Marsico: ‘Stress tests' relieve tension

The findings of the "stress tests" - a ‘what if' exercise conducted to see if US banks have sufficient capital to cope should the recession worsen - is likely to prove supportive of equity markets and signal a turning point, according to John Benson, a VP at Marsico Capital Management, sub-advisers to Gartmore. The results - largely within expectations - revealed that ten of the largest 19 banks in the US need a combined $74.6 billion (£50 billion) of extra funds to boost their cash reserves. "The "stress tests" should go some way to removing the uncertainty that has beset the US banking sector by providing assurance that banks would have the capital to handle further losses," noted John. The assessment of the financial conditions of the 19 largest bank holding companies was conducted by the Federal Reserve and other federal banking supervisory agencies.

For Gartmore's US Opportunities and US Growth Funds, a common strand to the financials holdings is that they are perceived to be the survivors of the fallout from the financial crisis and accordingly acquirers of market share. The holdings JPMorgan Chase, Goldman Sachs and US Bancorp are not on the list of those requiring new capital. While another holding, Wells Fargo, is said to require $13.7 billion, John contends that this does not change the investment thesis in respect of this stock. With the acquisition of Wachovia, Wells Fargo, hitherto strong on the West coast, gains an enlarged footprint covering the East coast as well - plus it has an outstanding management team and business plan. The holding Bank of America is reported as needing an additional $33.9 billion. Bank of America has said that the results overstate the bank's risks, especially on seemingly safe residential mortgages, and understate its earnings potential.

"We believe that much of the bad news on the economy and on the travails of the banking system has been discounted for some while now, with the results of the bank ‘stress tests' allowing us potentially to turn a corner. An element of risk taking on the part of investors would appear to be becoming a feature once again," commented John.