US banks told to raise $65bn in new capital

By Rupert Cornwell in Washington

Ten out of the 19 largest US banks must raise $75bn of extra capital under the "stress tests" aimed at restoring confidence in the country's battered banking sector, according to long awaited government data revealed last night.

Among the banks, which hold two thirds of all deposits in the system, being given a clean bill of health, according to a series of media leaks this week, are JPMorgan Chase, Goldman Sachs, Metlife, Capital One Financial, and Bank of New York Mellon.

Bank of America is understood to need the largest cushion, an extra $34bn of capital. Wells Fargo is next with $13.7bn, while GMAC, the financial arm of stricken General Motors, is deemed to need $11.5bn. Citigroup has to find a further $5bn of capital, while the investment bank Morgan Stanley must cover a shortfall of $1.8bn.

Results of the tests, an unprecedented financial health check up for the country's biggest financial institutions, were announced by the Treasury and the Federal Reserve, an hour after the closure of US markets. Initial reaction was positive, with many of the banks posting gains in after-hours trading.

The exercise was based a 'worst case' economic scenario for 2009 and 2010, in which the banks were judged on whether they had enough capital to withstand heavy losses on bad mortgages, commercial real estate and consumer loans. Investigators who spent seven weeks going through the banks' books found that the 19 between them faced $599bn of potential losses over the period, including $185bn on mortgages, $100bn on trading and counterparty activities, $53bn on commercial real estate, and $82bn on credit card loans.

Even before the stress test results were announced, both Wells Fargo and Citigroup announced steps to raise fresh money, the former with a stock offering of $6bn, the latter with an equity conversion of $5bn. Morgan Stanley says it will make good its shortfall by issuing new shares and selling assets. Even so, some banks may have no choice but to accept a hefty infusion of capital from the government, resulting in public stakeholdings of 30 per cent or more. If Bank of America found the $34bn solely by converting government-owned preferred stock into common stock, the US would end up with a controlling 46 per cent.

In such cases, Mr Geithner warned in a television interview, the federal authorities would take a more active management role, and might force out some current top executives. The mere hint of such action is one reason banks are desperate to shake loose from the government the moment they can. Mr Geithner told the New York Times he expected banks to soon repay over $25bn of federal assistance.

* Stephen Friedman, the president of the New York Federal Reserve, resigned last night, amid questions about stock purchases in his former firm, Goldman Sachs. But a Fed statement denied Mr Friedman had in any way behaved improperly.

Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Morrissey pictured in 2013
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Robyn Lawley
i100  ... he was into holy war way before it was on trend
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Life and Style
lifeDon't get caught up on climaxing
Life and Style
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star