The US Securities and Exchange Commission (SEC) will aggressively pursue a trial against Bank of America Corp. (BAC) for allegedly misleading investors during the acquisition of Merrill Lynch & Co. late last year. The SEC accused BofA of failing to disclose to shareholders that it had authorized Merrill to pay up to $5.8 billion in bonuses to employees in 2008 even after it lost $27.6 billion that year.

Last month, the SEC and BofA had reached a settlement on the charges that required the bank to pay a $33 million fine. But US District Judge Jed Rakoff condemned the deal, saying the corporate fine would further unfairly penalize the shareholders instead of the people actually guilty of misleading investors.

Both the SEC and BofA have defended the earlier settlement proposal as appropriate. But after Rakoff's ruling, the SEC weighed its options - to go to trial, drop the

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In the last 18 months, Strategic Short Report readers had the chance to make 432% when Lehman failed, 162% when Allied Capital (NYSE:ALD) came clean, and 220% on PNC Financial (NYSE:PNC)… This month my subscribers are poised to make money on the next bank drop.

And I’m going to give you a chance to join them.

If you think Canada escaped the downward trend in U.S. banking, think again. While the country may not have plunged headfirst into subprime mortgages, it did dip heavily into risky derivatives. The leverage it took on generated impressive returns on equity in good times, but that same leverage is set to wipe out equity today.

Shareholders in one “safe” Canadian bank will have to rethink their loyalty. Its looming solvency crisis practically guarantees a dividend cut. And that’s our catalyst for this month’s short play action - offering us a chance for 200% profit potential.

Accounting

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As the Federal Reserve prepares to officially disclose results of the stress tests to U.S. bank executives later today, about half of the largest financial firms subject to those checks are expected to be directed to bolster their capital positions to endure further losses.

While the exact number of banks falling short of regulatory criteria among the 19 lenders under review remains a matter of speculation, reports have indicated that Bank of America Corp. (BAC), Citigroup (C) and Wells Fargo & Co. (WFC) would possibly need fresh capital. The government is scheduled to discuss results from the stress tests publicly on May 7.

When the Obama administration announced the stress tests back in February, investors were concerned that the financial institutions failing to pass muster would be shut down or nationalized. However, regulatory authorities have assured shareholders that none of these banks would

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Back in the US of A, the feds have decided the results of the stress tests are not to be released on the May 4 deadline as promised. One is reminded of the pathetic delays of the Bush administration’s report on WMDs in Iraq. What could be so sensitive in the stress tests results that the public, who funded the tests, can’t be apprised of?

This from Bloomberg:

The Federal Reserve will postpone the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners, according to government and industry officials.

The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week, said the people, who declined to be identified. A new release date may be announced as soon as tomorrow, they said.

Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions

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This one comes from Lex over at FT.com ... also see recent commentary on Russia's debt problems from Yulia Latynina.

Russian banks do not have the same US subprime-related toxic assets that laid low US and west European counterparts and did not ape the huge foreign currency lending of central European banks. Since credit demand in Russia, unlike in the west, exceeded supply even during the credit boom, banks could also be choosy in lending. NPLs could nonetheless rise to 10-20 per cent of credit portfolios, ministers and bank executives warn. Forecasting is complex because it is unclear how big the problem already is. Overdue loans have doubled in recent months to about 3 per cent, according to figures from Russia's central bank. But these count only overdue

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Notes from the Investment Underground

April 14, 2009

Palermo Viejo, Buenos Aires, Argentina

Richard Russell: Why this is a bear market correction… That latest outbreak of investor credulity… 25 biggest earnings-per-share movers and shakers heading into earnings season… Banks to be allowed to screw up indefinitely… The great “too big to fail” fraud… Bailouts costing $42,105 for each U.S. citizen… Bush-Obama tag team piles on debt at the rate of $60,000 a second… Bob Higgs on C-SPAN… China wises up… And more!

*** This Richard Russell quote is a must-read for investors thinking about buying back into stocks. Russell, now in his 50th year of publishing the excellent Dow Theory Letter, believes we are now witnessing a bear market correction.

The essence of Dow Theory has to do with VALUES. At the March low the price/earnings ratio for the Dow was 25.79 and the dividend ...

“The crash has laid bare many unpleasant truths about the United States. One of the most alarming is that the finance industry has effectively captured our government”, says Simon Johnson, a chief economist with the International Monetary Fund in 2007 and 2008. In an article entitled “The Quiet Coup” in the May, 2009 issue of the Atlantic magazine he (with James Kwak) goes on to say that “if the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform and if we are to prevent a true depression, we’re running out of time”.

America is in financial crisis but instead of the financial oligarchy being broken up to permit essential reform they are continuing to use their influence to prevent precisely the sorts of reforms that are …

Geithner Calls For Regulatory Reform; Fed President Sees 2009 Rebound; Bank of China Posts 59% 4Q Profit Drop; Goldman Plans to Repay TARP money quickly; U.K. Inflation up 3.2% in February; Major Exchanges Want New Curbs on Short-Selling; Lloyd’s Says Insurance Rates to Rise; Copper Prices Take Breather After Rising 30% on China Demand; Mexico’s Inflation Holds Up Rate Cut

Treasury Secretary Timothy Geithner said the U.S. regulatory system must impose constraints on companies using risky strategies that could cause them to collapse, posing danger to the financial system. In prepared testimony for the House Financial Services Committee, Geithner said rules must be in place to keep companies from causing “grave damage” to the economy, citing the failure to rein in excesses at American International Group Inc. (AIG) and other companies. Chicago Federal Reserve President ...

While the rest of the global banking system falls apart, Canadian banks are receiving the highest rankings as healthy, competitive stocks. Mark Skousen of Investment U says that superior bank stocks will soar when the markets recover.  Here are four tightly regulated stocks that are selling at “incredible bargains. ”

The U.S. financial system is a mess - according to the World Economic Forum, the United States ranks 40th among banking systems around the world. Without federal bailouts, the two largest banks in the country, Citibank (NYSE: C) and Bank of America (NYSE: BAC), would be in bankruptcy, and the good ol’ USA would be headed for the Greater Depression, as my friend Doug Casey likes to call it.

But you’ll never guess where the world’s No. 1 banking system is. No, it’s not fabled Switzerland nor booming Hong Kong.

While the

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In the currency market, the dollar rose against the euro. Late Monday, the euro was trading at $1.2718 vs. $1.2824 on Friday.

Traders supported the buck after the government said it would start a “stress test” on banks this week but would keep nationalizations at bay for now.

Also of interest was a Wall Street Journal story reporting that the government may take a 25% to 40% stake in Citigroup’s common shares to bolster the giant bank’s financial strength in the face of mounting loan losses.

Citing people familiar with the situation, the Journal said that while the talks could still fall apart, discussions center on the government converting a lot of its current $45 billion preferred equity stake into Citigroup (NYSE:C) common stock.

The deal could leave the government with 40% of the shares, but bank executives hope the stake will be closer to 25%, the Journal was told. Citigroup

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