7/21/2009
Jerod Tilton
Jon Verworn
Zachary Wang

• Sector Weighting
• Condition of Sector (5 Forces)
• Economic Drivers
• Performance
• Relevant Facts
• Recommendation
• Questions
S & P 500 Financials Sector 7/21/2009 2

• Information Technology: Largest 18.4%
• Materials: Smallest 3.2%
• Financials: 13.7%
• Financial Sector Weighting Trending Upwards
7/21/2009
25%
20%
15%
10%
5%
0%
Financial Sector Relative S & P 500 Weighting
Sector Weigthing
Eight Year Average
3 S & P 500 Financials Sector

• Financial Sector
Underweight
Relative to S&P 500 by 4.4%
– 4.0% excl cash
S&P 500 Sector Weighting
Rank Name
1
2
Information Technology
Health Care
3
4
5
6
Financials
Consumer Staples
Energy
Industrials
7
8
9
10
Consumer Discretionary
Utilities
Telecommunications Services
Materials
S&P 500
Market
Capitalization
Billions
1,463
1,116
1,088
978
956
778
712
325
269
254
7,939
Percentage
18.43%
14.06%
13.70%
12.32%
12.05%
9.79%
8.97%
4.10%
3.39%
3.20%
Percentag e of SIM
Shares
28.69%
9.52%
9.33%
6.87%
6.38%
14.93%
9.27%
2.29%
2.86%
9.86%
S & P 500 Weight
Telecommunication
Materials
3.2%
Services
3.4%
Information
Technology
18.4%
Utilities
4.1% Cash
0.0%
Consumer
Discretionary
9.0%
Energy
12.0%
Industrials
9.8%
Health Care
14.1%
Financials
13.7%
Consumer Staples
12.3%
Telecommunication
Services
3.3%
Materials
4.1%
SIM Weight
Utilities
3.9%
Cash
3.5%
Consumer
Discretionary
7.5%
Information
Technology
20.2%
Industrials
11.6%
Health Care
13.6%
Energy
10.7%
Consumer Staples
12.4%
Financials
9.3%
S & P 500 Financials Sector 7/21/2009 4

Industry Breakout
• Industries showing declining growth
Industry Breakdown Financial Sector (as of 7/17/09)
INDUSTRY
ASSET MANAGEMENT
CONSUMER FINANCE
DIVERSE FIN'L SVC
DIVERSIFIED BANKS
DIVERSIFIED REITS
INDUSTRIAL REITS
INSURANCE-BROKERS
INSURANCE-LIFE/HLTH
INSURANCE-MULTI-LINE
INSURANCE-PROP/CAS
INV BANK & BROKERAGE
MULTI-SECTOR HLDGS
OFFICE REITS
REAL ESTATE SERVICES
REGIONAL BANKS
RESIDENTIAL REITS
RETAIL REITS
SPECIALIZED FINANCE
SPECIALIZED REITS
THRIFTS&MORTGAGE FIN
Price Per Index
118.23
248.57
41.85
186.64
46.51
15.19
172.92
155.33
38.86
158.74
86.15
45.50
64.78
71.16
33.81
45.88
31.00
86.62
62.31
5.30
Percentage in
Relation to
Market Cap
10.33%
4.96%
24.25%
13.72%
0.62%
0.30%
1.84%
6.88%
1.89%
6.22%
11.96%
PRICE %
CHG 1 DAY
0.00
-0.01
0.00
0.00
-0.04
-0.02
-0.01
-0.01
0.00
-0.01
-0.01
0.33%
0.59%
0.20%
5.83%
0.96%
1.47%
3.59%
2.92%
1.14%
-0.01
-0.01
0.00
-0.04
-0.04
-0.04
0.01
-0.02
-0.01
PRICE %
CHG 12
MTHS
-0.28
PRICE %
CHG 2 YR
-0.41
-0.36
-0.43
-0.63
-0.69
-0.26
-0.51
-0.85
-0.27
-0.56
-0.60
-0.87
-0.26
-0.43
-0.82
-0.23
-0.28
-0.55
-0.92
-0.48
-0.61
-0.56
-0.50
-0.52
-0.43
-0.50
-0.65
-0.27
-0.31
-0.76
-0.43
-0.50
-0.75
-0.74
-0.58
-0.72
-0.63
-0.39
-0.95
PRICE %
CHG 3 YR
-0.25
-0.60
-0.67
-0.55
-0.54
-0.85
-0.13
-0.46
-0.90
-0.42
-0.51
-0.31
-0.40
-0.63
-0.73
-0.55
-0.69
-0.60
-0.37
-0.95
PRICE %
CHG 5 YR
0.02 -
-0.51
-0.63 -
-0.49
-0.23
-0.78
-0.31
-0.25
-0.91
-0.30
-0.25
PRICE %
CHG 10
YRS Largest Stock
BANK OF NY MELLON
-0.51 AMER EXPRESS
JPMORGAN CHASE & CO
-0.43 WELLS FARGO
0.26 VORNADO REALTY TRUST
-0.62 PROLOGIS
-0.31 AON
-0.28 METLIFE
-0.90 LOEWS
-0.22 TRAVELERS COS (THE)
-0.29 GOLDMAN SACHS GROUP
0.18
-0.10
0.47 -
-0.71
-0.29
-0.51
-0.39
-0.16
-0.95
1.39 LEUCADIA NAT'L
0.01 BOSTON PROPERTIES
CB RICHARD ELLIS GRP
-0.68 PNC FIN'L SVCS GRP
-0.17 EQUITY RESID'L
-0.05 SIMON PROPERTY GROUP
0.55 CME GROUP
0.01 PUBLIC STORAGE
-0.94 HUDSON CITY BANC
Stock
Capitalization
(MM)
35,134
33,284
143,914
116,400
7,810
3,377
10,441
24,924
11,920
23,663
78,957
4,827
6,609
2,589
17,343
5,485
13,875
18,219
11,197
7,442
S & P 500 Financials Sector 7/21/2009 5

• SIM Class has 5 Financial Stocks
• 3 of five in top four regarding capitalization
• Capitalization has decreased significantly since 2007
S & P 500 Financial Sector Top Stocks by Market Capitalization (As of 7/17/2009)
Market
Rank Company Name
1 JPMORGAN CHASE & CO
2
3
BERKSHIRE HATHAWAY
WELLS FARGO
BANK OF AMERICA
6 BANK OF NY MELLON
7 U.S. BANCORP
Industry
DIVERSE FIN'L SVC
INSURANCE-PROP/CAS
DIVERSIFIED BANKS
DIVERSE FIN'L SVC
4 GOLDMAN SACHS GROUP INV BANK & BROKERAGE
5 MORGAN STANLEY INV BANK & BROKERAGE
ASSET MANAGEMENT
DIVERSIFIED BANKS
P/E
2009
23.8
18.3
17.6
17.3
10.1
68.4
13.2
22.7
Capitalization
(MM) % Of Total Share Price ROE
143,914
140,004
116,400
111,375
78,957
37,834
35,134
34,084
12.58%
12.24% 90,500.00
10.18%
9.74%
6.90%
3.31%
3.07%
2.98%
36.89
25.00
12.89
156.84
27.99
29.39
17.96
0.01
0.08
0.16
0.04
0.06
0.07
0.13
0.13
8 AMER EXPRESS
9 METLIFE
10 STATE STREET
33 HUDSON CITY BANC
CONSUMER FINANCE
INSURANCE-LIFE/HLTH
ASSET MANAGEMENT
THRIFTS&MORTGAGE FIN
20.8
12.3
12.0
13.6
33,284
24,924
23,754
7,442
2.91%
2.18%
2.08%
0.65%
28.03
30.45
48.11
14.27
0.26
0.08
0.21
0.11
Total Return
Price to
Book
1.00
1.40
Price to Sales
(Current Year) 1 Day 12 Months 5 Years 10 Years
1.39
0.02
1.17
0.00
-0.08
-0.22
0.16
0.04
-0.13
0.31
1.50
0.50
1.70
1.00 -
1.30
1.60
2.60
1.10
1.70
1.50
1.42
0.87
1.90
2.67
2.12
0.00
-0.02
0.00
-0.02
-0.01
0.00
1.34
-0.01
0.54
-0.02
2.79
0.01
6.22
0.00
-0.06
-0.48
-0.13
-0.25
-0.15
-0.31
-0.31
-0.40
-0.29
-0.19
0.06
-0.47
0.85
-0.20
0.17
-0.13
-0.29
-0.06 -
0.21
0.48 -
0.56
-0.22
1.30
-0.12
0.01
0.03
-0.14
0.27
Financial Sector Sum*
Average*
1,143,829
14,298 29.39
0.14
1.82
2.20
(0.01) (0.36) (0.05) 0.35
*Excludes Berkshire Hathaway A Shares
S & P 500 Financials Sector 7/21/2009 6

• Barriers to Entry
– Little to none
• Competition
– High
• Substitution
– Little, but can be a pain
• Supplier Power
– High, the Fed has a lot of control
• Buyer Power
– Can go to a number of banks
S & P 500 Financials Sector 7/21/2009 7

• Direct
• Crude Oil
• Consumer Confidence
• Inverse
• Unemployment
450
400
350
300
250
200
150
100
50
0
-50
8
7
6
5
4
3
2
1
0
10
9
Earnings
Crude Oil
Consumer Confidence
Current
Unemployment
• Direct
• Fed Funds rate
450
400
350
300
250
200
150
100
50
0
-50
6
5
4
3
2
1
0
Earnings
30 Year Bond Rate
Fed Funds rate
8 S & P 500 Financials Sector 7/21/2009

• Direct
– Home Price
– Mortgage Applications
• Directional
450
400
350
300
250
200
150
100
50
0
-50
30
20
10
0
-10
-20
-30
Earnings
Case Schiller Home
Price
Mortgage Apps
Purchase
• Direct
– Housing Starts
7/21/2009
450
400
350
300
250
200
150
100
50
0
-50
S & P 500 Financials Sector
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Earnings
Average Hourly
Earnings
Dol to Eur
Housing Starts
9

•Relative to the market (S&P 500), the financial sector has performed relatively well on average within the past decade.
•However, due to the banking crisis and the recession, performance dropped significantly within the last two years.
 In 2008, the financial sector’s performance fell to -30% when compared to the market.
 Currently, the sector has rebound a little to -27%
Financial Sector in Relation to S&P 500 2 Yr
Financial Sector in Relation to S&P 500 10 Yr
S & P 500 Financials Sector 7/21/2009 10

Operating Earnings
• Relative to the other sectors, the financial sector suffered the most last year
 Operating Earnings fell nearly 200% in 2008
 Actual earnings per share fell 108%
Potential Growth
• The S&P 500 index projects a
S&P 500 Operating Earnings by Economic Sector: Bottom-Up Estimates as of 07/14/2009 rebound of the earnings in the
2007A 2008A 2009E 2010E financial sector in 2009 to 7.52
S&P 500 82.54 49.51 56.05
KEY
74.98 A - Actual and 13.69 in 2010.
•This increase signals a
Consumer Discretionary
Consumer Staples
13.31
15.62
5.27
17.18
7.54
17.43
13.09 E - Estimate
19.13 projection that inflation
Energy 46.30 50.92 17.37 33.81 could set in within the next
Financials 22.79 (21.24) 7.52 13.69 two years.
Health Care 23.31 24.48 26.53 29.03
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
21.28
17.35
15.97
8.27
11.67
21.18
16.13
8.10
8.22
12.25
14.16
15.05
4.70
8.36
11.93
15.44
19.84
9.96
8.51
13.12
S & P 500 Financials Sector 7/21/2009 11

EPS
•Prior to the recession, performance from EPS has been relatively stable during the past decade.
•After the start of the banking crisis, the EPS flow has followed the market trend
ROE
•ROE has been volatile during the past decade but has been downward sloping on average.
EPS
ROE
12 S & P 500 Financials Sector 7/21/2009

Price/Book and Price/Earnings Ratios
•The P/B ratio has shown a decline in the sector within the last two years.
 The reason behind this decline can be tied to the banking crisis
 The first quarter of 2009 has shown projections of a possible growth in the financials as the recession comes to an end.
•The increase can be attributed to FASB 157 as banks start to correctly value their assets
Price/Book
Forward P/E
13 S & P 500 Financials Sector 7/21/2009

The Federal Funds Rate has dropped to .15%
•This low rate shows that the government is attempting to stimulate the market and promote banks to lend more money in attempt to combat the recession.
•Effects from the change in the Federal Funds Rate are slightly lagged.
 The first quarter of 2009 shows the first sign of a rebound within the financial sector (partly due to the increase in revenue from the low federal funds rate)
Federal Funds Rate
Financial Sector Index Value
S & P 500 Financials Sector 7/21/2009 14

• Top 15 issuers of general purpose credit cards for 2008 based on outstandings
1. Chase - $183.32 billion
2. Bank of America - $166.32 billion
3. Citi - $106.74 billion
4. American Express - $88.02 billion
5. Capital One - $60.08 billion
6. Discover - $49.69 billion
7. Wells Fargo - $36.36 billion
8. HSBC - $29.97 billion
9. US Bank - $18.53 billion
10. USAA - $17.48 billion
(Source: Nilson Report, March 2009)
S & P 500 Financials Sector 7/21/2009 15

• According to data from the U.S. Census Bureau, there were 159 million credit cardholders in the United States in 2000, 173 million in 2006, and that number is projected to grow to 181 million Americans by 2010.
(Source: Census Bureau)
• As of March 2009, U.S. revolving consumer debt, made up almost entirely of credit card debt, was about $950 Billion. In the fourth quarter of 2008,
13.9 percent of consumer disposable income went to service this debt.
(Source: U.S. Congress' Joint Economic Committee, "Vicious Cycle: How
Unfair Credit Card Company Practices Are Squeezing Consumers and
Undermining the Recovery," May 2009)
• 44 percent of small-business owners identified credit cards as a source of financing that their company had used in the previous 12 months —- more than any other source of financing, including business earnings. In 1993, only 16 percent of small-businesses owners identified credit cards as a source of funding they had used in the preceding 12 months. (Source:
National Small Business Association survey, 2008)
S & P 500 Financials Sector 7/21/2009 16

• Ranking of U.S. banks' reputations
1. Washington Mutual -- 64.04
2. SunTrust Banks -- 63.56
= JPMorgan Chase
3. Wachovia -- 61.22
= Wells Fargo
4. National City -- 58.83
= PNC
5. Wells Fargo -- 57.38
6. US Bancorp -- 54.18
7. Bank of America -- 50.94
NOTE: Rankings were part of a survey of 600 of the world's largest companies.
(Source: Reputation Institute Global Pulse survey, June 2008)
S & P 500 Financials Sector 7/21/2009 17

• Cuomo v. The Clearing House Association 6/29/09
– States can regulate nationally chartered banks
• Goldman Sachs Reports Record Earnings 7/14/09
– $4.93 a share, up from $2.09 billion, or $4.58 a share, a year earlier
• JPMorgan Chase’s earnings beat expectations 7/16/09
– 28c/share versus expected 4c/share
• CIT in talks with Goldman and JPMorgan Chase 7/17/09
– Financier of small and middle market businesses need funds
• CIT Receives Bailout 7/20/09
– From private sources
• Hudson City Earning 7/21/09
– Up 18.2% to $0.26 versus expected $0.25
• Wells Fargo Earnings 7/22/09
S & P 500 Financials Sector 7/21/2009 18

• More Bank Failures
• Deeper Recession
– e.g. Double-dip Recession
• Low Investor Confidence
• Federal Funds Rate Increase
• Increased Regulation
• Credit Card Defaults Due to unemployment
• Lack of Dividends
• Toxic Assets
S & P 500 Financials Sector 7/21/2009 19

• Systemic recovery—high beta
• Less competition for those left = more market share
• Potential privatization of Social Security savings
• Increased savings trends
• Purging of toxic assets
S & P 500 Financials Sector 7/21/2009 20

• Keep financials services underweight
• In the short term, returns will poor. Financial services will not out perform the market, however, once the credit crisis and other issues are resolved, then returns will increase
• Currently risk outweighs reward. We feel that a systemic rebound can be experienced in other sectors without as much risk.
• We are bullish long term, however for the short term, we are bearish.
We recommend leaving the financial services at 440 basis points underweight
S & P 500 Financials Sector 7/21/2009 21

S & P 500 Financials Sector 7/21/2009 22