Stress Test White Paper Tomorrow

Tomorrow we get a teaser, not results from the bank stress test. The real results are coming in ten days. My understanding is that three things will happen.{+++} If you are a good bank , obviously you are home free, if you fall in the middle you get six months to raise capital and if you come in third you get to have Uncle Sam come in and run your life.

This was reported from Suntrust this morning which, along with ZION is on my troubled banks to watch list:

” STI said it swung to a first quarter loss of $815 million loss and -$2.49 per share vs. a loss of .81 cents. The Atlanta bank said it took a $714.8 million, or $2.03 a share, goodwill impairment charge on its mortgage and commercial real estate-related assets.”

Hmm, commercial real estate, denial ain’t just a river in Egypt and no one wants to talk about this next shoe to drop. Yesterday Morgan Stanley’s CFO said “our number one worry is our exposure to commercial real estate”, only 3 weeks earlier John Mack, Morgan CEO said their exposure was not bad at all. Who can you trust and who do you believe? Mack’s comments struck a nerve with me and seem eerily similar to Alan Schwart’s comments that Bear Stearns was fine, was well capitalized and had zero counter-party risk. The bank went bust literally the next day. Now I’m not saying Morgan goes bust, they’ve obviously made the cut, but I am saying I won’t be stepping over someone’s neck to buy the stock.

Today should be very volatile, will the hedgies that are short the financials take some off or will they press their bets into tomorrows news? It still really is all about the banks so stay tuned. Not a whole lot else really matters.

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