The banks had been starting to regain some momentum last week as the effects of the Fed easing acted like a burst of WD40 on a chronically rusty nut. The nut began to turn, but careful you don't force it as it might still snap. But this week's major impetus, experienced on Tuesday, was a dreadful third quarter result warning from America's largest overall bank - Citigroup.
Citi flagged a result so woefully shocking that it was absolutely brilliant. Switzerland's UBS came to the party with the anticipation of its first quarterly loss in nine years.
Financial stocks simply took off on Wall Street, and the follow-through was felt locally.
Dow component Citigroup issued a profit warning suggesting third quarter earnings will be down 60 per cent. Citi said it would write down US$1.4 billion of its US$57 billion leveraged loan book, take a loss of US$1.3 billion on sub-prime securities and a further US$600 million on fixed income trading, and also provide for a further US$2.6 billion of consumer credit losses ahead. The reason this was fabulous news is because Wall Street perceived that all was revealed - even the kitchen sink was brought out for inspection.
The greatest fear among investors in US financial stocks has been just what sub-prime skeletons may still be lurking in cupboards being "marked to model". Citi, it seemed, took a full hit. And management suggested the fourth quarter would more resemble a return to normal business.
Traders piled into the long-underperforming financial sector and went on a buying spree. The Dow broke through to a new high.
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