The financials have been lower for most of the session-Sector underperforms the overall tape $GS

Financials

· The financials have been lower for most of the session – FINANCIALS: Sector underperforms the overall tape as a lack of overall clarity on financial reform seems to be weighing on the group. Commentary from both media outlets and sell-side research still not 100% on the impact from reform, and with the death of WV Senator Byrd, the senate vote is not 100% secured quite yet. Volumes have returned to levels seen early last week, and about 20% below what we've seen on average over the past 20 trading days. Flows are also more muted. While on Friday we had a sell-side skew on the move higher, today we are better to buy on the move lower. Banks have a buy skew for HFs while vanillas are reducing exposure across small caps and insurers. We're not seeing many shorts expressed, especially compared to what we saw late last week. Catalysts for the group going forward will remain concentrated on financial reform headlines. There is very little expected out on a single-stock basis.

· Banks – GS and MS both fall ~1.5% on the day; some of the smaller brokers outperform – JEF is flattish while PJC, RJF, SF, GHL, and LAZ are all higher (viewed as having less exposure to the reforms).  Electronic guys also acting better – SCHW and ETFC are both in the green (although AMTD is lower). 

· Asset managers – mixed action in the space; BLK, JNS, LM, FII are all higher while BEN, TROW trade lower. 

· Banks – mixed action among the regionals – FITB, RF, HCBK all lead while PNC, STI, TCB, and PBCT are laggards.  Among the money centers, C shrs are outperforming and WFC is flattish. 

· Inflation – the big story of the day is the AFL announcement that it sold out of some of its riskier European holdings (AFL shares up 3%).  The rest of insurance though is lower for the most part. 

· Best Performing sp500 financials: AFL, FII, NYX, C, AIZ, LM, SLM, CME, DFS, ETFC

· Weakest: FHN, MCO, ALL, JPM, XL, MS, MET, LNC, GS, CBG