11/2/07

The bunny feels betrayed.

All week long he has read nothing but dirty disclosures from top banks about their exposure to the subprime morass. Writedowns, shakeups, CEOs falling on hundred million-dollar swords. It seems each new announcement brings a triple-digit swing to the indices; p/e ratios are so compressed as to muddle fair valuation.

The bunny is so dispirited he could just bypass this whole edition and go to sleep. But that would be unfair to you.

So he will focus on two examples—no more.

Just when you thought it couldn’t get any worse with Citigroup, those early birds at Dow Jones have announced the company is holding an emergency meeting this weekend. (That’ll mess up some golf games.) Is it a Star Chamber to decide Charles Prince’s fate once and for all? For a spin session to try to put a brave face on the prospect of further writedowns, which may affect the company’s ability to pay dividends, which may make shareholders bray for blood? (The bunny is reminded of Georges Danton’s last request to his executioner: “Show my head to the crowd—it’s worth it.”)

This is the biggest bank in the US we’re talking about. The bunny is lop-eared with dismay.

Now, on the far side of the pond, UBS, which has already been bled by the slings and arrows of outrageous fortune, is now being forecast to take another $5 billion in Q4 subprime losses—this is on top of the three billion-dollar loss they’ve just reported. (Okay, that’s an extreme call, from a Merrill analyst—Bear Stearns is only calling for a $2 billion hemorrhage.)

This is a conservative, clients-first Swiss bank, the kind you trust to protect what assets you have when the Nazis are about to invade or the collapse of Communism is set to unleash internecine tribal warfare next door. Now the bunny is supposed to believe that this stalwart European colossus is but a house of cards? Say it ain’t so, Roh!

Neither the bunny’s brain nor his heart will take any more.. He senses a familiar chill in the air, an early darkening of days. It’s time to go to ground.

Bunny milestones of woe:

“UBS Reports a Larger-Than -Expected Loss” by Nick Cumming-Bruce, New York Times 10/30/07
“UBS May Take $5.2 Billion Q4 Subprime Hit” by Steve Goldstein, Marketwatch.com, 11/2/07
“Merrill Lynch Downgrades UBS” by Ramya Dilip, Reuters Research Alert, 11/1/07
“CIti Shares Up on Board Meeting Report”, Reuters, 11/2/07
“Analyst Raises Doubts About Citigroup Dividend” by Eric Dash, New York Times, 11/2/07
“CIBC’s Whitney Spurred Market Swoon on Citigroup Call (update 2)” by Nick Baker and Michael Patterson, Bloomberg.net, 11/2/07