THE DAY AHEAD

REUTERS NEWS
KEY ECONOMICS EVENTS ECRI Weekly Index for w/e 04/12 ET/GMT 1030/1430

North American Edition

REUTERS POLL -PRIOR 130.1 SOURCE

For Friday, April 19, 2013

Economic Cycle Research Institute

MARKET RECAP
Stocks fell on Thursday for the third day this week as weaker-than-expected economic data triggered global growth concerns, while Treasuries gained. The euro rose across the board. Oil bounced back after a six-day sell-off as low prices sparked bargain hunting and traders anticipated cuts in OPEC production, and gold ended higher.

COMING UP
General Electric, the world's biggest maker of jet engines and
electric turbines, is expected to post a slight rise in quarterly earnings helped by sales of equipment for oil fields, airplanes and locomotives.

McDonald's is expected to post higher quarterly profit. All eyes are

on McDonald's new CEO Don Thompson, who took the helm at the world's biggest hamburger chain shortly before its business began to falter under the pressure of lackluster global economic growth and historically strong results. Wall Street is looking for the company's March restaurant sales results to signal improvement after January sales dropped more than expected and February sales fell less than feared. For a related Reuters Insider video, click here

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

Close 14539.29 3166.36 1541.71 11996.34 901.59 6243.67 1147.38 13220.07 21512.52 Yield 1.6898 0.2299 0.6985 2.8665

Change -79.30 -38.31 -10.30 49.05 -5.21 -0.54 -0.38 -162.82 -57.15

% Chng -0.54 -1.20 -0.66 0.41 -0.57 -0.01 -0.03 -1.22 -0.26

Yr-high 14887.50 3306.95 1597.35 12904.71 954.00 6533.99 1209.05 13568.25 23944.74

Yr-low 12035.10 2726.68 1266.74 11209.55 729.75 5897.81 1132.73 10398.61 21475.33

Quarterly results from Schlumberger and Baker Hughes, the

world's largest and third-largest oilfield services companies respectively, are expected to offer a contrast in first-quarter performances given that the U.S. market on which Baker is reliant remains stalled with a domestic natural gas glut deterring drilling. Schlumberger, which earns most of its money outside North America, will seek to continue its steady performance of the past year.

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

Price FOREX 3 /32 Euro/Dollar 0 /32 Dollar/Yen 0 /32 Sterling/Dollar 9 /32 Dollar/CAD Price 88.40 1388.00 3.2045 283.40 Price 45.14 3.17 0.41 12.15 32.56 14.92 1.02 3.15

Last % Chng 1.3050 98.21 1.5278 1.0258 0.17 0.12 0.28 -0.03

Interpublic Group, the second-biggest U.S. advertising and marketing group, reports quarterly results. The company said in February it expected to return to organic revenue growth in line with that of peers such as Omnicom and Publicis this year. However, analysts expect organic growth for the company to be diminished in the first half of 2013 as it works through account losses, such as those of Nestle, MillerCoors and Taco Bell, in 2012, and management changes at two of its primary business units, McCann WorldGroup and DraftFCB.

$ change 1.72 11.50 0.0165 2.03 $ change -5.95 -0.41 -0.05 -1.33 4.55 1.49 0.09 0.26

% change 1.98 0.84 0.52 0.72 % change -11.65 -11.45 -10.00 -9.87 16.24 11.09 9.98 9.00

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

BIG MOVERS
Greenhill Nokia Zoom Technologies Fairchild Semiconductor Theravance ITT Educational Services Affymax Pain Therapeutics

Kimberly-Clark, the maker of Kleenex tissues, kicks off the firstquarter earnings season for U.S. household products makers. Kimberly-Clark has been spending more on marketing while cutting other costs and has benefited from a decline in commodity prices.

Manpower, the world's No. 3 staffing company, is expected to post

a lower quarterly profit as Europe remains under pressure. Analysts expect the company's operations to be affected in the near term mainly due to its exposure to France, where most of the company's European business is concentrated.

Germanys business software group SAP publishes its results and

all eyes will be on whether it can live up to its ambitious outlook for the year, especially after peer Oracle missed expectations for its fiscal third quarter, blaming its sales force. SAP expects a solid increase in 2013 software and software-related service revenue.

For The Day Ahead - Canada, click here

THE DAY AHEAD

For April 19, 2013

COMING UP (continued)
Also expect quarterly results from companies including Honeywell, Kansas City Southern and State Street.

Blackhawk Network Holdings, grocer Safeway's gift card

and payment service unit, is expected to start trading on the Nasdaq. At the top end of the expected price range, the IPO will raise up to $220 million in proceeds.

Shares of Blackstone Group's SeaWorld Parks and Entertainment are expected to begin trading on the New York Stock Exchange. SeaWorld said it expects to price its shares at between $24 and $27 each, raising $702 million.

U.S. Treasury Secretary Jack Lew holds a news conference

on the sidelines of the IMF/World Bank spring meetings.

Federal Reserve Board Governor Jeremy Stein speaks on

"Liquidity Regulation" at an event in Charlotte, N.C. Correction and clarification: Microsoft reported third quarter results on Thursday, not first quarter results as stated in yesterday's edition of The Day Ahead.

MARKET MONITOR
Stocks fell on Thursday for the third day this week after data showed signs of slower growth ahead for the U.S. economy, while bearish technical signals added to doubts about the market's strength. Investors also looked to the latest corporate earnings reports for signs on the economy's strength, but results were mixed. UnitedHealth Group was down 3.77 percent and Morgan Stanley's stock lost 5.36 percent. Shares of Verizon gained 2.79 percent and PepsiCo jumped 3.04 percent. Some analysts say the market move is more a timely correction after strong gains in the first quarter of the year, when optimism over the U.S. economy lifted Wall Street stocks to record peaks and boosted European shares to multi-year highs. The Dow fell 0.54 percent, the S&P 500 Index lost 0.66 percent and the Nasdaq 1.20 percent. Prices for Treasuries gained as lukewarm data pointed to a long slog of a recovery in the world's biggest economy, fueling bids for safe-haven investments. The benchmark 10-year Treasury note was trading 3/32 higher in price to yield 1.69 percent. Tenyear notes "are still bouncing around 1.69 (percent), 1.70 (percent), which is a resistance level," said Matt Duch, a portfolio manager at Calvert Investments. Though investors have some "sticker shock" at holding Treasuries for long at these prices, he said, yields could move even lower if 10-years continue to close below 1.70 percent. The 30-year bond rose 9/32 to yield 2.87 percent. Prices also found support from the Federal Reserve's purchase of $3.38 billion of Treasuries maturing between May 2020 and February 2023. The Treasury auctioned $18 billion of 5-year Treasury Inflation-Protected Securities at a high yield of negative 1.311 percent. But the auction overall was weak, analysts said, with investors reluctant. The euro edged higher against the dollar, rebounding from its biggest daily drop in 10 months in the previous session, as more signals flashed a weakening of the U.S. economic recovery. The euro rose 0.18 percent to $1.3051, finding strong support at a session low of $1.3020 and the psychologically important $1.30 area. Against the yen, the euro rose 0.28 percent to 128.19 yen, holding below its recent three-year high of 131.11 yen. The dollar rose 0.12 percent to 98.21 yen, with traders citing support around 97.60 yen. "This is a longer-term move and therefore periods of correction are basically buying opportunities and that's probably what we are in at the moment," said Steve Barrow, head of G10 currency research at Standard Bank, who said 110 yen was a likely target for this year. Click on the chart for full-size image

Crude rose as low prices sparked buying by bargain hunters and with traders anticipating OPEC rumblings about cutting production if prices keep falling. "We haven't seen any change in the fundamentals, so the view that we're in oversold territory is probably true," said Gene McGillian, broker and analyst at Tradition Energy in Stamford, Connecticut, adding that traders with long bets on crude oil prices had likely eased their liquidation selling. May crude was up 1.98 percent at $88.40 a barrel. Gold rose in Europe after volatile Asian trade saw prices slide towards two-year lows hit earlier in the week, with strong physical buying set against exits from exchange-traded funds. Spot gold recovered to $1,388.06 an ounce, up 0.84 percent on the day. "The downward momentum has stabilised over yesterday and today, but we can't say for sure if that's abated or we will see more financial investors leaving the gold market and volatility is likely to remain very high in the next few sessions," Commerzbank analyst Daniel Briesemann said. June gold futures were also up 0.33 percent at $1,387.30.

THE DAY AHEAD

For April 19, 2013

TOP NEWS
U.S. jobs, factory data point to slowing economy The number of Americans filing new claims for unemployment benefits rose last week and factory activity in the nation's MidAtlantic region cooled in April, further signs of a moderation in economic growth. Initial claims for state unemployment benefits rose 4,000 to a seasonally adjusted 352,000 the Labor Department said. The four-week moving average for new claims rose 2,750 to 361,250. In separate report, the Philadelphia Federal Reserve Bank said its business activity index fell to 1.3 in April from a reading of 2.0 in March. A third report supported views the economy was again headed for a soft patch this spring. The Conference Board said its Leading Economic Index slipped 0.1 percent to 94.7 last month, the first drop since August. Verizon beats estimates and raises Vodafone pressure Verizon Communications posted a higher-than-expected quarterly profit on the performance of its wireless business, which reined in costs without slowing growth. Verizon Wireless added 677,000 retail subscribers in the first quarter, slightly higher than Wall Street expectations for about 634,000, according to eight analysts contacted by Reuters. The operator said its wireless service margin of 50.4 percent based on EBITDA was a record high. Verizon's earnings rose to $1.95 billion, or 68 cents per share, compared with $1.69 billion or 59 cents per share in the year-earlier quarter. Analysts expected earnings of 66 cents per share. Revenue rose to $29.42 billion from $28.24 billion and compared with Wall Street estimates of $29.55 billion. UnitedHealth profit falls, CEO warns about private Medicare cuts Lower government payments for private Medicare services and prescriptions for older people dragged down UnitedHealth Group's first-quarter profits, the company said. Chief Executive Officer Stephen Hemsley also warned during a conference call that planned cuts to payments for Medicare Advantage would be one of its most significant challenges in 2014 and that the company may pull out of some markets. The company said firstquarter net profit was $1.2 billion, or $1.16 per share, down from $1.4 billion, or $1.31 per share a year earlier. Analysts on average had been expecting earnings of $1.14 per share. Revenue rose to $30.3 billion from $27.3 billion a year ago, helped by membership growth. The company added 1.1 million new members during the quarter to total 86 million as of March 31. Morgan Stanley's results weaker as bond trading stumbles Morgan Stanley posted a 14 percent drop in adjusted earnings as its bond trading business faltered, raising fresh questions about how quickly the bank can turn around the long-lagging business. Morgan Stanley said first-quarter bond and commodity trading revenue fell by about 40 percent to $1.5 billion, excluding adjustments for changes in the value of the bank's debt. Wealth management revenue rose 5.4 percent to $3.47 billion, the highest in the firm's history. Profit generated by the unit jumped 29 percent to $255 million. Morgan Stanley's net income in the three months to the end of March amounted to $958 million, or 49 cents a share, compared with a year-earlier loss of $119 million, or 6 cents. Excluding adjustments, income in the latest quarter was 61 cents a share. On that basis, analysts had expected 57 cents. For a related graphic, click here Click on the chart for full-size image

Price increases help PepsiCo profit beat expectations PepsiCo posted better-than-expected quarterly earnings, as price increases helped margins, sending its shares up. Net income was $1.08 billion, or 69 cents per share in the first quarter, down from $1.13 billion, or 71 cents per share, a year earlier. Excluding certain items, earnings were 77 cents per share, a 12 percent increase from a year earlier. On that basis, analysts on average were expecting 71 cents per share. Revenue rose about 1 percent to $12.58 billion. Excluding the impacts from currency translation and refranchising its business in China, revenue grew 4 percent. For the full year PepsiCo said it still expects 2013 earnings to grow 7 percent from the $4.10 per share it earned in 2012. Union Pacific expects increased coal shipments in Q2 Union Pacific reported a strong first quarter as higher freight rates offset a decline in coal shipments, and the company said it expects to ship more of the commodity in the current quarter, sending its shares up. Shipments of the commodity fell 19 percent in the first quarter ended March. Union Pacific has consistently raised prices to make up for a fall in volumes. Net income rose 11 percent to $957 million, or $2.03 per share, from $863 million, or $1.79 per share, a year earlier. Revenue rose 3.5 percent to $5.29 billion. Analysts on average expected earnings of $1.95 per share on revenue of $5.21 billion. FAA nears decisive step in restoring 787 to flight U.S. regulators are close to approving a key document that could start the process of returning Boeing's grounded 787 Dreamliner to service within weeks, according to several people familiar with the matter. The document could be approved as early as next week, said two of the sources, asking not to be identified because the discussions remain confidential. The FAA declined to comment on whether Boeing had already submitted the document, the exact contents of which are unclear. Boeing also declined to comment beyond saying that it stands ready to continue working with the FAA "to ensure we have met all of their expectations."

THE DAY AHEAD

For April 19, 2013

TOP NEWS (continued)

Blackstone's earnings soar as it exits investments Blackstone Group, the world's largest alternative asset manager, reported a 28 percent rise in first-quarter profit as its real estate, private equity, credit and hedge fund units successfully sold assets. Blackstone reported economic net income of $628.3 million, up from $491.2 million a year earlier. This translates into 55 cents per share, a penny above the average forecast of analysts polled by Thomson Reuters. The rise in ENI was due to cash generated from selling assets rather than fees Blackstone charged investors to manage their money. Distributable earnings jumped 134 percent to $379 million. Lacker- Fed should mull stopping mortgage bond purchases The Federal Reserve should consider halting its purchases of mortgage bonds as the housing market recovers, Richmond Fed President Jeffrey Lacker said. "What's going on in the housing market ought to get us thinking about pulling back from that and stopping MBS purchases first and maybe selling off MBS or swapping MBS for Treasury," he told reporters on the sidelines of a Richmond Fed conference. Separately, Minneapolis Fed President Narayana Kocherlakota said that the Federal Reserve's ultra accommodative policies will inevitably result in financial market instability for years but such risks are necessary to boost employment and inflation. Meanwhile, Federal Reserve Board Governor Daniel Tarullo said that U.S. banks were in better shape now than prior to the financial crisis, but he remained worried by the vulnerability of the very big firms to reliance on fickle market liquidity.
PIC OF THE DAY

The remains of a fertilizer plant burn after an explosion at the plant in the town of West, near Waco, Texas.

Nokia sales tumble overshadows Lumia pick-up A sharp fall in sales of Nokia's basic phones overshadowed a stronger performance from its Lumia smartphones in the first quarter, rekindling fears over its future and sending its shares tumbling to year lows. Nokias shipments of mobile phones slumped 21 percent to 55.8 units, a far steeper decline than the 8 percent fall that markets expected, with unit sales down in every region. As a result, overall net sales fell 20 percent to 5.9 billion euros from a year earlier, far short of the 6.5 billion euros forecast by analysts in a Reuters poll. Its underlying loss, which excludes special items, shrank to 0.02 euros per share from 0.08 euros a year earlier. Markets had expected a 0.04 per share loss, according to a Reuters poll.

ANALYSTS RECOMMENDATIONS
Company Name Abbott Laboratories Action Stifel raised target price to $44 from $40 following encouraging first-quarter results driven by a balanced portfolio with outperformance in nutrition and diagnostics offsetting weaker medical devices. RBC raised target price to $54 from $53 after the company reported better-than-expected first-quarter results. TD Securities raised target price to $28 from $27 citing an impressive earnings resiliency despite severe pressure on its coal business, the impact of drought on agricultural volumes and a sluggish economy in general. Macquarie cut rating to neutral from outperform, saying with weak second-quarter outlook and reiterated full-year outlook, there is more risk given increased reliance on second half of 2013. Credit Suisse raised target price to $75 from $55 after the company reported solid first-quarter results and gave a better-than-expected outlook for June quarter.

American Express

CSX Corp

eBay

SanDisk

THE DAY AHEAD - CANADA

COMING UP
No major events are scheduled.
BIG MOVERS Baja Mining Niko Resources Franco-Nevada Canaccord Financial Calfrac Well Services Romarco Minerals Price 0.05 6.21 38.08 5.27 23.65 0.49 C$ 0.01 0.57 2.42 -0.32 -1.01 -0.02 % Change 12.50 10.11 6.79 -5.72 -4.10 -3.92

For April 19, 2013

MARKET MONITOR
Canada's main stock index advanced on Thursday, recovering from a selloff to a five-month low the day before, as a spike in commodity prices fueled gains in shares of energy and goldmining companies. The Toronto Stock Exchange's S&P/TSX composite index was up 0.41 percent at 11,996.34. Goldcorp added 2.25 percent and Barrick Gold gained 1.49 percent. The Canadian dollar was down 0.02 percent at $1.0259.

TOP NEWS
African Barrick review given fresh impetus by gold rout Miner African Barrick Gold said that this week's plunge in the price of gold has raised the stakes for its internal operational review. "We kicked that (operational review) off because we knew we had to restructure the cost of the business to give us some comfort if the gold price came off, or to create a bigger margin if they (gold prices) sustained at that level," CEO Greg Hawkins said. African Barrick, which had warned that production would shrink for a fifth straight year, on Thursday posted firstquarter production ahead of analyst expectations. Output in the first three months of the year was 146,105 ounces of gold at a cash cost per ounce of $931, which the company said was on track for its target of producing 540,000 to 600,000 ounces in 2013 at a cost of $925 to $975 per ounce. Ivanplats shares rise as Congo's copper province rejects export ban Africa-focused miner Ivanplats Ltd's shares rose after the governor of Congo's copper mining province, Katanga, said he will not enforce a ban on the export of copper and cobalt concentrates. Katanga governor Moise Katumbi's decision on Thursday puts him on a collision course with the central government. Ivanplats, which owns the high-grade Kamoa copper deposit in Congo, said in a statement issued late on Wednesday the companys planned development of its Kamoa copper discovery would not be hurt by the ban. Romania demands more financial guarantees for gold mine Romania is pressing for more financial guarantees before it issues a key environmental permit for Europe's biggest open cast gold mine, a move which could further delay a project stuck in limbo for 14 years. Gabriel Resources aims to use cyanide to mine for 314 tonnes of gold and 1,600 tonnes of silver among a cluster of villages in the Carpathian mountains known as Rosia Montana. The plan has drawn fierce opposition for its potential environmental impact. The environment ministry wants two additional financial guarantees from Gabriel, which operates through its local unit Rosia Montana Gold Corporation, in which the Romanian state also holds a 19 percent stake, it said. SNC settles with World Bank, no bidding for up to 10 years Construction and engineering company SNC-Lavalin Group said it agreed to a settlement with the World Bank that excludes it from bidding on bank-sponsored projects for up to 10 years. The company said it reached a confidential settlement with the World Bank that does not include a financial penalty. However, its SNC-Lavalin unit will be kept from bidding on World Bankbacked projects for a decade, though that can be reduced by two years if SNC meets all the settlement's terms and conditions.

THE DAY AHEAD

For April 19, 2013

ANALYSIS AND INSIGHT

Bank of America seeks to boost revenue, but progress slow By Rick Rothacker Bank of America Corp has launched a bank-wide initiative to boost revenue, but Chief Executive Brian Moynihan has his work cut out in proving that he can get the bank to grow robustly as it moves past its mortgage problems. The huge challenge he faces was underlined on Wednesday when the bank, the second-largest U.S. bank by assets, reported that its adjusted revenue in the first quarter fell 8.4 percent to $23.85 billion, as all of the bank's major business segments declined except for wealth management. The bank's revenue has now fallen by more than a quarter since Moynihan came into office. Moynihan has spent his first three years as CEO fixing mortgage problems arising from the bank's disastrous purchase of Countrywide Financial in 2008,and cutting expenses to boost the bottom line. Now, he says the priority has to be building revenue. "As the other initiatives go away, this is what the team has to be focused on," Moynihan told Wall Street analysts on a conference call on Wednesday. This month, he met with about 100 of Bank of America's regional banking executives to talk about strategies for winning more business. These include selling more products to existing customers, increasing referrals among various units and rebuilding the mortgage origination business. The bank is asking, for example, its commercial bankers to refer entrepreneurs to financial advisers in the wealth management division and to investment bankers who can help them raise capital for their businesses. Bank of America plans to increase referrals among business units by up to 50 percent each year, Moynihan said. So far, it is on track to hit those goals, he added. The idea, while attractive to many executives in the industry, is notoriously hard to implement. It requires systems to easily send on and track referrals, compensation structures to give employees an incentive to send customers to other units, and hands-on management to make sure everything is working. For a firm with about 263,000 employees and vast, global operations, that can be surprisingly tricky to get right. Moynihan's success in increasing cross-selling could determine both his and the bank's future. Some executives inside the bank have previously said that Moynihan is seen internally as a problem-solver, but still needs to prove his credentials as someone who can also lead the bank on a growth path. Moynihan is under real pressure now. Bank of America's profit now lags rivals, including Citigroup Inc, which had enough trouble of its own to need three government rescues in the financial crisis. A Bank of America spokesman declined to comment. Bank of America's shares are up 1 percent this year, compared with Citigroup's 16 percent climb. Citi's sharper increase has left the two banks with virtually the same share price valuation. As long as Bank of Americas businesses perform in line with competitors, Moynihan will likely have time to fix the bank, said Marshall Front, chairman of Front Barnett Associates in Chicago, which owns nearly $6 million of Bank of America shares. But the bank is far from past its problems, he said. "They have a lot more work to do," Front said, noting that the bank has to shrink underperforming parts of the bank and invest more in businesses that can grow. The bank said some signs of its progress in cross-selling were evident in first-quarter results. Revenue in both wealth management and mortgage lending rose, as the bank convinced more of its retail banking customers to invest money in brokerage accounts, and to refinance their mortgages with Bank of America. Lingering problems from Countrywide are also hurting the bank even after billions of dollars of legal payouts to investors, borrowers, regulators, and others. In the first quarter the bank set aside reserves for a $500 million legal settlement with mortgage bond investors that was announced on Wednesday. Bank of America's shares fell 4.7 percent to close at $11.70 on Wednesday. ENJOYING THE COMEBACK? In mortgages, Bank of America is rebuilding a business that it downsized after taking huge losses related to the Countrywide purchase. In 2011, it cut its volume in half when it stopped buying loans from other banks to focus on serving customers through its own branches and mortgage offices. But in the past year, the bank has added nearly 1,000 mortgage loan officers, many of whom are in branches, to help it boost lending. In the first quarter, it made $24 billion in home loans, an increase of 57 percent from a year ago. The bank over time could capture market share of 10 to 11 percent, equivalent to its deposit share, Moynihan said. At the end of the fourth quarter, the bank held just 4.1 percent market share, according to Inside Mortgage Finance. At the end of 2007, shortly before Bank of America agreed to buy Countrywide, the two lenders had a combined 24.6 percent market share. More than 90 percent of the bank's home loans in the quarter came from customers refinancing, an activity that has been declining at banks such as Wells Fargo, the No. 1 U.S. mortgage lender. Bank of America Chief Financial Officer Bruce Thompson told reporters that while refinancings have dominated the bank's business, he expects loans for purchasing homes to increase as the housing market "continues to heal" and become a bigger portion of the total. Retail banking customers are also increasingly using Merrill Lynch for brokerage services. Brokerage assets in the bank's Merrill Edge business, which targets consumer banking customers mainly online, rose 13 percent from a year ago, in part because of money coming in from new clients. Investors will need to be patient, but Bank of America is poised to take advantage of a reviving U.S. economy and housing market in the coming years, said Bill Smead, chief investment officer at Smead Capital Management in Seattle, Washington. Smead Capital counts about $15.6 million Bank of America shares among the $410 million of assets it manages. "It's going to take another year or two to finish extricating themselves from the litigation issues from before," Smead said. "And then they stand ready to enjoy the comeback." Slumping gold price leaves Barrick with uncomfortable options By Euan Rocha and Allison Martell Barrick Gold Corp may have little choice but to cut its dividend, freeze capital spending or reopen a gold hedge book, as tumbling gold prices add to the already formidable list of issues dogging the world's biggest gold producer. The company, which reports quarterly results on April 24, has been plagued by delays and mounting costs at many of its biggest projects. To make matters worse, it carries a net debt load of $11.6 billion, as of year end-2012, and faces the threat of a further credit rating downgrade. "Mathematically, as the gold price falls, they lose wiggle room. That's undeniable," said Elizabeth Collins an analyst with Morningstar. "And in terms of sentiment, people were very agreeable to lending Barrick money when gold was in favor. But as gold falls out of favor that might change." Shareholders of Toronto-based Barrick have had a rough ride in

THE DAY AHEAD

For April 19, 2013

ANALYSIS AND INSIGHT (continued)

the last two years. The stock, now at a 20-year low in Toronto, has more than halved in value in the last year alone. Its unpopular $7.3 billion acquisition of Equinox Minerals in 2011 has not lived up to expectations and the company shook up management after costs to build its huge Pascua-Lama project on the Chile-Argentina border jumped from under $3.5 billion in 2011, to the latest estimate of up to $8.5 billion. The recent slump in the price of gold, days after a Chilean court ruling forced Barrick to partially suspend construction work at Pascua-Lama, just adds to its list of woes, including problems with properties that were a part of the Equinox deal. "Their woes commenced with the Equinox acquisition," said John Goldsmith, the deputy head of equities at Montrusco Bolton Investments Inc. "We were shareholders until that deal and after Equinox we thought, you know what this makes no sense any more." Perhaps, a bigger concern for investors now is the Dominican Republic's attempt to squeeze more tax money out of Barrick as it ramps up output from its recently completed Pueblo Viejo gold mine there. The $4 billion mine is a joint venture with Goldcorp Inc The massive capital outlay for projects like Pascua Lama and Pueblo Viejo, puts Barrick in a tough spot, says Stifel Nicolaus analyst George Topping. "In an environment of falling gold prices, Barrick is one of the worst positioned due to its high debt," said Topping, adding that if gold falls to $1,200 an ounce, Barrick would spend 27 percent of its 2014 cash flow on interest payments alone. "If gold prices don't pick up they are indeed at risk of more credit (rating) downgrades, and certainly within the market that's what investors are most worried about." Spot gold dipped close to $l,320 on Monday, a two-year low. It has partially pared its losses and was at about $1,390 on Thursday. The plunge in the gold price and uncertainty at Pascua Lama, pushed Moody's on Wednesday to put $7.5 billion of Barrick's debt under review for a possible downgrade. Barrick played down concerns about a rating cut, saying it is one of the lowest cost gold producers and it generates large operating cash flows at present gold prices. "Should a downgrade occur, Barrick will continue to have an investment grade rating with considerable financial flexibility and excellent access to debt capital markets," said Andy Lloyd, a spokesman for the company. Standard & Poor's already downgraded the company's debt by a notch last July and warned that further cuts were possible. MASSIVE DEBT LOAD Barrick has issued about $9 billion in debt since early 2009 to finance acquisitions, unwind a previous gold hedging strategy and fund construction of Pascua Lama and Pueblo Viejo. The company has just over $3 billion in debt repayments due in 2013 and 2014, plus interest payments of about $1.2 billion. Barrick has roughly $2 billion in cash for now, and access to a similar amount remaining under a credit facility. Barrick intends to continue construction work on Pascua Lama and potentially sink another $4 billion into the mine, saying it still sees the project as a top priority, as it will be one of the world's lowest operating cost mines once built. But analysts and investors question the wisdom of this, as time-lines and a pay-back from the project remain uncertain for now. While Barrick is not in danger of defaulting on its debt at this time, the cost to insure its debt is at its highest in over two years. Five-year credit default swaps in Barrick have now widened by 72 basis points to 225 basis points in the last week. It now costs about $225,000 a year, for five years to insure $10 million of Barrick's debt, according to data from Markit Group. Greg Barnes of TD Securities estimates that the company's net debt-to-earnings before interest, taxes, depreciation and amortization ratio is likely to spike to 2.4 times this year. He sees the ratio rising to 2.8 times at a gold price of $1,300 per ounce, and 3.2 times at $1,200 per ounce. When S&P downgraded Barrick's debt to BBB+ in July, it said it would cut its rating further if the company's debt-to-EBITDA ratio neared a 3 multiple. To be sure, Barrick is not in as deep a crisis as its fellow Canadian miner Teck Resources was in back in 2008 when it took on billions in debt to acquire Fording Canadian Coal. As the financial crisis unfolded and commodity prices plunged soon after the deal, Teck was forced to sell assets and take other drastic steps to right itself. "I really don't think it's all that bad for Barrick. It is going to be a painful time right now, but they can definitely engineer their way out of this problem," said Goldsmith. UNCOMFORTABLE OPTIONS As pressure mounts, Barrick could cut its dividend as early as next week, when it reports first quarter results. Another option for Barrick is to cut all growth spending before it considers reducing its dividend payout, following a strategy that two of the world's largest miners - Rio Tinto and BHP Billiton have pursued. "The dividend I think would be a last resort. I'd rather see them cut back on development of Pascua Lama," said Topping. "The dividend attracts investors whereas Pascua deters investors, so keep the one that brings them in." Monetizing assets, and even a renewed push to sell its stake in African Barrick Gold remain options, but investors and analysts say a fire sale of assets, merely to appease credit rating agency concerns, may not be the smartest move. That may leave Barrick, which declined to comment on whether it would consider any of these options, with having to look at another strategy that was not very long ago unthinkable. "I hate to use the 'H' word, but there is nothing preventing Barrick from using options, like hedging production for the next two years," said Montrusco's Goldsmith. Hedging through selling production forward was a popular way for miners to lock in prices in the late 1990s and early 2000s. But hedging got a bad reputation in the last decade, as the gold price soared from $250 an ounce in 2000 to a record of $1,920.30 in 2011, and hedged miners lost out on much of the upside. Barrick itself spent billions a few years ago to unwind its hedge book. Barrick said it has no plans to hedge gold, but with challenges growing it may be left with few options. "Hedging is typically used, when you want to guarantee the cash flow payback on a project and it is used in times of duress and I am pretty confident in saying that now is a time of duress for Barrick," said Goldsmith.

THE DAY AHEAD

For April 19, 2013

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

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

Baker Hughes Rockwell Collins First Horizon National General Electric Genuine Parts Honeywell The Interpublic Group of Companies Kimberly-Clark Laboratory Corp of America Holding McDonald's Schlumberger SunTrust State Street

Q1 Q2 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1

$0.62 $1.17 $0.17 $0.35 $0.99 $1.14 -$0.13 $1.34 $1.76 $1.27 $0.99 $0.61 $0.93

$0.86 $1.09 $0.12 $0.34 $0.93 $1.04 -$0.10 $1.24 $1.74 $1.23 $0.98 $0.46 $0.84

$5,178 $1,132 $327 $34,513 $3,285 $9,445 $1,526 $5,281 $1,448 $6,587 $10,728 $2,247 $2,479

** 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.