We added BNP Paribas to our recommendation list with a price target of EUR 65.

US Stocks

The Bank of New York Company, Inc. (BK, $34.84, CSFB recommendation: Buy) was upgraded by CSFB from Hold to Buy. Although the current operating environment is challenging, - stock market activities have not picked up - custodian fees provide a stable source of income. We are positive on the company due to the attractive stock price (P/E 17.42x).

Furthermore the company has good quality earnings from pension administration fees. We think that BK will benefit from ageing population, the increasing globalisation of investment portfolios, mounting pressure on pay-as-you-go pension systems and the increasing complexity of investment strategies. Finally, once markets stabilise and volume growth resumes, BK's revenues should increase significantly. 12-month target price at $42.00.

Concerning an eventual bankruptcy of Worldcom Inc. (WCOM, $1.58, CSFB recommendation: Sell), we wish to clarify the current situation. The market evaluates stock at chapter 11 level due to interest expense and debt reimbursement. The company will have to repay $60 million in 2002, $2.6 billion in 2003, $2.5 billion in 2004 and $2.25 billion in 2005. This represents 22% of the total liabilities. Total debts represents 30% of capital structure with a cost of debt at 4.86% and an annual interest expense of $1.36 billion.

On the other hand, the company presents a positive cash flow and $1.41 billion in cash. Furthermore it has an undrawn bank credit line of $8 billion. We think Worldcom Inc. should be able to meet debt payment for this year and next. Nevertheless, the company was downgraded few days ago to Ba2 because Worldcom Inc had to pledge assets in return for $5 billion of loans.

Finally, comparing Altman's Z-score, a method indicating the probability of a company entering bankruptcy within the next two years, Worldcom is not the worst of the telcos. In fact, Qwest Communications Ltd (Q, $5.04, CSFB recommendation: Hold) and Sprint PCS (PCS, $9.74, CSFB recommendation: Buy) both have lower ratings than WorldCom.

US Technology Stocks

On a week-on-week basis, the NASDAQ Composite Index declined marginally by 0.75% to 1600. Nevertheless, the week was volatile with wild swings in trading activities that took the index up 5% (to 1696) and then down 8% (to 1560). Bullish investors and event-driven traders appear to be running out of hope, buying strongly on any piece of near-term (1 week) good news regardless of any short-term (1-3 months) potential earnings growth obstacles. We believe the index continues to carry a downside risk towards 1387 (-13% potential). We remain cautious about buying technology names ahead.

Cisco Systems (CSCO, $15.42, CSFB rating: Buy) reported positive April-3Q02 results with revenues that came in line with expectations and EPS of $0.11 exceeded estimates of $0.09 a share. What surprised the market was the company's ability to deliver better-than-expected gross margin of 63.1% (CSFB estimate at 57.6%). In terms of guidance, CSCO provided flat to slightly higher quarterly sequential revenue forecast for the present July-4Q02 and reiterated that IT spending remains restrictive and demand visibility limited.

Nevertheless, CSCO also believes orders in July has the potential to grow 5% on seasonality alone and that a growing percentage of customers have plans to potentially increase budgets in the 2H02 (rather than 1H02). While the latter half of the calendar year does indeed offer a more attractive scenario for company revenues to pick up, we do not recommend to buy CSCO shares at current levels. Instead, we would suggest to accumulate the stock on price weaknesses ahead.

Europe

The market's obsession with the TMT sectors continued to drag the overall market lower. The Euro STOXX 50 has fallen in 14 out of the 16 last sessions, bringing its year-to-date decline to 9%. This is within less than one percent of the year's lows. The fact that the market could not follow through on Wednesday's rally is a major negative in our view and underlines that Cisco's earnings report mainly caused short-coverage rather than new long positions. In the current environment one earnings report is not enough to turn the sentiment around and as such we remain cautious on the overall market.

We do not believe that investors will make the same mistake again and base their expectations on pure hope. What the market wants to see this time is a confirmed trend of improving earnings, which might well take another few quarters. However, as optimism in the market is waning we feel that some industries might be falsely driven lower by the ongoing negative newsflow out of the technology related sectors.

While the earnings reports of cyclical companies continue to reflect the difficult economic environment we believe that many of these companies see demand picking up and valuations remaining attractive. Additionally, several companies from the financial and pharmaceutical industries start to see net earnings upgrades. We believe this is an encouraging sign and investors should use the current weakness in the overall market to pick up stocks like BNP Paribas, Stora Enso, Arcelor, Aventis or Sanofi-Synthelabo.

We added BNP Paribas (BNP FP; EUR 59.05) to our recommendation list with a price target of EUR 65. BNP reported a strong set of 1Q02 results last week. Net income fell 19% to EUR 1.019bln, which was 18% above 4Q01 and 19% lower than a year ago. The main positives came from commercial and investment banking units where operating profits fell a less than expected 25% to EUR 498 million and from lower than expected provisions of EUR 300 million. BNP is our low-risk exposure to the banking sector.

BNP is less exposed to investment banking risk as it derives most of its revenues from the fixed income business. We believe that BNP is well positioned for an uptick in the US economy after the acquisition of BancWest. Economic growth will help to reduce provisioning levels for many European banks, especially next year. Those banks with large US and/or global franchises could enjoy an improvement in sentiment. Despite recent performance, BNP remains attractively valued. The stock currently trades at 11.9x PE03E adjusted earnings. This reflects a discount of approx. 11% to the European banking sector.

Serono (SEO VX; CHF 1220) declined 6.15% for the week after the company confirmed that it has received a subpoena from the US attorney's office in Boston requesting information relating Serono's Serostim drug, which is used to combat severe weight loss that often accompanies AIDS. According to newspaper reports authorities are said to look into various issues, including whether the company's sales force gave doctors or pharmacies improper financial inducements or discounts to prescribe the drug. An administrative subpoena is used as part of an investigation and serves the function of collecting information.

It does not amount to bringing charges or blame on companies. Serono intends to cooperate fully with the inquiry. Given the informative character of the subpoena we consider the market reaction as overdone. We expect Serono to remain vulnerable until the Rebif effect is visible in earnings (4Q02). Given the weakness in the biotechnology sector we do not expect the stock to outperform the market in the short-term. However, a premium of only 13% to the Pan European sector versus an expected 24% earnings growth (basis 04E) justifies our long-term buy recommendation.

Allianz (ALV GY; EUR 252.55) is expected to report 1Q02 earnings on May 16, 2002.