GO
Loading...

UPDATE 2: Bank Results: Should You Buy The News?

At long last the official results of the bank stress tests are out. Should you buy the news, short the losers or head to the sidelines?

Before you make a move, here's what you need to know:

According to CNBC’s Steve Liesman, banks will need a total of $74 billion in additional capital to survive that scenario.

The results show that Bank of America (BAC) needs $33.9 billion, while Citigroup (C) needs $5.5 billion and auto and mortgage lender GMAC needs $11.5 billion.

Wells Fargo(WFC) needs $13.7 billion, Morgan Stanley(MS) needs $1.8 billion and Regions Financial(RF) needs $2.5 billion.

Other big banks, however, do not need to raise any capital, including Bank of New York Mellon (BK), American Express (AXP), Capital One Financial (COF), Goldman Sachs Group (GS), JPMorgan Chase (JPM), MetLife(MET) and State Street (STT).

Turning attention to the regional banks, RBC analyst Gerard Cassidy tells Fast Money, “there are no major surprises” in the stress test results. It was already widely believed that Key Corp (KEY), Regions (RF), Fifth Third (FITB) and Sun Trust (STI) would need to raise more capital.

What's the trade?

The trade goes right back to certainty versus uncertainty, muses Joe Terranova. Look at each individual financial institution and ask yourself how much uncertainty is there surrounding their ability to raise the additional needed capital.

Personally, I would not touch Bank of America or GMAC , he adds. I think the results leave these two names significantly challenged.

This was a big reversal day in Goldman and US Bancorp to the downside, adds Guy Adami. If Friday is a negative day I think it will reinforce the negative momentum.

I’d buy the news, counters Jeff Macke. Finally, the government has removed uncertainty from the equation. Now banks can start consolidating and move on with their lives. I’d stick with the big boys. Look at Citigroup, Wells Fargo, and Goldman Sachs.

My inclination is to say investors should be taking profits after a run like we’ve had in banks, muses Sandler O’Neil’s Jeff Harte. But the trade depends on your time frame. If you have a long-term time horizon I think down the road you'll find current valuations are still attractive.

We spoke with two Fast Money friends, strategic investor Dennis Gartman and Greg Troccoli of Opalesque before the resulsts became official. Here's what they had to say about the bank trade.

I got rid of banks from my portfolio on Wednesday, Gartman said. They had a wonderful run but I think it’s time to go to the sidelines. In about 2 weeks it should be okay to start buying banks again.

In this sector, I’m keeping an eye on Goldman Sachs, said Greg Troccoli of Opalesque. The stock has had about a 300% move since November 21st. There’s no doubt in my mind that it needs to pullback. I’m looking for it to slide to $110 - $120, but at those levels I’d be a buyer.

The tests put banks through two scenarios: one that reflected expectations about the current recession and another that envisioned a recession deeper than what analysts predict.

Stress tests have long been a part of the bank regulation system. They help regulators decide how to supervise banks and aid banks in deciding how to limit their risk. But those conversations between banks and regulators normally take place behind closed doors.

It’s worth noting that after hours State Street revealed that it was in a position to begin repaying it’s TARP loans.

Also, Wells Fargo announced before the stress test results that it will raise $6 billion in common stock. Citigroup's capital needs reflect its previously announced plan to convert some preferred shares into common stock.

Symbol
Price
 
Change
%Change
NOVU
---
BBT
---
SC0Y
---
COF
---
FITB
---
GS
---
KEY
---
MET
---
PNC
---
RF
---
STI
---
STT
---
USB
---
WFC
---





______________________________________________________
Got something to to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment but not have it published on our website send those e-mails to fastmoney@cnbc.com.

Trader disclosure: On May 7th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Seymour Owns (AAPL), (BAC), (F), (TX); Seygem Asset Management Is Short (DVN); Finerman's Firm Owns (CSCO); Finerman's Firm And Finerman Own (BAC) Preferred Shares And Are Short (BAC); Finerman's Firm Owns (C) Preferred Shares And Is Short (C); Finerman's Firm Owns (MSFT) And Owns (MSFT) Put Spreads; Finerman's Firm And Finerman Own (WFC) Preferred Shares, Finerman's Firm Is Short (WFC); Finerman's Firm Is Short (IJR),(MDY) (SPY), (IWM), (USO), (BBT)

Terranova Owns (GENZ), (ABT), (XBI); Terranova Is Long (DIS) Call Spreads; Terranova Is Short June Crude Oil; Terranova Is Short (JPM), (WYNN), (X), (MS), (JOYG), (HES), (BRCM), (POT); Terranova Is Short (IBM) Call; Terranova Is Short (XOM) Call Spreads

Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV); Terranova Works For (VRTS); Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.

Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (CAL), (DLR), (EPR), (EXR), (IGE), (MEE), (DBC), (DBV), (DBA), (SKT), (UA), (CLB), (WBMD): Virtus Investment Partners Owns More Than 1% Of St Mary Land & Exploration Co: Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights

For Jeffery Harte
Sandler O'Neill Advised Clients In Deals Involving (BAC) And (JPM)
Sandler O'Neill Recvd. Inv. Bank. Comp. From (BAC), (C) In Past 12 Mos.
Sandler O'Neill Expects To Receive or Seek Inv. Bank. Comp. From (BAC), (JPM), (C) In Next 3 Mos.
(BAC), (C), (JPM), (MS) Are Clients Of Sandler O'Neill
Sandler O'Neill Has Received Non-Inv. Bank. Comp. From (C), (JPM), (BAC)
(GS) Is A Non-Inv. Bank. Client Of Sandler O'Neill


CNBC.com with wires

Symbol
Price
 
Change
%Change
BAC
---
C
---
GJM
---
GS
---
STT
---
USB
---
WFC
---
RF
---
COF
---
MS
---

Contact Fast Money

  • Showtimes

    Halftime Report - Weekdays 12p ET
    Fast Money - Weekdays 5p ET

Halftime Report