US banks told to raise $65bn in new capital
By Rupert Cornwell in Washington
Friday 08 May 2009
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.
Diving in at the deep end is no excuse for shirking the style stakes
- 1 Belgium fan Axelle Despiegelaere lands L'Oreal campaign after World Cup viral photo
- 2 Orange Is The New Black has not been cancelled – it was a hoax
- 3 Why I'm on the brink of burning my Israeli passport
- 5 Blackest is the new black: Scientists have developed a material so dark that you can't see it...
Pope Francis: ‘One in 50’ Catholic priests, bishops and cardinals is a paedophile
Fry ‘criticises Operation Yewtree in dinner party rant’ calling for tougher laws to deter false sex abuse allegations
Supermoon 2014 in pictures: Moon appeared bigger and brighter at the weekend
Saharan remains may be evidence of first race war, 13,000 years ago
Israel-Gaza conflict: ‘Sderot cinema’ image shows Israelis with popcorn and chairs 'cheering as missiles strike Palestinian targets'
Sustained immigration has not harmed Britons' employment, say government advisers
War is war: Why I stand with Israel
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
Socialist Worker called to apologise over ‘vile’ article saying Eton schoolboy Horatio Chapple's death is ‘reason to save the polar bears’
Emergency data law: David Cameron plots to bring back snoopers’ charter
NUT strike: David Cameron announces crackdown on strike action ahead of mass industrial action
iJobs Money & Business
£35000 - £40000 per annum + Benefits: Ashdown Group: HR Advisor - 6 Months Fix...
£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...
£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...
£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...