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Death To Mark-To-Market
Posted By: Lee Brodie
Monday, 30 Mar 2009

http://www.cnbc.com/id/25709343

April 2nd could be remembered as a pivotal day in the financial crisis. That’s when regulators could decide whether to relax mark-to-market accounting rules.

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 28.14 1.56 (+5.87%) ], Morgan [MS 23.73 0.96 (+4.22%) ], Bank of America [BAC 7.05 0.23 (+3.37%) ], Wells Fargo [WFC 14.48 0.24 (+1.69%) ] and Jeffries [JEF 13.74 -0.06 (-0.43%) ] 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 9.06 0.25 (+2.84%) ], counsels Karen Finerman

Or look at the Direxion Financial Bull 3X Shares [FAS 5.89 0.39 (+7.09%) ] , adds Pete Najarian.

I like Barclay’s [BCS 9.30 0.80 (+9.41%) ], 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.