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Four analysts and top management from thirteen sector firms examine the Regional Banking sector in this 56 - page Lehman Brothers Regional Banking Conference Issue from The Wall Street Transcript available at (212/952-7433) or http://www.twst.com/info/info631.htm

TWST: Would you begin with a quick overview of what you cover in general terms?

Mr. Vandervliet: I cover the largest banks — Citigroup (C), J.P. Morgan (JPM), Bank of America (BAC), Bank One (ONE) — plus the trust and processing group. So it’s essentially anything that is heavily market-sensitive.

TWST: What has gone on in the banking group over the past year or so? Let’s start from an operating point of view.

Mr. Vandervliet: Historically, the large asset quality issues have been concentrated in my group, and you’ve seen a very different credit picture at Citigroup, J.P. Morgan, Bank of America, and Bank One, where there have been a large number of credit issues and some pretty heavy credit pressure. I think that reflects the dichotomy in the industry where the regionals stick more toward local credits that they understand, as opposed to banks in my space doing much larger corporate lending.

TWST: What is the effect of that on the banks at this point?

Mr. Vandervliet: Slower earnings growth, but we’ve seen pretty strong growth. I think we came into this year (it almost seems humorous now) thinking that the economy would be solidly recovering by mid-year. We said we’d be raising rates, and it was a pretty rosy picture for the banks, even in a gently rising rate environment that suggests a benign economy, and that’s a great environment in which to be a bank. Now you see something quite a bit different with no real signs of rate increases and a pretty lackluster economic condition.

TWST: Given that change in outlook, what are the banks doing to adjust?

Mr. Vandervliet: Some have repositioned their balance sheets so that they are not so dependent upon a rate increase. They’re more positioned for a sustained flat rate environment, and others have become more aggressive in writing off problem credits.

TWST: Brock, what’s at the top of your list?

Mr. Vandervliet: Among the largest banks our top pick is Bank of America, because of all the very large banks, BAC is the most traditional. In other words, it’s the most driven by traditional deposits taking and lending than the other largest banks. It has only 30% of revenue tied to capital markets sources, be they investment banking or asset management, although they do experience the same stress as Citigroup and J.P. Morgan Chase in terms of higher credit costs from large corporate-leveraged loans, particularly telecom, which you’ll see in the second half. It also should be a gradual increase, nothing precipitous, and their results have been pretty predictable, surprisingly so for an organization of that size. On the smaller cap side, we’ve put in our trust and processing category a company called City National (NYSE:CYN), which is based in Beverly Hills. It’s known as the “bank of the stars.” They have a small asset management operation, but primarily their niche is private banking to very wealthy people in the entertainment community in the LA Basin. They’ll do a $7 million estate on Santa Monica or the vacation house in Lake Tahoe, and also small business lending. It’s been a very profitable, definable niche and a tremendous market to do it in, and they’re just continuing to stick to this niche and put down good numbers.

1. Banking Overview - In an in-depth (3,400 words) Analyst Roundtable, Jason Goldberg, a Vice President & Senior Research Analyst, Brock Vandervliet, a Vice President & Analyst, Robert Lacoursier, a Vice President & Analyst and Jack Micenko, a Senior Equity Research Analyst, examine the outlook for the sector and share specific stock recommendations.

2. CEO interviews (average 2,500 words). Top management of thirteen - sector firms examine the outlook for their firm and the sector.