1. Financial Stocks Kate Farley Ryan OConnor

2. Agenda

Brief overview of Sector

Business Analysis

Reasons for our stock pick

Financials and Valuation

Recommendation

3. Financial Sector

Worst performing sector of the S&P 500

• Down over 41% YTD* compared to 14.75% of index

Uncertainty regarding Govt bailout

• Potential bank nationalization

• Increased stake in Citigroup and AIG

Currently underweighted by 113bps

Will increase underweighting by 150bps

*As of 2/23/09 4. 5. Who is HCBK?

Hudson City Bancorp Inc.

Regional Holding Company based out of New Jersey

Traded on the NASDAQ

Currently part of S&P 500 Index

Weathered the storm better than most

6. Business Analysis of Stocks

Goldman Sachs

• 2008 10-K is 731 pages

• Bank holding company and global investment banking, security, and investment management firm

• Investment Banking,trading and principal investmentsand asset management and securities services are main segments

• Current Market cap of $37B

Hudson City Bankcorp

• Holding company for only Hudson City Banking

• 127 banks in NJ, NY, and CT

• Sources of revenue:interest on mortgages, MB securities and interest and dividends on investments

• Sources of funds:deposits, borrowings, payments on mortgages, maturities on investments

• Current Market cap of $5 billion

7. Why HCBK?

Never underwritten subprime, negative amortization or Option ARM loans

Strict Maximum Loan-to-Value

0.43% non-performing assets

Refused TARP money in November

Kramer recommended staying away ( Jan 26, 2009)

Named Best-Managed Bank in America Two Years in a Row- Forbes Magazine

http://community.investopedia.com/news/IA/2009/Hudson-City-Flourishes-During-Downturn-HCBK0211.aspx?partner=YahooSA 8. Loan to Value Maximums 60% $2,500,100-$3,000,00065% $2,000,100-$2,500,00070% $1,500,100-$2,000,00075% $1,000,100-$1,500,00080% $600,100-$1,000,000 90% Up to $600,000 Max LTV Max Loan Amounts 9. Recent Earnings and Dividends * Estimates from finance.yahoo.com 10. Hudson City Valuation 11. Hudson City DCF Model

Used average expenses percentage over past 3 years

Using 14.5% discount rate due to financials cyclical nature

Assuming no change in number of shares outstanding

Terminal Growth Rate of 4%

Assuming constant margins and tax rates based on historic figures

12. Valuation and Price Targets

DCF approximately $22 with 123% upside

• Terminal Discount Rate of 14.5%

• Terminal FCF Rate of 4.0%

Ratio Analysis

• Gave us price target between $9 and $23 depending ratio

• P/B was $21.53

Our price target is $18.00 (77% upside)

13. Goldman Sachs Valuation 14. Reasons to dump GS

2 students dropped this class after being assigned GS

ROE (ttm) 4.3%

Sales growth predicted to drop 21% in the next quarter and 19% in 3Q09*

Took $10 billion in TARP funds and now has to dance to the Govt tune

• In order to repay has to raise the money in a government approved equity offering of similar amount

Price Target of 97.00

Berkshire Hathaway has a $5 billion investment

* finance.yahoo.com 15. New SIM Financials Portfolio Name Symbol % of SIM Financials Berkshire Hathaway Inc. BRK.A 47.2% Wells Fargo WFC 11.7% Hudson City Bancorp HCBK 41.1% 16. Recommendations

Sell entire GS position (~400bps)

Purchase 340 bps of HCBK

• Consensus growth rate higher than S&P 500

• Undervalued compared to financials and itself

• No exposure to Real Estate

Sell off 68 bps of BRKA and 22 of WFC

Should bring us to underweighting of 263 bps

17. 18. Off Balance Sheet Commitments 107,136 $ 16,925 $ 17,311 $ 1,081,111 $ 1,222,483 $ Total 107,136 16,925 17,311 8,404 149,776 Operating leases 516,000 516,000 Mortgage-backed security purchases 219,117 219,117 Mortgage loan purchases $ $ $ 337,590 $ 337,590 $ Mortgage loan originations (In thousands) Five Years Five Years Three Years One Year Total Contractual Obligation More Than Three Years to One Year to Less Than Payments Due By Period 19. Not Selling all of WFC

DCF still gives about 25% upside with more conservative estimates than other analysts

Ratio valuation gives target in high teens/low twenties

EPS of about 28 cents in first quarter expected

Still have dividend

Lowest weight in ratio