Rahul Choudhry, Xiangyuan Li, Jiachen Wang, Shunxian Zou

Transcription

1 Sector Presentation: Financials Rahul Choudhry, Xiangyuan Li, Jiachen Wang, Shunxian Zou

2 1. Overview & Business Analysis 2. Economic & Financial Analysis Agenda 3. Risks & Valuation Analysis 4. Recommendation

3 Overview

4 Financials: Composition Banks Diverse Financial Services Insurance Companies Real Estate

5 Financial Sector Performance Source: finviz.com

6 Financial Industries Sector Performance

7 Telecom Materials Utilities Industrials Cons. Staples Energy Cons. Disc. Health Care Financials Info Tech Sectors Market Capitalization 3.00 Market Cap (in Trillions) Source: Standard and Poor s

8 SIM Market Capitalization Financials are underweighted (1.32%) relative to S&P 500 -SIM: 14.00% -S&P: 15.32%

9 Business Analysis

10 Business Cycle Upswing Confidence builds up Attract more capital projects and labor Personnel Investing Larger Number of Loans Downswing Lower number of new firms Less expansion, M&A Default rates go up Waves of Layoff

11 Porter s Five Forces Bargaining Power of Suppliers Threat of New Entrants Intensity of Rivalry Bargaining Power of Buyers Threat of Substitution

12 Porter s Five Forces Threat of New Entrants Low. Very difficult to become a money center bank eg.jpm / BOA Medium-High: Not difficult to become Asset Management Firms / Financial Services Companies Bargaining Power of Suppliers Low to mediums Source of capital: 1.Depositors 2.Credit market 3.Credit market Bargaining Power of Buyers Lower power for small individual customers High switching cost after you are in business High power for large for large corporation / Institutional investors Threat of Substitution Low. It s such a broad sector and cover most of the possible services Can t go back to barter Precious metals-----gold Intensity of rivalry Intense Consolidation---Very large banks holding majority of assets

13 Economic Analysis

14 Consumer Confidence

15 Velocity of Money Supply

16 2 year Treasury Notes

17 10 year Treasury Notes

18 Operation Twist: Flattening of Yield Curve

19 30 Year Fixed Mortgage Rate

20 Federal Funds Rate

21 Case-Schiller Home Price Index

22 Unemployment Rate

23 Trade Deficit

24 Financial Analysis

25 Earnings & Revenue Growth

26 Revenue Analysis

27 Earnings Analysis

28 Return on Equity

29 Industry Revenue Analysis

30 Industry Earnings Analysis

31 Risk Analysis

32 Risk Analysis Regulation Risks Economic Risks Basel III Dodd Frank Foreclosure Regulation Operation Twist Slow Recovery Sdf Sdfsdfsdfsdfsdfsdfsdfsdfsdfsdf Sdffffffff Eurozone Crisis Sdfffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff Sdfsdf Emerging Markets Slowdown

33 Basel II Basel III 10% 8% 6% 4% 2% 0% 2% Tier 1 Common Equity Ratio

34 Dodd Frank Highlights Tough Capital Requirement Fees Oversight Volcker Rule Prohibit Unfair Lending Ends Shallow Financial System Impact on Credit Ratings Agencies Skin in the Game

35 Foreclosure Restrictions on Foreclosures HAMP Home Affordable Modification Program

36 Operation Twist Lower 10Y Treasury Rates Lower Mortgage and C&I Rates Tightened Spreads for Banks

37 Economic Risks Slow Economy Recovery Eurozone Crisis SUMMARY OUTPUT Risks in Emerging Markets Slowing Growth in BRIC Countries Political Instability in Latin America and India Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations 81

38 Valuation Analysis

39 Sector: Financials Absolute Basis High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to SP500 High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF

40 Diverse Financial Services

41 Insurance

42 Regional Banks

43 Diverse Financial Services

44 Insurance

45 Regional Banks

46 Bollinger Bands

47 MACD Moving Average Convergence/Divergence

48 RSI Relative Strength Index

49 Recommendations

50 3. Gradually Improving Banks Very 4. Low managed low Fed current Funds to increase P/B Rate ratio capital Unemployment Rate

51 Cons Regulations: Limited Profitability Highly correlated with global markets Great Lower uncertainty 10Y Treasury in the future Rates Consumer Confidence Level is shaky Long-lasting Impact of Bad Assets

52 Final Recommendation Hold

53 Any Questions? Q & A