The Stress Test Results Are Out

The New York Times reports:

“Federal regulators told the country’s 19 largest banks that they must raise $75 billion in extra capital by November, a more upbeat verdict on the health of the financial system than the industry had feared just two months ago.

“Ten of the 19 bank holding companies deemed “too big to fail” by the Obama administration will be required to raise additional capital, according to the results of the government’s stress tests, released late Thursday afternoon. But the 10 banks will have to raise much less capital than some analysts had expected as recently as a few days ago.

“Citigroup must raise $5.5 billion in new capital, on top of converting $45 billion in rescue funds into ordinary stock, which would give the United States ownership of 36 percent of Citi.

“Bank of America must raise $34 billion, but it is likely to resist achieving all or some of that by converting its $45 billion in bailout money into common stock. Instead, the bank is expected to fill its capital hole by selling off smaller divisions, a stake in China Construction Bank and other asset sales.

“The stress tests are aimed at estimating how much each bank would lose if the economic downturn proved even deeper than currently expected. Under the worst-case scenario — an unemployment rate of 10.3 percent, an economic contraction of 3.3 percent this year and a 22 percent further decline in housing prices — the losses by the 19 banks could total $600 billion this year and next, or 9.1 percent of the banks’ total loans, regulators concluded. Losses to the banks’ loan portfolios alone could total $455 billion this year and next.

“There is a reassurance in clarity,” Treasury Secretary Timothy F. Geithner said at a news briefing on Thursday afternoon.

“He noted that the stress tests provided far more disclosure than is typical on financial companies. “That will make it possible for more capital to come into the financial system,” Mr. Geithner said. “That will make it easier for banks to be in a position to ultimately repay the government.”

Here’s a summary of each bank and how much capital they need to raise (via Alea):

American Express: none needed
Bank of America: $33.9 billion
BB&T Corporation: none needed
Bank of New York Mellon: none needed
Capital One Financial: none needed
Citigroup: $5.5 billion
Fifth Third Bancorp: $1.1 billion
GMAC: $11.5 billion
Goldman Sachs: none needed
JPMorgan: none needed
KeyCorp: $1.8 billion
MetLife: none needed
Morgan Stanley: $1.8 billion
PNC Financial: $0.6 billion
Regions Financial: $2.5 billion
State Street: none needed
SunTrust Banks: $2.2 billion
U.S. Bancorp: none needed
Wells Fargo: $13.7 billion

Here’s the 38-page summary from the Fed, and here are the results of the stress test I conducted.

Personally, I”m glad this is all over once and for all. Now the question is, will any banks be forced to convert their TARP funds into common stock like Citigroup?

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