Stress Tests End; Raising Money Begins
The wait is over. Stress test results reveal nine of the nation's 19 largest banks successfully endured the government's testing and will not require any additional capital, while the other 10 banks must boost capital levels by a collective total of $74.6bn, in order to comply with government standards, said the Federal Reserve this afternoon. Bank of America (BAC) stands the front-runner, requiring $33.9bn in fresh capital, followed by Wells Fargo (WFC) who must raise $13.7bn in new capital. GMAC (GJM) will require a capital buffer of 11.5bn, while Citigroup (C), Inc. will need 5.5bn, Regions Financial (RF) $2.5bn and SunTrust Banks $2.2bn. Morgan Stanley (MS) and KeyCorp (KEY) must each raise 1.8bn and Fifth Third Bancorp (FITB) $1.1bn. JPMorgan Chase & Co (JPM), Goldman Sachs (GS) and U.S. Bancorp (USB) passed the government's examination, as did American Express (AXP), BB&T (BBT), Bank of New York Mellon (BK), Capital One Financial (COF), MetLife (MET) and State Street (STT). Preliminary results delivered to banks last week and originally slated for public release on May 4, but the Federal Reserve postponed the results as executives reportedly debated preliminary findings and recovery plans with examiners. Despite seemingly grim results, Treasury Secretary Tim Geithner promised the nation's banking system remains strong and long-awaited test results would be "reassuring." Geithner also said he believes those banks which need to raise more capital will be able to do so privately. The banks began undergoing tests in late February. Regulators required all US bank holding companies with year-end 08 assets exceeding $100bn to participate in the assessment. These 19 institutions collectively hold two-thirds of the assets and more than half the loans in the US banking system, according to the Fed. The government said in a statement Wednesday night that it had no intention of expanding the stress test beyond the 19 largest banks. More than 150 examiners, supervisors and economists from the Fed, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation studied banks’ potential performance under projected economic expectations and a more adverse outlook with a longer, more severe recession. The point: to determine the capital buffer needed to ensure the firms would remain appropriately capitalized at the end of 2010 if the economy proves weaker than expected. What Now? Banks that need more capital must submit a plan to the Treasury by June 8, and commit to raising the money or converting existing preferred capital into ordinary shares within six months. In an unexpected announcement ahead of the Treasury's pre-scheduled release of the results, Wells Fargo said it will sell $6bn in new common stock to help raise the capital it needs to meet the government's requirements. Morgan Stanley followed, announcing it would sell $2bn in new common stock to help meet requirements, in addition to selling roughly $3bn of senior notes in a public offering that will not be guaranteed by the FDIC. Write to Kelly Curran.