All's Well With Wells?

Back in January we were uneasy about Wells Fargo's acquisition of Wachovia because it violated a long-standing discipline that had served them admirably through scores of acquisitions. In the fourth quarter, it looked like Wells took a "kitchen sink" loan loss provision, against which the first quarter 2009 provision looked small. The worst is over, right?

So then Wells previewed the first quarter earnings which were a "surprise" and stocks took off. Now, we find out after all the mysterious stress tests have been completed that Wells Fargo needs to raise some $15 billion in additional capital, second only to the hapless Bank of America at $34 billion. Citigroup, which seemed to be the patient getting pennies on its eyes, needs to raise only $6 billion in new capital.

What is anyone to make of all this? Shouldn't the stress test analysis be a matter of public disclosure to shareholders? Isn't it material to their investment decisions? What happened to transparency? It does give me some comfort to know that even experienced banking analysts like Simon Johnson are confused by the torrent of misinformation being foisted on the markets by the Fed/White House/Treasury spin meisters.

Although banks are enjoying robust margins, it seems as if the credit engine of the traditional banking system is still seized up and not ready to become an agent of economic recovery.