Patrick Brennan Portfolio Manager, Brennan Asset Management

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JEF & TSB

Patrick Brennan, CFABest Ideas 2019

Hosted by MOI GlobalJanuary 2019

Opportunities in “Risk Off” Financial Names

BAM Disclosures

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In BAM’s investment decision making process involves a number of different factors, not just those discussed in this document. The views expressed in this material are subject to ongoing evaluation and could change at any time. Past performance is not indicative of future results, which may vary. The value of investments and the income derived from investments can go down as well as up. It shall not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities mentioned here. While BAM seeks to design a portfolio which reflects appropriaterisk and return features, portfolio characteristics may deviate from those of the benchmark. Although BAM follows the same investment strategy for each advisory client with similar investment objectives and financial condition, differences in client holdings are dictated by variations in clients’ investment guidelines and risk tolerances. BAMmay continue to hold a certain security in one client account while selling it for another client account when client guidelines or risk tolerances mandate a sale for a particular client. In some cases, consistent with client objectives and risk, BAM may purchase a security for one client while selling it for another. Consistent with specific client objectives and risk tolerance,clients’ trades may be executed at different times and at different prices. Each of these factors influences the overall performance of the investment strategies followed by the Firm. Nothing herein should be construed as a solicitation or offer, or recommendation to buy or sell any security, or as an offer to provide advisory services in any jurisdiction in which such solicitation or offer would be unlawful under the securities laws ofsuch jurisdiction. The material provided herein is for informational purposes only. Before engaging BAM, prospective clients are strongly urged to perform additional due diligence, to ask additional questions of BAM as they deem appropriate, and to discuss any prospective investment with their legal and tax advisers.Contact information

Patrick Brennan, CFABrennan Asset Management, LLCpatrick@brennanvalue.com

BAMStrategy

• All-cap strategy: 12-20 total names• Top 10 names: 70-80% of portfolio• 3-5+ year holding period

• Eat our own cooking

• Media/telecom, specialty financials and consumer discretionary focus

• Own under-followed or under-owned because of complexity issues

• Investments include documented areas of inefficiency including:

• Spinoffs/Thrift Conversions • Liberty Media Complex• Owner/Operator Businesses

• Generally looking for 15-20%+ IRRs on base case scenarios over 3-5 year time period

BAM is a registered investment advisor based in Napa, CA. BAM manages money through: • Separate accounts • Subadvisor to Oceancross

Capital Partners Fund

Brennan Asset Management, LLC (BAM)

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Cheap gets cheaper Value underperformed for most of past decade Beaten up stocks get crushed in Q4 2019

What screens well for beaten-up “risk off” names? Financials/Leveraged Names Exposure to slowing growth/lower interest rates Exposure to Europe Complicated stories

Jefferies (JEF) and Permanent TSB (TSB) check nearly every box for what investors DO NOT want to own… Statistically cheap stocks sold off in Q4 2018

…But beaten up valuations, capital return and partial/total sale can unlock substantial value Downside cases likely above current price Aggressive share repurchases (JEF)/capital return(TSB) Partial (JEF/TSB) or Total (TSB) sales possible

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Overview

“Simplified” JEF: Still a Mouthful…but Easier

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Estimated % of Total Value

Jefferies Non-bank holding company investment bank$4.5 billion tangible equity 51

HomeFed Historical LUK investment; public real-estate development company 70% owned by JEF 6

National BeefHistorical LUK investment…4th largest beef processor $600mm+ EBITDA LTM 09/30/1848% sold - ~$900mm gain

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Linkem Wireless Broadband Italy…540,000+ subs – spectrum >$1.5B 6

Oil and Gas (Vitesse and JETX)

Non-Operating owner in Bakken acreage$500MM+ 2014….$190mm 2018 6

Spectrum Brands Bought HRG stake (Phil Falcone) bought additional shares, simplified, sold Fidelity…SPB hit wall 2018 4

Idaho Timber Manufacturer/distributor wood products~$40mm EBITDA 1

Other FXCM, Golden Queen, M Science, Foursight and other 9

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*Source: Jefferies

Book Value per Share Growth

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*Source: Jefferies

Total Shareholder Return

Despite strong historical returns, historicalLUK shareholders want nothing to do withNYC investment bank.

Historical Jefferies Group Performance: Then Versus Now

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Historical (and current) returns not achieved with crazy leverage

Business is much larger…but not more profitable

12/31/200611/30/2017Net Revenue $1,458 $3,198Equity $1,581 $5,759Tangible Equity $1,454 $3,916

Total Assets $17,900 $39,706Assets/Equity 11.3x 6.9xAssets/Tangible Equity 12.3x 10.1xPre-Tax Income $349 $505Net Income $211 $358Net Income (post Minority Interest) $204 $357Tax Rate 39% 29%Adjusted Pre-Tax Profit $337 $505

ROE 14% 6%ROTE 15% 10%Comp Ratio 54% 57%

12/31/2006 1/4/2019Price Book 2.6x 0.6xPrice/Tangible Book 2.8x 0.7x

Is this pessimism warranted?

US rises again…Europe falls

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Jefferies has clearly taken share since the financial crisis…and could continue to do so as European banks further retreat

Historical Jefferies Group Performance

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12 months ended 11/30 9 Months 11/30/13 12 months ended 11/30 12 months ended 12/31

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

Revenue $3,198 $2,415 $2,475 $2,990 $2,137 $3,019 $2,549 $2,192 $2,163 $1,014 $1,568

Comp and Benefits($1,829

) ($1,569) ($1,467) ($1,699) ($1,214) $1,771 ($1,483) ($1,283) ($1,196) ($1,522) ($946)

Pre-Tax Income $505 $30 $114 $303 $264 $492 $419 $397 $508 ($888) $241

Net Income $358 $15 $95 $161 $170 $323 $286 $240 $312 ($595) $148

Shareholders Equity $5,759 $5,371 $5,509 $5,463 $5,422 $3,783 $3,537 $2,811 $2,309 $2,121 $1,762

Goodwill $1,843 $1,847 $1,882 $1,904 $1,986 $381 $386 $368 $365 $359 $344

Tangible Equity $3,916 $3,523 $3,627 $3,559 $3,435 $3,402 $3,151 $2,443 $1,944 $1,762 $1,417

Comp Ratio 57% 65% 59% 57% 57% -59% 58% 59% 55% 150% 60%

Pre-Tax Avg ROE 9% 1% 2% 6% 13% 13% 15% 23% -46% 14%

Post-Tax Avg ROE 6% 0% 2% 3% 9% 9% 9% 14% -31% 8%

Pre-Tax Avg ROE (Tan) 14% 1% 3% 9% 15% 15% 18% 27% -56% 17%

Post-Tax Avg ROE (Tan) 10% 0% 3% 5% 10% 10% 11% 17% -37% 10%

Inconsistent results since merger closing…last seven quarters, ROTE=10% average

“Float” for merchant bank not as valuable as combined ratios<100%, but still more consistent stream than that available to Joe/Ian

2014/2015 results negatively impacted by losses at Prudential Bache (exited in 2015)

Black Box Investment Bank?

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Jefferies continues to maintain reasonable leverage ratios…

Black Box Investment Bank?

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2% Level 3 Assets - Never been a big player in “mark to model” products (CDO, non-exchange traded derivatives, etc).

Markdowns from hung leveraged loan/block trade possible but…leverage discipline/lack of exotic products provide comfort.

Significant ownership by insiders Richard Handler: 3% outstanding shares Brian Friedman: 1% Joe Steinberg: 6%

Outside of taxes/charities, Handler has never sold shares despite huge JEF gains over past 2 decades

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Other Risk Management: Inside ownership

Jefferies Investments

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Bankers paid in cash…not JEF stock Takes time for new team to show production –

costs upfront, revenues over time

Investment Banking Fee Market Share LTM 08/31/18

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JEF: Global non-bank investment banks… Scarcity value: Asia enters Tier 1 US banking?

Sold 48% National Beef (~$870mm gain)

Sold Garcadia ($220mm gain)

Combine Berkadia/Leucadia Investment Management with Jefferies

$190mm acquisition by Vitesse

Increases buyback program

November 30 fiscal year for Jefferies AND Merchant Bank – few blackout days

Name change from Leucadia to Jefferies

Stock jumps 12% single day…now 24% lower

If waging activist campaign…what else would you ask them to do?!

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April 2018 announcements

Berkadia

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50/50 Joint Venture with Berkshire Hathaway Originates/sells/services commercial loans (multi-family) for Fannie Mae/Freddie

Mac Steady, high return earner…reported with Jefferies Nov 2010 Little valuation credit as part of merchant bank…will smooth investment bank

results

Berkadia Growth Opportunity

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Leucadia Asset Management: Added to Jefferies

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~$17 billion AUM.

Organic build vs. acquisition.

Not significant to NAV but lots of optionality.

The Goldman Issue

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Source: Sentieo Data

Goldman Sachs declined ~25% over the past 3 months and currently at 0.9x tangible book.

If I can buy Goldman<Book value, why mess around with JEF?

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GS Historical ROE vs. Price/Tan Book

ROE Price/Tangible Book

…But many smaller banks>Price/Tangible Book versus GS

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Market Cap LTM Revenue Price/TBV

Goldman Sachs $65,248 $50.899 0.9x

Morgan Stanley $71,042 $49,614 1.1x

Raymond James $10,666 $7,476 1.9x

Stifel $3,029 $3,168 1.6x

Evercore $3,493 $1,852 5.2x

Moelis $2,905 $817 4.5x

PJT $1,478 $595 NM

Greenhill $529 $330 NM

Smaller banks historically carried larger multiples.

EF M&A margins (~$825mm LTM revenue) not meaningful different than advisor boutiques.

Source: Sentieo Data

“Simplified” JEF: Still a mouthful…but easier

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Estimated % of Total Value

Jefferies Non-bank holding company investment bank$4.5 billion tangible equity 51

HomeFed Historical LUK investment; public real-estate development company 70% owned by JEF 6

National BeefHistorical LUK investment…4th largest beef processor $600mm+ EBITDA LTM 09/30/1848% sold - ~$900mm gain

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Linkem Wireless Broadband Italy…540,000+ subs – spectrum >$1.5B 6

Oil and Gas (Vitesse and JETX)

Non-Operating owner in Bakken acreage$500MM+ 2014….$190mm 2018 6

Spectrum Brands Bought HRG stake (Phil Falcone) bought additional shares, simplified, sold Fidelity…SPB hit wall 2018 4

Idaho Timber Manufacturer/distributor wood products~$40mm EBITDA 1

Other FXCM, Golden Queen, M Science, Foursight and other 9

National Beef: Supply Build

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• National Beef 2015 EBITDA: ~($35)mm• LTM EBITDA 06/30/18: $640mm• Supply constrained: “Not in my backyard”• High visibility on future supply

Linkem: Spectrum Upside to Italian Wireless Broadband

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Italy: Hilly country/expensive roll-out broadband Wireless broadband using mid-band spectrum… 58% sub-growth since original 2011 investment…100% LTE enabled/Population

reach 66% country October 2018 3.6 GHz auction implies value >$1.5 billion for Linkem frequency (ex-

high frequency assets)

Merchant Bank Value

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Book Value Fair Value Method

Spectrum Brands $610 $610 Mark-to-marketHomeFed $346 $599 Mark-to-marketOther $238 $238 Mark-to-marketPublic Investments $1,194 $1,447

National Beef $604 $604 Transaction ValueLinkem $178 $485 Market TransactionOil and Gas (Vitesse and JETX) $594 $750 VariousIdaho Timber $77 $145 VariousOther $882 $934 VariousTotal Private Companies $2,335 $2,918

Total Merchant Bank $3,529 $4,365

Merchant Bank Value

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Bear Base Bull Bear Base BullSpectrum Brands $281 $440 $703 80% 125% 200%HomeFed $281 $599 $599 80% 0% 0%Other $281 $238 $238 80% 0% 0%Public Investments $844 $1,277 $1,540

National Beef $483 $604 $725 80% 100% 120%Linkem $388 $631 $606 80% 130% 125%Oil and Gas (Vitesse and JETX) $450 $638 $900 60% 85% 120%Idaho Timber $116 $145 $174 80% 100% 120%Other $747 $934 $1,121 80% 100% 120%Total Private Companies $2,184 $2,951 $3,526

Total Merchant Bank $3,028 $4,228 $5,066

Jefferies $3,375 $5,175 $6,750 75% 115% 150%

Liquidity & Corporate $800 $800 $800 100% 100% 100%

Total Value $7,203 $10,203 $12,616

Shares Outstanding $350 $350 $350

Value Per Share $20.56 $29.12 $36.01

Debate on Jefferies multiple…but difficult to show downside from current levels

Stock has been statistically cheap last several years – what changes? More consistent results from Jefferies Additional “wins” on capital allocation decisions (National Beef, Linkem, Vitesse,

FXCM, Spectrum Brands, HomeFed, etc) - when does market decide Handler is actually good capital allocator?

And… Large share repurchases

JEF complicated/susceptible to “risk off” selling In 2015, weakness at National Beef AND Jefferies prevented larger share

repurchases First nine months 2019: 26 million shares (7%) purchased at $24.16 Fiscal year Jefferies/Merchant Bank=November 30 – reduces share blackout periods Handler: October 2018 analyst day: stock cheap/repurchases continue (20% lower

today) Sale of minority stake Jefferies

Scarcity value Premium to book

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JEF: Aggressive buybacks

Key person risk (Handler/Friedman)

Further inconsistency at Jefferies

Bad deal

Dead money

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JEF Risks

Europe: Struggling…Financials among weakest sectors in underperforming continent

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Lots of negative headlines/sentiment in Europe Greece, Italy, Brexit Weaker economic growth

Euro Stoxx Banks Index (SX7GT) 1 Year performance: -30% 9.5x earnings ~60% Book Value Value trap for Years

Irish Housing Crisis: Traumatic Experience Spectacular housing price rise (192% 1997-2005…30% more 2005-2006)…then

fall (50%+)

Government guarantees all liabilities (including subordinated debt) in September 2008

Government nationalizes multiple banks, including TSB (2015 IPO)

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Ireland Housing Crisis

…But Now Ireland a Standout Economy

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Source: AIB Economic Forecast January 2019

Stock economic growth, low inflation, low/declining unemployment levels and declining debt

Irish Residential Prices: Boom to Bust to Boom

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Irish Residential Property Prices: 2005-2018

Source: Irish Central Statistics Office

• Prices begin rebounding in 2013• Prices now 108% 2005 levels

Housing Supply/Demand Imbalance: Could Take Years to Fix

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Housing output needs to double from current levels to meet pent-up demand and rising migration… 2020+

Strong economy, migration lead to housing shortage

Bank Concentration/Foreclosure Difficulty=Relatively Expensive Mortgages

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Irish mortgages ~140bp above euro area Reasons? Concentrated banking system, high number of lower yielding

tracking mortgages, messy foreclosure process

Yield pickup as lower yielding

tracking loans are replaced with higher yielding

mortgages

TSB Overview ~€724mm market capitalization (75% government owned) 37% of tangible book value…Declined ~60% since 2015 €4.50 IPO €15.2 performing loan book…14-15% market share residential mortgages

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Permanent TSB Summary

Lots of ways to win…bombed out valuation provides downside support

TSB: 37% of tangible book value…Declined ~60% since 2015 €4.50 IPO

Sale – attractive asset in strong economy…establish number 3/fastest government payback

Capital Return (16% vs. 12% target…50%+ capital return possible)

Interest rates rise

Combination of above leads to multiple expansion

“Heads I win, Tails…dead money”

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Permanent TSB Summary

TSB History

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NPL Ratios Look Awful…but Rapidly Declining

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Huge NPL balance reflection of historic problems, slow foreclosure process and rigid accounting rules on modifications…

Two recent securitizations will take NPL <10%

Cognitive Dissonance?

EU Bank Regulators: Lower NPLs

Irish Government: No vultures (you greedy bastards)

Capital Ratios Rising…Large Dividends Possible

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Pro-forma CET 1 Tier 1: 13%+ vs. 12% target

Expect build over 2019 and potential for large capital return

Ireland Has Most Conservative Risk Weightings in Europe

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Mortgage Risk Weightings SME Risk Weightings

Source: EBA

Continued Reduction in Loan Losses

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6/30/18 9/30/18 12/31/18 3/31/19 6/30/19 9/30/19 12/31/19

Stage 3 NPL € 5,050 € 4,860 € 3,420 € 1,180 € 1,090 € 1,000Glas -€ 2,100Treated Securitization -€ 1,300NPL Next 12 -€ 100 -€ 50 -€ 50MTR -€ 17 -€ 17 -€ 17 -€ 17 -€ 17 -€ 17Others -€ 73 -€ 73 -€ 73 -€ 73 -€ 73 -€ 73AdditionsStage 3 NPL € 5,050 € 4,860 € 3,420 € 1,180 € 1,090 € 1,000 € 910

NPL/Total Loans 25% 24% 18% 7% 7% 6.1% 6%

Stage 1 € 46 € 46 € 46 € 46 € 46 € 47 € 47Stage 2 € 379 € 379 € 379 € 381 € 383 € 385 € 387Stage 3 € 1,824 € 1,752 € 1,299 € 446 € 412 € 378 € 344Stage 3 Change -€ 72 -€ 453 -€ 853 -€ 34 -€ 34 -€ 34Total Allowance € 2,249 € 2,177 € 1,724 € 873 € 841 € 810 € 778

Risk Weighting -Performing 54% 54% 54% 54% 54% 54% 54%NPL Risk Weighting 100% 100% 100% 100% 100% 100% 100%

Rising housing prices could allow markups on existing provisions -we assume none

Assuming NPLs continue to decline, then TSB should have a significant release of Stage 2 (non-specific) reserves.

Loan Growth Assumption

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9/30/2018 12/31/2018 3/31/2019 6/30/2019 9/30/2019 12/31/2019

Loan Growth -0.10% -0.10% 0.50% 0.50% 0.50% 0.50%Growth in Other 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%Performing NII (stock) 2.34% 2.35% 2.37% 2.40% 2.43% 2.46%Performing NII (flow) 3.21% 3.21% 3.10% 3.10% 3.10% 3.10%Non-Performing NII 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%

NII € 99 € 97 € 91 € 89 € 91 € 92Core Fee Income € 10 € 10 € 10 € 10 € 10 € 10Total Income € 109 € 106 € 101 € 99 € 100 € 102

Operating Income € 109 € 106 € 101 € 99 € 100 € 102Operating Expenses € 82 € 79 € 75 € 73 € 74 € 74Pre-Tax Income € 27 € 27 € 26 € 26 € 27 € 28Tax -€ 1 -€ 1 -€ 1 -€ 1 -€ 1 -€ 1Net Income € 27 € 26 € 26 € 1 € 26 € 27Equity € 2,060 € 2,086 € 2,112 € 2,112 € 2,139 € 2,166Adjusted Equity (Cap Return) € 2,032 € 1,910 € 1,746 € 1,809 € 1,805 € 1,800

Efficiency Ratio 75% 75% 74% 74% 73% 73%

Equity/Assets 9.0% 9.5% 10.3% 10.2% 10.3% 10.4%Stated ROE 5.2% 5.1% 4.9% 0.1% 5.0% 5.1%ROE (Cap Return) 5.3% 5.4% 5.6% 0.1% 5.8% 6.0%

Loan growth/operating expense cuts partially offset by lost NPL NII.

Net loan balance grows in 2019 as new loans (flow) offsets maturities on existing book.

Significant Opportunity for Capital Return

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6/30/18 9/30/18 12/31/18 3/31/19 6/30/19 9/30/19 12/31/19RWA Performing € 8,200 € 8,192 € 8,184 € 8,225 € 8,829 € 8,870 € 8,911RWA NPL € 2,801 € 2,683 € 1,696 € 307 € 249 € 190 € 132Assumed Total RWA € 11,001 € 10,875 € 9,880 € 8,532 € 9,077 € 9,060 € 9,044Actual RWA € 11,211TRIM Adjustment € 1,700 € 1,698 € 1,697 € 1,705 € 1,714 € 1,722 € 1,731Pro-Forma TRIM RWA € 12,911 € 12,573 € 11,576 € 10,237 € 10,791 € 10,783 € 10,775

Total Equity € 2,033 € 2,060 € 2,086 € 2,112 € 2,112 € 2,139 € 2,166Less AT1 Capital -€ 122 -€ 122 -€ 122 -€ 122 -€ 122 -€ 122 -€ 122Captive Insurance Equity -€ 9 -€ 9 -€ 9 -€ 9 -€ 9 -€ 9 -€ 9Adjusted Capital € 1,902 € 1,929 € 1,955 € 1,981 € 1,981 € 2,008 € 2,035Intangibles -€ 36 -€ 36 -€ 36 -€ 36 -€ 36 -€ 36 -€ 36Deferred Tax -€ 354 -€ 351 -€ 347 -€ 344 -€ 341 -€ 338 -€ 334Others -€ 6 -€ 6 -€ 6 -€ 6 -€ 6 -€ 6 -€ 6Common Tier 1 (Fully Loaded) € 1,506 € 1,536 € 1,566 € 1,594 € 1,598 € 1,628 € 1,659CET Tier 1/Equity (Fully Loaded) 74% 75% 75% 76% 76% 76% 77%

CET Tier 1/RWA 13.4% 14.1% 15.8% 18.7% 17.6% 18.0% 18.3%CET Tier 1/RWA (Trim Adjusted) 11.7% 12.2% 13.5% 15.6% 14.8% 15.1% 15.4%CET Tier 1 Target 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%

Capital Return>12% Tier 1 Target € 0 € 27 € 177 € 366 € 303 € 334 € 366

Shares 454.69 454.69 454.69 454.69 454.69 454.69 454.69Capital Return Per Share € 0.06 € 0.06 € 0.39 € 0.81 € 0.67 € 0.73 € 0.80Book Value Per Share € 4.47 € 4.53 € 4.59 € 4.64 € 4.65 € 4.70 € 4.76

It is true that TSB will struggle to earn its cost of capital but large capital returns and small valuation improvements can drive meaningful returns.

Sale In 2018, Chairwomen of ECB Bank Supervision Arm suggested merger of TSB

and Ulster Bank CSFB estimated that a combined TSB/Ulster would generate €150 million in

synergies Starting in 2019, Irish government no longer restricted in only selling 25

percent of bank stake Attractive asset in strong economy…establish number 3/fastest government

payback Easily reduce 20% of operating expenses – potentially much more (CSFB: 50%) Likely the highest returning scenario for investors

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Other Ways to Win

Interest rate increase 50bp increase=40mm increase in NII (8.5% ROE on Q4 2019 annualized at 12%

CET 1) Odds of rate increase lower than 1-2 months ago but huge rerate if rates

surprise

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Other Ways to Win

75% government stake – unexpected policy decision (dividends/sale/regulation)

No Deal Brexit hurts Irish economic momentum

New competition Irish mortgage market

Interest rates never rise (Waiting for Godot)

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TSB Risks

CONTACT INFORMATION

Patrick Brennan, CFABrennan Asset Management, LLC

patrick@brennanvalue.com

W W W. B R E N N A N V A L U E . C O M

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APPENDIX

US Rises Again…Europe Falls

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SPB Overview

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Vitesse Overview

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Non-operating owner of Bakken acreage

2% average interest in 4,300+ wells – 12 different operators

$439 million invested

HomeFed Property Locations

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