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8-May-09 WHAT’S NEXT STRESS?

Twenty years ago, global banking regulators declared that every bank ought to hold core capital equivalent to 4 % of its risk-
weighted assets. Today the U.S. government will say the same thing differently. The difference between 1988 and today is that
tangible common equity is the new Tier I capital (Tier I is a loose measure of capital strength, since it includes preferred shares and other
miscellany). But small loss in the value of assets, including commercial and residential property, during recessions can eat through the
capital of a bank, making it insolvent. Basel I attempted to address this by setting a maximum leverage ratio-or a minimum ratio of capital
to assets for global banks. That figure was 8 %, which is equivalent to allowing a bank to be leveraged a conservative 12.5 times. But
some investment banks entered this downturn with capital-to-assets ratios of 30 times or more. By transforming 50 % risk-weighted
mortgage loans into triple A securities, and with the help of rating agencies, banks reduced the amount of capital that they needed to hold
against these assets. Yesterday’s stress test results are a harsh verdict on Basel and two decades of capital adequacy
regulation…
The tests, which measure how viable banks are under adverse economic conditions have no “failed” category even if as many as
10 out of 19 banks are reported to need more additional capital. Given that the economic environment already reflects the worst case
scenario and that recent estimates by the IMF of financial sector losses have doubled in 6 months the long awaited stress test results
can’t really be interpreted as a sign of bank health…
Anyway, the Fed determined that 10 U.S. banks need to raise a total of $74.6 billion in capital. Ben Bernanke said that should reassure
investors about the soundness of the financial system. The results showed that losses at the banks under “more adverse” economic
conditions than most economists anticipate could total $599.2bn over two years. Mortgage losses present the biggest part of the risk, at
$185.5 billion. Trading accounts were the second-largest vulnerability, with potential losses of $99.3 billion. The examiners found that
nearly all the banks that were evaluated have enough Tier 1 capital to absorb the higher losses envisioned under the hypothetical adverse
scenario
Bank of America was judged to need $33.9 billion in additional capital under regulators’ criteria, the largest gap. Wells Fargo’s shortfall
is $13.7 billion, while Citigroup’s gap is $5.5 billion. Citigroup has already announced plans to bolster its tangible common equity ratio
by converting some of its preferred shares into common stock. Fifth Third Bancorp’s capital need is $1.1 billion, KeyCorp’s is $1.8
billion, PNC Financial Services’ is $600 million, Region Financial Corp’s is $2.5 billion and SunTrust Banks Inc.’s is $2.2 billion.
GMAC needs $11.5 billion, while Morgan Stanley’s assessment was $1.8 billion. Goldman Sachs., JPMorgan, Bank of New York.,
MetLife., American Express, State Street., BB&T Corp., US Bancorp and Capital One Financial Corp.were deemed not to need
additional funds, according to the results. Banks will have six months to fill their capital shortfalls and may be forced to accept expanded
federal ownership that could prompt changes in their management.
The ECB cut the Refi rate by 25 bps to 1 % and reduced the “corridor” with the margin lending facility rate (1.75 %) and the
deposit facility rate (0.25 %, unchanged) to 75 bps vs. 100 bps previously. Alongside a 25bp interest rate cut in its main refinancing
rate and a decision to extend the maximum maturity of its bank lending from six months to twelve, the ECB finally took the plunge into the
world of asset purchases on Thursday by announcing plans to buy covered bonds. However, M. Trichet suggested that the ECB would
only buy bonds amounting to around £60bn. This is just 0.6% of annual euro-zone nominal GDP. To put that figure in context, the Bank of
England began its asset purchases with a sum amounting to 5% of UK GDP, which it has since upped to around 9%. What’s more,
President Trichet stressed that the Bank’s latest move does not mean that it has embarked on ‘quantitative easing’. Its bond purchases
will be aimed solely at restoring liquidity to a market that has been hit particularly hard by the financial crisis rather than boosting the
economy more generally. This might mean that, instead of allowing the monetary base to expand as a result of its asset purchases, the
ECB will sterilize its actions by issuing its own debt or selling other assets. Even if the £60bn was financed entirely by the creation of ‘new
money’, it would boost the monetary base by just 3%, which is very little compared to the 25% expansion that we have already seen due
to extra bank lending. We suspect that the ECB will eventually be forced into bolder asset purchases as spare capacity mounts and the
risk of deflation increases.
Although it's certainly a relief to have the stress test behind us, it's not as if investors can relax. There's plenty more potential
market-moving news and data in the days and weeks ahead. Indeed, the government still needs to spend the stimulus money,
and further along the TARP, TALF and PPIP plans.
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 57,2 1,3391 99,19 3,31 3,38 -2,99 -1,34 -3,46 2,31 -3,31 -3,62 -1,91 0,56 -5,94 -1,32 -2,44 -1,20 US
Perf 1d % 1,17 0,01 -0,07 -2,43 bp 14 bp -2,94 -1,11 -1,30 2,42 -3,28 -2,97 -1,34 0,71 -6,46 -0,86 -2,11 -1,00 Europe
ECONOMIC DATA with impact
US April’s employment report (12.30 GMT) with non-farm payrolls expected to decline by 600k and the unemployment rate to rise to
8.9% from 8.5%. On Wednesday, the ADP report showed that private sector employment fell by 491k in April compared with 708,000 the
month before. However, the correlation between the ADP survey and the official figures is far from perfect.
German industrial production figures (10.00 GMT) which could show only a modest decline in March (-0.5 % MoM, -20.0 % YoY)
expected. The drop in production so far could partly have reflected a reduction in inventories, which should not go on for long.
POSITIVE IMPACTS
SOC GEN has the means to expand by itself & the economic climate does not favour large mergers (Oudea)
DBK is arranging sale of HDFC bank stake ($265M)
FIAT & GM are weighing a deal that would allow Fiat to take control of GM's European, Latin American & South African operations
without paying any cash ( people familiar with the matter said)
PUMA : Rev € 697.4M (in line) / Q1 EBIT €114M ( 113e) /Mkt environment to remains dificult in 09 / Focus for 09 is working on Capital
improvements to stengten the cash position
RBS trading update Q1 Income £9.7bn / Impairment losses (£2.26bn) & Credit mrkt (£2.1bn) writedowns £4.9bn / Pretax Loss £44m
NEGATIVE IMPACTS
PPR : CEO declined to give FY earnings estimates for theGucci brand, saying “visibility is low.”
PEUGEOT: Bank of China is withdrawing from an auto-financing JV with Dongfeng Motor & Peugeot SA (2 Y after launching the venture)
RENAULT may not develop a successor to the Laguna mid-sized car, which failed to meet sales targets
THOMSON had its long & short-term credit ratings cut to ‘selective default’ by S&P, citing delayed repayment of $92.5 M of debt
EON CEO wants to become chairman of BP (Handelsblatt , citing unidentified people)
ENEL : The deadline for Enel's exclusive talks with investment fund F2i for the sale of its gas grid expires.
GAMESA: The Spanish govt is planning to reduce state aid to wind farm promotors to reduce speculation in the sector, (El Economista)
RDSA may be forced to cut jobs further in the event of a severe economic slowdown (CEO)
ENI :A dispute has erupted between Eni and Gazprom over the role Eni will play in the South Stream gas pipeline (Italian govt source)
RIO TINTO: CHINALCO said it won’t be “happy” to amend the terms of the agreement after Reuters said it may accept changes
 WWW.GLOBAL-EQUITIES.COM / DEL SARTE / + 33 (0) 1 44 43 33 24

8-May-09 WHAT’S NEXT STRESS?

DEUTSCHE POST : May return to Royal Mail talks (The Times)
BAYER : UK cost agency rejects Nexavar for the treatment of liver cancer
TELECINCO / ANTENA 3 … Spain's cabinet could approve on Friday new regulation cutting advertising on state TV with the funding
shortfall covered by charges on revenue at private TV and telecoms firms.
COMMERZBANK : Q1 NII €1.69bn (€1.83bn exp) / Operating €-591m (€-972m exp) / Risk Provision €844m (€864m exp) / Trading €-
523m / Tier1 10.2% (With soffin support) / No 4cast for 2009 / Says return to profitability no later than 2011 / Conf Call at 8:00 UKT /
Separately Kleinwort Benson Private Bank is considering a management buyout after the EU Com said its CBK ‘s unit must be sell (FT)
RESULTS DIVIDENDS EVENTS
Adidas (€0.50) / HeidelbergCement (€0.12) /
Commerzbank / OMV / Puma / Repsol / Havas sales / Mc Do Hochtief (€1.40) / Lanxess (€0.50) / Scania (SEK
Today Alcoa AGM / Colgate-Palmolive AGM
sales 2.50) / Yara (NOK 0.40) / Bilfinger Berger (€2.00)
/ Fresenius Medical (€0.58)
Havas sales / Lonmin / NEC / TUI / Maroc Tel / Microsoft / PPR (€3.30) / Fresenius SE (€0.71) / Fugro
Monday Centrica AGM / Tele2 AGM / Telenor AGM
Maroc Telecom / Petrobras (€1.50) / Score (€0.80)
Baloise / Abertis / Enel / EDF / Intercontiental Hotels / Vivendi (€1.40) / Holcim (€1.05) / M6 (€0.85) /
Tuesday Intel analyst meeting / Bayer AGM / Altana AGM
Mediaset / Mediobanca / Deutsche Boerse Tele2 (SEK 3.5 +1.5) / Telefonica (€0.50)
Allianz / Generali / Dexia / E.On / ING / Telefonica /
Air Liquide (€2.25) / Bayer (€1.40) / BP (GBp ConocoPhillips AGM / Dexia AGM / JCDecaux
Telekom Austria / Acciona / ThyssenKrupp / Vallourec /
Wednesday 10,64889) / Veolia Environnement (€1.21) / AGM / Safeway AGM / Unilever AGM / TUI AGM /
Theolia sales / Bouygues sales / TF1 / Allied Irish Banks
Informa (GBp V) Accor AGM
interim
Credit Agricole / Prudential (BMO) / Aegon / Aeroport de
Vinci AGM / Cadbury AGM / Ford AGM / BMW
Paris / Salzgitter / Vivendi / Banca Italease / Banca Monte
Thursday Metro (€1.18) / Solvay (€1,7333) AGM / SBM Offshore AGM / ASM International
dei Paschi di Sien / Banco Popolare / Natixis / Theolia /
AGM
Portugal Telecom / Rexel / Hochtief / BT Group / Wal Mart
TRADING IDEAS
BUY BAYER / ADIDAS / GLAXO / DANONE looking good & BUY GSZ on double bottom possibility still / BUY ROCHE on island reversal
BUY NESTLE / L OREAL / VIVENDI on reversal Head & Shoulder possibility

BUY ENI / SELL TOTAL // BUY GSZ / SELL EDF // BUY CHEVRON / SELL CONOCOPHILIPS // BUY DAIMLER / SELL RENAULT // BUY BAYER /
SELL BASF

BROKER METEOROLOGY
TESCO ....................................... RAISED TO BUY FROM HOLD ................................................................................................BY ING
DIAGEO ..................................... RAISED TO NEUTRAL FROM SELL ...................................................................................... BY UBS
AB INBEV .................................. RAISED TO BUY FROM NEUTRAL ....................................................................................... BY UBS
SWISS RE ................................. RAISED TO BUY ............................................................................................................. BY MERRILL
RENEWABLE ENERGY ............ RAISED TO NEUTRAL ................................................................................................... BY MERRILL
SIEMENS ................................... RAISED TO BUY FROM HOLD .............................................................................................. BY RBS
VOLKSWAGEN PREFERENCE RAISED TO OVERWEIGHT .................................................................................................. BY HSBC

ZURICH FINANCIAL ................. CUT TO NEUTRAL FROM OVERWEIGHT ............................................................... BY JPMORGAN

HELENIC TELECOM ................. CUT TO UNDERWEIGHT .......................................................................................... BY JPMORGAN
HOLCIM ..................................... CUT TO HOLD FROM BUY ........................................................................................ BY CITIGROUP
SOCIETE GENERALE .............. CUT TO HOLD FROM BUY ........................................................................................ BY CITIGROUP
PHILLIPS ................................... CUT NEUTRAL FROM BUY ................................................................................................... BY UBS
THOMSON REUTERS ............... CUT TO SELL FROM HOLD ................................................................................................... BY RBS
HERMES .................................... CUT TO UNDERPERFORM FROM HOLD ..................................................................BY JEFFERIES
SCHLUMBERGER ..................... CUT TO EQUALWEIGHT FROM OVERWEIGHT ....................................................... BY BARCLAYS
SOCIETE GENERALE .............. CUT TO HOLD FRM BUY ................................................................................ BY DEUTSCHE BANK
IBERDROLA .............................. CUT TO EQUAL WEIGHT ............................................................................. BY MORGAN STANLEY
GAS NATURAL ......................... CUT TO UNDERWEIGHT ............................................................................. BY MORGAN STANLEY
INTERCONTINENTAL HOTELS CUT TO HOLD FROM BUY .........................................................................................BY JEFFERIES
LANXESS AG............................. CU TO NEUTRAL FROM OVERWEIGHT ............................................................................. BY HSBC

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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8-May-09 WHAT’S NEXT STRESS?

CHART OF THE DAY

US Continuing Jobless claims SA (million)
Since 2005

6500

6000

5500

5000

4500

4000

3500

3000

2500

2000
2005 2006 2007 2008 2009

Source : Department of labour

Continuing claims reached another record high at 6 351 000 underlining the difficulty to find a job in the United-States for Americans
who have been lay off.

ECONOMIC DATA
Time Country Indicator Period GE forecasts Consensus Previous
Germany Trade balance March € 7,5 bn € 8,0 bn € 8,7 bn
Germany Current account March € 7,0 bn € 5,6 bn
9.30 GMT United Kingdom Producer prices April 0,2%,+0,7% YoY 0,1%,+2,0% YoY
9.30 GMT United Kingdom Producer prices core April 0,1%,+2,3% YoY 0,2%,3,3% YoY
11.00 GMT Germany Industrial production March -1,3%,-20,9% YoY -2,9%,-20,6% YoY
13.30 GMT United-States Employment report April
Change in Nonfarm Payrolls April - 600 000 - 600 000 - 663 000
Unemployment rate April 8,7 % 8,9% 8,5%
Change in manufacturing Payrolls April - 155 000 -161 000
Average hourly earnings April 0,2% MoM 0,2%,+3,3% YoY 0,2%,+3,4% YoY
Average weekly hours April 33,2 33,2
15.00 GMT United-States Wholesale inventories March -1,0% -1,5%

Indexes Price % 5 Days Ytd Forex Price % 5 Days Ytd

DJIA 8409,9 3,09% -4,18% EUR/USD 1,3393 0,91% -4,14%
S&P 500 907,4 4,02% 0,46% EUR/JPY 132,82 -0,93% 4,60%
Nasdaq 1716,2 -0,01% 8,83% USD/JPY 99,17 -0,06% 8,60%
CAC 40 3251,5 5,16% 1,04% Oil Price % 5 Days Ytd
DAX 4804,1 2,12% -0,13% Brent $/b 56,7 15,52% 35,82%
Eurostoxx 50 2406,1 4,23% -1,70% Gold Price % 5 Days Ytd
DJ 600 206,3 5,10% 4,00% Gold $/oz 914,5 3,16% 3,68%
FTSE 100 4398,7 5,22% -0,80% Rates USA Euro Japan
Nikkei 9448,6 7,78% 6,65% Central Banks* 0,25 1,00 0,10
Shanghai Comp 2597,3 5,24% 42,65% Overnight 0,15 0,35 0,10
Sensex (India) 12101,4 10,14% 25,44% 3 Months 0,18 0,65 0,20
MICEX (Russia) 1011,7 9,83% 63,30% 10 Years** 3,31 3,38 1,46
Bovespa (Brasil) 50058,1 6,00% 33,31% *US: Fed Funds; Jap: Overnight; Euro: Refi
** Euro: German Bund rate Source : Bloomberg
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8-May-09 WHAT’S NEXT STRESS?

ECONOMIC DATA PREVIEW
Watch in the United-States the release of the employment report due at 13.30 GMT. Jobs destruction should slow down but will
remain high at around 600 000 and unemployment rate should climb to 8.7%.

Watch in Germany the release of the trade balance due at 7.00 GMT. German trade surplus is expected to narrow as exports should
slow down and imports should dropped at a slower pace./JB

ECONOMY
UNITED-STATES : INITIAL JOBLESS CLAIMS DECREASED BUT REMAINED HIGH AND CONTINUING CLAIMS REACHED NEW RECORD HIGH
Initial jobless claim decrease from 635 000 April 24 th to 601 000 May 5 th showing that fewer Americans filed claims for unemployment
benefits last week, this is the second consecutive week that job destructions even if they remain at a high level are dropping. Meanwhile
continuing claims reached another record high at 6 351 000 underlining the difficulty to find a job in the United-States for Americans who
have been lay off. Indeed even if the domestic demand is doing well (consumer spending rose of 2.2% at the first quarter 2009 its
highest rise since the first quarter 2007) the global economic downturn is cutting foreign demand for American’s goods forcing
companies to cut jobs and to slow hiring to adjust their offer.

EURO ZONE : THE EUROPEAN CENTRAL BANK CUT ITS LEADING RATE OF 0.25 BP
As expected the European Central Bank cuts its leading rate of 0.25 bp to reach 1.0%. At the opposite of the Fed or of the Bank of
England the ECB is taking ordinary measure to an extraordinary situation. Indeed the recession is deepening in the Euro area, the
unemployment is rising putting some countries close to a social crisis and the deflation is getting closer. If the cut of 0.25 bp is a positive
point as it could lead the euro down this decision as been taken way too late. Indeed any decision of monetary policy is taking six to nine
month to impact the activity. For the future we anticipate a new cut of the ECB refi rate of 0.25 bp in June to reach 0.75% which will be
most likely the last cut.

FRANCE : THE TRADE DEFICIT WIDENED IN MARCH

France’s trade gap unexpectedly widened in March to reach - € 4.9 bn (forecast -€ 3.9 bn). Indeed importations following the good
resistance of the domestic demand increased of 0.7% versus a drop of 0.8% in February, meanwhile exportations dropped of 1.8% in
March at almost the same level than the previous month. The global economic downturn is cutting demand for French goods abroad
humping exports and affecting the trade deficit. On the other hand the high level of the euro is penalizing exportations, putting more
pressure on the European Central Bank to cut again its leading rate next month./JB
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8-May-09 WHAT’S NEXT STRESS?

VIX index : implied volatility on the S&P 500 $Libor - 3-Month (Interbank Rate)
6
85
80 5,5
75 5
70
65 4,5
60 4
55
50 3,5
45 3
40
35 2,5
30 2
25
20 1,5
15
1
10
5 0,5
08/05/2007 08/11/2007 08/05/2008 08/11/2008 08/05/2009 08/05/2007 08/11/2007 08/05/2008 08/11/2008 08/05/2009

Source : Bloomberg Source : Bloomberg

United States : 10-year Treasury yield 10-year Treasury spread USA-Euro zone
5,5 1,2
5,25 1
5
0,8
4,75
4,5 0,6
4,25 0,4
4 0,2
3,75
0
3,5
3,25 -0,2
3 -0,4
2,75
-0,6
2,5
2,25 -0,8
2 -1
08/05/2007 08/11/2007 08/05/2008 08/11/2008 08/05/2009 08/05/2007 08/11/2007 08/05/2008 08/11/2008 08/05/2009

Source : Bloomberg Source : Bloomberg

Oil : Brent ($/b) Forex : Euro vs Dollar (EUR/USD)

150 1,65
140
1,6
130
1,55
120
110 1,5
100
1,45
90
1,4
80
70 1,35
60
1,3
50
1,25
40
30 1,2
08/05/2007 08/11/2007 08/05/2008 08/11/2008 08/05/2009 08/05/2007 08/11/2007 08/05/2008 08/11/2008 08/05/2009

Source : Bloomberg
Source : Bloomberg