Free Essay

Capital Market Outlook October 2011

In: Business and Management

Submitted By Makemote
Words 10106
Pages 41
Lookout Report from S&P Valuation and Risk Strategies

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth
Michael Thompson Managing Director Valuation and Risk Strategies (1) 212-438-3480 michael_thompson@standardandpoors.com Robert Keiser Vice President Valuation and Risk Strategies (1) 212-438-3540 robert_keiser@standardandpoors.com Lisa Sanders Director Valuation and Risk Strategies (1) 212-438-3291 lisa_sanders@standardandpoors.com

Although less than two weeks old, the third-quarter earnings season is shaping up to be a repeat of the second quarter, already suggesting that reported earnings will not break the seven-quarter streak of double-digit earnings growth. Although they were likely inspired by market concerns of a double-dip recession in the U.S. and threats of contagion stemming from the eurozone debt crisis, analysts may have underestimated the earnings power of U.S. companies. The Valuation and Risk Strategies (VRS) research team continues to expect slow GDP growth in 2011. As we said in the previous issue of the Lookout Report, if third-quarter earnings exceed analyst expectations--as they have for the past two years--we think the case for growth over recession will solidify. Heading into the third quarter, the Capital IQ mean estimate for S&P 500 companies declined sharply, with growth forecasts dropping from 17% at the beginning of the calendar quarter to 12.8% on Oct. 10, the day before Alcoa Inc.'s earnings unofficially launched the reporting

The Lookout Report provides cross-market and cross-asset views based upon the unique combined capabilities of S&P Valuation and Risk Strategies, S&P Index Services, Capital IQ, and S&P Leveraged Commentary and Data. Published by S&P's Valuation and Risk Strategies research group, the Lookout Report is a compendium of current data and forward looking insights from leading S&P market specialists. Key areas of focus and differentiation include aggregated corporate earnings, market and credit risk evaluation, capital market activity, index investing and proprietary data and analytics. Featuring interpretations of the investing horizon, the report previews the issues most likely to drive market expectations or cause a disturbance in the weeks ahead.

season (see chart 1). But after a few days, the growth estimate rebounded to 14.6% on Oct. 20, as 67% of companies from eight of 10 sectors reported earnings that exceeded expectations. On July 1, analysts expected the beleaguered financials sector to report third-quarter earnings growth of 14.4%, but then lowered their expectation to 0.8% on Oct. 10. Through Oct. 20, analysts have increased their growth estimate to 6.9% for this sector as firms such as Citigroup Inc. and Morgan Stanley reported better-than-expected results. We observed a similar pattern in growth estimates during the second quarter. On April 18, analysts expected year-over-year growth of 13.8%, which dropped to 13% ahead of the reporting season. However, earnings for S&P 500 firms had grown 19.2% by the end of the quarter. In another positive sign, third-quarter revenue growth estimates for S&P 500 firms have climbed to 10.6% on Oct. 20 from 9.7% on Oct. 11. According to Capital IQ, if third-quarter revenue continues to increase at this pace, it would mark the seventh consecutive quarter of growth in excess of 9%. The last time this happened began in the first quarter of 2004 and lasted through the third quarter of 2006, an 11-quarter stretch.

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Chart 1

The equity market had reacted guardedly to these developments. The S&P 500 Index closed at 1,215.39 on Thursday, up 1.7% since the earnings season began. However, the index rallied toward its highest level since August, last at 1,235.19, intraday Friday (see chart 2). McDonald's Corp.'s shares rose nearly 3% and Honeywell International Inc. climbed more than 5% after both companies reported bullish third-quarter earnings on Friday.
Chart 2

2

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

We think if firms continue to report better-than-expected results, the index could get a further boost. Over the next two weeks, as the majority of companies report, we will have an even better sense of what the third quarter will ultimately bring.

Inside This Issue:
Economic And Market Outlook: Earnings In North America And Europe
Since the beginning of peak earnings season on Oct. 18, several U.S. companies have reported results that exceeded expectations, boosting estimates for the quarter to 14.6%, a 2% increase in just a week. Amid the uncertainty in Europe, however, consensus estimates were significantly lower for the typically economically sensitive sectors, including energy, materials, industrials, consumer discretionary, and financials.

S&P Index Equity Commentary: Consistency In Reporting Is Paramount
Firms and investors use different earnings calculations to evaluate different aspects of a business. For S&P Indices and S&P Capital IQ, accuracy is paramount, but so is consistency. A methodological approach to reporting earnings gives investors insight and allows them to better utilize the information.

Leveraged Commentary And Data: As The LBO Market Sags, Higher Equity Contributions Become Standard
Because of the current conditions in leveraged finance, outsized equity contributions have become necessary to play in today's leveraged buyout (LBO) market. Indeed, among the three large-cap LBOs that private equity firms have struck since Labor Day, contribution capital accounts for no less than 40% of total sources.

R2P Corporate Bond Monitor
Since the beginning of October, risk-reward profiles--as measured by average Risk-to-Price (R2P) scores--affirm the slowly improving trend that began in September in most sectors. Excluding the financials, telecommunication services, and utilities sectors in the U.S., and the health care and materials sectors in Europe, scores have increased across the board.

Market Derived Signal Commentary: France's Vulnerability Fans CDS Market Fears
We think France's CDS will remain vulnerable to market volatility and ongoing news about the debt crisis. And as long as the threat of a ratings action remains, the spread is likely to remain elevated. We will continue to monitor the spread for significant moves in either direction, but we would not be long the CDS at this time.

Capital Market Commentary: Weak IPO Equity Performance Sends Chills Across The Market
Only two domestic company IPOs, priced on a major U.S. exchange and excluding real estate investment trusts, funds, and banks, managed to be completed since mid-August. The scant quantity of deals, along with the fact that a majority of this year's IPOs are trading lower than their offer price, is likely sending chills across the IPO market.

S&P Index Commodity Commentary: Backwardation Into The Future
Commodity prices have recovered along with other risk assets at this early stage of the new quarter, following sharp declines in September.

3

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Economic And Market Outlook: Earnings In North America And Europe
North America
What a difference a week makes. At this point a week ago, expectations for third-quarter earnings growth hit the lowest point of the quarter. After analysts cut nearly 5% since the beginning of the calendar quarter, investors had concerns that the seven-quarter double-digit earnings growth streak was coming to an end. Analysts' expectations were at 17% on July 1 but bottomed at 12.3% on Oct. 1. Since the beginning of peak earnings season on Oct. 18, several companies have reported results that exceeded expectations, boosting estimates for the quarter to 14.6%, a 2% increase in just a week (see chart 3).
Chart 3

The financials sector in particular was hit hard by cuts to earnings estimates. At the beginning of the calendar quarter (July 1), analysts expected 14.4% growth, and on Oct. 12, the forecast implied a year-over-year decline of 1.4%. Within the sector, analysts expected the capital markets and insurance industries to post the most significant declines from third-quarter 2010, down 21% and 11.5%, respectively. Earnings-per-share estimates for some of the biggest names in the capital markets and diversified financials services industries fell significantly since the beginning of the quarter, led by Goldman Sachs Group Inc. ($3.00 decrease), JPMorgan Chase & Co. ($0.29), Morgan Stanley ($0.20), Citigroup Inc. ($0.17), and Bank of America Corp. ($0.08). With the exception of Goldman Sachs, each of these banks beat the Capital IQ estimates and reported growth from the year-ago period. In fact, of the 20 companies with the biggest upside surprises, nine were in the financials sector. Chart 4 details the 10 financial companies with the largest surprise factors so far this earnings season.
4
October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Chart 4

Similarly, financials sector companies have posted some of the most sizable year-over-year growth rates, helping boost the current expected growth rate for the sector to 6.9%. In chart 5, nine of the 15 companies with the largest year-over-year earnings growth rates at this point in the reporting season are financials.
Chart 5

5

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

It's not just financials that are outperforming expectations; 67% of companies have beaten the Capital IQ mean estimate. The strongest sectors are consumer staples sector (82% beat), followed by industrials (79%), and information technology (70%). We note that no companies from the telecom and utilities sectors have topped expectations (see chart 6).
Chart 6

Not only are companies beating on the bottom line, but we are seeing particularly strong revenue growth, currently estimated at 10.6%. The fact that revenue growth is so close to earnings growth for the quarter suggests that cost cutting is not playing as much of a role in bottom-line growth this season. The same sectors that are leading earnings growth for the third quarter are also posting the strongest revenue increases (see chart 7).

6

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Chart 7

Although only 20% of companies have reported, the first week of peak earnings season has delivered some positive news and helped boost equity markets. We should clarify our earnings picture by the end of next week, as 187 companies are scheduled to report results, bringing the total to 63%.

Europe
As the European debt crisis remains unresolved, Standard & Poor's Ratings Services, among other major credit rating agencies, recently took rating actions on certain sovereigns within the eurozone. After downgrading Italy in September, Standard & Poor's lowered its long-term sovereign credit rating on Spain to 'AA-' from 'AA' last week. These downgrades, combined with Monday's statement from German officials that European leaders would not fix the debt crisis by the Oct. 23 deadline, added to concern about economic growth in Europe. Over the past two weeks ended Oct. 14, analysts continued to lower their consensus calendar-year 2011 earnings expectations for the S&P Europe 350 Index from €100.17 to €99.40, a 0.8% drop and to the lowest level since the start of the third quarter, according to Capital IQ data aggregated by VRS Research (see chart 8). Amid the uncertainty, the consensus estimates were significantly lower for the typically economically sensitive sectors, including energy, materials, industrials, consumer discretionary, and financials. Over the past two weeks, the S&P Europe 350 energy sector has overtaken the consumer discretionary sector in terms of earnings growth expectations in 2011. Earnings growth for the energy sector has been approaching that of the materials sector. These two sectors also led earnings growth among the 10 sectors of the S&P 500 Index in the third quarter, and the VRS team expects these two sectors to remain top performers for the fourth quarter (see "Lookout Report: Could The Fourth Quarter Be "Déjà Vu All Over Again" For Stocks?," published Oct. 7, 2011, on the Global Credit Portal). Higher earnings growth for these two sectors might mean that despite recently decreasing commodity prices, analysts currently
7
October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

view commodity-focused businesses as more profitable amid economic uncertainty compared with other businesses.
Chart 8

Contact Information: Christine Short, Senior Manager—Valuation and Risk Strategies, Christine_Short@standardandpoors.com Victoria Chernykh, Director—Valuation and Risk Strategies, Victoria_Chernykh@standardandpoors.com

S&P Index Equity Commentary: Consistency In Reporting Is Paramount
At one point in time, Henry Ford was able to produce only black cars, but that didn't last long. And at one point in time, firms only dealt with earnings--not "operating," not "as reported," not "core," not "normalized," not "EBITDA"--just earnings. Those days are gone. Now, firms and investors use different earnings calculations to evaluate different aspects of a business. For S&P Indices and S&P Capital IQ, accuracy is paramount, but so is consistency. A methodological approach to reporting earnings gives investors insight and allows them to better utilize the information. As a builder selects and cuts his timber to specifications when building a house, investors can appraise specific earnings details to determine how much weight they hold and if the firm is worthy of being added to a portfolio. Although we provide our own interpretations, evaluations, and--at times--projections, how investors evaluate earnings is ultimately up to investors. Several large financial houses, such as Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., and Morgan Stanley utilize a credit valuation adjustment (CVA) and a debit valuation adjustment (DVA), which in their case added a few billion dollars to their net income. These are legitimate entries, and these companies have released full documents explaining the items. At S&P Indices, we include these items as "as reported GAAP earnings" because that is the

8

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

requirement as set forth by GAAP. We are not, nor do we wish to be, the accountant. Both valuation adjustments are typical for companies making loans or dealing in securities and, as such, are a risk and cost of doing business in their industry. Therefore, they are considered part of regular operations. As a result, S&P Indices makes no adjustment to earnings for these items in operating earnings. We will continue to review earnings data, with help from public releases and S.E.C. filings to insure proper treatment. While companies may properly argue for inclusion of certain items (and we do not expect the banks to argue with treatment to include the items), and more commonly argue to exclude certain costs or charges, we look to our rule-based determinant, which is principle based. The question of what is and is not normal or part of a typical ongoing operation is extremely complex, which is why we strive to adhere to methodology. Consistency with methodology and transparency helps investors make informed decisions. But we realize that some analysts may deviate from our number. Contact Information: Howard Silverblatt, Senior Index Analyst—S&P Indices, Howard_Silverblatt@standardandpoors.com

Leveraged Commentary And Data: As The LBO Market Sags, Higher Equity Contributions Become Standard
Because of the current conditions in leveraged finance, outsized equity contributions have become necessary to play in today's leveraged buyout (LBO) market. Indeed, among the three large-cap LBOs that private equity firms have struck since Labor Day, contribution capital accounts for no less than 40% of total sources.

Pharmaceutical Product Development (45% equity contribution)
LCD News recently reported on the terms of the deal backing Carlyle and Hellman & Friedman's $3.9 billion take-private buyout.

99 Cents Only Stores (45%, equity as a percent of total debt and contributed capital)
Sources for Ares and CCP's $1.6 billion public-to-private acquisition of the discount retailer are $775 million of funded debt, $636 million of sponsor capital, and roughly $90 million of rollover equity. (What constitutes the remaining $100 million is unclear.)

OpenLink Financial (42%, according to market sources)
This is a sponsor-to-sponsor deal in which Hellman & Friedman is buying the financial software company from Carlyle. Although no public data are available, LCD News reported that sponsor equity, pro forma for the acquisition, will be 42%, or $434 million. Downmarket, equity contributions have gapped out even more. Since Labor Day, LCD News has reported on two middle-market LBOs--Welsh Carson's acquisition of Triple Point Technology and Warburg Pincus' LBO of Total Safety–-both of which are capitalized at 50%, give or take. These and other LCD News stories are available on www.lcdcomps.com. Today's higher capital contributions are hardly surprising. The gap between the purchase multiple demanded by sellers and the leverage ratio lenders are willing to finance typically widens when the credit markets wobble, as they have lately (see chart 9).

9

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Chart 9

Given the right deal, private equity firms will kick in enough equity to bridge the divide in hopes of later re-leveraging the balance sheet when credit conditions improve. Certainly, that proved a winning strategy in 2009, when the credit markets were burning and the average equity contribution among the large-corporate LBO class rose to a record 46% (see chart 10). Since then, sponsors have extracted a dividend equal to 51% of their original capital contributions on seven of the 23 deals in 2009.

10

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Chart 10

The 2009 experience demonstrates, yet again, that the best deals tend to be executed in the worst times--and vice versa. That's the good news for private equity firms buying properties today. The bad news, though, is equally axiomatic: when equity contributions balloon, deal flow sags. Of course, sponsors could be under more pressure to put money to work than they were in 2009. According to a Bain estimate, sponsors had $434 billion of dry powder on a global basis at the end of 2010 (see chart 11). With no LBO boom since that time, the ticking of the clock can only grow louder.

11

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Chart 11

All of these data show why most players expect buyout activity to remain limited (and lightly leveraged) until the leveraged finance market is able to shake off its recent slump. Contact Information: Steve Miller, Managing Director—Leveraged Commentary & Data, Steven_Miller@standardandpoors.com

R2P Corporate Bond Monitor
The political and economic crisis in Europe has raised concerns that the eurozone, established a decade ago, could be broken up by the departure of one or more members. Over the past 18 months, eurozone leaders have repeatedly met to try to find solutions to the debt problem, but have disappointed financial markets. Investors continue to watch developments in Europe closely, and hope European leaders will produce a clear plan to tackle the sovereign debt crisis that began in Greece and now threatens to drag down Italy, Spain, and even France. In the U.S., new data on the economy turned out to be encouraging. Housing starts jumped 15% to a 658,000 annual rate, the most since April 2010. In addition, Federal Reserve Bank of Atlanta president Dennis Lockhart said he does not expect a double-dip recession. He believes the U.S. economy will grow modestly and inflation will fall to a "healthy level" of about 2%. However, Lockhart also believes unemployment will decline very slowly, as the U.S. economy has been weaker than expected. Initial results from the U.S. third-quarter reporting season, similar to the previous quarter, once again indicate double-digit earnings growth. So far, 136 companies (27%) of the S&P 500 Index reported their third-quarter earnings, and 91 (67%)

12

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

beat expectations. Since the beginning of October, risk-reward profiles--as measured by average Risk-to-Price (R2P) scores--affirm the slowly improving trend that began in September in most sectors (see tables 1 and 2). With the exception of the financials, telecommunication services, and utilities sectors in the U.S., and the health care and materials sectors in Europe, scores have increased across the board, with average option-adjusted spreads (OAS) steadily reflecting a decrease in market and credit risks in October. In the U.S., a 7% decrease in average probability of default (PD) and a 5 basis point (bps) increase in the OAS contributed to the gain in the average score, offsetting a more than 15% jump in bond price volatility. In Europe, the scores increased as bond price volatility fell 5% and more than offset a 14% rise in the average PD.
Table 1

North American Risk-Reward Profiles By Sector--Average R2P Score And Components Changes
Consumer discretionary Consumer staples Energy Financials Health care Industrials Information technology Materials Telecommunication services Utilities
Change as of Oct. 18, 2011, from Sept. 30, 2011.

Scores (%) 3 7 11 (3) 3 0 7 5 (8) (3)

OAS (bps) 2 12 2 13 (26) 11 8 22 (5) 13

PD (%) (12) (22) (12) (4) (36) (19) (1) 3 12 21

Bond price vol. (%) 23 0 22 18 7 12 3 19 38 6

Table 2

European Risk-Reward Profiles By Sector--Average R2P Score And Components Changes
Consumer discretionary Consumer staples Energy Financials Health care Industrials Information technology Materials Telecommunication services Utilities
Change as of Oct. 18, 2011, from Sept. 30, 2011.

Scores (%) 4 2 9 5 (12) 5 7 (3) 2 14

OAS (bps) 26 (2) (5) 11 (3) 4 (17) (3) (12) (2)

PD (%) (4) 2 45 (1) 33 (4) 41 18 2 4

Bond price vol. (%) 19 1 (7) (10) 3 (10) (31) (3) 3 (12)

Contact Information: Fabrice Jaudi, Senior Director—Valuation and Risk Strategies, Fabrice_Jaudi@standardandpoors.com

13

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Market Derived Signal Commentary: France's Vulnerability Fans CDS Market Fears
A major credit rating agency warned that France's declining economy and costs related to the eurozone debt crisis may lead to an outlook revision for the sovereign's top rating, Reuters reported Tuesday. A lowered outlook would signify a potential downgrade in the next two years. After this news, the country's five-year credit default swap (CDS) spread widened immediately to 185 basis points (bps) from 181 bps but it has since narrowed to 182 bps, according to CMA DataVision. However, ahead of the report, the CDS reached an all-time high of 193 bps on Sept. 23, and we think the credit market might have already had concerns about the potential for such an event. Year to date through Oct. 19, the spread has widened 70% (see chart 12). France, the second-largest economy in the eurozone, has been instrumental in trying to resolve the debt crisis, hoping to stave off a Greek default that would exacerbate the region's ballooning financial problems. But bailouts of other eurozone countries have weighed heavily on France's budget. In addition, French banks have heavy exposure to Greek debt. On Oct. 14, 2011, Standard & Poor's Ratings Services lowered its Banking Industry Country Risk Assessment (BICRA) on France to 'Group 2' from 'Group 1' and the economic risk score to '2' from '1'. BICRA rankings reflect the strengths and weaknesses of a country's banking system relative to other countries, with 'Group 1' the strongest on the scale out of 10 groups. Since June 25, 1975, Standard & Poor's has had a 'AAA' rating on France with a stable outlook. "The BICRA change reflects our revised view of several factors: rising economic risk in France since we lowered our forecasts for French economic growth, more difficult funding conditions for banks that illustrate greater vulnerability to capital flows than we had anticipated, and still rising housing prices that might create a potential market imbalance," Standard & Poor's said (see "BICRA On France Revised To Group 2 From Group 1 On Higher Funding Constraints And Rising Housing Prices," published Oct. 14, 2011, on the Global Credit Portal). "BICRA action also takes into account that the largest banks have to rebalance their funding profiles and build higher capital ratios to deal with new regulation and capital market pressure. This will likely constrain asset and revenue growth, and could exacerbate competition to attract customer deposits." Standard & Poor's economic risk score of '2', down from '1' (1 being the strongest and 10 the weakest), places the country in a weaker position than Germany, in line with Japan, and stronger than the U.S. "Our lowered economic risk score reflects our view of greater than we had anticipated vulnerability to capital flows coming from the large balance sheets of French banks." French banks are not likely to see across-the-board ratings cuts as a result of the change in the BICRA score, but the lower score could contribute to revisions "on a case-by-case basis." Over the past year, France's CDS spread has consistently traded wide of its credit rating benchmark. It is in line with its Market Derived Signal (MDS) rating of 'bbb+', seven notches lower than the credit rating.

14

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Chart 12

We also note that the MDS rating on France has not been 'aaa' since April 14, 2010.

15

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Chart 13

France's CDS is also wide of 'AAA' rated eurozone peers Germany and the Netherlands and the lower-rated U.S. (AA+/Negative) (see chart 14).

16

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Chart 14

We think France's CDS will remain vulnerable to market volatility and ongoing news about the debt crisis. And as long as the threat of a ratings action remains, the spread is likely to remain elevated. We will continue to monitor the spread for significant moves in either direction, but we would not be long the CDS at this time. Contact Information: Lisa Sanders, Director, Research—Valuation and Risk Strategies, Lisa_Sanders@standardandpoors.com

Capital Market Commentary: Weak IPO Equity Performance Sends Chills Across The Market
IPOs
Only two domestic company IPOs, priced on a major U.S. exchange and excluding real estate investment trusts, funds, and banks, managed to be completed since mid-August. Medical device company Zeltiq Associates priced seven million shares at an offering price of $13 each on the heels of a $105.6 million offering by communications equipment company Ubiquiti Networks on Oct. 13. So far this month, only 10 U.S. companies have filed plans to raise capital through an IPO. That compares to 21 such filings in the prior month. The scant quantity of deals, along with the fact that a majority of this year's IPOs are trading lower than their offer price, is likely sending chills across the IPO market (see tables 3 and 4).

17

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Table 3

IPOs In U.S.--Market Leaders 2011
--Share price-Closed date 5/18/2011 2/4/2011 4/7/2011 4/19/2011 7/26/2011 7/26/2011 3/31/2011 1/19/2011 8/10/2011 6/8/2011 Target/Issuer LinkedIn Corp. Endocyte Inc. CVR Partners L.P. Sagent Pharmaceuticals, Inc. Tangoe Inc. Dunkin' Brands Group, Inc. GNC Holdings Inc. Wolverine Bancorp Inc. Carbonite Inc. Fusion-io Inc. Total transaction value (mil. $) 352.8 75.0 307.2 92.0 87.7 422.8 360.0 25.1 62.5 233.7 Opening ($) 45 6 16 16 10 19 16 10 10 19 Close ($)* 87.13 11.15 24.33 23.95 14.53 27.60 22.46 14.01 13.56 25.45 Change (%) 93.6 85.8 52.1 49.7 45.3 45.3 40.4 40.1 35.6 33.9

*Data as of Oct. 19, 2011. Source: S&P Capital IQ.

Table 4

IPOs In U.S.--Market Laggards 2011
--Share price-Closed date 5/10/2011 2/7/2011 2/10/2011 1/24/2011 1/25/2011 5/4/2011 2/2/2011 5/11/2011 5/4/2011 1/28/2011 Target/Issuer FriendFinder Networks Inc. Imperial Holdings Inc. Kips Bay Medical Inc. Tibet Pharmaceuticals Inc. Demand Media Inc. NetQin Mobile Inc. Trunkbow International Holdings Ltd. Phoenix New Media Ltd. Renren Inc. BCD Semiconductor Manufacturing Ltd. Total transaction value (mil. $) 50.0 179.2 16.5 16.5 151.3 89.1 20.0 140.4 743.4 63.0 Opening ($) 10.0 10.8 8.0 5.5 17.0 11.5 5.0 11.0 14.0 10.5 Close ($)* 1.80 1.98 1.69 1.22 5.62 4.47 2.00 4.42 5.66 4.65 Change (%) (82.0) (81.6) (78.9) (77.8) (66.9) (61.1) (60.0) (59.8) (59.6) (55.7)

*Data as of Oct. 19, 2011. Source: Capital IQ.

M&A
Following the announcement that Norwegian energy concern Statoil agreed to acquire Texas-based Brigham Energy for $4.88 billion, reports of the demise of foreign acquisitions in the U.S. market may be exaggerated if the pace of cross-border deals accelerates (see table 5). Already this year, the volume of foreign purchases of U.S. energy operations has exceeded $35 billion, the busiest pace of such transactions since 1998, when foreign energy acquisitions in the U.S. topped $58 billion. Furthermore, foreign purchases in the U.S. year to date now top $140.8 billion, exceeding 2010's full-year total of $131.7 billion. The energy and financials sectors accounted for about $72 billion of deal activity to date, according to data retrieved from S&P Capital IQ. To that end, some foreign companies hard pressed to cultivate growth at home appear to be going abroad to acquire growth through U.S. assets.

18

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Table 5

Largest Foreign Acquisitions In U.S. 2011
Announced date 7/14/2011 2/15/2011 2/6/2011 7/12/2011 10/17/2011 6/13/2011 7/12/2011 3/7/2011 4/28/2011 1/17/2011 Target/Issuer Buyers/Investors Petrohawk Energy Corp. BHP Billiton Ltd. NYSE Euronext Inc. Pride International Inc. Kinetic Concepts Inc. Brigham Exploration Graham Packaging Company Inc. Transatlantic Holdings Inc. CaridianBCT Inc. SunPower Corp. General Growth Properties Inc. Deutsche Boerse AG Ensco PLC Apax Partners Worldwide LLP; CPP Investment Board; Public Sector Pension Investment Board Statoil ASA Reynolds Group Holdings Ltd. Validus Holdings Ltd. Terumo Corp. Total Gas & Power USA S.A.S Brookfield Asset Management Inc. Location Asia-Pacific developed markets European developed markets European developed markets European developed markets European developed markets Asia-Pacific developed markets Caribbean Asia-Pacific developed markets European developed markets Canada Total transaction value (mil. $) 15753.6 12657.2 9219.5 6291.6 4882.1 4590.3 4482.9 2625 2249.2 1700.6

Source: S&P Capital IQ.

Debt
The prospects on an accelerating corporate debt calendar appear to be justified based on the latest statistics on security identifier requests. According to information provided by CUSIP Global Services, the most recent data for CUSIP requests show that domestic corporate debt identifier orders through mid-October are trending at the highest monthly count this year. Specifically, if the 580 orders already tallied through Oct. 14 are extrapolated for the balance of the month, then the month could end with more than 1,100 requests. That would mark a 2011 high water mark for CUSIP requests for this asset class (see chart 15).

19

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

Chart 15

Contact Information: Richard Peterson, Director, Research—Valuation and Risk Strategies, Richard_Peterson@standardandpoors.com

S&P Index Commodity Commentary: Backwardation Into The Futures
Along with most other risk assets, commodities continued to recover in the third week of the fourth quarter, as measured by the 5.80% month-to-date increase in the S&P GSCI Index as of Oct. 20. To the chagrin of cash-strapped consumers, energy prices have been the biggest driver of the S&P GSCI, with the S&P GSCI Energy Index up 7.80% month to date. There were few positive signs of economic recovery. The industrial metals continued to be one of the weakest sectors in October, as measured by the month-to-date decline of 3.75% in the S&P GSCI Industrial Metals Index. Reflecting concerns of tightening supply-demand conditions, there continued to be steady movement in the petroleum futures term structures away from contango in the case of WTI crude oil, and steeper into backwardation in the case of Brent crude. Contango (when longer-dated futures contracts trade at higher prices to near-term contracts) is the more common condition in futures markets due to storage costs. Backwardation is the opposite of contango and is often the result of tight supply-demand conditions and generally synonymous with bull markets. WTI crude oil and Brent crude are the two largest constituents in the S&P GSCI. From Oct. 20, 2010, to Oct. 20, 2011, the spot WTI crude oil price increased 4.3%, and the spread between the front-month futures contract to the one-year-out contract month has declined from a contango of $4.68 per barrel to $2.22 per barrel. Over the same time period, the spot price of Brent crude has increased 31.3%, and the one-year term structure has moved from a contango position of $3.73 per barrel to backwardation of $7.39 per barrel. This trend toward backwardation positively affects commodity index total returns, as contango has a tendency to reduce total index returns.
20
October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

A simple way to measure the broad market relative movement in futures term structures is to compare the performance of the base S&P GSCI to the S&P GSCI Three-Month Forward Index. The S&P GSCI Three-Month Forward Index reflects an investment in the same futures contract months as the base S&P GSCI, but three months in the future. Since the end of the first half of 2011, the S&P GSCI has declined 6.57%, compared with a drop of 8.08% for the S&P GSCI Three-Month Forward Index, indicating the trend toward backwardation in the futures curve term structures. Chart 16 depicts the performance of the S&P GSCI and the S&P GSCI Three-Month Forward Index, along with a measure of their relative performance. Since about mid-May of 2010, the S&P GSCI Three-Month Forward Index's return has been about the same as the base S&P GSCI, reflecting the trend in futures curves toward backwardation.
Chart 16

Contact Information: Mike McGlone, Senior Director, Commodities—S&P Indices, Mike_McGlone@standardandpoors.com

21

October 21, 2011
903214 | 301644737

Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth

Lookout Report from S&P Valuation and Risk Strategies

About S&P Investment Services

Capital IQ:
Capital IQ delivers comprehensive fundamental and quantitative research and analysis solutions to over 4,500 investment management firms, private equity funds, investment banks, advisory firms, corporations, and universities worldwide. Its solutions are based on the Capital IQ Platform, Compustat, ClariFI, and Alphaworks products, and offer an array of powerful applications for desktop research, screening, real-time market data, backtesting, portfolio management, financial modeling, and quantitative analysis.

Valuation and Risk Strategies:
S&P Valuation and Risk Strategies offers a portfolio of products and services that serve the global financial markets by providing financial market intelligence and analytic insight for risk driven investment analysis within the debt, structured finance, derivative, and credit markets.

S&P Indices:
S&P Indices is the world's leading index provider maintaining a wide variety of investable and benchmark indices to meet an array of investor needs. Over $1.25 trillion is directly indexed to Standard & Poor's family of indices, which includes the S&P 500, the S&P/Case-Shiller Home Price Indices, the S&P Global BMI, the S&P GSCI, and the S&P National AMT-Free Municipal Bond Index.

Leveraged Commentary and Data:
Standard & Poor's Leveraged Commentary & Data (LCD) provides news and analytics on the leveraged finance market—syndicated loans, high-yield bonds, and distressed debt. Working with buyside and sellside players, LCD offers the most accurate and timely loan and high yield bond information available. Leveraged Commentary and Data will discuss the current trends and outlook for the leveraged finance market. The analysis will be informed by market conversations as well as LCD's extensive database of high-yield and leveraged loan information and far-reaching reportorial effort. For more information on all of these businesses, go to www.standardandpoors.com.

Sign up for you complimentary subscription: www.standardandpoors.com

22

October 21, 2011
903214 | 301644737

Copyright © 2011 by Standard & Poors Financial Services LLC (S&P), a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved. This report was prepared by the S&P Valuation and Risk Strategies research group, formerly known as Market, Credit and Risk Strategies (MCRS). This group is a separate and independent research team at Standard & Poor's and is analytically and editorially independent from any other analytical group at S&P. No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereo (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P. The Content shall not be used for any unlawful or unauthorized purposes. S&P, its affiliates, and any third party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P's opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciary or an investment advisor. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. STANDARD & POOR'S. S&P, S&P 500, S&P INDICES, GLOBAL CREDIT PORTAL and RATINGSDIRECT, are registered trademarks of Standard & Poor's Financial Services LLC. CAPITAL IQ is a registered trademark of Capital IQ Inc.

23

October 21, 2011
903214 | 301644737

Standard & Poor's Index Services
All information provided by Standard & Poor's is impersonal and not tailored to the needs of any person, entity or group of persons. Standard & Poor's makes no representation regarding the advisability of investing based upon any Standard & Poor's index. Standard & Poor's does not sponsor, endorse, sell or promote any investment fund or other vehicle that is offered by third parties and that seeks to provide an investment return based on the returns of any Standard & Poor's index. A decision to invest in any such investment fund or other vehicle should not be made in reliance on any of the statements set forth in this presentation. Prospective investors are advised to make an investment in any such fund or vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or vehicle. Standard & Poor's does not guarantee the accuracy and/or completeness of any Standard & Poor's index, any data included therein, or any data from which it is based, and Standard & Poor's shall have no liability for any errors, omissions, or interruptions therein. Standard & Poor's makes no warranties, express or implied, as to results to be obtained from use of information provided by Standard & Poor's and used in this service, and Standard & Poor's expressly disclaims all warranties of suitability with respect thereto. While Standard & Poor's has obtained information believed to be reliable, Standard & Poor's shall not be liable for any claims or losses of any nature in connection with information contained in this document, including but not limited to, lost profits or punitive or consequential damages, even if it is advised of the possibility of same. These materials have been prepared solely for informational purposes based upon information generally available to the public from sources believed to be reliable. Standard & Poor's makes no representation with respect to the accuracy or completeness of these materials, the content of which may change without notice. The methodology involves rebalancings and maintenance of the indices that are made periodically during each year and may not, therefore, reflect real time information. Analytic services and products provided by Standard & Poor's are the result of separate activities designed to preserve the independence and objectivity of each analytic process. Standard & Poor's has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process.

Risk-to-Price content is provided by Standard & Poor's Securities Evaluations, Inc. (SPSE), a part of S&P Valuation and Risk Strategies and a registered investment adviser with the United States Securities and Exchange Commission. SPSE provides (1) fixed-income evaluations and (2) analyses of certain U.S. and European fixed income securities using its proprietary Risk-to-Price scoring methodology. SPSE is analytically and editorially independent from any other analytical group at Standard & Poor's. Products and services provided by SPSE may not be available in all countries or jurisdictions. SPSE also has redistribution relationships that reflect evaluations and equity pricing services of other, unaffiliated firms with which SPSE has contracted to distribute to its client base. Prices and data provided by these third-party firms are the responsibilities of those firms and not SPSE and are produced under the firms' methodologies and policies and procedures. SPSE disclaims any responsibility for the adequacy and accuracy of any information contained in any feed provided by a third party. Standard & Poor's and its affiliates provide a wide range of services to, or relating to, many organizations, including issuers of securities, investment advisers, broker-dealers, investment banks, other financial institutions and financial intermediaries, and accordingly may receive fees or other economic benefits from those organizations, including organizations whose securities or services they may recommend, rate, include in model portfolios, evaluate or otherwise address. The information contained herein does not constitute an offer to buy, hold or sell any security or the solicitation of an offer to buy any securities to any person. The securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices or values of any securities or investments mentioned herein may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained herein is not intended for any specific investor and does not take into account a particular investor's investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies. Before acting on any information contained herein, an investor should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice.

Standard & Poor's Securities Evaluations Risk-to-Price (R2P) Services:
The following country-specific disclosures should be read by users of SPSE's R2P services: The following disclosure is applicable to residents of the European Union: The following individuals are members of SPSE's analytical staff who generate Risk-to-Price scores and reports: Michael Thompson, Ashish Ojha, Richard Peterson, Jaseem Hasib, Robert Keiser, Charles Bassignani, and Fabrice Jaudi. Historical R2P scores for the past 12 months for each security identified herein are available by contacting Standard & Poor's Client Services Department at (212) 438-4510 or via e-mail at spsupportcenter@standardandpoors.com. The Risk-to-Price White Paper, which contains the methodology/criteria for R2P is available by contacting Standard & Poor's Client Services Department at (212) 438-4510 or via e-mail at spsupportcenter@standardandpoors.com. For residents of Australia: Risk-to-Price (R2P) content is only provided to Australian wholesale client as defined in Chapter 7 of the Corporations Act 2001 (Australia) and such materials will only be used for internal purposes only. Risk-to-Price (R2P) is being delivered by Standard & Poor's Securities Evaluations, Inc. Australian Registered Body Number 136 795 018 (SPSE). SPSE is regulated by the United States Securities & Exchange Commission, under the laws of the United States which laws differ from the laws of Australia; and SPSE is exempt from the requirement to hold an Australian Financial Services license.

24

October 21, 2011
903214 | 301644737

For residents of Chile: A client who may be considered to be a "Consumer" as that term is defined under the Chilean Consumer Protection Law No. 19,496 of 1997, SPSE hereby represents that it will respect the terms, conditions and formalities to which the delivery of Service(s) under the terms of this Attachment will be carried out and that by Subscriber's acceptance of this Attachment Subscriber is agreeing to be bound by its terms and conditions. Subscriber hereby acknowledges it has read the terms of this Attachment and has received a copy of it. The Service(s) and any information contained therein are not intended as an offer, promotion or solicitation for the purchase or sale of any security or other financial instrument nor should it be considered investment advice. Any opinions expressed herein are given in good faith, are subject to change without notice and are only correct as of the stated date of their issue. SPSE including its affiliates provides wide range of services to, or relating to many issuers and organizations and accordingly, may receive fees or other economic benefits from those issuers and organizations whose securities they may recommend, rate, include in model portfolios, evaluate or otherwise address, including issuers and organizations included in this (the) Service(s). For residents of Hong Kong: Risk-to-Price (R2P) is provided by Standard & Poor's LLC-Hong Kong branch. The information is not intended as an offer, promotion or solicitation for the purchase or sale of any security or other financial instrument. Any opinions expressed herein are given in good faith, are subject to change without notice and are only correct as of the stated date of their issue. Standard & Poor's directly and through its affiliates provides a wide range of services to, or relating to many issuers and organizations and accordingly, may receive fees or other economic benefits from those issuers and organizations whose securities they may recommend, rate, include in model portfolios, evaluate or otherwise address, including issuers and /or organizations included in this service. For residents of Malaysia: Risk-to-Price (R2P) content is being provided by Standard & Poor's Malaysia Sdn Bhd. This information is not intended as an offer, promotion or solicitation for the purchase or sale of any security or other financial instrument. Any opinions expressed herein are given in good faith, are subject to change without notice and are only correct as of the stated date of their issue. All queries in relation to the reports should be referred to Alexander Chia, Desmond Ch'ng, or Ching Wah Tam. Standard & Poor's directly and through its affiliates provides a wide range of services to, or relating to many issuers and organizations and accordingly, may receive fees or other economic benefits from those issuers and organizations whose securities they may recommend, rate, include in model portfolios, evaluate or otherwise address, including issuers and organizations included in this service. For residents of Israel: Risk-to-Price (R2P) content can only be used by investors listed in the First Schedule to the Securities Law, 1968 of Israel which is defined as one of one of the following: 1. a mutual fund (joint investment trust fund) as defined in the Joint Investment Trust Law or a company managing such fund; 2. a provident fund as defined in the Regulations of Financial Services (Provident Funds) Law 5765-2005, or a company that manages such provident funds; 3. an insurer as defined in the Supervision of Insurance Business Law; 4. banking corporation licensed under the Banking Licensing Law or an Auxiliary Corporation (other than a joint services company) purchasing Notes for its own account or for the account of customers who are Exempt Investors; 5. a portfolio manager as defined in Section 8(a) of Israeli Investment Advice Law, who purchased Notes for his own account or for the account of customers which qualify as Exempt Investors; 6. an investment adviser, as defined in the Israeli Investment Advice Law; who is purchasing notes for his own account; 7. a member of the Tel Aviv Stock Exchange purchasing Notes either for its own account or for customers which qualify as Exempt Investors; 8. an underwriter qualified in accordance with Section 56(c) of the Securities Law who is purchasing Notes for its own account; 9. a venture capital fund; 10. a corporation engaged primarily in capital markets that is owned exclusively by Exempt Investors; or 11. a corporation (other than a corporation incorporated for purchasing securities in a specific offer and whose equity exceeds 250 million new shekels.) Residents of Israel understand and agree that this information is not intended as an offer, promotion or solicitation for the purchase or sale of any security or other financial instrument nor should it be considered investment advice. Any opinions expressed herein are given in good faith, are subject to change without notice and are only correct as of the stated date of their issue. Standard & Poor's directly and through its affiliates provides a wide range of services to, or relating to many issuers and organizations and accordingly, may receive fees or other economic benefits from those issuers and organizations whose securities they may recommend, rate, include in model portfolios, evaluate or otherwise address, including issuers and organizations included in this service. For residents of Singapore: Risk-to-Price (R2P) is only available to the following institutions for internal use: 1. a bank that is licensed under the Banking Act, Chapter 19 of Singapore; 2. a merchant bank that is approved as a financial institution under Section 28 of the Monetary Authority of Singapore Act, Chapter 186 of Singapore; 3. a finance company that is licensed under the Finance Companies Act, Chapter 108 of Singapore; 4. a company or society registered under the Insurance Act, Chapter 142 of Singapore, as an insurer; 5. a company registered under the Trust Companies Act, Chapter 336 of Singapore; 6. the Singapore government; 7. a statutory body established under any Singapore act; 8. a pension fund or collective investment scheme; 9. the holder of a capital markets services license for dealing in securities, fund management, providing custodial services for securities, real estate investment trust management, securities financing, or trading in futures contracts; 10. a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors; 11. the trustee of such trust as the MAS may prescribe, when acting in that capacity; or 12. such other person as the MAS may prescribe.

25

October 21, 2011
903214 | 301644737

This information is not intended as an offer, promotion or solicitation for the purchase or sale of any security or other financial instrument. Anything herein that may be construed as a recommendation is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Advice should be sought from a financial adviser regarding the suitability of an investment, taking into account the specific investment objectives, financial situation or particular needs of any person in receipt of the recommendation, before the person makes a commitment to purchase the investment product. Any opinions expressed herein are given in good faith, are subject to change without notice and are only correct as of the stated date of their issue. Standard & Poor's directly and through its affiliates provides a wide range of services to, or relating to many issuers and organizations and accordingly, may receive fees or other economic benefits from those issuers and organizations whose securities they may recommend, rate, include in model portfolios, evaluate or otherwise address, including issuers and organizations included in this service. For residents of the UNITED ARAB EMIRATES ("UAE") (NON-DIFC ZONE) Users in the UAE hereby accept and acknowledge that the place and receipt of SPSE's acceptance and execution of its Agreements is not within the UAE. SPSE's services are not intended to amount to an offer of securities within the meaning of DIFC law No. 12 of 2004 (The DIFC Markets Law) or the equivalent laws, rules and regulations made by The Central Bank of the UAE and the Emirates Securities and Commodities Authority or Financial Consultation within the meaning of the Emirates Securities and Commodities Authority Regulation of 2008 pertaining to Financial Consultation and Financial Analysis. Neither the Dubai Financial Services Authority, The Emirates Securities and Commodities Authority or The Central Bank of the UAE has reviewed or verified any of the information provided through the services, or has any responsibility for it. If you do not understand any of the contents of the services, you should contact a financial advisor. For residents of the United Kingdom: This Risk-to-Price (R2P) communication is directed to and can only be used to persons who are investment professionals as defined in the Financial Services and Markets 2000 (Regulated Activities) Order 2001 and who are authorized person as defined in section 31 of the Financial Services and Markets Act 2000. The information available through this website is not intended as an offer or promotion or solicitation for the purchase or sale of any security or other financial instrument nor should it be considered investment advice. It will only be made available to persons with professional experience in matters relating to investments. Any opinions expressed herein are given in good faith, are subject to change without notice and are only correct as of the stated date of their issue. Such opinions should not be relied upon by persons who do no have professional experience in matters relating to investments. Standard & Poor's directly and through its affiliates provides a wide range of services to, or relating to many issuers and organizations and accordingly, may receive fees or other economic benefits from those issuers and organizations whose securities they may recommend, rate, include in model portfolios, evaluate or otherwise address, including issuers and organizations included in this service. For all other users: Risk-to-Price (R2P) content is provided by Standard & Poor's Securities Evaluations, Inc. This information is not intended as an offer, promotion or solicitation for the purchase or sale of any security or other financial instrument nor should it be considered investment advice. Any opinions expressed herein are given in good faith, are subject to change without notice and are only correct as of the stated date of their issue. Standard & Poor's directly and through its affiliates provides a wide range of services to, or relating to many issuers and organizations and accordingly, may receive fees or other economic benefits from those issuers and organizations whose securities they may recommend, rate, include in model portfolios, evaluate or otherwise address, including issuers and organizations included in this service.

26

October 21, 2011
903214 | 301644737

Similar Documents

Premium Essay

Iceland V Ireland

...------------------------------------------------- Ireland & Iceland: ------------------------------------------------- Who made the better choice? ------------------------------------------------- Contents 1. Introduction to the financial crisis 2 2. Conditions leading up to the Irish and Icelandic economic crisis 3 2.1 The business cycle 3 2.2 The era of the Irish ‘Celtic Tiger’ 4 2.3 The ‘Financial Vikings’ of Iceland 5 3. Financial crisis response 6 3.1 Government response to the financial crisis 6 3.2 The default decision 10 4. Economic outlook and long-term repercussions 14 5. Conclusion 18 1. Introduction to the financial crisis The Great Recession began in 2007 as the United States housing market fell into a sharp decline. Many economists consider the resulting financial crisis to be the worst financial crisis since the Great Depression. While the crisis can be traced back to a variety of economic origins, the volatility that existed in the world economy from the 1990’s undoubtedly played a large role (Roubini, 2010). The Asian Crisis that arose after the fall of car manufacturer Kia in 1997 and the burst of the Dotcom Bubble in the early 2000’s resulted in many wealthy countries decreasing interest rates to all-time lows to encourage growth in their economies (Roubini, 2010). These low interest rates led consumers, particularly those in the US, to borrow more money than they could afford to repay (Roubini, 2010).......

Words: 5823 - Pages: 24

Premium Essay

Deprication of Indian Rupee

...rupee and the outlook for the same. It also reflects on the policy options to help prevent the depreciation of the Rupee. This paper will firstly discuss about the economy of currency to give an overview of the problem and the factors related to it. Afterwards it will be examining the causes of the Indian rupee depreciation with respect to the Indian economy and the global economy. And after that it will analyse the impact of the same on trade and business. Finally, recommending the policy actions in response of the falling currency. II. LITERATURE REVIEW: These papers include the work which have been used as a basis or reference for formulating the policies regarding ‘The Indian Rupee Crisis’. Singhal, Shelly (2011), “AN ANALYTICAL STUDY ON INDIAN CURRENCY RUPEE DEPRECIATION AGAINST THE US DOLLAR AND ITS ECONOMIC IMPACT”, Arth Prabhand: A Journal of Economics and Management, Vol.1 Issue 1, April 2012, Pp. 73-83. This paper mainly takes into account the Indian Rupee Crisis mainly during the last quarter of 2011 & the impact it had on the Indian Economy then & now. The paper first summarizes the outlook of the Indian Economy, its economical & financial history. It shows how the trend of the Indian rupee has been from 1991 to 2011 & the main reasons behind the fluctuations in the Indian Rupee. After determining the reasons behind the fluctuations it talks about the depreciation in the Rupee against the Dollar over the last financial year (2011-12). Basic......

Words: 3340 - Pages: 14

Premium Essay

Mcdonald

...shareholder dividends for 25 consecutive years, making it one of the S&P 500 Dividend Aristocrats. In October 2012, its monthly sales fell for the first time in nine years. This paper will discuss the financial statement analysis of McDonald’s Corporation. The purpose of financial statement analysis is to examine 2011 and 2012 financial data so that the company’s performance and financial position can be evaluated and future risks and potential can be estimated. Financial statement analysis will provide valuable information about trends and relationships, the quality of the company’s earnings, and the strengths and weaknesses of its financial position by analyzing its profitability, liquidity, activity and debt. Financial statement analysis will also help to improve financial decision-making and strategic planning. Profitability Profitability is determined by analyzing Return on Assets(ROA), Return on Equity(ROE), Price Earnings Ratio (P/E Ratio), Dividend Yield and Dividend pay-out Ratio. Return on Assets is a financial ratio calculated based on the company’s net income divided by the value of its total assets. This financial ratio shows the business what can be done with the assets it has available. Company’s assets consist of any debt and equity used to finance the operations of the business. The higher the ROA, the more money the company is making with less capital investment. In this case, ROA(Return on Assets) shows 17% and it means 17 cents profit for......

Words: 1267 - Pages: 6

Premium Essay

International Financial Management

...0330 | 0.0071 | --- | As can be seen from the above two tables, the Shekel is expected to appreciate against all concerned currencies. Over the next year the Shekel is going to appreciate 2.07% against the Yen, 0.13% against the Euro, 1.96% against the Renminbi and 1.84% against the dollar. Also, the dollar is going to change -0.40% against the Renminbi, -1.85% against the Shekel, -1.68% against the Euro and 0.19% against the Yen. This is due to the different inflation rates in different countries, along with the different states of the economies. All this is going to have effect on the operations of the company. The working cost of capital (WACC) for the parent and all subsidiaries is shown below. The interest rates vary according to the year in which the debt was taken. Japan Debt: ¥ 250,000,000 10 year bond Interest rate (2011): 3.4%[6] Flotation cost: ¥ 17,000,000 Equity: ¥ 1,000,000,000 common stock Tax rate: 35.64%[8] Interest: ¥ 8,500,000 Floatation cost: ¥ 1,700,000 Pre-tax cost of debt: 0.0408 After-tax cost of debt [kd¥(1-T)]: 0.0262 ke¥: 0.03 + 0.8[0.1 - 0.03] = 0.086 wd¥: 0.2 we¥: 0.8 WACC: [0.2 * 0.0262] + [0.8 * 0.086] = 0.07404 Debt to equity ratio: 0.25 Israel Debt: Shekel 230,000,000 5 year bond Interest rate (2010): 3.6%[6] Flotation cost: Shekel 7,000,000 Equity: Shekel 198,000,000 common stock Tax rate: 26.50%[8] Interest: Shekel 8,280,000 Floatation cost: Shekel 1,400,000 Pre-tax cost of debt: 0.0420 After-tax cost......

Words: 2499 - Pages: 10

Premium Essay

The Malaysian Stock Market

...Institutions and Markets THE MALAYSIAN STOCK MARKET | | | | | | | | | TABLE OF CONTENTS Executive Summary 1 1.0 Introduction 2 2.0 Major Developments of Malaysian Stock Market for the past 10 years (2002 – 2011) 4 2.1 Merger of Two Stock Exchanges (KLSE and MESDAQ) 5 2.2 Standard Board Lot of 100 units 5 2.3 FTSE Bursa Malaysia Index (FBM) 6 2.4 Bursa Trade Securities (BTS) 6 2.5 Introduction of Special Purpose Acquisition Companies (SPACs) 6 2.6 Amendments on Listing Requirements 7 2.7 Introduction of E-dividend and E-share Payment System 7 2.8 ASEAN Exchanges Trading Link 7 3.0 Capital Market Master Plan (CMP) 9 3.1 Capital Market Master Plan 1 9 3.2 Capital Market Master Plan 2 (CMP 2) 9 3.2.1 CMP2 and the development of stock market 12 4.0 Outlook of Islamic Stock Market 13 4.1 Introduction of Islamic Stock Market 13 4.2 Current Condition 13 4.3 Efforts in Strengthening Malaysia’s Position in Global Islamic Stock Market 13 4.4 Prospects of Malaysia Islamic Stock market over next decade 14 5.0 Conclusion 15 Reference List 16 Appendices 20 List of Figures Figure 1: Main indicators for Malaysia Stock Market from year 1989 to 2010 4 Figure 2: Malaysian Stock Market Capitalisation in the past ten years (2002 - 2011) 5 Figure 1: Number of stockbroking member companies before and after merger 21 Figure 2: Number of dealer representatives before and after merger 21 List of table Table 1: Market......

Words: 5548 - Pages: 23

Free Essay

Bula Mines

...Outlook for 2012 Highlights • 2011 proved an extremely volatile year, largely due to ongoing uncertainty surrounding the eurozone sovereign debt situation Growth has slowed throughout the year, with the International Monetary Fund (IMF) cutting its 2011 Gross Domestic Product (GDP) economic growth forecast for Western economies from 2.5% to 1.6% Developed economies – with the US a major exception - are engaged in austerity measures while the emerging world is looking to dampen its much stronger growth to stave off any threat of inflation Any improvement next year rests largely on the eurozone finding an appropriate solution to its problems Against this background, many investors have fled to what they saw as safe havens, forcing gold prices to record highs and government bonds yields to generational lows Short-termism is rife in such volatile markets, creating opportunities in some asset classes for investors who can take a longer-term view Equities currently look to offer the best value, with many corporates in solid financial shape after applying their own austerity measures amid the credit crunch. Strong balance sheets are allowing ongoing dividend growth Share valuations remain low, reflecting the muted economic outlook in the West. This ignores two key factors: that many Western companies have growing Eastern earnings exposure, and the potential for emerging market equities to benefit from the region’s stronger macro outlook Core Western government bonds represent poor...

Words: 5306 - Pages: 22

Free Essay

Ratio Analysis

...+1 212 761 1755 Brian T. Hayes, Ph.D Brian.T.Hayes@morganstanley.com Antonio Ortega Antonio.Ortega@morganstanley.com November 26, 2012 Adam J. Gould, CFA Adam.Gould@morganstanley.com US Equity Strategy The 2013 Playbook We are launching our 2013 US equity outlook today. We have been cautious on US equities for much of the last two years. Our concerns around US deficit / debt and the obvious borrowing from the future that occurs from unconventional policy, the European sovereign crisis, and slower growth in emerging markets generally remain, but the acuteness of these issues appears for now to be less sharp. Our 2013 year-end target calls for low-to-mid single digit upside (Exhibit 1) predicated on our view that 2014 corporate earnings are likely to modestly recover from our 2013 forecasted level, perhaps with profits troughing during the April 2013 earnings season. Our year-end 2013 S&P500 price target is 1434, and our bull and bear targets are 1733 and 1135 (Exhibit 1). Our EPS outlook for 2014 is $110.21, up from our 2013 forecast of $98.71, both well below consensus. Improving Michigan Confidence and tightening corporate spreads drive the relative improvement in our earnings outlook. Please see our Interactive Model: S&P500: 2013 Year-End Forecast, also published today, to play with key assumptions and change assumptions for EPS, S&P price-to-earnings multiples and the year-end price target. 3 Themes - China, Yield and Mega Cap Quality: We recommend......

Words: 21028 - Pages: 85

Premium Essay

China Case Overview

...the world market. The global significance of this case is China’s export-led growth (Morrison, 2001) as an emerging economy (Hamilton & Webster, 2009). As evident in the article, the slowdown in China’s rapid growth rate to more sustainable levels, a characteristic of rapidly emerging markets, will in all likelihood stall international trading in goods and services and the movement of capital when the commodity bubble driven by Chinese demand and supply bursts (Zappone, 2011). This is largely because China has a very open economy (Hamilton & Webster, 2009). Further, while China’s use of monetary policy to influence interest rates and the exchange rate to fight inflation is a domestic economic policy, in the globalised world its implications on the rest of the world cannot be ignored (Balakrishnan, 2004). For example, the main informant in the article, chief investment officer at Bridgewater Associates Ray Dalio, says that China cannot tighten monetary policy because “its currency is tied to the US dollar.” Due to globalisation, governments lose policy autonomy to some extent because of the freedom of enterprise within the framework of government regulations (Balakrishnan, 2004). From China’s perspective, the biggest problem is not maintaining excessive growth rates but ensuring they are sustainable. Inflation hit a 28-month high of 5.1% late 2010 and as reported in the article, food prices rose by 11.7% in late 2010 and house prices by 7% (Simpkins, 2011).......

Words: 855 - Pages: 4

Premium Essay

Hedge Fund

.................................................................................  18   ROLES  OF  HEDGE  FUNDS  IN  MARKETS  ..........................................................................................................................  20   HEDGE  FUND  STRATEGIES  ................................................................................................................................................  21   Relative  Value    ......................................................................................................................................  22   Equity  Market-­‐Neutral    .........................................................................................................................  24   Event  Driven    .........................................................................................................................................  25   Global  Macro    ........................................................................................................................................  26   Managed  Futures    .................................................................................................................................  27   Emerging  Markets    .................................................................................................................................

Words: 22449 - Pages: 90

Premium Essay

Latin America Monitor

...test for President Hugo Chávez in October – Argentina seems to have more room to run before the situation becomes critical. However, without a shift towards more orthodox economic policy over the next 12 months, we believe Argentina will be out of options to avoid a destabilising crisis in years to come. Accounting for almost 13% of the region's GDP, the Argentine and Venezuelan economies have been bolstered over the past few years by a boost in commodity prices and lax fiscal and monetary policy, which have allowed their respective governments to gain broad popular support while maintaining a strong grip on power. That said, we believe Venezuela's President Hugo Chávez and Argentina's President Cristina Fernández will face major e hurdles in 2012, since a moderation in economic growth will put the macroeconomic imbalances that both of these economies have accumulated over the years under significant stress. An implosion of these imbalances would be the first major economic crisis in the region since Argentina's default in 2002, and could well cause investors to question many of the economic improvements Latin American sovereigns have achieved over the past decade. A Slowdown Of Economic Growth We believe the era of record gains from commodity exports and expansionary policy is now over for Vencontinued on page 2... Peru: Mining Sector Looking Promising In 2012 BMI View: While Peruvian mineral output declined in 2011, we expect huge......

Words: 8831 - Pages: 36

Premium Essay

Business Analysis Part I

...Business Analysis Part I Pamela Lewis Management 521 October 10, 2011 Dr. Melanie Brown Business Analysis Part I The company tasked a mutual fund manager to evaluation Apple Incorporated to determine if this would be a sound investment for the company. The mutual funds manager will conduct a business analysis on Apple Incorporated and present the recommendations to the company. Apple Inc. is a company known for its vibrant line of products and the innovation it brings to those products. A business analysis is the practice of diagnosing the needs of a business and establishing solutions to business dilemmas. This business analysis is simply a collection of information that will aid in deciding if Apple Incorporated has the stability to sustain a profitable portfolio. This analysis will include a SWOTT analysis, an evaluation of the company stakeholders and their needs and wants, and an explanation of how the company is fulfilling those needs. SWOTT Analysis Chart Strengths (Internal) | Weaknesses (Internal) | * Strong brand image provides and edge over competitors * Robust financial performance strengthens investors’ confidence and provides capital for future avenues * Focused Research and Development driving innovation and consolidating its market position | * Patent infringement lawsuit may affect financial condition and operating results * Product recalls may harm Apple’s reputation and add significant warranty and other expenses | ......

Words: 1705 - Pages: 7

Premium Essay

Hewlett Packard Spin-Out

...MEMO To: Mohamad Ali From: Bas van Hulsenbeek Concerning: critical analysis spin-out ------------------------------------------------- Date: October 20, 2014 Dear Mr Ali You have asked us, Hulsenbeek Strategic Issues Support, to prepare a memo providing a critical analysis of the current strategic and leadership challenges facing the spin-out of part of the business of Hewlett-Packard (“HP”) announced October 6th. This spin-out will result in two publicly traded companies: Hewlett-Packard Enterprise, responsible for the storage, servers, software and security divisions and HP Inc., responsible for the PCs and printers divisions. The spin-out is expected to close by October 2015. In this memo we have: 1. Reviewed HPs past performance 2. Reviewed the rationale behind the spin-out 3. Conducted a SWOT-analysis, and 4. Concluded with our future outlook. 1. Review past performance Just as many other entrepreneurs, HP started because the founders discovered something. They wanted to see a market arise from the possibility of substituting an already-existing product or service with something better, namely more stable oscillators for a better price. Providing their market with better quality products for a better price therefore became the new company's raison d'être. Over the last 80 years, the crucial key success factor that has made HP successful has been her ability to adapt to new circumstances. For example, after starting......

Words: 1321 - Pages: 6

Free Essay

Student

...policy 10 3.4.2. Monetary policy 10 3.4.3. External sector 10 3.4.4. General Political Environment 11 3.4.5. Investment Environment 11 3.4.6. Political Violence 12 3.4.7. China Political Outlook 12 3.5. Current Issues in Brazil 12 3.5.1. Real Sector 12 3.5.2. Monetary 13 3.5.3. External Sector 13 3.5.4. Fiscal 13 3.5.5. Outlook 13 3.5.6. General Political Environment 14 3.5.7. Investment Environment 14 3.5.8. Political Violence 14 3.5.9. Brazil Political Outlook 15 3.6 China Corporate Governance Law 15 3.7 Brazil Corporate Governance Law 16 4.0 FOREIGN EXCHANGE RISK 17 4.1 Brazil Foreign Exchange Risk 17 4.2China Foreign Exchange Risk 18 5.0 EXPANDED OPPORTUNITY SET 18 5.1 Brazil Opportunity Set 19 5.2 China Opportunity Set 19 6.0 ECONOMICAL OUTLOOK 19 6.1 Country Currency (FOREX) 19 6.1.1. Brazil Currency Outlook 19 6.1.1.1. USDBRL- Brazil Real Exchange Rate 20 6.2.2. China Currency Outlook 21 6.2.2.1. USDCNY-China Yuan Exchange Rate 21 6.3 Interests rates  22 6.3.1. Brazil Interest Rate 22 6.3.2. China Interest Rate 23 6.4 GDP  23 6.4.1. Brazil GDP 24 6.4.2.......

Words: 10371 - Pages: 42

Premium Essay

Aleem

... GDP | $2.480 trillion (2011)[1] (nominal; 7th)$2.253 trillion (2011)[2] (PPP; 8th) | GDP growth | 1.0% in Q3, 2012 (ONS) | GDP per capita | $39,600 (2011)[2] (nom; 20th) $36,000 (2011)[2] (PPP; 17th) | GDP by sector | Agriculture: 0.7%, industry: 21.5%, services: 77.8% (2011 est.) | Inflation (CPI) | CPI:2.7%, RPI 3.2% (October 2012) | Population below poverty line | 14% with household income below 60% of UK median income (2006 est.) | Labour force | 31.72 million (2011 est.) | Labour force by occupation | Agriculture: 1.4%, industry: 18.2%, services: 80.4% (2006 est.) | Unemployment | 7.8% (2.51 million) (3 months to October 2012; down 82,000 on 3 months to September 2012) | Average gross salary | €4,108 / $5,546, monthly (2006)[4] | Average net salary | €2,749 / $3,712, monthly (2006)[4] | External | Exports | $479.2 billion (2011 est.) | Export goods | Manufactured goods, sup, chemicals; food, beverages, tobacco | Main export partners | Germany 11.6%, US 10.6%,Netherlands 8.4%, France 7.8%, Ireland6.4%, Belgium 5.7% (2011) | Imports | $639 billion (2011 est.) | Import goods | Manufactured goods, machinery, fuels; foodstuffs | Main import partners | Germany 13.2%, China 8.7%,Netherlands 7.5%, US 6.1%, France6%, Norway 5%, Belgium 5% (2011) | FDI stock | $1.169 trillion (31 December 2010 est.) | Gross external debt | $9.836 trillion (30 June 2011) (2nd) | Public finances | Public debt | £977 billion 63% of GDP (November 2011) | Budget deficit |......

Words: 3671 - Pages: 15

Premium Essay

Oil and Gas Services Industry Analysis

...companies was relatively small until the 1980’s, when the major oil and gas companies outsourced a variety of processes to service companies. OFS companies continued to grow in size and importance with the innovation of new technologies and abilities such as directional drilling and improved 3D seismic imaging. Today, OFS companies play a key part in what is commonly referred to as the “shale revolution” in North America. The industry’s success is dependent on several factors including oil/gas prices, economic stability, and innovation of new technologies. This sector is comprised of four giants that include Schlumberger, Weatherford, Halliburton, and Baker Hughes. These companies are involved in a broad range of services that require intensive capital and R&D. Independent firms typically perform smaller, specialized services with expertise in the process involved. The services sector is expected to grow substantially over the next five to ten years, as the overall industry will rely more heavily on OFS company’s capabilities to extract more remote reservoirs. Products & Services: The Big 4 service companies are engaged in a wide range of products and services. Despite each company’s specialty in certain capabilities, most of their operations overlap in similarities. Drilling and Evaluation: Drilling encompasses the production of highly specialized drilling equipment such as drill bits, conventional steerable systems, and “wireline services”, to......

Words: 13196 - Pages: 53