Monday, May 4, 2009

I can’t think of anything more market sensitive than stress test results

TO BE NOTED: From Bronte Capital:

"Stress test results: Who is leaking?

The FT has yet another story about the stress test results – this one being that Bank of America and Citigroup have to raise $10 billion each. Apart from the obvious which is that Citi appears to need more than Bank of America the whole story (and most of the competitor stories) have left me perplexed.

It’s not the numbers. There are too many assumptions in bank accounting to make their capital position anything other than an educated guess.

It’s the source of the leaks that perplexes me.

We have had a (minor) scandal about Bank of America being instructed by Paulson (then Treasury Secretary) to consummate their marriage to Merrill Lynch.

We know that somebody breached disclosure laws. But in this case the somebody was Ken Lewis under instruction from his political overlord.

I can’t think of anything more market sensitive than stress test results. If some banks get massively diluted and other banks do not then some stocks will fly and others might languish. This information is incredibly valuable.

Leaking is a market regulation breach of the first order. Prison time. And there is the odd State Attorney General prepared to investigate.

And yet the leaks seem to come thick and fast.

I have no really good theory (though lots of bad ones) as to who would be breaching fair disclosure regulations on this scale and why they would be doing it?

And if you are going to be taking that risk why wouldn't you do the obvious trades and get filfthy rich?


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