Banks were on fire prior to stress tests results which will be released after tomorrow's close. Of course, signals for many of the banks have been leaked already, so there should be no great surprises. Today caution was thrown to the wind with bank stocks. Those being asked to raise new capital (like Bank of America & Wells Fargo) & those not needing any (JPMorgan) fared the same, straight up. A 10 point gain for the index is significant, today the gain was 12. The index has almost doubled from the oversold low in early Mar & up almost 40% in the last month. Go figga.
S&P 500 FINANCIALS INDEX
| Value 168.14 | Change 12.62 | % Change 8.1% |
•Bank of America, Citigroup, GMAC Need More Capital After U.S. Stress Tests
The following stress test results for the 10 biggest banks were supplied by (leaked to) Bloomberg:
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Company Capital Requirement
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Total $65.5 Billion
Bank of America Judged to need roughly $34.0 Billion in additional capital
Wells Fargo Judged to need roughly $15.0 Billion in additional capital
GMAC Judged to need roughly $11.5 Billion in additional capital
Citigroup Judged to need roughly $5.0 Billion in additional capital
Morgan Stanley Judged not to need to raise additional capital
Goldman Judged not to need to raise additional capital
MetLife Judged not to need to raise additional capital
JPMorgan Chase Judged not to need to raise additional capital
Bank of NY Mellon Judged not to need to raise additional capital
American Express Judged not to need to raise additional capital
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Company Government Capital Injections by Firm
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Bank of America Targeted Investment Program $20 Billion on 01/16/09
Capital Purchase Program $10 Billion on 01/09/09*
Capital Purchase Program $15 Billion on 10/28/08
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Wells Fargo Capital Purchase Program $25 Billion on 10/28/08
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GMAC Automotive Industry Financing Program $5 Billion 12/29/08
GMAC has also received other financial assistance
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Citigroup Targeted Investment Program $20 Billion on 12/31/08
Asset Guarantee Program $5 Billion on 01/16/09
Capital Purchase Program $25 Billion on 10/28/08
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Morgan Stanley Capital Purchase Program $10 Billion on 10/28/08
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Goldman Sachs Capital Purchase Program $10 Billion on 10/28/08
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Company Government Capital Injections by Firm
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MetLife None
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JPMorgan Chase Capital Purchase Program $25 Billion on 10/28/08
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Bank of NY Mellon Capital Purchase Program $3 Billion on 10/28/08
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Note: Dollar figures in billions
*This transaction was included in previous Transaction Report with Merrill Lynch listed as the qualifying institution and a 10/28/2008 transaction date. The purchase of Merrill Lynch by Bank of America was completed on Jan. 1, 2009 and this transaction under the CPP wasfunded on Jan. 9, 2009.
High yield markets were mixed. MLPs slipped pennies (in spite of higher oil prices) while the REIT was up 5 & junk bond funds were also higher. The VIX closed below 33, another low for 2009. High yield securities have been strong in the last couple of months while Treasuries have been sold off, sending their yields higher. The spread of MLP index yield over Treasuries (3.15%) has narrowed to about 625 basis points, down from 1200 basis points at the market low. Of course, the traditional spread has been only 200 basis points. Spreads for REITs & junk bonds tell a similar story, investors are accepting more risk for high yields.
Oil rose to another 2009 high. The weekly inventory report showed that crude inventories rose .6M barrels last week vs estimates of 2.2M, gaving a signal that more oil was being consumed after a period when surplus oil has gone into storage.
| CLM09.NYM | ..Crude Oil Jun 09 | ..56.22 | .. 2.38......(4.4%) |
Treasury bonds were strong as the Treasury sold $22B (RECORD AMOUNT) of 10-year bonds at a rate of 3.19% compared with an expected rate of 3.23%. The bid-to-cover ratio of 2.47X was stronger than expected. The bond's current yields is 3.15%, nice gain for the buyers at the today's auction. Buyers included foreigners & others, possibly banks & financial institutions trying to make their balance sheets look prettier. This week, the Treasury will raise an eye popping $71B in bond & note sales. Not too long ago, $1B (i.e. 1,000,000,000) was considered a lot of money.
Treasuries Rise as Record 10-Year Auction Draws Yield of 3.19%
Bloomberg TV had a report (can't find it at their website) that last year the 2 times banks raised more capital, stock markets followed with their 2 big slides. They suggested that pattern will be repeated. It's hard to justify the sharp run up for bank stocks in the face of enormous problems in a very troubled economy.
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