The S&P 500 Financial Index climbed to 182.32 in early trade, its best level of the week. However, the group did see a pullback following news that Italy passed its 2010 budget accounts but failed to do so with a majority vote. Thus Mr. Berlusconi may be facing yet another confidence vote later in the week. The uncertainty has driven Italian yields well above the 6% threshold and financials are seeing some weakness in reaction. Morgan Stanley (MS) has offered a perfect proxy for European sovereign debt concerns and that is sliding to the LoD. But the group as a whole is still holding on to an upward trend that has been in place since mid-September. Certainly impressive given the headline risk but the group is hardly in a place of strength as the contagion concerns do remain close in the background.

Also of note, it was a busy day for International bank earnings as both Italy's Intesa Sanpaolo and France's Societe Generale reported their latest results. The numbers were generally in line with expectations as the institutions moved to draw down European sovereign debt exposure and writedown Greek debt. In addition, trading results at the banks remained weak which has of course been a theme globally in Q3.

News of Note

1) Societe Generale (SCGLY) reports Q3 net profit EUR622 mln; Revs of EUR6.5 bln vs EUR5.9 bln. Co will not pay dividend in 2011. Co reports net allocation to provisions: EUR1.9 bln; Core Tier 1 at end of September was 9.5%; AUM of EUR168 bln. With regard to sovereign exposures co states exposure to PIIGS of ~EUR3.4 bln at end of October; Italy debt exposure on banking book EUR1.57 bln at end of Oct, Greece EUR575 mln. Co states it is targeting core tier-1 well above 9% by end-2013. Co took a writedown on Greek debt to 60%, EUR333 mln (pre-tax).

2) Intesa Sanpaolo (ISNPY.PK) reports Q3 net income of EUR527 mln, -28.9%; adj. net income EUR448 mln for the third quarter, -15.3%. The focus on solidity and liquidity has resulted in a Core Tier 1 ratio at 10.2% and liquid assets of 83 bln euro at the end of Sept 2011, as well as immediate compliance with the Basel 3. The EBA exercise carried out in October has moreover confirmed the adequacy of the Group's capital base showing that Intesa Sanpaolo does not need any additional capital. Net impairment losses came to 709 mln euro vs the 48 million euro in the corresponding period of 2010, and included impairment of 618 million euro on Greek government bonds. The Group's securities portfolio at the end of Sept 2011 comprising Greek bonds (issued by the central and local govts) of 586 million euro (including a Hellenic Railways bond guaranteed by the State) after total impairment equal to around 45% of the nominal value and to around 55% of the book value pre-impairment, with zeroing of AFS reserves. The portfolio also included Irish bonds of 251 million euro and Portuguese bonds of 45 million euro.

3) Lloyds Banking (LYG) provides 9 month interim update. Co reports combined businesses profit before tax of GBP1,748 mln for the first nine months of the year. Before volatility effects and the impact of liability management exercises (together GBP188 mln), profit before tax was down 6% at GBP1,936 mln. Core profit before tax was GBP4,375 mln in the first nine months of the year. Non-core assets reduced to GBP151.4 bln, down GBP11.0 bln in the quarter, and GBP42.3 bln (22%) year-to-date. Customer relationship deposits (excluding repos) have increased 4% since the end of 2010. Improved loan to deposit ratio of 140% (31 December 2010: 154%). In October an additional GBP3 bln of term funding was issued and as a result our 2011 term funding programme is now complete. Total wholesale funding now GBP281.9 bln, down 5 per cent on 30 June 2011. Maturity profile of wholesale funding maintained, with 50% having a maturity date greater than one year. Reports core tier 1 capital ratio of 10.3%, slightly improved since 30 June 2011 and 31 December 2010.

4) Jefferies Group: Its not JEF's fault, but MF is a problem- Ticonderoga. Firm believes that the rapid MF bankruptcy poses some new risks to JEF. JEF and MF (MFGLQ) were seen as key beneficiaries of secular regulatory changes brought against the larger banks and brokers. The rapid demise of MF now makes that bull thesis less likely and also exposes more risks with smaller broker dealers which may drive more regulation. Firm believes the end result will now drive greater scrutiny of all broker dealers including tougher capital requirements, tougher risk taking rules, and an emphasis on more permanent and/or long term forms of financing.

5) Bloomberg sources are saying that Citigroup (C), JPMorgan (KPM), BNP Paribas (BNPQY), Royal Bank of Scotland (RBS), and HSBC Holdings (HSBC) may face top capital surcharges of 2.5% points, according to a provisional list prepared by global regulators and obtained by Bloomberg News. The list was drawn up as part of plans by the Group of 20 nations to force banks whose failure could damage the global economy to boost their reserves by 1 to 2.5 percentage points above minimum levels agreed on by international regulators. Bank of America (BAC), Barclays (BARC) and Germany's biggest bank Deutsche Bank (DB) may face surcharges of 2%, according to the list. Briefing Note: This was generally in line with expectations.

The S&P 500 Financial Index climbed to 182.32 in early trade, its best level of the week. However, the group did see a pullback following news that