1. Carolina Tovar Nick Stamatis Sharon Tong Will Quirk
Financials
Carolina Tovar
Nick Stamatis
Sharon Tong
Will Quirk

2. Table of Contents Topics of Discussion I. Sector Overview Slide 3
II. Portfolio Updates
Slide 6
III. Stock Decisions
Slide 8
a. Goldman Sachs
Slide 9
b. American Express
Slide 23
Table of Contents
c. Wells Fargo
Slide 31
d. Citigroup
Slide 38
VI. Conclusion
Slide 44
VII. Appendices
Slide

3. I. SECTOR OVERVIEW

4. Sector Overview SIM Portfolio Holdings by Percentage 3.91% 3.92% 0.41%
1.83%
2.66%
2.84%

5. Lower our investment 85 BP
Our Sector Recommendation
On par with S&P 500
Lower our investment 85 BP
S&P 500 Sector Weightings
SIM Portfolio Weightings
Sector Overview

6. II. PORTFOLIO UPDATES

7. Portfolio Updates Recommendations 4% 58.01 N/A 0.41% MET 52.65 3.91%
Company
Decision
Current Price
Target Price
Upside/
Downside
Current Weight
Target Weight
Bps Change GS
HOLD
235.11
240.10
2.12%
3.92% 3%
-92
AXP
93.47
100.32
7.3%
1.83%
1.67%
-16
WFC
53.95
56.27
4.3%
2.66% 2%
-66 C
BUY
71.39
83.47
16.9%
2.84% 4%
+116
BHF
58.01
N/A
0.41%
MET
52.65
3.91%
Portfolio Updates
This current slide gets us to hold as an industry more or less if not sub out GS for WFC

8. III. STOCK DECISIONS

9. a. Goldman Sachs

10. Business Analysis
Goldman Sachs

11. Business Drivers-Segments
Investing and Lending
Increasing segment
High volatility
Traditional lending
Loans receivable
Investment Banking
M&A
Largest market share
Goldman Sachs

12. Macroeconomic Environment
Real GDP Growth
Tax Policy
Monetary Policy
International Relationship
Goldman Sachs

13. Goldman Sachs Revenue: EPS: Financial Analysis
My Projection VS Analyst’s Consensus
EPS:
Goldman Sachs

14. Historical Data
Goldman Sachs

15. Comparables
Goldman Sachs

16. Goldman Sachs

17. Historical P/E Ratio
Goldman Sachs

18. GS P/S vs. S&P 500
Goldman Sachs

19. GS vs. Peers - ROE
Goldman Sachs

20. Technical Analysis
Goldman Sachs

21. Goldman Sachs Recommendation: HOLD
Good Macro-environment and Internal business driver
A little bit underperform compared to peers
P/E ratio is lower than S&P 500, but market is overvalued
P/S ratio is higher than S&P 500, which means the sales does not support the price
We will sell 0.92 bips of Goldman weights to buy more Citi
Goldman Sachs

22. Goldman Sachs Risks Global Financial Market and Economic Condition
does not have predictable earnings
GDP growth rate
Inflation rate
Investor confidence
Market Volatility
Trading and arbitrage opportunities
Competition:
Price
Reputation
products and service
Goldman Sachs

23. b. American Express

24. American Express Overview & Business Analysis
American Express provides charge and credit cards, loans & travel and network services to consumers and businesses
American Express prides itself on exceptional customer service - #1 rated in industry
It operates on a closed loop model, where it has ties with the issuer and merchant - This generates more information about the consumer than other card companies
Its customers spend more per card than other issuers, meaning they can charge merchants high rates and make money due to the demographic of the customer
US Spending and Income are rising, meaning more business for American Express
Interest rates are set to rise, which can question margins in credit card loans
Revenues have declined in recent years due to loss of major contracts, Jet Blue & Costco
American Express

25. American Express Company Performance
EPS guidance through 2017 has changed from $5.60 to $5.80
Signed major contract with Hilton Hotels
CEO Kenneth Chenault set to resign in 2018 after 17 years at the helm, leading way for 32 year company veteran and current Vice Chairman Stephen Squeri to take his place
American Express
Tech Analysis: 200 v. 50 Day Moving Average

26. American Express Forward Looking Environment AXP v. S&P 500
AXP Return on Equity is lower compared to its peers, Visa, Mastercard and Discover
Yet, it is higher than the S&P 500
AXP boasts more revenue than Visa, the biggest of its competitors, due to the high value purchases of its customers
If consumer spending remains high, AXP is set to perform well against its peers
AXP also has the lowest rate of default on its cards
The success of this industry is thus dependent upon consumer spending and income rates, as well as the interest rate policies of the Federal Reserve
Trump’s tax plan will also benefit the companies as well as any regulatory repeals he plans to do
American Express
AXP v. V v. MA v. DFS

27. American Express Valuation Analysis v. S&P 500 P/E: AXP v. S&P 500
P/B: AXP v. S&P 500
P/S: AXP v. S&P 500

28. American Express Valuation Analysis v. Comparables P/E: AXP v. S&P 500
P/B: AXP v. S&P 500
P/S: AXP v. S&P 500

29. American Express Valuation Analysis: DCF & Conclusion
Terminal Discount Rate: 10%
Terminal Growth Rate: 2.5%
Target Price: $100.32
2017 Projected P/E: 14.8
American Express

30. American Express Recommendation: HOLD Conclusion
American Express operates a business model conducive to growth in the current market. The closed loop provides valuable data and the target demographic is strong in the current economy. However, when the bull market ends, financial firms will be the first to get hit. Therefore, at the current time, it is unwise to buy American Express as the potential loss is too great.
Risks to Recommendation
American Express
Risks to Recommendation
Upside Potential
Interest rates reduce loan spread
Consumer spending index falls
Consumer income falls
Competitors begin marketing to American Express demographic
Loss of contracts take toll on revenue
Discount rate charged by American Express exceeds ability to pay by merchants
Cyber security
New CEO begins aggressive growth strategy overseas
Company begins to market data obtained by its closed loop strategy
Target demographic grows as market continues to rise
Tax plan benefits financial firms
Regulatory agencies decrease restriction on card issuers and loan requirements

31. c. Wells Fargo

32. Wells Fargo Business Segments Snapshot Competitive Advantage
Three business divisions:
Community Banking
Wholesale Banking
Wealth & Investment Management
Revenue Breakdowns:
55% Community Banking
32% Wholesale Banking
18% Wealth & Investment Management
Largest bank in market capitalization
Third largest bank in total deposits
Long-time CEO, John Stumpf, was replaced by Tim Sloan
2mm accounts issued without client consent
Downgraded by Fitch ‘A+/F1’
Wells Fargo
Competitive Advantage
6M Historical Performance
Vast network of branches
Total of 8,643 “stores”
Lower capital requirements
2% compared to 3% and 3.5% required of competitors
Low cost provider
Credit rating
Technologically advanced systems
Use of big data
8,643 stores
2% vs 3.5 and 3%

33. Wells Fargo WFC vs. S5FINL - 16 yr WFC vs. SPX - 16yr
Source: Bloomberg

34. Wells Fargo WFC vs. Comparable Firms - 16yr
WFC vs. Small Business Optimism - 16yr
Source: Bloomberg

35. Wells Fargo Financial Analysis Major Competitors Highlights
Lower P/E than competitors
Greater ROE and ROA due to lower capital requirements

36. Terminal Discount Rate: 11%
Valuation
Key Notes for DCF
Terminal Discount Rate: 11%
Terminal FCF Growth: 2.5%
Terminal P/E of 13.2, below market average
Implied Share Price of $56.27 offers only a 4.3% upside from current valuation
Although there is some potential for upside, it is smaller than other stocks in the portfolio
Wells Fargo

37. RECOMMENDATION/CONCLUSION
Recommendation: HOLD
Bank Efficiency Ratio
RECOMMENDATION/CONCLUSION
Risks to Recommendation
Conclusion
Fraudulent sales practices
Negative impact on brand
Full amount of fines yet to be determined
Legislative failure to enact any form of deregulation
Current economic cycle nearing the end
Financial institutions suffer major losses
7th inning of the current bull market will hurt financial sector
Uncertainty over legislative policies makes financials a risky investment
Although Wells Fargo has demonstrated sound financial performance, it does not show much upside left

38. d. Citigroup

39. CITIGROUP Business Segments Snapshot Key Business Drivers
Two business divisions:
Global Consumer Banking
Institutional Clients Group
Revenue Breakdowns:
28% institutional brokerage business
27% consumer finance
20% banking
15% institutional trust
10% wealth management
4th largest bank in the United States, trailing JP Morgan Chase, Wells Fargo, and Bank of America
13th largest bank in the world
$1.8 trillion in assets
World’s largest credit card issuer, leads in the United States with over 17% of the market
CITIGROUP
Key Business Drivers
Stock Performance
Costco partnership announced in Q2 2016, growing at rapid rate, added 1 million new accounts in 2016 alone, $52 billion in purchase sales
International revenues far exceed competitors
First fintech app to combine banking, wealth management, and money management--expands on lead (36% of sales vs. 15% average of competing banks), leading in growing industry

40. CITIGROUP Financial Analysis Environment Historical Stock Performance
The financial industry is reliant on external factors such as the federal funds rate, as well as other secondary factors such as consumer spending or residential construction
Current rate of 1.25%, could be raised soon
Higher rates will lead to increased profitability
Financial industry tends to trail the broader market in P/B, P/E ratios, outperform in expansionary eras.
Citi has increased 38% in the last year, which has outpaced both financials (22% annual return) and the S&P 500 (19% return)

41. Terminal Discount Rate: 10%
Valuation
Key Notes for DCF
Terminal Discount Rate: 10%
Terminal FCF Growth: 3%
Terminal P/E of 14.7, far below market average
Implied Share Price of $86.37 offers over 20% upside from current valuation
Strong Buy: C offers most upside of all financial stocks in SIM fund
CITIGROUP

42. Key Notes for Valuation
CITIGROUP
Key Notes for Valuation
Overall valuation price of $83.47 average of multiples, DCF statistics
Price/Book ratio highly undervalued as compared to peers, P/E highly undervalued as compared to market
Not all multiples relevant for financial sector

43. RECOMMENDATION/CONCLUSION
BUY
Given Citi has the highest upside of any stocks in the financial sector, we recommend increasing our stake in the company from 2.84% to 4%. This would make Citigroup the largest holding of the financials.
Citi’s diversification on an industry and location basis allow us to recommend the purchase of this stock. They hold leading positions in:
Credit card issuances
Fixed Income
Technology-based revenue
Tier 1 Common Equity Ratio
Overall, we feel the company is best-positioned in the financial crisis to appreciate in value moving forward.
Risks to Recommendation
RECOMMENDATION/CONCLUSION
Risks to Recommendation
Q3 Graphic
Interest rates stay flat/increase at a slower rate than anticipated
Hurts growth potential of financial industry, less interest income
Loan loss reserves increasing
More risky loans given out as of late, banks writing off higher percentages of loans recently, could be sign of things to come
Tax plan stalling in Congress
International volatility

44. VIII. Conclusion

45. Portfolio Updates Recommendations 4% 58.01 N/A 0.41% MET 52.65 3.91%
Company
Decision
Current Price
Target Price
Upside/
Downside
Current Weight
Target Weight
Bps Change GS
HOLD/SELL
235.11
240.10
2.12%
3.92% 3%
-92
AXP
HOLD
93.47
100.32
7.3%
1.83%
1.67%
-16
WFC
53.95
56.27
4.3%
2.66% 2%
-66 C
BUY
71.39
83.47
16.9%
2.84% 4%
+116
BHF
58.01
N/A
0.41%
MET
52.65
3.91%
Portfolio Updates
This current slide gets us to hold as an industry more or less if not sub out GS for WFC