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Our revenue estimates are below the consensus. Moreover, revenues were worse than we had anticipated in 2010's first fiscal quarter, largely due to slower than-expected growth in fee and commission income, which dropped 9% sequentially. Foreign exchange/derivatives also fell, albeit by a much lower percent, and treasury revenues continued to contribute a larger than normal amount to total net revenues. Given the disappointing results in the first quarter, we believe that consensus revenue estimates are likely to fall.

It should be noted that the number of estimates included in the consensus for non-US bank ADR stocks is quite limited when compared to the number of estimates included in the consensus for the same bank in the local currency unit (LCU). Moreover, ADR estimates are also subject to variability related to the US$/LCU exchange rate employed by the individual analyst when making his estimate. Therefore, the ADR consensus estimate may be skewed and differ significantly from the LCU consensus estimate.
 

Our EPS estimates are significantly below the consensus. This could be due to our view on credit losses, which we expect to continue larger than normal through 2010. Moreover, fiscal first quarter earnings were below our expectations, and we lowered our estimate slightly as a result.

There are several caveats one should consider when investing in non-US ADR bank stocks. First, investment in non-US ADR bank stocks entails foreign currency risk. When the US$ appreciates against the local currency unit (LCU), this tends to depress US$ share performance relative to share performance in the bank’s domestic stock market. On the other hand, when the US$ falls against the LCU, this will accelerate gains in US$ relative to share performance in the bank’s domestic stock market. More importantly, we expect non-US ADR bank stock prices to continue volatile, reflecting economic uncertainty in the coming months and headline risk.