Behind the Bank Equity Blitz
Do bank stress tests and the latest round of capital-raising mean it’s finally safe to invest in financial stocks?
The last week has been a Rorschach test for investors. Bearish investors question the assumptions and results of government-conducted stress tests, which required top U.S. banks to raise billions in new capital. Bullish investors cite realistic hopes that this round of capital-raising could signal an end to the financial crisis.
At first the bulls seemed to win the day, with financial stocks helping to lead the market higher last week. Then, on May 11, bank stocks gave up some of their gains. So is it really, finally, safe to invest in financial stocks?
There’s no doubt that something has changed. In just a few days, institutions from U.S. Bancorp (USB) and Wells Fargo (WFC) to Keycorp (KEY) and Capital One Financial (COF) have been able to raise billions—not from the government but from private investors.
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