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Stress Kills

We knew to expect a bit of a circus during "Stress Test Release Week," (and we loved the theater of making bank heads come in for their results- it's parent teacher conference time again!) but it has gone from shabby (no immediate release of results?) to beyond theater of the absurd. (GDP projected to increase in 2010? Please, bitches). And, they are actually called Supervisory Capital Assessment Programs. (SCAP). That's just too easy.
Oh, did we mention? There is an appeals process. Like arguing with your English Literature 505: The Elizabethan Era over the impact of Christopher Marlowe's death. (I swear she had a crush on the dead man). Oh, and there is "Bespoking." That's when adjustments are made on the test for the specifics of each institution. We used to have a different word for it when they used to do that in the local school districts after the testing requirements descended: Cheating.
Is it just us, or has the media taken the bait hook, line and sinker. This might have been a clever bit of propaganda, permitting the media to go wild over the tests, withholding them from public view for weeks while the feeding frenzy builds. Playing CNBC for everything it is worth is actually kind of amusing. One almost wonders if all the fuss will obfuscate the basic fact that the tests are basically useless.
There is also a case that the government is legally required to take prompt action if it discovers a given institution is in trouble. Actively concealing the results of a financial health test really doesn't sound much to us like the kind of thing governments should be engaged in. Unless you are a bank CEO, you see, you are not getting a copy until May (that is, unless someone *ah-lloyd-em* would like to leak them to us, which would be much appreciated).
Bank Officials to Hear Results of Stress Tests [The Wall Street Journal]
The Supervisory Capital Assessment Program: Design and Implementation


Fed Governor Is Sick Of Proctoring Stress Tests

He's pretty sure the vast majority of them are pointless.

Citi Will Try The Stress Test Again With A $9bn Stock Buyback

More stress tests, bleargh. I guess the news is that Citi "failed", though I can't get all that excited by that because it didn't exactly "fail" in the sense of now it's being forced to raise capital / broken up / burned to the ground. Instead it failed assuming it follows the capital plan it submitted to the Fed, which is clearly a capital-lowering rather than capital-raising plan. I ballpark it at $10bn of share repurchases and dividends,* which is ... well, it's pretty big for Citi. So they can just not do that then. Or not do quite as much of that, which seems to be their plan: In light of the Federal Reserve’s actions, Citi will submit a revised Capital Plan to the Federal Reserve later this year, as required by the applicable regulations. The Federal Reserve advised Citi that it has no objection to our continuing the existing dividend levels on our preferred stock and our common stock, and we plan to do so, subject to approval by the Board of Directors each quarter. The Federal Reserve also advised that it has no objection to Citi redeeming certain series of outstanding trust preferred securities, as Citi proposed in its Capital Plan. We plan to engage further with the Federal Reserve to understand their new stress loss models. We strongly encourage the public release of these models and the associated benchmarks and assumptions. We believe greater transparency in this process will best serve all banking institutions and their shareholders as well as the international regulatory community and market participants, and will encourage a level playing field globally. There are at least two ha! moments in that snotty last paragraph. First there's the fact that the Fed had planned to release the stress test results on Thursday and got gun-jumped by Jamie Dimon. So much for Fed transparency. But also, specifically, as people are all running around suing each other about the Fed maybe kind of encouraging bank CEOs to hide material information from investors, it is odd that the Fed would have the stress test results and sit on them for two days. Imagine the scenario where Jamie Dimon, Vikram Pandit, and the Fed all know that JPM passed and was going to do a largeish buyback, while Citi failed and was going to do a ... I guess somewhat smaller buyback - and they didn't tell anyone from today until Thursday. If you sold JPM to buy C today, wouldn't you be kind of annoyed?**