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By Jason Simpkins
The results of the government's bank stress tests won't be released until 5 p.m. today, but people familiar with the tests and banks involved have already leaked some of the results.
The U.S. Federal Reserve has directed at least seven banks to raise more than $65 billion in capital, according to a report by the Wall Street Journal.
Bank of America Corp. (NYSE: BAC) faces a $34 billion shortfall, the largest among the 19 banks tested. Wells Fargo & Co. (NYSE: WFC) must raise $15 billion; GMAC LLC (NYSE: GMA), $11.5 billion; Citigroup Inc.(NYSE: C), $5 billion; and Morgan Stanley (NYSE: MS), $1.5 billion, the Journal reported.
J.P. Morgan Chase & Co. (NYSE: JPM), Goldman Sachs Group Inc. (NYSE: GS), MetLife Inc. (NYSE: MET), American Express Co. (NYSE: AXP), Bank of New York Mellon Corp. (NYSE: BK) BB&T Corp. (NYSE: BBT) and Capital One Financial Corp. (NYSE: COF) are in the clear in terms of having adequate capital cushioning, according to Bloomberg News.
Results for Fifth Third Bancorp (NASDAQ: FITB), KeyCorp (NYSE: KEY), PNC Financial Services (NYSE: PNC), Regions Financial Corp. (NYSE: RF), State Street Corp. (NYSE: STT), SunTrust Banks Inc. (NYSE: STI), U.S. Bancorp (NYSE: USB) are not yet available.
The banks will have until June 8 to develop a plan to raise the required capital and face a Nov. 9 deadline to implement it. They may choose to raise the funds in a variety of different ways. They may sell assets, court private investment, or convert the government's existing preferred shares into common stock.
Citigroup has already announced plans to convert a portion of the government's $45 billion stake to common stock, a move that will give the federal government a 36% stake in the company. Other banks regional banks such as Fifth Third or Regions Financial could be forced to take similar action, but are loath to do so, as it would dilute the value of their common stock.
Citigroup has agreed to sell Nikko Cordial Securities to Sumitomo Mitsui Financial Group (OTC: SMFJY) for about $5.5 billion. The deal, which is to be completed by Oct. 1, and is expected to boost the bank's Tier-1 capital ratio by approximately 27 basis points.
Morgan Stanley plans to close its capital gap by selling assets or stock to private investors, a person briefed on the plan told The New York Times.
While Bank of America has said it doesn't agree with the Fed's conclusions, the bank yesterday outlined its strategy to accommodate the government's demands. BofA is exploring the sale of business units such as First Republic and asset manager Columbia Management, the Journal reported.
The sale of those businesses could raise a combined $4 billion David Hendler of CreditSights Inc. told the Journal. BofA could also get about $8 billion for its partial stake in China Construction Bank Corp.
Beyond that, BofA would have the options of converting the government's existing $45 billion investment or $33 billion in private preferred shares to common stock.
News and Related Story Links:
- Wall Street Journal:
Banks Need at Least $65 Billion in Capital
- Money Morning:
Bank Stress Tests Turn Up 10 Banks That Need More Capital
- Money Morning:
Bank of America, Citigroup Told to Boost Capital as Validity of Bank Stress Tests Is Called Into Question