UBS Writes Down Billion; Chairman to Leave - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times:
"UBS, the largest Swiss bank, said on Tuesday that it would write down another $19 billion related to “U.S. real estate and related structured credit positions” ...The news came as Deutsche Bank, the biggest German lender, said Tuesday that it expected a first-quarter loss of about $3.9 billion on write-downs of United States real estate loans and assets. Global banks have now written down more than $200 billion of soured loans in the market debacle that began last summer with the implosion of the American subprime mortgage market."The article goes on to say that UBS will raise $15 billion in a rights issue.
Somewhat surprisingly, investors took this as news that the worst was behind and when coupled with Treasury Secretary Paulson's plans to improve liquidity, bank stocks climbed. From Yahoo:
"News of massive writedowns at two major European banks paradoxically sent shares soaring Tuesday, as many investors took the typically negative announcements as a signal to buy into the battered sector."and later:
"The sector's revival was also aided by signs that U.S. Treasury Secretary Hank Paulson and central bankers are considering radical strategies to boost liquidity.
Banks are hoarding cash in case they need it and as concern lingers about counterparty risk....
"For a long time we've been worried about moral hazard ... we're now past that point, what we're trying to do now is save the banking system, and the price that banks will pay is tougher regulation going forward.""
Update: the stock market rose 3.2% on the news.
"U.S. stocks on Tuesday celebrated the start of a new quarter, rallying as
Lehman Brothers Holdings Inc.'s equity offer drew a warm reception, fueling the Dow to its 8th-biggest point jump ever."
(gee, these stories really do bring into play many of the topics covered in class. Who knows, this might make a great essay ;).