Leverage Has been Driving Stock Market Since 1980s

American has a golden period since the second world war from 1950s to 1960s. Entering 1970s, American struggled through a lost decade: oil crisis and record high inflation. It did not get ditched out until inflationed was dampened in early 1980s. Since 1980s, American companies' profitability have not increased a a whole. But the stock market has been keeping ticking higher for almost three decades. We know the stock market in the late 1990s were driven by irrational exuberance over technology bubble and stock market in the 2000s were driven by subprime mortgages. Behind the business cycles, some secular factors have been driving the economy and stock market: overleverage in consumers and companies, a cliche concept we have heard. Here, I add more color to the blame. First, as shown in the chart, American companies profitability relative to GDP have not surpassed the 1950s level. It has been centering around 8-10%. It implies that companies' profits growth has been in line with GDP growth, which has been been stable at 3-4% annually since 1980s. But companies still managed to boost stock evaluations significantly. First, American compainies have been increasing dividends payment. The dividend share in profits has doubled from ~30% in late 1970s to ~45-50% nowadays. Under DCF model, when a company's growth is certain, the increase of dividends can lead to higher company evaluation. It implies that stock index (DJ) was expected to increase ~70% from $850 to ~1300-1450. This evaluation might be justified only if companies can still maintain the same capital expense. But where was the money from if more profits have been paid out? from bond market! (of course, this estimate for DJ is not justified because more leverage should lead to higher discount rate for equity, dragging down stock evaluation. In my analysis, US market beta should increase from 1 to 1.3 in 2009 because debt/equity is up from 50% to 100%).

Second, American companies have been levering up its balance sheet to take adavantage of lower inflation and lower interest payment. Since 1980, the 10 year US Treasury has been plummeting from 15% to 4-5% even though inflation has been generally below 4%.

As shown in the third chart, both financial and nonfinancial companies have levered. In particular, financial companies leverage has increased at a frenzy pace. As demonstrated in the fourth chart, the bulk of financial leverage went to housing mortgages, Agency MBS and ABS (private label).

The source of high leverage in financial companies was high mortgage debt on consumers. But the fundamental cause was government policy. "The democratization of credit began decades ago. Federal legislation in the late 1970s required banks to avoid discriminatory lending and meet the needs of local communities, spawning a wave of home buying and entrepreneurship in lower-income neighborhoods. The rate of homeownership in families with incomes in the bottom two-fifths rose to nearly 49% by 2001 from below 44% in 1989, according to Fed data analyzed by Mr. Mann at Columbia."(http://online.wsj.com/article/SB125511860883676713.html?mod=WSJ_hpp_MIDDLETopStories)

Also, Bush's policy for increasing home ownership in the late 1990s further fuel consumers to take on mortgages, especially subprime mortgages.

CIT In Danger Yet CIT Senior Unsecured Loan Cheap

CIT Group Inc. has been struggling with many issues. Among them are Liquidity Concern The downgrade to below investment grade and the lack of government support to issue government-guaranteed debt weighed on CIT’s liquidity condition, whose funding relies on issuing secured and unsecured debts. Furthermore, CIT has significant maturities of debts. More than $9 billion of debts will mature by the end of 2010. Yet CIT dodged immediate bankruptcy by repurchased at a discount its debts, which was supposed to mature at Aug 17th. Low NIM Its NIM has been sliding at a nearly constant pace, from 9% in 2003 to 2.2% in Q1 2009, to negative in Q2 2009. It is funding costs through long term debt is higher than the earning interest in assets. This is a challenge the company has to address. Moderate Reserve By Q2 2009, it is nonacrrusal loans increased to $2.3 billion, 4.78% as a percentage of loan portfolio. Where corporate finance loan nonaccrusal rate increased from 5.86% to 9.45%. Its reserve increased to $1.5 billion, 65% of nonaccrusal assets and down by 80% in Q1 2009. Compared to other well established banks, like JPM or WFC, its allowance to nonaccrusal asset ratio was low. Yet, its ratio has been above average across the banking industry. The average ratio of Loss allowance to noncurrent loans was 66.49% in Q1 2009, probably already drifting to below 65% by Q2 2009. Moderate Exposure to Risky Assets By the end of 2nd quarter, CIT has a loan portfolio of $62.7 billion. More than one third of the portfolio was concentrated in industry manufacturing, commercial airlines, and retail. Its exposure to risky assets such as residential mortgages or CRE is limited. By the end of Q2 2009, the company charged off $50 million on CRE and the size of the CRE portfolio was $744.5 million. Worst Case Scenario Analysis - How much can its senior unsecured creditors can claim? Here are two assumptions for loan portfolio. a. CRE loans write off 20%. The CRE portfolio by the end of Q2 2009 was $744.5 million. It would lead to loss of $148.9 million. b. Rest Loans write off 10%. i. 10% is a conservative assumption. Majority of CIT's rest loan are commercial and industry loan, whose highest delinquency rates in commercial and industry loans since 1980s was 6.5% in 1987s. We assume 15% of loans will be delinquent while a defaulted loan will lose 2/3 of its principal value. ii. Given that the size of loan portfolio ex CRE was ~62 billion. 10% write off would lead to a loss of $6.2 billion. The book value of CIT assets was $71 billion excluding intangible assets. Because $1.5 billion capital has been set aside for loan loss, another loss of ~$6.35 billion, $6.2 billion for rest loans and $0.15 billion for CRE, will only dent CIT assets by $4.85 billion. As a result, the fair book value of CIT assets will be worth $66.15 billion. After the following adjustment illustrate how much fair market value can senior unsecured creditors claim $66.15 billion - Tarp money $2.33 billion - Deposits $5.378 billion - Short term liability $5.434 billion ($0.139 billion trading liability, $2.671 credit balance, $0.182 derivative counterparty, $2.441 billion others) --Long term high priority liability $20.735 ($3.1 billion bank credit facilities and $17.635 billion secured debts) =$ 32.273 billion The book value of long term borrowing was $31.253 billion ($7.451 billion variable rated bonds and $23.801 billion fix rated bonds) by the end of Q2 2009. So our calculation indicates that senior unsecured loan might be paid in whole, which is far higher than current trading level 50-60s. Suppose 10% liquidity premium will be charged against %66.15 billion loans during liquidation, senior unsecured loans will still be worth ~82 cents in the end.

Colonial BancGroup Red Flags

Less cushion against potential loss Its set aside $450 mil by the end of second quarter while its nonperforming asset was 1058 mill. The average ratio for safe banks is at least 100%. Furthermore, its total shareholder equity book value is 1.6 bill. Large exposure to risky asset Among its $26 bil assets, $14 bil goes to loan portfolio. Where CRE and constuction loans accounted for $10 bil. Its nonperforming asset ratio as a percentage of loan portfolio is 7.58% while the average ratio is around 3%. It reflects the fact that has relative high exposure to risky assets. Dilemma in Deposits $20 bill out of its $24 bil liability are deposits. It is like a double edge sword. On the one hand, it benefits from relatively low interest rates, paring the cost through private market funding. But unlike other long term debt, it is expected to pay back deposits in whole in extreme worst conditions. And it even take the risk of bank run if the bank's condition further slip.

Prologis Q2 2009

FFO FFO ex significant non-cash items was $0.19 in Q2 2009. Adding $0.06 non-recurring charge, the adjusted FFO was $0.25. (page 2.3 and first paragragh) Occupancy rates (Leased percentage) PLD's occupancy is still sliding. 78.86% of its directed own portoflio (196,828 square feet) was leased by Q2 2009, 3.26% lower than the leased percentage in Q4 2008. (page 3.1) Rents Rents continued to decline. In the Q 2009, rent rates in total porfolio decreased 12.48% while rent rates in Q1 2009 decrdeased 4.17%. (page 5.3) Lease expiration By the remainder of the year 2009, 6.48% (12,206) of total portfolio's rents will expire. 14.56% (24,595) of rens in 2010 will expire. Liqudity a.Credit lines PLD also has made significant progress on the extension and amendment of the company’s existing $3.64 billion Global Senior Credit Facility, originally scheduled to mature on October 6, 2009. ProLogis has exercised its extension option on the existing credit facility to October 6, 2010 and has secured written commitments of approximately $2.0 billion for its amended credit facility. (page 1.2) b.Secured vs Unsecured debts 283 million of PLD senior notes will matured by the end of 2009. By 2010, another $190 mill of senior notes will mature. Hence, PLD major liquidity concern will arrive on October 2010.

Economical Leading Sectors Scaled back Inventory by Q2 2009

As the second quarter earning season rise to the full swing, US stock markets cheered at the unusual positive earning surprises. Yet, I am cautiously optimistic about the earning numbers. By July 25th, 183 S&P500 firms have released earning. Nearly 75% beat their expectations. This is probably the highest number since 1994 when Reuters started tracking earning numbers. Leading the pack are GS and Intel. Driven by large risk taking and trading expertise in fixed income market, GS beat the expectation by a large margin. It earned $5.71 per share in second quarter, $2.06 more than the expectation. Intel issued the positive outlook for 2010, calling the bottom the PC market. Two sectors, consumer durable and seminconductor, usually lead in the economic recovery. Both sectors have fantastic numbers. Yet a closer look at the number won't give us confidence that economy is recovering into high gear. In consumer durable sector, seven out of eight firms beat the earning expectations. Yet top line growth is grim. Only two of eight firms beat revenue expectations by low margin: one is Black & Deck that tops revenue expectation by 0.16% and the other is Fortune Brands Inc that beat expectation by 1.59%. It implies that most consumer durable companies beat earning expectataions by cutting expense, especialy laying off employees. Yet consumers still tightened their purse strings and balk at large items. As consumers contribute two thirds of GDP, it is hard to imagine a recovery without strong individual consumption. Numbers from semiconductor sector seem more optimistic. six out of ten firms beat earning expectations. But eight firms beat revenue expectations. Leading by Intel and AMD, most semiconductors beat revenue expectations by a relative large margin, 10.07% for Intel and 4.84% for AMD. Yet, the two's inventory number tells us that the two companies have not set the stage for a strong economic recovery. Intel's inventory continue to slide in Q2 2009. Its inentory level by Q2 2009 was 2.8 bil, 240 mill lower than Q1 2009 and 940 mil lower than Q4 2008. Admittedly the pace of decline is shrinking. Second derivative is postive yet first derivative is still negative. AMD's inventory in Q2 2009 was $494 mil, $46 mil lower from Q1 2009 and $63 mil lower from Q42008. These two are not expections. Texas Instrument and Linear Technology also lowered their inventory level in Q2 2009. If these companies received large order from clients or they are confident the economy is poised for a strong recovery, they wiil at least increase their inventory level. Yet their inventoy numbers in the whole sector disappointed me. After scrutinizing the numbers of the two leading sectors, I have to say that economy is getting better yet I have not seen clear signs of a strong recovery.

CIT Red Flags

The company is heading for bankruptcy or debt restrcture. One thing stands out in terms of its financial condition is its leverage. By the end of Q1 2009, CIT group Inc's total debt was $68 bil while equity was $7.5 bil. The company funds its operations primarily through long term debts. By the end of Q1 2009, $59.5 bil out of $68 bil was long term borrowing. Its interest income shrank to nearly 1 bil to 640 mil while interest payment decreased from 765 mil to 633 mil. The earning power from the rest was limited in helping paying off interests. Net income before tax from the rest non-interest earning business could only contributed to $220 mil in Q3. The credit provision further deteriorated the company's capability to cushion against intereset payment. It provisioned $535 mil in Q1 2009, increasing from 247 mil in Q1 2008. The pressing issue is that the company has to pay back $1 bil debt principal in August, $1.4 bil by the end of year and another $8 bil by 2010. But the company has been downgraded in June to junk status. Its long term 10 year bonds are trading at 16%. Its stock traded at 1.15 by 07/11/2009, the historic low. Given no clear sign of economic recovery in the near term and the company's deteriorating financial condtions, its equity and bond financing power might be puny and expensive. The implcation is that the company could only raise money from public market, from government. It has borrowed $2.3 bil tarp money. FDIC has said on July 10th to withhold CIT debt garantuee due to its risk. This would be a devastating blow to the company. The hawk stance would take a toll on the company. It seems that the only solution is either bankruptcy or asking debt holders for concession. Government are unwilling to broker a debt concession deal since the company's failure might not pose systematic risk to the financial markets. It will become clear next week that the bankruptcy might be only option.

CCBD red flags

--Community Central Bank is a regional bank headquartered in Michigan. As of Q1 2009, its asses in the book was $556 mil; its operating income was usually below $50 mil since 2007; its EPS has been negative since Q4 2008 --It is major business is commercial real estates. As of March 2009, CRE loans was $291 bil, ~75% of its loan portfolio and > 50% of it asset. --The company's reserve for problem loans was serioues behind its peers. As of March 2009, regionals banks' allowance for loans over non accrusal loans was ~50%. The measure for CCBD was below 25%. --CCBD has not written off enough its CRE loans compared to its peers. The delinquency rate of its CRE loans was trending upward from 5.4% as of the end of 2007 to 8.4% as of March 2009, somehow above the average deliquent measure of the industry, which rose from 2.7% to 6.4% in the same period. Yet its charge off rate for CRE loans rose from 0.1% as of Q4 2007 to less than 1% in Q1 2009 except in Q4 2008(2.5%). Whereas, the industry has generallyed wrote off 0.4% to 1.33% in the same period. --another snag of CCBD is that the company have been using the decline in liability (corp debentures) to cushion the loss in main business. As market hit bottom in Q1 2009, credit market has been improving. This benefit will not take hold and might even backfire if the value of its liability soars. --Given the deterioating outlook for CRE loans, I suggests investors steer clear of the company. Liquidity --The company will face refinancing risk. By the end of 2009, $34 mill corporate bonds need to be redeemed. By 2010, another $23 mil corp bonds will be due. In addition, by 2010, $39 mil FHLB advance will be due as well. CCBD has $19 mil cash and cash equivalents securities. Its average net cash flow in the past few years has been close to zero, barely above $20 mil in any quarter. Finance --CCBD finances from FHLB, public market, and deposits. The QoQ increase in deposits, especially non interest bearing deposits, was $10 mil. --NIM margin has improved 8% from 2.09% in Q1 2008 to 2.17% in Q1 2009

Market preview and outlook as 05 2009

We have bottomed out since March 2009 but it is still early to conclude V-shape economy. Highly probably, we will experience a W-shape economy until the year end. Since the market bottomed out during early March 2009, all sagging markets have rebounded. Credit market have witnessed that interbank lending rate 3M libor rate has tightened below 100 bps to 80 bps. Commercial paper yields have also trending back to normal under the Fed massive liquidity programs and recovery of investors confidence. AA financial, nonfinancial, and asset based 30 days commercial paper rate have dropped below 60 bps from over 5% in 2007. Long term credit market has rebounded. In 2009, Jan and Feb alone have issued more than 174 bil, at the annual rate of $1044 bil, at a pace more than 2008. Funding market in Equity has seen improvements. With stock market rallying more than 30% since the trough in March, more companies sought the opportunity to tap the market sentiment to beaf up their capital vault. Many banks, such as BAC and State Street, have succesfully raised billions of equity capital in private market. Even some junk rated corporations, such as MGM Mirage, have been able to raised funding. It all means that investors confidence for market is improving and risk appetite have come back shoring up marktes. Market fundamentals have registered mixed signs in the past few months. On the one side, high unemployment and declining house wealth continued to weigh in consuming power. On the ohter side, consumers have been holding consumption too long to sustain any longer. Unemployment rate has reached 8.9% in April 2009, the highest since 1983. It might not exceed the peak of 10.8 in Nov 1982 as Government's massive stimulus package and aggresive monetary policies have prevented a systematic collapse in U.S. economy. But lack of growth engine in US economy and weak consuming power have also excluded the possibility of a sharp recovery in the employment market. In the early 1990s recession, the economy recovered fast under the influence of Internet. In the early 2000s recession, US economy was rescued at some degree by the housing bubble. Unlike previous two recession, US do not have such growth engines in place. You might bet on green technology. But green technology is far from being commericalized. Most of the time, the green technology, such as solar and hybrid, requires massive subsidies from the government to sustain themselves. Hence, it seems naive to expect US economy to return back to the pre-crisis level within one or two years. On the housing front, existing home inventory have reduced to 3.7 mil from the peak of over 4.5 mil in June 2008. The housing price has dropped to 143.17 in Feb 2009 from the peak of 206.52 in July 2006, 30% drop. But the YoY change of the index tended to level off by Februry. However, housing permits has dropped to 494k, the lowest point since 1980. Because banks have been holding foreclosures in the begining of the year in reponse to Governemnt request for mortgages modications. It seemed that the policy was not functional well in preventing foreclosure. Now the flood gate is widen open, more banks will forclore properties, further weighing in the housing market in the short term. Consumers have given out mixed signals. Retail sale in April dropped 0.4%, following a drop of 1.3% in March. It dashed the hope of a full recovery caused by two postive growth in Jan and Feb. Unemployment climbed higher from 8.5 to 8.9% in April. This might weigh heavily consumer and housing market. But manufacturing inventories has been exhausted to the limit that any reduction might have to be offset uing new orders. ISM manufacturing report on business inventories dropped to 32.2 in March, the lowest point since 1982. In April, the indicators rose to 33.6, a sign that the inventory level might bottom out. Further reinforcing the outlook of manufacuring sector, ISM advance orders have keeping increasing almost consistently in the first four months in 2009. Beyond manufacturing sector, non-manufacutring sector has spelled out similar signals: inventory level reached bottom in early 2009 and new advance orders started to pick up since then. All these indicators suggeseted that US manufacutring and sevice inventory levels have dropped to the lowest level and have to be refilled. This type of demand might pull US economy back to normal, but it is not strong enough to push the pendulum to high growth. Other secular developments might limit the upside of US economy within the short time horizon. US consumers might no longer overconsume. Consumers used to borrow to consume, living beyond their means. Now they tend to save more. Within a few months, the US consumers saving rate has reached 4.2% by April , a level not seen since 1995. If this consumer behavior persist, it will benefit consumers in the long term, but prolong the recession in the short run. Some funding market are still closed and might no longer be active. Securization markets, especially subprime mortgage and auto markets, are not back to normal. Similar to what happend after CMO market cisis in 1980, some of these markets might be closed forever. Securization market has played an important role in moving money flow. The shut down of these market might slow down the money flow velocity and prevent the economy from recovering to th pre-crisis level. Banks might dodge the bullet of full involvency. But these banks are still in the processes of deleverage. The tight regulation and delverage prevented these banks from engaging an aggressive approach. They might continue to raise and conserve capital until the economy show signs of growth, not just bottom out. Their conservative approach might limit the capital flow into US economy. In sum, the upside and downside risks of US economy until the year end might be limited. Hence the outlook of US economy might warrant a W-shape. To apply outlook into asset management, I strongly suggest fixed income investment if you are long and hold type invetors. High grade will be a good choice. Also if you are a good at timing market, high frequency trading is suggested for equity investors. Also, be aware of regional banks and REITS corporation. Some of these companies are bound for insovlvency due to their expsoure to Commercial Realt Estate. By the year end, some of these companies might file for banktrupcies.

Sears Q1 2009

From SEC filing • Net income attributable to Holdings’ shareholders for the quarter of $26 million ($0.21 per diluted share) as compared to a net loss attributable to Holdings’ shareholders of $56 million ($0.43 loss per diluted share) in the first quarter of 2008; • Adjusted EBITDA increased 73% to $359 million in the first quarter as compared to $208 million in the first quarter of 2008; • Gross margin rate increased by 130 basis points to 28.6% for the first quarter of 2009; • Reduced domestic selling and administrative expenses by $168 million (or 6.7%) during the first quarter of fiscal 2009 as compared to the same quarter in 2008; • Maintained a strong balance sheet with $1.2 billion in consolidated cash while reducing consolidated debt to $3.0 billion at May 2, 2009 from $3.5 billion at May 3, 2008; and • Today, we successfully amended and extended our credit facility to provide $4.1 billion in financing through March 24, 2010 and $2.4 billion from March 25, 2010 through June 2012, with the option to use existing collateral to obtain up to $1.0 billion of additional capacity subsequent to March 2010 through an accordion feature. First Quarter Revenues and Comparable Store Sales For the quarter, total revenues decreased $1.0 billion to $10.1 billion for the 13 weeks ended May 2, 2009, as compared to total revenues of $11.1 billion for the 13 weeks ended May 3, 2008. The decrease includes a $208 million decline due to unfavorable foreign currency exchange rates and was primarily due to lower comparable store sales. Domestic comparable store sales declined 7.4% in the aggregate, with Sears Domestic comparable store sales declining 11.7% and Kmart comparable store sales declining 2.1% for the quarter. The decline at Sears Domestic continues to be driven by categories directly impacted by housing market conditions (including the home appliances, lawn & garden and tools categories) and lower apparel sales. The decline in comparable store sales at Kmart was driven by a decline in apparel and was partially offset by an increase in sales of home electronics and the impact of assuming the operations of its footwear business from a third party effective January 2009. -------------------------------------------------------------------------------- Operating Income (Loss) Operating income was $128 million for the 13 weeks ended May 2, 2009, as compared to an operating loss of $8 million for the 13 weeks ended May 3, 2008. Operating income for the first quarter of 2009 includes expenses of $59 million related to domestic pension plans and previously announced store closings and severance, as well as a gain on sale of assets at Sears Canada of $44 million. Excluding these items, operating income increased $151 million and was primarily the result of a decline in selling and administrative expenses, partially offset by lower gross margin dollars. Total selling and administrative expenses declined by $242 million due primarily to a $107 million reduction in advertising expense and an $84 million reduction in payroll and benefits expense. The decline in selling and administrative expenses was partially offset by a decline in gross margin dollars of $150 million, which includes a $63 million decline related to the negative impact of foreign currency exchange rates on gross margin at Sears Canada. For the quarter, we generated $2.9 billion in gross margin as compared to $3.0 billion in the first quarter last year. While gross margin dollars declined, our gross margin rate increased 130 basis points to 28.6%. The increase in gross margin rate consisted of increases of 240 basis points at Sears Domestic and 70 basis points at Kmart and was mainly the result of improved inventory management. The increase in domestic gross margin rate was partially offset by a decline in gross margin rate at Sears Canada.

AMB Q1 2009

--AMB property inc. is an industry REIT, competitor of Prologis (PLD) --Propertiy features in 2008 size: 55.6% of 139 mil square feet, occupancy/lease rate: 94.9% vs 95.1% in 2007 vs 95.3% in 2006 remaining term: 3.4 y Q1 2009 --properties features 133 mil square feet 92.2% vs 95.1% Q4 08 vs 94.8% Q1 08 --revenue: 165.5 mil Q1 09, 164.74 mil Q4 08, 176.5 mil Q1 08 --NI: -198 mil, 28 mil, 43 mil Q1 08 --OCF: 62 mil, 61 Q4 08, 62 mil Q1 08 --EBITDA/Interest: 75/32, 85/33, 95/30 --no refinancing risk until 2010 Q2 1 bill revovler loan, 200 mil bonds due in Q3 --leverage: 3.6 bil liab/3.3 bil equity --liquidity: cash 264 mil, AR 145 mil AP 280 mil Comments: --pros: no immediate refinancing risk, stable revenue, cash flow --Cons: lease rate dropp faster, at least than PLD; EBITDA/interest more in line with high yield credits --the company will survive the crisis if its lease rate can maintain above 85%, Market weight until Q2 09

Prologis Q1 2009

--The company made major profit through leasing industry distribution facilities --Rev: 455 mil Q1 09, 1492 mil Q4 08, 1495 mil Q1 08 --NI: -45.7 mil, 634 mil, 14.6 mil --FFO: 232 mil Q1 09, 165 mil Q4 08, 169 mil Q3 08, 318 mil Q2 09 --EBITDA/interest: 316/93 mil, 255/89, 220, 356/96 mil --Cash 124 mil --Maturing debt 3.4 bil tranched (revolver) loan, 200 mil bonds --core propertiese: 1192, leased rate 90.4%, (2% drop from Q4 2008) --total: 1352, leased rate 80.1% (2% decline from Q4 2008, 2.8% drop from Q1 2008) Appendix Q4 2008 --core /developed properties 1331 and 197.1 mil square feet core properties: 1191, 156.4, 92.2% leased rate completed development properties: 140, 40.7, 43.5% At December 31, 2008, in our direct owned segment, we had 2,815 customers occupying 157.3 million square feet of industrial and retail space. Our largest customer and 25 largest customers accounted for 1.9% and 11.8%, respectively, of our annualized collected base rents at December 31, 2008. Comments --The company has relative stable revenue and cash flow. Though refinancing risk is high. I believe the company is able to extend the credit line from banks. --But the lease drop is deteriorating, a red flag --Market weight until Q2 09

American Express Q1 2009

AXP American Express Q1 2009 --Net revenue ex interest expense $5.9 bil vs $6.5 bil Q4 08 and $7.2 bil Q1 2008 --Net income 437 mil, vs 210 mil Q4 08 and 1 bil Q1 08; EPS 0.32 --Write-off rate 8.2% vs 6.5% Q4 08 --provision 1.4 bil --loss reserves/NPA on reported basis 1.64 opinions --marketweight to overweight

Apple Q1 2009

--revenue of $8.16 billion and a net quarterly profit of $1.21 billion, or $1.33 per diluted share vs 10.17 billion Q4 08 --Gross margin was 36.4 percent, up from 32.9 percent in the year-ago quarter. International sales accounted for 46 percent of the quarter’s revenue --In accordance with the subscription accounting treatment required by GAAP, the Company recognizes revenue and cost of goods sold for iPhone™ and Apple TV® over their estimated economic lives. --Apple sold 2.22 million Macintosh® computers during the quarter, representing a three percent unit decline from the year-ago quarter. vs 2.5 mil in Q4 2009 --The Company sold 11.01 million iPods during the quarter, representing three percent unit growth over the year-ago quarter. vs 22.7 mil Q4 08 --Quarterly iPhone units sold were 3.79 million representing 123 percent unit growth over the year-ago quarter. vs 4.4 mi Q4 08 --to the third fiscal quarter of 2009, expect revenue in the range of about $7.7 billion to $7.9 billion and we expect diluted earnings per share in the range of about $.95 to $1.00.”

US Bancorp Q1 2009

--record Revenue 3.9 bil, driven by YoY growth in net interest income, averge loans( 19.6%) --NI 529 mil, 0.24 EPS vs 0.15 Q4 08 vs 0.64 Q1 08 --charge-off 788 vs 632 Q4 08 --provision 1,318 mil vs 1,267 mil --allowance 4.1 bil vs 3.6 bil (120% of nonperforming assets) - in line with BAC and othe banks --opinion marketweight

BAC Q1 2009

BAC Bank of America Q1 2009 Record Revenue of $36 Billion and Pretax, Pre-Provision Income of $19 Billion Merrill Lynch Contributes More Than $3 Billion to Net Income Tangible Common Equity Ratio Improves to 3.13 Percent Extends $183 Billion in Credit in the First Quarter Adds $6.4 Billion to Loan Loss Reserve Bank of America Corporation today reported first-quarter 2009 net income of $4.2 billion. After preferred dividends, including $402 million paid to the U.S. government, diluted earnings per share were $0.44. Those results compared with net income of $1.2 billion, or diluted earnings per share of $0.23 after preferred dividends, during the same period last year. • Bank of America Merrill Lynch was No. 2 in global and U.S. investment banking fees during the quarter and based on volume was No. 1 in U.S. equity capital markets, No. 1 in U.S. high yield debt, leveraged and syndicated loans, and was a top-five advisor on mergers and acquisitions globally and in the U.S., according to first-quarter league tables. • Bank of America funded $85 billion in first mortgages, helping more than 382,000 people either purchase a home or refinance their existing mortgage. Approximately 25 percent were for purchases. • Credit extended during the quarter, including commercial renewals of $44.3 billion, was $183.1 billion compared with $180.8 billion in the fourth quarter. New credit included $85.2 billion in mortgages, $70.9 billion in commercial non-real estate, $11.2 billion in commercial real estate, $5.5 billion in domestic and small business card, $4.0 billion in home equity products and $6.3 billion in other consumer credit. Excluding commercial renewals, new credit extended during the period was $138.8 billion compared with more than $115 billion in the fourth quarter. • During the first quarter, Small Business Banking extended more than $720 million in new credit comprised of credit cards, loans and lines of credit to more than 45,000 new customers. • The company originated $16 billion in mortgages made to 102,000 low- and moderate-income borrowers. * The provision for credit losses of $13.4 billion rose from $8.5 billion in the fourth quarter and included a $6.4 billion net addition to the allowance for loan and lease losses. Reserves were added across most consumer portfolios reflecting increasing economic stress on consumers. Reserves were also increased on commercial portfolios. Nonperforming assets were $25.7 billion compared with $18.2 billion at December 31, 2008 and $7.8 billion at March 31, 2008, reflecting the continued deterioration in portfolios tied to housing. The 2009 coverage ratios and amounts shown in the following table include Merrill Lynch.

GE Q1 2009

GE Q1 2009 1Q ’09 Highlights (Continuing Operations attributable to GE) · Earnings per share (EPS) of $.26 vs 02.12, down 40%; earnings of $2.8 billion, down 35% · Revenues of $38.4 billion, down 9%; Industrial sales down 1%; financial services revenues down 20%; Industrial organic revenue was flat year-over-year · Energy Infrastructure earnings grew 19%; Technology Infrastructure earnings grew 6% · Capital Finance earned $1.1 billion in 1Q and remains on track for profitable 2009 · Capital Finance extended $69 billion of new credit in 1Q · Total equipment and services backlog steady at $171 billion; 1Q Infrastructure orders totaled $19 billion, down 10% · Achieved 93% of planned 2009 long-term debt funding; $47 billion cash and equivalents · Results do not include any impact from newly issued mark-to-market rules; implementing in 2Q · Cash generated from operating activities totaled $2.8 billion, on plan

Citigroup Q1 2009

Citigroup Q1 2009 --Rev: 24.8 bil --NI 1.63 bil (-0.18 EPs) --major driver is FI trading --but allowance/NPA decreased to 115.74% from 124.40% Q4 08 and 158.50% Q1 08 Key Items · Total revenues of $24.8 billion were up 99% compared to the first quarter of 2008, with sequential improvement across all regions. · Net interest margin of 3.30% increased 50 and 8 basis points versus the first and fourth quarter 2008, respectively. · Operating expenses were down $3.7 billion, or 23%, since the first quarter 2008. · Headcount reduced by approximately 13,000 since the fourth quarter 2008 to 309,000 and approximately 65,000 since peak levels. · Tier 1 capital ratio was approximately 11.8% versus 7.7% in the first quarter 2008. · Deposit base remained relatively stable at $763 billion compared to the fourth quarter 2008, despite the challenging environment. Deposits declined 8% since the first quarter 2008, due to the sale of the German retail banking operations and the impact of foreign exchange. U.S. deposits increased $8 billion sequentially and $28 billion year-over-year. · Closed sale of remaining Redecard position for an after-tax gain of $704 million. In the Institutional Clients Group, Securities and Banking revenues were $7.2 billion (vs -5bil Q1 08), mainly due to strong trading results. --Fixed Income Markets rev: 4,688 vs (7,023) --Fixed income markets revenues of $4.7 billion reflected strong trading performance, as high volatility and wider spreads in many products created favorable trading opportunities. Interest rates and currencies and credit products had strong revenue growth.

JP Morgan Q1 2009

JP Morgan Q1 2009 Investment Banking is the key driver this quarter --Record revenue and net income in the Investment Bank, revenue 8,300 mil vs -$302 mil Q4 2008 vs $ 3,011 Q1 2008 --NI 606 mil vs ($2,364 ) vs ($87 ) --Fixed Income Markets revenue was a record $4.9 billion, compared with $466 million in the prior year. The increase was driven by record results in credit trading, emerging markets and rates, combined with strong results in currencies and gains of $422 million from the widening of the firm’s credit spread on certain structured liabilities. --These results were offset partially by $711 million of net markdowns on leveraged lending funded and unfunded commitments, as well as $214 million of net markdowns on mortgage-related exposures. Equity Markets revenue was a record $1.8 billion, up by $797 million from the prior year, reflecting strong trading results and client revenue, particularly in prime services, as well as gains of $216 million from the widening of the firm’s credit spread on certain structured liabilities. --The provision for credit losses was $1.2 billion, compared with $618 million in the prior year, due to a higher allowance reflecting a weakening credit environment. Net charge-offs were $36 million, compared with net charge-offs of $13 million in the prior year. The allowance for loan losses to average loans retained was 6.68% for the current quarter, compared with 2.55% in the prior year. Nonperforming loans were $1.8 billion, up by $1.5 billion from the prior year and $620 million from the prior quarter, reflecting a weakening credit environment. Retail Banking inline with Q4 2008 --sales 8,835 $ 8,684 $ 4,763 --NI 474 $ 624 ($311) The provision for credit losses was $3.9 billion, an increase of $1.2 billion, or 44%, from the prior year. Delinquency rates increased due to overall weak economic conditions, while housing price declines continued to drive increased loss severities, particularly for high loan-to-value home equity and mortgage loans. The provision included $1.7 billion in additions to the allowance for loan losses, primarily for the home lending portfolio. Home equity net charge-offs were $1.1 billion (3.93% net charge-off rate2), compared with $447 million (1.89% net charge-off rate) in the prior year. Subprime mortgage net charge-offs were $364 million (9.91% net charge-off rate2), compared with $149 million (3.82% net charge-off rate) in the prior year. Prime mortgage net charge-offs were $312 million (1.95% net charge-off rate2), compared with $50 million (0.56% net charge-off rate) in the prior year. Card Service inline with Q4 08 but worse because or more credit provision --sales: 5,129 $ 4,908 $ 3,904 --ni: ($547 ) ($371 ) $ 609 The managed provision for credit losses was $4.7 billion, an increase of $3.0 billion, or 179%, from the prior year. The provision reflected a higher level of charge-offs and an increase of $1.2 billion in the allowance for loan losses, due to a weakening credit environment. The managed net charge-off rate for the quarter was 7.72%, up from 4.37% in the prior year and 5.56% in the prior quarter. The 30-day managed delinquency rate was 6.16%, up from 3.66% in the prior year and 4.97% in the prior quarter. Excluding Washington Mutual, the managed net charge-off rate for the first quarter was 6.86% and the 30-day delinquency rate was 5.34%. TREASURY & SECURITIES SERVICES (TSS) --sales 821 $ 2,249 $ 1,913 --NI 308 $ 533 $ 403 --The decrease (of revenue) was driven by lower securities lending balances, primarily as a result of declines in asset valuations and demand, as well as the effects of market depreciation on assets under custody, partially offset by higher net interest income. --it bode well for STT revenue

Nokia Q1 2009

Nokia FIRST QUARTER 2009 HIGHLIGHTS · Nokia net sales of EUR 9.3 billion, down 27% year on year and sequentially (down 24% and down 25% at constant currency). · Devices & Services net sales of EUR 6.2 billion, down 33% year on year and down 24% sequentially (down 31% and down 23% at constant currency). · Services net sales of EUR 150 million (billings of EUR 166 million), up 79% year on year and down 5% sequentially. · Estimated industry mobile device volumes of 255 million units, down 14% year on year and down 16% sequentially. · Nokia mobile device volumes of 93.2 million units, down 19% year on year and down 18% sequentially. · Nokia 5800 XpressMusic volumes of 2.6 million units, with cumulative shipments of more than 3 million units since the smartphone’s launch in late November 2008. · Nokia estimated mobile device market share of 37% in Q1 2009, down from 39% in Q1 2008 and unchanged from Q4 2008. · Nokia mobile device ASP of EUR 65, down from EUR 71 in Q4 2008. · Devices & Services gross margin of 33.8%, unchanged from Q4 2008. · NAVTEQ net sales of EUR 132 million, down 36% sequentially from EUR 205 million, and non-IFRS operating margin of 3.7% (25.7% in Q4 2008) · Nokia Siemens Networks net sales of EUR 3.0 billion, down 12% year on year and down 31% sequentially (down 9% and down 30% at constant currency). · Nokia operating cash flow of EUR 276 million. · Total cash and other liquid assets of EUR 8.1 billion at the end of Q1 2009. INDUSTRY AND NOKIA OUTLOOK · Nokia expects industry mobile device volumes in the second quarter 2009 to be at approximately the same level or up slightly sequentially. · Nokia expects its mobile device market share in the second quarter 2009 to increase sequentially. · Nokia continues to expect 2009 industry mobile device volumes to decline approximately 10% from 2008 levels. Nokia continues to expect the decline to be greater in the first half than in the second half of the year. · Nokia continues to target an increase in its market share in mobile devices in 2009. · Nokia continues to target its non-IFRS operating margin in Devices & Services to be more than 10% in the first half 2009 and to be in the teens for the second half 2009. · Nokia continues to target its annualized non-IFRS operating expense run rate in Devices & Services to be lower than EUR 6 billion by the end of 2010. This would represent a reduction of more than EUR 700 million to the annualized run rate at the beginning of 2009. Nokia continues to target that a majority of the reduction will happen during 2009. · Nokia and Nokia Siemens Networks now expect the mobile infrastructure and fixed infrastructure and related services market to decline approximately 10% in Euro terms in 2009, from 2008 levels. This is an update to Nokia and Nokia Siemens Networks’ earlier estimate that the mobile infrastructure and fixed infrastructure and related services market would decline 5% or more in Euro terms in 2009, from 2008 levels.

GS Q1 2009

Goldman Saches GS Q1 2009 On April 13, 2009, Group Inc. reported net revenues of $9.43 billion and net earnings of $1.81 billion for its first quarter ended March 27, 2009. Diluted earnings per common share were $3.39 compared with $3.23 for the first quarter ended February 29, 2008 and a diluted loss per common share of $4.97 for the fourth quarter ended November 28, 2008. Annualized return on average common shareholders’ equity (1) was 14.3% for the first quarter of 2009. --- Trading and Principal Investments Net revenues in Trading and Principal Investments were $7.15 billion, compared with net revenues of $5.12 billion for the first quarter of 2008 and negative net revenues of $4.36 billion for the fourth quarter of 2008. Net revenues in Fixed Income, Currency and Commodities (FICC) were $6.56 billion, more than double the amount in the first quarter of 2008. These results reflected particularly strong performance in interest rate products, commodities and credit products, as FICC operated in a generally favorable environment characterized by client-driven activity, particularly in more liquid products, and high levels of volatility. However, illiquid assets generally continued to decline in value. Net revenues in currencies were solid, but lower compared with a particularly strong first quarter of 2008. Results in mortgages were higher compared with a difficult first quarter of 2008. During the quarter, credit products included losses from corporate debt and private equity investments, and mortgages included a loss of approximately $800 million (excluding hedges) on commercial mortgage loans and securities. In the first quarter of 2008, credit products included a loss of approximately $1 billion, net of hedges, related to non-investment-grade credit origination activities, and mortgages included a net loss of approximately $1 billion on residential mortgage loans and securities. Net revenues in Equities were $2.00 billion, 20% lower than the first quarter of 2008. Net revenues in the shares business were lower compared with the first quarter of 2008 due to lower commissions, primarily reflecting lower levels of activity outside of the U.S. Net revenues in derivatives were solid, but lower compared with the first quarter of 2008. Results in principal strategies were also lower compared with the first quarter of 2008. During the quarter, Equities operated in an environment generally characterized by continued weakness in global equity markets and high, but declining, levels of volatility. Principal Investments recorded a net loss of $1.41 billion for the first quarter of 2009. These results included net losses of $640 million from real estate principal investments and $621 million from corporate principal investments, as well as a $151 million loss related to the firm’s investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC).