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24-Feb-09 STRESS TEST

At least now we know, tomorrow will start this stress test from the Fed on the banks, when looking closely at their results and
financial conditions it will inject some further capital through convertible preferred shares (we don't know the conditions), making the US
government start a process of creeping nationalization, such as the one happening with Citigroup. Problem being that the management
cleaning process from banks might not be as tough as the one from the government when looking at what the French government did with
Natixis, reporting then a 4.5 bn euros loss when the management was declaring 1.5 bn. Banks will be able to give the money back before
the conversion becomes mandatory so the institutions can remain private over time.
About China things are working well when you look at the dramatic increase of bank lending in china (up 21 per cent in January, the
3rd month of acceleration) which is a sign of recovering economic strength in the country. January data amounts to 40 per cent of the total
loans issued last year and represents 5.5 per cent of GDP ! The Chinese word for crisis, Wei Ji, is a compound of the characters for
Danger (Wei), and Opportunity (Ji). Wei Ji also sums up the behavior of China since the onset of the current global crisis. No doubt, China
acted a bit early in its hope of finding “Ji” in the “Wei”. The best thing you can say about the various investments in Blackstone, Morgan
Stanley, Fortis, etc is that they were made “a bit early”. However this is not stopping China from hunting for more Ji –this time around, the
target is natural resources. China’s overseas investments are not new; the country has been “going out” in bigger increments for the past
few years. In particular, energy and mineral companies were encouraged to secure precious resources overseas, but the majority of past
deals were small, in the millions of dollars range. With the prices of most natural resources having collapsed, China is now laying much
bigger sums on the table: Chinalco hopes to invest $19.5bn to become Rio Tinto’s second-largest shareholder while China Minmetals is
willing to stump up $1.7bn to take over OZ Minerals. Moreover, in exchange for oil supply deals with Russia and Brazil, Chinese banks
will lend a combined $35bn to Rosneft, Transnet and Petrobras.
About the US, we should not hear much new from Bernanke this afternoon. Following the normal two-day format, Bernanke will
testify to the Senate on Tuesday and the House on Wednesday, presenting identical prepared remarks at both appearances. Neither
appearance is likely to throw up any major surprises, however, as Bernanke spoke on Capitol Hill only a couple of weeks ago and made a
major speech to the National Press Club last week. Moreover, by unveiling its new economic forecasts last week in the minutes from the
last FOMC meeting, the Fed has further reduced the potential for a big market reaction this week. Up until last year those forecasts were
unveiled in the Monetary Policy Report, which is published to coincide with the chairman’s testimony.
The new forecasts show the Fed now expects GDP to contract by between 0.5% and 1.3% this year. The economy is then
expected to rebound sharply , however, expanding by close to 3% in 2010 and more than 4% in 2011. It was the inflation forecasts that
received the most attention last week because for the first time the Fed published a “longer run” forecast for PCE inflation of between
1.7% and 2.0%. That forecast is supposed to be interpreted as a de facto target. The Fed has been publishing a projection for inflation up
to three years ahead since November 2007, so this is not entirely new. However, the longer-run forecast is, according to the Fed’s own
admission, a more explicit signal that should better anchor long-term inflation expectations. In this case, anchoring expectations means
preventing deflation becoming ingrained in the psyche of households and businesses.
For the time being at least, the Fed is going to focus on its programs to buy mortgage-backed securities and the still-to-be-
implemented Term Asset-Backed Securities Loan Facility (TALF) program, designed to buy recently issued securities backed by
consumer and small business loans. The Fed sees these programs as the best ways of lowering actual borrowing costs for households
and businesses and improving their access to credit.
The market remains under pressure from redemption, while the visibility is poor. A better news flow, more transparency regarding
banks, combined to even more attractive levels should make this last downside leg the end of a bear market which started in 2000, and
give place to a nice and strong bull run anytime. Eurostoxx reached 5522 in March 2000, seen 1847 in March 2003, then 4572 June 2007
/ the Nasdaq is closing a gap from Nov 21st at 1384.35 (seen 1386.68 last night) / the Dow and the S&P broke their Dec 2002 lows
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 38,1 1,2741 95,31 2,78 3,01 -7,16 -4,20 -3,61 -2,52 -4,42 -3,38 -4,62 -2,56 -4,14 -3,47 -3,71 -3,41 US
Perf 1d % -1,34 0,37 -0,74 2,34 bp 0 bp -3,09 -0,37 -0,77 -1,48 -2,64 -1,63 -2,65 -0,21 -2,31 -1,35 -2,04 -1,06 Europe
ECONOMIC DATA with impact
German IFO (9h gmt) should nudge down to a new record low in February, but at least the rate of decline is moderating / minor
Dec S&P/Case-Shiller Home Price Index (14h gmt) is likely to show that the speed at which prices are falling accelerated at the end of
last year. Admittedly, the number of existing home sales has risen in recent months / minor although the prices drop and the lowering
mortgage rates are good mid term since it reduces inventories level
US February consumer confidence (15h gmt) / This measure is already at a record low. But with employment falling, share prices
dropping and gasoline prices having started to rise again, the index is likely to plum new depths / minor for today
Federal Reserve Chairman Bernanke (15h gmt) testifies before Senate Banking Committee / should not say much new, see intro above
Dallas Fed President Fisher (16h30 gmt) speaks on financial crisis
POSITIVE IMPACTS
VIVENDI : A London tribunal ordered Elektrim to pay €1.9 bn euros in their dispute over a Polish telco group
GERMAN BANKS regional lenders are thinking about setting up a joint "bad bank", pooling landesbanks' troubled assets (FTD)
LLOYDS may provide billions of pounds of extra mortgage lending in return for the U.K. government waiving an annual interest payment
of £480m payable on preferred stock it bought in the bank (FT)
GENERALI agreed to buy the rest of its ALLEANZA unit, predicting €200m in annual synergies by 2012 (as expected)
RBS job cuts may not be as large as expected as CEO focuses on financial savings rather than a reduction in workers (Times)
SANTANDER & UNION FENOSA have resumed talks with UAE's International Petroleum Investment over the sale of their stakes in
CEPSA (€17.8bn cap) (Expansion said). SANTANDER owns 30.8% & UNF owns 5% stake. To be noted TOTAL owns 49%
PEUGEOT / RENAULT : are increasing production of some cars (small models) to meet rising demand triggered by the Gov decision to
introduce incentives to scrap old cars for new
NOVARTIS : Scientists at Swiss drugmaker Novartis have found a faster way to test H5N1 bird flu vaccines in people,
TELEFONICA &PORTUGAL TEL will raise their stake in Brazilian JV Vivo with tax credits from its acqui. of Brazil's Telemig(Cinco Dias )
CARREFOUR : has offered to buy 74.8% of Russia's Seventh Continent ($450 Kpi) from its indebted main owner (Russian press)
LONMIN : reaches deals with unions over restructuring

JPM cut its quarterly dividend to $0.05 from $0.38, effective for the dividend payable April 30, 2009. The action will enable the company to
retain an additional $5bn in common equity per year.
NEGATIVE IMPACTS
AKZO NOBEL : Q4 rev €3.56bn (3.51e) / Q4 Net pft excl incidentals 121M (135 e) / Balance sheet strong , but prudence dictates SBB
won’t be completed/ Restructuring to be deeper & faster / Still sees €340M in ICI synergies / To pay €1.4 final div (in line)
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24-Feb-09 STRESS TEST

TELECOM ITALIA : may cut the payout as soon as this week.to help to refinance €4.5 bn in debt
ASTRAZENECA : dealing with about 15,000 consumer claims alleging the antipsychotic drug Seroquel causes diabetes, lost its bid to
have an Arkansas lawsuit dismissed.
ROCHE : Genentech announced it has unanimously recommended that shareholders reject the tender offer from Roche to acquire all of
the outstanding shares of Genentech not owned by Roche for $86.50 cash per share
FRANCE TEL : Orange has lost the right to broadcast soccer exclusively on the Orange sport TV channel (Commercial court decision)

AIG may announce $60bn loss / may announce that it is converting the govt’s preferred shares into common stock to relieve pressure on
the New York-based firm’s liquidity (source). AIG pays a 10% dividend on preferred stock, and none on common shares./ Separately AIG
got bids from METLIFE and AXA for the life-insurance unit.
RESULTS DIVIDENDS EVENTS
Today Akzo Nobel / Corio / Deutsche Boerse / Theolia / OZ Minerals / Heinz / Home Depot / Novartis AGM
BHP Biliton ($0.455556) / Reckitt
Benckiser (GBp 53,3333) / British Land
Accor / CNP / Vallourec / Heinkel / ASM International / OMV / Telekom Austria /
Wednesday ( GBp 9,375) / Ladbrokes (GBp Apple AGM
Cadbury
10.05556) / Qualcomm ($0.16) / Time
Warner ($0.0625)
Allianz (BMO) / BASF (BMO) / Acciona / RWE (BMO) / Repsol / Centrica / British
Lockheed Martin ($0.57) / Mc Do
Thursday American Tobacco / TIM / Telecom Italia / Dexia / Deutsche Post / Eiffage / Thales / JP Morgan investor day
($0.50) / Sara Lee ($0.11)
Nicox / Dell / Sulzer / Safeway / GAP / AIG
Novartis (CHF 2.00) / Haliliburton
Friday Acerinox / Aviva / Deutsche Tel / Gruppo Ferovial /Gamesa / Holcim / GM
($0.09)
Vivendi / HSBC / Havas sales / Ahold / Aguas de Barcelona / Allied Irish Banks / Morgan Stanley tech conf /
Monday
Vallehermoso Deutsche Bank Telecom conf
TRADING IDEAS
BUY BASF & RWE (results on Thursday) / EON / L OREAL on double bottom possibility
BUY SAP on island possibility & BUY CARREFOUR on reversal Head & Shoulder possibility

BUY FTE / SELL DTE // BUY METRO / SELL AHOLD // BUY RWE / SELL VEOLIA // BUY DANONE / SELL UNILEVER
BROKER METEOROLOGY
FERROVIAL ................................RAISED TO BUY .......................................................................................... BY BANK OF AMERICA
SWISS LIFE..................................RAISED TO OVERWEIGHT ......................................................................... BY MORGAN STANLEY

KBC .............................................CUT TO SELL FROM HOLD .......................................................................... BY DEUTSCHE BANK

BMW .............................................CUT TO UNDERWEIGHT FROM OVERWEIGHT ....................................... BY MORGAN STANLEY
VESTAS .......................................CUT TO UNDERWEIGHT FROM NEUTRAL ........................................................... BY JP MORGAN
NORSK HYDRO ...........................CUT TO UNDERWEIGHT FROM OVERWEIGHT ................................................... BY JP MORGAN
ALSTOM.......................................CUT TO NEUTRAL FROM OVERWEGHT .............................................................. BY JP MORGAN
BELGACOM .................................RATED NEW SELL ................................................................................................................ BY RBS

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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24-Feb-09 STRESS TEST

CHART OF THE DAY

Baltic Dry Index (BDIY Index)
since 2006

12000

10000

8000

6000

4000

2000

0
jan v - m ai- s ept- jan v - m ai- s ept- jan v - m ai- s ept- jan v -
06 06 06 07 07 07 08 08 08 09

Source : Bloomberg
The Baltic Dry Index increased more than 170 % since the beginning of the year at 2099 or the 2006 levels…The index reached its
highest level in May 2008 at 11793 and a lowest at 663 in December 2008.

ECONOMIC DATA
Tim e Country Indicator Period G E forecasts Consensus Previous
23.50 G M T Japan Corporate service price January -2,5% YoY -2,5% YoY
23.50 G M T Japan BO J m inutes 21-22 February
24-26 February G erm any W holesale price index January -2,0% ,-6,3% YoY -3,0% ,-3,3% YoY
07.45 G M T France Consum er confidence indicator February -41 -42 -41
07.45 G M T France Consum er spending January + 0,2 % , + 0,2 % YoY 0,3% ,+ 0,3% YoY -0,9% ,-1,7% YoY
07.45 G M T France Housing starts 3M YoY change January -16,0% 3M YoY
09.00 G M T G erm any IFO Business clim ate February 83.0 83,0
09.00 G M T G erm any IFO current assessm ent February 84,9 86,8
09.00 G M T G erm any IFO expectations February 81,1 79,4
09.00 G M T Euro area ECB Euro zone current account Decem ber € -16,0 billion
09.30 G M T U nited Kingdom T otal business investm ent ( prelim inary) 4 th quarter -4,2% ,-5,5% YoY -1,3% ,-0,1% YoY
10.00 G M T Euro area Industrial new orders Decem ber -4,9% ,-21,7% YoY -4,5% ,-26,2% YoY
14.00 G M T United States S&P/CaseShiller hom e price Decem ber 154,59
14.00 G M T United States S&P/CaseShiller com posite 20 YoY Decem ber -18,30% YoY -18,18% YoY
15.00 G M T United States Consum er confidence February 38 35,0 37,7
15.00 G M T United States Richm ond Fed M anufacturing index February - 49 -49
15.00 G M T United States Ben Bernanke report on econom y & Fed policy February
15.00 G M T United States House price index Decem ber -1,6% M oM -1,8% M oM
15.00 G M T United States House price purchase index 4 th quarter - 2,0 % -1,8%
22.00 G M T United States ABC consum er confidence 22 February -49

In d e x e s P rice % 5 D a ys Y td Forex Price % 5 Days Ytd

D J IA 71 14 ,8 -9,20% -1 8,9 3% EUR/USD 1,2724 1,18% -8,88%
S & P 500 7 43,3 -9,99% -1 7,7 1% EUR/JPY 121,18 -4,05% -4,57%
N as daq 13 87 ,7 -9,50% -1 2,0 0% USD/JPY 95,24 -2,91% 4,76%
C A C 40 27 27 ,9 -7,88% -1 5,2 3% Oil Price % 5 Days Ytd
DAX 39 36 ,5 -9,85% -1 8,1 7% Brent $/b 39,9 1,84% -4,36%
E uro s toxx 50 19 91 ,6 -9,20% -1 8,6 3% Gold Price % 5 Days Ytd
D J 6 00 1 75,3 -7,00% -1 1,6 3% Gold $/oz 988,8 1,89% 12,07%
F T S E 100 38 50 ,7 -6,60% -1 3,1 6% Rates USA Euro Japan
N ik k ei 72 68 ,6 -4,82% -1 7,9 6% Central Banks* 0,25 2,00 0,11
S ha ngh ai C om p 22 15 ,1 -3,50% 2 1,6 5% Overnight 0,20 1,10 0,11
S en s e x (In dia ) 87 02 ,4 -8,19% -9 ,8 0% 3 Months 0,28 0,97 0,25
M IC E X (R u s s ia) 6 31,7 -13,73% 1,9 6% 10 Years** 2,78 3,01 1,27
B oves pa (B ras il) 387 14,6 -7,10% 3,1 0% *US: Fed Funds; Jap: Overnight; Euro: Refi
** Euro: German Bund rate Source : Bloomberg
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24-Feb-09 STRESS TEST

Economic data preview

Watch in the United-States the release of the Conference Board consumer confidence for February due at 15.00 GMT, expected to be flat
as it probably reached its bottom level in January and despite the fact that the barrel prices stop dropping.

Watch in France the final release of the consumer confidence for February and the household spending for January due at 07.45 GMT.
The consumer confidence is expected to remains stable as prices are on a lasting down trend. France is indeed on its way to a deflation
situation and the household spending are expected to increase in January due to the sales. Watch in Germany the IFO business climate
for February due at 09.00 GMT and expected to remains stable after increasing for the first time in eight months in January./JB

ate

ECONOMY

UNITED- STATES : THE DALLAS FED MANUFACTURING INDEX ACTIVITY CONTINUED TO DETERIORATE IN FEBRUARY
After reaching a record low in November (-61)the Texas manufacturing outlook survey pursued its declined trend in February reaching -
57.3 (forecast -50.0%). If we look to the breakdown all indexes for current activity remained extremely weak. The production index fell to a
new low, the employment and average workweek indexes were negative, the capital expenditure index retreated further, the company
outlook and general business activity indexes remained very weak as well as manufactured indexes and indexes of future activity. These
gloomy survey clearly underlined that the deep recession in the United-States is particularly hitting the manufacturing sector./JB
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24-Feb-09 STRESS TEST

VIX index : implied volatility on the S&P 500 $Libor -3-Month(InterbankRate)

6
85
80 5,5
75
5
70
65 4,5
60
55 4
50
3,5
45
40 3
35
30 2,5
25
20 2
15 1,5
10
5 1
26/02/2007 26/08/2007 26/02/2008 26/08/2008 26/02/2009 26/02/2007 26/08/2007 26/02/2008 26/08/2008 26/02/2009
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
0,6
4,5
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
26/02/2007 26/08/2007 26/02/2008 26/08/2008 26/02/2009 26/02/2007 26/08/2007 26/02/2008 26/08/2008 26/02/2009
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
40
1,25

30 1,2
26/02/2007 26/08/2007 26/02/2008 26/08/2008 26/02/2009 26/02/2007 26/08/2007 26/02/2008 26/08/2008 26/02/2009
Source : Bloomberg Source : Bloomberg