The big question is not how much the banks have to raise. It's how soon they have to do it.
Assume that the reports we read are real, and BoA has to raise 34 billion, Wells Fargo needs 10 billion and Citi needs 10 billion.
Well, cut Wells Fargo out, since Buffet will just bid for the lot.
So you are talking 44 billion of fresh capital that needs to be extracted from somewhere. Now the Fed's TARP facility has about 130 million left, so they have that fully covered if needs be.
Add to the three impending bond issues going off the next 48 hours, you talking quite a large chunk of liquidity being sucked out of the market to fund these raisings (assuming the Fed does not pony up a cent)
Even so, I agree with some on this forum that leaking this out pre-result gives markets time to react and function, and when the actuality of the incident arises, then the damage would have been well contained.
I don't expect the Dow to fall any further than it already has done in overnight trade. If this had come out 8 weeks ago, the futures would be off 200 points and our market would be on its knees.
This reflects the growing strength and optimism in people believing the worst is over and this is just remnants of the credit crisis.
They would be wrong however, if the stress tests reveal MORE than the 3 names above requiring capital. It would be extremely damaging to market sentiment if BoA DOES need 34 billion and Citi's and Wells' numbers are also around the same. I'm surprised at the resilience of our market actually, I would have thought the banks would get hit a little bit harder, but I guess everyone feels cocksure and confident.
Everyone's pining their hopes on the bank stress test. The shorts are hoping its a shocker, and the longs are hoping this will show the worst is over.
This will be the most awaited piece of news, and the most disappointing in terms of results. I predict absolute nothing will happen, and markets will continue to grind higher. What the shorts are hoping for really is the jobs number on Friday to provide some sort of shock to the system, to remind everyone the economy is not really ok just yet.
Equity markets HATE uncertainty, and we have been rising in the most uncertain times regarding this bank stress test. It would seem more people expect this to have zero impact on equity markets than those who think it will.
The jobs number though, can be scary. Anything with a 7 infront of it is going to send markets into a tailspin.
On another note, last year the markets rallied from March 08, all the way up to mid May 08. This year, a similar pattern seems to be following suit, a sharp sell off in the first quarter, strong rebound from mid march to mid may. It's not technical, its just an observation.
I'm firmly in the camp that the market is due for a decent 10-15% pullback, but I don't think the bank stress test results will be a catalyst.
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