Banks Stress Over What To Say About Stress-Test Grades
May 01 2009 - 3:07PM
Dow Jones News
While bank executives are still muddling through stress-test
results, their communication managers are wrestling with the
question about how and what to tell the public.
The big day for the unveiling of the results is Thursday, May
7.
Interviews with heads of corporate-communication and
public-relations departments at a number of the 19 stress-tested
banks revealed an intense struggle to come up with a plan to
reassure investors, counterparties and customers. Communications
from the banks may be critical even for those whose bill of health
is reasonably clean.
Those deemed short of capital face a daunting task to keep their
heads above water, PR executives and lawyers said.
Banks are under a gag order from regulators not to disclose
anything about the stress test, but the Federal Reserve, which
conducts the test, has made clear that it will disclose certain
details about the capital position and capital needs of individual
banks.
That pending disclosure puts banks in a pickle. Some banks are
considering holding formal conference calls with investors complete
with presentation charts; others say they would like to stay mum
and leave the disclosure to the regulators.
The silent treatment may not be a viable option, given the
intense interest the public (and short sellers) will take in the
test results, and the bankers' legal requirement to disclose
material information.
"There is going to be some soul searching about whether the
information the Treasury is giving [the banks] is material," said
John Douglas, chair of the Global Bank Regulatory Practice and
former general counsel at the Federal Deposit Insurance Corp. "I
wish there were crisp answers. But this is not a crisp
process."
Bob Stickler, a spokesman for Bank of America Corp. (BAC), said,
"Our bias is to be pro-active and give investors the opportunity to
understand" the findings, particularly if the bank was told to
raise capital.
A PR manager of a bank that hasn't decided what to do said "a
quick analyst call might be necessary," if only to reiterate some
of the points executives have made before about strategy and
capital.
Some banks have set up a menu of plans and will decide next week
which to choose.
The 19 banks that were stress tested range from consumer lenders
like American Express Co. (AXP) and GMAC LLC to banks like JPMorgan
Chase & Co. (JPM) , Regions Financial Corp. (RF), KeyCorp (KEY)
and SunTrust Banks Inc. (STI).
Those declared in good shape might escape any legal requirement
to hand out more information. But some who expect a good grade said
they still plan to issue a press release on the results with a
statement from the chief executive, if only to give their own
employees talking points in their conversations with customers.
Others plan to simply disclose the information from the Fed in a
filing with the Securities and Exchange Commission.
Those considered in need of more capital will need to prepare
disclosures, not only for the sake of public relations, but also
because such information about their current capital base and
future plans may well be considered material, Douglas said.
"This is the hardest issue" of all for banks, he said.
Counterparties and depositors need to be reassured and shareholders
need to be appeased in a market where short sellers will prey on
the weakest.
One tricky question: What to say when regulators deem a bank's
capital sufficient, but require the conversion of preferred stock
into common to strengthen common equity? Technically, such a move
may not be a capital raise. But investors are unlikely to see it as
good news. "It might as well be a capital raise" and need some
explaining, one spokesman conceded.
-By Matthias Rieker, Dow Jones Newswires; 201-938-5936;
matthias.rieker@dowjones.com