A wild trading day in financials. How confusing was it? After the close, Washington Mutual reported what initially looked like disappointing earnings (the stock traded down), then when everyone looked a little more carefully, noting the company said it had “sufficient capital”, with $40 billion of available liquidity at the end of the quarter, and that 2008 would be the peak year of provisioning, the stock turned around and is now trading up.
For the trading day, there was two separate rallies, one early in the morning on oil dropping to 6 week lows, a dollar rally, and a move up in financials, was followed late in the day by another broad rally that lifted stocks to their highs of the day.
Banks had held their gains since mid-morning, when Wachovia Bankturned around as the CEO said he was not going to issue more common stock as a capital raising plan (no word on preferred).
Financials gained a bit of steam late in the day as influential bank analyst Mike Mayo at Deutsche Bank put out a note where he seemed to get a little less bearish: "We now would reduce the degree of our underweighting on the group," he said.
The reason:
1) no new capital issuance for most banks in Q2
2) margins improved more than expected
3) problems have not spread as much as feared
Still, the rally in financials was a violent one: the Bank Index, for example, moved in a nearly 15 percent trading range from its low to its high.
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