The SEC's 'Sacred Cow' List: Where Are WaMu and Wachovia?

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 |  Includes: AZ, BAC.B, BCS, BNPQY, C, CS, DB, DSECY, FMCC, FNMA, GS, HSBC, JPM, LEH, MER, MFG, MS, RBS, UBS, WFC, WMIH
by: Mark McHugh

When I heard that the SEC was going to shake its proverbial finger at short sellers and threaten to do its job, I didn’t exactly rush to see who was on the “Sacred Cow” list.  No brainer, right?  Big regional and money center banks, the shakiest of the investment banks.  I really would have thought that I could have guessed about 15 of the 19 names off the top of my head.

Then, I saw the list. 

Company Ticker Symbol(s) YTD % change
BNP Paribas Securities Corp. BNPQF or BNPQY -15.8
Bank of America Corporation BAC -33.4
Barclays PLC BCS -36.8
Citigroup Inc. C -34.3
Credit Suisse Group CS -26.1
Daiwa Securities Group Inc. DSECY -2.0
Deutsche Bank Group AG DB -31.1
Allianz SE AZ -16.7
Goldman, Sachs Group Inc GS -15.0
Royal Bank ADS RBS -54.6
HSBC Holdings PLC ADS HBC and HSI -5.7
J. P. Morgan Chase & Co. JPM -8.3
Lehman Brothers Holdings Inc. LEH -70.8
Merrill Lynch & Co., Inc. MER -42.4
Mizuho Financial Group, Inc. MFG 10.7
Morgan Stanley MS -27.4
UBS AG UBS -47.5
Freddie Mac FRE -73.1
Fannie Mae FNM -66.5
Click to enlarge

Humph, I’ll take “foreign investment banks I don’t give a crap about” for $600, Alex.

Suddenly, I don’t feel so dialed-in anymore.  No Wachovia (NASDAQ:WB)?  No Washington Mutual (NYSE:WM)?  Apparently, I don’t run in the right rumor-mongering circles.  Obviously, some of our naked, short-selling sleaze-balls are trying to destroy financial institutions not even domiciled in the US (and no one invited me)

I mean, dog piling on Fannie and Freddie is one thing; they never made sense (GSE?) and they’ve got silly names, but they’re as American as government subsidized corn to make inferior fuel programs.  It’s our right to trash them.  But, these companies are “guests” on our exchanges, and we should be extra nice to them.  This must be a public relations nightmare for Christopher Cox.  How much damage have these maniacs done? 

Company Short Interest % Outstanding Shares Short
BNP Paribas Securities Corp. 0.03% 895,300,000 275,300
Bank of America Corporation 2.28% 4,452,783,993 101,494,900
Barclays PLC 0.26% 1,633,674,505 4,207,800
Citigroup Inc. 2.90% 5,249,833,103 152,024,700
Credit Suisse Group 0.13% 1,013,515,969 1,349,600
Daiwa Securities Group Inc. 0.01% 140,470,000 20,900
Deutsche Bank Group AG 0.48% 500,400,000 2,383,300
Allianz SE 0.06% 4,523,500,000 2,522,700
Goldman, Sachs Group Inc 3.47% 416,380,000 14,461,000
Royal Bank ADS 0.06% 9,489,300,000 5,279,800
HSBC Holdings PLC ADS 0.25% 2,365,810,463 5,970,500
J. P. Morgan Chase & Co. 1.62% 3,426,631,526 55,601,200
Lehman Brothers Holdings Inc. 10.13% 694,401,926 70,312,700
Merrill Lynch & Co., Inc. 5.89% 982,799,330 57,896,700
Mizuho Financial Group, Inc. 0.03% 5,695,846,500 1,854,700
Morgan Stanley 3.28% 1,109,013,816 36,342,600
UBS AG 0.71% 2,012,018,718 14,385,100
Freddie Mac 11.69% 661,550,000 77,349,000
Fannie Mae 14.29% 982,319,990 140,374,000
       
Total (ex-Fannie & Freddie) 1.18% 44,601,679,849 526,383,500
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Not so much, actually.

Fannie and Freddie are excused from this discussion.  Let’s focus on the other 17.  On July 11, 2008, Bespoke Investment Group reported that the short interest of the S&P 500 was 6.0% (percentage of float), yet the Sacred Cows have a cumulative short interest of just 1.18% (percentage of outstanding – I’m not making another table).  Is that really cause for concern?  Maybe Barry Ritholtz is right and there are alternate universes at work here.  In my universe, 1.18% short interest is no great shakes.

I can understand giving Lehman and Merrill some shelter, even if it’s just enforcing the laws that should be enforced.  But Goldman?  Why are the “smartest guys on the street” hiding under mom’s apron?  They should just buy puts on themselves, make billions and squeeze these cretins until their eyeballs pop; they’ve pulled similar stunts, right?

Do they all belong to a Secret Club or something?

Don’t be silly.  Their club’s not a secret and two of the sacred 17 aren’t members (as far as I know).  15 of the 17 (88%), however, are members of the London Bullion Market Association. Only Japan’s Daiwa Securities Group and Mizuho Financial Group are not listed LBMA members.  It’s a pretty exclusive club of  120 members (if I counted right).  So, 12.5% of the membership just showed up on the SEC’s enhanced investor protection list.  Sure, it seems a little weird, but it’s important that the SEC take action to prevent things like what just happened to Indymac. I feel a lot more confident about Wachovia (12% short interest) already, don’t you?

Fun Facts: Most of the gold traded in the world takes place in the over-the-counter [OTC] markets and the London Bullion Market is by far the biggest OTC market in the world.

Let’s review, the SEC has decided to shield a bunch of mostly non-American financial institutions from short sellers (who have shown little interest in shorting them) in order to stabilize our troubled banks, by remembering that it has laws it should be enforcing, because if the institutions that are already safe are assured safety, then the ones in peril should be OK too (trickle down).   And there’s nothing weird about that.

Additional sources: Shortsqueeze.com, Google finance.