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Banks Rally Ahead Of Monday Rescue

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BANKS RALLY AHEAD OF MONDAY RESCUE

Bank stocks rallied ahead of Monday’s expected announcement from Treasury Secretary Timothy Geithner in which he will spell out a "comprehensive plan" to stabilize the financial system.

Geithner is widely expected to present a menu of options for cleaning up the bad assets that are weighing down banks' balance sheets and constraining lending, which has contributed to a deep recession.

High on the list will probably be a guarantee or insurance plan that would essentially ring-fence the troubled loans and set a floor under the banks' potential losses. Taxpayers would be on the hook if losses exceeded a set amount.

Geithner may also propose a so-called "bad bank" that would buy those assets from the banks and either hold them until market conditions improve or resell them.

According to CNBC’s Steve Liesman, Treasury will "purchase up to $500 billion in bad bank assets." In addition Liesman has learned "every bank will be subject to a stress test." Also he says that Geithner will allow "preferred shares owned by the government to be converted into common stock if necessary.”

Geither’s speech is scheduled for noon Eastern time.

What's the trade?

Expect the markets to rally, says Guy Adami. The S&P could gain 80 to 100 points.

BANK OF AMERICA WILL NOT NEED MORE TARP MONEY

Bank of America soared more than 25 percent the day after falling to its lowest level since 1984 on investor fears it would have to be nationalized -- a fear that the company's chief executive on Friday said was unfounded.

In an exclusive interview with Maria Bartiromo, Bank of America CEO Ken Lewis revealed some key points about the future of his firm. He told us that he doesn’t need more TARP money, he intends to pay back the money already received in about 3 years and there was never any talk of nationalization.

Here are the excerpts from that conversation:

Paying Back TARP Money

Lewis: But all I know is that we're gonna’ be focused on making money, and getting it paid back as soon as humanly possible.
Maria: When will that be, do you think? Three years?
Lewis: We hoped it woud be. We hope within three years we pay--we could pay all of it back, yes.

Nationalization

Lewis: I have talked to government officials, members of Congress, regulators, and no one has ever said that they thought nationalization was the way to go, or was likely to happen

More TARP Money

Maria: Are you going to need more money from the government?
Lews: No. No
Maria: Categorically you can say no
Lewis: Right. Categorically I can say no

What's the trade?

I think Bank of America has room on the upside, muses Guy Adami. The stock is worthy of a play but if you go into it – remember – Ken Lewis could be raking leaves at this time next year.

I think there could be a bottom in the financial sector, says Zach Karabell. But I wouldn’t look to them to be a market leader.

I’ve been pounding the table for a while regarding Morgan Stanley , reminds Pete Najarian. And now I’m hearing talk of a potential secondary.

Also, says Najarian, keep an eye on the regional banks such as Fifth Third . If they've had a big run, I would take profits.

Financials – Year To Date Performance

Morgan Stanley (MS)

Up 41%

Goldman Sachs (GS)

Up 13%

Credit Suisse (CS)

Up 1%

HSBC (HBC)

Down 15%

JP Morgan (JPM)

Down 15%

UBS (UBS)

Down 21%

Deutsche Bank (DB)

Down 31%

Barclays (BCS)

Down 36%

Wells Fargo (WFC)

Down 36%

Citigroup (C )

Down 42%

Bank of Amer (BAC)

Down 55%

Source: Bespoke

NICE TRADE KEN

As a side note, Bank of America CEO Ken Lewis reported buying 200,000 shares of BAC at $4.79 on Wednesday. Friday, the stock was up 25%, closing around $6.06. Paper gain on the 200,000 shares totals $256,000.



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Trader disclosure: On Feb. 6th, 2008, 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); Najarian Owns (CAT) Call Spread; Najarian Owns (EEM) Call Spread; Najarian Owns (FCX) & (FCX) Calls; Najarian Owns (GS) Calls; Najarian Owns (MWW) Calls; Najarian Owns (GDX) Call Spread;Najarian Owns (MSFT) & (MSFT) Short Calls; Najarian Owns (MS) & (MS) Short Calls; Najarian Owns (MOS) Call Spread; Karabell Owns (BHP), (CSCO), (FCX), (GE), (JPM), (NVDA), (NOK); Seymour Owns (BAC), (EEM), (FXI), (TM); Seymour's Firm Owns (TKC)


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