The S&P 500 Financial Index has been a laggard today but has been able to bounce off its lows. Sellers are attempting to drag the index lower as we head into the FOMC announcement in approx one hour. The XLF ran into resistance at the 13.30 area but so far has held 13 today. Volume, as tends to be the case the week before Labor Day remains light.

News of Note

1) Royal Bank of Scotland (RBS) was up as Deutsche Bank AG analysts raised its recommendation to "buy". Lloyds Banking Group Plc (LLOY) gained 7.8% to 32.03 pence, while Barclays Plc advanced 6.7% to 165.4 pence. "We think the value proposition is clear," Deutsche Bank analysts including Jason Napier wrote in a note to investors today. Following a 36% decline in the share price of RBS in the last month, Deutsche said it was raising RBS to a "buy" from "hold." "Barclays is our top pick," wrote Napier.

2) The International Accounting Standards Board is questioning some of the recent write downs by European financial institutions with exposure to Greece. In a letter today it stated, "It is hard to imagine that there are buyers willing to buy these bonds at the prices indicated... This is a matter of great concern to us". 3) India's central bank recommended tougher capital rules for new lenders and mandatory share sales within two years as conditions for issuing new licenses for the first time in seven years.

4) Natl Bank of Greece posts 1H11 Results- Group net profit in 1H11 totalled EUR 29 million, excluding impairment losses on GGBs prompted by the PSI initiative (EUR 1,339 million after tax), compared with profit of EUR 146 million in 1H10, due to the persistence of high provisions, which amounted to EUR 822 million (up by +27% yoy), as well as the exceptionally adverse economic climate in Greece. In the first half of the year the NBG Group, although impacted by the decline in deposits, which intensified in Greece during 2Q11, nevertheless managed to increase its market share of savings deposits to 34.1% and sustain its market share of time deposits at 15.3% in Greece. It is noteworthy that, after the EU summit on July 21st, domestic deposits have gradually rebounded, fully reversing the decline suffered in the first weeks of July.

5) Wunderlich notes mortgage REITs ended the week unchanged, selling at a 1% discount to trailing book value. Volatility was fairly significant, and they believe that the political appeal of massive loan refinancing and the benefits to household cash flow could continue to create volatility, at least until President Obama presents a new strategic plan in Sept. Mortgage REITs and RMBS could remain under pressure until the size and effectiveness of any proposed plans to refinance underwater borrowers can be evaluated.

6) Ticonderoga notes robust payout ratios, dividend yields higher than risk free treasuries, gradually improving flows, and some signs of diverging equity flow versus bond flow trends are painting a better picture for asset management equities. As such, firm sees the asset manager sector getting more attractive; reiterates Buy ratings on BLK and BEN and believes other equity-centric names are becoming more appealing as well such as TROW and JNS. Firm would use EV as a source of weakness in the group as it continues to feel both equity and bond flow pressure from large cap value outflows as well as floating rate redemptions. Within the asset management space, six of the eight asset managers it covers have yields greater than the 10-year Treasury including BLK, EV, JNS, IVZ, ART, and TROW.

7) FBR's Washington Policy team continues to doubt the prospects of implementing a large-scale mortgage refinance program. FBR Capital notes that while the market has focused on the possibility of President Obama introducing or expanding on existing refinance programs following the Labor Day weekend, they see limited direct benefits for the mortgage insurance industry unless seriously delinquent borrowers are eligible for any programs, which at this point is uncertain at best. While they are generally positive on the risk-reward for the mortgage insurance space given current valuation, they do believe that expectations are running fairly high into any possible housing announcement next week.