Write Down Retrospective

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Write Down Announcement Retrospective

Magazine announces new award for best banking write down


Banking Future, a renowned monthly magazine, has added a new award to its prestigious annual awards ceremony; best write down by a bank. Nominations can be made by the general public, and a panel of judges will opine on the winner. The judges have been issued with guidelines to assess contestants. The scale of the write down is obviously of prime concern, but the manner of its release is also important. “The Merrill’s one-two step was a particularly good move. First you release a big write-down, you do it before the results, fire a few senior staff and give the impression that this is it, there will be nothing more. Then three weeks latter you floor them with the sucker punch, new write downs. I mean this was a classic” said the designer of the guidelines. “But Citi too had a more subtle one two punch. You fire the senior execs, let everybody wonder in around in a daze for a couple of days wondering what will happen and then bam! Hit them at the weekend, when they least expecting it, with huge write downs and a CEO resignation. What we’re really looking for here is originality and style.” These two are clearly the front runners and will be hard to beat, but market observers feel that better could be achieved.

            “The particular language in the announcements has been a bit poor. I was hoping for more references to the will of God. Also a bit of upfront bitterness would not go amiss, perhaps combined with direct blaming of others” suggested one seasoned market observer. Others have noted a lack of desire to bury the news amidst other mundane items. “I suspect things will improve with time as competition grows, that’s when we’ll start to see women jumping out of cakes with the write down amounts on a sash across them, or planes using colored smoke to paint the write downs in the sky. But what I’m really hoping for is a CEO who announces the write downs from his new holiday home in the Caribbean and who includes in his resignation note details of the golf course he plans to build with his payoff. That’s class.” 

UBS provides new model of write down announcement


UBS, so frequently a laggard in innovation, produced something stunningly new in the investment banking world on Monday; a fundamentally new method for announcing write downs. It was a long drawn out process full of subtle twists and turns, some have even suggested it be turned into a novel. In truth it would probably be one of those Victorian novels of manners with about as much action as a film with a corpse in the lead role. But still, that’s better than most write down announcements.

            It all started in the summer when UBS revealed that they had big sub prime positions and sacked their head of investment banking. Then silence. The world expected write downs, but UBS soldiered on. A barrage of abuse assailed the bank, but they stood firm. The stock fell, but still management was unmoved. Then the incredible, people started to believe that there might be nothing coming. They had quiet chats with the chairman, the CFO was seen in public looking calm and relaxed. Positive notes started to appear about them.

            Then suddenly it hit. It was like walking into a room of friends at a surprise party and having then all turn machine guns on you. It was shocking. And so many things happening at once. First  the $10 billion write downs. Then capital raising. Then stopping cash dividends (all dividends this year will paid in shares). Some bizarre message about selling previously issued shares. It was all too much, the market could only do one thing. Nothing. It stared in amazement at the sheer audacity of the company, and the stock traded flat. And it was only afterwards that you realised that they had given you no information about the levels of write downs.

            For sheer intensity of action, after so much inaction, this is definitely the best write down announcement. As the first round of write downs draws to a close (we’re counting Merril’s little two step as a first rounder only), there’s been a lot of competition but UBS have certainly carved out their own unique niche.

What makes a great write down announcement?


With so many write downs at major banks, we analyse the different strategies for announcing a major sub prime loss.


There appear to be four main strategies currently in use for write downs. The first we shall call the hide it method. Here you try to keep as low a profile as is possible. Slip the announcement in Friday afternoon, so they only make the weekend press and those few traders sober on Friday afternoon are probably too busy planning their weekend away to notice. This only really works if it’s a small write down, one that isn’t going to cause anybody to sober up just by seeing the figure.

The second strategy is what we will call the momentum strategy. This involves a long lead time up to your announcement. First you spread rumours about potential huge write downs. Then after a few days you sack your head of credit trading. You allow the markets to digest this for awhile. Of course your stock will be plummeting at this stage, which on first appearance is not good. But this is a subtle plan. After a few days the market’s nerves are in shreds. Analysts, their imaginations on overdrive, have come up with estimates of your write downs which would mean you have negative assets. Then you come along with your big, in normal circumstances enormous, write down and your shareholders practically weep with relief. Your stock rises. Now it is still below where it was before the rumours started. But you have positive momentum, analysts start looking at how cheap you are. Forces build and sweep you forward. Ok to date the later part of this strategy hasn’t quite worked, but it takes time. Morgan Stanley did an interesting twist on this strategy, they made a low key announcement on top of the usual approach. This stressed the one off nature of the loss, and that it would not affect the franchise value. This has been called the “its only money” twist. It worked better than most, the stock bounced over 4%.  

            The third method is the overshadow method. Here you get your CEO to resign and then announce the write downs hoping everyone will concentrate on the former rather than the later boosting your stock. Citi tried this is a big way. Their CEO resigned dutifully on the Sunday to get maximum attention in the Monday papers. Unfortunately the write downs were big enough to feed some countries for decades so it was a failure. Curiously Citi also seemed to have been following the momentum strategy having sacked the heads of credit trading and let a few days go so that the tension in the market could build. This was an interesting strategy, as it employed to contradictory strategies. The overshadow strategy tries to minimise peoples knowledge of the write down, the momentum tries to maximise it. So two contradictory strategies both of which failed; a fair summation of Citi’s recent history.

            The fourth strategy is the confuse strategy. This was the one employed by Merrills. It is a sophisticated strategy, one you would anticipate being used only by sophisticated investment banks. It starts off with a feint. You go down the path of the momentum strategy. You spread the rumours, you fire the trading heads, you even announcement a big write down. But here’s the trick, two weeks later you announcement even bigger write downs. Now the market is all over the place, it doesn’t know whether there is more to come or not. It’s panic time. Of course it’s difficult to see the sense in this from a stock point of view, as it is all bad. Some academics analysing these trends see it simply as a way of mentally abusing shareholders for past perceived sins. 

Reality and fantasy merged

Regulators, they're better than nothing...well almost