THE DAY AHEAD

REUTERS NEWS
KEY ECONOMICS EVENTS Real GDP qq SA for Q4-F -- Final sales -- Implicit deflator -- Core PCE price -- PCE Price Index Corporate profits for Q4 Initial claims for w/e 03/23 -- 4 week average Chicago PMI for Mar ECRI Weekly Index for w/e 03/22 Recommended early close for bond market 0945/1345 1030/1430 0830/1230 0830/1230

North American Edition

ET/GMT 0830/1230 REUTERS POLL 0.5 pct 1.9 pct 0.9 pct 0.9 pct 1.5 pct -340,000 -56.5 -PRIOR 0.1 pct 1.7 pct 0.9 pct 0.9 pct 1.5 pct 2.5 pct 336,000 339,750 56.8 129.8 Labor Department SOURCE

For Thursday, March 28, 2013

Bureau of Economic Analysis (Dept. of Commerce)

National Association of Purchasing Management, Chicago Economic Cycle Research Institute

MARKET RECAP
Stocks declined, while Treasuries jumped on euro zone worries. The euro fell to its lowest level in four months. Gold rose, snapping a three-day losing streak, and oil edged higher.

COMING UP
BlackBerry releases its first results since launching its Z10 smartphone, its last-ditch attempt to claw back market share from rivals like Apple. Analysts don't expect the company to return to profit yet, but will watch carefully for forecasts about sales of the new device, and for news on whether companies are introducing the software that will allow their users to switch to the new touch-screen device. For

STOCKS DJIA Nasdaq S&P 500 Toronto Russell FTSE Eurofirst Nikkei Hang Seng

Close 14526.32 3256.52 1562.91 12699.58 950.25 6387.56 1184.06 12493.79 22464.82 Yield 0.2500 0.7354

Change -33.33 4.04 -0.86 -6.80 0.43 -11.81 -4.51 22.17 153.74

% Chng -0.23 0.12 -0.05 -0.05 0.05 -0.18 -0.38 0.18 0.69

Yr-high 14563.80 3263.63 1564.91 12904.71 954.00 6533.99 1209.05 12650.26 23944.74

Yr-low 12035.10 2726.68 1266.74 11209.55 729.75 5897.81 1132.73 10398.61 21975.90

EBay holds its first investor day since 2011, and CEO John Donahoe and other executives are expected to lay out the e-commerce company's vision and guidance through 2015. Expectations are high because Donahoe has promised a lot and has beaten expectations since launching a turnaround of the company at the 2009 investor day.

The Commerce Department releases a third estimate of fourthquarter gross domestic product. The final reading for the quarter is expected to show growth picked up more than initially reported, rising at an annualized 0.5 percent, up from the previous reading of 0.1 percent. That is just a bit faster than previously thought but new claims for jobless aid last week, to be released by the Labor Department, likely held close to five-year lows in a sign of the recovery's new-found vigor.

TREASURIES 10-year 2-year 5-year 30-year COMMODITIES May crude $ Spot gold (NY/oz) $

Price FOREX 0 /32 Dollar/Yen 6 /32 Sterling/Dollar

Last % Chng 1.2772 94.43 1.5129 1.0164 -0.68 0.02 -0.20 0.06

1.8471 19 /32 Euro/Dollar

3.0903 33 /32 Dollar/CAD Price 96.51 1604.99 3.4495 298.69 Price 18.46 0.41 2.47 39.20

Fertilizer producer Mosaic reports quarterly earnings that are expected to rise from one year ago. Mosaic's potash shipments are expected to rebound after a soft second quarter, with China and India resuming purchases.

$ change 0.17 6.40 0.0160 1.46 $ change -2.97 -0.03 0.27 3.03

% change 0.18 0.40 0.47 0.49 % change -13.86 -7.48 12.27 8.38

Copper U.S. (front month/lb) $ Reuters/Jefferies CRB Index

GameStop, the world's largest video game retailer, is expected to

post lower revenue in its fourth quarter report. As the videogame industry copes with flagging sales, GameStop has relied on its strong used-games business, ahead of the launch of nextgeneration versions of Microsoft's Xbox and Sony's PlayStation, due during the holiday season.

BIG MOVERS
Cliffs Natural Resources Suntech Power Frontline AOL

Accenture, the outsourcing and consulting company, posts quarterly results. Its forecast for the quarter fell short of investor expectations in December, as clients continued to defer discretionary spending in Europe. While analysts expect an industry-wide rebound in discretionary spending and consulting revenue, a good show by rivals such as Cognizant and TCS in the quarter in outsourcing, particularly from Europe, bodes well for Accenture.

For The Day Ahead - Canada, click here

THE DAY AHEAD

For March 28, 2013

COMING UP (continued)
Winnebago, the largest U.S. motor home maker, is likely to
report a higher second-quarter profit helped by strong demand for its motor homes as the market for recreational vehicles continues to improve. A steadily increasing backlog as well as rising attendance at RV shows points to demand staying strong through the quarter. Jetblue and other airlines along with leaders in manufacturing and aviation are also expected to attend the event.

Panasonic's president, Kazuhiro Tsuga, unveils his first restructuring plan for the company, which has been racking up losses. The latest boss of the sprawling electronics conglomerate is expected to provide targets and give some details of plans to sell or close businesses that fail to achieve a 5 percent operating margin within three years.

Boeing CEO Jim McNerney is expected to be questioned

about the troubled 787 at an aviation conference hosted by the US Chamber of Commerce in Washington. CEOs from United,

MARKET MONITOR
The Dow and the S&P 500 ended slightly lower on Wednesday after early losses spurred by worries about the possible implications of Cyprus's bailout for other euro zone lenders. The PHLX Europe sector index declined 1.08 percent. Cliffs Natural Resources shares lost 13.8 percent. Boeing was down 0.47 percent. JPMorgan Chase fell 1.75 percent. BlackBerry shares were up 0.75 percent. The Dow dropped 0.23 percent, the S&P 500 Index shed 0.05 percent and the Nasdaq rose 0.12 percent. Fears about the euro zone sent benchmark 10-year Treasuries yields to more than three-week lows and helped them break below technical support as investors fretted over further bank restructurings and Italy's soft bond auction. Bonds rallied even as the Treasury sold $35 billion in new five-year notes to solid demand. Treasuries rallied after the auction, trailing German government bonds, and U.S. debt extended gains after 10-year yields broke below support around 1.89 to 1.90 percent, where a number of investors had stop-loss orders to exit short positions. "It got under 1.90 percent and a bunch of stops got hit," said Ira Jersey, an interest rate strategist at Credit Suisse. Ten-year Treasuries were last up 19/32 in price to yield 1.85 percent. The 30-year bond rose 1 point, yielding 3.1 percent. The Treasury will sell $29 billion in seven-year notes on Thursday, the final sale of the week. The euro skidded to its lowest level against the dollar in over four months, weighed by a weak Italian bond auction and concerns that Cyprus' recent rescue deal could serve as an archetype for future bailouts in the region. The euro last traded at $1.2771, down 0.69 percent and over 3 percent this year. The euro's drop below support at its 200-day moving average of $1.2881 on Tuesday left it vulnerable to more losses toward its mid-November low of $1.2661, traders said. The euro last traded down 0.72 percent at 120.56 yen. The dollar last traded at 94.40 yen, down 0.01 percent. Click on the chart for full-size image

Gold rose, snapping a three-day losing streak, as renewed euro zone worries and hopes the Federal Reserve will continue its loose monetary policy triggered bullion buying. "While March seems to have been a month for moderation of economic activity, our view remains one of improving global growth. We believe these recent trends are likely to reverse, leading to modest weakness in gold," said Robert Haworth, senior investment strategist at U.S. Bank Wealth Management. Spot gold rose 0.40 percent to $1,604.94 an ounce and April gold futures settled up 0.58 percent at $1,605, with trading volume about 20 percent above its 250-day average. Crude prices rose in choppy trading as U.S. heating oil rallied on falling distillate inventories, while rising crude oil stockpiles in the United States and the stronger dollar limited gains. The Energy Information Administration said that U.S. crude inventories rose 3.26 million barrels, above the forecast an increase of 700,000 barrels in a Reuters survey of analysts. May crude was up 0.18 percent at $96.51 a barrel.

THE DAY AHEAD

For March 28, 2013

TOP NEWS
Cyprus to limit cash, credit-card use abroad Cyprus is set to restrict the flow of cash from the island and may curb the use of Cypriot credit cards abroad as it tries to avert a run on its banks after agreeing a tough rescue package with international lenders. A Greek newspaper published details of what officials told Reuters was as yet only a draft government decree to restrict outward payments to documented imports and limit how much people could take abroad in banknotes or spend on credit cards. Athens newspaper Kathimerini, citing the government decree, said measures would remain in force for seven days after the banks reopen. Cypriots wanting to send money overseas would have to prove that the transactions meet strict rules laid out by the authorities. The decree allows businesses to pay for imports if they provide officials with the necessary documentation. Lean inventories hold back U.S. pending home sales Contracts to buy previously owned U.S. homes fell in February, held back by a shortage of properties, but there is little to suggest that the housing market's recovery is stalling. The National Association of Realtors said its Pending Home Sales Index, based on contracts signed last month, slipped 0.4 percent to 104.8. Still, contracts last month remained at the second highest level in nearly three years. Economists polled by Reuters had expected signed contracts, which become sales after a month or two, to dip 0.2 percent. The Realtors group blamed the pullback on a shortage of homes for sale. Demand for loans to buy a home rose last week after two straight weeks of declines, a separate report showed. The Mortgage Bankers Association said its gauge of loan requests for home purchases, a leading indicator of home sales, increased 6.7 percent. Boeing 787 faces new risk: limits on extended range As Boeing works to regain permission for its 787 Dreamliner to resume flights, the company faces what could be a costly new challenge: a temporary ban on some of the long-distance, transocean journeys that the jet was intended to fly. Aviation experts and government officials say the Federal Aviation Administration may shorten the permitted flying time of the 787 on certain routes when it approves a revamped battery system. "If the FAA approves (only) over-land operations it would be a very damaging blow to the 787 program," said Scott Hamilton, an aviation analyst with Leeham Co. "Depending on how long that restriction remains in place, it would completely undermine the business case for the airplane, which was to be able to do these long, thin intercontinental routes" over water, he said. GM turns to 'right-sized' redesign of Cadillac CTS sedan General Motors is turning to a redesigned, longer CTS midsized sedan to make its Cadillac luxury brand more competitive against German rivals. "This third generation of CTS is really the harbinger for our global aspirations and where we're headed overall," said Don Butler, vice president of marketing for Cadillac. "Our big thing that we're driving for is cultural relevance," he added. "We still have a big challenge to be thought of and spoken of in the same breath as BMW and Mercedes." However, analysts said the Cadillac brand still trailed its German competitors. Separately, GM is laying the groundwork for 10 percent margins over the next several years through "a fairly significant improvement" in both revenue and cost structure, GM North American Chief Financial Officer Chuck Stevens said.
PIC OF THE DAY

Farmer Donald O'Reilly searches for sheep or lambs trapped in a snow drift near weakened animals that had just been rescued, in the Aughafatten area of County Antrim, Northern Ireland.

Fed's Evans: likely to need to maintain bond buys to end of year The Federal Reserve would do best to keep buying assets at its current $85-billion-a-month pace until the jobs market is on firmer ground, a point that probably won't be reached until the end of the year, a top Fed official said. Cutting back sooner on bond purchases, as some top Fed officials have advocated, could undercut what has so far been a successful program, Chicago Fed President Charles Evans said. However, Minneapolis Fed Bank chief Narayana Kocherlakota repeated his view that the best way to boost the economy was to lower the Fed's jobless rate threshold on interest rate guidance to 5.5 percent. Earlier Boston Federal Reserve President Eric Rosengren said asset purchases had clearly helped ease U.S. unemployment, as he strongly played down talk of asset bubbles. J.C. Penney revives 'mark-up to mark-down' tactic to boost sales J.C. Penney said it had resumed a marketing strategy of raising prices and then discounting them on its own brands in a move to protect profit margins and win back the bargain-conscious shoppers it lost last year. The U.S. retailer began changing the price tags on merchandise earlier this month and should be done in the next few weeks, spokeswoman Daphne Avila said in a statement emailed to Reuters on Tuesday. Under the strategy, an Arizona crewneck T-shirt that had an "everyday" price of $5 now has a $6 pricetag to allow Penney more room to offer a markdown and arrive at the same price, the spokeswoman added. Popularity helps buffer Apple from Chinese state-media attacks Chinese Internet users are crying foul over the perceived unfair treatment doled out to Apple by state-run media which has actively criticised the smartphone maker for the past two weeks over its warranty policy. CCTV accused Apple of having discriminatory after-sales service in China compared to the rest of the world. CCTV's flagship evening news programme upped the war of words, citing the national quality watchdog as saying Apple would be punished it did not alter its policy on only offering oneyear warranties for MacBook Air computers.

THE DAY AHEAD

For March 28, 2013

TOP NEWS (continued)

U.S. Supreme Court rules for Comcast in class action The U.S. Supreme Court ruled in favor of Comcast in an antitrust case over how much it charged cable TV subscribers, further curtailing the ability of people to pursue class action lawsuits. In a 5-4 decision, the court said a group of cable TV subscribers in the Philadelphia area who accused Comcast of overcharging them as part of an effort to monopolize the market could not sue as a group. "The permutations involving four theories of liability and 2 million subscribers located in 16 counties are nearly endless," Justice Antonin Scalia wrote for the majority. Protective Life in lead for AXA US insurance assets U.S. insurer Protective Life Insurance the leading candidate to buy some of AXA SA's U.S. life insurance assets in a deal that could be valued at around $1 billion, according to two people familiar with the situation. French insurer AXA hired Morgan Stanley last year to help find a buyer for the assets, including remnants of the Mony Group Inc business that it acquired in 2004, the sources told Reuters this week. Buying AXA's life insurance assets would help expand Protective's life insurance business, but it would help the company diversify away from its variable annuity business, which is an increasingly difficult business to manage, said Steven Schwartz, an analyst at Raymond James. C.Suisse buys Morgan Stanley's European wealth arm Credit Suisse is buying Morgan Stanley's wealth management arm in Europe, the Middle East and Africa, acquiring $13 billion in assets in a move to offset exposure to more volatile investment banking. "Credit Suisse sees more daily fluctuation of their assets under management due to market movements and foreign currency swings than this deal size," said Zuercher Kantonalbank analyst Andreas Venditti, who has a "market weight" rating on the stock. Details of the deal were not disclosed. It said it expected to complete the purchase later this year.

ANALYSTS RECOMMENDATIONS
Company Name AOL Cliffs Natural Goldman Sachs Action Barclays raised rating to overweight from equal weight, sees significant upside to operating earnings estimates as the company returns to modest revenue growth and continues to streamline its cost structure. Credit Suisse cut target to $10 from $30, says there are structural changes in the companys key Great Lakes market that will compromise its pricing power and erode the earnings of the iron ore business. Susquehanna raised target price to $170 from $165 to reflect better than expected investment banking and investing and lending business. UBS raised target price to $53 from $48 on slightly higher international margin forecasts. JP Morgan resumed coverage with neutral rating, expects an organic growth of 3 percent in 2013, which compares to an outlook of 1-4 percent.

Halliburton Ingersoll-Rand

THE DAY AHEAD - CANADA

COMING UP
Canada's economy likely expanded 0.1 percent in January
from a month earlier, compared with a 0.2 percent drop in December largely due to widespread slumps across the manufacturing sector.

For March 28, 2013

MARKET MONITOR
Canada's main stock index was little changed on Wednesday, with declines in bank stocks partly offset by a jump in gold miners, as weak economic data from the euro zone and worries about the Cyprus bailout were a drag on investor sentiment. The Toronto Stock Exchange's S&P/TSX composite index was down 0.05 percent at 12,699.58. Royal Bank of Canada gave back 1.25 percent and Toronto-Dominion Bank fell 0.86 percent. Shares of Agrium were down 0.72 percent. The Canadian dollar was up 0.06 percent at $1.0164.

Producer prices are expected to have risen 0.4 percent in

February, compared with flat product price index in January and December as lower prices for chemical products offset gains in fuel oil, gasoline and other categories. Raw material prices are expected to be lower at 2 percent in February, compared with the 3.8 percent jump in January due mainly to price hikes for mineral fuels, mainly crude oil.
BIG MOVERS Baja Mining AGF Management Niko Resources Aquila Resources Price 0.05 10.84 5.82 0.14 C$ -0.01 -0.66 0.55 0.01 % Change -10.00 -5.74 10.44 7.69

TOP NEWS
Canada inflation jumps, rate change still seen far off Canada's annual inflation rate jumped more than expected in February, but analysts said the spike was unlikely to pressure the Bank of Canada to raise interest rates any time soon. The year-on-year rate rose to 1.2 percent from a three-year-low of 0.5 percent in January on higher gas and auto prices, Statistics Canada said. The central bank has said it expects to raise interest rates one day, despite still-low year-on-year inflation. But the time frame for a possible rate hike has kept stretching out as domestic and global economies have stumbled. Agrium battle heats up, advisory firms differ The battle for Agrium Inc's future is heating up ahead of an April 9 vote after the two most influential proxy advisory firms disagreed on the candidates shareholders should back in the election of Agrium's board of directors. Institutional Shareholder Services recommends clients back two of the five nominees proposed by dissident investor Jana Partners, putting it at odds with a Glass Lewis endorsement of all 12 of Agrium's board nominees. ISS endorses Jana nominees Barry Rosenstein and David Bullock. AGF profit drops in 1st quarter, but outlook bright The fund manager AGF Management said its profit dipped in the first quarter compared with a year earlier, but improvement is expected as investors return to equities and the U.S. economy climbs out of the doldrums. Net income from continuing operations fell 9.8 percent to C$15.6 million in the first quarter, from C$17.3 million a year earlier. Assets under management slumped 17.9 percent to C$39.3 billion in the quarter. But earnings per share were higher than expected at 17 Canadian cents. Analysts' forecast was 14 Canadian cents a share. Click on the chart for full-size image

Niko in talks to sell non-core assets for $157 mln, shares jump The oil and natural gas producer Niko Resources said it was in advanced talks to sell some non-core assets for $157 million, nearly three weeks after receiving "significant" offers for them. The company, known for its operations in India, said it is working towards signing definitive agreements with two separate buyers by April 30. "Niko's balance sheet is under some pressure. They need to complete these asset sales and it looks they are making good progress toward that," said Nathan Piper of RBC Capital Markets.

THE DAY AHEAD

For March 28, 2013

ANALYSIS AND INSIGHT

'Cyprus euros' could take on own value with capital controls By Paul Carrel Cyprus's plan to impose capital controls threatens to test the ties that bind Europe's monetary union and could see euros on the Mediterranean island valued differently to those in the rest of the bloc. The capital controls, being imposed to avert a run on banks after an EU bailout, will limit foreign transactions and capital outflows but not movements of money within the country itself, the head of the Cyprus chamber of commerce said on Wednesday after meeting government officials. The finance minister has said the controls could be in place for a few weeks although the experience of other countries, such as Iceland, suggest it may take much longer. Banks, shut since nearly two weeks, are due to reopen on Thursday. The impact the restrictions have on the Cypriot economy depends on their exact nature and whether they are applied to payments as well as capital transfers. A report from Greek newspaper Kathimerini suggested there would be restrictions to both, and that these would initially last for seven days. Restrictions on payments would be a far bigger incursion into the functioning of Europe's internal market than controls on capital transfers, as euros held in banks in Cyprus could not be used to pay for goods and services elsewhere in the bloc. By definition, that would make them less liquid than French or German euros and de facto, worth less. "If you were to impose restrictions equally on capital transfers and payments, then economically a Cyprus euro would be a different currency vis-a-vis a non-Cyprus euro," said Kai Schaffelhuber, partner at Allen & Overy law firm in Frankfurt. "You would have to buy non-Cyprus euros to pay for goods and services in other countries," he said. "With the rules of supply and demand, the Cyprus euro could then take on a different exchange rate." If capital controls are relatively short-lived, that situation would be reversible. The longer it goes on, the more it would question Cyprus's place in the euro zone. But with the alternative likely to be massive capital outflow, Nicosia has little choice. A Reuters poll of economists found 38 out of 46 said capital controls were appropriate, with the alternative being an uncontrolled exodus of cash. Thirty of 46 said controls would last months, while 13 expected they would endure a matter of weeks. Three said they could last years. "You can't have Cyprus in capital control limbo," said Sassan Ghahramani, CEO of U.S.-based SGH Macro Advisors, which advises hedge funds. "I think it's a question of weeks, at most. If it gets into months it's going to be really problematic." The chapter on capital and payments in the Treaty on the Functioning of the European Union begins by prohibiting restrictions both on the movement of capital and on payments between European Union member states, and 'third countries'. But a subsequent article allows countries "to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security". This gives governments sufficient wiggle room to impose restrictions both on capital transfers and payments. UNCHARTED WATERS Nonetheless, Cyprus's plan to impose capital controls will mark a first for the 17-country euro zone. The experience of Argentina's 'corralito' a decade ago, when authorities restricted withdrawals to prevent bank runs, offers a recent precedent but the Cyprus case breaks new ground. "What you've got is a monetary and banking system which is not supposed to impose capital controls. What they are doing is creating a sub-set of rules to create a new economic area, which is unprecedented," said David Brown at New View Economics. Michel Barnier, the European Commissioner responsible for the 27-member European Union's single market, wants the controls to be brief. He said on Monday they should only last a few days. Restricting capital transfers - movements of money or securities - to other countries but not payments could open up myriad 'work around' options for people trying to get their money out of Cyprus. One could be to buy goods in another euro zone country, shifting funds out of the island to pay for them. To counter such scenarios, the Cypriot government could introduce limits on such payments or require them to be approved by a licencing authority - red tape that will impede business and slow turnover. Kathimerini said the controls will allow Cypriot businesses to pay for imports if they provide the necessary documentation. This hit could be recovered if the controls are brief. "But the longer this lasts the more it will hurt the economy, the more likely it is that businesses run out of liquidity and have to default. Then we really get into trouble," said Berenberg bank economist Christian Schulz. Having threatened to cut off funding to Cyprus's banks if its government did not agree a bailout, the ECB decided on Monday to give them access to emergency central bank funds - a step that will avoid an immediate meltdown in the country's bloated banking sector. Argentina's 'corralito' resulted in a liquidity crunch. The bailout plan aims to shore up Cyprus's financial sector, winding down the largely state-owned Cyprus Popular Bank, known as Laiki, and shifting deposits under 100,000 euros to the Bank of Cyprus to create a "good bank", leaving problems behind in, effectively, a "bad bank". But the system is bound to come under more stain. "The ECB is now on the hook for funding what's left of the banking system of Cyprus, which remember is multiples of the GDP of the country," said Ghahramani at SGH Macro. Such pressure sits uneasily with some ECB policymakers. "As opposed to Argentina and other instances of domestic capital controls, you would have an entire country and banking system remain in a grey area while the ECB and by extension the euro zone keep funding it," said Ghahramani. "These controls should have to come off in a matter of days if possible, not weeks, and certainly not months." Citigroup looks to cut cash holdings to boost earnings By David Henry Citigroup Inc is considering cutting its cash on hand by about $35 billion, which should help the bank buy higher yielding assets or redeem expensive debt to boost earnings. Making the change will signal that the management of the thirdlargest U.S. bank by assets, which had to be rescued three times by the U.S. government in the financial crisis, is increasingly confident that its worst troubles are well behind it. The move could give a 2 percent boost to Citigroups bottom line this year and keep the banks lending margins relatively strong even as competitors suffer from low interest rates. The bank has enough liquid assets to cover an estimated 37 days of the cash drain expected in a scenario of acute stress under pending new regulations, based on Citis financial reports through December. Treasurer Eric Aboaf and other executives would like to reduce that to about 33 days of coverage, or 10 percent more than is to be required under the new international rules known as the Basel III liquidity coverage ratio. "In the framework of managing a company efficiently, that would

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ANALYSIS AND INSIGHT (continued)

be a good thing to do" over the next year or so, Aboaf told Reuters in an interview. While the move would reduce the bank's pool of cash and liquid assets by about 10 percent, Citigroup would still have 10 percent more liquidity than regulators say they will demand. JPMorgan Chase & Co, which analysts and investors often see as a stronger bank than Citigroup, is below the pending regulatory minimum. Citigroup may feel more confident, but the bank is also leaving itself a little more vulnerable to big swings in markets and economies around the world. Cash on hand is critical for staving off runs on the bank during bad times. The Federal Reserve has not commented publicly on Citigroup's liquidity, but earlier in March it approved the company's capital plan as strong enough to withstand a stress test. The U.S. regulator is part of the international body that has drafted the new liquidity requirement that Citigroup exceeds. "At the moment it is appropriate for Citi to take down their cash, but if we end up with very volatile capital markets and Citi is caught in that, then people will start to question them," said Charles Peabody of Portales Partners, a research firm for institutional investors. Given Citis huge problems in recent years it might seem surprising that it has so much leeway to reduce cash. By contrast JPMorgan, which maneuvered through the financial crisis less scathed than most major U.S. banks, has estimated it is 17 percent short of the expected Basel III levels, which are to be phased in by 2019. Citigroup has had to be more conservative than JPMorgan because investors and regulators were less confident in it, but Citis fortunes have turned, thanks in part to the U.S. housing market stabilizing. During the financial crisis, while Citigroup struggled to survive, the U.S. authorities turned to JPMorgan to help them salvage failed financial institutions. Even as recently as a year ago, Moody's Investors Service cut Citigroup's ratings as part of a broader financial services review globally. In March of last year, the Federal Reserve publicly rejected Citigroup's capital plan. It was a blow to confidence in the bank, as well as a sign of Citigroup's strained relationships with regulators. Executives at Citigroup had other reasons to be cautious too, including the European debt crisis, and the banks portfolio of troubled mortgage assets left from the financial crisis. But in recent months, the tide has turned. The bank has changed its leadership, pushing out Vikram Pandit and bringing in Michael Corbat, who has been assiduously building bridges with regulators. With the U.S. housing market starting to recover, the banks losses on its portfolio of bad assets are abating, and the bank passed the Feds stress test this year. In fact, that test suggested that Citigroup is safer than JPMorgan now. The regulator approved a plan for Citigroup to return $1.2 billion of additional capital to shareholders. The banks liquidity pool has reflected this shift. At the end of March 2012, Citigroup had $421 billion of cash on deposit at central banks and other unencumbered liquid assets, enough to cover about 43 days of acute stress and equal to about 22 percent of the banks total assets, more than twice the percentage at the end of 2007 when the financial crisis had just taken hold. In the middle of last year, as things started looking up for the bank, it quietly began to tap its liquidity, a move that accelerated in the fourth quarter as the company reduced its long-term debt by $32 billion and cut interest expense. The draw left Citigroup's pool of liquid assets at $354 billion at year-end, $67 billion less than in March last year, but still at a level that CreditSights senior analyst David Hendler calls "robust." "You really don't need that much liquidity," said a bond investor at a large money management firm who buys Citi debt and who declined to be named. He called the pile "excessive." Citigroup had $1.86 trillion of assets at the end of December. TURNING TIDE With Citigroup lowering its cash holdings in the fourth quarter, the bank managed to lift its interest profit margin, known as its net interest margin, even as JPMorgan's margin fell. Much the same could happen in coming quarters. While Citigroup has not committed to exactly when it will bring its liquidity down and by how much, the company, in contrast to JPMorgan, has guided analysts to expect steady interest profit margins, in the face of industry-wide low rates. Those stable margins will help the bottom line. Drawing down the $35 billion of excess liquidity could easily save $350 million of interest expense, or about two percent of 2013 earnings, said Moshe Orenbuch, a bank analyst at Credit Suisse. The gains could be greater if the company were able to use the cash to make loans with attractive yields, he said. In contrast, JPMorgan, which has not been under pressure to hold so much cash, is now increasing its holdings. Its Chief Financial Officer Marianne Lake told analysts in February that the company can quickly reach the liquidity requirements by steps including cashing out longer-term securities and taking in more deposits. JPMorgan intends to reach the minimum by year-end, the company said in a filing. But a measure of the bank's lending profitability, known as net interest margin, will suffer as a result, Lake said. JPMorgan has accelerated plans to meet other upcoming Basel III requirements since losing $6.2 billion in its "London Whale" derivatives trades last year. A JPMorgan spokesman declined to comment for this story. Morgan Stanley has said its liquidity exceeds 100 percent of the new Basel III requirement, while Bank of America Corp and Goldman Sachs Group Inc have yet to disclose their liquidity scores under the new requirements. How good the regulators' new liquidity requirements are at showing which banks are safe won't be known for sure until they are tested in a crisis, analysts said. The new requirements were drafted after the 2008 bankruptcy of Lehman Brothers, which happened as executives of the investment bank insisted they had more than enough liquidity. But the sums Lehman said were available included securities that were pledged as collateral on derivatives trades, as well as instruments that could not be quickly turned into cash to pay creditors, according to a report by an examiner appointed by the bankruptcy court in the case. Aboaf of Citigroup, which held some of Lehman's collateral, said none of the assets his bank counts as liquid are encumbered.

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For March 28, 2013

ANALYSIS AND INSIGHT (continued)

BREAKINGVIEWS Potemkin Dell fight would have optical merits By Jeffrey Goldfarb Even losers could emerge as winners from the Dell takeover battle. Blackstone Group, Silver Lake Partners, the Dell board and founder Michael Dell could stand to benefit from the impression of a hard-fought auction. A Potemkin fight, if that's what it turns out to be, just may not help shareholders quite so much. It's what Wall Street calls "the optics" of the deal. For the buyout firms, a backdrop for the $24 billion Dell sale is an antitrust lawsuit that a judge earlier this month narrowed but allowed to proceed. Shareholders of acquisition targets from 2003 to 2007 accuse Blackstone, TPG and other private equity shops of conspiring to drive down prices by agreeing not to outbid each other. One potentially damaging piece of evidence is an email from none other than Blackstone President Tony James to KKR cofounder George Roberts: "We would much rather work with you guys than against you. Together we can be unstoppable but in opposition we can cost each other a lot of money." While the Dell deal will have no direct bearing on the case, Blackstone's counterbid seems to undermine such allegations. The eleventh-hour offer for the PC maker is a rarity. Go-shop periods almost never lead to a higher bid. In the context of helping to shift perceptions about private equity firms being in cahoots, even Silver Lake might welcome Blackstone's approach. New suitors could also help Dell's board avoid a J Crew stigma. In the clothier's 2010 sale, the board succumbed to a leveraged buyout hand-stitched by Chief Executive Millard "Mickey" Drexler. After being kept in the dark for over six weeks that Drexler and the lead director's private equity firm, TPG, were teaming up on a bid, independent directors used a go-shop period as a governance fig leaf. Similarly, if Michael Dell winds up working with Blackstone, or even negotiates in good faith with the firm, he could come out looking better than Drexler, who only grudgingly agreed to work with other potential buyers. Blackstone, or even Carl Icahn, might succeed with their bids, but it's just as likely all the maneuvering won't bring a better deal for Dell investors. Others involved will at least come away keeping up appearances. CONTEXT NEWS Dell said on March 25 it received alternative proposals from Blackstone Group and Carl Icahn that could be superior to the $24.4 billion takeover offer from founder Michael Dell and private equity firm Silver Lake Partners. Icahn, who proposed paying $15 a share for 58 percent of Dell, also said he had started preliminary talks with Blackstone. The Silver Lake-backed group has offered $13.65 a share to take Dell private. (The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

KEY RESULTS vs. THOMSON REUTERS I/B/E/S ESTIMATES

Company Name Quarter EPS Estimates Year Ago Rev Estimates (mln)

Accenture Gamestop The Mosaic Company

Q2 Q4 Q3

$0.97 $2.09 $0.88

$0.97 $1.73 $0.64

$7,073 $3,454 $2,290

** Includes companies on S&P 500 index. Estimates may be updated or revised.

The Day Ahead - North American Edition is compiled by Karan Khemani, Benny Thomas and Chandrashekhar Modi in Bangalore; Franklin Paul and Meredith Mazzilli in New York. THE DAY AHEAD - North American Edition is produced by Reuters News For questions or comments about this report, email us at: TheDay.Ahead@thomsonreuters.com Or call us at +91 80 4135 5929 Visit the Thomson Reuters Equities Community Site at: http://customers.reuters.com/community/equities/ For more information about our products: http://thomsonreuters.com/products_services Or send us a sales enquiry at: http://thomsonreuters.com/products_services/financial/contactus/ or call us on North America: +1 800 758 5555 2013 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters and its affiliates. Any copying, distribution or redistribution of this content is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.