The Treasury Department's plan to buy stakes in the nation's largest financial companies gave a lift to most of those companies and the banking sector Tuesday.
However, shares of JPMorgan Chase & Co., one of nine companies chosen to sell preferred shares to the government, traded in the opposite direction from those of its counterparts. Its stock fell 3.1%.
The official unveiling of the program produced a 12.2% increase in the KBW Bank Index as investors reacted positively to the plan as a way to address the credit crisis.
"Overall, I applaud the administration for moving quickly to get credit loosened up," Michael O'Boyle, an investment banker at Sterne Agee Inc., said on Tuesday. "It is going to be a good stimulus to those that qualify, and it should be good, inexpensive money right now."
Of JPMorgan, David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, said investors probably saw the plan as an "incremental negative" for the company because it did not need the capital, given the overall condition of its balance sheet. "Now they have to pay dividends on preferred stock to 'help out' the system," he said in an interview. (The company last month sold $10 billion of common stock to help fund its takeover of the Seattle thrift company Washington Mutual Inc.)
Matt Shields, a bank stock trader at FIG Partners LLC, said investors were also probably wary of the company's third-quarter earnings report that is due today and "might be afraid of owning the company's stock ahead of earnings."
Mr. O'Boyle said that investors' focus will quickly shift to fundamentals. "The third quarter isn't going to be pretty," he said. Given the scale of governmental intervention, he predicted that more banking companies may be willing to "kitchen sink" the third quarter by taking larger-than-expected hits to clean up their balance sheets.
The Bush administration plans to spend $250 billion to buy stakes in financial services companies, with an initial program using about half the funds to buy preferred stock in the nine big companies. Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. would sell $25 billion each, and investment banks Goldman Sachs Group Inc. and Morgan Stanley would each sell $10 billion, according to sources close to the transactions. Bank of America Corp. said it would sell $15 billion, and Merrill Lynch & Co., which it is acquiring, would sell an additional $10 billion.
Bank of New York Mellon Corp. said in a press release that it would sell $3 billion, and a State Street Corp. spokeswoman said it would sell $2 billion in preferred shares to the government.
Citi, Wells, and Morgan Stanley declined to comment, and calls to Goldman Sachs was not returned. A JPMorgan spokesman said it was participating in the program but declined to discuss the amount of the investment.
Citi shares rose 18.2%; B of A gained 16.4%; and Wells rose 10.3%.
State Street rose 17.3%, and Bank of New York Mellon rose 13.3%. Morgan Stanley gained 21.2%, and Goldman rose 10.7%. Merrill rose 21.1%.
Citigroup analysts in a research note Tuesday offered a favorable view of the government's move. Analyst Keith Horowitz raised his ratings for most of the banks he covers to "buy," and colleague Prashant Bhatia did the same for Goldman and Morgan Stanley.
JPMorgan Chase wasn't the only so-called "safe haven" stock to suffer from the Treasury Department plan. In addition to it, Citi's Mr. Horowitz also said the intervention would be "less of" a positive for PNC Financial Services Group Inc., U.S. Bancorp, and New York Community Bancorp, leaving his ratings for those companies at "hold." On Monday, none of these companies had been named as participants. PNC shares fell 7.8%. U.S. Bancorp inched up 0.7%. New York Community fell 2.3%.
National City Corp.'s shares jumped 34.8%. Mr. Shields said heavy speculation persists that would-be buyers are circling the company, though he said the prospect of a government infusion may have been a factor. "At the end of the day, I think they still get sold," he said.
Nat City declined to comment Tuesday.