By Neil Irwin and Binyamin AppelbaumWashington Post Staff WritersThursday, May 7, 2009 5:01 PM
The nation's largest banks collectively need another $75 billion in equity to ride out potential losses due to the recession, according to long awaited government stress tests released this afternoon.
Nine of the 19 banks do not need any new capital at all, including J.P Morgan Chase and Goldman Sachs. Another eight banks can fulfill their capital needs by raising money privately or, if they can't, by converting existing government investments into common stock. That list includes Bank of America, which needs $33.9 billion, and Wells Fargo, which needs $13.7 billion.
That leaves only two firms that must actually raise more cash. GMAC, the auto finance company that is historically tied to General Motors, needs an additional $9.1 billion in new capital. Regions Financial Corp., a regional bank based in Alabama, needs another $400 miliion.
Regulators have spent the last three months examining the banks' financial situations, projecting losses the firms would incur on their mortgage, consumer lending, and other loan portfolios if the jobless rate rises above 10 percent and home prices continue to tumble. The tests also estimated the degree to which those losses will be offset by earnings over the coming years.
The tests, a signature element of the Obama administration's strategy for rescuing the financial system, are meant to instill confidence in major banks by ensuring that they can weather a prolonged recession. The new capital they need, which is less than analysts had feared, suggests that the 19 largest U.S. banks will largely be able to raise the money they need in private markets, with few if any returning to the Treasury to request more money.
The banks that need more capital have a month to inform the government of how they plan to do so.
Nine of the 19 banks do not need any new capital at all, including J.P Morgan Chase and Goldman Sachs. Another eight banks can fulfill their capital needs by raising money privately or, if they can't, by converting existing government investments into common stock. That list includes Bank of America, which needs $33.9 billion, and Wells Fargo, which needs $13.7 billion.
That leaves only two firms that must actually raise more cash. GMAC, the auto finance company that is historically tied to General Motors, needs an additional $9.1 billion in new capital. Regions Financial Corp., a regional bank based in Alabama, needs another $400 miliion.
Regulators have spent the last three months examining the banks' financial situations, projecting losses the firms would incur on their mortgage, consumer lending, and other loan portfolios if the jobless rate rises above 10 percent and home prices continue to tumble. The tests also estimated the degree to which those losses will be offset by earnings over the coming years.
The tests, a signature element of the Obama administration's strategy for rescuing the financial system, are meant to instill confidence in major banks by ensuring that they can weather a prolonged recession. The new capital they need, which is less than analysts had feared, suggests that the 19 largest U.S. banks will largely be able to raise the money they need in private markets, with few if any returning to the Treasury to request more money.
The banks that need more capital have a month to inform the government of how they plan to do so.
Their options include selling new common stock and selling off business lines or other assets. If the firms fail to raise the money in six months, they would receive a new injection of money from the government.
Banks were already racing to raise the money they need in private markets this afternoon.
Wells Fargo this afternoon announced it will raise $6 billion in a new sale of its stock. Wells, the nation's third biggest commercial bank, needs a total of $13.7 billion in new common equity to fulfill its requirements under the stress test.
Morgan Stanley, which needs to raise another $1.8 billion according to the stress test, said it will raise $2 billion by selling stock and issue another $3 billion in debt.
Citigroup said it will expand by $5.5 billion a program to switch out preferred stock for common stock, which would fill a common equity hole of that size that the government identified in the stress test.
Banks were already racing to raise the money they need in private markets this afternoon.
Wells Fargo this afternoon announced it will raise $6 billion in a new sale of its stock. Wells, the nation's third biggest commercial bank, needs a total of $13.7 billion in new common equity to fulfill its requirements under the stress test.
Morgan Stanley, which needs to raise another $1.8 billion according to the stress test, said it will raise $2 billion by selling stock and issue another $3 billion in debt.
Citigroup said it will expand by $5.5 billion a program to switch out preferred stock for common stock, which would fill a common equity hole of that size that the government identified in the stress test.
0 comments:
Post a Comment