Financial Sector Stock Presentation

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Financial Sector Stock Presentation

• Colin Smith
• Kaushal Shah
• August 5, 2008

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Agenda

• Recap of Sector Presentation
• Stock Recommendation / Portfolio Weights
• Bank of America
• Merrill Lynch
• Summary

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Sector Recommendation

• Underweight Financials by 50 basis points
• Sector highly correlated to the overall market
• High risks due to uncertainties not all losses
  have been realized as yet

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Sector Analysis

• Current Financial Sector Weighting
• (as of July 31, 2008)
• SIM 12.93
• SP 500 15.34
• ------------------------------
• Underweight 2.41
• Overall Bring the SIM Portfolio underweight by
  291 basis points relative to the SP

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Current Composition
Weightings according to SIM-July Appraisal
Report
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Recommendation
7
Target Prices
as of August 4, 2008
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Bank of America (BAC) SELL

• Current Weight 3.31
• Current Price (as of close 8/4/08) 32.62
• Target Price 31.44
• Downside 3.62
• Proposed weight 1.50

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Business Analysis - BAC

• Founded 1874
• Based in Charlotte, North Carolina
• Market Capitalization 145.26 Billion
• CEO Chairman Kenneth D. Lewis
• Industry M0ney Center Banks
• Principal Areas of Business
• Global Consumer and Small Business Banking
• Global Corporate and Investment Banking
• Global Wealth and Investment Management

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Positives - BAC

• Large and diverse deposit base gives BAC plenty
  of capital with which it can pursue investments
• Largest Consumer bank in U.S.
• Brings diversity to SIM Financial portfolio
• Top performing stock in July appraisal report
• 206,787 gain

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Negatives - BAC

• 2nd Quarter Net Income 3.41B
• Down 41 y.o.y.
• Exposure to irrelevant credit risk associated
  with auto financiers
• Loans for leases and to dealerships
• GMAC, Chrysler Financial
• Poorly rated holdings
• Write-downs from CDOs in 08Q2 645M
• SP expects chargeoffs and write-downs to
  continue throughout the rest of 2008
• Countrywide acquisition poses a lot of risk

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P/B P/E Soon to Hit Low Points
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Merrill Lynch (MER) BUY

• Current Weight 1.67
• Current Price (as of close 8/4/08) 26.39
• Target Price 37.88
• Upside 43.54
• Proposed weight 2.98

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Year to Date
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Business Analysis

• Founded 1914
• Market Capitalization 26.5 Billion
• Industry Investment Brokerage
• Principal Areas of Business
• Global Markets and Investment Banking
• 3rd Largest Investment Bank
• Global Wealth Management
• Largest in the world

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Positives

• Wealth Management remains a cash cow
• Has been able to raise substantial capital
  despite write-downs/losses
• Recently shed off 30 billion in CDOs at 22
  cents on the dollar
• CEO Thain is putting his money where his mouth is
  Buys 500,000 shares for over 11 million

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Price/Book Ten Year Low
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Valuation remains positive
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Negatives

• 4 straight quarterly losses
• Write downs exceeding 40 billion
• Still has 9 billion in asset backed securities
• Significant recent dilution of shares
• Still tied to risk on sale of CDOs
• As much as another 4.5 billion
• Will core assets remain safe?
• 50 stake in Blackrock

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Recommendation

• Decrease sector weight 50 bps
• Stock Recommendation
• Sell
• Bank Of America (BAC) 181 bps
• Buy
• Merrill Lynch (MER) 131 bps

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Thank You

• Questions ??