Summary
This article is important not only because it announces a US$1.3 billion write-down of UBS' fixed income portfolio, but because it parallels the situation with that of Bear Stearns' (huge write-downs followed by the "departure" of a key executive) and questions whether there are more of such "disclosures" in the coming week as Merrill Lynch, Deutsche Bank and others announce their third quarter earnings.
Analysis
By now we know that Deutsche Bank, along with Citigroup and Morgan Stanley joined UBS in announcing massive write-downs. Deutsche Bank's chargeoff totaled US$3.11, lowering its profit by 20% from a year earlier.
It seems as though an invisible switch has turned a spotlight on banks' fixed income portfolios and all those worries about "hidden" losses leaking out quarter by quarter can be put to rest.
Even if this is so, I don't believe the street collectively decided to be so conservative with valuing their esoteric securities. As the WSJ hints in an article today, most of these "confessions" resulted in an immediate increase in the confessors' shares.
Since it is so difficult to objective value many structured securities, it could be that the banks are taking huge losses now, so that they can report profits later. Think about it. If this is the case UBS is simply joining the herd.
UBS' "lemmingness" and not the fixed income portfolio losses are the problem. UBS has a history of buying expensive, experienced teams in order to aggressively enter a hot market and there efforts have never been successful. Perhaps this loss is just another signal that they should stick to their knitting, regardless of the trends.
