Major banks move beyond stress tests

— -- The results are in. Now the largest U.S. banks are jockeying to show who are the true winners from the government-conducted stress tests.

Less than 18 hours after the Federal Reserve released estimates for how much more capital banks will need to handle losses in a worsening economy, some major players already were moving to put their troubles behind.

Wells Fargowfc on Friday raised $7.5 billion by selling shares in a public offering for which there was so much demand that it raised 25% more cash than it initially intended. The government had determined Wells Fargo needed to raise $13.7 billion. Like the other nine banks with shortfalls, it has six months to raise the capital. Wells Fargo said it would raise part of the capital by issuing shares and the rest from earnings.

"Investors have confidence in Wells since it's a profitable bank which will be able to earn enough to offset future losses and raise capital," says Whitney Tilson, managing partner at T2 Partners, a Wells Fargo shareholder.

Morgan Stanleyms, which the government said needed $1.8 billion in capital, also moved swiftly, raising $8 billion Friday: selling $4 billion in stock, double its initial plans, and $4 billion in debt.

Both companies were among the 19 largest U.S. banks that the government tested to see if they have enough capital to withstand losses from a worsening economy. The tests are a key component to restoring financial stability in the Obama administration's economic recovery plan.

But Tilson worries that the stress tests could put weaker banks, such as Citigroupc and Bank of Americabac, "in a more vulnerable Catch-22 situation," because the government might have made it tougher for them to raise capital by exposing their weak position.

Indeed, BofA, which has to raise $33.9 billion in capital to meet the government's target, announced that it would issue 1.25 billion shares. However, the bank isn't raising all of it at once, rather it has registered it as an "at the market" filing, which means that it will sell the shares in chunks when market conditions are favorable.

Citigroup, on the other hand, has some of the lowest capital level ratios among the big banks. And it hasn't indicated it would test the financial markets with any equity offering. Citi already is in the process of converting preferred shares owned by the government and private investors into common shares for a total of $58 billion. That will make the government a 34% owner and its largest shareholder.

"Any government investment and ownership comes with some measure of control and involvement, which the private sector wants to minimize as soon as possible," says Richard Spillenkothen, a director at Deloitte & Touche's banking practice.

So it might not be a surprise that the banks that came out looking strong from the government tests, such as JPMorganjpm, Goldman Sachsgs and Bank of New York Mellon bk, are eager to return bailout money as soon as possible.