Monday, November 05, 2007

Financials falling indiscrimately

Financial stocks will decline again this morning after Citi's announcement that it will take up to $11 billion more in write-offs related to CDO's and other mortgage backed securities. There's the saying that "you don't know who's not wearing a swimsuit until the tide goes out" and that's how the market is approaching the group for now. At the moment it appears that Citi and Merrill, and perhaps UBS, were not distributing large portions of their originated CDO assets and if that's the case the recent departures of the CEO's are for significant management lapses as opposed to a Board seeking a "fall guy". In the last few market sessions, however, companies like Goldman Sachs, Morgan Stanley, and JP Morgan who had held up rather well in the turmoil have seen their stocks get trashed as they likely will again today. The market mentalities of these companies CEOs as well as their recent histories in capital markets risk management suggest that they are not guilty of the same mistake, but we don't know that for sure and the market hates uncertainty. When the tide goes out, these stocks might look like appropriately attired "screaming buys".

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