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General Body Meeting 02.10.11. Agenda. Announcements News Updates Junk Bond Fund Pitch Financials Pitch. General Announcements. Monthly Portfolio Update David Kim: sk852@cornell.edu Thanks for MS GCM Event. News Updates. Egyptian Crisis. Impact of global food prices on Egypt

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agenda
Agenda
  • Announcements
  • News Updates
  • Junk Bond Fund Pitch
  • Financials Pitch
general announcements
General Announcements
  • Monthly Portfolio Update
    • David Kim: sk852@cornell.edu
  • Thanks for MS GCM Event
egyptian crisis
Egyptian Crisis
  • Impact of global food prices on Egypt
  • Politically, US is stuck with bad choices:
    • Repercussions of supporting democracy
    • Propping up Mubarak or some else
  • Middle East tourism concerns
  • Suez Canal
  • Oil prices
  • Unknown factor
inflation outlook
Inflation Outlook
  • Headline vs. Core Inflation
  • CRB Index: +1.8% ytd
  • Impact of QE2
  • Tie in to Tunisia & Egypt
  • Impact on Treasury Bonds
  • Inflation in Emerging Markets
    • China
    • India
cisco q2 earnings
Cisco Q2 Earnings
  • Announced yesterday
    • Expected EPS: 0.35
    • Reported EPS: 0.37 (down 8% YoY)
  • Share price performance
    • After hours: -8.67%
    • Today (2:30pm): -13.62% (price: 19.04)
  • Red flags for investors
    • “Challenging economic environment”
    • “Moderate capital spending”
cisco q2 earnings1
Cisco Q2 Earnings
  • Rising Competition
    • HP, Juniper Networks making plays to steal market share
  • Transition Period
    • Cisco preparing to innovate in nearly all product lines, transition to next generation technology
    • Preparing to capture increased outsourcing market, positioned to lead
    • Currently in a “long transition period”
cisco q2 earnings2
Cisco Q2 Earnings
  • My take: sell-off is an overreaction
    • Cisco is position for long-term market leadership, weak performance now while transitioning
    • Earnings still exceeded expectations
    • Current negative sentiment focused on short-term results
    • Mood will shift more positive as current development begins to yield results
spdr barclays capital high yield bond
SPDR Barclays Capital High Yield Bond
  • Park $10,000 into JNK
  • ETF that invests in high yield bonds
  • Low management fee: 0.40%
  • Yield: 9.72%
  • Averaged maturity: 7.08 years
  • Duration: 4.47 years
  • 215 holdings
  • Return since inception (Nov 2007): 6.71%
risks
Risks
  • Interest rate risk
    • Betting on Bernanke
    • Not too dependent on interest rate, more on credit risk
  • Credit risk
    • Diversified away
    • Higher credit quality
derek creadore siddhant trivedi aleksandar zvorinji margaret szczerbicki john troncoso
Derek Creadore

SiddhantTrivedi

AleksandarZvorinji

Margaret Szczerbicki

John Troncoso

background
Background
  • BB&T is a bank holding company with operations in the south
    • operates 1,857 banking offices in North Carolina, Virginia, Florida, Georgia, Maryland, South Carolina, Alabama, Kentucky, West Virginia, Tennessee, Texas, Washington D.C., and Indiana
  • Mainly serves consumers and small, regional businesses
    • $136.5 billion in assets under management, making it the 14th largest bank in the U.S.
thesis1
Thesis
  • Improving performance from loan portfolios
  • Regional banks have managed to further distance themselves from the mortgage problem as compared to larger institutions
  • Well positioned for acquisitions
  • Better than expected growth in US and regions in which BB&T operates
  • Dominate market share in states that it operates
industry analysis commercial banking

Industry Analysis: Commercial Banking

Commercial banking is a highly fragmented industry consisting of nearly nearly 9,000 commercial banks and savings institutions insured by the FDIC

Commercial banks profit by capturing the margin between interest paid to depositors and higher rates charged to borrowers and charging fees for their services.

New legislation to strengthen financial industry regulation has been put in place to protect consumers from banks. Additional reforms designed to protect the industry from institutions from taking on excess leverage are being put in place to reduce risk and regulate derivative financial products. The recovering economy and the new financial reforms serve to return confidence to the commercial banking group.

top competitors
Top Competitors

As of December 31, 2010

bbt vs the industry
BBT vs. The Industry
  • Growth: Measures the growth of both the company's income statement and cash flow. On this factor, BBT has a growth score better than 30% of the stocks in the industry.
  • Total Return: Measures the historical price movement of the stock. The stock performance of this company has beaten 40% of the companies in the industry.
  • Efficiency: Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 50% of the companies in the industry.
  • Price Volatility: Measures the volatility of the company's stock price historically. The stock is less volatile than 40% of the stocks in the industry.
  • Solvency: Measures the solvency of the company based on several ratios. The company is more solvent than 50% of the companies in the industry.
  • Income: Measures dividend yield and payouts to shareholders. The company's dividend is higher than 80% of the companies we track.
businesses
Businesses
  • Branch Banking and Trust Company (Branch Bank)
  • BB&T Financial
  • Scott & Stringfellow, LLC
  • Regional Acceptance Corporation
  • BB&T Asset Management, Inc
branch banking and trust company
Branch Banking and Trust Company
  • BB&T’s commercial banking subsidiary
  • Conducts business operations through this subsidiary
  • Provides range of banking and trust services for retail and commercial clients
  • 1,857 offices
bb t financial
BB&T Financial
  • Federal savings bank
  • Formed to help improve operating efficiency of business activities for subsidiaries at a national level
  • Issue BB&T credit cards and merchant services
scott and stringfellow llc
Scott and Stringfellow, LLC
  • Full-service brokerage and investment banking subsidiary
  • Services in retail brokerage, equity and debt underwriting, corporate finance and equity research
  • Public finance department providing investment banking, financial advisory services, debt underwriting
regional acceptance corporation
Regional Acceptance Corporation
  • Indirect financing for new and used automobiles—finance consumer purchases of used motor vehicles and make direct loans to consumers
  • Branch offices in 15 states
bb t asset management inc
BB&T Asset Management, Inc.
  • Offer investment management strategies
  • Currently hold $18.7 billion in discretionary assets
  • Serve corporations, institutions, endowments, foundations, employee benefit/retirement plans, government entities, wealthy families and individuals
  • Meet needs of clients through domestic/international equity, alternative investment products/strategies, and fixed income investing
products offered
Products Offered
  • Retail clients: bankcard lending, consumer finance, home mortgage lending, insurance, brokerage services, small business lending, and private banking services
  • Commercial Clients: asset management, capital markets services, commercial finance, institutional trust services, insurance, international banking services, leasing, and venture capital services
strengths
Strengths
  • High quality banking: As a high quality bank, we expect BBT to remain an acquirer as the industry consolidates.
  • Favorable shift in deposit and loan composition: BB&T has been able to successfully shift the deposit and loan compositions toward more profitable and less risky compositions.
  • Position: BB&T has a strong market and capital position and is well positioned for acquisitions.
weaknesses
Weaknesses
  • Subprime loans/Bad mortgages: Bad mortgage problems connected to credit markets will cause continued pain for lenders and subprime loan help from banks significantly hurt profits.
  • Challenging growth target: BB&T will be challenged to achieve its loan, deposit, and noninterest income growth target. Covered loans declined by nearly 23% during 2010
opportunities
Opportunities
  • Strong loan growth: 2011 should benefit from strong loan growth, especially commercial and industrial loans. Prime residential mortgages were the fastest growing loans with a 10% quarter on quarter. In addition, auto loans, credit cards and deposits grew solidly.
  • High purchase accounting accretion: Net interest margin should benefit from high purchase accounting accretion.
  • Cross selling products and services
opportunities 2
Opportunities (2)
  • Bureau of Labor Statistics (BLS) announced that the US unemployment rate dropped to 9% in January from 9.4% in December
    • Improving employment numbers will hopefully, in time, lead to a boost in loan growth across the banking sector
threats
Threats
  • Housing crisis: The housing crisis will lower BB&T’s assets and equity, and makes it harder to do business in the market. Lower equity lowers the amount of money that can be loaned and consecutively limits the ability of the company to generate additional income from loans. A major source of past revenue and profits will decrease and lead to a decrease in future cash flow and stock value.
  • Credit card crisis: Adverse impact of the likely credit card crisis in the United States.
financial drivers for 2011 managements view
Financial Drivers for 2011(managements’ view)
  • Loans: Management expects faster pace of growth in non-real estate loan portfolios with continued declines in commercial real estate (overall growth of 3-5% in loans held for investment)
  • Deposits: up 1-3% in total, with double digit growth in transaction account deposits
  • Net charge-offs: Trending down throughout 2011, through 1.5% late in year
overall loan growth
Overall Loan Growth

Source: Company Filings

net interest margin
Net Interest Margin
  • NIM: examines how successful a firm's investmentdecisions are compared to its debt situations
  • Difference between interest bank gives to lenders and interest income the bank makes of investing the $
higher profits
Higher Profits
  • Alluded to an increase in their dividend
  • Reported a fourth quarter net income of $208 million
  • Net income increased 12% YoY as BBT moved away from real estate lending and varied its credit business
  • Another reason for higher profit was improvements in its loan portfolio
    • The number of nonperforming loans fell to $3.97 billion from $4.15 billion from the previous quarter
    • reported an 11.3% decline in its provision for loan losses to $643 million
regulations potential deals
Regulations, Potential Deals
  • experienced declines in service charge and mortgage banking fees related to recent regulatory changes targeting overdraft and credit card fees (0.6% decrease)
  • Revenue from loans was up 15.2 percent to $689 million
  • BB&T is in an advantageous position regarding deals
    • Bank of America, JP Morgan Chase & Co., Citigroup and Wells Fargo are unlikely or unable to be competition for bank deals
recommendation
Recommendation
  • Buy 50 shares @ ~$28, for total investment of $1,400
thanks for coming by
Thanks for coming by!

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For each pair:

-if both are black, they go to the dealer’s pile

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