European stocks face more turbulence. In good times, companies pay a premium known as 'goodwill' when they take over another firm. This is a reflection of the value of the target's intangible assets such as its brand name or market share.
Accounting rules force companies to review goodwill annually, notes Alexis Xydias on Bloomberg.com, and with the good times well and truly over the pan-European market fell by 46% last year hefty write-downs are now on the cards.
JPMorgan says Europe faces the largest reductions in the value of goodwill, with €165bn likely to be written off this year. In the short term, "it's a catastrophe for share prices", says Jerome Forneris of Banque Martin Maurel. Expect some "bad surprises".
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But on the plus side, it "cleans things up" and reduces overall uncertainty, says Guillaume Duchesne at Fortis Private Banking.
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