Banks Stocks Rally As Investors Blow-Off Stress Test Leaks (XLF, BAC, WFC)

The leaks about the results of the banks stress test keep coming as the market waits for the official results tomorrow, May 7. So far, investors have taken the data in stride and continue to buy the beaten-up bank stocks. Today's 5% jump in the Financial Select Sector SPDR (NYSE: XLF) best represents the sector move. The XLF is up 106% from the March low.

Bank of America (NYSE: BAC) is up 12% today and 380% from its late-February low, despite reports today the bank may need to boost its capital cushion by $35 billion to satisfy the desired levels in the government's stress scenarios. After initially trading lower on the news, investors took solace in the fact that BofA can convert the government's preferred shares into common shares, which would alleviate the need to raise new additional funds. BofA could also sell assets to boost its capital levels to desired levels.

Reports today suggested that Wells Fargo (NYSE: WFC) needs another $15 billion in capital to satisfy the desired levels in the government's stress scenarios. Despite the news, shares of WFC are up 11% and 230% from the March lows.

Reports today also suggested that J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Bank of New York Mellon (NYSE: BK) and American Express (NYSE: AXP) are all expected to meet the capital cushion levels required by the government and therefore won't need to raise additional capital.

UPDATE: Results have also been leaked from:

• GMAC - will need $11.5 billion in capital.
  
• Morgan Stanley (NYSE: MS) - is being directed by the government to boost its capital cushion by $1.5 billion
  
• Regions Financial (NYSE: RF) - will need to raise additional capital. Regulators have suggested that Regions has a narrower range of cap-raising options than some rivals.
  
• Citigroup (NYSE: C) - will need to raise an additional $5 billion in capital following the stress test.
  
• MetLife (NYSE: MET) - will not need to raise capital and has been judged to have a sufficient capital buffer.
  
• Capital One (NYSE: COF) doesn't need to bolster its capital cushion.
  
• State Street (NYSE: STT) will need to raise additional capital as a results of the government stress test although it is not clear how much.

As more and more stress test results are leaked, buying pressure in financial stocks has increased substantially. The XLF is now up 7%, while individual stocks such as BofA, Citi and Wells Fargo have surged more than 17%, 18% and 12%, respectively.

Get Real-Time Market Moving News Two-Weeks FREE http://www.streetinsider.com/premium_content.php

You May Also Be Interested In

• 10 analysts discuss Meta Platforms (META) stock after earnings selloff
• Nanometrics (NANO) Issues Business Update, Reports FY23 Results
• CSS Entertainment (CSSE) Receives Nasdaq Delinquency Letter