The joint government statement that banks are more than well capitalized and that banks that can't raise more private capital can tap government funds is helping banks but not lifting the overall market.
It's not helping the overall market because traders and strategists are still taking down second half earnings estimates. How much? Many top down strategists are at 60 dollars for 2009 earnings on the S&P 500, but some are considerably lower — Merrill Lynch for example is at 49 dollars. If you take this pessimistic assumption at 12 times earnings you are at 600 in the S&P!
Little wonder that since the 90 percent downside day on February 17th selling pressure has not abated, it has increased.
Expect more pro and con on the bank plan.
The government statement says any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position.
Surely a great day to be a bond holder in these banks but I have received emails this morning from traders saying the move of converting pfd's to equity is just a "balance sheet shell game" that doesn't give any money to the banks.
Finally, if you think the U.S. has a stimulus plan...
There's an article in the Daily Telegraph noting that China's state-owned companies might be looking to buy oil and gas firms overseas. The beneficiaries would be the Beijing's three giant energy companies - Petrochina , Sinopec and CNOOC . "Firms will be able to benefit from low-interest loans and, in some cases, direct capital injections," according to China Petroleum Daily.
This is the equivalent of the Treasury Dept buying British Petroleum.
- US Regulators Stand Ready With More Bank Capital
Questions? Comments? firstname.lastname@example.org