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TWST: What are the macro factors that you feel will have an impact on these companies over the next 12 to 24 months?

Ms. Mayer: I think there are three macro factors, and this would apply to basically all the specialty finance names in my sector. One is interest rates, the second one is credit risk, and third is regulatory risk. Maybe I could just walk you through the positives and negatives of all three of those trends. On interest rates, we’ve had a rally in these stocks over the last few weeks as we’ve gotten economic data that has led the market to believe the Fed should be through tightening. That’s positive. It’s certainly been a catalyst for our stocks, and we believe it will continue to be a catalyst. That being said, however, it’s really a delicate balance between rate hikes and how much those rate hikes affect the state of the consumer, buying patterns, and the ability to repay. And what we’re seeing, and this really ties into credit risk and the overall credit quality, is an incredibly strong consumer. A number of banks pre-announced earnings shortfalls in the second quarter. I would tell you that most of that deterioration was related to commercial credit. The consumer is surprisingly strong, so spending habits remain very strong, as does the ability for them to repay their loans. We track this data every month. All the forward indicators that we monitor to give us a sense of what is going to happen to consumer credit look very strong. So in this environment our preference is the credit card companies. They are expert risk managers. Now, the third issue, which is regulatory risk, is that intangible, hard to quantify, big, scary risk that hangs out there. Providian (NYSE:PVN), as you may know, had been the subject of an investigation from the DA here in San Francisco. They settled with the DA and the OCC for about 300 million pretax, which was much, much larger than the market expected, and I think investors were certainly taken aback by the size of the settlement. In addition, you’ve got Fannie and Freddie under scrutiny with the Baker Bill, and you’ve got some talk of predatory lending inquiries on Capitol Hill. My general view is that regulatory risk is way overdone in investors’ minds. In the case of the cards and Fannie and Freddie, we think from Fannie’s and Freddie’s perspective a lot of the regulatory risk is behind them.

TWST: Would they all be considered core holdings when you look at a special finance portfolio today?

Ms. Mayer: I would say absolutely. I don’t cover the banks, so I don’t want to comment on other people’s coverage, but I think having exposure in particular to the credit card names is proving crucial. Just to give you a sense of performance, since we initiated on Capital One, which was last September, the stock is up 45%, Providian is up 34% and still going. We’ve got upside to our target prices that’s around 20% on Providian, and a little less on Capital One. But we expect estimates to be going up at both companies. So you’ve got companies that are growing organically in a market that is very, very profitable, and you’ve got earnings estimates that are moving upward.