Earnings Per Share1 of $1.09 Versus $0.90 in Second Quarter 2010
Second Quarter 2011 Revenues of $20.6 Billion
Tangible Book Value Per Share1 up $1.88 from First Quarter 2011 to $48.75 and 16% over the Prior Year Period
Net Credit Losses Declined 35% from Prior Year Period to $5.1 Billion
Tier 1 Common of $115 Billion, Tier 1 Common Ratio of 11.6%
Citi Holdings Assets of $308 Billion, 34% Lower than Prior Year Period

We expect the debt trajectory to continue increasing in the medium term if a medium-term fiscal consolidation plan of $4 trillion is not agreed upon. If Congress and the Administration reach an agreement of about $4 trillion, and if we to conclude that such an agreement would be enacted and maintained throughout the decade, we could, other things unchanged, affirm the ‘AAA’ long-term rating and A-1+ short-term ratings on the U.S.

That will come as a relief to executives at and investors in Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered. They will certainly be sitting more comfortably than some of their peers among the 91 banks across Europe which are being tested by the European Banking Authority (EBA).

The tests are designed to instil greater confidence in European banks, although about a dozen are expected to have failed the tests and will be required to raise more capital by their national regulators.

Last year’s round of tests, conducted by the EBA’s predecessor body, was widely lambasted for the lack of rigour applied to banks’ balance sheets (although seven banks still managed to fail.

This time, banks must retain core tier one capital of more than 5 per cent after modelling based on criteria such as a 4 per cent fall in GDP and a one-third slump in the value of corporate real estate loans.

The results will be published in two hours time, when attention will focus on the exposure of each bank to the sovereign debt of struggling eurozone countries such as Greece and

“What do you read into those banks which just pass the test?,” an executive at one of the major UK banks said this afternoon.

Indeed, as last year’s stress tests showed with particular reference to Irish banks, narrowly passing the tests should not have provided any sort of relief to investors or governments.

* We believe that a continuation of this trend is the primary risk that could see world stocks (the MSCI World index) lose up to 35% of their value if the situation deteriorates into a full-blown financial crisis on the scale of the fallout from the collapse of Lehman Brothers in 2008.

* On a milder scenario, under which the crisis is contained and does not spill over to the real economy, we would still expect the MSCI World to fall by around 12%. This has been our central expectation for some time and would be driven by a small and temporary rise in the ERP compared to our worst-case scenario. The temporary nature of the rise in ERP would provide equity investors with an attractive entry point, in our view.

* Prompt action from European authorities could avert this worst-case outcome, however. But the downside risks to our relatively mild scenario have undoubtedly increased recently.

* In the worst-case scenario, we would expect a significant underperformance of the financial sector (a fall of as much as two-thirds) and the financially levered sectors such as Utilities, Industrials, Telecoms and Consumer Discretionary. At a sector level, Healthcare, Consumer Staples and Energy are most protected under this scenario, we think. Operationally levered regions such as Asia, Japan and Europe would likely be worst impacted. We therefore favour the S&P and companies with healthy balance sheets.

The preliminary Reuters/University of Michigan index of consumer sentiment moved to 63.8, from 71.5 the month before. It had been expected to hit 71.0, and it will be revised at the end of the month.

The report’s preliminary current conditions index was 76.3 from 82.0, while the expectations index was 55.8 in July, from 64.8 last month.

Icahn, known for pushing up the stocks in which he invests, said synergies resulting from any deal with a third-party strategic buyer could make even a $100-per-share offer viable to the likes of Procter & Gamble Co, Unilever , Colgate-Palmolive Co, Reckitt Benckiser Group Plc, Kimberly-Clark Corp, Henkel AG and privately-held SC Johnson.

Industry analysts were quick to shoot down such ideas, saying Clorox’s product lineup, which includes Kingsford charcoal and Hidden Valley salad dressing, is not the best fit for companies that already make household and personal goods and have largely stayed away from food and Clorox’s more commoditized categories such as cat litter and charcoal.