1. S&P 500 - Financial Sector (S5FINL)
Stock Market FIN 824
Rebecca Dunn
Christina Durrough
Nicholas Ferrugia
May 26, 2009

2. FINANCIAL SECTOR RECAP

3. Business Cycle Financial Sector is cyclical
Currently in the mature phase of life cycle
High barriers to entry
High level of competition

4. Financial Sector Weighting
Current Financial sector weight is below average
Weight is trending up
Weight increased during the housing boom
Top Ten Stocks

5. Sector Performance
Financial Sector has seen the greatest negative returns YTD
Financial Sector has seen the most positive returns QTD
Over the past 20 years, the S&P 500 has outperformed the financial sector
Sector
Companies in Sector
Market Cap
MTD
QTD
YTD
S&P 500
500 
7,585,482 
9.39%
-3.37%
Energy
39 
948,939
4.81%
-7.85%
Materials
28 
255,334
15.09%
11.85%
Industrials
58 
792,036
17.72%
-7.91%
Consumer Discretionary
81 
721,919
18.54%
8.33%
Consumer Staples
41 
913,657
3.03%
-8.62%
Health Care
54 
1,049,425
-0.89%
-9.34%
Financials
80 
924,373
22.17%
-13.86%
Information Technology
75 
1,395,938
12.04%
16.48%
Telecommunications Services 9 
281,800
2.23%
-6.43%
Utilities
35 
302,059
0.42%
-11.49%
Data as of 4/30/2009

6. SIM Market Capitalization
Financial Sector Market Capitalization
SIM is underweight (4.05%) relative to the S&P 500

7. Regression Analysis Fama and French Style Factors S&P 500
HML and UMD monthly change are both “statistically significant” and negatively correlated to the S&P 500 monthly returns
These Style factors explain 15% of the variance in the S&P 500 monthly returns
Financial Sector
Momentum (+) showed to be “statistically significant” to predict future return in Sector
Financial Sector – Forecast using Macroeconomic Factors
Next Month Return: Rf (-), CPI (+), and Unemployment (-) are statistically significant Macro factors that explain 11% of the variance
These Macro factors explain 34% of the variance in the monthly return of the S&P 500 that occur in 3 months (statistically significant)
Rf (+)
Unemployment (-)
CPI (-)
Aaa Corporate Rate Spread (-)
Consumer Credit Outstanding (+)

8. Sector Summary and Recommendations
Current portfolio is underweight relative to the S&P
S&P weight is currently below historical levels
Weight will increase as the market increases
Based on the data, the SIM portfolio is in a good position
P/B ratio and ROE show that the sector is undervalued
Valuation ratios reflect the expectation of positive returns for financial sector
There is currently much momentum in the market relative to the financial sector
Recommendations
Expect positive returns relative to the market
Expect housing starts and investments in major assets to be a positive for the sector as the recession comes to an end
Overweight diversified industries
Expect hedge funds to continue to struggle
Underweight REITs and Specialized Industries
Recommendation: Continue to underweight relative to the market
Result – keep current weighting as of 04/30/2009

9. Stock analysis

10. Potential Stocks Goldman Sachs & Company – GS
Bank holding company and global investment banking, securities and investment management firm
Provides services worldwide to corporations, financial institutions, governments and high-net-worth individuals
JPMorgan Chase & Company – JPM
JPMorgan Chase & Co. is a leading global financial services firm with assets of $2.2T and operates in more than 60 countries.
JPMorgan Chase & Co. provides a wide range of financial services worldwide.
The company operates through six lines of business: Investment Bank, Retail Financial Services, Card Services, Commercial Banking, Treasury and Securities Services, and Asset Management.
Rank 2009: Second largest U.S. bank and third in the U.S. in deposits
Northern Trust Corporation – NTRS
Financial holding company that provides investment management, asset and fund administration, fiduciary, and banking solutions
Clients include corporations, institutions, and affluent individuals

11. SIM – Financial Sector – Current Stocks
Current Composition
Berkshire Hathaway: 46.38%
Hudson City Bancorp:28.61%
Wells Fargo: 25.01%
Hudson City Bancorp has had the best performance - up 8% since purchase
SIM Portfolio
Company
Total Value
% of Total
% Change Since Purchase
Berkshire Hathaway Inc. - CL A
$564,000.00
46.38%
-14.12%
Hudson City Bancorp
$347,912.00
28.61%
8.00%
Wells Fargo
$304,152.00
25.01%
-36.19%
Grand Total
$1,216,064.00
-42.31%

12. Goldman Sachs Group, Inc.
Industry: Investment Banks and Brokerage
Performing better than other comparable stocks in the market
Performing better than the financial sector
8/21 analysts recommend buy or overperform
20/21 recommend buy, overperform, or hold

13. JPMorgan Chase & Company
Industry: Diversified Financial Services
Outperforming the sector and many other stocks
10/15 recommend buy or overperform
15/15 recommend buy, overperform, or hold

14. Northern Trust Corporation
Industry: Asset Management
Performing better than other comparable stocks in the market
7/14 analysts recommend buy or overperform
14/14 recommend buy, overperform, or hold

15. GS vs. JPM vs. NTRS – Past 5 Years
GS has performed best over a 5-year period
Up approximately 50%
JPM has performed worst
Slightly down over this period

16. GS vs. JPM vs. NTRS – Past 2 Years
NTRS has performed best over the past 2 years
Down approximately 20% (compared to 30-40% for JPM and GS)

17. GS vs. JPM vs. NTRS – Past Year
Over the past year, JPM has slightly outperformed GS
NTRS is the worst performer of the three

18. GS vs. JPM vs. NTRS – Past 6 Months
Nearly identical to the 1-year results
JPM slightly better than GS (~-20%)

19. GS vs. JPM vs. NTRS – Past 3 Months
JPM has clearly performed the best over the past 3 months
Up 60%
GS up approximately 50%

20. # Shares Outstanding ('000)
Stock Comparison
Ticker
P/E Forward 4 Qtrs
P/E 2009
P/E 2010
Earnings Estimate 2009
Earnings Estimate 2010
Earnings Estimate 2011
Price/Share 05/22/09
Price Momentum Value
P/S Latest 4 Qtrs.
P/S Current Yr.
# Shares Outstanding ('000)
BANK OF AMERICA
BAC
77.4
26.6
9.9
0.42
1.12
2.66
11.07 5
0.93
0.71
CITI GROUP C NM
-3.82
-1.04 -
3.15 1
0.63
0.76
388770
GOLDMAN SACHS GROUP GS
12.7
11.0
10.77
12.37
16.52
136.35 54
2.94
2.05
502434
JPMORGAN CHASE & CO
JPM
21.9
23.1
12.6
1.49
2.73
5.12
34.41 65
1.72
1.28
NORTHERN TRUST
NTRS
15.4
16.8
13.5
3.10
3.86
4.64
52.00 67
3.03
3.12
238461
WELLS FARGO
WFC
16.9
1.44
1.80
3.44
24.31 76
2.64
1.37
TICKER
P/B
P/B 10 Yr Avg.
P/CF
P/CF 10 Yr. Avg
ROE
ROE 10 Yr. Avg.
Pretax ROA
ROA 10 Yr. Avg
Net Profit Margin
BANK OF AMERICA
BAC
0.4
1.9
7.4
10.4
0.0510
0.1640
0.0040
0.0200
0.0850
CITI GROUP C
0.3
2.3
1.0 NM
0.1810
0.0190
GOLDMAN SACHS GROUP GS
1.5
2.2
15.8
11.8
0.0560
0.1950
0.0020
0.0120
0.1040
JPMORGAN CHASE & CO
JPM
0.9
18.2
9.5
0.0220
0.0800
0.0010
0.0100
0.0390
NORTHERN TRUST
NTRS
9.6
20.0
0.2200
0.1720
0.0230
0.0170
0.2640
WELLS FARGO
WFC
2.8
9.9
10.3
0.1540
0.0210
0.2110
*ROA 5 Yr average for WFC, data not meaningful for 10 yr.

21. Regression Analysis Summary
Macro Factor regression analysis provided minimal insight to predict future changes in earning
Statistically significant macro factors were identified for all 3 companies; however, R2 never reached above 12%
15 macro factors were reviewed in initial regression analysis
Different time periods and staggering of data were used to identify relationships to predict future changes in earning GS
Current Month: Aaa Corporate Rate Spread (-)
2 Month: Retail Sales (+)
3 Month: Retail Sales (+)
JPM
Current Month: Consumer Confidence (+)
2 Month: Rf (+), Aaa Corporate Rate Spread (-), Unemployment (-)
3 Month: Retail Sales (+), Balance of Trade (+)
NTRS
Current Month: rf (+), Real Consumer Spending (-)
2 Month: Unemployment Rate (-), Real Consumer Spending (+)
Macro Factors rf
Consumer Confidence
Business Confidence
Unemployment Rate
CPI
Real Federal Funds Rate
Aaa Corporate Rate Spread
Case Shiller Home Price (20-Metro)
Brent Crude Oil Spot Price
Consumer Credit Outstanding
Real Consumer Spending
Personal Saving Rate
Retail Sales
Balance of Trade
Housing Starts

22. JPMorgan Chase vs. Others
JPM appears to be accurately valued, with strong upside potential
JPM has outperformed GS over the past year, six months, and three months
JPM expects a higher percentage increase in earnings
Changes in Earnings Per Share
Ticker
Change in Earnings 2010
Change in Earnings 2011
GOLDMAN SACHS GROUP GS
15%
34%
JPMORGAN CHASE & CO
JPM
83%
88%
NORTHERN TRUST
NTRS
25%
20%

23. JPMorgan Chase Performance
Summary
Over the past 5 years JPM has recorded a better compounded rate of return compared to the S&P 500, Financial sector and the Div. Fin’l Services industry.
Frequency of JPM beating the returns of the S&P 500, Financial sector or Div. Fin’l Svs has only been statistically significant in the last 12 months against Div. Fin’l Svs
Data as of 4/30/09

24. Technical Analysis
JPM analysis indicates continued steady future growth
Upper and Lower bound have been established indicating a tested upward sloping channel
Today lower bound was tested and stock rebound with positive growth
Government regulation and legislation can quickly deteriorate channel

25. Initiation of Coverage
JPMorgan Chase & Company
BUY rating
Although, the JPM will challenged by the weaken credit market it has proved to be able achieve future sustainability, growth and profitability
Fortress brand, strong capital reserve levels relative to peers, diversified revenue, proactive risk management, reduced exposure to heritage assets, consistent investment in growth and dedication to building long-term customer relationships
Initiation of Coverage
Ticker: NYSE
JPM
Rating
BUY
Current Price – 05/26/09
$36.28
Price Target - 12 Month
$44.09
% Change
21.53% FY
$(Millions)
2011E
2010E
2009E
2008
2007
Net Revenue
112,240
102,890
96,714
67,252
71,372
Growth Rate 9% 6%
44%
-6%
15%
Avg. Estimate
104.6B
99.4B
No. of Analysts
14.0
Low Estimate
96.9B
86.4B
High Estimate
120.2B
111.0B
Year Ago Sales
67.3B
Diluted earnings per share
2011E
2010E
2009E
Net income
$4.64
$ 2.65
$ 1.44
Average Estimate
$2.66
$1.45
Number of Analysts 17 18
Low Estimate
$1.00
$0.95
High Estimate
$3.50
$1.82
Year Ago EPS
$1.46
$1.37

26. Summary
Many stocks in the sector have performed well in the past 3 months
Goldman Sachs, JPMorgan Chase, and Northern Trust have performed better than average in the sector
JPMorgan Chase appears to have the best potential performance in the Financial Sector

27. Recommendations Purchase JPMorgan Chase
Re-weight Financial Sector SIM holdings
BRKB: %
HCBK: %
WFC: %
Suggested weighting
BRKB: 35%
JPM: %
HCBK: %
WFC: %

28. Questions?