Oppenheimer Fins

8/9/2019 Oppenheimer Fins

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Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research repora result, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report. Investors should consider this report as only a single factor in making theirinvestment decision. See "Important Disclosures and Certifications" section at the end of this report foimportant disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Keyto Price Target" sections at the end of this report, where applicable.

March 25, 2010

FINANCIAL INSTITUTIONS/COMMERCIAL &INVESTMENT BANKING

Chris Kotowski212 667-6699Chris.Kotowski@opco.com

Kaimon Chung, CFA212 667-5366Kaimon.Chung@opco.com

Benjamin Chittenden212 667-6697Benjamin.Chittenden@opco.com

First Quarter Preview:

The Equity Markets Takea PauseSUMMARY

We continue to believe that the banking and financial system is in the still relativeearly stages of a multi-year recovery that will generally lead commercial aninvestment banking stocks to outperform the markets over the next several yearsThat said, 1Q2010 earnings reports are not likely to be one of the sterling momenin that recovery. The good news is that we expect to get confirmation in the 1Qreports that NPA inflows peaked last year and we believe that FICC trading profit

have rebounded meaningfully from the sluggish 4Q09 levels. The bad news is thathe mid-quarter downdraft in equity priceswhich has since beereversedgenerally pressured equity, M&A and investment banking revenuesLoan volumes continued to shrink during the quarter somewhat more than wexpected.

KEY POINTS

s Given this slowdown, we have trimmed 1Q estimates for seven of the nincompanies in our coverage, but in general we do not believe that these trimhave major implications for the later quarters of 2010 or our long-ternormalized earnings numbers.

s During the quarter, the XLF first fell 12%, then rebounded 20% off the lowa

this with little in the way of fundamental company news. Thus, investors shoulbe mindful of the fact that the stocks are still very volatile and susceptible to thslightest hint of macro trouble.

s Despite their strong run off the bottom, we believe that our threOutperform-rated domestically centered mega banks (BAC, JPM and WFC) arall still very attractive, trading at 6.8-7.5X our normalized earnings estimates. Ias we expect, these normalized earnings are reached by 2012, it still equates a 19%-23% IRR, possibly more.

s It is much harder to model earnings progress over a 2-3 year time frame for thinvestment banking companies than for the commercial banks, but we believthe investment banks' benefit from the recovery will be just as real and dramaticIf the credit recovery unfolds as we anticipate, credit spreads should remastable and this should drive good issuance, M&A and trading activity.

s We also continue to recommend GS, MS and LAZ.

EQUITY RESEARCH

INDUSTRY UPDATE

Oppenheimer & Co Inc. 300 Madison Avenue 4th Floor New York, NY 10017 Tel: 800-221-5588 Fax: 212-667-822


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2

First Quarter Preview: The Equity Markets Take aPauseWith every month that November 2008 recedes into the past, we become more confident

that the financial crisis has morphed into just another recession and that a recovery hasstarted. This should generally bode well for financial stocks performance versus the

broader market. That said, before much of anything in the way of equity offerings could

get going in the new year, the equity markets had a roughly 10% correction (see Exhibit

1); although it was since retraced, that correction did have the effect of pushing out equity

raises and deal announcements and will probably also result in sluggish equity trading

revenues reported for the quarter. The good thing is that we doubt that this has any

lasting impact.

Exhibit 1. S&P 500 Performance, 2009-YTD 2010

600

700

800

900

1000

1100

1200

1/1/2009

4/1/2009

7/1/2009

10/1/2009

1/1/2010

Source: SNL Financial and Oppenheimer & Co. Inc.

Other than the weakness in the equity business caused by the markets, which we expect

to be a temporary phenomenon, the only notable change in our earnings estimates was to

reflect generally weaker loan volumes. We had assumed roughly 1% linked quarter

shrinkage and have now generally changed this to 2% and pushed the trajectory to

stability and growth out to the right by a quarter. Thus, weve generally trimmed our 1Q

and full-year 2010 earnings estimates (Exhibit 2), but most of the full-year cut is due to

what we are likely to experience in the first quarter: the estimate revisions for the back

three quarters of 2010 and for 2011 are very minor tweaks.

FINANCIAL INSTITUTIONS


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Exhibit 2. Summary of OPCO EPS Estimates, Price Targets and Ratings vs. Street EPS Estimates

Summary of Company Earning Estimates and Ratings Updates

Stock

Company Ticker Price Curr Curr FYE Year Prior Current

Mean

Consensus

High

Consensus

Low

C on se nsu s P ri or C urr en t

Mean

Consensus

High

Consensus

Low

C on se ns us P ri or Cu rr en t

Mean

Consensus

High

Consensus

Low

Consensus

B an k o f A me ri ca C or po ra ti on B AC 1 8. 10 2 1. 00 O D ec 2 0 10 0 .1 1 0 .0 8 0.09 0.26 (0.05) 0.69 0.63 0.83 1.60 0.20 2.05 1.99 1.99 2.90 0.95

Citi group Inc. C 4.29 N one P Dec 2010 (0.01) (0.01) ( 0.00) 0.06 (0.08) ( 0.03) (0.03) 0.04 0. 23 (0. 40) 0.28 0.28 0.34 0.55 (0.05)

Goldman Sachs Group, Inc. GS 176.67 228.00 O Dec 2010 4.07 4.06 4.32 5.97 3.31 19.00 19.32 18.71 21.01 15.70 21.48 21.95 20.73 24.02 16.70

Jeffe ries Group , Inc. JEF 25.30 None P Dec 2010 0 .40 0 .35 0 .37 0 .43 0 .32 1 .61 1 .56 1 .53 1 .65 1 .40 1 .87 1 .87 1 .79 2 .13 1 .55

JPMorgan Chase & Co. JPM 45.64 54.00 O Dec 2010 0 .79 0 .70 0 .64 0 .79 0 .45 3 .31 3 .19 2 .99 3 .50 2 .30 5 .19 5 .16 4 .74 6 .30 3 .00

L az ard L AZ 3 6. 65 45 .0 0 O D ec 2 01 0 (0 .16 ) ( 0. 28 ) 0 .5 5 0 .62 0 .3 5 1 .7 8 1 .6 0 2 .2 7 2 .6 5 2 .05 2 .8 0 2 .7 1 2 .8 1 3. 30 2 .5 0

Morgan S tanley MS 29.28 40.00 O Dec 2010 0 .78 0 .67 0 .69 0 .91 0 .44 3 .27 3 .14 3 .06 3 .45 2 .20 3 .80 3 .67 3 .55 4 .20 2 .40

U.S . Bancorp USB 26.37 None P Dec 2010 0 .31 0 .32 0 .34 0 .38 0 .24 1 .61 1 .65 1 .61 1 .90 1 .25 2 .30 2 .30 2 .31 2 .78 1 .80

Wells Fargo & Company WFC 31.55 34.00 O Dec 2010 0.51 0.49 0.41 0.51 0.20 2.31 2.28 1.88 2.31 1.00 3.93 3.86 2.83 3.93 1.90

Stock Price as of:

Earnings estimates updated as of: 03/23/2010

Month

2010E 2011E1Q10E

Current Quarter Estimates Annual Earnings per Share

Legend: NC =No change. O=Outperform; P=Perform; U=Underperform.

3/25/10 1:58 PM

Target Rating

Source: Company Reports, FactSet, Reuters, First Call, and Oppenheimer & Co. Inc.

Investment BankingThe first quarter is likely to be weak for investment banking revenues. While announced

M&A volume seems to be rebounding and appears to be almost matching the 4Q09 level

(which was the best since the summer of 2008), completed M&A is more reflective of the

weak announced volume levels from 3Q09 (see Exhibit 3). If one figures that there is

generally a six-month lag between deal announcements and deal closings, it makes sense

that closed volume would be weak, especially after a spate of year-end closings in 4Q09.

Equity volumes are weak generally because of the market trading pattern indicated above

Fixed income volumes were slightly above 4Q levels, and while this benefited primarily

from strong volumes in investment grade underwriting, it is noteworthy that high yield

activity was also still strong and this indicates that the market risk tolerance isnt the gating

factor on activity.

FINANCIAL INSTITUTION


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4

Exhibit 3. Capital Markets Activity, Global, 2005A-Q1 2010E

Period

Deal Value

$M Q/Q Y/Y

Deal Value

$M Q/Q Y/Y

Deal Value

$M Q/Q Y/Y

Deal Value

$M Q/Q Y/Y

2005-Q1 682,622 455,348 133,796 1,097,9082005-Q2 778,083 14% 566,444 24% 114,117 (15%) 1,204,162 10%

2005-Q3 634,662 (18%) 667,234 18% 156,510 37% 1,087,909 (10%)2005-Q4 846,987 33% 897,320 34% 196,205 25% 1,105,657 2%

2006-Q1 967,268 14% 42% 764,865 (15%) 68% 172,387 (12%) 29% 1,184,798 7% 8%2006-Q2 932,807 (4%) 20% 746,975 (2%) 32% 203,697 18% 78% 1,251,220 6% 4%

2006-Q3 798,338 (14%) 26% 835,352 12% 25% 144,660 (29%) (8%) 1,157,271 (8%) 6%

2006-Q4 1,218,343 53% 44% 1,245,752 49% 39% 260,381 80% 33% 1,429,218 23% 29%

2007-Q1 1,090,404 (11%) 13% 991,212 (20%) 30% 187,458 (28%) 9% 1,494,976 5% 26%2007-Q2 1,510,907 39% 62% 1,056,138 7% 41% 292,422 56% 44% 1,504,939 1% 20%

2007-Q3 999,484 (34%) 25% 1,231,790 17% 47% 166,463 (43%) 15% 757,179 (50%) (35%)

2007-Q4 1,023,078 2% (16%) 1,473,634 20% 18% 297,429 79% 14% 639,379 (16%) (55%)

2008-Q1 822,466 (20%) (25%) 1,013,846 (31%) 2% 127,289 (57%) (32%) 583,940 (9%) (61%)2008-Q2 903,908 10% (40%) 806,024 (20%) (24%) 264,803 108% (9%) 999,488 71% (34%)

2008-Q3 836,150 (7%) (16%) 856,710 6% (30%) 133,299 (50%) (20%) 440,241 (56%) (42%)2008-Q4 602,821 (28%) (41%) 878,353 3% (40%) 109,544 (18%) (63%) 504,181 15% (21%)

2009-Q1 576,485 (4%) (30%) 628,972 (28%) (38%) 71,087 (35%) (44%) 1,008,350 100% 73%2009-Q2 564,998 (2%) (37%) 432,353 (31%) (46%) 279,545 293% 6% 1,041,887 3% 4%

2009-Q3 511,579 (9%) (39%) 495,598 15% (42%) 227,726 (19%) 71% 853,085 (18%) 94%

2009-Q4 728,821 42% 21% 741,196 50% (16%) 328,202 44% 200% 764,231 (10%) 52%

2010-Q1E 655,646 (10%) 14% 441,791 (40%) (30%) 146,563 (55%) 106% 819,707 7% (19%)

As of: 3/22/2010 3/22/2010

Global Capital Markets Activity Volume ($M)

Announced M&A Completed M&A Equity Underwriting Total Debt Underwriting

Period

Deal Value

$M Q/Q Y/Y

Deal Value

$M Q/Q Y/Y

Deal Value

$M Q/Q Y/Y

Deal Value

$M Q/Q Y/Y

Deal Value

$M Q/Q Y/Y

Deal Value

$M Q/Q Y/Y

2005-Q1 1,097,908 384,999 57,490 239,825 300,919 114,6742005-Q2 1,204,162 10% 356,357 (7%) 48,022 (16%) 332,417 39% 367,218 22% 100,148 (13%)2005-Q3 1,087,909 (10%) 310,927 (13%) 54,385 13% 277,671 (16%) 385,723 5% 59,203 (41%)2005-Q4 1,105,657 2% 298,392 (4%) 43,921 (19%) 337,982 22% 367,954 (5%) 57,408 (3%)

2006-Q1 1,184,798 7% 8% 434,625 46 % 13% 56,751 2 9% ( 1%) 254,898 (25%) % 334,470 ( 9%) 1 1% 104,053 8 1% (9 %)2006-Q2 1,251,220 % 4% 389,786 (10%) 9% 68,648 21% 43% 325,867 28 % ( 2%) 395,418 18% 8% 71,501 (31%) (29%)2006-Q3 1,157,271 (8%) % 375,328 (4 %) 2 1% 49,816 (27%) (8%) 285,059 (1 3%) 3% 375,842 ( 5%) (3%) 71,226 (0 %) 2 0%2006-Q4 1,429,218 2 3% 2 9% 442,662 18 % 48% 99,219 99% 126% 339,337 19% 0% 453,179 2 1% 2 3% 94,821 33% 5%2007-Q1 1,494,976 5% 26% 529,820 20 % 22% 83,305 ( 16%) 47% 305,247 ( 10%) 20% 457,763 1% 37% 118,840 25% 14 %2007-Q2 1,504,939 1% 20% 540,690 2% 39% 103,452 24% 51% 299,934 ( 2%) (8%) 493,111 8% 25% 67,753 (43%) (5%)2007-Q3 757,179 (50%) (35%) 333,385 (38%) (11%) 26,352 (75%) (47%) 137,908 (54%) (52%) 215,724 (56%) (43%) 43,810 (35%) (38%)2007-Q4 639,379 (16%) (55%) 349,060 5% (21%) 46,063 75% (54%) 97,020 (30%) (71%) 106,226 (51%) (77%) 41,010 (6%) (57%)2008-Q1 583,940 (9%) (61%) 366,369 5% (31%) 23,741 (48%) (72%) 72,382 (25%) (76%) 69,963 (34%) (85%) 51,484 26% (57%)2008-Q2 999,488 71% (34%) 711,340 94 % 32% 57,143 141% (45%) 85,657 18% (71%) 86,237 23% (83%) 59,111 15% (13%)2008-Q3 440,241 (56%) (42%) 297,346 (58%) (11%) 22,467 (61%) (15%) 42,576 (50%) (69%) 43,801 (49%) (80%) 34,051 (42%) (22%)2008-Q4 504,181 15% (21%) 416,142 40 % 19% 6,600 (71%) (86%) 16,948 (60%) (83%) 36,266 (17%) (66%) 28,225 (17%) (31%)2009-Q1 1,008,350 1 00% 7 3% 858,040 106% 134% 26,558 30 2% 12 % 26,044 54% (64%) 43,044 19% (38%) 54,665 94% %2009-Q2 1,041,887 3% 4% 749,312 (13%) 5% 67,460 15 4% 18 % 52,661 102% (39%) 108,383 1 52% 2 6% 64,071 17% 8%2009-Q3 853,085 ( 18%) 94% 551,812 ( 26%) 86% 69,033 2% 207% 55,039 5% 29% 117,972 9% 169% 59,228 (8 %) 7 4%2009-Q4 764,231 ( 10%) 52% 469,690 ( 15%) 13% 93,182 35% 1312% 31,861 ( 42%) 88% 118,389 0% 226% 51,109 ( 14%) 81%2010-Q1E 819,707 7% (19%) 557,990 19% (35%) 81,246 (13%) 206% 30,210 ( 5%) 1 6% 114,816 (3%) 167% 35,445 (31%) (35%)

As of: 3/22/2010

Medium Term Notes

Global Capital Markets Activity Volume ($M)

Corporate Bonds -

Investment Grade

Corporate Bonds - High

Yield Asset Backed Security

Non-Agency Mortgage

Backed SecurityTotal Debt Underwriting

Source: Dealogic and Oppenheimer & Co. I nc.

(more on next page

Putting it all together, we believe that it means overall investment banking revenue should

be down about 35% in the first quarter versus the fourth. This clearly makes for tough

comparisons this quarter, but again we doubt it has many longer term implications.



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Exhibit 3 (contd)Capital Markets Activity

Capital Markets Revenue1

Period $M

Chg

Chg $M

Chg

Chg $M

Chg

Chg $M

Chg

Chg

2005Q1 3,477 2,874 3,868 10,219

2005Q2 4,337 25% 2,602 (9%) 3,752 (3%) 10,691 5%2005Q3 4,476 3% 3,137 21% 3,616 (4%) 11,230 5%2005Q4 5,499 23% 4,149 32% 3,445 (5%) 13,093 17%2006Q1 5,067 (8%) 46% 3,598 (13%) 25% 4,293 25% 11% 12,958 (1%) 27%2006Q2 4,966 (2%) 14% 4,398 22% 69% 4,347 1% 16% 13,711 6% 28%2006Q3 5,392 9% 20% 2,971 (32%) (5%) 3,727 (14%) 3% 12,090 (12%) 8%

2006Q4 7,133 32% 30% 5,556 87% 34% 5,263 41% 53% 17,952 48% 37%

2007Q1 6,420 (10%) 27% 3,942 (29%) 10% 5,200 (1%) 21% 15,561 (13%) 20%2007Q2 6,909 8% 39% 5,938 51% 35% 5,380 3% 24% 18,227 17% 33%2007Q3 7,330 6% 36% 3,792 (36%) 28% 2,630 (51%) (29%) 13,752 (25%) 14%2007Q4 8,300 13% 16% 6,020 59% 8% 2,737 4% (48%) 17,056 24% (5%)2008Q1 6,005 (28%) (6%) 2,768 (54%) (30%) 1,983 (28%) (62%) 10,756 (37%) (31%)2008Q2 5,475 (9%) (21%) 5,068 83% (15%) 3,505 77% (35%) 14,048 31% (23%)2008Q3 5,686 4% (22%) 2,482 (51%) (35%) 1,506 (57%) (43%) 9,674 (31%) (30%)

2008Q4 4,772 (16%) (43%) 2,249 (9%) (63%) 1,334 (11%) (51%) 8,355 (14%) (51%)2009Q1 3,270 (31%) (46%) 1,727 (23%) (38%) 2,995 125% 51% 7,992 (4%) (26%)2009Q2 2,838 (13%) (48%) 6,009 248% 19% 3,571 19% 2% 12,418 55% (12%)2009Q3 3,038 7% (47%) 5,121 (15%) 106% 3,190 (11%) 112% 11,349 (9%) 17%

2009Q4 4,398 45% (8%) 7,041 37% 213% 3,354 5% 151% 14,793 30% 77%2010Q1E

22,809 (36%) (14%) 3,397 (52%) 97% 3,336 (1%) 11% 9,542 (35%) 19%

(1) Estimates by Dealogic(2) Q1 2010 data are quarterized numbers based on quarter-to-date Dealogic estimates as of 3/22/2010

Global M&A

Global Equity

Underwriting

Global Debt

Underwriting Total

Source: Dealogic and Oppenheimer & Co. I nc.

Trading Revenues: Equities Weaker as FICCProbably Normalizes

The mid-quarter correction in equity values no doubt had the same impact on equitytrading volumes that it had on underwriting volumes. Among the companies in our

coverage, Jefferies is probably the most dependent on the institutional equity business,

while Morgan Stanley, Bank of America and Wells Fargo all have a sizable equity-oriented

retail brokerage businesses, but probably the companies most severely affected will be

the smaller equity boutiques (Piper Jaffrey, Cowen, Weisel, JMP,1

etc.)

As shown in Exhibit 4, the daily average retail trades reported monthly by the electronic

brokers are a pretty good directional indicator of the trend in equity trading revenues.

Thus the relatively flat activity reported thus far in the first quarter indicates broader

sluggishness.

1Piper Jaffray, PJC, $42; Cowen Group, COWN, $5; Thomas Weisel, TWPG, $4; JMP Group, JMP, $8.72.All Not Rated by Oppenheimer & Co. Inc.



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6

Exhibit 4. Equity Trading Volumes, Q2 2003A Q1 2010E

Quarter

Equity S&TRevenue

($M)1

o a oc

Exchange

Volume(millions of

shares)2

Retail TradeActivity (share

000s)3

Equity S&T

Revenue

Stock

Exchanges

Retail

Brokers

2003Q2 6,803 363,807 25,953 23% 8% 35%

2003Q3 6,547 386,143 27,586 -4% 6% 6%

2003Q4 6,260 378,953 30,148 -4% -2% 9%

2004Q1 7,934 433,182 34,149 27% 14% 13%

2004Q2 5,780 382,955 27,822 -27% -12% -19%

2004Q3 5,086 354,977 23,245 -12% -7% -16%

2004Q4 6,386 385,832 29,692 26% 9% 28%

2005Q1 8,574 402,845 27,787 34% 4% -6%

2005Q2 6,873 384,495 26,739 -20% -5% -4%

2005Q3 9,589 404,243 44,440 40% 5% 66%

2005Q4 8,261 449,189 33,741 -14% 11% -24%

2006Q1 14,509 478,613 46,168 76% 7% 37%

2006Q2 11,755 464,589 44,420 -19% -3% -4%2006Q3 9,855 403,999 35,998 -16% -13% -19%

2006Q4 12,352 457,972 39,945 25% 13% 11%

2007Q1 18,383 539,091 42,110 49% 18% 5%

2007Q2 17,006 550,919 42,337 -7% 2% 1%

2007Q3 11,754 616,295 47,918 -31% 12% 13%

2007Q4 14,229 594,528 53,277 21% -4% 11%

2008Q1 17,123 622,639 49,954 20% 5% -6%

2008Q2 15,377 527,103 48,558 -10% -15% -3%

2008Q3 18,033 585,689 52,292 17% 11% 8%

2008Q4 (6,503) 629,471 62,883 -136% 7% 20%

2009Q1 12,792 601,613 53,612 -297% -4% -15%

2009Q2 12,658 633,366 60,672 -1% 5% 13%

2009Q3 11,637 520,082 59,258 -8% -18% -2%

2009Q4 8,550 483,109 54,216 -27% -7% -9%

2010Q1E 8,591 437,022 53,656 0% -10% -1%

(2) Comprised of NYSE, NASDAQ, FTSE 100, DAX, CAC 40, Nikkei 225, and Hang Seng.

(3) Comprised of Charles Schwab, E*Trade, and TD Ameritrade.

E indicates an Opco Estimate

Q/Q ChangeTrading Volume

(1) Comprised of Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, and UBS AG.

Change in Q/Q Trading Volumes

-40%

-20%

0%

20%

40%

60%

80%

100%

2003Q2

2003Q4

2004Q2

2004Q4

2005Q2

2005Q4

2006Q2

2006Q4

2007Q2

2007Q4

2008Q2

2008Q4

2009Q2

2009Q4

%C

hangeQ/Q

Equity S&T Revenue Stock Exchanges Retail Brokers

Source: Bloomberg, company reports, and Oppenheimer & Co. I nc.



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On the fixed income side we would expect a healthy pickup from the depressed levels of

4Q09, but probably not as strong as the first three quarters of 2009. A number of industry

executives at various conference presentations have noted that FICC trading rebounded

in January, slowed in February, but then firmed again in March. In other words, it seems

to once again mirror the trend in equity prices during the quarter, but this should be

substantially better than the fourth quarter pattern, which was slow from start to finish.

We would further note that the trend in domestic credit spreads looks generally favorable.

By this we mean that they were still wide by historical standards, but generally stable and

still narrowing. Note this trend particularly in our composite index in the upper right of

Exhibit 5, but also in the BBB-, high yield and CMBX spreads in the exhibit. We think it is

likely that this wide but gradually narrowing trend implies a similar trend in the bid/ask

spreads quoted by dealers. Both are driven by the markets general risk appetite.



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8

Exhibit 5. Credit Spreads

US Industrials AAA to 5Y U.S. Treasury Spread

0.00

0.50

1.00

1.50

2.00

2.50

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Spread(%)

Spread between 3M Libor and 3M U.S. T-Bill (TED Spread)

0.00

0.50

1.00

1.50

2.00

2.503.00

3.50

4.00

4.50

5.00

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

(%)

Markit ABX On-the-run Indices

0

20

40

60

80

100

120

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Price

ABX-HE-AAA 07-2 ABX-HE-BBB- 07-2

ABX-HE-AAA

ABX-HE-BBB-

Markit LCDX Index

65

565

1,065

1,565

2,065

2,565

3,065

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Spread(bps)

Markit CMBX NA AAA Spread

0

100

200

300

400

500

600

700

800

900

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Spread(bps)

CMBX NA AAA (Avg of series 1 to 5)

US Industrials BBB- to 5Y U.S. Treasury Spread

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

(%)

Markit CMBX NA BBB- Spread

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Spread(bps)

CMBX NA BBB- (Avg of series 1 to 5)

Merrill Lynch U.S. High Yield Index Average - Cash Pay

0

500

1,000

1,500

2,000

2,500

3,000

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

OAS(bps)

Opco Composite Credit Spread Index

0

50

100

150

200

250300

350

400

450

500

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

bps

Mortgage and Real Estate Related Indices

0

50

100

150

200

250

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Base Index 100 = 12/31/2007

MortgageREITIndex

0

20

40

60

80

100

120

140

Closed-EndMBSFundIndex

Mortgage REIT Index Closed-End MBS Fund Index

Closed-End MBS Fund Index

Mortgage REIT Index

Source: Bloomberg, FactSet, Markit Group, and Oppenheimer & Co. Inc.



9/52

The discontinuity in the quarter in fixed income trading was, of course, among sovereign

debt issuers, particularly Greece (Exhibit 6), although Portugal, Ireland, Italy and Spain all

showed lesser but still notable spikes in credit spreads. Such spikes, of course, are a two

edged sword. To the extent that they cause volatility, they are a positive for dealers, as

they typically generate higher volumes and wider bid/ask spreads. However, these spikes

also create the risk of positioning losses to the extent that a dealer may get stuck on the

wrong side of the volatility, and, of course, to the extent that the spread wideningrepresents increased default risk it is cautionary, since such a default would cause

widespread losses among banks, and the broader investment community as well.

Exhibit 6. Sovereign Risk Spreads

Portugal Gov't 10-Year Rate Spread to U.S. Gov't 10-Year Rate

(1.50)

(1.00)

(0.50)

0.00

0.50

1.00

1.50

2.00

2.50

12/30/05

03/30/06

06/30/06

09/30/06

12/30/06

03/30/07

06/30/07

09/30/07

12/30/07

03/30/08

06/30/08

09/30/08

12/30/08

03/30/09

06/30/09

09/30/09

12/30/09

%

Ireland Gov't 10-Year Rate Spread to U.S. Gov't 10-Year Rate

(2.00)

(1.00)

0.00

1.00

2.00

3.00

4.00

12/30/05

03/30/06

06/30/06

09/30/06

12/30/06

03/30/07

06/30/07

09/30/07

12/30/07

03/30/08

06/30/08

09/30/08

12/30/08

03/30/09

06/30/09

09/30/09

12/30/09

%

Italy Gov't 10-Year Rate Spread to U.S. Gov't 10-Year Rate

(1.50)

(1.00)

(0.50)

0.00

0.50

1.00

1.50

2.00

2.50

12/30/05

03/30/06

06/30/06

09/30/06

12/30/06

03/30/07

06/30/07

09/30/07

12/30/07

03/30/08

06/30/08

09/30/08

12/30/08

03/30/09

06/30/09

09/30/09

12/30/09

%

Greece Gov't 10-Year Rate Spread to U.S. Gov't 10-Year Rate

(1.50)

(1.00)

(0.50)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

12/30/05

03/30/06

06/30/06

09/30/06

12/30/06

03/30/07

06/30/07

09/30/07

12/30/07

03/30/08

06/30/08

09/30/08

12/30/08

03/30/09

06/30/09

09/30/09

12/30/09

%

Spain Gov't 10-Year Rate Spread to U.S. Gov't 10-Year Rate

(1.50)

(1.00)

(0.50)

0.00

0.50

1.00

1.50

2.00

2.50

12/30/05

03/30/06

06/30/06

09/30/06

12/30/06

03/30/07

06/30/07

09/30/07

12/30/07

03/30/08

06/30/08

09/30/08

12/30/08

03/30/09

06/30/09

09/30/09

12/30/09

%

Brazil Gov't 10-Year Rate Spread to U.S. Gov't 10-Year Rate

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

12/30/05

03/30/06

06/30/06

09/30/06

12/30/06

03/30/07

06/30/07

09/30/07

12/30/07

03/30/08

06/30/08

09/30/08

12/30/08

03/30/09

06/30/09

09/30/09

12/30/09

%

India Gov't 10-Year Rate Spread to U.S. Gov't 10-Year Rate

0.00

1.00

2.00

3.00

4.00

5.00

6.00

12/30/05

03/30/06

06/30/06

09/30/06

12/30/06

03/30/07

06/30/07

09/30/07

12/30/07

03/30/08

06/30/08

09/30/08

12/30/08

03/30/09

06/30/09

09/30/09

12/30/09

%

China Gov't 10-Year Rate Spread to U.S. Gov't 10-Year Rate

(2.50)

(2.00)

(1.50)

(1.00)

(0.50)

0.00

0.50

1.00

1.50

12/30/05

03/30/06

06/30/06

09/30/06

12/30/06

03/30/07

06/30/07

09/30/07

12/30/07

03/30/08

06/30/08

09/30/08

12/30/08

03/30/09

06/30/09

09/30/09

12/30/09

%

Japan Gov't 10-Year Rate Spread to U.S. Gov't 10-Year Rate

(4.00)

(3.50)

(3.00)

(2.50)

(2.00)

(1.50)

(1.00)

(0.50)

0.00

12/30/05

03/30/06

06/30/06

09/30/06

12/30/06

03/30/07

06/30/07

09/30/07

12/30/07

03/30/08

06/30/08

09/30/08

12/30/08

03/30/09

06/30/09

09/30/09

12/30/09

%

Source: Bloomberg and Oppenheimer & Co. Inc.

Loan Volumes: Still Shrinking at Similar PaceAs shown in Exhibit 7, loan volumes were shrinking at a 7.8% year-over-year rate in late

March versus a 7.1% rate in December. Overall, we would characterize that as a pretty

steady-state contraction. Numerous executives in various industry presentations have said

that C&I line utilizations are at all-time lows and that one of the biggest factors inconsumer credit contraction has been write-offs. Thus, as inventories are rebuilt and

consumer loan losses moderate, the pressure on loan volumes should abate as well, but

this is simply not visible yet.



10/52

10

Exhibit 7. Federal Reserve Loan Data

Period $B Amount Y/Y GrowthM/M

G ro wt h $ B Amou nt Y /Y G ro wt hM/M


Growth $B Amount Y/Y GrowthM/M


Growth

Jan-05 932 4.4% 1.4% 2,590 15.0% 0.9% 701 7.9% 0.6% 672 0.7% (1.0%) 4,895 9.7% 0.7%Feb-05 942 5.8% 1.1% 2,625 15.1% 1.3% 704 7.6% 0.4% 689 0.6% 2.5% 4,959 10.0% 1.3%Mar-05 955 7.9% 1.4% 2,672 15.5% 1.8% 707 8.0% 0.4% 696 2.2% 1.1% 5,030 10.9% 1.4%Apr-05 968 10.1% 1.3% 2,707 14.1% 1.3% 710 8.2% 0.4% 699 3.3% 0.4% 5,083 10.9% 1.0%

May-05 980 11.4% 1.2% 2,713 12.6% 0.2% 705 7.0% (0.6%) 704 5.8% 0.7% 5,102 10.6% 0.4%

Jun-05 983 11.5% 0.3% 2,749 13.0% 1.3% 706 6.9% 0.1% 724 6.9% 2.9% 5,163 11.0% 1.2%Jul-05 997 12.1% 1.4% 2,802 15.0% 1.9% 711 2.9% 0.7% 721 5.8% (0.4%) 5,231 11.3% 1.3%

Aug-05 1,001 11.9% 0.4% 2,853 15.8% 1.8% 716 3.6% 0.7% 734 9.3% 1.7% 5,304 12.3% 1.4%Sep-05 1,008 12.0% 0.7% 2,863 15.2% 0.4% 721 3.6% 0.7% 740 6.6% 0.8% 5,332 11.6% 0.5%Oct-05 1,019 12.8% 1.1% 2,882 14.5% 0.6% 719 2.5% (0.3%) 750 8.3% 1.3% 5,369 11.6% 0.7%Nov-05 1,027 12.6% 0.8% 2,897 14.0% 0.5% 712 3.3% (1.0%) 761 8.5% 1.5% 5,397 11.4% 0.5%Dec-05 1,036 12.8% 0.9% 2,924 14.0% 0.9% 708 1.6% (0.6%) 788 16.2% 3.6% 5,457 12.3% 1.1%Jan-06 1,051 12.8% 1.4% 2,948 13.8% 0.8% 708 1.0% 0.0% 778 15.8% (1.3%) 5,485 12.1% 0.5%Feb-06 1,062 12.7% 1.1% 2,980 13.5% 1.1% 712 1.1% 0.6% 783 13.7% 0.7% 5,537 11.6% 1.0%Mar-06 1,076 12.7% 1.4% 3,003 12.4% 0.8% 721 2.0% 1.3% 796 14.4% 1.7% 5,597 11.3% 1.1%Apr-06 1,095 13.1% 1.7% 3,034 12.1% 1.0% 727 2.4% 0.8% 797 14.1% 0.1% 5,652 11.2% 1.0%

May-06 1,116 13.9% 2.0% 3,068 13.1% 1.1% 734 4.0% 1.0% 813 15.5% 2.0% 5,730 12.3% 1.4%Jun-06 1,124 14.3% 0.7% 3,105 13.0% 1.2% 727 3.0% (0.9%) 799 10.3% (1.7%) 5,755 11.5% 0.4%Jul-06 1,134 13.8% 0.9% 3,133 11.8% 0.9% 721 1.4% (0.8%) 808 12.0% 1.1% 5,796 10.8% 0.7%

Aug-06 1,157 15.6% 2.1% 3,155 10.6% 0.7% 725 1.3% 0.6% 810 10.3% 0.3% 5,847 10.2% 0.9%Sep-06 1,161 15.2% 0.4% 3,167 10.6% 0.4% 727 0.8% 0.3% 816 10.2% 0.7% 5,871 10.1% 0.4%Oct-06 1,175 15.3% 1.1% 3,303 14.6% 4.3% 738 2.6% 1.5% 791 5.5% (3.0%) 6,006 11.9% 2.3%Nov-06 1,180 15.0% 0.5% 3,321 14.6% 0.5% 737 3.5% (0.1%) 807 6.0% 2.0% 6,045 12.0% 0.6%Dec-06 1,188 14.6% 0.7% 3,358 14.8% 1.1% 743 4.9% 0.8% 817 3.6% 1.2% 6,106 11.9% 1.0%Jan-07 1,195 13.7% 0.6% 3,385 14.8% 0.8% 747 5.5% 0.5% 819 5.3% 0.3% 6,146 12.1% 0.6%Feb-07 1,208 13.8% 1.1% 3,422 14.8% 1.1% 750 5.3% 0.4% 834 6.5% 1.8% 6,214 12.2% 1.1%Mar-07 1,220 13.3% 1.0% 3,354 11.7% (2.0%) 747 3.6% (0.4%) 849 6.6% 1.7% 6,170 10.2% (0.7%)Apr-07 1,229 12.3% 0.8% 3,401 12.1% 1.4% 752 3.5% 0.7% 860 7.9% 1.3% 6,242 10.4% 1.2%

May-07 1,248 11.8% 1.5% 3,431 11.9% 0.9% 755 2.9% 0.4% 863 6.1% 0.3% 6,297 9.9% 0.9%Jun-07 1,266 12.6% 1.5% 3,452 11.2% 0.6% 764 5.1% 1.2% 845 5.8% (2.0%) 6,327 9.9% 0.5%Jul-07 1,284 13.2% 1.4% 3,461 10.5% 0.3% 772 7.1% 1.0% 871 7.8% 3.0% 6,388 10.2% 1.0%

Aug-07 1,310 13.2% 2.1% 3,499 10.9% 1.1% 774 6.8% 0.3% 896 10.7% 2.9% 6,479 10.8% 1.4%

Sep-07 1,356 16.8% 3.5% 3,508 10.8% 0.3% 783 7.7% 1.2% 916 12.3% 2.2% 6,563 11.8% 1.3%Oct-07 1,389 18.3% 2.4% 3,540 7.2% 0.9% 789 6.8% 0.7% 952 20.4% 4.0% 6,670 11.0% 1.6%Nov-07 1,408 19.3% 1.3% 3,562 7.3% 0.6% 796 8.0% 1.0% 985 22.1% 3.4% 6,751 11.7% 1.2%Dec-07 1,434 20.6% 1.8% 3,578 6.6% 0.4% 809 8.9% 1.6% 1,001 22.5% 1.6% 6,822 11.7% 1.1%Jan-08 1,449 21.3% 1.1% 3,595 6.2% 0.5% 813 8.8% 0.5% 1,048 27.9% 4.7% 6,905 12.4% 1.2%Feb-08 1,457 20.6% 0.5% 3,622 5.8% 0.8% 815 8.6% 0.2% 1,042 24.8% (0.6%) 6,935 11.6% 0.4%Mar-08 1,479 21.2% 1.5% 3,646 8.7% 0.7% 818 9.5% 0.4% 1,018 19.9% (2.3%) 6,961 12.8% 0.4%Apr-08 1,489 21.1% 0.7% 3,645 7.2% (0.0%) 824 9.5% 0.7% 949 10.3% (6.8%) 6,905 10.6% (0.8%)

May-08 1,494 19.7% 0.3% 3,639 6.1% (0.2%) 829 9.8% 0.6% 957 11.0% 0.9% 6,919 9.9% 0.2%Jun-08 1,555 22.8% 4.1% 3,635 5.3% (0.1%) 814 6.6% (1.7%) 942 11.5% (1.6%) 6,947 9.8% 0.4%Jul-08 1,514 17.9% (2.6%) 3,618 4.5% (0.5%) 840 8.8% 3.1% 948 8.9% 0.6% 6,920 8.3% (0.4%)

Aug-08 1,522 16.1% 0.5% 3,620 3.5% 0.1% 846 9.3% 0.7% 948 5.8% 0.1% 6,936 7.1% 0.2%Sep-08 1,539 13.5% 1.1% 3,658 4.3% 1.0% 853 9.0% 0.9% 990 8.1% 4.3% 7,039 7.3% 1.5%Oct-08 1,604 15.5% 4.2% 3,818 7.9% 4.4% 872 10.6% 2.2% 966 1.4% (2.4%) 7,260 8.8% 3.1%Nov-08 1,600 13.7% (0.3%) 3,826 7.4% 0.2% 878 10.3% 0.7% 909 (7.7%) (5.9%) 7,213 6.9% (0.6%)Dec-08 1,619 12.9% 1.2% 3,820 6.8% (0.2%) 862 6.5% (1.9%) 954 (4.7%) 5.0% 7,255 6.4% 0.6%Jan-09 1,602 10.5% (1.1%) 3,803 5.8% (0.4%) 871 7.1% 1.1% 909 (13.3%) (4.8%) 7,185 4.1% (1.0%)Feb-09 1,587 8.9% (0.9%) 3,819 5.4% 0.4% 882 8.3% 1.3% 895 (14.0%) (1.5%) 7,183 3.6% (0.0%)Mar-09 1,564 5.7% (1.5%) 3,824 4.9% 0.1% 871 6.5% (1.3%) 872 (14.3%) (2.6%) 7,130 2.4% (0.7%)Apr-09 1,545 3.8% (1.2%) 3,834 5.2% 0.3% 860 4.4% (1.3%) 848 (10.6%) (2.7%) 7,086 2.6% (0.6%)

May-09 1,525 2.1% (1.3%) 3,876 6.5% 1.1% 858 3.6% (0.2%) 869 (9.3%) 2.4% 7,127 3.0% 0.6%Jun-09 1,499 (3.6%) (1.7%) 3,863 6.3% (0.3%) 856 5.1% (0.2%) 849 (9.9%) (2.2%) 7,067 1.7% (0.8%)Jul-09 1,483 (2.1%) (1.1%) 3,847 6.3% (0.4%) 853 1.5% (0.4%) 799 (15.7%) (5.9%) 6,982 0.9% (1.2%)

Aug-09 1,451 (4.7%) (2.2%) 3,826 5.7% (0.6%) 851 0.5% (0.2%) 780 (17.8%) (2.4%) 6,907 (0.4%) (1.1%)Sep-09 1,415 (8.1%) (2.5%) 3,782 3.4% (1.1%) 848 (0.6%) (0.3%) 768 (22.4%) (1.5%) 6,813 (3.2%) (1.4%)Oct-09 1,384 (13.7%) (2.2%) 3,756 (1.6%) (0.7%) 847 (2.9%) (0.2%) 754 (21.9%) (1.8%) 6,741 (7.2%) (1.1%)Nov-09 1,366 (14.6%) (1.3%) 3,822 (0.1%) 1.8% 842 (4.1%) (0.5%) 763 (16.1%) 1.1% 6,793 (5.8%) 0.8%Dec-09 1,343 (17.0%) (1.7%) 3,807 (0.3%) (0.4%) 833 (3.4%) (1.1%) 755 (20.9%) (1.0%) 6,738 (7.1%) (0.8%)Jan-10 1,318 (17.7%) (1.9%) 3,777 (0.7%) (0.8%) 817 (6.3%) (1.9%) 752 (17.3%) (0.4%) 6,664 (7.2%) (1.1%)Feb-10 1,301 (18.0%) (1.3%) 3,726 (2.4%) (1.4%) 812 (7.9%) (0.5%) 747 (16.6%) (0.7%) 6,586 (8.3%) (1.2%)Mar-10 1,289 (17.6%) (0.9%) 3,727 (2.5%) 0.0% 803 (7.8%) (1.2%) 759 (13.0%) 1.6% 6,578 (7.8%) (0.1%)

C&I Loans Real Estate Loans Consumer Loans Total Loans and LeasesOther

Source: Federal Reserve and Oppenheimer & Co. Inc.

Spreads & Margins: Outlook Still BenignExhibit 8 shows our key indicators for net interest margins. Overall we expect stable

margins for the companies in our coverage. On the positive side, we estimate that loan

and core deposit pricing trends remained favorable. Note in particular that the credit card

master trust NIM has continued to increase. While this was driven by actions to offset the

effects of the card act, it does demonstrate the banks pricing flexibility. On the adverse

side, the securities portfolios that a number of banks put on at wide spreads in late 2008

and early 2009 are coming down by either sale or run-off, and the adverse trends in loanvolumes will likely pressure net interest income. Overall, between the run-off trend in

loans and a flattish trend in margins, we expect there to be modest pressure on net

interest income.



11/52

Exhibit 8. Net Interest Spread Indicators

Quarter

5-Yr to 3

mo. U.S. T Prime - LIBOR

Master Trust

Average NIM

Avg NIM of

Opco-covered

banks

1Q07 -0.37% 2.89% 14.63% 2.96%2Q07 0.00% 3.06% 14.43% 2.90%

3Q07 0.21% 2.82% 14.57% 2.90%

4Q07 0.42% 2.50% 15.63% 2.94%

1Q08 0.71% 3.00% 15.30% 3.06%

2Q08 1.55% 2.41% 15.03% 3.16%

3Q08 1.66% 2.14% 14.70% 3.24%

4Q08 1.89% 1.32% 14.35% 3.49%

1Q09 1.57% 2.03% 15.25% 3.46%

2Q09 2.07% 2.40% 15.68% 3.37%

3Q09 2.31% 2.81% 18.33% 3.33%

4Q09 2.24% 2.98% 19.74% 3.29%

1Q10 2.30% 3.00% 20.17%1

Note:(1) Average of Jan and Feb data from AXP, BAC, C, COF, DFS, JPM

Spread Data

Source: Bloomberg, Federal Reserve, company reports, and Oppenheimer & Co. Inc.

Credit Quality Indicators: Still Encouraging Signsvs. Early Delinquencies but Losses to Remain HighOur chief indicator of the trend in consumer credit quality is the monthly credit card master

trust data (Exhibit 9). The data for February show that while the charge-offs remain

stubbornly highflattish on a dollar basis and up slightly as a percentage of loans basis

because of the adverse denominator effect caused by shrinking portfoliosthe early

delinquencies continue to improve.

On a core basis (i.e., excluding the lagged effect of a July 2009 payment holiday on

credit card loans), net charge-offs increased from 9.85% in January to 10.06% in

February, but the total dollars of loss actually declined, from $2,480 million to $2,263

million. The decline is due mainly to the fact that there are three less days in February

than January, but the total dollars of loss would have been roughly flat.



12/52

12

Exhibit 9. Estimated Master Trust Net Credit Losses ($ in Millions)Avg. Jan-Feb Change (bps)

3Q09 4Q09 July August September October November December J anuary February 1Q10E M/M Q/Q Y/YAXP 8.52% 7.27% 8.92% 8.48% 8.15% 7.36% 7.51% 6.94% 6.77% 7.81% 7.29% 103.2 2.0 (150.2)BAC 14.20% 13.25% 13.81% 14.54% 14.25% 13.22% 13.00% 13.53% 13.25% 13.51% 13.38% 26.0 13.0 441.0

COF 8.75% 8.68% 8.87% 8.67% 8.72% 8.07% 8.68% 9.28% 9.77% 9.43% 9.60% (34.0) 92.3 254.0C 10.77% 9.55% 10.03% 12.14% 10.15% 8.79% 10.29% 9.56% 9.80% 11.29% 10.55% 149.0 99.8 196.0

JPM 8.26% 7.98% 7.92% 8.73% 8.12% 8.02% 8.81% 7.11% 10.91% 9.21% 10.06% (170.0) 208.0 286.0

DFS 8.76% 8.73% 8.43% 9.16% 8.69% 8.54% 8.98% 8.68% 8.58% 9.11% 8.85% 53.0 11.2 196.0Average 9.88% 9.24% 9.66% 10.29% 9.68% 9.00% 9.54% 9.18% 9.85% 10.06% 9.95% 21.2 71.1 203.8

- NCLs

Est. Change (bps)3Q09 4Q09 July August September October November December January February 1Q10E M/M Q/Q Y/Y

AXP 4.19% 3.87% 4.31% 4.12% 4.19% 4.25% 4.15% 3.87% 3.82% 3.80% 3.80% (1.8) (7.3) (139.2)BAC MBNA 7.53% 7.44% 7.58% 7.47% 7.53% 7.59% 7.69% 7.44% 7.35% 7.23% 7.23% (12.0) (21.0) (58.0)COF 6.00% 6.46% 5.43% 5.70% 6.00% 6.38% 6.56% 6.46% 6.40% 6.17% 6.17% (23.4) (29.0) 54.0C 5.50% 5.62% 5.51% 5.38% 5.50% 5.67% 5.81% 5.62% 5.75% 5.94% 5.94% 19.0 32.0 34.0JPM 4.69% 4.94% 4.16% 4.48% 4.69% 4.95% 4.90% 4.94% 4.75% 4.67% 4.67% (8.0) (27.0) 6.0DFS 5.57% 5.49% 5.28% 5.35% 5.57% 5.72% 5.65% 5.49% 5.55% 5.50% 5.50% (5.0) 1.0 (2.0)Average 5.58% 5.64% 5.38% 5.42% 5.58% 5.76% 5.79% 5.64% 5.60% 5.55% 5.55% (5.2) (8.6) ( 17.5)

Total Delinquencies (30D+)

Est. Change (bps)3Q09 4Q09 Jul Aug Sep Oct Nov Dec Jan Feb 1Q10E M/M Q/Q Y/Y

AXP 1.21% 0.99% 1.13% 1.16% 1.21% 1.24% 1.10% 0.99% 0.97% 1.00% 1.00% 2.8 0.2 (33.5)

BAC MBNA 2.01% 1.80% 1.87% 1.95% 2.01% 1.95% 1.97% 1.80% 1.71% 1.69% 1.69% (2.0) (11.0) (55.0)COF 1.63% 1.50% 1.40% 1.62% 1.63% 1.67% 1.62% 1.50% 1.50% 1.36% 1.36% (14.1) (14.0) (9.0)C 1.56% 1.46% 1.43% 1.49% 1.56% 1.58% 1.57% 1.46% 1.45% 1.56% 1.56% 11.0 10.0 3.0JPM 1.33% 1.13% 0.83% 1.50% 1.33% 1.39% 1.23% 1.13% 1.12% 1.09% 1.09% (3.0) (4.0) (15.0)DFS 1.57% 1.39% 1.38% 1.52% 1.57% 1.56% 1.47% 1.39% 1.37% 1.35% 1.35% (2.0) (4.0) (15.0)Average 1.55% 1.38% 1.34% 1.54% 1.55% 1.56% 1.49% 1.38% 1.35% 1.34% 1.34% (1.2) (3.8) ( 20.7)

30D Delinquencies (30-59 days)

QTRized Change

3Q09 4Q09 July August September October November December January February 1Q10E M/M Q/QAXP 736 630 251 251 234 216 212 202 204 198 613 (5.5) (17.7)COF 1,957 1,860 683 625 648 595 603 662 644 583 1,872 (60.3) 11.5C 2,067 1,840 649 784 633 574 646 620 640 641 1,953 1.3 113.6JPM 1,764 1,748 529 640 596 583 647 518 800 650 2,211 (150.3) 463.6DFS 572 585 182 191 198 189 202 195 193 191 586 (1.8) 0.7Total 7,096 6,663 2,295 2,491 2,310 2,158 2,309 2,196 2,480 2,263 7,235 (216.6) 571.7

NCLs

Est. Change

3Q09 4Q09 July August September October November December January February 1Q10E M/M Q/Q

AXP 1,467 1,374 1,552 1,480 1,467 1,469 1,424 1,374 1,309 1,257 1,257 (51.8) (116.3)COF 5,730 5,851 5,470 5,625 5,730 5,776 5,844 5,851 5,673 5,078 5,078 (594.6) (772.6)C 4,174 4,407 4,212 4,106 4,174 4,369 4,422 4,407 4,364 4,319 4,319 (44.9) (88.7)

JPM 3,957 4,316 3,393 3,716 3,957 4,155 4,254 4,316 3,989 3,797 3,797 (192.4) (519.3)DFS 2,044 2,061 1,985 2,003 2,044 2,076 2,069 2,061 2,011 1,920 1,920 (90.1) (140.3)Total 17,371 18,009 16,612 16,929 17,371 17,846 18,013 18,009 17,345 16,371 16,371 (973.9) (1,637.2)

Total Delinquencies (30D+)

Source: Company Reports and Oppenheimer & Co. Inc.

However, the rate of early delinquencies declined another basis point, to 1.34%. It was

the fourth consecutive decline since the 1.56% high in October and in dollar terms was

down more than 18% from the peak.

Another good early indicator of credit quality trends is the trend in initial unemployment

claims (Exhibits 10-11). The trend between the net inflow of net new problems into the

banking system and initial unemployment claims is very tightly correlated. The furtherdowntick in initial unemployment claims in the first quarter thus far bodes well for a

continuation of the recovery in asset quality trends that became visible in the fourth

quarter



13/52

Exhibit 10. SCAP Bank Net New Problems vs. Initial Unemployment Claims

100,000

200,000

300,000

400,000500,000

600,000

700,000

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q091Q10

0

10,000

20,000

30,00040,000

50,000

60,000

Quarterly Avg Initial Claims (LHS) NNPs (RHS)

Source: Company Reports, Bureau of Labor Statistics and Oppenheimer & Co. Inc.

Exhibit 11. Initial Unemployment Claims/# of Insured Participants vs. NNP

0.000%

0.100%

0.200%

0.300%

0.400%

0.500%

2Q88

3Q89

4Q90

1Q92

2Q93

3Q94

4Q95

1Q97

2Q98

3Q99

4Q00

1Q02

2Q03

3Q04

4Q05

1Q07

2Q08

3Q09

-2.0%

-1.0%0.0%

1.0%

2.0%

3.0%4.0%

5.0%

6.0%

Initial Claims to Insured Participants (LHS) Net New Problems (RHS)

Source: Federal Reserve; Bureau of Labor Statistics and Oppenheimer & Co. Inc.

Re-Regulation and the 1000 CutsWe have argued in a recent report (see Increased Supervision and Regulation,

December 7, 2009) that the likely forthcoming increase in regulatory burdens will generally

be passed through to customers, particularly over time. We still hold to that view, and a

number of bank executives have discussed at various conferences what they think will be

the likely impact of specific restrictions posed by the card act and reforms of overdraft

fees. In addition we have shown other revenue drags caused by various initiatives and

market conditions, like the drag from mortgage put-back costs related to representations

and warrantees in the origination process. We summarize these as well as some other

revenue pressures in Exhibit 12. The fear is that while no one of these drags is a show

stopper in itself, in aggregate the burden adds up.



14/52

14

Exhibit 12. Disclosed and Estimated Pre-Tax Revenue Hits in 2010, by Company

$s in millions BAC C JPM USB WFCCard Act $450 - $750 $769 - $1,154 $80 - $100 $350 - $375

Overdraft Reform $750 - $775 $750 - $775 $200 - $300 $750 - $775

Reduction in Home Lending Portfolio $1,000

Est. Reduction in Corporate Income $1,500OPCO Est. Reps and Warranties Expense $1,990 $481 $1,536 $1,000

Total Annual Neg Revenue Impact $2 ,740 - $2,765 $931 - $1 ,231 $5,555 - $5,965 $280 - $400 $2,100 - $2,150

Source: Company Reports and Oppenheimer & Co. Inc. EstimatesNote: BAC Overdraft Reform impact is estimated by Opco.

There should be no doubt about the fact there is likely to be pressure on bank revenues in

2010. That, however, is not new or unexpected and we continue to believe that improving

credit quality should be sufficient to permit bank stocks to outperform the broader market

in 2010. As discussed below, we have for some been modeling revenue declines for

2010. Moreover, it should be noted that not all these factors are incremental revenue

declines. While we have largely incorporated these potential revenue marks into our

models, the reps and warrantees expense, for example, were already running at an

elevated level in 2009 and we expect that the incremental cost in 2010 will be substantially

less than what is shown in Exhibit 12. Moreover, the impact of reforms like the card actand overdraft fees will likely be offset by other actionshigher up-front fees, higher up-

front rates and tighter underwriting standards being the most likely. Thus, our expectation

is that there will be some pressure on revenues and pre-provision earnings; however, we

do not see this as drastic or discontinuous. If nothing else, pressure on revenues would be

in part offset by reductions in compensation and other expenses. In the long run there is,

of course, no substitute for economic recovery and the ultimate resumption of loan growth



15/52

The Big PictureOur Composite ModelOur composite earnings model (Exhibit 13) shows that in 2010 we expect a roughly 4%

decline in revenues and a 6% decline in pre-provision earnings. The chief difference from

our prior model is that loan volumes are now modeled to shrink 2% in 1Q rather than 1%

previously and that fee income is somewhat less than we had previously modeled

because of lower investment banking and mortgage banking fees. That said, the big year-

over-year delta in our earnings estimates for the next 12-18 months will clearly come

mainly from the credit costs line. We model the swing in credit costs between 2009 and

2011 at nearly $85 billion. While one clearly wants to see loan and revenue growth again

as soon as possible, clearly the swing in credit costs will drown out all other factors.



16/52


17/52

Normalized EarningsBecause our estimates for pre-provision earnings have been relatively stable, we have

only minor changes in our normalized earnings outlook in this quarterly preview. We

would note that bank charge-offs historically follow a symmetrical pattern and that if this

pattern persists in the current cycle, the banks should reach normalized charge-offs by2012. Note how in our composite model, the 2010 charge-offs are roughly in line with

2009, and 2011 with 2008 and thus by 2012 one should be looking at something similar to

2007. Thus, if we assume that normalized earnings are reached in late 2012 and that a

normal valuation level is reached at the same time, it shows that for BAC, JPM and WFC,

a 19% to 23% IRR to shareholders can be extrapolated (Exhibit 14). We believe that

these are reasonably conservative targets. They do not include anything for dividends or

share repurchases that might occur by then, and two and three-quarters years is a long

time for those things to develop.

Exhibit 14. OPCO Updated Normalized Earnings Analysis

Normalized Earnings ($s in Millions) BAC JPM WFC USB C

2010E PPE 45,236 45,287 39,063 8,916 28,1022010E Avg loans 879,408 618,877 765,226 197,579 603,177

Historic NCO/Avg loans 0.83% 1.01% 0.73% 0.78% 1.60%

Est NCOs (7,277) (6,227) (5,605) (1,534) (9,651)

Pre-tax earnings 37,959 39,060 33,458 7,382 18,451

Avg Historical Tax Rate (2001-2007) -31.69% -31.77% -34.05% -32.74% -31.14%

Taxes (12,028) (12,411) (11,391) (2,417) (5,746)

Net income 25,931 26,649 22,067 4,965 12,705

Pref dividends + Other (1,050) (1,304) (660) (80) (24)

Shares (M) 10,029 3,959 5,244 1,917 30,119

Normalized EPS $2.48 $6.40 $4.08 $2.55 $0.42

Valuation BAC JPM WFC USB C

Price $16.90 $43.62 $30.44 $26.34 $4.05"Normalized" EPS $2.48 $6.40 $4.08 $2.55 $0.42

P/"Normalized" EPS 6.8x 6.8x 7.5x 10.3x 9.6x

"Old" 2010 PPE 46,529 45,754 39,546 8,825 28,102

% Change -2.8% -1.0% -1.2% 1.0% 0.0%

"Old" Normalized EPS (2/17/2010) $2.56 $6.46 $4.13 $2.52 $0.42

% Change -3.1% -0.9% -1.1% 1.3% 0.0%

Fair Value Calculation BAC JPM WFC USB C

Normalized EPS $2.48 $6.40 $4.08 $2.55 $0.42

Average Historic P/E Multiple 12 12 12 12 12

Implied Value Using Normalized EPS $29.77 $76.82 $48.99 $30.58 $5.05

Discounted Rate ( 20% for 2 years) 1.44 1.44 1.44 1.44 1.44

Implied FV Using Normalized EPS $20.67 $53.35 $34.02 $21.23 $3.51

Implied IRR assuming FV @ 12/31/12 22.6% 22.6% 18.7% 5.5% 8.3%


NOTE: Implied FV equals our official 12- to 18-month price target for BAC, JPM, and WFC. It is merely suggestive for USB and C, for whichwe do not have official price targets. See Price Target Calculation at the back of this report.



18/52

18

Bank of AmericaWe are trimming our 1Q2010 earnings estimate for Bank of America from $0.11 to $0.08

and our full-year EPS estimate from $0.69 to $0.63. Our longer term view of normalized

earnings (Exhibit 14), however, is relatively unchanged at $2.48 versus our prior estimate

of $2.56. The main reason for the 2010 reduction is a lower estimate of investment

banking, brokerage and mortgage banking income. As noted in our industry review, we

are pushing our timeline for the resumption of industry loan growth one quarter to the right

(i.e., flat volumes between June 30 and September 30 now and 0.5% growth in 4Q2010)

but this had only a minor impact on the numbers. BAC will also be impacted by changes

in the card act and changes on overdraft fees, but we believe that we had largely reflected

this previously with very sluggish fee income assumptions. We believe in any case that

these changes will over time be offset by other actions.

It should be noted that when the numbers are reported, they will in any case be distorted

by FAS 167, which will result in bringing back to the balance sheet securitized

receivables (mainly cards). The change is of no economic substance, as it effectively

requires companies to report on a managed basis. However, it will distort all the line

item comparisons with the prior models: net interest income, margin, fee income, credit

losses and loan loss provision will all be changed. In addition, we estimate that BACs

stated tangible book value will go down by $0.69 as a result of the $10.7B (pre-tax, or

$6.96B after taxes) in reserves that need to be put up against the receivables that go back

on the balance sheet.

We continue to think the stock is attractive and that it affords investors one of the more

leveraged ways to participate in the credit recovery that we expect in the coming two or

three years.

Exhibit 15. Financial Highlights, Bank of America($ in millions except per share data and where specified otherwise)

Estimate Mean Opco Est.

1Q09 4Q09 1Q10 Y/Y Q/Q Opco Est. Consensus less Cons.

Net Interest Revenue 12,497 11,559 11,323 (9%) (2%) 11,323 12,362 (1,039)Total Non-Interest Revenues 23,261 13,517 14,899 (36%) 10% 14,899 15,657 (758)Total Revenues 35,758 25,076 26,222 (27%) 5% 26,222 28,019 (1,797)

Compensation Expense 8,768 7,357 7,604 (13%) 3% 7,604Other Expenses 7,469 8,495 8,000 7% (6%) 8,000

Total Exp. 17,002 16,385 15,604 (8%) (5%) 15,604 15,844 (240)Core Earnings Before LLP 8,990 6,507 6,143 (32%) (6%) 6,143

Total Pre-Provision Earnings 18,756 8,691 10,618 (43%) 22% 10,618 12,175 (1,557)LL Provision 13,380 10,110 9,023 (33%) (11%) 9,023 10,360 (1,337)Pretax Net 5,376 (1,419) 1,595 (70%) 212% 1,595 1,705 (110)

Net Income 4,247 (194) 1,069 (75%) 651% 1,069 1,028 41

EPS 0.44$ (0.60)$ 0.08$ (82%) 113% 0.08$ 0.09$ (0.01)$Book Value 25.98$ 21.48$ 21.57$ (17%) 0% 21.57$BV Excl. Goodwill/Other Intangibles 10.88$ 11.94$ 12.01$ 10% 1% 12.01$

Non-Interest Revenue

Securities Gains 1,498 1,039 - (100%) (100%) -Eq. Gains 1,202 2,026 625 (48%) (69%) 625

Trading 5,201 1,475 3,750 (28%) 154% 3,750 2,672 1,078Service Charges 2,533 2,756 2,756 9% 0% 2,756

Inv & Brokerage 2,963 3,014 2,836 (4%) (6%) 2,836Investment Banking 1,055 1,596 1,200 14% (25%) 1,200

Mortgage Banking 3,314 1,652 1,600 (52%) (3%) 1,600Card Income 2,865 1,782 2,032 (29%) 14% 2,032Other 2,630 (1,823) 100 (96%) 105% 100

Total Non-Interest Revenue 23,261 13,517 14,899 (36%) 10% 14,899

Category

Change 1Q10E




19/52

CitigroupWe made no significant changes to our Citi model and we continue to expect that the

company will be hovering near breakeven this year. As previously noted, we expect both

pre-provision earnings and net charge-offs to be in the $7.0-$7.5 billion range. However,

because of the effect of FAS 167 in bringing credit card receivables back onto the balance

sheet, we would expect the reported numbers to be about $1.7 billion higher on both

counts, but that this will be pretty much fully offsetting.

While we have no real basis for changing our estimates based on any of the visible trends

or public disclosures, we would note that like for many of the other companies we cover,

for Citigroup the big swing factor in the quarter will be the Institutional Client business, and

in particular fixed income trading. Fixed income trading could easily be several hundred

million on either side of our estimate, perhaps more, and this difference will be the

difference between a small profit or a small loss. Given the great confidence with which

CEO Pandit set out a 125-150 basis point ROA goal at the companys March 11 investor

conference, it seems likely that he was feeling sanguine about prospects for the quarter,

and thus we would suspect that there is more room for an upside surprise than for a

downside surprise, but that is just a suspicion and not rooted in observable fact.

Overall, we continue to believe that C is fairly valued at roughly tangible book given its

present circumstances. It is cheaper on a price to tangible book than the three other

mega banks, but we believe that this discount is fair inasmuch as the company still has

nearly 30% of its assets up for disposition and that as long as the government maintains

its common equity ownership stake there is always heightened risk that it will be political

logic rather than business logic that drives some key decisions.

Exhibit 16. Financial Highlights, CitigroupEstimate Mean Opco Est.

1Q09 4Q09 1Q10E Y/Y Q/Q Opco Est. Consensus less Cons.

Net Interest Revenue 12,926 11,161 10,772 (17%) (3%) 10,772 11,224 (451Total Non-Interest Revenues 10,840 (6,513) 7,529 (31%) 216% 7,529 9,695 (2,166

Total Revenues 24,189 5,111 18,747 (22%) 267% 18,747 20,919 (2,171Compensation Expense 6,235 6,257 6,093 (2%) (3%) 6,093

Non-Compensation Expense 5,700 6,057 5,688 (0%) (6%) 5,688 12,123 (6,435

Pre-Provision Earnings ex Market Sensitive 11,922 5,163 7,413 (38%) 44% 7,413

Total Pre-Provision Earnings 12,504 (7,203) 6,967 (44%) 197% 6,967 8,796 (1,829Credit Loss Provision 9,975 7,890 7,552 (24%) (4%) 7,552 8,689 (1,137

Pretax Net 2,529 (15,093) (585) (123%) 96% (585) 512 (1,097

Income from continuing ops 1,694 (7,740) (386) (123%) 95% (386)

Net Income available to common (966) (7,766) (392) 59% 95% (392) 728 (1,121

EPS from con tinuing ops (ex min . interes t) (0.16)$ (0.34)$ (0.01)$ 92% 96% (0.01)$ (0.00)$ (0.01)$EPS available to common shareholders (0.18)$ (0.33)$ (0.01)$ 93% 96% (0.01)$

Book Value 12.64$ 5.35$ 5.13$ (59%) (4%) 5.13$Tangible Book Value 5.38$ 4.15$ 3.73$ (31%) (10%) 3.73$

Non-Interest RevenueInvestment Gains 9 (435) - (100%) 100% -

Prin Trans 3,670 (1,831) 2,000 (46%) 209% 2,000Comm & Fees 4,168 4,293 4,279 3% (0%) 4,279

Admin & Fiduciary 1,606 1,032 1,250 (22%) 21% 1,250

Other 2,432 528 - (100%) (100%) -

One Time Gains (1,045) (10,100) - 100% 100% -Total Non-Interest Revenue 10,840 (6,513) 7,529 (31%) 216% 7,529

Category

Change 1Q10E




20/52

20

JPMorgan

We are trimming our 1Q2010 earnings estimate from $0.79 to $0.70 and our full-year

estimate from $3.31 to $3.19 because of weaker than expected investment banking fees

in the first quarter and somewhat lower fee income throughout the year given the

companys cautionary comments during their analyst day. However, it is important to

stress that we view these changes as fairly trivial and that they do not impact our longer

term earnings outlook. It must be remembered that this company easily has $6.00-$6.50

earnings power with a normal loan loss provision and that if it were earning at a $1.50

per share per quarter rate one would expect that the quarterly fluctuation would easily be

+/- $0.25 given the normal fluctuations of the wholesale banking and securities

businesses.

JPMs stock has been a real laggard so far this yearup only 7%, versus 13% for BAC,

14% for WFC and 21% for the BKXfor reasons that are not apparent and thus it is our

favorite in the large cap bank group at this juncture. As shown in our normalized earnings

analysis in Exhibit 14, we estimate that the stock could generate a 23% IRR between nowand 2012, tied for the best in our group. At the same time we view JPM as having a lower

risk profile than the others because of its relatively strong capital, asset quality and diverse

base of profitable businesses. In addition, as the best capitalized in the group, JPM

should have greater potential to add to these returns via dividends and share buybacks.

Exhibit 17. Financial Highlights, JP Morgan($ in millions except per share data and where specified otherwise)

Mean Opco Est.


Net Interest Revenue 13,367 12,378 11,696 (12%) (6%) 11,696 13,041 (1,344

Total Noninterest Income 11,658 10,786 12,305 6% 14% 12,305Total Revenues 25,025 23,164 24,002 (4%) 4% 24,002 25,555 (1,554

Compensation Expense 7,588 5,112 6,480 (15%) 27% 6,480Other (50) (231) (271) (443%) (17%) (271)

Total Exp. 13,373 12,004 12,880 (4%) 7% 12,880 13,065 (185

Pre-Provision Earn ings ex Market Sensit ive 8,655 9,941 7,996 (8%) (20%) 7,996Total Pre-Provision Earnings 11,652 11,160 11,121 (5%) (0%) 11,121 12,490 (1,369Credit Loss Provision 8,596 7,284 6,700 (22%) (8%) 6,700 7,858 (1,158

Pretax Net 3,056 3,876 4,421 45% 14% 4,421 4,323 98

Net Income 2,141 3,278 3,095 45% (6%) 3,095 2,788 307

EPS 0.40$ 0.74$ 0.70$ 72% (6%) 0.70$ 0.64$ 0.05$

Book Value 36.78$ 39.88$ 40.53$ 10% 2% 40.53$

Tangible Book Value 23.22$ 27.19$ 27.83$ 20% 2% 27.83$


IB Fees 1,386 1,916 1,500 8% (22%) 1,500

Trading Revenue 2,288 838 3,000 31% 258% 3,000 2,900 100

Lending & Deposit Fees 1,688 1,765 1,602 (5%) (9%) 1,602

Asset Management 2,897 3,361 3,500 21% 4% 3,500

Securities Gains 198 381 100 (49%) (74%) 100Mortg Fees & Related 598 450 500 (16%) 11% 500

Credit Card 1,837 1,844 1,807 (2%) (2%) 1,807Other 50 231 271 443% 17% 271

One Time Gains 716 - 25 NM #DIV/0! 25

Total Non-Interest Revenue 11,658 10,786 12,305 6% 14% 12,305

Category

Change 1Q10E




21/52

U.S. BancorpWe left our earnings model for USB essentially unchanged but for a minor, favorable

tweak on the compensation assumption for the quarter, but the basic picture is

unchanged. Pre-provision earnings should be a strong and stable $2.1 billion and this

should be well in advance of credit costs of about $1.3 billion. The company had indicated

at conferences during the quarter that it continued to see a decrease in the increase of

NPAs and NCOs and we are hopeful that given their history of setting expectations very,

very conservatively, one might actually see stable credit trends.

By comparison to industry peers, the stock is not cheap at 10.3X our normalized 2012

earnings estimate or at 3.7X tangible book value. As a play on normalizing earnings, USB

is just not the ideal vehicle because it never fell so deeply and has less to recover. But as

a play on an emerging growth theme within the industry, USB is much more interesting

because the company has been investing heavily in its payments and wholesale

businesses. The result of these investments has not yet been seen on the revenue line in

any significantly visible manner, but we expect it will be seen within a few quarters.

Exhibit 18. Financial Highlights, U.S. Bancorp($ in millions except per share data and where specified otherwise)

Mean Opco Est1Q09 4Q09 1Q10E Y/Y Q/Q Opco Est. onsensu less Cons

Net Interest Revenue 2,047 2,310 2,310 13% 0% 2,310 2,342 (32)

Total Non int. Revenues 1,788 2,016 2,132 19% 6% 2,132

Total Revenues 3,835 4,326 4,442 16% 3% 4,442 4,404 38

Compensation Expense 941 961 999 6% 4% 999Other Expenses 930 1,267 1,300 40% 3% 1,300

Total Expenses 1,871 2,228 2,299 23% 3% 2,299 2,237 63Pre-Provision Earnings ex Market Sensitive 2,070 2,256 2,142 3% (5%) 2,142

Total Earnings before LLP 1,964 2,098 2,142 9% 2% 2,142 2,168 (25)

LL Provision 1,318 1,388 1,312 (0%) (5%) 1,312 1,272 40Pretax Net 646 710 830 28% 17% 830 866 (36)

Net Income 545 602 639 17% 6% 639 655 (16)

EPS 0.24$ 0.30$ 0.32$ 36% 6% 0.32$ 0.29$ 0.04$

Book Value 10.96$ 12.79$ 13.06$ 19% 2% 13.06$Tangible Book Value 5.32$ 6.86$ 7.13$ 34% 4% 7.13$


Securities Gains (198) (158) - 100% 100% -

Fees 1,894 2,174 2,132 13% (2%) 2,132

One Time Gains 92 - - NM NM -Total Non-Interest Revenue 1,788 2,016 2,132 19% 6% 2,132

Category

Change 1Q10E




22/52

22

Wells FargoWe modestly shaved our 1Q2010 estimate to reflect lower than expected loan volumes as

well as a modest reserve build, but we believe that the fundamental trends toward a

recovery should remain visibly in place and that remains the key for the stock to continue

working. Wells mix of business is more typical of that of the regional banks than the othemega-banks that we cover, and thus it is reasonable to expect Wells to be somewhat

more exposed to the challenges that are particularly facing the regionals (volume-related

revenue pressures, low rate environmentrelated margin pressures and relatively greater

exposure to cyclically lagging commercial real estate losses) but on the other hand, 2010

should also be a year when we begin to see some contribution from Wachovia-related

merger synergies. Exactly when and how these become visible remains to be seen, but

we believe that the key benefits have yet to be realized.

Exhibit 19. Financial Highlights, Wells Fargo($ in millions except per share data and where specified otherwise)

Mean Opco Est.


Net Interest Revenue 11,376 11,500 11,487 1% (0%) 11,487 11,462 25

Noninterest Revenues 9,641 11,196 9,866 2% (12%) 9,866 10,169 (303)Total Revenues 21,017 22,696 21,354 2% (6%) 21,354 21,632 (278)

Compensation Expense 5,210 6,735 6,385 23% (5%) 6,385Other Expenses 6,608 5,825 5,425 (18%) (7%) 5,425

Total Exp. 11,818 12,821 11,810 (0%) (8%) 11,810 12,157 (347)Pre-Provision Earn ings ex Market Sensit ive 8,688 9,237 8,894 2% (4%) 8,894

Total Earnings Before LLP 9,199 9,875 9,544 4% (3%) 9,544 9,475 69LL Provision 4,558 5,913 5,663 24% (4%) 5,663 5,894 (231)

Pretax Net 4,641 3,962 3,881 (16%) (2%) 3,881 3,546 335Net Income 3,089 3,013 2,717 (12%) (10%) 2,717 2,189 528

EPS 0.56$ 0.08$ 0.49$ (13%) 492% 0.49$ 0.41$ 0.08$

Book Value 16.28$ 20.03$ 20.47$ 26% 2% 20.47$BV Ex-Goodwill 9.67$ 14.88$ 15.32$ 58% 3% 15.32$

Non-Interest RevenueSecurities Gains (119) 110 - 100% (100%) -

Eq. Gains (157) 273 - 100% (100%) -

Mortgage Banking 2,504 3,411 2,000 (20%) (41%) 1,500Other Fees 5,944 6,459 6,588 11% 2% 6,471Trading 787 516 650 NA 26% 622

Other 682 427 628 (8%) 47% 760One Time Gains - - - NA 2,113

Total Non-Interest Revenue 9,641 11,196 9,866 2% (12%) 11,466

Category

Change 1Q10E




23/52

Goldman Sachs

We are leaving our GS estimates essentially unchanged although we did tweak our model

to reflect lower investment banking and equity revenue but have this offset with lower

compensation payouts and somewhat better than previously modeled FICC trading

revenues. All these revenue items will, of course, bump around from quarter to quarter,but we believe that Goldmans ultimate trump cards are its breadth and depth in making

fixed income markets globally and the incredible flexibility created by its discipline in

managing the compensation to revenues ratio. Our $19 earnings estimate for this year

equates to a 16% return on tangible equity for the year, well below the companys 20%

long-term goal, and barring any serious disruption in the underlying recovery in markets

globally, we have a hard time imagining the company to manage to any substantially lowe

number than that.

The stock has been on a wild ride this quarter, mainly on political concerns ($178 on Jan 7

to $148 on Jan 29 to $178 on March 19what was it all about?) but we continue to

recommend the stock, based on three key assumptions:

1. That the underlying demand for wholesale investment banking and trading is likely toremain favorable for the time being: Corporate balance sheets the world over have

major ongoing capital needs, there is pent-up demand in M&A activity, and the

markets need dealers that can make broad and deep markets at a time when risk

capital has been taken off many trading desks worldwide.

2. That Goldman is one of the better if not the best positioned firms to take advantage of

this.

3. That political and regulatory authorities will ultimately recognize that the markets are

better served by stronger rather than weaker institutions and the most important

substance of re-regulation will be hashed out in a co-coordinated, global effort by

professional regulators who will seek to maintain a level playing fieldin which

Goldman will likely thrive.

If one believes these key assumptions, GS stock is fairly easy to recommend. At 9.0X our

2010 earnings estimate, it is the cheapest in our universe and looks cheap in absolute

terms. The companys relative performance during the financial crisis alone would justify

a premium to the group.

Exhibit 20. Financial Highlights, Goldman Sachs($ in millions except per share data and where specified otherwise)

Mean Opco Est.1Q09 4Q09 1Q10E Y/Y Q/Q Consensus less Cons.

Consolidated

Total Consolidated Net Revenues 9,425 9,615 10,800 15% 12% 11,240 (440)

Compensation Expense 4,712 (519) 5,022 7% 1068%

Non-Compensation Expense 2,084 2,107 2,060 (1%) (2%)

Pre-tax Net Earnings 2,629 7,377 3,718 41% (50%) 4,088 (369)

Net earnings 1,814 4,948 2,529 39% (49%)Net earnings applicable to common

shareholders 1,659 4,787 2,369 43% (51%) 2,558 (189)

EPS (Diluted) 3.39$ 8.20$ 4.06$ 20% (51%) 4.32$ (0.27)$

Return on average common equity (ROAE) 14% 31.4% 14.6% 5% (53%)

Book value per share 98.82$ 117.48$ 121.47$ 23% 3%

Tangible book value per share 88.02$ 108.42$ 112.40$ 28% 4%

Business Segments

Total Investment Banking 823 1,635 1,225 49% (25%)

Total Trading & Principal Investments 7,150 6,412 7,875 10% 23%

Total Asset Management 949 1,125 1,075 13% (4%)

Securities Services 503 443 625 24% 41%

Total Consolidated Revenue 9,425 9,615 10,800 15% 12%

Category

Change

Source: Company reports, Factset, and Oppenheimer & Co. Inc.



24/52

24

Morgan Stanley

Morgan Stanleys earnings will probably be more adversely affected by this quarters

slowdown in equity markets and investment banking than most of its peers. Together,

commissions and investment banking fees accounted for 43% of revenues in the fourth

quarter and thus the slowdown in these activities will clearly be felt. We are trimming our

1Q estimate from $0.78 to $0.67 but generally not making significant changes beyond this

quarter, though there is a modest flowthrough effect on our 2011 estimates, which are

driven off the 2010 baseline. That said, these changes do not concern us meaningfully

because we view them as being well within the normal quarterly volatility in the investment

banking business.

We continue to view the stock as an exceptional value at just 9.4X our 2010 earnings

estimate and 1.4X tangible book value. While the company has yet to regain its full

footing after its near collapse in 2008, we have few doubts that it will do so, and fairly

quickly. The company has work to do to rebuild its fixed income trading franchise but that

is very clearly the epicenter of managements focus right now. They have announced

more than 400 additions to the trading departments, many of whom are in process or have

only recently been completed. The stocks valuation suggests that there are many

doubters that this buildout will be successful. However, this is not a greenfield build and

the company has a lot to build on. Morgan Stanleys investment banking operations

performed very well in the past year and we have always believed that strong origination

and trading go together. Moreover, we are very encouraged that new CEO James

Gorman has moved as quickly as he has to put his management team together and that

this will enable the company to move more rapidly from CEO transition phase to build

phase more rapidly than is commonly believed.

Exhibit 21. Financial Highlights, Morgan Stanley($ in millions except per share data and where specified otherwise)


Consolidated

Total Revenues 2,896 6,842 7,950 175% 16% 8,428 (478)

Compensation Expense 1,979 3,757 3,975 101% 6%Non-Compensation Expense 1,351 2,447 2,259 67% (8%)

Pretax income from con tinuing operations (634 ) 638 1,716 371% 169% 1,959 (243)

Net Income from continuing operations (37) 566 1,167 3253% 106%

Net income avai lable to common shareholders (578) 376 1,078 287% 187% 1,102 (23)

EPS (Diluted) (0.57)$ 0.29$ 0.67$ 217% 131% 0.69$ (0.02)$

Return on average common equity (ROAE) -8% 4.1% 11.5% 246% 182%

Book value per share 27.10$ 27.26$ 27.21$ 0% (0%)

Tangible book value per share 24.41$ 21.67$ 21.77$ (11%) 0%

Revenue Sources (on consolidated basis)

Investment Banking 873 1,673 1,400 60% (16%)

Total Reported Principal Transactions (57) 1,262 2,750 4925% 118%

Commissions 770 1,247 1,100 43% (12%)

Asset management 866 1,974 2,000 131% 1%

Net Interest Income 197 612 400 103% (35%)

Category

Change




25/52

Jefferies

We began this report by noting that the equity and M&A businesses in the first quarter

would likely be the most challenged. That should in theory make Jefferies the most

vulnerable to a negative earnings surprise among the companies in our coverage, since

each of these businesses contributed about 22% of revenues in 2009. Jefferies simply

has a bigger exposure to the most challenged segments of the industry this quarter.

As a result we are trimming our estimate for the quarter; however, we are not changing

our forward assumptions. JEF has generally had positive surprises in the past year

caused by market share gains in fixed income trading and we not would rule that out

again. However, the platform that is now in place has generally been in place for the past

three quarters (though there were many fill in hires) and thus one shouldnt expect

another quantum leap like the one we saw last year.

Overall, we would look to any weakness caused by a possible miss in earnings as a

buying opportunity. Our only serious complaint with the stock is valuation at 2.6X tangible

book and 16.5X our 2010 earnings estimate.

Exhibit 22. Financial Highlights, Jefferies($ in millions except per share data and where specified otherwise)


Consolidated

Net Revenue 342 538 565 65% 5% 591 (26)Total Net Revenues (excl. MandatorilyRedeemable Preferred Interest) 347 532 555 60% 4%

Compensation Expense 213 239 319 49% 33%Non-Compensation Expense 85 123 123 45% (0%)

Pre- tax earn ings ( loss) before minor ity in teres t 49 169 114 131% (33%) 133 (20)Net Income (Loss) 38 94 72 87% (24%) 75 (3)

Diluted EPS 0.19$ 0.47$ 0.35$ 85% (25%) 0.37$ (0.02)$

Pro forma BVPS 10.48$ 11.96$ 11.88$ 13% (1%)Pro forma tangible BVPS 8.59$ 9.75$ 10.04$ 17% 3%

Financial RatiosPretax operating margin 14.2% 31.8% 20.4% 44% (36%)Return on common equity 7.3% 17.1% 12.6% 72% (26%)

Compensation / Net Revenues 61.4% 45.0% 57.4% (7%) 28%Cost Efficiency Ratio 85.8% 68.2% 79.6% (7%) 17%

Tax Rate (34.1%) (40.7%) (37.0%) (9%) 9%

Revenue by Source

Equities 120 107 110 (8%) 3%

Fixed Income & Commodities 203 185 245 20% 32%High Yield (25) 38 50 304% 33%

Investment Banking 37 194 150 304% (23%)Asset Management Fees 4 8 10 166% 18%

Income/(Loss) on Funds (4) 6 - 100% (100%)

Other 11 (7) (9) (179%) (36%)Total 347 532 555 60% 4%

Category

Change




26/52

26

Lazard

Lazard was our most significant estimate cut for the quarter because it is a pure play on

M&A activity and, as noted earlier, completed M&A was slow for the quarter. On a core

operating basis, we have lowered our 1Q estimate from $0.55 to $0.39, but we have not

significantly changed our outlook for the balance of the year. Recall that the reported

bottom line will be impacted by a previously disclosed $114 million charge related to

vesting of RSU for terminated personnel and an accounting policy change. These should

push the reported loss to about $0.28.

The key reason to own Lazards stock is still admittedly largely on the come rather than in

the here and now. While the asset management business has staged a robust recovery

(revenues up more than 60% year over year in 4Q09), the companys motive force

remains M&A activity. While, as we indicated in our industry review section earlier in this

report, we are encouraged by the revival of announced M&A activity in the past two

quarters, not enough of it closed to really make a difference this quarter.

Exhibit 23. Financial Highlights, Lazard($ in millions except per share data and where specified otherwise)


ConsolidatedNet Revenue 248 495 456 84% (8%) 448 8Compensation and benefits 204 469 291 43% (38%)Non-Compensation Expense 73 101 95 30% (6%)Pretax Operating Income (91) (222) (45) 50% 80% 19 (64)Income before noncontrolling interest in net income(loss) (87) (198) (34) 61% 83%Net income (loss) attributable to Lazard Ltd. (fully

exchanged basis) (86) (55) (34) 61% 38% 10 (44)

Net income per share on fully exchangeable basis(Diluted) (0.77)$ (0.46)$ (0.28)$ 63% 38% 0.44$ (0.73)$Book value per share 3.45$ 4.64$ 4.23$ 23% (9%)Tangible book value per share 0.80$ 0.83$ 0.42$ (47%) (49%)

Financial RatiosPre-Tax Margin (34%) (43%) (10%) 72% 77%Return on average common equity (ROAE) (143%) (56%) (41%) 71% 27%Compensation / Net Revenues 76% 90% 63% (18%) (31%)Cost Efficiency Ratio 111% 115% 85% (24%) (26%)Tax Rate (5%) (11%) (25%) (444%) (138%)

Revenue by Business Segments

Financial Advisory 163 314 290 77% (8%)Total Asset Management 103 204 175 70% (14%)

Total Core Revenue 266 518 465 74% (10%)

Corporate 6 (3) 13 93% 476%LAM GP Revenue/(Loss) (1) 4 2 287% (51%)Other Interest Expense (23) (24) (23) (0%) 1%

Total 248 495 456 84% (8%)

Category

Change




27/52

APPENDIX

Exhibit 24.Equity and Fixed Income Trading Volumes

Quarter NYSE Nasdaq FTSE 100 DAX CAC 40Nikkei225 Hang Seng T ot al Gov ern men t Agen cy

Mortgage-

BackedSecurities Corporate Total

2005Q1 96,451 120,686 99,853 6,359 5,838 53,139 20,519 402,845 552,628 79,690 251,558 169,885 1,053,7602005Q2 96,409 111,878 97,158 6,523 6,211 47,384 18,933 384,495 575,873 74,509 266,778 174,924 1,092,084

2005Q3 94,357 103,949 99,475 6,826 6,218 70,490 22,928 404,243 542,717 77,538 242,379 191,008 1,053,6432005Q4 101,730 109,614 106,034 6,254 6,153 99,919 19,485 449,189 538,962 82,132 243,245 198,625 1,062,9642006Q1 104,432 130,002 124,464 7,443 7,876 78,375 26,021 478,613 557,554 76,828 263,418 210,176 1,107,976

2006Q2 108,908 132,661 108,519 8,302 8,372 70,095 27,733 464,589 535,261 76,028 224,173 234,494 1,069,9552006Q3 96,058 115,489 89,834 7,106 6,696 64,262 24,555 403,999 508,603 72,231 250,670 228,610 1,060,1152006Q4 95,669 126,820 96,235 7,008 7,176 67,662 57,401 457,972 499,439 73,020 275,942 217,422 1,065,822

2007Q1 99,194 138,198 114,116 9,481 8,801 93,276 76,025 539,091 545,975 78,362 299,761 224,666 1,148,7632007Q2 99,040 137,742 122,519 9,243 8,081 80,833 93,462 550,919 523,538 71,639 335,980 247,491 1,178,6482007Q3 104,394 137,541 128,101 9,788 10,015 79,033 147,423 616,295 621,945 85,059 316,905 252,918 1,276,828

2007Q4 91,079 139,745 98,988 8,810 9,124 80,541 166,241 594,528 572,186 95,782 333,539 224,033 1,225,5392008Q1 105,285 148,706 96,697 12,135 12,035 88,520 159,260 622,639 665,202 121,099 406,182 219,043 1,411,5262008Q2 83,786 133,888 83,586 8,876 9,672 80,980 126,315 527,103 559,801 112,083 309,846 191,605 1,173,335

2008Q3 90,045 144,371 105,927 11,273 11,989 80,076 142,008 585,689 561,136 103,944 319,610 169,279 1,153,9692008Q4 97,532 149,024 89,675 12,866 12,507 97,812 170,055 629,471 435,101 84,171 329,872 168,349 1,017,4922009Q1 97,861 136,494 85,321 9,455 10,281 88,417 173,785 601,613 382,366 83,147 344,324 134,779 944,617

2009Q2 92,999 152,302 74,374 7,610 9,501 106,006 190,573 633,366 400,374 85,017 297,641 124,140 907,1722009Q3 79,826 143,606 67,062 6,438 8,829 89,034 125,287 520,082 417,756 74,593 267,344 121,769 881,4612009Q4 75,015 131,059 67,646 7,058 8,472 92,292 101,567 483,109 435,585 67,529 285,907 113,979 902,9992010Q1 59,222 124,535 65,818 6,918 7,745 78,435 94,349 437,022 459,699 71,245 321,931 119,312 972,187

Y/Y Change (39%) (9%) (23%) (27%) (25%) (11%) (46%) (27%) 20% (14%) (7%) (11%) 3%Q/Q Change (21%) (5%) (3%) (2%) (9%) (15%) (7%) (10%) 6% 6% 13% 5% 8%

Equity Trading Volume (in millions of shares)

U.S. Fixed Income Securities Average Daily

Trading Volume (in millions of $)

Source: Bloomberg and Oppenheimer & Co. Inc.



28/52


29/52


30/52


31/52

The Blackstone Group

Segment Earnings Model

$s in Millions (excl per share data and where specified)

Fiscal Year End 12/31

2008 2009 2010E 2011E 2012E 1Q09 2Q09 3Q09 4Q09 1Q10E

Real Estate

Average Fee Earning AUMs 21,018 23,426 23,847 25,635 33,838 22,746 23,218 23,816 23,847 23,8

Assumed Rate of Return 15.0% 15.0% 0.0

Assumed New Funds 0.0% 17.0% 0.0

Y/Y growth 15.0% 32.0% 0.0

Base Management Fees 296 328 334 359 474 80 82 83 83

As % of Fee Earning AUMs 1.41% 1.40% 1.40% 1.40% 1.40% 1.41% 1.40% 1.40% 1.40% 1.4

Transaction Fees 36 26 30 32 36 3 3 3 16

Interest Income & Dividends 6 6 8 8 8 0 0 2 3

Other (2) 1 2 1 1 (2) 2 1 (0)

Total Management Fees 336 361 373 400 518 82 87 90 103

Base Compensation & Benefits (151) (158) (164) (176) (228) (36) (39) (38) (44)

As % of Total Management Fees -44.9% -43.8% -44.0% -44.0% -44.0% -44.0% -45.3% -42.8% -43.2% -44

Other Expenses (56) (56) (55) (55) (55) (13) (13) (13) (17)

Pre-tax ENI from Fees 129 147 153 169 235 33 34 38 41

Realized Performance Fees 25 (3) 0 73 336 1 5 (11) 3

Realized Investment Income 4 6 0 25 75 1 1 (3) 7

Realized Performance Revenue 28 3 0 98 411 2 6 (15) 10Realized Performance Compensation (1) (4) 0 (29) (135) (2) 1 2 (4)

As % of Performance Fees -4.4% 115.4% #DIV/0! -40.0% -40.0% -331.0% 11.8% -14.8% -113.7% -40

Realized Pre-tax Performance ENI 27 (0) 0 69 277 (0) 6 (13) 6

Unrealized Performance Fees (844) (252) 0 73 336 (229) (52) 24 5

Unrealized Investment Income -239 -126 0 25 75 -67 -59 1 0

Unrealized Performance Revenue -1,082 -378 0 98 411 -296 -111 25 5

Unrealized Performance Compensation 75 114 0 -39 -165 75 45 -6 -1

As % of Unrealized Performance Fees -8.9% -45.2% #DIV/0! -40.0% -40.0% -32.9% -87.5% -24.2% -23.1% -40

Unrealized Pre-tax Performance ENI (1,007) (264) 0 59 247 (221) (66) 19 4

Total Pre-tax ENI (851) (118) 153 297 759 (188) (25) 44 51

Realized Pre-tax ENI 157 146 153 238 512 33 41 25 47

Net Fee Related Earnings 120 135 143 158 224 31 33 33 38

(9.8) (11.5) (10.6) (11.1) (10.9) (2.7) (1.5) (4.5) (2.8) (

Limited Partner Capital Deployed 969 884 215 253 35 381

Fund Level Unrealized Value

Real Estate (Cost) 11,483 12,174 11,798 11,965 11,803 12,174

Real Estate (Unrealized Value) 9,393 7,070 8,169 6,749 6,635 7,070

Real Estate (Gains/Losses) (2,091) (5,103) (3,629) (5,216) (5,167) (5,103)

Source: Company Reports, Oppenheimer & Co Inc estimates


32/52

32

The Blackstone Group

Segment Earnings Model

$s in Millions (excl per share data and where specified)

Fiscal Year End 12/31

2008 2009 2010E 2011E 2012E 1Q09 2Q09 3Q09 4Q09 1Q10E

Credit and Marketable Alternatives

Average Fee Earning AUMs 50,765 45,894 53,421 63,787 76,544 43,231 44,746 45,739 47,975 48,9

Assumed Rate of Return 10.00% 10.00% 2.0

Assumed New Funds 10.00% 10.00% 0.0

Y/Y growth 20.00% 20.00% 2.0

Base Management Fees 477 401 472 563 676 97 96 105 103

As % of Fee Earning AUMs 0.94% 0.87% 0.88% 0.88% 0.88% 0.89% 0.86% 0.92% 0.86% 0.8

Transaction Fees 9 3 5 6 4 0 1 1 1

Interest Income & Dividends 9 3 4 4 4 1 0 1 2

Other (5) (14) (12) (15) (15) (4) (4) (3) (2)

Total Management Fees 488 394 468 558 669 93 93 104 103

Base Compensation & Benefits (239) (198) (230) (279) (335) (54) (49) (54) (41)

As % of Total Management Fees -49.0% -50.3% -49.0% -50.0% -50.0% -57.6% -52.9% -52.4% -39.4% -49

Other Expenses (106) (81) (95) (100) (100) (24) (16) (18) (22

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