Looking further ahead, ensuring sustained financial stability requires a redesign of macroeconomic as well as regulatory and supervisory policies with an eye to mitigating systemic risks. For macroeconomic policies, this means leaning against credit and asset-price booms; for regulatory and supervisory policies, this means adopting a macroprudential perspective. Importantly, reform must focus on identifying systemic risks arising in all parts of the financial system – risks that arise from the complexity, opacity and ownership concentration of financial instruments; from the counterparty risk and margining practices in financial markets; from the risk of joint failure created by interconnections and common exposures; and from the procyclicality that is inherent in financial institution management and can be compounded by microprudential regulation.

The work of the Bank during the financial year was dominated by the need to deal with the challenges posed by the intensifying global financial crisis. Financial stability issues became a main focus and work programmes were redirected to concentrate on this, both in support for the committees hosted at the BIS and in the Bank’s research activities.

The market turmoil confronted the Bank with sustained demand to accept deposits and made it difficult to place funds profitably at an acceptable level of risk. As a result of actions taken by the BIS in its banking and risk management practices to address these challenges, the Bank’s currency deposit base decreased by 16% during the financial year 2008/09 and the balance sheet total decreased by 18%. The net profit for 2008/09 amounted to SDR 446.1 million, 18% lower than for the previous financial year.

* the member firm had a control designed to prevent layering but it
failed to operate as intended on a number of occasions, allowing
apparent layering activity to occur;

* the control was not robust as weaknesses in its software were
exploited by a trader at the order routing client so that it could
be bypassed;

* the fact that the control was intended to prevent such orders
reaching the book meant that, effectively, those orders were
erroneous from the member firm’s point of view (even if they were
deliberately entered by the trader at the order routing client);

* the incidents in October 2008 occurred despite the Exchange
providing the member firm with clear warning in January 2008 of
the possibility of disciplinary action if it did not bring the
activity under its trading codes under proper control.
The Executive Panel’s findings

Reinstating on Barclays as Neutral
We have removed the Not Rated designation from
Barclays and have a Neutral rating on the shares.

Next events & catalysts US bank Q2 reporting season begins on 13 July with Goldman Sachs. Barclays reports its H1 09 results on 6 August.

Meanwhile, Eonia volumes have collapsed given the abundance of liquidity, with €22.677bn on Friday and €25.7bn on Thursday (typically, Eonia volumes have been running around €40bn). We expect that Eonia volumes will if anything decline further this week in accordance with typical end-month behaviour.

Overall, as we suspected, the ECB’s stance – as revealed by developments during Wed-Fri last week – is to let the market address the excess liquidity itself, rather than by actively draining. It is very likely that at Wednesday’s regular weekly repo there will be a very large “negative” bid as the market adjusts to the excess surplus (use of the deposit facility is costly since banks will have borrowed at 1.0% and re-deposited at 0.25%:
they can simply rein in the excess liquidity by borrowing less at weekly and quarterly refinancings).

Rather, the ECB would apparently let the market settle the liquidity excess itself, even if that means that EONIA has been very volatile since the unlimited allotments commenced in mid-October last year. If anything, the volatility has increased during the past two months, despite the market effectively shifting to anticipate no more ECB rate cuts. In turn, the EONIA volatility is damaging to the money markets, since EONIA is one of the cornerstone of pricing of all maturities (and it influences strongly Euribor, which in turn is the key reference rate fior banks in setting lending and deposit rates to households and businesses).

The markets will be hoping that Mr Trichet will shed some further light on the Governing Council’s perspectives towards the money markets, particularly concerning the volatility in EONIA, at Thursday’s press conference in Luxembourg.

FirstGroup’s rumoured bid is clearly opportunistic. With the exception of rail, National Express’s assets are quite attractive, although there may be some competition issues in North America and possibly the UK.

- There has been some speculation that Anglo American could be looking to sell a
50% stake in its Brazilian iron ore assets for $2.5bn.

Our take:
- The$2.5bn is for an asset that they originally paid $5.5bn for, adding the
notional interest and capex, we feel it’s a little light, BUT given what has
happened to iron ore prices in the past 2 years, it looks fair on balance to us.

- Our NPV for MMx Minas Rio is negative in 2010, given up front investment and
significant capex requirements. If you take out the $5.5bn investment, then NPV
is $5.3bn, so its roughly on the money.

Bottom line:
This has been seen as the major stumbling block of the current management
team, if they are able to strengthen their balance sheet and remove the project
risk/capex commitments of MMX, we would view this as very positive. Approved
capex for production in 2012 was $3.6bn (26.5mtpa production)
Expect newsflow to help drive share higher today – Buy PO 2200p

The talks revolve around the Dublin-based drugmaker’s

treatments for Alzheimer’s disease and multiple sclerosis, the
U.K. newspaper reported. An agreement is “some way off,” the
newspaper said, citing a “well-placed source.”

Elan jumped 37 cents, or 7.2 percent, to 5.44 euros as of

9:35 a.m.
Niamh Lyons, a spokeswoman for Elan, didn’t immediately
return a call seeking comment. “We don’t comment on rumors and

speculation,” Eric Althoff, a spokesman for Basel, Switzerland-
based Novartis, said by e-mail.

Deutsche Telekom (or, at the very least, set up a joint-venture). We think this would be good news for both parties, but especially for DT.

* Purely from a valuation perspective, this transaction would not be a material ‘needle-mover’ (T-Mobile UK is c.6% of DT group value; VOD UK is c.7% of Vodafone group value). However, we believe such a transaction
would give a strong boost to sentiment (with negative sentiment causing both stocks to trade at a greater than 50% discount to our fundamentals driven target prices, a positive boost in sentiment is likely to translate into favourable positive share price moves).

* We very much doubt the UK regulator would object to this potential transaction, which would take the UK market from five network operators to four, given that all the other big markets in Europe are served by fewer
than five network operators.

**** 3) The UK market is the most fragmented in Europe and UK regulatory hurdle for M&A could be relatively lower.

**** WHAT IS THE IMPACT ON THE EQUITY STORY?

Arguments for Consolidation — Vodafone signalled (Nov’ 2008) its willingness
to participate in consolidation, as it recently did in Australia. Vodafone has a
fully mature UK business with sub-25% margins despite a 25% market share.
It might be able to acquire under distressed seller conditions.

Who Gets Synergies? — We think firmer pricing could add 5%+ to market
revenues over time – which could translate into 3-5pp of extra market margin.
All market participants benefit but only the acquiror has cost savings. Spectrum
allocation between T-Mobile and Vodafone limits cost synergies but the above
assumptions suggest that combined EBITDA could be £200-300m higher than
standalone after 3-5 years. This implies potential synergy value of >£1bn.

We generally view in market consolidation as a positive move for the remaining players in that market and clearly the consolidation in a market with five players would be likely to provide a much needed easing of the competitive environment in the UK. A market where operators have historically made low returns. However, for Vodafone the benefit will be dependent on the price paid and the level of achievable synergies. It is also worth remembering that Vodafone and T-Mobile operate on differing spectrum frequency bands meaning that the synergies between the two businesses may not be as significant as they would be for two operator with very similar spectrum frequencies. Also relevant, will be T-Mobile’s network sharing arrangement with 3 in the UK, 3 has around 8% of the UK mobile market.