the brokerage industry bernstein research

Bernstein ResearchSee Disclosure Appendix of this report for important disclosures and analyst certifications

The Brokerage Industry : The Brokerage Industry : The Canary in the Financial Institutions’ Coal MineThe Canary in the Financial Institutions’ Coal Mine

Brad Hintz – Equity Analyst, U.S. Securities IndustryNovember 2007

2 Bernstein ResearchSource: Company Reports, Bloomberg, Bernstein Analysis, Factset.

US Brokerages: Coverage

Target 11/23/2007 EPS* P/E Last Book Price-to-Rating Price Price 2006A 2007E 2008E 2006A 2007E 2008E Abs. Rel. Dividends Value Book Yield

BSC M 140.00 $94.23 $14.27 $11.21 $13.16 6.6x 8.4x 7.2x -42.1% -43.7% $1.28 91.82 1.0x 1.4%MER M 78.00 $53.54 $5.48 $3.58 $7.28 9.8x 15.0x 7.4x -42.5% -44.1% $1.40 39.75 1.3x 2.6%MS O 75.00 $49.89 $7.09 $7.65 $8.33 7.0x 6.5x 6.0x -26.2% -27.8% $1.08 32.14 1.6x 2.2%LEH M 78.00 $60.86 $6.81 $7.39 $7.68 8.9x 8.2x 7.9x -22.1% -23.7% $0.60 38.29 1.6x 1.0%GS M 250.00 $216.48 $19.69 $23.72 $22.12 11.0x 9.1x 9.8x 8.6% 7.0% $1.40 84.65 2.6x 0.6%SCHW O 27.50 $23.56 $0.69 $0.97 $1.14 34.0x 24.3x 20.6x 21.8% 20.2% $1.21 3.45 6.8x 5.1%

S&P 500 $1,440.70 $86.75 $91.05 $97.00 16.6x 15.8x 14.9x 1.6%

2007 YTD Perf.

3 Bernstein Research

Credit Re-Pricing of 2007

Ensign Hintz, Nothing is as good or as bad as first reports would indicate.

Master Chief Petty Officer ‘Gunner’ Wilborne, USN


Events of Q3 ‘07

Re-pricing of Global Credit Market, led by problems in the MBS/CDO sector. The Federal Reserve opened Discount Window to limit systemic risk. US interest rates were lowered. U.S. economic growth slowing with softening of the housing market. The Euro-area’s economic growth rates are diverging with the U.K., Spain,

and Germany growing at or above 3%, and France and Italy at about 1.5%. The Euro is strengthening versus the US Dollar.

The ECB and the BOE provided financing to limit systemic risk. The ECB ceased tightening rates.

Asian economies remain strong.


Credit Spreads Widen

Increase in Credit Spreads

5072

4547

129

6

103

322

61

-

50

100

150

200

250

300

350

Baa-ratedCorporates

High-Yield MBS

bas

is p

oin

ts

8/98-10/98

3/05-5/05

Feb. 20th - YTD

Hi-Yield Debt Spreads

200

250

300

350

400

450

500

550

600

1/2/

07

2/2/

07

3/2/

07

4/2/

07

5/2/

07

6/2/

07

7/2/

07

8/2/

07

9/2/

07

10/2

/07

11/2

/07

ba

sis

po

ints

Source: Lehman Brothers Fixed Income Research, Bernstein Analysis

Mortgage Backed Securities

20

40

60

80

100

120

140

1/2/

07

2/2/

07

3/2/

07

4/2/

07

5/2/

07

6/2/

07

7/2/

07

8/2/

07

9/2/

07

10/2

/07

11/2

/07

Cre

dit

Sp

read

s (i

n b

p)


Impact of Q3 ‘07

Creditors have become more discriminating about risk

Funding problems at Countrywide Financial, Bear Stearns, Northern Rock and Landesbank Sachsen contributed to tighter conditions in the money markets.

Negative sentiment dried up liquidity and led to forced asset sales by conduits/SIVs and negative net asset valuations in ABCP markets.

Brokers and Universal Banks were the most affected in terms of market events of Q3 ‘07 due to off-balance-sheet exposures and risks in leveraged loan commitments, MBS, and CDO positions.


Fixed Income Market Reaction

CDS Spreads

82

108

135 135

160

020406080

100120140160180

GS MS MER LEH BSC

bas

is p

oin

ts

Increase in CDS Spreads- ytd

61

85

118 113

139

0

20

40

60

80

100

120

140

160

GS MS MER LEH BSC

bas

is p

oin

ts

Average Broker CDS Spread

10

30

50

70

90

110

130

150

01/0

3/07

02/0

3/07

03/0

3/07

04/0

3/07

05/0

3/07

06/0

3/07

07/0

3/07

08/0

3/07

09/0

3/07

10/0

3/07

11/0

3/07

bas

is p

oin

ts



Equity Market Reaction

Indexed Brokerage Stock Performance 2005 - 2007 YTD

0.70

0.90

1.10

1.30

1.50

1.70

1.90

2.10

2.30

2.501

2/3

1/0

4

2/2

8/0

5

4/3

0/0

5

6/3

0/0

5

8/3

1/0

5

10

/31

/05

12

/31

/05

2/2

8/0

6

4/3

0/0

6

6/3

0/0

6

8/3

1/0

6

10

/31

/06

12

/31

/06

2/2

8/0

7

4/3

0/0

7

6/3

0/0

7

8/3

1/0

7

10

/31

/07

MER MS GS LEH BSC

Up 38% in 2006,Down 11% YTD 2007

Source: Factset, Bernstein Analysis.

Credit Re-pricing


Q3 2007 Brokerage Results – Strong GS, Weak BSC & MER and Trading Missteps at MS

Source: SIA, Corporate Reports, Bernstein Analysis

Quarterly Returns on Equity Q3 '07 EPS Results

-57%

-35%

-10%-4%

5%

41%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

BSC* BSC MS LEH* LEH GS

Actual vs. Consensus

21%23%

12%

26%27% 27%

16%

22%

32%

5%

17% 17%

5%

9%

13%

17%

21%

25%

29%

33%

37%

BSC LEH MS GS

Q3 '06 Q2 '07 Q3 '07

* Note: assumes normalized tax rate


But, 2007 Appears to be a Typical Fixed Income Re-Pricing Event

$1,500

$2,500

$3,500

$4,500

3Q:8

9

4Q:8

9

1Q:9

0

2Q:9

0

3Q:9

0

4Q:9

0

1Q:9

1

2Q:9

1

3Q:9

1

4Q:9

1

1Q:9

2

($m

illio

ns)

(24.6%)

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

4Q:93 1Q:94 2Q:94 3Q:94 4Q:94 1Q:95 2Q:95 3Q:95

($m

illio

ns)

(20.9%)

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

4Q:97 1Q:98 2Q:98 3Q:98 4Q:98 1Q:99

($ m

illio

ns)

(35.8%)

$3,000

$4,000

$5,000

$6,000

$7,000

1Q:97 2Q:97 3Q:97 4Q:97 1Q:98

($ m

illion

s)

(9.2%)$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

1Q:02 2Q:02 3Q:02 4Q:02 1Q:03

($ m

illion

s)(14.8%)

Drexel High Yield Events (Q2-Q4 ’90)

WorldCom Events (Q2 '02)

Russian Default Events (Q3-Q4 '98)

Mexican Credit Re-Pricing (Q4 '94)

Asian EM Re-Pricing (Q3-Q4 '97)

Source: SIFMA, Bernstein Analysis

Note: Fixed Income Revenues Derived from SIA U.S. Broker/Dealer Industry Wide Data


The Bond Market Recovery Has Begun


Investment Grade CDX SpreadsHigh Yield and Investment Grade Credit Spreads

0

100

200

300

400

50012

/30/

2005

12/2

9/20

06

3/30

/200

7

5/31

/200

7

6/28

/200

7

7/26

/200

7

8/31

/200

7

10/1

5/20

07

basi

s po

ints

Inv Grade High Yld

0

100

200

300

400

500

12/3

0/20

05

12/2

9/20

06

3/30

/200

7

5/31

/200

7

6/28

/200

7

7/26

/200

7

8/31

/200

7

10/1

5/20

07

basi

s po

ints

High Yield CDX Spreads

Risk Premiums in the Bond Market may be Stabilizing.

Volatility is Declining Market does not Expect a

Return to the Tight Levels of Q2 2007

01020304050607080

12/3

0/20

05

12/2

9/20

06

3/30

/200

7

5/31

/200

7

6/28

/200

7

7/26

/200

7

8/31

/200

7

10/1

5/20

07

basi

s po

ints


Fixed Income Outlook


Trading Diversity

Equity38%

Domestic Fixed Income

24%

Other6%

Commodities14%

Europe Fixed Income18%

Domestic Sub-prime MBS is <2% of the Global Fixed Income Market Capitalization & <5% of Domestic Fixed Income Market Capitalization

Source: Dealogic, Corporate Reports, Bernstein Analysis

FICC IS 56%Of Industry TradingRevenues


Domestic Fixed Income Net Revenue Changes

Source: SIA, Bernstein Analysis.

-27.0%-21.5%

-39.2% -41.8%

-25.4% -23.2%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

81:Q

482

:Q2

82:Q

483

:Q2

83:Q

484

:Q2

84:Q

485

:Q2

85:Q

486

:Q2

86:Q

487

:Q2

87:Q

488

:Q2

88:Q

489

:Q2

89:Q

490

:Q2

90:Q

491

:Q2

91:Q

492

:Q2

92:Q

493

:Q2

93:Q

494

:Q2

94:Q

495

:Q2

95:Q

496

:Q2

96:Q

497

:Q2

97:Q

498

:Q2

98:Q

499

:Q2

99:Q

400

:Q2

00:Q

401

:Q2

01:Q

402

:Q2

02:Q

403

:Q2

03:Q

404

:Q2

04:Q

405

:Q2

05:Q

406

:Q2

06:Q

4

WorldCom

RussiaMexico

Crash of 1987Rates Rise,

Curve Flattens


A Simplified View of Fixed Income Department

Gov. Bonds

“Repo”

Inv. Grade High Yield Derivatives Mortgage

Backed

Outperforms;

When

How

Early in Recession Mid Downturn

Interest Rate

Prop Trading

Credit Spread

Prop Trading

In Early

Recovery

Credit and

Liquidity

Prop Trading

and Customer

Execution

During

Underwriting

Booms

Opaque Pricing,

Complex Structured

Products

When

Origination

is High

Securitization

(i.e. Manufacturing)

Margin


Fixed Income Trading


Aggregate FICC Sales & Trading Revenues(BSC, GS, MS, LEH, MER)

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

2000 2001 2002 2003 2004 2005 2006 2007E

$ M

illio

ns


European Trading Revenue Growth

Source: Company Filings, Bernstein Analysis.

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

2001 2002* 2003 2004 2005 2006E

Aggregate Trading Revenues of The Street's European Subsidiaries($000s)


U.S. is Not the Only Market – European Debt Market is $9.4 Trillion, the US Fixed Income Market is $8.7 Trillion

Source: Company Reports, Bernstein Analysis.

European Fixed Income Market Cap as % of Total Market Cap

0%

5%

10%

15%

20%

25%

30%

35%

40%

2000 2001 2002 2003 2004 2005 2006*

Treasury Agency Local Govt Corporate Non Corp Pfandbriefe Other Mtg ABS*Thru Nov



“You can’t take 10% out of mortgage originations without some impact”

Alan Greenspan 2007.


MBS – Housing Decline, Changed Credit Standards Limits Origination Volumes

Underwriting volumes of MBS securities fell 57% sequentially and 52% from third-quarter 2006 volumes

Lehman Brothers was the top MBS underwriter through the first 3 quarters 2007 replacing Bear Stearns who is currently ranked #2. Morgan Stanley is ranked #3, the first time it has penetrated the top 10 since 2004

BSC forecasts MBS for 2008 will be 85% agency…or more!

1.3

1.5

1.7

1.9

2.1

2.3

2.5

May

-00

Nov

-00

May

-01

Nov

-01

May

-02

Nov

-02

May

-03

Nov

-03

May

-04

Nov

-04

May

-05

Nov

-05

May

-06

Nov

-06

May

-07

Mill

ion

Un

its

Housing Starts 2000-Present

$0

$50

$100

$150

$200

$250

$300

$350

Q1 '0

3

Q2 '0

3

Q3 '0

3

Q4 '0

3

Q1 '0

4

Q2 '0

4

Q3 '0

4

Q4 '0

4

Q1 '0

5

Q2 '0

5

Q3 '0

5

Q4 '0

5

Q1 '0

6

Q2 '0

6

Q3 '0

6

Q4 '0

6

Q1 '0

7

Q2 '0

7

Q3 '0

7

$ B

illio

n

Domestic Qtrly MBS Issuance

Source: Dealogic, Bloomberg, Bernstein Analysis



Source: Dealogic, Bernstein Analysis

2006 Global MBS Market Share

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%R

BS

LEH

BS

C

Deu

tsch

e

CS

Citi

Cou

ntry

wid

e

GS

JPM

Bof

A

UB

S

MS

Bar

clay

s

ME

R

WM

Top 5 Domestic MBS Underwriters - by Year2002 2003 2004 2005 2006 2007-ytd

1st BSC LEH BSC BSC BSC BSC2nd UBS UBS UBS RBS LEH LEH3rd LEH BSC BofA LEH RBS JPM4th CS GS LEH UBS Countrywide RBS5th GS BofA Citi BofA CS CS


Mortgage Backed Securities – Mix Shift

Source: Bear Stearns Fixed Income Research, Dealogic, Bernstein Analysis

A Shift from High Margin Non Agency to Lower Margin Agency Business is Now Taking Place.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007

H1

2007

H2

2008E

Agency Alt A SubPrime J umbo Other


CDOs – The New Untouchables


CDOs Exposure

Source: Dealogic, Corporate Reports, Bernstein Analysis

Global CDO Market Issuance ($MM)

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

Q12004

Q22004

Q32004

Q42004

Q12005

Q22005

Q32005

Q42005

Q12006

Q22006

Q32006

Q42006

Q12007

Q22007

Q32007

“The Current Spread Required to Sell a New CDO Means that there is No Margin from Originating the Security.” -- Merrill Lynch

Top CDO Underwriters2003 2004 2005 2006

1st Deutsche MER MER MER2nd Citi WB Citi Citi3rd MER Citi WB UBS4th GS JPM GS WB5th Credit Suisse UBS Credit Suisse JPM

MER's Market Share 7.4% 12.1% 13.2% 13.8%


CDO

Problems Continue to Plague the CDO Market as Ratings Reductions have forced holders to sell into an illiquid market.

The Market has not Stabilized Yet. Spreads on AA, A, BBB Rated Credit Default Swaps on Home Equity Loans Have Begun to Rise Again.

ABX HE A Rated 2007-2 Spreads

Source:Markit

800

1000

1200

1400

1600

1800

2000

07/1

7/07

07/3

1/07

08/1

4/07

08/2

8/07

09/1

1/07

09/2

5/07

10/0

9/07

basi

s po

ints


Investment Banking Outlook


Investment Banking

Strong M&A activity in both the USA and Europe. Financial Sponsor activity in USA is 40% of total and is 20% of EU total. Corporate Strategic M&A booming in the USA and the EU.

Equity Underwriting Market Conditions Were Positive H1 2007 and IPO Calendars Remain Strong. Deal values total $832 billion YTD, versus $781 billion in all of 2006.

Debt Underwriting is Recovering. $50 Billion In Corporate Debt Will Need to be Refinanced in Q4 07 and $250 Billion Refinanced in 2008. CDO Underwriting has Effectively Ceased. MBS Underwriting is Sharply Declining. EU Debt Market is Posting Record Growth Rates.


How Do You Make Money in Investment Banking?

Mergers and Acquisitions (35 bp) High Margin IPO (700 bp)

Convertible Underwriting (300 bp) Secondary Equity Underwriting (150-300 bp) High Yield Underwriting (300 bp)

Investment Grade Debt Underwriting (50 bp) Fairness Opinions (Fixed Price) Bankruptcy Advisory (Hourly)

Low Margin


M&A: Record EU M&A and Rebounding US M&A

US Announced M&A as % of Market Cap

11% 11% 11% 11%

16%

10%

6%3% 3%

5%6%

10% 10% 10%

14%

10% 10%

6%4% 4%

5%7%

9% 9%

0%

4%

8%

12%

16%

20%

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

9M '0

7 (a

nn.)

Mean = 8%

Global (ex-US) Announced M&A as % of Market Cap

3% 4%6% 6%

10%

13%

7% 7%

5%6%

8% 8%6%

0%2%4%6%8%

10%12%14%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

9M '0

7(a

nn.)

Mean = 7%

Source: Dealogic, Factset, Bernstein Analysis


Mergers & Acquisitions

Source: DRI, Bernstein Analysis.

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008E

$, m

illio

ns

Sponsor-Related M&A Strategic M&A

Forecast

Domestic Announced M&A Volume Regression

Strategic M&A Volume = 1,712 + 14.3 * Corporate Earnings – 228 * Unemployment Rate + 528 * Internet Dummy; R 2 = .94

Financial Sponsor M&A Volume = -196 + 20 * Corp. Earnings - .000247 * Leveraged Loan Volumes (1 year lag); R 2 = .88

Strong Economy Equals

Strong M&A


Global M&A Announced Volume Market Share


9M 2007 USD Volume (mil) Rank Market Share 2006 USD Volume (mil) Rank Market ShareGoldman Sachs $1,036,280 1 26.7% Goldman Sachs $1,081,094 1 27.5%Morgan Stanley 991,063 2 25.5% Citigroup 941,675 2 23.9%JP Morgan 923,972 3 23.8% Morgan Stanley 922,717 3 23.4%Citi 917,579 4 23.6% JP Morgan 916,258 4 23.3%UBS 749,347 5 19.3% Merrill Lynch 750,723 5 19.1%Merrill Lynch 732,197 6 18.9% Credit Suisse 629,588 6 16.0%Credit Suisse 682,575 7 17.6% UBS 627,742 7 15.9%Lehman Brothers 661,729 8 17.1% Lehman Brothers 595,109 8 15.1%Deutsche Bank 657,740 9 16.9% Deutsche Bank 570,930 9 14.5%Lazard 435,682 10 11.2% Lazard 365,978 10 9.3%Total $3,881,031 Total $3,936,060

2005 USD Volume (mil) Rank Market Share 2004 USD Volume (mil) Rank Market ShareGoldman Sachs $853,697 1 28.2% Goldman Sachs $527,761 1 25.7%Morgan Stanley 757,786 2 25.0% JP Morgan 498,986 2 24.3%JP Morgan 638,072 3 21.1% Morgan Stanley 411,146 3 20.0%Merrill Lynch 608,655 4 20.1% Citigroup 410,307 4 20.0%UBS 511,253 5 16.9% Merrill Lynch 358,450 5 17.5%Citigroup 467,164 6 15.4% Lehman Brothers 320,041 6 15.6%Lehman Brothers 399,189 7 13.2% UBS 254,261 7 12.4%Lazard 334,192 8 11.0% Lazard 236,508 8 11.5%Deutsche Bank 330,572 9 10.9% Credit Suisse 222,277 9 10.8%Credit Suisse 284,045 10 9.4% Deutsche Bank 179,589 10 8.7%Total $2,980,883 Total $2,043,849


IPO Volumes

Source: DRI, Bernstein Analysis, Dealogic.

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,0001

98

0

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

E

20

08

E

$,

mil

lio

ns

Forecast IPO Volume = F(Corporate Earnings, Treasury Bond Rates, Internet & Sarbox Dummy Variables)

R2 = 85%

Domestic IPO Volume Regression

Strong Corporate Earnings Equals

Strong IPO Calendar


Global ECM Underwriting Market Share


9M 2007 ($ in millions) Rank Market Share 2006 ($ in millions) Rank Market ShareJP Morgan $47,121 1 10.3% Goldman Sachs $55,663 1 10.7%Citi 37,409 2 8.2% Citigroup 51,905 2 9.9%UBS 34,530 3 7.6% UBS 40,860 3 7.8%Morgan Stanley 33,675 4 7.4% Merrill Lynch 37,248 4 7.1%Merrill Lynch 33,038 5 7.2% JP Morgan 36,755 5 7.0%Deutsche Bank 32,758 6 7.2% Morgan Stanley 35,986 6 6.9%Goldman Sachs 32,447 7 7.1% Deutsche Bank 27,950 7 5.4%Credit Suisse 28,542 8 6.3% Credit Suisse 25,733 8 4.9%Lehman Brothers 15,117 9 3.3% Lehman Brothers 20,282 9 3.9%ABN AMRO Rothschild 9,152 10 2.0% Nomura 18,767 10 3.6%Total $456,163 Total $521,830

2005 ($ in millions) Rank Market Share 2004 ($ in millions) Rank Market ShareCitigroup $40,793 1 9.6% Morgan Stanley $41,406 1 9.5%Goldman Sachs 38,361 2 9.0% Goldman Sachs 40,651 2 9.3%Morgan Stanley 35,222 3 8.3% Citigroup 40,198 3 9.2%UBS 34,409 4 8.1% Merrill Lynch 35,369 4 8.1%JP Morgan 34,105 5 8.0% UBS 31,791 5 7.3%Merrill Lynch 30,710 6 7.2% JP Morgan 27,312 6 6.3%Deutsche Bank 27,621 7 6.5% Deutsche Bank 25,159 7 5.8%Lehman Brothers 20,302 8 4.8% Lehman Brothers 22,194 8 5.1%Credit Suisse 13,310 9 3.1% Credit Suisse First Boston 17,673 9 4.1%ABN AMRO Rothschild 12,630 10 3.0% Nomura 13,910 10 3.2%Total $426,576 Total $435,453


Outstanding Credit Commitments

Source: Corporate Reports, Bernstein Analysis

Non-Inv Grade Commitments as a % of Tangible Equity - H1 '07

251%

188%

114%98%

69%

0%

50%

100%

150%

200%

250%

300%

LEH GS BSC MS MER

Credit Commitments as a % of Tangible Equity - H1 '07

500%

338%312%

274%

205%

0%

100%

200%

300%

400%

500%

600%

LEH GS MER MS BSC

Off Balance Sheet Lending Commitments$, millions CAGRs:

2001 2002 2003 2004 2005 2006 H1 2007 2001-06 2004-06

BSC 1,900$ 2,768$ 3,127$ 7,264$ 8,049$ 23,350$ 27,129$ 65% 79%

GS 13,350$ 9,410$ 15,830$ 27,716$ 61,122$ 100,478$ 128,332$ 50% 90%

LEH 10,000$ 13,200$ 18,500$ 26,134$ 33,564$ 47,587$ 87,379$ 37% 35%

MER 17,833$ 24,107$ 36,871$ 51,651$ 66,856$ 95,989$ 120,141$ 40% 36%

MS 7,100$ 15,100$ 25,938$ 28,656$ 49,416$ 68,003$ 97,080$ 57% 54%


Cost of a Bridge Loan


Hi-Yield Debt Spreads

200

250

300

350

400

450

500

1/2/

07

1/16

/07

1/30

/07

2/13

/07

2/27

/07

3/13

/07

3/27

/07

4/10

/07

4/24

/07

5/8/

07

5/22

/07

6/5/

07

6/19

/07

7/3/

07

7/17

/07

7/31

/07

8/14

/07

8/28

/07

9/11

/07

9/25

/07

10/9

/07

bas

is p

oin

ts Avg spread during J an-May (265bp)

Avg spread during J an-May (265bp), plus a 50bp pricing "cushion"

Cost to Industry to Re-Price Loans (as a % of 2007E Net Income)(After 50% Comp & 30% Taxes)

Size of Bridge Loans ($, billions)10.0 15.0 20.0 25.0 30.0 35.0

280 -0.18% -0.28% -0.37% -0.46% -0.55% -0.64%

300 -0.43% -0.65% -0.87% -1.09% -1.30% -1.52%

320 -0.67% -1.01% -1.35% -1.68% -2.02% -2.36%

340 -0.90% -1.35% -1.80% -2.25% -2.71% -3.16%

360 -1.12% -1.68% -2.24% -2.80% -3.36% -3.92%

380 -1.33% -1.99% -2.65% -3.32% -3.98% -4.64%

400 -1.53% -2.29% -3.05% -3.81% -4.58% -5.34%

Hi-

Yie

ld C

red

it S

pre

ads

(in b

p)

Note: This analysis assumes bridge loans were guaranteed at a 265 bp spread (see average in chart above)


Financial Sponsor Activity

Announced M&A: Financial Sponsor as a % of Total

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

-ytd

GlobalUS

2006 - Financial Sponsor Exposure

BSC LEH GS MS MERM&A Revenue Exposure 7% 5% 7% 6% 4%Financial Sponsors as a % of Total 52% 30% 34% 31% 30%

Debt Underwriting Exposure 4% 8% 5% 5% 6%

Total Revenue Exposure to Financial Sponsor Activity 5.1% 4.0% 3.7% 3.3% 2.8%

Financial Sponsor Activity as a % of Announced M&A (2006-07)52%

34%31% 30% 30%

0%

10%

20%

30%

40%

50%

60%

BSC GS MS LEH MER

Sources: Dealogic, Corporate Reports, Bernstein Analysis


Institutional Equity Outlook

Technological change has broken the business model ofInstitutional Equities ...”

Joe Meyer, Managing Director, Deutsche Bank


Institutional Equity

Decimalization – Reduced Exchange Execution Margins

Smart Routing – Increased Block Trading Loss Ratios

Algorithmic Trading – Accelerate Margin Decline

Reg. NMS – Consolidates Volumes into Largest Firms

Internalization – Shifts Market toward OTC Model

Proprietary Trading – Clients Become ‘Counterparties’


Institutional Equities Cannot Meet its Cost of Equity (Ke)

Source: Bernstein Analysis, SIA Database

ROE of Institutional Equity Execution

0%

5%

10%

15%

20%

Mar

-00

Sep

-00

Mar

-01

Sep

-01

Mar

-02

Sep

-02

Mar

-03

Sep

-03

Mar

-04

Sep

-04

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Cost of Equity = 15%


Technology has Disintermediated the Brokers

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1990

1990

1991

1991

1992

1992

1993

1994

1994

1995

1995

1996

1997

1997

1998

1998

1999

1999

2000

2001

2001

2002

2002

2003

2004

Sh

are

s/T

rad

e

Average Trade Size

0%

5%

10%

15%

20%

25%

30%

BRUT ArcaEx INET

ECN Market Share

Source: Bernstein Analysis, NYSE Data Source: Bernstein Analysis, BRUT, AcraEx, INET


Institutional Equity Execution Revenues (¢ per share)

Full Service Program Blended Comp

Q1 2002 4.82 1.85 4.20 Q2 2002 4.70 1.80 3.80 Q3 2002 4.60 1.20 3.20 Q4 2002 4.80 1.05 3.20 Q1 2003 4.60 1.00 2.80 Q2 2003 4.60 0.90 2.70 Q3 2003 4.60 0.85 2.40 Q4 2003 4.40 0.70 2.10 Q1 2004 4.70 0.68 2.20 Q2 2004 4.60 0.65 2.00 Q3 2004 4.45 0.63 1.75 Q4 2004 4.35 0.60 1.60 Q1 2005 4.20 0.59 1.55 Q2 2005 4.15 0.58 1.45 Q3 2005Q4 2005

CAGR -4.2% -28.2% -26.2%

Blended Commission Rates Decline at a CAGR of 26.2%

Source: MSIED


Today’s Institutional Equities

Source: Bernstein Analysis

30%Buy Side Reduction

Client

30+ %40 - 50% $0.03 - $0.05 / share Reduction

* * * * * * * * * * * Headcount* * * * * * * * * * * Reduction Prop. Trading 1/2 Underwriting* * * * * * * * * * * Toxic Loss Ratios Climbing Fees to * * * * * * * * * * * Trades Equity Division* * * * * * * * * * * 40 - 50% 10+ %

* * * * * * * * * * * Headcount $0.01 - $0.05 / share Increase

* * * * * * * * * * * Reduction More VaR

* * * * * * * * * * ** * * * * * * * * * ** * * * * * * * * * * 10% $0 - $0.005 / share

Majority of order Increase $0.01 - $0.03 / share

flow is now (soft dollar) - Secondaries 150 -350 bp

Electronic or - IPOs 700 bp

Program - H/F Clients (30% of street commissions) - Margin loans 37.5 bp

- Securities Lending (100-125 bp)

25% of commissionsSmall H/Fs provide a bettermix of trades Three firms own 66%

of Prime Brokerage Mkt:

GS estimated that 50% of its trades 1. MSnever see a salesperson 2. BSC 66%(electronic or program). 3. GS

4. MER 4%

and declining

Order Routing

Quant. Proprietary Trading - A Profitable Overlay - More VaR & More Balance Sheet

Client's TradeEquity/ CreditOptimization and

ROE = 17%

Equity Capital Markets

Desk

OTC

Electronic /

Prime

Salesforce

Desk

Desk

Block Research

Brokerage

ProgramTrading

Derivatives

Banking Used toSupport Research

"Easy" Trades to Liquinet,to ECNs, to Agency Housesfor Soft Dollar Payments

Programor Synthetic Program


Chasing Flow – Flow Provides Information Reduces Risk and Attracts Liquidity

Firm 9M 2007 Rank Market Share Firm 2006 Rank Market ShareUBS 30,657,733 1 12.4% UBS 39,766,632 1 8.9%Knight Equity Markets 28,213,508 2 11.4% Knight Equity Markets 36,923,281 2 8.2%Morgan Stanley 23,615,666 3 9.5% Morgan Stanley 29,853,303 3 6.7%Merrill Lynch, Pierce Fenner 17,287,281 4 7.0% Merrill Lynch, Pierce Fenner 28,800,061 4 6.4%E-Trade Capital Markets 13,400,247 5 5.4% Credit Suisse 21,591,946 5 4.8%Lehman Brothers 11,721,071 6 4.7% Citigroup 21,029,122 6 4.7%Credit Suisse 11,194,662 7 4.5% E-Trade Capital Markets 20,634,703 7 4.6%Goldman Sachs Group 10,993,377 8 4.4% JPMorgan 16,375,650 8 3.7%Banc of America Securities 10,610,301 9 4.3% Bear Stearns And Company 16,229,526 9 3.6%JPMorgan 10,414,749 10 4.2% Goldman Sachs Group 15,720,272 10 3.5%

Block Trading for Listed Securities – Volume (000)

Block Trading for Nasdaq – Volume (000)

Source: BlockDATA, Bernstein Analysis

Volume (in 000s)Firm 9M 2007 Rank Market Share Firm 2006 Rank Market ShareMerrill Lynch, Pierce Fenner 44,896,912 1 12.1% Merrill Lynch, Pierce Fenner 60,454,443 1 11.6%UBS 41,197,125 2 11.1% UBS 58,964,327 2 11.3%Morgan Stanley 40,416,685 3 10.9% Morgan Stanley 40,125,130 3 7.7%Lehman Brothers, Inc. 28,371,989 4 7.7% Lehman Brothers, Inc. 34,407,281 4 6.6%Deutsche Bank 24,597,462 5 6.6% Goldman Sachs Group 31,692,721 5 6.1%Credit Suisse 21,408,473 6 5.8% Credit Suisse 30,851,768 6 5.9%Knight Equity Markets 19,106,726 7 5.2% Bear Stearns And Company 23,267,713 7 4.5%JP MorganChase 16,913,003 8 4.6% Knight Equity Markets 20,781,426 8 4.0%Banc Of America Securities 15,336,209 9 4.1% Banc Of America Securities 20,138,433 9 3.9%Goldman Sachs Group 12,474,762 10 3.4% Citigroup 19,992,713 10 3.8%


Reliance on Equity Underwriting

The Street’s Institutional Equity Businesses receive One-Half of All Equity Underwriting Revenues.

High Margin, IPO Revenues Mask the Underlying Margin Problems in Equities

Underwriting Market Share Gains are Difficult to Achieve.

Cyclicality of Underwriting Makes this A Perilous Strategy.

Source: SIA, Bernstein Analysis

Domestic Equity Underwriting Revenues - Rolling 4 Qtr Average

-

200

400

600

800

1,000

1,200

1,400

1,600

90:Q

4

91:Q

2

91:Q

4

92:Q

2

92:Q

4

93:Q

2

93:Q

4

94:Q

2

94:Q

4

95:Q

2

95:Q

4

96:Q

2

96:Q

4

97:Q

2

97:Q

4

98:Q

2

98:Q

4

99:Q

2

99:Q

4

00:Q

2

00:Q

4

01:Q

2

01:Q

4

02:Q

2

02:Q

4

03:Q

2

03:Q

4

04:Q

2

04:Q

4

05:Q

2

05:Q

4

06:Q

2

06:Q

4

$, m

il

IPO Boom Masks Problems


Retail Brokerage Outlook

“We’re Still Hiring. We Don’t Anticipate a Slowdown unless the Economy Slows and Unemployment Rises”

Bob McCann – Merrill Lynch


Retail Brokerage

Cycle: Retail activity hit lows in February 2003, setting off a pricing war that

has significantly reduced commission rates. As a result, the Street has shifted to fee-based pricing.

2005-2007 has seen a robust pick-up in volume, customer investment flow and retail investor confidence. The Street has been able to increase pricing for distribution services.

Acquisitions of Piper, AG Edwards, Advest, Legg Mason indicate value of scale and channel size


Retail – Activity Levels Are Nearing 2000 Peak Volumes


A "U Shaped Retail Recovery?"

0.00

0.20

0.40

0.60

0.80

1.00

1.201Q

:00

2Q

:00

3Q

:00

4Q

:00

1Q

:01

2Q

:01

3Q

:01

4Q

:01

1Q

:02

2Q

:02

3Q

:02

4Q

:02

1Q

:03

2Q

:03

3Q

:03

4Q

:03

1Q

:04

2Q

:04

3Q

:04

4Q

:04

1Q

:05

2Q

:05

3Q

:05

4Q

:05

1Q

:06

2Q

:06

3Q

:06

4Q

:06

1Q

:07

2Q

:07

3Q

:07

Quarters

Ind

ex

SCHW DARTs

Source: SIA, SCHW, Bernstein Analysis


Retail Commissions


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

86:Q

1

86:Q

3

87:Q

1

87:Q

3

88:Q

1

88:Q

3

89:Q

1

89:Q

3

90:Q

1

90:Q

3

91:Q

1

91:Q

3

92:Q

1

92:Q

3

93:Q

1

93:Q

3

94:Q

1

94:Q

3

95:Q

1

95:Q

3

96:Q

1

96:Q

3

97:Q

1

97:Q

3

98:Q

1

98:Q

3

99:Q

1

99:Q

3

00:Q

1

00:Q

3

01:Q

1

01:Q

3

02:Q

1

02:Q

3

03:Q

1

03:Q

3

04:Q

1

04:Q

3

05:Q

1

05:Q

3

Ret

ail C

om

mis

sio

ns

($, m

il)

Retail Commissions Predicted Retail Commissions

Retail Commission Revenue = 1,674 - (9,550.4 * 3-Year Treasury Rates) + (0.684 * Nasdaq Comp Lagged One Month)

R Squared = 0.915


Scale – Larger Channel Means Better Margins

Source: SNL, Company Reports, Bernstein Analysis

$, millions2004 2005 2006 2004 2005 2006 2004 2005 2006 Q1 '062004 2005 2006

Total Net Retail Revenues $4,615 $5,019 $5,505 $6,485 $6,825 $8,160 $9,827 $10,764 $11,885 $2,615 $2,689 $2,986Total Operating Expenses $4,244 $4,434 4,916 $5,016 $5,405 $6,392 $7,954 $8,587 $9,168 $2,317 $2,383 $2,520

Pre Tax Income $371 $585 $589 $1,469 $1,408 $1,768 $1,873 $2,177 $2,717 $298 $306 $466

Pre Tax Margin 8.0% 11.7% 10.7% 22.7% 20.6% 21.7% 19.1% 20.2% 22.9% 11.4% 11.4% 15.6%

Financial Advisors 10,962 9,526 7,944 12,138 12,111 13,143 14,140 15,160 15,880 6,898 6,844 6,628

Annualized:Revenue Per Advisor $421,000 $526,874 $692,976 $534,273 $563,537 $620,863 $694,979 $710,026 $748,426 $379,087 $392,912 $450,513Operating Expenses Per Advisor $387,156 $465,463 $618,832 $413,248 $446,288 $486,343 $562,518 $566,425 $577,330 $335,885 $348,179 $380,238Pre Tax Income Per Advisor $33,844 $61,411 $74,144 $121,025 $117,249 $134,520 $132,461 $143,602 $171,096 $43,201 $44,733 $70,275

Total Client Assets ($BB) $602 $617 $676 $978 $1,045 $1,230 $1,359 $1,473 $1,619 $311 $331 $370Assets In Asset Priced Accounts ($BB) $157 $173 $195 $223 $266 $343 $257 $284 NA $29.2 $34.4 $41.9Fee Based to Total Assets 26.1% 28.0% 28.8% 22.8% 25.4% 27.9% 18.9% 19.3% NA 9.4% 10.4% 11.3%

Client Assets Per Advisor ($MM) $54.9 $64.8 $85.1 $80.6 $86.3 $93.6 $95.0 $96.7 $102.0 $45.1 $48.4 $55.8

Revenue Per Client Asset (ROCA) 0.767% 0.813% 0.814% 0.663% 0.653% 0.663% 0.723% 0.731% 0.734% 0.841% 0.812% 0.807%Revenue Per $BB in Assets $7,666 $8,135 $8,143 $6,631 $6,528 $6,634 $7,231 $7,308 $7,341 $8,408 $8,124 $8,070Op. Expenses Per $BB in Client Assets $7,050 $7,186 $7,272 $5,129 $5,170 $5,197 $5,853 $5,807 $5,663 $7,450 $7,199 $6,811*AGE figures represent the firm's 12-months ended November 30th**Smith Barney's 2005 data represents Q3'05 financial advisors & a 3% increase from Q3'05 total client assets

Merrill LynchSmith BarneyMorgan Stanley A.G.Edwards*


Outlook for 2008


Mixed Picture for 2008 –

Domestic Fixed Income – Wider Credit Spreads. SIV/conduit Unwinding Puts Pressure on Spreads

Financial Sponsor Activity – More Costly Financing and Fewer “Stapled” Deals

Less Financing Commitments and Less M&A

Bridge Loan Commitments Being Placed but Mark Losses Into 2008

Sub-prime MBS/CDO Underwriting – Mark to Model Adjustments, Residuals.

Commodities – Risk Management and Netback Trading

€ Fixed Income Market – Growth Trends Remains Strong.

Equity Proprietary Trading – Higher ViX and Strong Market Trading Volumes.

Equity Underwriting – Still Strong Calendar

Strategic M&A – EU and USA Economies Remain Solid

Retail Brokerage Asset Management – Positive Flows.

Weakening Strong


0%

6%

10%

22%24%

16%

10%7%

3%0%

0%

5%

10%

15%

20%

25%

30%

< 5% 5-9% 9-13% 13-17% 17-21% 21-25% 25-29% 29-33% 33-37% >37%Quarterly ROE

% o

f O

ccu

ren

ces

2008E ROE Forecast: MER2008E ROE Forecast: BSC

2008E ROE Forecast: MS, LEH

2008E ROE Forecast: GS

Investment Banks’ ROEs (1990-’06) -- Regress Toward the Mean


Probability Histogram

53 Bernstein ResearchSource: Bernstein Analysis.

Valuation


Valuation Methodology – Regression Formula & Output

1

2

3

4

5

Tang

Pric

e to

Boo

k (F

actS

et) A

ctua

l

1.0 2.0 3.0 4.0 5.0

Tang Price to Book (FactSet) Predicted

P<.0001 RSq=0.61 RMSE=0.5742

Actual by Predicted Plot

Whole Model

Response Tang Price to Book (FactSet)

Source: SIA, Jump, Bernstein Analysis, Company Reports

Target Tangible Price Book = 5.33 + 0.77 * Forecasted Tang. ROE / Ke

- 0.62 * Credit Rating+ 0.90 * Internet Dummy Variable

Note - For Credit Ratings w e apply the follow ing conversion: AA-/Aa3= 6, A+/A1=7, A/A2=8, etc.

R-Squared = 73%

Bernstein Research

31 2 4

7%

Source: FactSet, Bloomberg, Company Reports

Valuation Methodology (Price-to-Book Value)

The major brokerage firms’ common stocks trade on a price-to-book basis. The brokerage firms and the major universal banks have historically traded in a band ranging from 1.05 to 2.79 times book value 90% of the time. The mean price to book value for the group during this period is 1.76 times. The standard deviation was 0.76.

GS

BSC

MER

MS

LEH

46


Price-to-Book\Earnings+ Valuation Deciles

Source: FactSet, Bloomberg, Company Reports* TMT years includes 1998-2000

LEH

Deciles From - To1st 2.75 - 2.402nd 2.31 - 2.103rd 2.09 - 1.944th 1.94 - 1.815th 1.81 - 1.706th 1.70 - 1.617th 1.61 - 1.488th 1.47 - 0.949th 0.91 - 0.8010th 0.80 - 0.65

Current P-to-B Value 1.58Current Decile 7thAverage Price-Book 1.63

1995 - Present ex. TMT years*MS



1995 - Present ex. TMT years*

GS


Current P-to-B Value 2.55Current Decile 2nd Average Price-Book 2.24

2001 - Present ex. TMT years*MER



1995 to Present (Excl. TMT Years)*

BSC



1995 - Present ex. TMT years*

As of 11/23/2007


Investing in the Brokers - Examine the Revenue Mix


Business MixGoldman Sachs

Lehman Brothers

Bear Stearns

Morgan Stanley

Ex Discover

Merrill Lynch ex

MLIM

Fixed-Income Sales and Trading 29% 40% 36% 25% 27%Debt Underw riting 5% 11% 5% 5% 6%M&A Advisory 12% 7% 8% 7% 4%Equity Underw riting 7% 7% 4% 5% 4%Merchant Banking 3% - 1% 1% - Institutional Equity Sales and Trading 28% 28% 24% 19% 22%Prime Brokerage/Clearing Services 7% - 16% 5% - Credit Card - - - - - Retail Brokerage - 3% - 19% 38%Asset Management 10% 3% 7% 12% 0%

Total Equity Market 38% 34% 31% 50% 60%

1998 - 2006 Average


Disclosure AppendixSRO REQUIRED DISCLOSURES • References to "Bernstein" relate to Sanford C. Bernstein & Co., LLC and Sanford C. Bernstein Limited, collectively. • Bernstein analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration, productivity and proactivity of investment ideas. No analysts are compensated based on performance in, or contributions to, generating investment banking revenues. • Bernstein rates stocks based on forecasts of relative performance for the next 6 -12 months versus the S&P 500 for U.S. listed stocks and versus the MSCI Pan Europe Index for stocks listed on the European exchanges - unless otherwise specified. We have three categories of ratings: Outperform: Stock will outpace the market index by more than 15 pp in the year ahead. Market-Perform: Stock will perform in line with the market index to within +/ -15 pp in the year ahead. Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead. • As of 10/10/2007, Bernstein's ratings were distributed as follows: Outperform/Buy - 41.5%; Market-Perform/Hold - 47.1%; Underperform/Sell - 11.5%. • Brad Hintz, as a former Managing Director at Morgan Stanley Group (MS), owns an equity position in MS that is held in a Morgan Stanley Group ESOP Trust at Mellon Bank as convertible preferred stock. These MS ESOP securities were awarded to him as compensation and are fully vested. Mr. Hintz is also an investor in Morgan Stanley Capital Partners III, LP — a merchant banking fund where Morgan Stanley maintains an equity interest as a limited partner. On June 9, 2006, Mr. Hintz notified U.S. Trust that he was closing his Russell 1000 Equity Index account with all assets in the account to be transferred to a newly established brokerage account at Charles Schwab & Co., Inc. The transfer of assets to Charles Schwab was completed by June 30, 2006 that included four positions within his sector. These positions included 100 shares of Chicago Mercantile Exchange, 600 shares of E*Trade, 375 shares of Raymond James and 400 shares of TD Ameritrade Holdings. In addition, as a result of the complete spin off of Di scover from Morgan Stanley on June 30, 2007, Mr. Hintz received a long position in Discover stock as a beneficiary of the Morgan Stanley ESOP. These shares of Discover will ultimately be distributed to Mr. Hintz by the ESOP trustee. • On May 4, 2007, an action by a purported Lehman Brothers Holdings Inc. shareholder was filed in the U.S. District Court, Southern District of New York, against Lehman and twenty-five individual defendants, all of whom are current or former officers or directors of Lehman, including Mr. Hintz. Mr. Hintz was employed as the CFO of Lehman from March 1996 to August 1998. Generally, the complaint alleges that Lehman backdated and manipulated the timing of certain options grants from 1995 to 2002 and that this was not disclosed i n certain SEC filings for Lehman, including several filed while Mr. Hintz was CFO. The complaint does not allege that Mr. Hintz received any of the options grants. In connection with a related lawsuit filed on April 13, 2007, Lehman has stated that allegations of options backdating are completely without merit and it will defend against them vigorously. • Accounts over which Bernstein and/or their affiliates exercise investment discretion own more than 1% of the outstanding common stock of the following companies GS / Goldman Sachs, ICE / IntercontinentalExchange Inc, LEH / Lehman Brothers Holdings Inc, MER / Merrill Lynch, MS / Morgan Stanley. • Bernstein currently makes a market in the following companies SCHW / Charles Schwab Corp. • The following companies are or during the past twelve (12) months were clients of Bernstein, which provided non -investment banking-securities related services and received compensation for such services BSC / Bear Stearns, GS / Goldman Sachs, LEH / Lehman Brothers Holdin gs Inc, MER / Merrill Lynch, MS / Morgan Stanley, SCHW / Charles Schwab Corp. • An affiliate of Bernstein received compensation for non-investment banking-securities related services from the following companies GS / Goldman Sachs, LEH / Lehman Brothers Holdings Inc, MER / Merrill Lynch, MS / Morgan Stanley, SCHW / Charles Schwab Corp. • This research report covers six or more companies. For price chart disclosures, please visit www.bernsteinresearch.com, you can also write to either: Sanford C. Bernstein & Co. LLC, Director of Compliance, 1345 Avenue of the Americas, New York, N.Y. 10105 or Sanford C. Bernstein Limited, Director of Compliance, Devonshire House, One Mayfair Place, London W1J8AJ, United Kingdom.


Disclosure Appendix12-Month Rating History as of 11/26/2007 ========================================== BSC: Initiated Coverage: M - 9/11/2001; CME: Initiated Coverage: O - 6/19/2007; GS: Initiated Coverage: O - 9/11/2001; Rating History: M - 12/16/2005;ICE: Initiated Coverage: O - 6/19/2007; LEH: Initiated Coverage: M - 5/5/2006; MER: Initiated Coverage: U - 9/11/2001; Rating History: M - 10/25/2007;MS: Initiated Coverage: M - 3/24/2006; Rating History: O - 8/9/2007;NMX: Initiated Coverage: M - 6/19/2007; SCHW: Initiated Coverage: U - 10/3/2002; Rating History: O - 3/9/2007; OTHER DISCLOSURES To our readers in the United States: Sanford C. Bernstein & Co., LLC is distributing this report in the United States and accepts responsibility for its contents. Any U.S. person receiving this report and wishing to effect securities transactions in any security discus sed herein should do so only through Sanford C. Bernstein & Co., LLC. To our readers in the United Kingdom: This report has been issued or approved for issue in the United Kingdom by Sanford C. Bernstein Limited, authorised and regulated by the Financial Services Authority and located at Devonshire House, 1 Mayfair Place, London W1J 8SB, +44 (0)20 -7170-5000. To our readers in member states of the EEA: This report is being distributed in the EEA by Sanford C. Bernstein Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority and holds a passport under the Investment Services Directive. To our readers in Australia: Sanford C. Bernstein & Co., LLC and Sanford C. Bernstein Limited are exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 in respect of the provision of the following financial services to wholesale clients: • providing financial product advice; • dealing in a financial product; • making a market for a financial product; and • providing a custodial or depository service. Sanford C. Bernstein & Co., LLC and Sanford C. Bernstein Limited are regulated by the Securities and Exchange Commission under US laws and by the Financial Services Authority under UK laws, respectively, which differ from Australian laws. One or more of the officers, directors, or employees of Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited and/or its affiliates may at any time hold, increase or decrease positions in securities of any company mentioned herein. Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, or its or their affiliates may provide investment management or other services to the pension or profit sharing plans, or employees of any company mentioned herein , and may give advice to others as to investments in such companies. These entities may effect transactions that are similar to or different from those recommended herein. CERTIFICATIONS • I/(we), Brad Hintz, Senior Analyst(s), certify that all of the views expressed in this report accurately reflect my/(our) personal views about any and all of the subject securities or issuers and that no part of my/(our) compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views in this report. Copyright 2007, Sanford C. Bernstein & Co., LLC, a subsidiary of AllianceBernstein L.P. ~ 1345 Avenue of the Americas ~ NY, NY 10105 ~ 212/756 -4400. All rights reserved. This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or whic h would subject Bernstein or any of their subsidiaries or affiliates to any registration or licensing requirement within such jurisdiction. This publication is based upon public sources we believe to be reliable, but no representation is made by us that the publication is accurate or complete. We do not undertake to advise you of any change in the reported information or in the opinions herein. This publication was prepared and issued by Bernstein for distribution to eligible counterparties or professional clients. This publication is not an offer to buy or sell any security, and it does not constitute investment, legal or tax advice. The investments referred to herein may not be suitable for you. Investors must make their own investment decisions in consult ation with their professional advisors in light of their specific circumstances. The value of investments may fluctuate, and investments that are denominated in foreign currencies may fluctuate in value as a result of exposure to exchange rate movements. I nformation about past performance of an investment is not necessarily a guide to, indicator of, or assurance of, future performance.

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