A few days ago I wrote that I was hopelessly confused about what was going on with the economy. Here's Exhibit A: I thought it was a fantasy to expect banks to raise lots of private capital after the stress tests were completed, but apparently I was wildly, spectacularly wrong:
J.P. Morgan Chase & Co., Morgan Stanley, American Express Co. and regional bank KeyCorp said Tuesday they sold a combined $8.7 billion in common stock. That pushed the total value of shares sold by the 19 financial firms that were stress-tested by the government to at least $65 billion since the results were announced May 7.
Nonguaranteed debt sales and the conversion of preferred shares to common stock have generated roughly another $20 billion, for a total of $85 billion or more, giving most of the banks considerably more capital than U.S. regulators have required them to amass as they ride out the recession. Money is pouring in so fast that surprised bankers can hardly believe it, especially since most investors didn't want to go near financial stocks just three months ago, even though they were nearly 40% cheaper.
"It's easy to raise capital now," one executive at a bank that recently raised capital through a public stock offering said Tuesday. Investors are "happy to gobble it up."
I dunno. I continue to think that there are a lot of trouble signs for the economy, with further shocks still to come. If I had to pick the most likely one, I'd say Eastern Europe, but really, there are a dozen candidates. Overall, I'm with the unnamed "executive at a New York bank" who thinks investors are chasing after any tidbit of good news even though the financial system remains fragile. "A bucket of cold water will be thrown in people's faces," he says.
Still, there sure are a lot of people who disagree and are willing to put their money where their mouths are. I hope they're right but I fear they're wrong. There are just too many imbalances left in the global economy, too many writedowns yet to come, and no obvious place for sustained consumer demand to come from. Caveat emptor.