FINANCIAL SECTOR COMPANY PRESENTATION

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FINANCIAL SECTOR COMPANY PRESENTATION
Jonathan Carroll Aran Cross Yaofeng Dong Garrod
Gibb Scott Mann
August 18, 2003
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OUTLINE

• Our Recommendation
• Cut/Add
• Business Analysis
• Financial Analysis
• Valuation Analysis
• Rationale
• Conclusion

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MAINTAIN WEIGHT
1.21
1.69
3.22
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MAINTAIN WEIGHT
4.52
2.58
5.62
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BUY/CUT
1.46 ? 2.72
1.26 ? 0
Total Financials SIM Weight
21.55 ? 21.55
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BUSINESS ANALYSIS

• Global Financial Services Provider incorporated
  in 1968
• Investment Banking
• Treasury and Securities Services
• Investment Management Private Banking
• JP Morgan Partners
• Chase Financial Services
• December 31, 2000 JP Morgan merged with Chase
  Manhattan Corporation

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FINANCIAL ANALYSIS Income Statement
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FINANCIAL ANALYSIS DuPont Analysis
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FINANCIAL ANALYSIS Valuation
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FINANCIAL ANALYSIS Valuation
P/E, ROE Relative to SP 500
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FINANCIAL ANALYSIS
P/E, ROE Relative to Sector
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RATIONALE

• ROE significantly below sector, SP 500 average
• Valuation high compared to sector, SP 500
  average
• Litigation over Analyst Recommendations
• Declining growth rate
• Low expectations for refinancing
• Poor indicators

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Insider Transactions
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Indicators
estimate of current assets
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BUSINESS ANALYSIS

• Diversified Financial Services
• Holding company incorporated in 1995
• Capital One Bank
• Capital One FSB
• Capital One Services Inc. etc.
• Subsidiaries market financial products and
  services to consumers
• Primary business is consumer lending with focus
  on credit card lending
• One of top six credit card issuers

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BUSINESS ANALYSIS

• Corporate Strategy
• Targeting specific consumer segments
• Tailoring products meet specific consumer needs
• Using an information technology based strategy
  (IBS) to leverage proprietary information
• Heavy investment in marketing
• Take all levels of risk and price accordingly
• Higher risk borrowers tend to be more likely to
  pay late or exceed their credit limit, which
  generally results in additional fees assessed to
  their accounts.

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STOCK PRICE
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FINANCIAL Income Statement
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FINANCIAL Balance Sheet
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FINANCIAL Cash Flow

• Total cash down 55 as a function of increased
  loans
• Operating Cash increased by 64 - bringing in
  more interest and fee income

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FINANCIAL ANALYSIS Dupont Analysis
1999
2000
2001
2002
24.71
22.63
21.58
21.44
Operating Margin
29.70
28.70
25.70
25.80
Asset Turnover
26.07
27.01
24.29
22.64
ROE
8.17
9.27
8.91
8.25
Leverage
3.93
1.83
2.39
3.05
EPS

• MBNA ROE 19.6 Margin 17.2 Asset Turn 20
  Leverage 5.8
• AMX ROE 19.5 Margin 11.4 Asset Turn 20
  Leverage 10.9

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Delinquency Rate
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FINANCIAL ANALYSIS
Price/ROE/EPS/GRE Relative to SP)
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FINANCIAL ANALYSIS
Price/ROE/EPS/GRE Relative to Financial Sector
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RATIONALE

• 45.8 million managed accounts and 60.7 billion
  in managed loans outstanding
• 35 consecutive quarterly dividend (2 2/3 cents)
• Highlights from 2Q earnings announcement
• Profit up 34, to 1.23 per share from .92 per
  share a year ago, beating the consensus by .13 a
  share
• Net charge-off rate for bad debts fell to 6.32
  from 6.47 a year ago
• Risk-adjusted revenue margin declined to 9.23
  from 12.53 a year ago

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RATIONALE

• 3 Catalysts
• Improving delinquency rates
• Consumer credit spending should increase as
  economy improves
• Bullish on the chart

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RATIONALE
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Recommendations
1.46 ? 2.72
1.26 ? 0
Total Financials SIM Weight
21.55 ? 21.55
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QUESTIONS