Financials Sector Presentation MIKE RAINEY MITCH SALSBERY MIKE
Financials Sector Presentation MIKE RAINEY MITCH SALSBERY MIKE SHAVER MADDIE SHIRK
Financials: Overview
Overview Industries: ● Banks ○ 3. 91 T ● Insurance ○ 1. 33 T ● Capital markets ○ 1. 25 T ● Mortgage REITs ○ 69. 34 B ● Consumer Finance ○ 251. 54 B ● Thrifts & Mortgage Finance ○ 93. 00 B ● Diversified Financial Services ○ 533. 60 B
Financials Overview ● Market Cap: 7. 56 T ● % of S&P 500: 14. 01% ● SPY 1 year: +13. 54% ● Financials 1 YR: +12. 61%
Largest Companies § Berkshire Hathaway § 471. 65 B § Citigroup § 170. 284 B § JP Morgan Chase & Co § 366. 134 B § Goldman Sachs Group § 83. 163 B § American Express § 83. 421 B § US Bancorp § 81. 844 B § § Bank of America Corporation § 296. 679 B Wells Fargo and Company § 268. 398 B
Performance YTD 1 Year 3 Year 5 Year Financials -1. 71% +12. 99% +35. 61% +71. 86% Banks -2. 18% +15. 34% +35. 58% +80. 88% Capital Markets +3. 58% +20. 75% +27. 31% +71. 54% Consumer Finance -2. 70% +19. 78% +14. 94% +38. 66% Diversified Financial Services -3. 85% +11. 42% +40. 01% +83. 93% Insurance -5. 01% -1. 04% +22. 34% +53. 26% S&P 500 ® Index +3. 75% +14. 00% +32. 06% +69. 23%
1 Year vs S&P 500 5 Year vs S&P 500 Financial Sector
Financials: Business Analysis
Business Cycle ● Financials show top performance during growth and maturity phases ● High interest rates improve outlook ● As cycle progresses, financials lose due to lower spending
Porter’s 5 Forces Barrier to Entry Moderate Difficult to raise necessary capital to gain entry Highly supervised Small banks able to offer more Supplier Power Moderate Policy has large impact Customer can change very easily Buyer Power Moderate Buy and supplies capital As rates increase, may increase power due to more competition for money Substitution Moderate Many small companies taking aim at segments Increased competition and low rate products Rivalry Highly competitive Small banks have different regulations Fees a big topic Similar products
Supply/Demand ● Consumers are people, companies, governments ● Drivers: ○ Interest rates ○ Inflation ○ Economic conditions ○ Government regulations ● Overall financial sector is second largest
Financials: Economic Analysis
Factors of High Influence ● Economic Conditions in US (S&P 500) ● Interest Rates ● Consumer Confidence ● US Gross Domestic Product ● Unemployment ● Regulations, Policy and Taxes
S&P 500 A strong economy drives personal and business investing
Interest Rates Changes in interest rates drive how investors function Increased rates are good for lenders
Consumer Confidence High confidence leads to more investing and purchasing
GDP Economic growth trends towards more lending and borrowing
Unemployment A fully staffed workforce means increased business investment Historically low rates raise questions on the trend’s outlook
Analysis and Projections S&P 500 = Financials Interest rates = Financials Consumer confidence GDP = Financials Unemployment = Financials
Financials: Financial Analysis
Financial Projections
Key Financial Overview – Income Statement
Key Financial Overview – Balance Sheet
Key Financial Overview – Balance Sheet
Key Financial Overview – Cash Flows
Key Drivers of Financial Performance ● Tax law changes ● Interest rates ● Frank Dodd executive action
Financials: Valuation Analysis
S&P 500 vs. S 5 FINL
S&P 500 vs. S 5 FINL
Sector Valuation
Industry Valuation
Portfolio Breakdown
Recommendation ● Recommendation is to remain “neutral” ● Current position is overweight ● Previously underperformed the S&P… BUT ○ ○ Current relative multiples are lower than their median Current S&P multiples are higher than their median ● Expect the financial sector to outperform S&P moving forward
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