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The Pragmatists In A Time Of Stress

Futures are off their highs, even as nonfarm payrolls losseswere not as bad as expected at minus 539,000, better than the 600,000 losses expected and the smallest losses since October. March was revised lower to a loss of 699,000 versus 663,000 previously reported.

Most banks are trading up this morning as the stress tests are finally out, with little surprise.

You can argue that the $75 billion required to be raised is not enough.

But the pragmatists-and they are the ones in charge-are assuming that the economy will be improving sooner rather than later, and at any rate there is little chance of getting additional money from Congress.

The cynics argue that Geithner is making assumptions about future bank earnings that are way too rosy, that restrained consumer spending will constrain bank profits and result in higher consumer loan losses than anticipated, so that by refusing to pump more into banks we are essentially redoing what Japan did in the 1990s, when they too refused to pump additional money into banks and take necessary writedowns.

Elsewhere:

1) Morgan Stanleypriced 146 million shares at $24 a piece. That's $3.5 billion, above the $2 billion they said they would raise in equity last night. They are also selling $4 billion in notes, $1 billion more than was indicated yesterday, which will not be FDIC-backed.

2) Bank of America will launch an offering to sell up to 1.25 billion sharesof common in an effort to raise $17 billion in equity, in addition to selling assets.

3) Wells Fargowill sell 341 million shares at $22 a share($7.5 billion); this too is above the numbers floated yesterday of $6 billion.

4) McDonald's up 2 percent pre-open as they reported April comp store saleswere up 6.9 percent, above expectations, with U.S. up 6.1 percent. 72nd straight increase in same store sales.

5) Shares of Allstate down over 6 percent after the insurer reported a much bigger-than-expected loss. Property and casualty business "delivered solid operating performance" However, investment losses continued to hurt the company significantly in the latest quarter, as unrealized capital losses rose $590 million to $9.4 billion.

6) The U.K.'s Royal Bank of Scotlandup 12 percent pre-open despite posting a Q1 loss. Impairments more than quadrupled, but were offset by stronger investment banking revenues which nearly doubled. The company's outlook remains "cautious" as the CEO expects "both 2009 and 2010 will be very tough years."

7) Overall auto sales rose soared 25 percent last month…in China. More spectacularly, sales of passenger vehicles had their biggest rise in 3 years, climbing 37 percent during April. This comes as the government has implemented a round of tax cuts and subsidies on auto purchases.

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NOVU
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MCD
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RBS
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WFC
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