Morning Note

June 17, 2011

Equity futures are trading mixed and close to fair value ahead of the Michigan Consumer Sentiment at 09:55 ET. Greece's PM announced a cabinet reshuffle appointing Evangelos Venizelos as new finance minister. Venizelos was formerly minister of National Defence. Former finance minister Papaconstantinou was appointed environment minister. German Deputy Foreign Minister Werner Hoyer said today Germanyand France will likely reach a compromise on Friday on involving private creditors in the funding of a second bailout for Greece.

Lipper reports equity fund inflows of $9.3B in w/e 15-Jun vs outflows of ($6.5B) in w/e 8-June.

Fed reports balance sheet assets of $2.83T on Wednesday, +$16.3B w/w and +$483.8B y/y.

Holdings of US Treasury securities were $1.58T on 15-Jun, +$21.3B w/w and +$799B y/y.

Holdings of mortgage-backed securities were $914.5B on 15-Jun, ($3.4B) w/w and ($213.1B) y/y.

Holdings of federal agency debt securities were $118.4B on 15-Jun, ($728M) w/w and ($47.8B) y/y.

Libor fixings

Overnight Libor: Dollar: 0.128% vs prior 0.128%; Sterling: 0.567% vs prior 0.567%; Euro: 1.293% vs prior 1.258%

1-month Libor: Dollar: 0.186% vs prior 0.186%; Sterling: 0.628% vs prior 0.628%; Euro: 1.277% vs prior 1.261%

3-month Libor: Dollar: 0.247% vs prior 0.247%; Sterling: 0.825% vs prior 0.825%; Euro: 1.450% vs. prior 1.438%

July WTI crude ($1.24) to $93.71

Natural gas +$0.013 to $4.425

Gold ($1.40) to $1527.69

10-year yield 2.9672%

30-year yield 4.2013%

Asian Markets

Asian markets were mixed to start the day, but turned down on worries about European debt, the US economic recovery, and the chance that China will raise interest rates. Australia finished flat, reversing a morning rise as European debt worries took over as European trade approached. Japan fell. Exporters suffered as the yen appreciated against the euro. South Korea fell. Tech stocks followed the Nasdaq down, also sliding on concerns about Hynix’s (000660.KS) Q2 results. A negative view on Chinese stocks combined with the Greek problems took Hong Kong down. Japan May department-store sales (2.4%) y/y. The yen is trading at 80.45 to the US dollar.

European Markets

European equity markets opened lower and subsequently extended declines on Greek default concerns. Major indices currently trade slightly above the session lows. Peripheral debt remained under pressure, though their equity markets faired relatively well with declines less than those of major indices and Greek stocks receiving a boost up +1.5%, after PM reshuffles cabinet appointing Evangelos Venizelos as new finance minister. Disappointing results from Research in Motion (RIMM) overnight weighed on the technology sector, amongst the leading fallers, whilst Carrefour (CA.FP) slumped after cutting guidance for its French operations.

Today's Economic Releases (Eastern Time)

05:00 Eurozone Construction Orders y/y (Apr); actual (2.0%); consensus n/a

09:55 US Michigan Consumer Sentiment (Prelim.) (Jun); consensus 73.6

10:00 US Leading Indicators (May); consensus +0.3%

Today's Key Events (Eastern Time)

05:00 Kvaerner pre-IPO investor presentation

08:30 ARIAD Analyst & Investor Day

—:— American Association for Vascular Surgery

—:— FDA Panel: DODAC considers Regeneron Pharmaceutical's BLA for Eylea (VEGF Trap-Eye) to treat wet AMD

—:— FDA PDUFA: Acura Pharmaceuticals' NDA for ACUROX (oxycodone HCl) tablets

—:— FDA PDUFA: Celgene's sNDA for ISTODAX for injection for the treatment of peripheral T-cell lymphoma (PTCL)

—:— HPCS 2011

—:— IADC World Drilling 2011 Conference & Exhibition

—:— International Society for Stem Cell Research - ISSCR

—:— Internet Retailer Conference and Exhibition ~ IRCE

—:— Investment Trends Summit

Company Specific News

Earnings

LPS (Lender Processing guides Q2 EPS to $0.54-$0.56 v. Reuters $0.80)

RIMM (Research In Motion reports Q1 EPS $1.33 vs Reuters $1.32; Reports Q1:

Revenues $4.91B vs Reuters $5.14B)

SPRT (support.com acquires SUPERAntiSpyware for $8.5M)

STLD (Steel Dynamics guides Q2 EPS to $0.35-0.40)

M&A

BJ (Leonard Green and CVC Capital submit joint proposal to acquire BJ's Wholesale)

DOX (Amdocs (DOX) to acquire Bridgewater Systems for C$8.20/share in cash)

ING (ING Group to sell ING Direct USA to Capital One for $6.2B cash and $2.8B worth COF shares)

PATK (Patrick Industries completes acquisition of certain assets of Praxis group)

PP.FP (PPR (PP.FP) completes tender offer for Volcom (VLCM); announces subsequent offering period)

ZRAN (CSR (CSR.LN) and Zoran revise merger terms; new combined cash and stock offer valued at $9.19 per Zoran share; reaffirms Q2 revenue guidance)

Offerings

AEGR (Aegerion Pharmaceuticals files for 4.25M share offering through Jefferies and Deutsche Bank; 1M of which is from holders. The company is offering 3.25M shares and selling holders are offering 1M shares)

ASTM (Aastrom Biosciences files $100M mixed securities shelf registration)

CPF (Central Pacific Financial 2.9M-share secondary (all for US Treasury) priced at $12.75/share through Sandler O'Neill. The offering had been expected to be 5.6M shares)

EVR (Evercore Partners 4.8M share secondary offering for company and holders priced at $32.50 through Goldman Sachs, BofA Merrill Lynch, and Evercore)

RATE (Bankrate 20M-share (of which 7.5M is for holders) IPO priced at $15/share through Goldman Sachs and BofA. The offering was expected to price in the range of $14-16/share.)

Newspaper Articles / Headlines

Barron's

- Barron's Weekday Trader is positive on International Flavors. Barron's Weekday Trader is positive on IFF citing the company's geographical diversification into emerging markets, IFF's focus on product innovation and the company's relatively new managment team. In addition, the article notes the stock currently trades below its 10-year average P/E and could see profitability gains in the near future through margin expansion.

Financial Times

- Citi faces hurdles in selling consumer finance unit One Main. The FT, citing people familair with the matter, reports that bidders are concerned about its funding as a standalone business bidders are trying to establish how much debt the unit will need to raise as well as how much funding Citi will commit to seal the deal bidders are waiting for reviews by credit rating agencies which are expected in the next two weeks as well as audited accounts from Citi for the unit Blackstone (BX0 is in a consortium of potential bidders.

- UK mobile operators tie-up to take on mobile ad market. The FT reports that Everything Everywhere, O2 (TEF.SM) and vodafone (VOD.LN) announced the venture today and seeks to quicken the pace at which smartphones can be used to buy goods and services. The venture is an attempt to win some of the revenue from advertising on handsets currently taken by Apple (AAPL) and Google (GOOG) 3 (13.HK) wasn't invited to join the venture. The venture needs approval from European competition authorities.

- Waitrose to compete with Ocado in online shopping. The FT reports that

Waittrose will start a marketing campaign for its online arm and will start delivering within the M25 area next month. Waitrose had been prevented from competing until 1-July. Ocado makes 50% of its sales in that area according to its prospectus.

- EasyJet to offer flights from Essex. The FT reports the company is moving three planes and 150 staff there in an attempt to cut costs as London airports are increasingly crowded and expensive. The article also notes some benefits will be gained as there will be easy transport links to Olympic sites.

- Airbus receives $6.6B order from GoAir for 72 A320 aircraft.

- Ford working on new global small-car platform. The FT, citing a company executive, reports that the company hopes to replicate the success of its Figo model, and will produce a new small car in various parts of the world. The company will need to expand capacity to do so.

- Itochu beats off Xstrata to buy Columbian coal mine. The FT reports that Itochu as bought a 20% stake in the assets owned by Drummond for $1.52B.

- Regulators draft bank capital requirements. The FT, seemingly citing a draft copy of the proposals, reports that there will be a tiered regime of extra capital requirements each institution will be placed in a 'bucket' with a particlular surcharge depending on size, global reach, complexity etc

banks could move between buckets as circumstancesa change according to people briefed on the discussions, at least 8 banks are targeted for a surcharge of 2.5% of assets above the Basel III minimum of 7%; these include Citigroup (C), JP Morgan (JPM), Bank of America (BAC), Deutsche Bank (DBK.GR), HSBC (HSBA.LN), BNP (BNP.FP), Royal Bank of Scotland (RBS.LN), and Barclays (BARC.LN) Goldman Sachs (GS), Morgan Stanley (MS), UBS (UBSN.VX) and Credit Suisse (CSGN.VX) would be in the next category down and face a 2% surcharge another 10-15 banks will face surcharges ranging from 0.5-2%. There is an empty bucket at the highest level, carrying a 3% surcharge, acting as a deterrent on risky behaviour

Globe and Mail

- London Stock Exchange (LSE.LN) reviewing its bid for TMX Group. In an interview, CEO Xavier Rolet tells the Globe and Mail that TMX shareholders are giving him positive feedback, and he does not rule out a higher offer.

Le Figaro

- French government confirms the replacement of CEO Anne Lauvergeon. The newspaper reports that the French government has confirmed that Anne Lauvergeon will leave her position as scheduled by the end of the month and will be replaced by Luc Oursel as reported by La Tribune yesterday

London Times

- Virgin Money to bid for both Northern Rock and branches of Lloyds Banking Group. The Times reports that Richard Branson says Virgin Money has the financing to buy both. The context of his comments is not made clear.

New York Times

- Maker of silicon wafers gets $150m from the Energy Department. The NYT reports that the company, 1366 technologies, will receive the money as loan guarantees, and has invented a way to reduce wastage in casting wafers, cutting the cost of manufacturing solar cells by about 40%.

- Wall Street set for a summer of cuts. with weak markets and increasing regulations, many of the biggest firms are preparing for cost-cutting

according to a person close to the matter . Goldman Sachs (GS) have decided to cut 10% or $1B of non-compensation expenses in the next 12 months layoffs will also happen but no targets finalized. According to a senior executive, Bank of America (BAC) is likely to cut some staff from its securities division. According to a person briefed on the bank's plans, Credit Suisse (CSGN.VX) is planning cuts in its investment banking unit

diversified companies such as JP Morgan (JPM) and Citigroup (C) are in better shape but JP Morgan is trying to cut non-compensation expenses according to someone briefed on the matter.

Nikkei

- Toyota Motor president Akia Toyoda tells shareholders that domestic, foreign production will return to levels planned at beginning of year in July.

Silicon Valley Insider

- Spotify has signed deals for US launch. The first two sentences of the article say that the deals have been signed, and then cite an executive saying they are being signed as he speaks, so it's not really clear what the timing is here. The executive tells SVW that the service will not start up in the US before 5-Jul.

Wall Street Journal

- Banks enter market for claims related to Madoff fraud. The WSJ reports that. Buyers of victim's claims offer defauded investors a fraction of the claim and hope to get a larger payout when the settlement is made final at some point in the future. A year ago, buyers were offering 20-30 cents on the dollar and now prices have risen to 70-75 cents on the dollar according to people familiar with the market, two banks being sued by the Madoof trustee, UBS (UBSN.VX) and Royal Bank of Scotland (RBS.LN) are amongst those bidding on the claims Goldman Sachs (GS) and Deutsche Bank (DBK.GR) are also involved in the market.

- WSJ likes Bombardier. A "Heard on the Street" column does not go so far as to say the stock's price should be higher, but it does say that if the CSeries works and is ready on time, the company will have a lock on the 150-passenger plane market for at least a couple of years.

- SEC investigating rating agencies. The WSJ, citing people familiar with the matter, reports that: The SEC is weighing civil fraud charges against some credit rating companies for their role in some mortgage-bond deals, specifically whether they did enough research to be able to rate securities adequately. The SEC is looking at S&P (MHP) and Moody's (MCO). The SEC will announce a new wave of investigations against banks and other financial firms shortly, with a second wave of settlements in the fall and a final third group by the end of the year. JP Morgan (JPM) is one of the first banks in line for a settlement of charges, expected within weeks related to the sale of a $1.1Bmortgage-bond investment called squared. The bank and other firms facing allegations of fraud in realtion to these bond deals are expected to pay half or less than Goldman Sachs (GS) did to settle SEC charges. Other firms in the SEC probe include Citigroup (C), Morgan Stanley (MS), and Bank of America (BAC).

- Sina Weibo having large effect. The WSJ focuses on a billionaire's announcement that he was leaving his wife to elope with his mistress, and gives an unsurprising analysis of the social media service. The article notes that much more can be communicated in 140 Chinese characters than in 140 Western ones, and also looks at the ways people have used Weibo to criticize the government or Morgan Stanley (MS) -- which E-Commerce China Dangdang (DANG) CEO Li Guoqing did.

- WSJ is cautious on Fiat. A "Heard on the Street" column notes that the company is betting everything on its integration of Chrysler, and Daimler's (DAI.GR) experience shows that cross-ocean car-company mergers are not guaranteed to work.

- RSA only offering to to replace SecurID tokens for a third of its customers. The WSJ reports that replacing the tokens for everyone might take months, so the company is offering transaction and authentication monitoring services for customers that aren't protecting intellectual property. A person familiar with the matter tells the WSJ that RSA has increased token production by a factor of six.

Research

Citi: downgraded CLS, RIMM

Credit Suisse: downgraded DSX

JP Morgan: upgraded ITMN; downgraded RIMM

Keefe Bruyette: upgraded FCF; downgraded LPS

Nomura Securities: upgraded SPLS

Rodman & Renshaw: downgraded JRJC

TD Newcrest: upgraded POT

UBS: upgraded ATU, MWW, CIEN

Wunderlich: downgraded ETE

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.