Calling the bottom for banks seen a mug's game

Sun Jan 13, 2008 10:32am EST
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By Andrew Hurst, European Banking Correspondent

ZURICH (Reuters) - Anyone trying to predict whether European bank stocks are about to fall again would be wise to tear up their wall-charts plotting price swings over recent decades.

Bank stocks have lost almost a quarter of their value since a global credit crisis struck last summer and many investors are now poring over data on previous downturns, hoping to get insights into whether the fall from "peak to trough" is complete.

Some analysts say the banks have lost most, if not all, of the ground they are going to give up in this downturn. But many say stocks are more likely to be driven by doom-laden sentiment and raw fear than by precedent - and that makes calling the bottom of the market all but impossible.

"There is more bad news to come and it is priced into the market, but prices can go down further, because everything is driven by sentiment and exaggeration," said Dirk Becker, an analyst at Landesbanki Kepler in Frankfurt.

"There is no limit, there is no natural floor where you can locate a trough for these things," he said.

The credit crunch, which broke with the drama of a midsummer thunderstorm, was brewing for months as U.S. subprime mortgages -- loans to people with poor credit histories -- finally imploded.

Once investors woke up to the extent of involvement by big global banks in packaging subprime loans into mortgage-backed securities and selling them or keeping them on their own books, they headed for the exits.

And they are still waiting on the sidelines for fear of more writedowns of subprime exposures despite banks around the globe such as UBS, Citigroup, Morgan Stanley taking charges now running at about $100 billion.   Continued...