Financials Sector Presentation Austin Peko Connor Plunkett Michael

Financials Sector Presentation Austin Peko, Connor Plunkett, Michael Swickrath, Tiffany Tang 10 -27 -2020

S&P 500 Financial Sector • • • Overview - Austin Peko Business Analysis - Austin Peko Economic Analysis - Connor Plunkett Financial Analysis - Michael Swickrath Valuation - Tiffany Tang Conclusions - Tiffany Tang 2

Overview Austin Peko 3

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P/E (LTM) P/E (NTM) YTD Return # Firms Banks 13. 8 x 11. 8 x -33% 18 Diversified Financials 18. 9 x 16. 6 x -4% 24 Insurance 18. 7 x 11. 6 x -13% 22 5

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Business Analysis Austin Peko 8

Porter's 5 Forces Force Barriers to Entry Supplier Power Buyer Power Substitution Competition Degree Details Medium-Highly regulated High capital requirements Economies of scale Existing client relationships Medium-Low Average depositor/worker = little power HNWI / executives may have more power Federal Reserve / easy money Medium - Low Medium High Regulations / mature products Many players / low switching costs No quality difference (FDIC / regulation) Fin-tech players / small banks / P 2 P Decentralized / specialized finance Low switching costs (retail) Mature products / regulated Fighting for fees No quality difference (FDIC / regulation) 9

Product Offerings Commercial Banking Investment Banking Retail Banking Merchant Banking • • • Capital market operations • Financial engineering • Structured financing, M&A, etc. Raising/protecting funds Credit and transactions SMEs and Professional Banking • Financial Banking • • • Stock management Mutual fund, pension fund, public fund management Brokerage Financing Payments and cash management Specialized services • Insurance Products • • Life and health insurance Damage Specialized Financing • Financial/operating leases 10

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Economic Analysis Connor Plunkett 13

The Economic Cycle • Early-Cycle • Interest rates still decreasing due to the easing of monetary policy • Consumer spending and corporate earnings are growing • Optimal period for investment in Financials • Mid-Cycle • Interest rates are stabilizing and possibly rising to fight off inflation • Late-Cycle • Stock Prices begin to look expensive & earnings growth has slowed • Borrowing costs are high compared to earlier years • Recession Phase • Interest rates are high and need to be corrected (In most recessions) • Earnings begin to contract 14

Relative Rotation Graph (Weekly) 15

Economic Drivers: • • Health of the Overall Stock Market Consumer Confidence Interest Rates Interest Rate Spreads Mortage Rates Central Bank Policy (IE capital Requirements) Provision For Loan Losses 16

Financial Conditions 17

Overall Stock Market The financial sector commonly moves in unison with the overall market 18

Consumer Confidence Increases in confidence will lead to increases in spending and investment 19

3 -Year Treasury 20

Yield Curve Inversion An inversion along the yield curve tends to be a sign that a recession is expected in the near future 21

Interest Rate Spread (10 yr - 3 yr) Financial sector profit tends to increase when interest rates are rising 22

Mortgage Rates Mortgage lending is a crucial aspect of the financial industry that can be driven by overall mortgage rates 23

Financial Analysis Michael Swickrath 24

S&P 500 Financials Sector • 66 Firms • 7 Industries (Banking, Capital Markets, Consumer Finance, Diversified Financial Services, Insurance, Mortgage REITs, Thrifts and Mortgage Finance) S&P 500 – Financials Sector Fact Sheet, URL: https: //www. spglobal. com/spdji/en/idsenhancedfactsheet/file. pdf? calc. Frequency=M&force_download=true&host. Iden tifier=48190 c 8 c-42 c 4 -46 af-8 d 1 a-0 cd 5 db 894797&index. Id=279 25

S&P 500 – Financials Sector Fact Sheet, Sept. 30, 2020, URL: https: //www. spglobal. com/spdji/en/idsenhancedfactsheet/file. pdf? calc. Frequency=M&force_download=true&ho st. Identifier=48190 c 8 c-42 c 4 -46 af-8 d 1 a-0 cd 5 db 894797&index. Id=279 26

SIM Portfolio Financials: Bank of America, Morgan Stanley, Goldman Sachs, American Express S&P 500 – Financials Sector Fact Sheet, Sept. 30, 2020, URL: https: //www. spglobal. com/spdji/en/idsenhancedfactsheet/file. pdf? calc. Frequency=M&force_download=true&ho st. Identifier=48190 c 8 c-42 c 4 -46 af-8 d 1 a-0 cd 5 db 894797&index. Id=279 27

S&P 500 – Financials Sector Fact Sheet, Sept. 30, 2020, URL: https: //www. spglobal. com/spdji/en/idsenhancedfactsheet/file. pdf? calc. Frequency=M&force_download=true&ho st. Identifier=48190 c 8 c-42 c 4 -46 af-8 d 1 a-0 cd 5 db 894797&index. Id=279 28

S&P 500 – Financials Sector Fact Sheet, Sept. 30, 2020, URL: https: //www. spglobal. com/spdji/en/idsenhancedfactsheet/file. pdf? calc. Frequency=M&force_download=true&ho st. Identifier=48190 c 8 c-42 c 4 -46 af-8 d 1 a-0 cd 5 db 894797&index. Id=279 29

S&P 500 – Financials Sector Fact Sheet, Sept. 30, 2020, URL: https: //www. spglobal. com/spdji/en/idsenhancedfactsheet/file. pdf? calc. Frequency=M&force_download=true&ho st. Identifier=48190 c 8 c-42 c 4 -46 af-8 d 1 a-0 cd 5 db 894797&index. Id=279 30

S&P 500 Business Intelligence • R Programming Language • tidyverse, tidyquant, Performance. Analytics • Selenium Web Automation • Tableau data visualization • https: //public. tableau. com/profile/michael. swickrath 8343#!/vizhom e/Dash. V 1/Return? publish=yes 31

Link to Dashboard 32

Valuation Analysis Tiffany Tang 33

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S&P 500 vs S 5 FINL: 1 YR 36

S&P 500 vs S 5 FINL: 10 YR 37

S&P 500 – Financials Sector Fact Sheet, Sept. 30, 2020, URL: https: //www. spglobal. com/spdji/en/idsenhancedfactsheet/file. pdf? calc. Frequency=M&force_download=true&ho st. Identifier=48190 c 8 c-42 c 4 -46 af-8 d 1 a-0 cd 5 db 894797&index. Id=279 38

Recommendations Tiffany Tang 39

Bloomberg – Sector Performance, URL: https: //www. bloomberg. com/markets/sectors/financials 40

Positives: Risks: • • Overweighting in anticipation of recovery • If market successfully recovers from COVID and a recovery of the economy Further declination/contraction of market due to COVID • Current underperformance may exacerbate begins 41

Thank you! 42

CAPM Explanation from Dashboard Capital Asset Pricing Model Parameters β and α where calculated via linear regression of historical return data E(Ri) - Rf = βi(E(Rm) - Rf) + αi • Rf is risk free return (10 -year treasury note, 0. 87% as of 10 -23 -2020 per www. treasury. gov) • E(Ri) is expected return of security i • E(Rm) is the expected return of market (SP 500 is the market in this analysis) 43