Market Response to I-Bank Earnings is Topsy Turvy

It has not gone unnoticed that there has been a departure from normal trading procedures with regards to investment banks. LEH, GS, MS and now BSC have all reported their earnings over the last week; the good news seems bad and the bad news (bad is a gross understatement) is apparently heroic.

The charts below illustrate trading for each of the four stocks before and after earnings.

click to enlarge

So what's the point? It seems that investors are counting on big write-downs to allow for a swift recovery, while those companies not reporting losses must either have "accounting irregularities" or investments that will continue to hurt future performance. The third possibility, which seems to have been discounted, is that Lehman Brothers and Goldman Sachs actually turned a profit during these difficult times. Goldman's shares traded down on their report that the fourth quarter was "challenging."

Goldman seems to have excelled in the challenging environment, beating their estimates and posting a year-over-year gain. Only time will tell what lies in store for the financials, but LEH and GS seem to have been punished for doing everything right.