1. Financial Services Sector
A Path to Normalized Earnings
Christopher Shipley
Senior Equity Analyst

2. Financial Services – A Path to Normalized Earnings
The Worst is Behind Us
Financial sector is clearly on the mend
Industry raised significant equity capital post the stress tests
Lessening reliance on government support
Some TARP funds repaid
Issuing debt without FDIC backing
Credit markets showing signs of stabilization
Consumer losses seem close to peak
C&I and CRE later cycle – more difficult to forecast
With capital levels more certain, can use normalized earnings
Many stocks have moved quickly to discount these levels
Still see opportunities
Some quality large caps offer compelling risk / return

3. Financial Services – A Path to Normalized Earnings
Significant Risk Factors Remain
Path of economy by no means certain
Losses could be higher or have longer tail than expectations
Would raise further capital concerns
Push out normalized earnings
Uncertainty regarding future regulatory framework
Capital levels will be higher
Higher capital pressures ROEs
Lower returns will negatively impact valuations
Consumer protections will harm returns and likely shrink portfolios
CARD Act, etc

4. Financial Services – A Path to Normalized Earnings
Favorite Stocks
Positioned toward names with early cycle credit exposure, capital markets, and leading competitive positions
JPMorgan Chase (JPM 1/A)
Wells Fargo (WFC 1/A)
Bank of America (BAC 1/C)
Goldman Sachs (GS 1/B)
State Street (STT 1/B)

5. Thank You.
Christopher Shipley
Senior Equity Analyst