The market capitalization of some big banks has doubled in a month. All of them will have “stress test” results from the government within a few weeks. Those that get fairly high marks will have both share price strength and a Good Housekeeping Seal to allow them back into the markets to raise capital.
There are already rumors that Goldman Sachs (GS) plans to raise money to pay down the TARP funds it took. According to The Wall Street Journal, “The move, which could be announced as early as next week, comes as the firm prepares to report solid first-quarter earnings Tuesday.”
Since really bad news from any bank, either foreign or domestic, could push stock prices across the entire industry down, there will be a parade of firms going into the market to raise tens of billions of dollars to bolster balance sheets as quickly as possible. Most of the largest money center operators still have toxic assets on their balance sheets which they may have to write down if the Treasury’s new public/private partnership buys that paper for less than it is carried on the books for.
The strongest banks will probably hit the market first. That means JP Morgan (JPM) will announce that it plans to raise capital before the end of the April and the same is true of Wells Fargo (WFC).
A month ago, there was not a dime of capital available for banks. Before the beginning of May that situation will almost certainly have turned 180 degrees.
Douglas A. McIntyre