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.

PROMOTED VIDEO
Arts and Entertainment
Sheeran arrives at the 56th annual Grammy Awards earlier this year
musicYes, that would be Ed Sheeran, according to the BBC
Arts and Entertainment
AKB48 perform during one of their daily concerts at Tokyo’s Akihabara theatre
musicJapan's AKB48 are one of the world’s most-successful pop acts
News
Ian Thorpe has thanked his supporters after the athlete said in an interview that he is gay
people
News
The headstone of jazz great Miles Davis at Woodlawn Cemetery in New York
news
Arts and Entertainment
Brendan O'Carroll has brought out his female alter-ego Agnes Brown for Mrs Brown's Boys D'Movie
filmComedy holds its place at top of the UK box office
News
newsBear sweltering in zoo that reaches temperatures of 40 degrees
Arts and Entertainment
Professor Kathy Willis will showcase plants from the Royal Botanic Gardens at Kew
radioPlants: From Roots to Riches has been two years in the making
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
TV The follow-up documentary that has got locals worried
Arts and Entertainment
Paolo Nutini performs at T in the Park
music
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

Arts and Entertainment
Eminem's daughter Hailie has graduated from high school
music
Arts and Entertainment
Original Netflix series such as Orange Is The New Black are to benefit from a 'substantial' increase in investment
TVHoax announcement had caused outrage
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

HR Advisor - 6 months FTC Wimbledon, SW London

£35000 - £40000 per annum + Benefits: Ashdown Group: HR Advisor - 6 Months Fix...

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Day In a Page

Super Mario crushes the Messi dream as Germany win the 2014 World Cup in Brazil

Super Mario crushes the Messi dream

Germany win the 2014 World Cup in Brazil
Saharan remains may be evidence of the first race war, 13,000 years ago

The first race war, 13,000 years ago?

Saharan remains may be evidence of oldest large-scale armed conflict
Scientists find early warning system for Alzheimer’s

Scientists find early warning system for Alzheimer’s

Researchers hope eye tests can spot ‘biomarkers’ of the disease
Sex, controversy and schoolgirl schtick

Meet Japan's AKB48

Pop, sex and schoolgirl schtick make for controversial success
In pictures: Breathtaking results of this weekend's 'supermoon'

Weekend's 'supermoon' in pictures

The moon appeared bigger and brighter at the weekend
Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor