YAHOO [BRIEFING.COM]: The
major indices settled with solid gains on Friday, as financial institutions
rallied after the government released the results of its stress test.
Meanwhile, the number of job losses in April slowed, another indication that
the pace of economic contraction is decelerating.
Eight of the ten economic
sectors posted a gain. Financials led the way, surging 8.3%. The energy sector
also had a strong showing, climbing 4.2%, after crude prices rose 3.1% to
$58.47. Defensive sectors underperformed, with telecom (-0.4%) falling into the
red after shares of AT&T (T 25.25, -0.20) slid on reports that the
company is near a deal to buy $2.5 billion in Alltel assets from Verizon (VZ 29.85, -0.01).
The strength in financials
came after the close Thursday when the government announced the findings of its
much anticipated stress test on 19 major financial institutions. The government
has instructed 10 financial institutions to raise more capital by June 8. The
$75 billion in new capital requirements includes: Bank of America (BAC 14.17, +0.66), $33.9 billion; Wells Fargo (WFC 28.18, +3.42), $13.7 billion; GMAC,
$11.5 billion; Citigroup (C 4.02, +0.21), $5.5 billion and Morgan Stanley (MS 28.20,
+1.06), $1.8 billion.
The remaining five banks that
need more capital are regional banks: Regions Financial (RF 6.53, +1.30), $2.5 billion; SunTrust Banks (STI 20.77, +2.25), $2.2 billion; KeyCorp (KEY 6.97, +0.19), $1.8 billion, Fifth Third Bancorp (FITB 8.49, +3.14), $1.1 billion; PNC Financial Services (PNC 53.08, +8.61), $600 million.
The companies are utilizing
several ways to increase their common equity ratios, including common stock
offerings, converting preferred shares and selling assets.
BofA plans to raise $17
billion in a common stock issue, with the remaining coming from preferred stock
to equity conversion and asset sales. Wells Fargo is issuing common stock
(~$7.5 bln announced this morning), retaining earnings and utilizing other
internally generated sources. Citigroup will expand its previously announced conversion
of preferred to common. GMAC said it may issue new common equity, issue
mandatory convertible preferred shares or convert existing equity into a form
of Tier 1 common equity. In addition, Morgan Stanley, which was directed to raise $1.8 billion
by the government, priced 146 million shares of its stock, and a 21.9 million
over-allotment, at $24 per share.
In other notable corporate
news, shares of McDonald's (MCD 54.94, +1.55) rose 2.9% after the fast food giant reported
that April same-store sales rose 6.9%, the 72nd consecutive monthly increase.
In economic news, released at 10:00 ET, wholesale inventories dropped 1.6% in
March, after falling 1.7% in February. The decline was worse than the consensus
estimate that called for a 1.0% decline. The major indices gave up some gains
after the release, but the market managed to trend higher throughout the
session, eventually climbing above pre-release levels.
Separately, the April
employment report was released at 8:30 ET. The April decline in payrolls of
539,000 was better than the expected decline of 600,000, but still represents
bad economic news. Part of the smaller decline is explained by a 72,000 jump in
government payrolls, compared to the sharp drop in the private sector,
including a 149,000 decline in manufacturing and 110,000 in construction. Also
on the negative side, several prior months were revised lower, and the
unemployment rate jumped to 8.9% from 8.5%, as expected. The stock market had a
relatively muted response in premarket trade compared to the typical response
to this release. For the week, the Dow, Nasdaq, S&P 500 rose 4.4%, 1.2% and
5.9%, respectively. Financials spiked 23% on the week.DJ30 +164.80 NASDAQ
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2645/1.90 bln/431