Equity Structured Products and Warrants

This material has been produced by RBS sales and trading staff and should not be considered independent.

The Round Up
30 March 2010
Issue No. 302

The Round Up is a comprehensive

daily note produced by the RBS Global Market Action Scoreboard, commentary
Warrants team providing an overview Aussie Market Action SPI Comment, Events & Dividends
of market movements along with News Corp. (NWSKZJ) MINI Trading Buy - 2Q result drives higher guidance
quality ideas for warrant traders and
Equinox (EQNKZA) MINI Trading Buy – Favoured copper play
investors.
QBE (QBEKZM) MINI Trading Buy – Valuation looks compelling
Australian Strategy Loan growth to stay on the mat

Equities
Move Last % Move Range Volume
ASX 200 +0.4 4897.3 +0.0% -7 to +15 $4.9 bn(A)
SPI - yesterday +17.0 4940.0 +0.3% -5 to +20 2,086(L)
Dow Jones +45.6 10895.9 +0.4% -1 to +66 Low
S&P 500 +6.6 1173.2 +0.6% +1 to +8 Avg
Nasdaq +9.2 2404.4 +0.4% +3 to +16 Avg
FTSE +7.6 5710.7 +0.1% -18 to +30 Avg

Commodities
Move Last % Today % Past Month
Oil-WTI spot +2.41 82.41 +3.0% +3.5%
Gold Spot +3.10 1110.60 +0.3% -0.6%
Nickel (LME) +17.74 1086.82 +1.7% +13.6%
Aluminium (LME) +2.78 102.10 +2.8% +7.1%
Copper (LME) +11.46 350.72 +3.4% +7.9%
Zinc (LME) +4.64 104.30 +4.7% +5.9%
Silver +0.48 17.38 +2.8% +5.5%
Sugar +0.51 17.51 +3.0% -27.4%
 Equity Structured Products and Warrants

Dual Listed Companies (DLC’s)

Move %Move Last AUD Terms Diff to Aus
NWS (US) +0.04 +0.2% 17.13 18.68 -12.2 c
RIO (UK) +47.5 p +1.2% £39.11 63.89 -1449.6 c
BLT (BHP UK) +30.5 p +1.4% £22.675 37.05 -633.1 c
BXB (UK) -3.0 p -0.7% £4.410 7.21 -14.5 c

American Depository Receipts (ADR’s)

Move %Move Last AUD Terms Diff to Aus
BHP (US) +2.10 +2.7% 80.69 43.99 +61.2 c
AWC (US) +0.15 +2.4% 6.28 1.71 +1.7 c
TLS (US) +0.16 +1.2% 14.02 3.06 -0.3 c
ANZ (US) +0.29 +1.3% 23.34 25.45 +2.0 c
WBC (US) +2.94 +2.3% 128.99 28.13 -162.5 c
NAB (US) +0.53 +2.1% 25.43 27.73 +2.9 c
LGL (US) +0.01 +0.0% 28.56 3.11 +0.4 c
RMD (US) +0.53 +0.8% 63.49 6.92 +2.3 c
JHX (US) +0.03 +0.1% 32.59 7.11 -2548.3 c
PDN (CAN) +0.16 +4.5% 3.74 4.00 +3.6 c

Overnight Commentary

United States Commentary

Stocks moved higher thanks to increased consumer spending and a stronger outlook for European economies which saw
the US dollar weaker. The Dow finished 46pts higher, the S&P was up 0.6% and the Nasdaq climbed 0.4%.

Eco - Personal Spending was inline with expectations at +0.3% but Personal Income just missed, flat vs +0.1%. The PCE
Deflator was also inline at 1.8% as was the PCE Core YoY at 1.3% and Month on Month PCE Core was flat vs +0.1%
expected.

Materials - A strong night for metals and crude has seen Dow heavyweights climb. Caterpillar was up 1.7%, Alcoa rose
1% whilst Exxon and Chevron were up 1.3% and 1.2% respectively and together the 4 accounted for half of the Dow's
gains. Freeport, up 4.7%, was the best on the S&P100.

Financials - Citi dropped 2.6% and was down nearly 5% after Treasury revealed its plans to sell their stake. Rumours that
Morgan Stanley has been chosen to advise and underwrite the Citi share sale saw it climb 2.3% but it was mixed on the
big board with BoA up 0.8% whilst JP's fell 0.4%.

United Kingdom & Europe Commentary

The FTSE closed 8 points higher Monday as gains in miners and communications heavyweight Vodafone outweighed
losses in the banks. The market finished the day up 0.1%, the DAX +0.4% and the CAC flat.

UK Banks - News that the US government pledged to sell all of their 7.7bn ordinary shares in Citigroup lead the financials
lower. State backed Lloyds and RBS off 1.3% and 1.8% while HSBC and Standard Chartered fell 0.8% and 1.3%
respectively with the 4 stripping 6 point from the market.

Vodafone - Vodafone had a day out adding 3% as press stated they may receive a dividend payment from Verizon
Wireless, a joint venture between itself and US counterpart Verizon Communications. The company refused to comment.

Eco - In the UK, mortgage approvals missed expectations at 47.1k vs 48.4k and net consumer credit was 0.5B vs 0.4B
exp. German CPI (mom) was 0.5% vs 0.3% and 1.1% vs 0.9% (yoy).
 Equity Structured Products and Warrants

Commodities Commentary

Miners - Miners tracked metal prices higher today with investors' quelling their sovereign debt fears allowing the Euro to
hold its recent gains. RIO, Xstrata, Lonmin, BHP and Kazakhmys adding 1.2% to 3.2% and 10 points to the broader
index.

Energy - Energy plays were weaker despite a stronger crude price. BP, BG and Royal Dutch off 0.4% to 0.7%.

SPI Commentary
The SPI traded down 2pt to 4923. Open at 4925 with a high of 4946 and a low of 4906. Volume 18,715. Overnight the SPI
traded up 17pts 4939.

SPI Intraday SPI Daily

*SPI report taken from the 9:50am open to the 4:30pm close on the previous trading day. Charts taken from IRESS

Upcoming Economic Events for the Week

Monday AUS
US US core PCE deflator, Feb, US personal income and spending, Feb
Tuesday AUS
US US consumer confidence, Mar
Wednesday AUS Aus nominal retail trade, Feb, Aus building approvals, Feb
US US ADP employment, Mar,
Thursday AUS
US
Friday AUS
US US non-farm payrolls, Mar, US unemployment rate, Mar
*Dates are indicative only and may change
 Equity Structured Products and Warrants

MINI Trading Buy:

News Corp (NWSKZJ) – 2Q result drives higher guidance
News Corp reported a strong 2Q10 result and raised FY10 guidance. We expect the focus to now turn to FY11 earnings,
with RBS Research FY11F EPS of US$1.13 c13% ahead of Bloomberg consensus of US$1.00. We see the return to ad
growth at the WSJ as a key positive for sentiment towards News Corp's newspaper assets.
RBS Research has a $20.87 Target Price on NWS which represents a healthy 17.4% upside. Get Long NWS with
NWSKZJ.

Source: IRESS

2Q10 result strong and upgrade to guidance; raise FY11F EPS to US$1.13
2Q10 operating profit of US$1,212m was above RBS Research’s US$983m forecast and up 44% on the pcp. 2Q10
normalised EPS of US$0.25 was ahead of RBS Research’s US$0.20 forecast (consensus US$0.20). The company
doubled its FY10 op profit growth guidance to ‘low 20’s’ from ‘high single to low double digit’. We believe this guidance
remains conservative in light of the 26% growth already delivered in the first half and pcp’s getting easier. RBS has raised
FY10F op profit to US$4,340m or 26% growth (vs +20% previously).
Cable continues to power ahead
Cable had another very strong quarter, with op profit up 35%. RBS raise FY10F cable op income 9% to US$2.23bn.
Cable makes up over 50% of News Corp’s op profit and is the key driver of earnings growth. Filmed earnings were also
strong, with very strong Avatar profits still to come.

WSJ delivers advertising growth – a key positive for sentiment

A key positive was an improved Newspaper performance, with the Wall Street Journal print ad revenue up 5%. This sets
the WSJ apart from its US newspaper peers, which continue to report big declines in ad revenues. TV op profit stayed
weak, but stations returned to revenue growth (+6% in 2Q10) and News Corp said 3Q10 station revenue was up 18-19%.
Sky Italia was the main disappointment, with subscribers falling 63,000.

RBS MINIs over NWS

Security ExPrc Stop Loss CP ConvFac Delta Description
NWSKZJ 1167.76 1281 Long 1 1 MINI Long
 Equity Structured Products and Warrants

MINI Trading Buy:

Equinox (EQNKZA) – Wet season almost over, still favoured copper play
Now that the wet season is almost over and guidance is still intact, we expect the market to become more comfortable
with the outlook. We believe EQN continues to have the greatest expansion potential of the copper stocks; maintain Buy.
Buy Long MINI EQNKZA

Source: IRESS

Result below forecast on debt refinancing charges

The reported net loss of US$183m was skewed by a non-cash mark-to-market hedge loss of US$329m. The underlying
profit of US$38m (ex non-cash derivative loss) was lower than RBS Research expected, mostly due to higher financing
costs related to refinancing the Lumwana project debt (not forecast). Cash costs of US$1.53/lb in 4Q09 were also above
RBS estimate of US$1.35/lb owing to additional expenses preparing for the wet season.

2010 guidance maintained at 135kt

The company has reconfirmed its guidance of 135kt at a cash cost of US$1.35/lb for CY10, which factors in lower
production in 1Q10 due to the wet season impacts. Management did not elaborate on how much production was down,
only noting the wet season had been neither good nor bad. The worst of the rains are expected to stop over the next few
weeks.

On track to hit 20Mtpa in 2H10

Ramp up to a nameplate capacity of 20Mtpa is on track for 2H10. The company expects to continue the ramp up process
over the next two years, with the aim of achieving a 24Mtpa rate within18 months or reaching full production. We are
more conservative and don’t expect a consistent throughput of 24Mtpa until 1Q13. An expansion beyond 20Mtpa in the
near term may also require opening up of the Chimiwungo pit, which could incur additional capex.

Investment view – wet season uncertainty evaporating

EQN continues to have the greatest expansion potential of the copper stocks RBS cover, in our view, and trades at a
significant discount to our NPV. We see this discount correcting as production results improve through 2010 and
expansion plans move closer to reality. RBS Research maintain Buy call on a 12-month view. There is still some risk that
1Q production may disappoint the market, but long term we believe the stock should rerate significantly once the ramp up
is complete.

RBS MINIs over EQN

Security ExPrc Stop Loss CP ConvFac Delta Description
EQNKZA 210.37 252 Long 1 1 MINI Long
 Equity Structured Products and Warrants

MINI Trading Buy:

QBE Insurance (QBEKZM) – Valuation looks compelling
QBE has now fallen 13% since its FY09 result compared to a rise in the All Ords of 3%. We believe that this
reaction is overdone and with the stock offering a 6.5% dividend yield we switch to a Buy (from Hold). The main
catalyst for QBE remains rising interest rates but further acquisitions should also boost growth. We maintain
our Buy call.

Get long QBE with QBEKZM for a rebound to RBS Target Price of $23.50.

Source: IRESS

Share price – 16% underperformance since the result

QBE has underperformed the ASX All Ordinaries by 16% over the past week with the stock now down 13% since the day
before the result compared to the market which has risen 3%. Last year’s result delivered a similar reaction, although this
was compounded by the global financial crisis (GFC), with the stock falling 21% in the two weeks after its full year result
versus the market down 3%. In the month after, QBE bounced back 26% against a market recovery of 16%. So
underperformance of 18% was quickly followed by outperformance of 10%.

Valuation looks more compelling – PE, PER and dividend yield

QBE is trading below its historical PE and PER since listing. On a PE basis, the stock is on 11x Bloomberg consensus
one-year forward estimates, only slightly behind its long-term average of 12x. However, on a PE relative basis the stock is
trading on 78% versus its longterm average of 88%. More importantly, the dividend yield is now 6.5% compared to its
historical yield of 4.0%, which we believe should provide good support for the stock.

Catalysts – rate rises and further acquisitions

The main catalyst for QBE appears to be rising global interest rates, which we anticipate will start coming through in
2H10. Management has calculated that a 1% rise in global interest rates would add A$316m to FY10 NPAT. Other
potential catalysts include further acquisitions, a softer AUD and evidence of a hardening in overseas insurance markets.

Investment view – switch to a Buy recommendation (from Hold)

In our view, QBE's track record in underwriting and acquisition execution remains strong. Furthermore, the company
retains a strong balance sheet with cA$1bn of debt capacity available for acquisitions. The valuation appeal is just too
strong and so we switch to a Buy recommendation (from Hold).
QBE last traded $21.35, BUY QBEKZM for 1-for-1 upside towards RBS Target Price of $23.50

RBS MINIs over QBE

Security ExPrc Stop Loss CP ConvFac Delta Description
PDNKZK 290.98 334 Call 1 1 MINI Long
 Equity Structured Products and Warrants

RBS Round Up Corner:

Loan growth to stay on the mat

We believe consensus forecasts for Australian lending growth are overdone. In our view, housing loan growth
will be constrained by structural drags and a strong rebound for business lending will not emerge until 2013.
We have cut our total lending growth for the majors to 6% in FY11-12F from 7.5% and 8.5%.

Loan growth to disappoint in this cycle

We think Bloomberg consensus forecasts for Australian lending growth are overdone. Australia’s system total lending
growth fell from 16.3% in December 2007 to just 0.8% in November 2009. Many forecasters see a decent cyclical
rebound for lending growth as Australia and New Zealand emerge from their slumps. Our view is that housing loan growth
will be constrained by structural drags over the long term and that business lending’s cyclical rebound will take several
years to gain traction.

Housing loans – great party but the hangover looms

We are cautious on the long-term outlook for housing loan growth. Despite a sharp drop in interest rates in 2008-09 and
big support from government handouts, Australian system housing loan growth looks likely to peak at just 8.5% in the
next few months. In previous decades, this would have been a cyclical low growth rate. The recent decline in new loan
approvals suggests that growth in outstanding loans will slide to the 5-7% range in 2011/12. High household leverage
supports our cautious view.

Business loans – sluggish recovery for company loan appetite

We forecast the 2010-13 business loan recovery will be drawn out, despite a good outlook for business investment. In the
early 1990s and early 2000s cycles, Australian business lending only regained 10% growth three years after each trough.
If this holds in the next few years, business lending growth won’t reach double-digit figures again until end-2012.
Australia’s relatively high business debt-to-GDP ratio should also restrain loan growth.

Our major bank cash EPS forecasts fall by 1% for FY11 and 2% for FY12
We have cut our forecast for system total lending growth for FY11 and FY12 to 6% from 7.5% and 8.5%. We doubt the
major banks can offset sluggish system loan growth by grabbing market share. We have cut our cash EPS forecasts for
the major banks by about 1% for FY11 and about 2% in FY12. The depressed loan growth for Australia and New Zealand
supports our preference for ANZ, as its Asian expansion strategy will decrease its reliance on the local market.

Consensus asset growth assumptions are too high, in our view

Australia experienced a lending boom from 2003 to 2008 where loan growth easily outstripped nominal GDP. The boom
was led initially by housing with business lending taking over in late 2006. Annual lending growth in the previous cycle
peaked in December 2007 as the global crisis took hold.

With the economy set to rebound in 2010, most sell-side bank earnings forecasts assume a solid recovery in lending
growth. The average current sell-side estimates suggest total lending growth for the big four Australian banks to reach 8%
in FY11 and 9% in FY12.
We also note the banks also expect sizeable recoveries in Australian lending growth.
 Equity Structured Products and Warrants

Our analysis suggests that these forecasts are overly bullish, and conclude that total lending growth for the majors will
hold steady at roughly 6% in FY11 and FY12.

RBS Research have conducted a top-down review of macroeconomic factors that will influence
home and business lending over the medium term, and also a bottom-up review of recent trends
in approvals and paydowns.

RBS Research have arrived at a total lending growth rate of 5.9% in FY11 and FY12. Based on RBS Research forecasts,
to arrive at a total lending growth rate of roughly 8-10% (consensus) we would need to see a substantial improvement in
business lending of +6-10% above RBS Research forecasts, or a jump in home lending growth of 2-4% above forecast.

As a result RBS Research have made downward revisions to lending growth assumptions for the major banks. RBS
Research have downgraded cash EPS forecasts by ~1% for the majors in FY11 and 2% in FY12. As such, RBS
Research valuation and target prices have been trimmed by roughly 1.7% on average.
 Equity Structured Products and Warrants

For further information please do not hesitate to contact us on the details below

Equities Structured Products & Warrants

Toll free 1800 450 005 www.rbs.com.au/warrants
Trading Products Team
Ben Smoker 02 8259 2085 ben.smoker@rbs.com
Ryan Corrigan 02 8259 2425 ryan.corrigan@rbs.com
Investment Products Team
Elizabeth Tian 02 8259 2017 elizabeth.tian@rbs.com
Tania Smyth 02 8259 2023 tania.smyth@rbs.com
Robert Deutsch 02 8259 2065 robert.deutsch@rbs.com
Mark Tisdell 02 8259 6951 mark.tisdell@rbs.com

Disclaimer
The information contained in this report has been prepared by RBS Equities (Australia) Limited (“RBS Equities”) (ABN 84 002 768 701) (AFS Licence No 240530) and has
been taken from sources believed to be reliable. RBS Equities does not make representations that the information is accurate or complete and it should not be relied on as
such. Any opinions, forecasts and estimates contained in this report are the views of RBS Equities at the date of issue and are subject to change without notice. RBS
Equities and its affiliated companies may make markets in the securities discussed. RBS Equities, its affiliated companies and their employees from time to time may hold
shares, options, rights and warrants on any issue contained in this report and may, as principal or agent, sell such securities. RBS Equities may have acted as manager or
co-manager of a public offering of any such securities in the past three years. RBS Equities’ affiliates may provide, or have provided banking services or corporate finance to
the companies referred to in this report. The knowledge of affiliates concerning such services may not be reflected in this report. This report does not constitute an offer or
invitation to purchase any securities and should not be relied upon in connection with any contract or commitment. RBS Equities, in preparing this report, has not taken into
account an individual client’s investment objectives, financial situation or particular needs. Before a client makes an investment decision, a client should consider whether any
advice contained in this report is appropriate in light of their particular investment needs, objectives and financial circumstances. It is unreasonable to rely on any
recommendation without first having consulted with your advisor for a personal securities recommendation. The information contained in this report is general advice only.
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The warrants contained in this report are issued by RBS Group (Australia) Pty Limited (“RBS”) (ABN 78 000 862 797, AFS Licence No. 247013). The Product Disclosure
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Explanation of Warrant Tables

Security – refers to the code ascribed to the warrant, ExDate – refers to the date on which the warrant expires or is reset, ExPrc – refers to the exercise price, or second
instalment payment, CP – tells you whether the warrant is a call or a put, ConvFac – the conversion factor of the warrant which tells you how many warrants you need to
exercise in order to take possession of 1 share, Delta – tells you how much the warrant will move for a 1c move in the underlying security, Description – Tells you the type
of warrant.
All charts taken from IRESS unless indicated otherwise