The nation’s largest banks were to have been given the results of their stress tests before today, but they were apparently able to appeal to their professors in Washington, D.C., to get some of the grades changed before having them released today. Now, as an adjunct instructor of finance at LSU, I am somewhat familiar with this process and wonder if it is the same for the banks.
Did the CFO’s elderly aunt break a hip (again, same hip, third time this semester), delaying submission of the last 10-Q? Did the board of directors not turn in their group project on time because that one guy didn’t come back from spring break until yesterday? Did the CEO mistake the submission package for a mullet and leave it on the beach behind the Flora-Bama? I’d like to know.
Some stock analysts are saying that the test results will not be as bad as had been projected, sending financial stocks higher. For myself, I am highly suspicious that the test results are being delayed until the nation is elbow deep in margaritas on Cinco de Mayo, so they may be worse than expected. Maybe in our queso and tequila-induced stupor we won’t notice if commercial real estate exposure is 600% of Tier 1 capital (a smidge high).
If you can believe them, early information leaks tell us that some of the banks will be required to raise additional private capital as a buffer in case the economy does worse than expected. If true, the good news is that fewer banks will be required to raise capital than initially projected, meaning that the other banks are stronger than projected.
The grades will be posted today, but it won’t end there. The government plans to release detailed information Thursday on each bank for review so that we can all see how strong each bank is and where the weak spots are, something that the banks really did not want revealed to the public.
Of course, I’ll be tied up administering the final exam to my banking students that day and won’t be able to review the bank results until after I grade exams and post grades the following week.
I wonder if that was intentional as well.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
