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Q2 Same As Q1? The Writedowns Begin

OK, the second quarter is starting a lot like the first quarter. How so? Once again, a bunch of financial institutions are out with big writedowns, or trying to raise capital. Sound bad? No, no, say the bulls, you don't understand, this is good. They're getting all the bad stuff out--no, this is the bottom, this is the kitchen sink quarter (please ignore the fact that the first quarter was supposed to be the kitchen sink quarter: hey, it's an art, not a science).

UBSwrote down an additional $19 billlion on U.S. real estate and other assets, then announced they will be seeking to raise $12 billion via a rights issue. Results were so stellar Chairman Marcel Ospel said he would be leaving. UBS up 9 percent.

Not to be outdone, Deutsche Bank made a similar announcement, taking $3.9 b in writedowns. They said "conditions have become significantly more challenging during the last few weeks."

The response? European banks are higher because because this is the kitchen sink quarter! Pay attention! Banks are reducing their exposure! There's less uncertainty! We've seen the worst!

Lehmanis raising at least $3 b in capital. Meredith Whitney at Oppenheimer, who has now become the ax in this space due to some prescient calls in October, said that there would be a "barn rush" of capital raising in the coming months from financial firms. Lehman up 7 percent.

Oh, and pay no attention to the curmudgeons at Morgan Stanley, who issued a report this morning say that investment banking was taking its worst hit to earnings in twenty years. They think longer-term return on equities will fall due to de-leveraging and more regulation that will force banks to hold more capital as a cushion.

Finanicals are rallying. Merrill up 6 percent. Citi,Fannie Mae , Morgan Stanley, Wachovia up 4-5 percent.

What does all this mean? Enormous frustration and confusion for professional traders. Think about it: a lot of traders right now think it's unlikely there will be any kind of huge follow-through on the upside, and unlikely there will be a huge follow-through on the downside. How do you short a stock, for example, when you know that the government is backing them? How do you go long when the earnings have been so severely damaged?

Meantime, commodities down big again...gold stocks weak.


Questions? Comments? tradertalk@cnbc.com

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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