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As you may know, ‘mark-to-market’ has been blamed for forcing banks to record billions of dollars in writedowns and industry groups have been urging regulators to significantly alter or suspend the rule, saying it undermines efforts to stabilize the financial sector.
How does it do that?
Mark-to-market accounting requires assets to be valued at current market prices. Some banks say it forces them to mark down assets to artificially low prices in the current financial crisis, even when banks intend to hold the assets past the current reporting period.
Karen Finerman has long been an advocate of putting these rules on hiatus for a while and “letting the banks breathe.”
Sanford Bernstein analyst Brad Hintz agrees. He tells Fast Money that relaxing the rules would be good for all the major banks. "This would be good for JPM [JPM
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], Morgan [MS
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], Bank of America [BAC
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], Wells Fargo [WFC
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] and Jeffries [JEF
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] even."
And he says the rule was designed for “markets that don’t stay illiquid for long periods of time.” Of course that’s not the current environment. "It's really caused firms to mark their balance sheets to distressed levels."
What’s the trade?
If you’re bullish that regulators will relax mark-to-market rules you can play it by getting long the Bank of America preferred shares or you could spread out your risk by getting long the Financial Select Sector SPDR
[XLF
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], counsels Karen Finerman
Or look at the Direxion Financial Bull 3X Shares [FAS
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] , adds Pete Najarian.
I like Barclay’s [BCS
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], adds Tim Seymour.
If you watch Fast Money regularly you might remember that Jon Najarian has been very vocal on this issue. He feels strongly that if the rules are relaxed stock could skyrocket. (Click here to read our interview with Najarian.)
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Trader disclosure: On Mar. 30th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Finerman's Firm Owns (MSFT), (RIG), (AXYS); Finerman's Firm Owns (BAC) Preferred; Finerman's Firm Is Short (IJR), (IWM), (MDY), (SPY), (USO), (BBT); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Seymour Owns (AAPL), (BAC), (FXI), (EEM), (TTM); Najarian Owns (AAPL) Call Spread; Najarian Owns (BNI) Call Spread; Najarian Owns (GS) Call Spread; Najarian Owns (HUM) Call Spread; Najarian Owns (MS) Call Spread; Najarian Owns (PALM) & (PALM) Calls; Najarian Owns (POT) Call Spread; Najarian Owns (XHB) Call Spread; Najarian Owns (RIO) Calls
Data is a real-time snapshot *Data is delayed at least 15 minutes