By Jennifer Yousfi
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.
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"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.
News and Related Story Links:
Deutsche Bank, UBS Rise After Saying They Don't Need Capital
'Worst Is Over' for European Banks, JPMorgan Says
SocGen's Deputy Chief Says 'Bulk' of Writedowns Done
ECB expected to ignore politicians, hike rates