FINANCIALS
Gregory
Svetov
Jacob Pottschmidt
David Spaw
Daniel Bush
Overview
 Business Analysis
 Economic Analysis
 Financial Analysis
 Valuation Analysis
 Recommendation




The financial sector
comprises:
15.85% of the
S&P500
14.99% of SIM
portfolio

The financial industry includes a
wide range of companies and
institutions involved with money,
including businesses providing
money management, lending,
investing, insuring and securities
issuance and trading services:
1. Banks
2. Insurance Companies
3. Real Estate
4. Diversified Financials
Company
Market
Cap
1
BRK.B
Berkshire
Hathaway
253.13B
2
BRK.A
Berkshire
Hathaway
252.85B
3
HBC
HSBC
200.31B
4
WFC
Wells Fargo
198.78B
5
JPM
JPMorgan
Chase
188.21B
6
C
Citigroup
135.60B
7
BAC
Bank of
America
Corporation
135.37B
8
V
Visa
128.13B
9
WBK
Westpac
Banking
96.69B
RY
Royal Bank
Of Canada
86.37B
10
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Performance 1 Month
Performance 3 Month
Performance YTD



Supplier Power: Medium


The Fed Funds rate influences banks
Depositor power will vary based on who it is

Threat of New Substitutes: Medium

Non-financial firms that now offer similar services but not ideal

Threat of New Entrants: Low


Very high capital needed
Fed BOG approval needed
Highly regulated

Buyer Power: Medium


Switching costs vary
larger consumers have more power

Degree of Rivalry: High

In mature phase of life cycle
Competition is fierce between largest institutions
Smaller and medium-sized banks are absorbed by larger firms




Cyclical with market and mature life cycle

Unlimited impact of Dodd-Frank is still unknown
Further proposals to increase regulation have been and
are expected to continue
Basal III capital requirements
High unemployment rates
US fiscal debt
Economic difficulties in Europe
Low interest rate












Absolute Basis
High
Low
Median
Current
P/Trailing E
135.2
8.1
13.3
13.0
P/Forward E
20.1
8.8
12.4
12.4
P/B
2.3
.5
1.4
1.1
P/S
2.7
.6
1.9
1.7
Relative to SP500
High
Low
Median
Current
P/Trailing E
7.8
.65
.80
.88
P/Forward E
1.4
.68
.80
.87
P/B
.70
.30
.50
.50
P/S
1.8
.90
1.3
1.3
•
Money Center Banks
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
High
147.2
91.2
2.4
3.2
Low
4.0
6.3
.3
.50
Median
12.6
11.5
.8
2.1
Current
11.3
10.1
.7
1.7
Relative to SP500
P/Trailing E
P/Forward E
P/B
P/S
High
9.8
5.9
.80
2.0
Low
.33
.54
.20
.80
Median
.74
.71
.40
1.5
Current
.76
.71
.30
1.3
•Pros
• Increase in consumer
confidence
•Cons
• Recent uncertainty in Fed
Funds Rate
• Limitations due to
restrictions enforced by
Dodd-Frank Act
• Highly correlated with
uncertainty of Global
Markets


The current SIM Portfolio is underweighted
by 86 BP as compared to the S&P500

S&P500 – 15.85%

SIM Portfolio – 14.99%
Our recommendation is to keep SIM position
underweight with respect to the Financial
Sector
HOLD
Any Questions?