A setback on a disappointing guidance out of Taiwan (page 1 of 3)

The company managed to increase its EPS from $0.50 a year earlier. Net premiums written increased 34%, with the strongest growth coming from the U.S. commercial lines business (+43%). The margin was better than expected in all lines of business, except personal lines. However, that line of business produced a combined ratio below 100%, reversing a trend of seven consecutive quarters of underwriting losses. We believe for the near-term, stock price would remain under pressure due to concerns related to companies with complicated accounting and financing structure. We think AIG is a wealthy company, nevertheless these concerns in these times of worry may make stock price more volatile than in the past. Unclear succession plan of AIG's CEO should also weigh on stock price. On May 1st, the company announced the formation of the Office of the Chairman, which consists of seven most senior executives.

In addition the company named Martin Sullivan and Edmund Tse as co-chief operating officers. This plan is supposed to put several people into consideration, but it did not clarify the situation. AIG repurchased approximately 8 million shares ($530 million) in the first half of 2002. Two weeks ago the company's board authorised to repurchase another 10 million shares. We believe current price level should be attractive for long-term investors able to hold through the near-term market volatility.

Citigroup Inc. (C, $30.74, CSFB recommendation: Strong buy) and JP Morgan Chase & Co (JPM, $22.25, CSFB recommendation: Buy) are investigated by the SEC, seeking proof that the companies helped Enron Corp. in hiding debt. We believe there could be more negative news articles that could emerge in the coming days. C and JPM testimony included many more internal e-mails and transcripts of tape-recorded phone conversations between executives of the banks, Enron, and Arthur Andersen than have thus far been highlighted in the press. We believe banks' role will continue to be scrutinised by the Senate, the SEC and the press. Stock prices should remain under pressure over the near-term. Furthermore the companies could face lawsuits from Enron's shareholders, bondholders and pension funds.

Nevertheless we think companies' finance are sound and we reiterate our hold recommendation. For a long-term investment we prefer to buy Citigroup Inc. on weakness than JP Morgan Chase, although both companies' fundamentals are good. We think that Citigroup Inc. should recover quickly than JP Morgan due to a well-diversified business.



US TECH Equities

On a week-on-week basis, the NASDAQ Composite Index lost 4.32% to 1262.12.

Last week the earnings report of the Taiwan Semiconductor Manufacturing Company, TSMC (TSM US: $8.85; CSFB: Buy), have reminded us to remain cautious with our expectations of a recovery in the tech sector. Despite seeing some positive indicators and forward guidance, we have to keep in mind, how a technology cycle works. So considering the cyclical patterns, some key information from companies that are the earliest to see a cycle pick up, semiconductor capital equipment and manufacturers, are sometimes much more valuable than indications from late cycle sectors, like hardware.

Nevertheless, we have positive data points, which make us somehow confident, that the technology sector is slowly, but steadily getting better. The semiconductor book-to-bill ratio has been constantly rising over the past ten months and been above par since March, indicating an expansion.