Enron Mail

To:larimore@enron.com, jordan.larimore@lehman.com
Subject:The Morning Market Call - Tuesday September 25th, 2001.
Date:Tue, 25 Sep 2001 11:59:32 -0700 (PDT)

Good Tuesday Morning - Comments From The Local Guys!

If the market has indeed put in a bottom over the last few days, be prepared
for us to 'retest' the lows. A successful test, is what is needed, followed
by a meaningful rally!
The market has already factored in most of the bad news from corporate
America. We may also see individual stocks rise after releasing bad news.
This would also prove to be very meaningful. Look to use this period to
upgrade portfolios.

The 30 -year bond yield is 5.57%.
The 10-year is trading at 4.70%.
The 5-year is trading at 3.81%.
Spot crude oil is trading at $21.81 p/b.
Natural Gas - Henry Hub - is trading at $2.30 p/mcf after having dipped
below $2.00 earlier.

Lehman's Research.

Banks Henry Chip Dickson
Impact of Recession on Bank Trends (CD)
q Many expect that the precarious U.S. slowdown may already be in or tipping
toward recession after
the recent WTC incident. Regardless of whether the U.S. economy slips into
recession, it has been
undergoing a transition from rapid growth of the 1990s to a period of slow
growth. This transition
has created a challenging operating environment for banks.
q This week we take a look at historical bank trends before, during, and
after recessions.

Banks Jason Goldberg
Weekly Bank Facts (JG)
q The Lehman Brothers Bank Index ended the week down 7.2%. Our Large-Cap
Bank Index fell
11.2%, while the Mid-Cap Bank Index declined 6.7%.
q All major indices also were down this week. The S&P 500 fell 11.6%. The
Dow lost 14.3% and Nasdaq
was off by 16.0% for the week.

City National Brock Vandervliet
On Target With an Even Better Valuation 1 - Strong Buy / 39.85 (USD)
q Although the stock is still roughly 10% above where we upgraded it to
1-Strong Buy back in March,
it has retraced most of its intervening gains. Once again, we believe it
should be front and center
in any discussion with investors in the smaller-cap financials at this time.
q We carry a Q3 EPS estimate of $0.73 for CYN, expected to report October
12. Although confident in our
estimate this is $0.02 less than consensus.
q Given CYN's mildly asset sensitive positioning, we wouldn't be surprised
by some margin decline this
quarter, similar in magnitude to Q2.
q Due to the declining runoff of the non-relationship syndicated book, we
believe CYN's above average loan
growth should be increasingly visible

Commerce Bancorp Brock Vandervliet
Q3 Preview and Mtg On Manhattan Rollout 2 - Buy / $65.50 (USD)
q Although sharply below its highs along with so many other stocks, CBH
trades at a six multiple
premium to the rest of the group and we are maintaining our investment
rating of 2-Buy.
q We carry a Q3 estimate of $0.77, up $0.03 from Q2. CBH should report
October 10.
q We remain pretty confident in our numbers for several reasons. First, the
NIM, which was up 16 bps in Q2
to 4.81% should push higher still. Second, and perhaps more important from
the perspective of '02, CBH
is far less dependent than most banks on incremental loan growth.

Commerce Bancshares Brock Vandervliet
3Q Preview 2 - Buy / 35.99 (USD)
q Based on the likelihood of continued margin compression for the balance of
the year we are
trimming our estimates for the second half of 2001. Due to valuation we rate
the shares 2 - Buy
q We believe there is a chance CBSH could better our revised 2001 estimates
due to the quasi-non-recurring
items including branch sale and student loan securitization gains. CBSH
typically sells a portfolio
of student loans twice a year depending on supply and market conditions.
q We believe CBSH continues to repurchase shares at essentially the same
pace of 450,000 shares/quarter.

First Commonwealth Fin'l Brock Vandervliet
FCF 3Q Preview: Watching the Margin 3 - Market Perform / $10.85 (USD)
q Save the possibility of a sharp margin decline, which we view as unlikely
from this level, or
dramatically higher credit costs, we are confident in full year estimates of
$0.84 and $0.90 which
imply 7% EPS growth. FCF is rated 3-Market Perform.
q We carry a $0.21 Q3 EPS estimate, in line with Q2 and consensus as well.
We expect FCF will report
October 18. As with Q2, this is inclusive of what may be a penny or two of
investment securities gains.
q We have been concerned for sometime in the margin dynamic as Q2's NIM of
3.44% was an all time low
after falling 11 bps in the qtr. We believe it could fall somewhat further
although balance sheet trends
appear to be reasonably positive.

First Tennessee Jason Goldberg
3Q01 Preview: Further Upside Doable 2 - Buy / $34.03 (USD)
q We continue to be positive on our outlook for FTN and rate the stock
2-Buy. Not only lower interest
rates, but fundamental improvements within this organization should aid
q Earlier in the quarter FTN announced it expects to post 3Q01 EPS of at
least $0.62. Our forecast pencils
out to $0.63. The company should report on October 17.
q We expect results to evidence continued strength in the net interest
margin and growth in both mortgage
banking and capital markets revenues. Asset quality metrics should remain
relatively stable.

Provident Financial Group Jason Goldberg
3Q 01 Keeping an Eye on Asset Quality 2 - Buy / $24.90 (USD)
q ? We rate PFGI 2-Buy and expect the company to put down EPS growth rates
ahead of its peers
once current issues are put to bed. However, we believe the next few
quarters could be bumpy and
that PFGI's business model, which is heavily exposed to commercial loans, is
more susceptible to
downturns in the economy.
q We expect PFGI to report 3Q01 EPS of $0.70 on October 17. This compares to
$0.63 in the prior quarter.
q While continued loan growth and fee income expansion should lead to
double-digit revenue growth, higher
credit costs and the lack of net interest margin expansion should restrain
further improvement.

Synovus Financial Jason Goldberg
3Q01 Preview: Keeping an Eye on TSYS 2 - Buy / $40.78 (USD)
q We rate SNV 2 Buy. SNV should benefit from its decentralized banking
approach in the Southeast,
the build-out of its wealth management unit and the growing contribution of
Total Systems.
q We expect SNV to report 3Q01 EPS of $0.27 on October 17.
q Continued net interest margin expansion and solid loan growth should lead
the bank's results.
q We will keep a close eye on TSYS, its 80.8% card processing unit, to see
if new business related to its
European rollout is enough to offset weaker than expected volume in
mid-September. TSYS should report
on October 16.
q We expect SNV to remain one of the few banks posting an ROE in the 20.00%
area and a ROA in the
2.00% range.

Ace Limited J. Paul Newsome
Upgraded to 1 Buy; Estimates Lowered 1 - Strong Buy / 23.71 (USD)
q We are upgrading ACE to 1-Strong Buy from 2-Buy with a $30 per share price
target. Among the
large cap. insurers ACE's stock is one of the most inexpensive and it has
among the most upside
to better prices in the future in commercial insurance and reinsurance.
q The stock is trading at about book value under what we feel would be a
worst-case scenario (double ACE
management's projected WTC loss). Historically ACE has traded at 150% of
book value.
q Our price target assumes the company trades at roughly a 40% discount from
its historic price-to-book
value one year from now.

Allmerica Financial J. Paul Newsome
Change of Recommendation 1 - Strong Buy / 45.04 (USD)
q We are upgrading Allmerica to 1 Strong Buy from 2 Buy following the
decline in its share price after
the World Trade Center disaster. Our new price target is $54 per share, down
from $65 per share.
q Allmerica, as a relatively large regional insurer, represents one of the
better "safe havens" among the
insurers largely unaffected by the World Trade Center disaster-little World
Trade Center loss exposure,
little investments in equities, and strong balance sheets.
q At just 87% of projected third quarter book value ($48.14 per share), we
think Allmerica represents
compelling value.

HCC Insurance Hldgs J. Paul Newsome
Rating Affirmed 1 - Strong Buy / $23.95 (USD)
q We are maintaining our 1 Strong Buy rating on HCC Insurance Holdings with
a price target of $27
per share, down from $30 per share.
q HCC Insurance Holdings falls nicely into the category of commercial
insurers well poised to take
advantage of the accelerating insurance prices following the tragic World
Trade Center disaster.

Countrywide Credit Makiko Coakley
CCR Will Report Its 2Q Earnings Tomorrow 2 - Buy / $40.21 (USD)
q Countrywide will report its fiscal 2Q earnings (for the quarter ending
August 30) on Tuesday 9/25.
The current consensus estimate for its 2Q is $1.19. We are raising our
estimate from $1.18 to
$1.20. Due to the fact that CCR typically benefits from lower interest
rates, and that it has very
limited credit risk exposure, the stock seems to be working as a "place to
hide." We believe this
trend will likely continue as long as the equity market remains volatile and
q Mortgage rates declined and refinance activities picked up in Jul. and
Aug. CCR recently reported its
August production volume, which was the highest monthly number in CCR's
history. Thus, we are raising
our 2Q EPS estimate by $0.02 to $1.20.

Paychex Inc Adam Waldo
In-Line Qtr-Slight F2002 Guidance Reduc. 2 - Buy / $29.64 (USD)
q Reflecting F1Q02 results and new F2002 guidance, our DCF model shows the
current $30 share
price assumes a far too pessimistic low-teens EPS growth rate over the next
five years relative to
our 19% projection and management's 25% target. We would actively put new
money to work in
this blue chip Business & Professional Services company.
q On September 20, PAYX reported F1Q02 (ended August) EPS of $0.19 up 20%
year over year and in-line
with our estimates and the Street consensus.

Adept Technology Edward White
Insight into Photonics Area 2 - Buy / 4.25 (USD)
q While fundamentals in all of the company's served markets are particularly
weak, we believe the
company's position in photonics assembly automation supports purchase of the
shares for long-term
risk-oriented investors.
q Recently, we attended a presentation by Adept Technology, highlighting the
company's capabilities in
photonics assembly automation. We believe the key takeaway is that the
company's strategy of designing
and developing platforms is progressing well.
q We believe a critical differentiating factor for Adept in the photonics
market is the company's software
simulation capability, which has been critical to the co's initial successes
with customers, but is not
currently appreciated by investors.

JDS Uniphase A Arnab Chanda
Preannounces; Remain Cautious 3 - Market Perform / 5.36 (USD)
q We continue to be cautious on JDS Uniphase and would look for entry points
once carrier capex
q As we expected, JDS lowered its FQ1 rev forecast to $325M (down 46% q/q)
vs our previous forecast of
$400M (down 33% q/q). Although the company is seeing early signs of
stabilization in demand, we
continue to believe that margin compression could be a bigger issue due to
q We are reducing CY01 revs from $2,281M (down 20% y/y) to $2,155M (down 24%
y/y) and CY02 from
$1,588M (down 30% y/y) to 1,356M (down 37% y/y). We believe gross margins
will continue to decline and
are modeling 38% in FQ1 and 36% in FQ2. We are also reducing FQ1 EPS from
($0.02) to ($0.03), CY01
EPS from $0.13 to $0.11, and CY02 EPS from $0.07 to $0.02

National Semiconductor
Shareholder Mtg.-FQ2 Guidance Reaffirmed 3 - Market Perform / $22.50 (USD)
q NSM hosted a shareholder meeting on Fri., reiterating FQ2 guidance of revs
up 5-7% q/q. Although
the company made positive comments on recent order activity, NSM was
uncertain about the near-term
prospects for end demand. This view is in-line with our concerns.
q National indicated that its turns business has remained healthy through
last week. The company is seeing
relative strength particularly in wireless (25% of revs) and displays (10%
of revs). Similarly to our view,
however, NSM is uncertain about the implications for real end demand given
the weakening economy and
this month's tragic events

David C. Morris
Sr. VP Lehman Brothers

Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the
past three years a public offering of securities for this company. B-An
employee of Lehman Brothers Inc. is a director of this company. C-Lehman
Brothers Inc. makes a market in the securities of this company. G-The
Lehman Brothers analyst who covers this company also has position in its
Key to Investment Rankings: This is a guide to expected total return (price
performance plus dividend) relative to the total return of the stock's local
market over the next 12 months. 1 = Buy (expected to outperform the market
by 15 or more percentage points); 2=Outperform (expected to outperform
the market by 5-15 percentage points); 3=Neutral (expected to perform in
line with the market, plus or minus 5 percentage points); 4=Underperform
(expected to underperform the market by 5-15 percentage points); 5=Sell
(expected to underperform the market by 15 or more percentage points);
V=Venture (return over multiyear time frame consistent with venture capital;
should only be held in a well-diversified portfolio).
This document is for information purposes only. We do not represent that
this information is complete or accurate. All opinions are subject to
The securities mentioned may not be eligible for sale in some states or
countries. This document has been prepared by Lehman Brothers Inc., Member
SIPC, on behalf of Lehman Brothers International (Europe), which is
regulated by the SFA. ?Lehman Brothers, Inc.

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