LEH

In a 3-2 vote two weeks ago, the Securities and Exchange Commission voted in favor of curbs on the short-selling of shares. In other words, the SEC chose to block out economic and financial reality. On its face, this is quite something for a bureaucracy that lauded the merits of Sarbanes-Oxley in 2002. Back then it was said that balance-sheet transparency made Sarbanes-Oxley necessary so public companies couldn't obscure the truth about their assets and liabilities. But now, in a Washington that has elevated the concept of self-unawareness to an art form, the SEC has ruled in favor of a regulation that ensures opaqueness when it comes to the true value of stock prices. Investors should be scared.

We recently reviewed Net Income (ex. Special Items) & Common Dividends for a list of 86 financial institutions in the S&P500 and made the following observations:

• The market value of equity has been reduced by ~ 65% since 2006 (from $2.66T on 12/29/08 to $945B on 4/24/09).
• The Financial Sector lost $173B (Net Income to Common ex. SI) in 2008 ($251B loss if Special Items are considered).
• Over 50% of the firms (44) have lowered dividends in 2009.
• The Financial Sector lowered Common Dividends by 68% or $41.4B ($19.9B in 2009 vs. $61.4B in 2008).
• 20 out of 86 firms posted Net Income (ex. SI) losses in 2008, which totaled $239B.
• 66 out of 86 firms posted Net Income (ex. SI) gains in 2008, which totaled $65.7B.
• Analysts are projecting $69.6B in Net Income for 2009 of which $64.1B is coming from firms that did not post Net Income losses in 2008.
  

 

Exhibit 1:

Notes:

 

Exhibit 2:

Exhibit 3:

Exhibit 4: