Your SlideShare is downloading. ×
0
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Financials
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
386
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
1
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Vivek Gupta Ryan Heksch David Jurgens BERKSHIRE HATHAWAY INC.
  • 2. Sector Recommendation
    • The class approved a HOLD in the weighting of Financials in the SIM portfolio to keep it at 200 bps underweight relative to the S&P 500
    • Market has not yet reached bottom—very cyclical stocks
    • Potential heavy future regulation
    • Banks de-levering—lower expected ROE
  • 3. Sector Weight (as of 11/4/08) Financials was underweighted by 200 basis points
  • 4. Sector Weight (as of 11/21/08) Financials is currently underweighted by 160 basis points
  • 5. Sector Weight (as of 11/25/08) Financials is now underweighted by 170 basis points
  • 6. Current SIM Financial Sector Composition Total SIM value = $12,888,782 Company Ticker Value Portfolio Weighting (in bps) Bank of America BAC 219,077 170 Berkshire Hathaway BRKA 630,000 489 Goldman Sachs GS 293,205 227 Merrill Lynch MER 119,262 93
  • 7. Current SIM Financial Sector Composition (as of 11/25/08) Total SIM value = $13,763,021 Company Ticker Value Portfolio Weighting (in bps) Bank of America BAC 282,680 205 Berkshire Hathaway BRKA 674,800 490 Goldman Sachs GS 394,790 287 Merrill Lynch MER 162,448 118
  • 8. Recommendation Company Current Weight (bps) Buy / Sell Proposed Weight (bps) Bank of America 170 Sell all – 170bps 0 Berkshire Hathaway 489 Hold 489 Goldman Sachs 227 Hold 227 Merrill Lynch 93 Sell all – 93 bps 0 Wells Fargo --- Buy – 263 bps 263 TOTAL 979 979
  • 9. Recommendation (as of 11/15/08) Company Current Weight (bps) Buy / Sell Proposed Weight (bps) Bank of America 205 Sell all –205 bps 0 Berkshire Hathaway 490 Hold 490 Goldman Sachs 287 Hold 287 Merrill Lynch 118 Sell all – 118 bps 0 Wells Fargo --- Buy – 323 bps 323 TOTAL 1100 1100
  • 10. Relative Performance (YTD)
  • 11. Target Prices Company Ticker Current Price Target Price Upside Degree of Uncertainty Bank of America BAC $11.47 $16.98 67.6% Very High Berkshire Hathaway BRKA $90,000 $117,500 30.6% Medium Goldman Sachs GS $53.31 $91.10 70.9% Extreme Merrill Lynch MER $8.34 Wells Fargo WFC $21.76 $31.09 42.9% Medium
  • 12. Target Prices (as of 11/25/08) *Based on updated multiples analysis Company Ticker Current Price Target Price Upside Degree of Uncertainty Bank of America BAC $14.80 $16.98 14.7% Very High Berkshire Hathaway BRKA $96,400 $117,500 21.9% Medium Goldman Sachs GS $71.78 $91.10 26.9% Extreme Merrill Lynch MER $11.36 Wells Fargo WFC $26.86 $35.22* 31.1% Medium
  • 13.
    • Current SIM Position: 170 bps
    • Down 72.2% YTD—fifth worst in SIM holdings
    • Decision: Sell entire 170 bps holding
  • 14. Background Information 4
    • Bank of America Corporation is a bank holding company. Through its banking subsidiaries and various non-banking subsidiaries throughout the United States and in selected international markets, Bank of America provides a diversified range of banking and non-banking financial services and products through three business segments:
      • Global Consumer and Small Business Banking
      • Global Corporate and Investment Banking
      • Global Wealth and Investment Management
    4 http://topics.nytimes.com/top/news/business/companies/bank_of_america_corporation/index.html
  • 15.  
  • 16. Key Performance Indicators
  • 17. Potential Risks 3
    • Reached maximum legal share in US deposits
      • Precluded from making domestic acquisitions
    • Credit crunch has wiped out investment bank earnings
      • Additional write-downs may be forthcoming
    • Credit card write-downs coming up
    • Merrill Lynch issues
      • Downside of investment banking more substantial than upside of wealth management business
      • Employee retention
    • Exposure to toxic assets can lead to significant future losses
    3 Morningstar
  • 18. Bank of America – Merrill Lynch Deal
    • September 15, 2008
      • At the time was a $50 billion deal approved by Board
      • At time of deal, BAC offered $29/share
        • Represented a 70% to premium to MER share price of $17
      • All stock transaction
        • MER shareholders to get 0.8595 shares of BAC stock
  • 19. Merrill Lynch Price
  • 20. Recent Developments
    • Risk - BAC shareholders may not approve the deal
      • New terms? No deal at all?
    • Spread has doubled over past week (see next slide)
      • Growing sentiment that deal will not go through
    • BAC shareholders feel offer overvalues MER
      • Merrill Later posted large losses
      • Still has $1.6 billion CDO exposure
      • Pending class action lawsuits
    • BAC shareholders to vote on issue December 5 th
    • If approved, scheduled to be closed by year-end
  • 21. MER
  • 22.
    • Decision: Buy 263 bps in Wells Fargo
    • Background information 1 :
      • Wells Fargo & Company is a financial holding company and a bank holding company. It is a diversified financial services company. It provides retail, commercial and corporate banking services through banking stores located in 23 states.
      • It operates in three segments: Community Banking, Wholesale Banking and Wells Fargo Financial.
      • With the acquisition of Wachovia, it will have the largest retail banking network in the United States
    1 http://topics.nytimes.com/top/news/business/companies/wells_fargo_and_company/index.html
  • 23. Opportunities 2,3
    • Wells Fargo is taking advantage of the exit of the weaker players
    • Continuing to grow by gaining market share
    • Going to purchase Wachovia, pending necessary approvals
      • Wachovia a good fit—expands national footprint (especially in northeast)
    • The bank’s cross-selling efforts have been extremely successful, with the national average retail customer using 5.6 products and the average middle-market commercial customer using 7.7 products.
    • Only AAA-rated bank in the US
    2 Standard & Poor’s 3 Morningstar
  • 24. Potential Risks
    • Wachovia implementation issues
      • Buying a troubled bank larger than its own
    • Continuing economic downturn
    • Deep exposure to home equity portfolios could lead to further losses if housing crisis worsens
  • 25. Wells Fargo
  • 26. Multiples Evaluation
    • *Taken from Yahoo! Finance analyst estimates
    • Average Target Price = 28.91 (Upside: 32.9%)
    • Average Target Price (from P/B and ROE) = 31.09 (Upside: 42.9%)
  • 27. WFC
  • 28. WFC
  • 29. Comparing WFC to BAC
  • 30. Relative Performance (YTD)
  • 31. Recommendation
    • SELL:
      • Bank of America: 170 bps $219,077
      • Merrill Lynch: 93 bps $119,262
    • HOLD:
      • Goldman Sachs 227 bps $293,205
      • Berkshire Hathaway 489 bps $630,000
    • BUY:
      • Wells Fargo 263 bps $338,339
        • 15,548 shares @ $21.76/share
  • 32. Recommendation (as of 11/15/08) Company Current Weight (bps) Buy / Sell Proposed Weight (bps) Bank of America 205 Sell all –205 bps 0 Berkshire Hathaway 490 Hold 490 Goldman Sachs 287 Hold 287 Merrill Lynch 118 Sell all – 118 bps 0 Wells Fargo --- Buy – 323 bps 323 TOTAL 1100 1100
  • 33. Alternate considerations 3
    • Charles Schwab Corporation (SCHW) – Brokerage Firm
      • Migration of independent advisors
      • 88% increase in accounts
        • Still only have 5% of brokerage accounts
    • US Bancorp (USB) – Regional Banking
      • ROE consistently in excess of 20%
      • 80% in earnings returning to shareholders
      • Little exposure to toxic assets
    • CME Group Inc. (CME) – Exchange
      • Opportunities in over-the-counter derivatives
      • Increasing acceptance of derivatives leading to greater trading volume
    3 Morningstar
  • 34. Relative Performance (YTD)

×