Banks Quietly Raising Equity

This week Morgan Stanley announced that bonuses will be maxed out at $125,000 in cash while the rest will be paid in stock. Many financial companies are now paying the majority of bonuses in stock. This amounts to a stealth equity issuance in the tens of billions of dollars.

Going into earnings most employees are locked up and cannot sell stock. Some time after earnings, usually 3 days, the lock up ends and employees can sell stock. Imagine that you were an employee at Morgan Stanley  that was paid largely in stock. Your salary is dependent on Morgan Stanley and now so are your savings. The logical thing to do is diversify by selling Morgan Stanley stock as soon as possible.

As financials report earnings, lockups will be ending for employees with billions of dollars of stock. This will be a headwind to the financial sector in the next few week and is something to consider before buying financials.

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