Bank stocks closed on a high note Friday after two large banking companies announced oversubscribed stock offerings to help satisfy regulatory requirements to raise more capital.
The KBW Bank Index soared 12.1%, ending the week up 36.1%.
As expected, the government late Thursday announced the results of its recent stress tests of the 19 largest U.S. banking companies, concluding that 10 of them collectively needed an additional $74.6 billion of capital.
On Friday, Wells Fargo & Co. said it sold $7.5 billion of common stock, and Morgan Stanley said it sold $3.5 billion worth; both offerings were oversubscribed. Meanwhile, Bank of America Corp. announced it would sell 1.25 billion shares. Wells rose 13.8%, Morgan Stanley 3.9% and B of A 4.9%.
"Some people are finally throwing in the towel in short positions," said Richard Bookbinder, the managing member of Bookbinder Capital Management LLC. "Now that we know what the capital requirements are going to be and that Armageddon is not coming, let's get our short positions down."
More investors are also coming back to the sector as the economy shows signs of recovery, Bookbinder added.
"Banks have asset-sensitive earnings, and some people want to own financials at these levels."
Gainers went across the board: JPMorgan Chase & Co. was up 10.5%, U.S. Bancorp 5%, PNC Financial Services Group Inc. 19.4% and Citigroup Inc., 21 cents, to $4.02.
BB&T Corp. rose 3.9%, SunTrust Banks Inc. 12.2%, KeyCorp 2.8%, Capital One Financial Corp. 18.5%, Regions Financial Corp. 25%, Huntington Bancshares Inc. 33.7% and Fifth Third Bancorp 59%.
The broader markets also rallied Friday. The Dow Jones industrial average rose 1.96% and the Standard & Poor's 500 index 2.41%.
The Labor Department said Friday that 539,000 jobs were lost in April, less than the 620,000 tally that economists on average had expected. The unemployment rate rose to 8.9%.
Eugenio J. Aleman, a senior economist at Wells Fargo, wrote in a note Friday that a sooner-than-expected economic recovery could pose problems for the Federal Reserve.
"The job of the Federal Reserve is going to become more difficult if this 'recovery' is for real because it will have to start 'mopping away' all the excess liquidity in the market," Aleman wrote. "Furthermore, because" Congress' "fiscal expenditure package is back-loaded, that is, it is going to take effect starting in 2010, then that mopping away may have to be larger than what otherwise it would have been."