Morgan Stanley and Wells Fargo rushed to sell more than $10 billion of stock after the U.S. government said top financial firms have a $75 billion hole in their capital, while two European banks said their bad debts are rising, according to Reuters. U.S. banks are racing to tap equity markets that have soared since early March and may pull back soon, analysts said. Bank of America said it plans to sell 1.25 billion shares to help meet its $33.9 billion equity capital shortfall. "You have this opportunity to sell equity now, and if you don't and share prices fall, people will criticize you," said William Smith, chief executive officer of Smith Asset Management. U.S. regulators told 10 of the biggest U.S. banks late on Thursday to raise a total of $74.6 billion, which was less than investors once feared and helped lift European and U.S. bank shares on Friday. The relatively modest size of the hole found by regulators, after "stress tests" on the nation's 19 biggest banks, led to applause from investors who believe the worst is over but also skepticism among those who think the tests weren't rigorous enough. Morgan Stanley sold $4 billion in stock Friday morning, and Wells Fargo & Co sold $7.5 billion. Both deals were larger than expected but came at discounts of more than 11 percent to Thursday's prices. Of the 19 banks tested, 10 need new capital. Whether the market goes up or down in the near term, investor demand for bank stocks is finite, and it makes sense to try to issue first, said Brad Hintz, analyst at Sanford C. Bernstein.
