Both UBS and Deutsche Bank announced HUGE writedowns on their risky assets today. UBS wrote down $19 billion, that’s right billion with a ‘B’ and Deutsche Bank wrote down an additional $4 billion on their assets.
A week ago, the market would have responded negatively to MORE writedowns in the banking sector. Instead, the financials are rallying today on the news.
What gives?
Although the numbers are staggering, the consensus is that, hopefully, this is the last of the huge writedowns from the major banks. More than anything, markets HATE uncertainty. When things are uncertain, the market tends to drop based on the absolute worst case scenario, which rarely if ever comes to pass. By ‘biting the bullet’ and aggressively marking down questionable assets, we can now move on to repairing the damage.
Of course, there will continue to be fall out from the sub-prime mortgage mess and the stocks of the financial firms will remain volatile for some time, it just might be that, finally the worst of the damage is over.
Money Management For Modern Life 