Will Geithner End Up As XLF's Last And Only Bagholder?

When I wrote about the implications of Geithner's upcoming stress test, I observed that the institutions that have the lowest metrics in the "tangible common plus reserves plus pre-provision earnings less cumulative losses as a percentage of assets" ratio are the companies most at risk for test failure and nationalization of conservatorship. Globalmacrotrader has rerun the numbers and seems to conclude that things are even worse, concluding that absent the PPIP luring up to $750 billion in new private capital, banks are in for a world of pain. Inversely, if through the generous leverage terms, PIMROCK et al do in fact commit massive funds to bail out the asset side of the balance sheet, the outcome would again be adverse as banks will "end up less profitable" by the virtue of the downsizing in their cash flow generating assets.

While Zero Hedge does not promote trade recommendations, GMT concludes that the XLF is enjoying a sucker rally, and the best risk/return is shorting banks with low TCE ratios.

Publish at Scribd or explore others: