Literally overnight, everyone is bullish on banks despite their underlying problems not getting any better. Only a week ago, the stock prices of banks that have yet to raise capital or are in desperate need of capital were at levels that were prohibitive to do so.
In a single week, banks and investment banks such as Wells Fargo, PNC, Bank of America, Wachovia, SunTrust, US Bank, Chase, CITI, First Horizon, National City, Downey Savings, First Federal, Lehman, Merrill, Morgan and many more have seen their share prices shoot up 25 to 100%. Wells and PNC are back near their 2008 highs!
If I were a bank CEO knowing that my mortgage loan default and REO numbers are growing, housing is continuing to weaken, the economy is weakening and the credit and stock markets are on shaky ground, I would be throwing out an ‘equity’ capital raise this very moment while my stock price is surging.
Hank Paulson said just Monday on bubblevision (loosely quoted) ‘I keep saying the same things to the banks as I have for months and that is to sell ‘assets,’ de-lever and raise capital’.
Look at WaMu today. In the last day, it has basically given up everything it made in the past week, and the stock price is now collapsing once again. I thought stopping naked shorting would solve this problem. Or maybe it is just leaving these companies to trade on their own fundamentals. WaMu is a bad example because they owe TPG a fortune if they raise capital under $8.75 per share. But the bank is also a good example because this could happen to the other bank stocks soon. Who knows?
Come on banks, hop to it! Why not do it now and start being part of the solution? Many top market forecasters, including Bill King, think this is simply “an SEC-induced short squeeze and dead-cat bounce in a bear market, as back offices scramble to rectify the endemic problem of ‘fails to deliver’ that has persisted for years. Once compliance occurs, it’s ‘goodnight, Gracie.'”
If true, there is no better time than the present to issue shares. Why gamble on an unknown future with your stock price and share holders money? It is easier to shore up your balance sheets now by issuing equity when your stock prices are way up, than spending all quarter figuring out how to put together a ‘good’ earnings report. -Best, Mr Mortgage <>
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