Financial Sector Outlook

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Financial Sector Outlook

• Peter Stofko
• Mike Ward

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FINANCIALS OF SP 500
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INDUSTRIES

• BANKS 5.86
• INSURANCE 7.53
• DIVERSIFIED FINANCIALS 4.23
• REAL ESTATE 0.19

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Largest Companies
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Pockets of Growth
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Demand Drivers

• Expected Economic Recovery
• Low Interest Rates
• Demographic Baby Boomers

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Current Environment Banks

• Last year Missed earnings numbers or relied on
  one time items to make targets
• Post September 11th, Economic/Credit Risks
  increased substantially
• Low Interest rates are favorable, but not a lot
  more room. Decreasing credit risks will require
  economic recovery

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Environment Insurance

• Record level of losses (P/C) in the first 3
  quarters of 2001 eliminated profits
• 4th quarter used as a means to further strengthen
  B/S. (i.e. complete Big Bath in 2001with a
  clean slate for 2002)
• Many life insurers have equity-linked earnings
  which will face pressure in 2002

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Environment Diversified Financials

• Increased Underwriting Fees compared to 3rd
  Quarter 2001
• Equity increased 100
• Debt increased 30
• Demographics remain favorable for Consumer
  financial services and Brokerage

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Environment Real Estate

• Low interest environment is extremely favorable
• Only 2 companies in entire SP index

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Valuation Financial sector/ industries
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• Recommendation
• Market weight the financial sector
• (17.81 of portfolio)
• Current portfolio weight 12.80
• Focus on - Diversified Financials and -
  Insurance (Property and Casualty)

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Questions??????