
Loan Loan Loss, Loss, as a % as a % of EBTof EBT
Div. Div. YieldYield
Inst. Inst. OwnerOwner
LT LT GrowthGrowth (est.)(est.)
P/EP/E
CC $47.24$47.24 $40.35 $40.35 - -
$59.56$59.56
1.81.8 20 % 20 % (28%)(28%)
4.15 %4.15 % 65.4 %65.4 % 6.69%6.69% 1010
BACBAC $47.78$47.78 $39.15 $39.15 - -
$58.47$58.47
1.21.2 16 % 16 % (26%)(26%)
4.44 %4.44 % 60.3 %60.3 % 4.99%4.99% 1010
JPMJPM $44.59$44.59 $24.72 $24.72 - -
$57.88$57.88
0.70.7 17 % 17 % (59%)(59%)
3.05 %3.05 % 68.8 %68.8 % 6.51%6.51% 1010
SFISFI $34.74$34.74 $34.74 $34.74 – –
$83.24$83.24
NANA 6 % 6 % (4%)(4%)
8.87 %8.87 % 76.1 %76.1 % 6.67%6.67% 1515
2525
Money Center BanksMoney Center BanksStockStock Current Current
Price Price (8/3/07)(8/3/07)
Price-Price-target target RangeRange
U/D U/D RatioRatio
Loan Loan Loss, Loss, as a % as a % of EBTof EBT
Div. Div. YieldYield
Inst. Inst. OwnerOwner
LT LT GrowthGrowth (est.)(est.)
P/EP/E
CC $47.24$47.24 $40.35 $40.35 - -
$59.56$59.56
1.81.8 20 % 20 % (28%)(28%)
4.15 %4.15 % 65.4 %65.4 % 6.69%6.69% 1010
BACBAC $47.78$47.78 $39.15 $39.15 - -
$58.47$58.47
1.21.2 16 % 16 % (26%)(26%)
4.44 %4.44 % 60.3 %60.3 % 4.99%4.99% 1010
JPMJPM $44.59$44.59 $24.72 $24.72 - -
$57.88$57.88
0.70.7 17 % 17 % (59%)(59%)
3.05 %3.05 % 68.8 %68.8 % 6.51%6.51% 1010
SFISFI $34.74$34.74 $34.74 $34.74 – –
$83.24$83.24
NANA 6 % 6 % (4%)(4%)
8.87 %8.87 % 76.1 %76.1 % 6.67%6.67% 1515
2626
Money Center BanksMoney Center BanksStockStock Current Current
Price Price (8/3/07)(8/3/07)
Price-Price-target target RangeRange
U/D U/D RatioRatio
Loan Loan Loss, Loss, as a % as a % of EBTof EBT
Div. Div. YieldYield
Inst. Inst. OwnerOwner
LT LT GrowthGrowth (est.)(est.)
P/EP/E
CC $47.24$47.24 $40.35 $40.35 - -
$59.56$59.56
1.81.8 20 % 20 % (28%)(28%)
4.15 %4.15 % 65.4 %65.4 % 6.69%6.69% 1010
BACBAC $47.78$47.78 $39.15 $39.15 - -
$58.47$58.47
1.21.2 16 % 16 % (26%)(26%)
4.44 %4.44 % 60.3 %60.3 % 4.99%4.99% 1010
JPMJPM $44.59$44.59 $24.72 $24.72 - -
$57.88$57.88
0.70.7 17 % 17 % (59%)(59%)
3.05 %3.05 % 68.8 %68.8 % 6.51%6.51% 1010
SFISFI $34.74$34.74 $34.74 $34.74 – –
$83.24$83.24
NANA 6 % 6 % (4%)(4%)
8.87 %8.87 % 76.1 %76.1 % 6.67%6.67% 1515
2727
Money Center BanksMoney Center BanksStockStock Current Current
Price Price (8/3/07)(8/3/07)
Price-Price-target target RangeRange
U/D U/D RatioRatio
Loan Loan Loss, Loss, as a % as a % of EBTof EBT
Div. Div. YieldYield
Inst. Inst. OwnerOwner
LT LT GrowthGrowth (est.)(est.)
P/EP/E
CC $47.24$47.24 $40.35 $40.35 - -
$59.56$59.56
1.81.8 20 % 20 % (28%)(28%)
4.15 %4.15 % 65.4 %65.4 % 6.69%6.69% 1010
BACBAC $47.78$47.78 $39.15 $39.15 - -
$58.47$58.47
1.21.2 16 % 16 % (26%)(26%)
4.44 %4.44 % 60.3 %60.3 % 4.99%4.99% 1010
JPMJPM $44.59$44.59 $24.72 $24.72 - -
$57.88$57.88
0.70.7 17 % 17 % (59%)(59%)
3.05 %3.05 % 68.8 %68.8 % 6.51%6.51% 1010
SFISFI $34.74$34.74 $34.74 $34.74 – –
$83.24$83.24
NANA 6 % 6 % (4%)(4%)
8.87 %8.87 % 76.1 %76.1 % 6.67%6.67% 1515
2828
SFI’s StorySFI’s StoryMarket Psychology:Market Psychology:
Price has been falling in concert with sub-Price has been falling in concert with sub-prime residential lenders, due to the prime residential lenders, due to the overall sub-prime risk.overall sub-prime risk.
Fell further when REIT sector was Fell further when REIT sector was downgraded in June, on fears of a slowing downgraded in June, on fears of a slowing economy, increasing interest rates, lack economy, increasing interest rates, lack of investor confidence, and prospect of of investor confidence, and prospect of decreasing dividend yields.decreasing dividend yields.
3333
SFI’s StorySFI’s StoryMarket Psychology:Market Psychology:
Price has been falling in concert with sub-Price has been falling in concert with sub-prime residential lenders, due to the prime residential lenders, due to the overall sub-prime risk.overall sub-prime risk.
Fell further when REIT sector was Fell further when REIT sector was downgraded in June, on fears of downgraded in June, on fears of 1. a slowing economy, 1. a slowing economy, 2. increasing interest rates, 2. increasing interest rates, 3. lack of investor confidence, and3. lack of investor confidence, and4. prospect of decreasing dividend yields.4. prospect of decreasing dividend yields.
3636
SFI’s StorySFI’s Story
““iStar Financial is one of those guilt-by-iStar Financial is one of those guilt-by-association companies.”association companies.”
““[T]he company has very different risk [T]he company has very different risk exposures from those of subprime exposures from those of subprime residential lenders such as residential lenders such as CountrywideCountrywide and and American Home MortgageAmerican Home Mortgage.”.”
-- Emil Lee, TheMotleyFool.com-- Emil Lee, TheMotleyFool.com (July 31, (July 31,
2007)2007)
3737
SFI’s StorySFI’s Story More conservative lender, and uses less leverageMore conservative lender, and uses less leverage
D/ED/E iStar (SFI)iStar (SFI) 2.93 2.93
Countywide (CFC)Countywide (CFC) 5.40 5.40
American Home Mort. (AHM)American Home Mort. (AHM) 8.96 8.96
Annaly Capital Management (NLY) Annaly Capital Management (NLY) 11.2411.24
Redwood Trust Inc. (RWT)Redwood Trust Inc. (RWT) 12.9112.91
Has not increased reserve for potential loan Has not increased reserve for potential loan losses this year (still anticipating 6%)losses this year (still anticipating 6%)
3838
SFI’s StorySFI’s Story May 22, 2007May 22, 2007 Acquired Acquired Fremont GeneralFremont General’s ’s
commercial real estate division for $1.9 B commercial real estate division for $1.9 B (immediately changed compensation structure (immediately changed compensation structure from volume-based to profitability-based)from volume-based to profitability-based)
July 2, 2007July 2, 2007 Announced an increased dividend Announced an increased dividend = 5% increase on dividend 5 years in a row= 5% increase on dividend 5 years in a row
July 31, 2007July 31, 2007 increased 2007 earnings increased 2007 earnings expectations from $2.74 to $2.90 per shareexpectations from $2.74 to $2.90 per share
August 1, 2007August 1, 2007 Reactivated stock repurchase Reactivated stock repurchase program, up to 2.7 M shares (open market)program, up to 2.7 M shares (open market)
Current PriceCurrent Price $18.31 (35%) off 52-week high $18.31 (35%) off 52-week high
3939
General StrategyGeneral Strategy Reduce Sector Weight by 2 %Reduce Sector Weight by 2 %
• As determined last presentationAs determined last presentation
Reduce Money Center Bank ExposureReduce Money Center Bank Exposure
• Three similar MCB’s facing, constituting 12 % of the SIMThree similar MCB’s facing, constituting 12 % of the SIM
Concentrate on Favorite MCB(s)Concentrate on Favorite MCB(s)
• At least one of the three has to be weakerAt least one of the three has to be weaker
Diversify within the SectorDiversify within the Sector
• Too much domestic MCB, little foreign banking, no REITToo much domestic MCB, little foreign banking, no REIT
Avoid Risks from Sub-Prime CrisisAvoid Risks from Sub-Prime Crisis
• Don’t sell just to buy back into the crisisDon’t sell just to buy back into the crisis
4040
RecommendationsRecommendations
Sell Sell allall JPM ~ 4.75 % JPM ~ 4.75 %• Weakest of the three money center banksWeakest of the three money center banks
Sell Sell somesome BAC ~ 2.00 % BAC ~ 2.00 %• Fairly valued, but more potential sub-prime riskFairly valued, but more potential sub-prime risk
Buy Buy moremore C ~ 1.75 % C ~ 1.75 %• Fairly valued, well positioned, strong stock in sectorFairly valued, well positioned, strong stock in sector
Buy Buy somesome SFI ~ 2.00 % SFI ~ 2.00 %• Not a MCB, undervalued, low sub-prime risk exposureNot a MCB, undervalued, low sub-prime risk exposure
4141
Proposed HoldingsProposed Holdings OldOld NewNew
Berkshire Hathaway (BRK.A)Berkshire Hathaway (BRK.A) 6.00%6.00% 6.00% 6.00%• Property and casualty insuranceProperty and casualty insurance
Bank of America (BAC)Bank of America (BAC) 5.50%5.50% 3.50% 3.50%• Money center bankMoney center bank
JP Morgan Chase (JPM)JP Morgan Chase (JPM) 4.75 % 0%4.75 % 0%• Money center bankMoney center bank
Goldman Sachs (GS)Goldman Sachs (GS) 3.50 % 3.50%3.50 % 3.50%• Investment brokerageInvestment brokerage
Citigroup (C)Citigroup (C) 1.75 % 3.50%1.75 % 3.50%• Money center bankMoney center bank
iStar Financial, Inc. (SFI)iStar Financial, Inc. (SFI) 0 % 0 % 2.00%2.00%• Credit servicesCredit services
21.50 % 21.50 % 19.50%19.50%
4343
Bank of AmericaBank of America
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
BANK OF AMERICA CORPORATION (BAC)PRICE 47.00 DATE 08-03-2007PRICE 47.00 DATE 08-03-2007StockVal®
1818
2020
2222
2424
2626
2929
3232
3535
3838
4242
4747
5151
56
62
68
The Ohio State UniversityFisher College of Business
Price Change % Diff SP5
1-Day -1.63 1.03
1-Week -0.86 0.91
4-Weeks -4.37 1.99
QTD -3.87 0.81
YTD -11.97 -13.01
2006 15.69 2.07
2005 -1.79 -4.79
2004 16.85 7.85 FYE Dec 2006 EPS 4.71
First Call Data 2007 2008 2009
Mean Estimate 4.91 5.27 5.88Change +4% +7% +12%
High 5.04 5.60 6.03
Low 4.80 5.00 5.80
Total 17 18 3
# Up 15 2 1
# Down 3 6 2
House Estimate
PE Ratio 9.6 8.9 8.0
Revenues ($Mil)
Market Value ($Mil) 208,536
Shares Out (Mil) 4,436.9
Volume 60-Day Avg (Th) 21,341
Volume 60-Day Avg ($M) 1003.0
Dividend Estimate 2.56
Payout Ratio 52%
Retention Rate 48%
Dividend Yield 5.45%
Data Page # 1
4545
CitigroupCitigroup
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
CITIGROUP INCORPORATED (C)PRICE 45.72 DATE 08-03-2007PRICE 45.72 DATE 08-03-2007StockVal®
1313
1515
1717
1919
22222424
28283131
3636
4040
4646
5252
59
67
76
The Ohio State UniversityFisher College of Business
Price Change % Diff SP5
1-Day -3.22 -0.56
1-Week -2.66 -0.89
4-Weeks -11.57 -5.20
QTD -10.86 -6.18
YTD -17.92 -18.96
2006 14.77 1.15
2005 0.73 -2.27
2004 -0.74 -9.74 FYE Dec 2006 EPS 4.14
First Call Data 2007 2008 2009
Mean Estimate 4.57 5.09 5.65Change +10% +12% +11%
High 4.66 5.26 6.01
Low 4.45 4.82 5.35
Total 15 20 4
# Up 15 7 0
# Down 1 1 1
House Estimate
PE Ratio 10.0 9.0 8.1
Revenues ($Mil)
Market Value ($Mil) 227,439
Shares Out (Mil) 4,974.6
Volume 60-Day Avg (Th) 27,988
Volume 60-Day Avg ($M) 1279.6
Dividend Estimate 2.16
Payout Ratio 47%
Retention Rate 53%
Dividend Yield 4.72%
Data Page # 1
4747
JP Morgan ChaseJP Morgan Chase
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
JP MORGAN CHASE & COMPANY (JPM)PRICE 43.65 DATE 08-03-2007PRICE 43.65 DATE 08-03-2007StockVal®
1414
1616
1818
21212323
2727
3030
3434
3939
4545
5151
5858
66
75
85
The Ohio State UniversityFisher College of Business
Price Change % Diff SP5
1-Day -2.11 0.55
1-Week -1.31 0.46
4-Weeks -10.86 -4.50
QTD -9.91 -5.23
YTD -9.63 -10.67
2006 21.69 8.07
2005 1.74 -1.26
2004 6.21 -2.79 FYE Dec 2006 EPS 3.81
First Call Data 2007 2008 2009
Mean Estimate 4.70 4.91 5.40Change +23% +4% +10%
High 4.80 5.25 5.79
Low 4.45 4.55 5.12
Total 16 20 5
# Up 15 12 3
# Down 2 4 0
House Estimate
PE Ratio 9.3 8.9 8.1
Revenues ($Mil)
Market Value ($Mil) 148,345
Shares Out (Mil) 3,398.5
Volume 60-Day Avg (Th) 18,607
Volume 60-Day Avg ($M) 812.2
Dividend Estimate 1.52
Payout Ratio 32%
Retention Rate 68%
Dividend Yield 3.48%
Data Page # 1
4949
iStar FinancialiStar Financial
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
ISTAR FINANCIAL INCORPORATED (SFI)PRICE 34.74 DATE 08-03-2007PRICE 34.74 DATE 08-03-2007StockVal®
1010
1212
14141616
2020
2424
28283232
3838
4646
5454
6464
76
92
108
The Ohio State UniversityFisher College of Business
Price Change % Diff SP5
1-Day -4.46 -1.80
1-Week -7.26 -5.49
4-Weeks -24.71 -18.34
QTD -21.63 -16.96
YTD -27.35 -28.39
2006 34.14 20.52
2005 -21.23 -24.23
2004 16.35 7.36 FYE Dec 2006 EPS 2.64
First Call Data 2007 2008 2009
Mean Estimate 4.09 4.51 4.83Change +55% +10% +7%
High 4.20 4.75 5.05
Low 3.91 4.30 4.50
Total 10 10 3
# Up 8 5 2
# Down 0 1 0
House Estimate
PE Ratio 8.5 7.7 7.2
Revenues ($Mil) 1,129
Market Value ($Mil) 4,453
Shares Out (Mil) 128.2
Volume 60-Day Avg (Th) 1,271
Volume 60-Day Avg ($M) 44.2
Dividend Estimate 3.30
Payout Ratio 81%
Retention Rate 19%
Dividend Yield 9.50%
Data Page # 1
5151
Berkshire Hathaway (BRK-A)Berkshire Hathaway (BRK-A)Hold: Upside potential – 4.08% ($114,382/share)Hold: Upside potential – 4.08% ($114,382/share)
Insurance Outlook in 2007Insurance Outlook in 2007 Slower premium growthSlower premium growth Weak pricingWeak pricing Underwriting becomes less profitableUnderwriting becomes less profitable No exposure to subprime mortgageNo exposure to subprime mortgage
Berkshire’s Source of growthBerkshire’s Source of growth Non-insurance businessNon-insurance business Investment incomeInvestment income
5252
Goldman Sachs (GS)Goldman Sachs (GS)Hold: Realize a significant loss (21%) if sell GS nowHold: Realize a significant loss (21%) if sell GS now
Stock is undervaluedStock is undervalued DCFDCF ComparablesComparables Analyst ReportAnalyst Report
Positive Economic outlook in 2008Positive Economic outlook in 2008
GS will recover from recent stock slumpGS will recover from recent stock slump Well diversified businessWell diversified business
5353
StockVal®GOLDMAN SACHS GROUP INC (GS) Price 179.681997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
PRICE / SALES RELATIVE TO S&P FINANCIALS SECTOR COMPOSITE ADJ (SP-40) M-Wtd0.04
0.05
0.06
0.07
0.08
0.09
0.10
0.11
0.12
0.13
HI 0.12 LO 0.04 ME 0.08 CU 0.04
05-07-199908-03-2007
PRICE / YEAR-FORWARD EARNINGS RELATIVE TO S&P FINANCIALS SECTOR COMPOSITE ADJ (SP-40) M-Wtd0.4
0.6
0.8
1.0
1.2
1.4
1.6
HI 1.55 LO 0.48 ME 0.86 CU 0.81
05-07-199908-03-2007
5454
Goldman Sachs (GS)Goldman Sachs (GS)StockVal®GOLDMAN SACHS GROUP INC (GS) Price 179.68
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
PRICE / SALES RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
HI 1.40 LO 0.55 ME 0.95 CU 0.77
05-07-199908-03-2007
PRICE / YEAR-FORWARD EARNINGS RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
HI 1.00 LO 0.33 ME 0.63 CU 0.58
05-07-199908-03-2007