[brewer12345]

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Originally Posted by ladelfina It's just hard for me to see this. 'Fatter spread' implies there's somewhere better to put the money to work.. is there? As for capital I don't know if it was WaMu or Wachovia that just sold shares for $7 billion or something. Sounds like banks still need more and more and more capital. Third-hand reporting on a comment thread elsewhere saying "this is great for W*** stock, since now they have more capital!!" Argh.

Fatter spread means that the banks can charge a higher rate over treasuries for almost any kind of loan. And spreads are fatter than they have been in years, even on the squeakiest clean stuff. Want a jumbo mortgage and have 35% down? 7% for a 30 year amortizing mortgage. Ain't been that high in a loooong time.

The drop in rates by the Fed adds fuel to the fire for these guys. So they can take that 7% mortgage and finance it with 3% deposits. Most any bank would be thriled to have a 4% net interest spread on an asset with very limited risk, and they can lever it 10+X.

So the picture is kind of muddy. Take Wachovia, for example. They just raised $7 billion in fresh capital. Did they need that much to deal with the problems they already have? I don't know for sure, but if you had asked my to guess at how much they might need I would have likely offered a number half that amount. If that is the true number, then Wachovia raised enough capital to deal with their problems and also to take advantage of the many opportunities they see out there. Or maybe they really do have $7 billion worth of problems. Or maybe they have $15 billion worth, and will be coming back to the well in the future.

Therein lies the game: these are large, complex entities and it is hard even for long term observers to say for sure what the story really is. For some people, the answer has just been to buy banks that don't have these problems and still have capital to clean up in teh market right now (PBCT, HCBK, et al. come to mind), and you can see it in the prices being paid for these stocks. Others have simply thrown up their hands and walked away.