So Where’s The Transparency? Too Many Secrets

It appears that even in our era of ever-increasing information flow, some things can remain under wraps for a little while, especially between the banking oversight agencies and their charges.

This appears to have been the case with two of the U.S. ’s major financial institutions - Bank of America (NYSE:BAC) and Citigroup (NYSE:C).

Based on various news outlets, BAC had been reported operating under a secret Memorandum of Understanding (MOU) imposed by its federal regulators since May 2009. Under this agreement, it would appear that BAC has been required to overhaul its board and address certain risk and liquidity problems.

It seems that its federal regulators wanted to give the financial institution the ability the chance to work out its problems quietly and in private. The MOU appears to have surprised some bank executives who thought this type of MOU was not in the cards at all.

While BAC may be coming up to certain July 2009 and August 2009 deadlines, the institution may ultimately receive extensions to complete certain tasks, one of which could be revamping the majority of its board with new directors.

In addition, Citigroup appears to have been in covert discussions as well. Apparently the financial behemoth is also currently chatting with the FDIC regarding a MOU. Citi’s MOU is expected to emphasize its existing strategy of shedding assets and improving governance, as well as other topic to be covered. Since last year, Citigroup also has being in talks over a similar MOU with the Office of the Comptroller of the Currency.

We typically view a MOU as less of a negative than most, as it usually discloses the problem and gives a general course of action, which if completed creates a stronger financial entity over a short time frame. However, by keeping quiet, it does beg the question what else could be wrong - as the share price experiences pressure - not to mention damage to the public trust.

We find it interesting that such items have made it to light, following Hank Paulson’s testimony yesterday with respect to what the Fed may or not have implied regarding the BAC/Merrill shotgun wedding.

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