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11-Mar-09 CITI OF HEROES

Citigroup is definitely a brain-teaser for the markets: in the end of February, the U.S. Treasury tried to rescue the bank for the third
time since last October (with an overall $45bn capital injection + $301bn credit guarantee). The Government tried to reduce the weight of
dividends paid on preferred stocks it holds in the bank’s capital. Citigroup has essentially proposed a partial nationalization that would
give the government 30 / 40 % ownership by converting the preferred stocks to common stocks. The early reaction of the markets was
deeply negative as they understood it was the first step toward a full nationalization and a definite change in corporate governance.
But the stock market is so concerned about the wider bank nationalizations that key Administration and Fed officials are spending
much of their time trying to calm the markets by underlining their desire to avoid nationalization. Ben Bernanke summarized the Fed’s
approach in Congressional hearings: “I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of
trying to formally nationalize a bank when it just isn’t necessary. I think what we can do is make sure they have enough to fulfill their
function, and at the same time we exert adequate control to make sure that they are doing what’s necessary to become healthy and
viable in the longer term”. Beyond the one or two full nationalization that might prove necessary, it may well make sense for the
government to take substantial stakes now in additional banks in a form that some may view as partial nationalization.
Yesterday, Citigroup (+38.09 %) was a booster for equity markets. Financials led the rally (Wells Fargo +18.46 %, Bank of America
+27.73 %, Morgan Stanley +26.46 %) after Citigroup CEO Vikram Pandit said he believes that the market is undervaluing his bank.
Pandit said the firm was profitable through February and is performing better now than it has at this point in any other quarter in the last
year
China’s trade surplus plunged in February as exports fell by a record, adding pressure on the government to spur domestic
consumption to prop up the economy. The trade gap narrowed to $4.8 billion, about an eighth of the amount in the previous month.
Exports tumbled 25.7 % from a year earlier after -17.5 % in January. Imports fell 24.1 % (-43.1 % in January). The government has halted
the yuan’s gains against the dollar and plans to cut export taxes to zero as demand dries up because of the global slump. Premier Wen
Jiabao is relying on a 4 trillion yuan ($585 billion) stimulus package to propel economic expansion after the weakest growth in seven
years threw millions out of work.
Tuesday’s data on French trade and industry in January suggest that the economy will contract sharply again in Q1. The sharper
than expected 3.1% monthly drop in industrial production left the annual growth rate at -13.8%, the lowest since the series began in 1971.
The recent collapse has clearly been due largely to weak global demand. French export values posted an 8.1% monthly decline in
January and with imports falling by a more modest 1.4%, the trade deficit widened to €4.5bn from €2.5bn. Clearly, this all bodes badly for
GDP in Q1. If industrial production is unchanged in February and March, which seems hopeful at this stage, output will have fallen by
5.3% over the quarter as a whole. Meanwhile, net trade volumes could easily subtract more from GDP in Q1 than in Q4 last year. In all,
French GDP might fall by about 1.0% in Q1.
The dollar gained against the euro after China said exports fell by a record in February, spurring demand for the safety of the U.S.
currency. The widely spread scenario that the dollar should fall sharply as the U.S. budget deficit is soaring and the Fed is printing money
with no limit is not occurring. Because the U.S. is not on a gold standard, it doesn’t have the option to devalue the dollar against gold and
thereby provide a sharp reflationary thrust to U.S. and global recovery efforts. The devaluation of any major currency today simply exports
deflationary pressure to other currency areas where a weaker dollar means a stronger local currency. Japan is already experiencing this
difficulty. The dollar does not depreciate despite frequent warnings to the contrary simply because no one can provide a consistent
answer to this question: against what?
This morning Asian stocks extended the global equity rally spurred by Citi. Treasuries were down as equities soared and the 10-year
rate rose slightly above the psychological level of 3.0 %. Gold was no more a safe haven and decreased under $900 /oz ($897 /oz).
Crude oil was down yesterday (WTI at $45.71 /bbl, -1.36 $) as inventories may have decreased as demand weakened (15.30 GMT)

WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 45,8 1,2646 98,36 3,00 3,00 7,53 5,30 13,77 3,60 7,47 6,22 7,94 2,48 8,07 6,37 7,07 5,80 US
Perf 1d % -3,06 -0,28 0,31 -0,92 bp 6,4 bp 6,83 5,87 10,82 3,16 6,25 4,79 7,17 3,35 7,25 5,63 6,08 4,87 Europe
ECONOMIC DATA with impact
US MBA Mortgage applications 12.00 GMT
OIL INVENTORIES 14:30 UK TIME
POSITIVE IMPACTS

VESTAS WIND… : The head of ABB’s wind energy business expects consolidation in the global wind industry
BNP - FORTIS : Ping An Insurance said that latest offer from BNP is more reasonable than the bid it rejected last month (South China
Morning Post) / Separately Deminor said a majority of its clients back the new agreement as “easier to accept”
LUFTHANSA : FY sales €24.87bn (25.03bn exp) / Operating €1.35bn (1.29bn exp) / Dividend €0.70 (from €1.25 last year) / Sees 2009
operating “clearly below 2008 levels”
ALCATEL : The European Commission cleared Dassault Aviation’s acquisition of the 20.8% stake in Thales held by Alcatel
ROCHE : New data showed that women with early breast cancer continue to benefit from Herceptin years after treatment completion
HSBC : CEO of HSBC’s Asia-Pacific business reaffirmed that the right issue has a strong backing from institutions…
COMMERZBANK has begun to assess non-strategic assets acquired through Dresdner & may sell some of them (Handelsblatt)

NEGATIVE IMPACTS

EADS : The UK government is considering whether to scrap a £2.5 bn order for military transport aircraft (Times)
ITV’s board is considering a share sale to reduce its £730m debt (FT)
UBS revised its 2008 net loss to CHF20.9bn from CHF19.7bn on US tax settlement agreements & SNB adjustments / Said Net New
Money remains positive for Wealth Management Americas unit / Says Near-term outlook remains extremely cautious…
FRAPORT : February passenger traffic down 4.8% at Frankfurt airport, with cargo down 25.6%
HENKEL : S&P revised outlook to negative / A' long-term and 'A-1' short-term corporate credit ratings affirmed
HYPO REAL ESTATE needs another €10bn by late Apr. (S. Zeitung) / The German govt has until Apr. 24 to launch a K increase for HRX

EQUITY MARKETS : Investors pulled out a total of $11bn from hedge funds in February

RESULTS DIVIDENDS EVENTS

Today Banca Monte dei Paschi di Siena / JC Decaux / Deutsche Lufthansa / Enel / InternationalTUI Travel (GBp 7.666667) / Coca
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11-Mar-09 CITI OF HEROES

Power / Lagardere Groupe / Ingenico / National Semiconductor / Bulgari / Terna / Hannover Re Cola Co ($0.41)
Thursday Carrefour / VW / Aegon final / ADP / Delhaize / Geberit Nordea EGM
Friday ENI / Eiffage
Monday Acerinox / Linde
Tuesday Cimport cimentos / Adobe
TRADING IDEAS
BUY FINANCIALS as CREDIT SUISSE / DPB / SCH / BBVA / ING / BNP / AGRICOLE / UNICREDITO
BUY TELEFONICA / VINCI / THYSSEN on reversal Head & Shoulder possibility
BUY ENI / NOKIA to play recovery
BUY RWE / ENEL / ALLIANZ / TOTAL / VIVENDI / SAP on double bottom possibility

BUY METRO / SELL AHOLD // BUY ALLIANZ / SELL AEGON // BUY HOLCIM / SELL LAFARGE // BUY BAYER / SELL BASF

BROKER METEOROLOGY

ROCHE .........................................RAISED TO BUY FROM HOLD ................................................................................................BY ING

UNILEVER ...................................RAISED TO BUY FROM HOLD ...............................................................................................BY ING
BNP ..............................................RAISED TO BUY FROM HOLD ............................................................................................. BY DBK
PIRELLI ........................................RAISED TO BUY FROM HOLD .............................................................................................. BY DBK

TECHNIP ......................................CUT TO CONVICTION SELL FROM NEUTRAL ..........................................................BY GOLDMAN

SAIPEM ........................................CUT TO NEUTRAL FROM CONVICTION BUY............................................................BY GOLDMAN
STATOILHYDRO..........................CUT TO SELL FROM HOLD ................................................................................................... BY CITI
RBS ..............................................CUT TO HOLD FROM BUY ..................................................................................................... BY CITI

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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11-Mar-09 CITI OF HEROES

CHART OF THE DAY
China consumer price index since 1999

10

-2

-4
99 00 01 02 03 04 05 06 07 08 09

Source : National bureau of statistics

Deflation officially arrived in China in February with the CPI index YoY down 1.6 %, a situation not seen since 2001/2002.
Producer price index (-4.5 % YoY) and purchasing price index, which reflects changes in the level of prices of raw materials, fuels and
power paid by industrial enterprises (-7.1 % YoY), plunged as well. These data may re-ignite fears of a global deflation at a time when
the economic key issue to get out of the financial and economic crisis is that inflation is better then deflation.

ECONOMIC DATA
Time Country Indicator Period GE forecasts Consensus Previous
23.50 GMT Japan Machine orders January -4,8%,-40,0% YoY -1,7%,-26,8% YoY
China Trade balance February $ 28,3 billion $ 39,11 billion
7.00 GMT Germany Producer prices January -0,1%,+3,4%YoY -1,0%,+4,3%YoY
9.30 GMT United Kingdom Trade balance January -£ 3,7 billion -£ 3,6 billion
11.00 GMT Germany Factory orders January -2,0%,-28,3% YoY -6,9%,-25,1% YoY
11.00 GMT United - States MBA mortgage applications March 6 th -12,6%
11.00 GMT United - States Bloomberg global confidence March 8,49
18.00 GMT United - States Monthly budget statement March -$ 205,0 billion -$ 175,6 billion

Inde x e s P rice % 5 D a ys Ytd Forex Price % 5 Days Ytd

DJIA 6926,5 3,06% - 21,08% EUR/USD 1,2638 -0,06% -9,43%
S&P 500 719,6 3,43% - 20,33% EUR/JPY 124,35 0,84% -1,79%
Nas daq 1358,3 2,85% - 13,87% USD/JPY 98,39 0,79% 7,87%
CA C 40 2663,7 4,27% - 17,23% Oil Price % 5 Days Ytd
DA X 3887,0 5,32% - 19,19% Brent $/b 44,4 -3,62% 6,32%
Eur os tox x 50 1919,5 2,94% - 21,58% Gold Price % 5 Days Ytd
DJ 600 166,0 2,91% - 16,32% Gold $/oz 897,3 -0,97% 1,77%
FTSE 100 3715,2 5,86% - 16,21% Rates USA Euro Japan
Nikkei 7376,1 - 2,42% - 16,74% Central Banks* 0,25 1,50 0,09
Shanghai Comp 2148,8 4,21% 18,01% Overnight 0,20 0,95 0,09
Sens ex ( India) 8160,4 - 5,19% - 15,41% 3 Months 0,23 0,78 0,24
MICEX ( Rus s ia) 750,2 15,99% 21,09% 10 Y ears** 3,00 3,00 1,32
Bov es pa ( Bras il) 38794,6 6,38% 3,31% *US: Fed Funds; Jap: Overnight; Euro: Ref i
** Euro: German Bund rate So urc e : B lo o m berg
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11-Mar-09 CITI OF HEROES

ECONOMIC DATA PREVIEW
No major economic data due in the United-States

Watch in China the release of the trade balance for February. The Chinese trade surplus is expected to sharply decrease. Indeed the
main economic partners of China are facing a deep recession cutting their demand for Chinese goods abroad.

Watch in Germany the release of the factory orders for January due at 11.00 GMT expected to pursue is drop trend. Indeed the
weakness of the domestic demand as well as the sharp drop of exportations led Germany toward it sharpest recession since the world
war two./JB

ECONOMY

GERMANY : INFLATION ACCELERATE FOR FIRST IN SEVEN MONTH IN FEBRUARY AND THE TRADE SURPLUS IS INCREASING IN JANUARY
Despite the sharp recession in Germany, inflation accelerated for the first time in seven months in February of 0.6% and of 1.0% from
a year ago. After its peak at $ 147 a barrel in July 2008 the price of oil has been divided by five in five months driving the inflation
down. Nevertheless the fact that the barrel stop dropping explained widely this increase of German’s inflation. On the other hand as
the recession is deepening in Germany this rise of inflation will not last as the global supply is way higher than the global demand
companies will be forced to cut jobs and to make lower prices. Germany will have to face in the coming months a deflation situation.
Meanwhile German exports dropped for a fourth month in January of -4.4% as most of the commercial partner of Germany are facing
a deep recession reducing the demand for German’s goods abroad. Imports dropped of 0.8% and the trade surplus widened to € 8.5
billion in January from € 7.3 billion in December. The surplus in the current account measuring all trade including services was € 4.4
billion.

FRANCE : INDUSTRIAL PRODUCTION PLUNGE AND TRADE DEFICIT WIDEN IN JANUARY

After dropping of 9.1% on the fourth last months of 2008 French industrial production declined again of 3.1% in January. As a matter
of fact the level of the French industrial production reached a lowest since 1997 showing the deepness of the industrial recession in
France since 2007. As an illustration the industrial production dropped of 13.8% from a year ago its lowest level since the creation of
the statistic in 1980.If we look into the breakdown all sectors are hit : Starting by the equipment goods and advanced indicator of the
investment dropping of 6.7%in January and of 10.5% from a year ago but the sharpest drop is coming from the transport material
declining of 5.7% in January and of 25.7% from a year ago, showing that the car sector crisis is not over. As a bad news never come
alone the release of the trade balance data happened to be gloomy. Indeed after a sharp drop of € 2.95 billion in December (versus €
5.67 billion in November and € 6.41 billion in October) the French trade deficit reached € 4.549 billion in January 2009. This downturn
has been realized despite the sharp drop of importations (-1.4%) showing the weakness of the domestic demand. Consequently this
drop was led by the collapse of exportations which already dropped of 13.9% between May and December, fell again of 6.7% in
January 2009 at the level of € 28.735 billion their lowest level since March 2005. Its must be noticed that due to structural issues
French exports which are already weak when the world growth is up are particularly low when the global downturn is sharply hitting
the world economy and especially their main European partners./JB
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11-Mar-09 CITI OF HEROES

VIXindex: impliedvolatilityontheS&P500 $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
12/03/2007 12/09/2007 12/03/2008 12/09/2008 12/03/2009 12/03/2007 12/09/2007 12/03/2008 12/09/2008 12/03/2009
Source : Bloomberg Source : Bloomberg

UnitedStates: 10-year Treasuryyield 10-year TreasuryspreadUSA-Eurozone

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
12/03/2007 12/09/2007 12/03/2008 12/09/2008 12/03/2009 12/03/2007 12/09/2007 12/03/2008 12/09/2008 12/03/2009
Source : Bloomberg Source : Bloomberg

Oil : Brent ($/b) Forex: EurovsDollar (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
12/03/2007 12/09/2007 12/03/2008 12/09/2008 12/03/2009 12/03/2007 12/09/2007 12/03/2008 12/09/2008 12/03/2009
Source : Bloomberg Source : Bloomberg
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11-Mar-09 CITI OF HEROES