After the global financial industry shed $403 billion in write-downs,
European banks are finally turning a corner and boosting their share prices.
German giant Deustche Bank AG (DB) and
Switzerland’s UBS AG (UBS)
both declared they would not need to raise further capital yesterday (Wednesday)
as the bulk of losses tied to mortgage-backed securities is now behind them.
“At first glance this is some much-needed positive news for Deutsche in particular
but also for the whole sector,” Helge Rechberger, head of equity market
research at Raiffeisen Zentralbank in Vienna, told Bloomberg
News. He said he remains “cautious” about the financial industry.
A positive note from a London-based JPMorgan Chase & Co. (JPM)
analyst helped reinforce that European banks are approaching the end of the
current mortgage-backed crisis.
“The worst of the markdowns seems to be over,” analyst Kian
Abouhossein wrote of European banks in a note to clients yesterday,
Bloomberg reported. “We do not believe that further
capital raising is needed at this point.”
The JPMorgan analyst went on to say that while European banks’ need for
additional capital might be over, further write-downs are still likely at UBS as
well as rival Swiss bank Credit Suisse Group AG (ADR: CS).
Abouhossein also expects more markdowns at French financial firms Societe
Generale SA (OTC ADR: SCGLY) and Natixis SA (PINK: NTXFF).
The news boosted European bank shares, with Deustche shares up 3.3% and UBS
stock up 1.6% at the close of European trading yesterday. Other European banks
received a boost as well with French firms Natixis up 4.4% and Credit Agricole
SA (PINK: CRARF) up 0.8%, while Turkey’s Fortis Bank
AS had a gain of 2.4% according to Reuters
data.
The gains could strengthen the European Central Bank’s resolve to hike its
key interest rate tomorrow when ECB President Jean-Claude Trichet and the other
members of the monetary policy committee meet today (Thursday).
It is widely expected that the ECB will vote to raise its rate to 4.25% from
its current 4.0% to fight rampant inflation throughout the Eurozone.
“It’s pretty much a done deal” that the ECB will lift its key
rate from 4%, Nick Stamenkovic, fixed-income economist at RIA Capital Markets in
Edinburgh, told MarketWatch.
