2. General Meeting 5 10.7.2014

3. USIT General Meeting 5 10.7.2014 Announcements Portfolio Update Market Update Lecture: History of 2008 Financial Crisis Pitch: AAL Agenda

4. USIT General Meeting 5 10.7.2014 First USIT Social When: October 9 th 8 PM after SCG Workshop Where: Union Cost: $5

5. USIT General Meeting 5 10.7.2014 IM Volleyball Kick Some Assets UNDEFEATED

6. USIT General Meeting 5 10.7.2014 Second USIT Social When: October 19 th Where: Lady Bird Lake

7. USIT General Meeting 5 10.7.2014 Focused individual attention Multiple directors scheduled at various times throughout the week Will cater to whatever you want to talk about If you show up and say ummmmmm I just want to learn stuff SCG Director Office Hours

8. USIT General Meeting 5 10.7.2014 $5 entry fee Fall Portfolio Challenge Build and manage your own portfolio Compete with other McCombs students Top three winners receive prizes in May Register at usiteam.org/events

9. USIT General Meeting 5 10.7.2014 Workshop Technical Workshops Every Thursday 7-8 CBA4.328 This Week: How to pitch a stock

10. USIT General Meeting 5 10.7.2014 Announcements

11. Portfolio Update

12. USIT General Meeting 5 10.7.2014 S&P(1.87%) NASDAQ (1.88%) Russell 2000 (4.05%) General Markets

13. USIT General Meeting 5 10.7.2014 FNMA (13.5%) – Continued litigation concerns ADNC (11%) – No major news; market movement; focus in smartphone industry still on Apple URPTF (8.57%) – Based on uranium, stock tends to trade between $4.50-$5 band. Long run supply decreases/demand increase will drive price up Portfolio Update

14. USIT General Meeting 5 10.7.2014 Fannie Mae is a GSE Government sponsored enterprise Primary function is as a mortgage lender Received major bailout from the federal government in 08 Now in litigation over the terms of that bailout During the bailout the federal government claimed all corporate profits; shareholders arguing that’s illegal Courts Stock being driven down by a major court loss Presently being appealed If court battles go poorly then value of stock will continue to fall If court battles go well then the stock will skyrocket FNMA Investment Thesis

15. Market Update

16. USIT General Meeting 5 10.7.2014 Jobs Report  Unemployment Rate fell below 6%  Inflation very exment pectations driven  What will happen to ABS/MBS?

17. USIT General Meeting 5 10.7.2014 Afghanistan Power Sharing  Who are those people??  Where are they??  Why are they important?

18. USIT General Meeting 5 10.7.2014 Afghanistan Power Sharing  Ghani  President  Won run off  Large allegations of corruption  Abdullah  Chief Executive  Won first election

19. USIT General Meeting 5 10.7.2014 Afghanistan Power Sharing  Security agreement signed  Will allow coalition troops to stay in Afghanistan  Stabilizing force  Karzai departure  Would not sign the security agreement  Became increasingly hostile toward the U.S. over time  Abdullah and Ghani have indicated much greater amicability to the United States  Serious allegations of corruption

20. USIT General Meeting 5 10.7.2014

21. USIT General Meeting 5 10.7.2014

22. USIT General Meeting 5 10.7.2014 Hong Kong Protests  Took over from the United Kingdom in 1998  Mass protests  Demands for resignations  Chinese authorities are standing firm  Government suppressing the flow of information to the mainland

23. USIT General Meeting 5 10.7.2014 Limits on election

24. Review Exit Multiple Valuation

25. USIT General Meeting 4 9.30.2014 FCF projects out until 2018 By 2037 projecting cash flows gets very difficult Therefore methods of valuing the company beyond 2018 are necessary One method is via establishing an exit multiple Method used prominently in LBOs Idea is buy company Get some cash flows Sell company Exit Multiple Valuation

26. USIT General Meeting 4 9.30.2014 Types of growth AB

27. USIT General Meeting 4 9.30.2014 FCF provides less than $200MM Whereas the Terminal Value provides a huge amount 2018 EBITDA X EV/EBITDA multiple $255MM x 23.2=$5,916MM ($5.916B) Result is that a substantial piece of the valuation comes in down to two inputs 2018 EBITDA EV/EBITDA multiple Terminal v Cash Flows

28. History of 2008 Financial Crisis Part 1

29. USIT General Meeting 4 9.30.2014 S&P

30. USIT General Meeting 4 9.30.2014 MBS=Mortgage backed security Mortgage thought of as an asset CDOs= Collateralized debt obligation Bundled debt based assets These assets are rated by rating agencies to determine how stable they are MBS’s were consistently given relatively high credit ratings S&P Moody’s Fitch MBS/CDOs

31. USIT General Meeting 4 9.30.2014 Simple concept Start lending to people who you are very confident can pay back This over time devolves into lending to people with worse credit Charge higher interest to compensate for higher default rates Lower down payments Balloon mortgage payments Refinancing Subprime Lending

32. USIT General Meeting 4 9.30.2014 Refinancing allows for a new loan New interest, new balance of debt, chance to get money Cash Out refinancing Terms of loan can change Interest may rise Adjustable rates Balloon payments Reliant on equity portion Many loans became dependent on the Refinancing

33. USIT General Meeting 4 9.30.2014 US Mortgage Delinquencies & Foreclosures

34. USIT General Meeting 4 9.30.2014 Banks are run on credit The more loans they give out the more they can leverage their own gains Also increases risk If major losses occur then problems emerge and a domino effect begins Confidence in financial institutions is also key Reduced confidence can exacerbate problems Capital Ratios