Post-stress test, bank stocks hit the afterburners

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The only stress some bank-stock investors felt today was from being unable to buy in fast enough.

Financial issues rocketed as major banks met with early success in their efforts to raise capital following the less-onerous-than-feared results of the government’s stress tests.

Wells Fargo & Co. and Morgan Stanley raised a collective $15.5 billion this morning in stock and debt sales amid robust investor demand. Regional banks such as Fifth Third Bancorp in Ohio soared on analyst upgrades and expectations that they’ll also be able to raise the mandated capital.

Wall Street clearly was thrilled that the financial industry found private investors eager to provide new financing, a crucial first step toward eventually weaning the banks from government assistance.

‘The biggest sense of relief is that there are sources of private capital and ready sources of private capital,’ said Nancy Bush, an analyst at NAB Research in Annandale, N.J.

Just as important, some professional investors increasingly are worrying about being left behind as the financial-sector rally keeps going. The BKX bank stock index surged 12% today, bringing its advance since March 6 to 135%.

‘Everybody feels, ‘I just missed a four-bagger on Bank of America-- I have to get in,’ ‘ said Joshua S. Siegel, managing principal at StoneCastle Partners, a New York asset-management firm specializing in bank stocks.

Half of the 24 stocks in the BKX index rose more than 10% today. Fifth Third zoomed 59% and Huntington Bancshares soared 34%. Wells Fargo rose 14% and JPMorgan Chase added 10.5%.

Dave Rovelli, head of trading at brokerage Canaccord Adams in Boston, said he believed much of the buying today was by ‘short sellers’ covering their bearish bets, and by day traders looking for a fast buck.

As for long-term investors, ‘I think you’d be crazy to get into the banks at these levels,’ he said.

Bush and Siegel, too, fear investors are getting ahead of themselves, given that the banking sector still faces daunting obstacles, including mounting commercial real estate woes and credit card defaults.

‘It’s gone from a meltdown to a melt-up,’ Bush said. ‘We don’t know when normalized earnings are going to get here. Probably not until 2011 or 2012. Wall Street is doing what Wall Street does, which is justify a move after the fact.’

Jim Glickenhaus, portfolio manager at Glickenhaus & Co. in New York, agrees that ‘we are ahead of ourselves and we’ve been ahead of ourselves for a couple of weeks,’ referring to bank stocks in particular and the market in general.

‘Having said that, you can never tell what the public’s going to do. It can keep going up from here.’

-- Walter Hamilton and Tom Petruno