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Wall Street Castles Made of Sand

Posted Apr 01, 2008 11:32am EDT by Aaron Task
Related: UBS, DB, NCC, LEH, C, MER, GS

It's April Fools' Day, but this is no joke: Traders are embracing massive write-downs from financial firms UBS and Deutsche Bank, National City's plans to sell itself, and Lehman's convertible offering as another sign the worst is over for financials.

The problem with this line of thinking is that it's been tried repeatedly in the past year, with lousy results. Wasn't the third quarter supposed to be the "kitchen-sink quarter" for the financials, and then the fourth?

The grim reality is that we seem no closer to the end of the write-down parade than we were six months ago. Goldman Sachs recently estimated Wall Street firms will ultimately write down as much as $460 billion in credit losses, meaning the process isn't even halfway over yet.

With so many traders eager to embrace the end of this crisis period, scant few are willing to acknowledge another harsh fact: The financial firms' "blockbuster" earnings of the prior five years were castles made of sand.

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