By Ari Levy
May 4 (Bloomberg) -- Wells Fargo & Co. led a rally in bank stocks today after billionaire Warren Buffett said he would be buying shares at these prices, overshadowing concern that the stress test is going to force companies to raise capital.
The 24-member KBW Bank Index jumped 15 percent, the most in almost a month. Wells Fargo, the largest U.S. originator of home loans, was the biggest contributor, climbing 24 percent. Fifth Third Bancorp, Regions Financial Corp. and SunTrust Banks Inc. each jumped more than 25 percent.
Buffett, whose Berkshire Hathaway Inc. is the top shareholder of San Francisco-based Wells Fargo, said the bank is a “fabulous” company and will prosper regardless of the stress test results due this week. In addition to Wells Fargo, Buffett said he would be buying shares of U.S. Bancorp and M&T Bancorp. Buffett is having more influence than analysts who are saying banks need to raise cash, said Blake Howells, an analyst at Becker Capital Management, which oversees about $1.7 billion.
“There’s a lot of doomsday capital-raise scenarios out there,” said Howells, whose firm in Portland, Oregon, owns shares of U.S. Bancorp and KeyCorp. Buffett “spoke to what the market’s been missing -- that most of these banks still have pretty good pretax, pre-provision income capacity and that’s the first buffer for loss,” Howells said.
SNL Financial LLC said in a report today that Wells Fargo and Bank of America Corp. are among lenders that may need to bolster capital levels after the stress tests. Wells Fargo would need to increase capital by $37.4 billion to achieve a 6 percent ratio of Tier 1 capital to total assets, should almost 10 percent of the loans become uncollectible, SNL said in a report completed May 1. Bank of America would need $27.2 billion in additional Tier 1 capital, the research firm said.
Analysts have estimated the banks would need to raise more. KBW Inc.’s Fred Cannon predicted that Wells Fargo will need to raise $50 billion, including $25 billion to repay the Treasury’s bailout fund. Sean Egan, president of Egan-Jones Ratings Co., has said Bank of America may need $100 billion.
The Associated Press reported today, citing two people familiar with the matter, that Wells Fargo has been asked by regulators to raise money. Julia Tunis Bernard, a company spokeswoman, declined to comment.
Even after today’s gain, the KBW index is down 57 percent in the past year from $1.37 trillion in losses at banks and securities firms worldwide. It’s the 15th time this year the index has gained or lost at least 10 percent in a day.
Wells Fargo rose $4.64 to $24.25 at 4 p.m. in New York Stock Exchange composite trading. The stock has almost tripled in the past two months and is still down 18 percent this year.
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