Sighs Of Relief Sweep Over Banks After Stress Tests' Leaks
3:55 pm ET 05/06/2009 - Dow Jones
By Matthias Rieker
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--For once, bankers and investors seemed united: Everyone is sighing in relief that the stress over the stress test is coming to an end.
Investors have come to the collective conclusion that the results might be less dire than thought only days ago. Leaks about the capital needs of Wells Fargo & Co. (WFC), Bank of America Corp. (BAC), and Citigroup Inc. (C) look considerably less dramatic than some analysts and investors had anticipated.
For investors, "the market is...removing a good bit of uncertainty," said Mark Batty, an analyst with PNC Wealth Management. For Wells Fargo to raise the expected $15 billion is eminently possible, and the market exhaled. "Investors know: That's it," he said.
"There's no shock yet, but there are some mild surprises," said Nancy Bush, an analyst with NAB Research. "The bigger issue is how long are they going to get to find the capital needed?"
Indeed, some capital will have to be raised, and one banker called Thursday "Christmas for investment banks" who will be advising commercial banks on their capital measures. But even those prospects don't scare investors, who Batty said were simply relieved to be no more than 24 hours away from knowing how much capital will be needed.
Bankers said they expect that Thursday, when the Federal Reserve releases the official information on stress test results, will be welcome if only because it means closure for two painful months of speculation. The results will show either that banks are solidly capitalized or they will be after their respective capital raises.
Still, several bankers said they were flabbergasted by the flood of leaks from the government about specific companies' results ahead of Thursday's presentation. The government told bankers that the results the Federal Reserve shared with them Tuesday were strictly confidential and any disclosure was "prohibited." But at least some investors thought the leaks were well placed to calm the market. "Obviously, the leaks were very careful," Batty said.
Reports and people familiar with the matter confirmed that Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase & Co. (JPM), American Express Co. (AXP), and Bank of New York Mellon (BK) would not need capital. That might not have come as a surprise but - combined with the news about less-than-expected capital demands on Wells Fargo, Citi, and Bank of America - investors clearly were led to believe that the capital shortfall might also be less dramatic than some analysts and investors might have expected for SunTrust Banks Inc. (STI), Regions Financial Corp. (RF), and Fifth Third Bancorp (FITB), for which no specific number was leaked. People familiar with the matter said Regions Financial would need an undisclosed amount of capital.
Those regional bank stocks also rallied. SunTrust rose 14% to $19.39, Regions was up 7% to $5.90, and Fifth Third was up 18% to $5.38. Some investors were scratching their heads at those prices, considering that none of the three has said that loan losses had come to an end. Citi rose 15%, as did Bank of America.
Analyst Bush was critical of the way Treasury Secretary Timothy Geithner has handled the stress tests, which were launched in February. She also felt that leaks about the results indicate that the government hasn't kept much control "of what has been a very messy process."
"If the leaks are coming out of Treasury, don't you think someone should get fired for this?" she asked. "The question in my mind is why this was even necessary? Shouldn't these examiners have been stress-testing the banks all along?"
But in the end, the leaks boosted confidence and gave short sellers a run for their money.
-By Matthias Rieker, Dow Jones Newswires; 201-938-5936; matthias.rieker@dowjones.com
(Jo Bel Bruno contributed to this story.) |
