Bank of America Corp (BAC)

[DewDiligence]

Bank Stocks Rise Despite Capital Concerns

http://online.wsj.com/article/SB124160694641091391.html

›MAY 6, 2009, 9:51 A.M. ET

Stocks rose on Wednesday after a closely watched precursor to Friday's critical nonfarm payrolls report suggested a slowing of job losses last month in the private sector.

A report from Automatic Data Processing and Macroeconomic Advisors said the U.S. private sector shed 491,000 jobs during April, better than the 650,000-job decline that economists had expected the report to show and a slowing in the pace of job losses seen during the first three months of the year.

Stock markets have rallied over the past two months on traders' hopes that the economy may be stabilizing after many months of deterioration.

At 9:50 a.m., the Dow Jones Industrial Average was higher by about 57 points. The S&P 500 was up 0.9%, supported by a jump of roughly 4% in its financial sector. The Nasdaq Composite Index gained 0.3%.

Markets saw moderate losses on Tuesday as traders started looking ahead to the government's release on Friday of data on April payrolls and the unemployment rate. Traders have also been cautious before the expected release late Thursday of the results of the government's stress tests of 19 top lenders.

The Wall Street Journal reported that the stress test found that Bank of America needs to beef up its capital cushion by roughly $34 billion. The bank's shares were up by about 8%, however, and shares of many peers including Citigroup, SunTrust Banks and PNC Financial Services were also moving upward.

The bank stocks seemed to be aided by the ADP numbers, which led traders to bet that the more dire economic scenarios envisioned in the stress tests may not come to pass. Economists, however, remained wary.

"We remain profoundly skeptical of the idea that the economy is now on a smooth path to recovery," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. "Those parts which took the biggest pounding after Lehman are rebounding to some degree but the overarching problem of massive household leverage remains."‹