Tuesday, March 30, 2010

Citi 2010 Financial Services Conference $NYX $XLF $GS $STT $STI

Takeaways from Citi 2010 Financial Services Conference


Slightly Higher Levels of Confidence Evident — Citi's 2010 Financial Services conference hosted over 700 clients and 50 of the top financial firms in the US. In this report we discuss the key themes emerging from the presentations, and summarize the key takeaways from each company. Many CEOs/CFOs seemed more optimistic or less cautious than commentary during 4Q earnings two months ago. Executives pointed to a variety of industry and firm specific positives such as stabilizing unemployment and declining credit metrics. Clearly risks remain and many companies are acting rightfully cautious, but signs of stabilization – if not improvement – are becoming evident.

Capital Levels Will Likely Continue to Build — Banks expressed confidence that recapitalized balance sheets are in good shape, but gave no indication that there will be any release of capital anytime soon. Only a few banks (USB, BK) mentioned desires to raise dividends. Non-bank financials seem to be prioritizing organic growth and acquisitions over buybacks or dividend hikes.

Credit Quality Outlook In Line With Prior Guidance — STI and FITB had slight positive revisions for 1Q credit, and remaining banks reiterated prior guidance. CRE has been key investor concern for more than 12 months, but banks and specialty finance players were confident that losses will be manageable. Credit card charge off and delinquency trends continue to stabilize and spending trends

are improving. Other issues such as mortgage repurchase expense appear manageable for most.

Regulatory Risks Remains Key Concern — Final capital rules remain a key question mark. Card issuers face headwinds from CARD Act as lower fee income is impacting earnings now and could be a drag over the next few quarters, while the Fed's recent late-fee guidance was modestly more restrictive than mgmt teams expected. But other regulatory impacts such as NSF fees are becoming more quantifiable, with BBT and RF estimating 2-3% impact to PTPP income, before mitigation strategies.

TARP Repayment Banks that have yet to repay TARP (FITB, STI and RF) reiterated feeling no pressure to repay now, with FITB aiming for 2H10; and STI

and RF preferring to do it in the most shareholder-friendly manner.

M&A — USB, NYB and BBT all expressed continued interest in pursuing additional FDIC-assisted deals.


Key Themes Annaly Capital Management Bank of America Bank of New York Mellon BB&T Corporation Capital One CapitalSource Citizens Republic Bancorp CME Group Comerica E*Trade Financial Corp Fifth Third First Horizon Huntington Bancshares GFI Group Marshall & Ilsley M&T Bank Corp NASDAQ OMX New York Community Bancorp Northern Trust NYSE Euronext PNC Financial Services Regions Financial SLM Corporation Starwood Property Trust SunTrust Synovus 35TCF Financial TD Ameritrade Holding Corp US Bancorp Zions Bancorporation Derivatives Clearing: Exchanges & Member Insight


Mark Furlong, President and CEO and Greg Smith, CFO


Credit Still an Issue – Similarly to most conference presenters Mr. Furlong believes that credit, though still an important issue, is not likely to be as important in 2010 compared to 2009. MI has been very aggressive indisposing non-performing assets which have been predominantly concentrated in the construction and development (C&D) loan portfolio mainly in Florida and Arizona. The C&D loan portfolio has shrunk 45% from4Q07 or to 13% from 22% of total loans at the end of 4Q07. This should allow for lower credit losses in 2010 versus 2009. Management alluded to lower volumes of loan sales as the inventory of loans in Florida and Arizona has declined. MI's goal is to reduce C&D loans to no more than 10% of total loans over time.


Strong Capital Ratios – MI has been successful in raising common equity and has one of the strongest TCE ratios in our coverage. At December 31, 2009its TCE ratio was 8.2% and its Tier 1 common ratio equaled 7.5%. TAR Prepayment is not a strategic priority while MI is not profitable. Mr. Furlong emphasized that at the current stage returning to profitability is of primary importance.


Wealth Management – M&I's wealth management business has grown at annual growth rate of 13% over the last six years and assets under management have more than doubled since 2003. MI (MI.N; US$7.78; 2S) has been open about its intention to be acquisitive in the wealth management space and reiterated this intention under the caveat of not significantly impacting its capital position.

U.S. Financial Services Takeaways from Citi 2010 Financial Services Conference

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