Wall Street Interview with Karen Firestone, President, CEO & Co-Founder of Aureus Asset Management: A Fundamental, Broad-Based Approach to Investing in Financial Services

Wall Street Transcript

67 WALL STREET, New York - April 26, 2013 - The Wall Street Transcript has just published its Investing in Financial Services Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investing in Financial Services - Interest Rates and Loan-Growth Strategies - Regulatory Outlook Gains Clarity - Long-Term Investing - Large Cap Investing - Longer-Term Investing

Companies include: American International Group, (AIG), The Blackstone Group (BX), Capital One Financial Corp. (COF) and many more.

In the following excerpt from the Investing in Financial Services Report, an expert portfolio manager discusses her investment philosophy and portfolio-construction strategy:

TWST: How are you exposed to the sector?

Ms. Firestone: We have a broad-based approach to the sector across the several holdings in our portfolios. Aureus only owns 35 to 40 names, so each stock represents valuable real estate, so to speak, in our accounts. If you look across our financial holdings, they range from one insurance company that's been restructuring, AIG (AIG); Blackstone (BX), which is a large and very successful private equity firm, as you know.

We own First Republic Bank (FRC), a distinctive boutique-style bank that sources from a very high-end clientele. And then, we bought a turnaround in the sector, Capital One (COF), because they've had some real difficulties and we thought the consumer finance company was very attractive at the current valuation at around 8 times earnings. So within our core equity portfolios, we have a combination of stocks in financial services that I would say don't fit the typical definition of the group.

Just to elaborate, First Republic was a purchase based on our belief almost 18 months as that the housing market was improving, when this was a contrarian idea. We actually first got to know the firm because one of our clients was switching banks and really liked FRC. We were intrigued and did considerable research, talking to local managers as well as meeting with the top executives. The company serves a very high-end clientele who feel underserved by the megabanks resulting from mergers over the past two decades.

The wealth management platform at First Republic includes over $32 billion in assets under management. They still have only about a 1% market share of high-net individuals in the New York area, compared to 13% in San Francisco, their home market, and there is growth potential in other promising markets as well. FRC has a strong balance sheet, very high credit quality and assets that are growing much faster than its competitors. At the current price of $37.5, the stock sells for about 12 times 2013 earnings.

Capital One Financial is a turnaround situation, selling at $56, with earnings for this year forecast at about $6.35, so it sells for under nine times earnings. The discount is probably justified by...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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