BUY OR SELL-Is mark-to-market shift bullish for bank stocks?
NEW YORK, April 1 (Reuters) - A new accounting rule set to be approved Thursday will relax mark-to-market rules for banks sitting on billions of dollars in toxic assets. It could allow the banks to avoid some further write-downs and hits to earnings.
But does this mark a bottom for financial stocks?
Here are the cases from bulls, bears and those on the fence.
TIME TO DIP YOUR TOE
"This is an important new adjustment to the marketplace," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, which manages $22 billion.
"The mark-to-market rules have been too restrictive and have forced banks to value troubled assets at distressed levels. We are starting to make movements to increase our exposure in financial stocks, albeit selectively. Financials are still a speculative play. Their loan portfolios could face pressure with credit card trends and the like deteriorating, so selectivity is crucial."
"I think investors should start weighing into financial and banking stocks," said Tom Sowanick, chief investment officer at Clearbrook Financial, with $22 billion under management.
"The revisions to mark-to-market ease the pressure on earnings that are related to write-downs and ease the pressure on forced-selling of underpriced assets. That said, you do need to have a rebuilding of investor confidence and proof. Some will say: 'If the financials are actually allowed to adjust capital based on unreal marks then who will ever buy financials again - how can you trust them?' Well, you'll trust them on the down market price -- and not the up market price?"
TOO EARLY
"Raising capital or buying bank stocks is nearly impossible with so much uncertainty regarding the solvency of financial companies and the value of their loans and securities holdings," said Bill Gross, founder and co-chief investment officer of Pacific Investment Management Co, or Pimco.
"The recapitalization of financials has been left to No. 1, the government and No. 2, time -- allowing low interest rates to generate profits via carry and No. 3, limited burden sharing ... forced conversions of preferred into common a la Citigroup.
"That still doesn't go all the way, though, to remove assets from the books and that is the point of the Public Private Investment Plan or PPIP -- lending money via the FDIC and the Fed to (provide an incentive to) the private market to buy at a high enough price, so that banks will sell and promote future lending."
IT'S ALREADY IN THE PRICE
"Modification has been expected for weeks. This is old news and incorporated in financial shares," said hedge-fund manager Doug Kass, who heads hedge fund Seabreeze Partners Management.
"I wouldn't necessarily short them here -- or even buy them -- as I think financials are now fairly priced. I am only short State Street (STT.N)."
ANOTHER REASON NOT TO TRUST BANKS
"The hopes of the FASB mark-to-market snafu this week are in our view 'crazy' - we still know the 'stuff' is on the balance sheets and if the financials are actually allowed to adjust capital based on unreal marks then who will ever buy financials again - how can you trust them?" asked Tim Backshall, chief strategist at Credit Derivatives Research, in a recent research note. "And what is the point of (the Public Private Investment Plan) if that is the case?"
