Thursday, May 7, 2009
Wells Fargo comments on capital raise
“The main reason the Federal Reserve has required Wells Fargo to hold an extra $13.7 billion in Tier 1 common equity is based on what we believe is their excessively conservative estimate of pre-provision net revenue (PPNR) in the adverse scenario. Since we believe our Company’s earnings and other internally-generated capital will generate enough capital to meet the 4% test by November 9, 2009, in effect the Federal Reserve is asking Wells Fargo to hold a significant capital cushion above 4% for a hypothetical net revenue scenario that is remote and inconsistent with the Company’s strong actual results so far in 2009, strong underlying earnings momentum, and the actions already taken by Wells Fargo to reduce Wachovia’s revenue risk.
Wells is going to raise $6 billion in a stock offering, priced between $20.5 and $22 Friday morning.
This is actually bullish news.
You should be able to buy the May 25 call options for nothing tomorrow morning.
That's you leveraged play on the Wells Fargo capital raise.
There's still easy money to be made!
Posted by Palmoni at 5:51 PM