The recent rally in the markets for “toxic” securities could deliver a significant boost to US banks' third-quarter earnings if financial groups decide to book accounting gains on assets that caused them billions of dollars in losses during the crisis.
Wall Street executives and analysts say the significant rise in the price of mortgage-backed securities and other once- battered debt offers banks the first meaningful chance to “write up” some of the value of these distressed assets.
In the last three months, the Markit ABX index, which tracks securities backed by home loans such as subprime mortgages issued to borrowers with weak credit, has gained more than 30 per cent, as investors rediscovered their risk appetite and the US government flooded the debt markets with liquidity.