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
Life and Style
food + drink
Arts and Entertainment
musicBand's first new record for 20 years has some tough acts to follow
News
Shoppers in Covent Garden, London, celebrate after they were the first to buy the iPhone 6, released yesterday
tech
News
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Life and Style
healthFor Pure-O OCD sufferers this is a reality they live in
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
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

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments