Michael Shulman

Financial Transparency Too Little Too Late

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On May 14, the SEC announced that it will require lenders to disclose capital and liquidity levels. What does this mean, exactly? That the "surprise" write-downs in bad debt that are coming around every few weeks from seemingly the same names are going to be coming to an end, sooner rather than later.

Don't get me wrong -- there are many names that kept themselves above water and are shining despite the subprime slime because they managed to avoid it. But what gets me fired up is the fact that investors got -- and continue to get -- duped by less-than-forthcoming institutions.

The week of May 5, Citigroup (C) announced massive asset sales of $400 billion-$500 billion to clean up its operations and balance sheet. The company is selling what it calls "legacy assets" -- what everyone else calls much safer debt -- and keeping other assets, including all its "alternative" assets -- the stuff that is killing everyone.

This is on top of the billions it's already written down during the past several months, when its investors were (prematurely) breathing a sigh of relief that the damage was supposedly overwith.

The long, drawn-out and certainly painful credit crisis that's rocking the stock market and the economy has caused many of the "big boys" to buckle down and admit that they'd gotten hit.

The magnitude of their problems, however, has been kept largely concealed from their shareholders, although SEC chief Christopher Cox's mandate to investment banks to come clean in the coming months is going to make for a "cruel summer" for those who thought they could quietly lick their wounds.

The SEC's announcement deflated several financial stocks -- and brought about the biggest declines in a couple of months in several names, notably Merrill Lynch (MER) and Lehman Bros. (LEH). And if you thought things were ugly for their friends over at Bear Stearns (BSC) when its wounds were exposed, you may want to cover your eyes when the entire industry's bumps and bruises are brought under the SEC's spotlight.