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$18.55 -2.68 (-12.62%)
10/7/2008 4:04 PM

Marshall & Ilsley Corp (MI)

CAPS Rating:
**

A financial holding company that provides diversified financial services to a variety of corporate, institutional, government and individual customers.

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Avatar NetscribeBanking (93.30) Submitted: 1/08/07 1:31 AM : Underperform Start Price: $23.44 MI Score: -8.08

Marshall and Ilsley Corporation is a diversified financial services corporation headquartered in Milwaukee, Wisconsin with $55.5 billion in assets. Founded in 1847, Marshall and Ilsley Bank is the largest Wisconsin-based bank providing financial services that includes trust and investment management, equipment leasing, mortgage banking, financial planning, investments, and insurance services throughout the country.

Net interest income for the third quarter of 2006 amounted to $393.2 rise of 22.2% over the same period in 2005. The recent strategy of the bank has been to diversify its earnings stream geographically and seeks to derive more from non-bank subsidiaries. Metavante, financial and technology subsidiary has revenues of $374 million contributing 72% of the fee based income for the third quarter. The chance of Metavante being spun off into a separate entity looks visible due to the recent change of guard in top management and its attitude. Moreover, the business of Metavante does not fit into the day to day operations of the bank.

The credit quality of the bank has been declining with NPA’s of 0.53% mainly due to the acquisition of gold Banc and Missouri State Bank. The recent all stock deal to buy United Heritage Banks comes at an expensive valuation, but hopes to gain from its footprint in Florida and the good credit quality.

The wealth management divisions’ revenue in the recent quarter increased 13% year on year showing positive results with assets under management at $ 91 billion. The mortgage business is weakening as the bank is operating under tough environment with interest rate pressure, shrinking margins and competitive loan pricing. In the coming quarters the bank has to face a huge stock option expenses and also faces difficulty in deposit mobilization. Moreover the bank is growing the loan books at a fast pace without having a substantial growth of deposits. Though the earnings have been consistent and stable over the years the chances to beat the market looks dim.

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Avatar NetscribeBanking (93.30) Submitted: 4/24/07 6:11 AM

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Marshall and Ilsley has confirmed its intention to spin off its IT and payment processing business Metavante, whereby at the time of separation, the banks shareholders would continue to own the same number of shares in the Marshall and Ilsley Corporation. Apart from this one new Metavante share would be issued for every three Marshall and Ilsley shares reflecting 75% ownership of Metavante business. Also private equity firm Warburg Pincus would invest another $625 million in Metavante for a 25% ownership stake. There are even rumors of Warburg Pincus increasing stake to 40% with a take over premium that might exceed 25% of the fair value as per the latest industry valuation standards.

The deal would help unlock value for shareholders of both the firms and help achieve capital structure appropriate for their respective industry. The bank would have excess capital of approximately $1.5 billion that could be used to pursue organic growth, acquisitions in faster growing markets and share repurchases. Net income for the year 2006 increased 14.3% to $807.8 million. The bank had a series of acquisition during the period that has resulted in its return on equity and other profitability metrics taking a hit.

Nonperforming assets to total assets increased 31 basis points to 0.61% due to stressed housing market. Operating income increased 16.8% to $218.1 million for the latest quarter supported by the wealth management business and still remains a bright spot with strong pipeline of orders for 2007. As the asset quality of the bank deteriorated over the years it has resorted to disciplined underwriting practices and been conservative on loan to value standards, which might affect their growth. The management expects further contraction in net interest margin due to the inverted yield curve and shift of deposits to high yielding areas. Though the long-term prospects look good it is better to avoid the stock for 2007.

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