At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests, people briefed on the matter said.
While some of the lenders may need extra cash injections from the government, most of the capital is likely to come from converting preferred shares to common equity, the people said. The Federal Reserve is now hearing appeals from banks, including Citigroup Inc. and Bank of America Corp., that regulators have determined need more of a cushion against losses, they added.
By pushing conversions, rather than federal assistance, the government would allow banks to shore themselves up without the political taint that has soured both Wall Street and Congress on the bailouts. The risk is that, along with diluting existing shareholders, the government action won’t seem strong enough.
“The challenge that policy makers will confront is that more will be needed and it’s not clear they have the resources currently in place or the political capability to deliver more,” said David Greenlaw, the chief financial economist at Morgan Stanley, one of the 19 banks that are being tested, in New York.
Final results of the tests are due to be released next week.
Sorry, but apparently things will go from bad to worse.
I think this sums up what we have in store.
“For Americans to conclude that they disapprove of their president in the midst of an earth-shaking crisis is very difficult. But as Obama’s daily line moves from “I inherited this mess” to “There are faint signs of light,” the clock starts ticking. If there is no recovery for the next six months — and I don’t think there will be — Obama will inevitably become part of the problem, not part of the solution.
And then will come his heavy lifting. He has yet to raise taxes, regiment healthcare or provide amnesty for illegal immigrants. He hasn’t closed down the car companies he now runs and he has not yet forced a 50 percent hike in utility bills with his cap-and-trade legislation. These are all the goodies he has in store for us all.”
http://tinyurl.com/c4lzgk
Something to look forward to.
Do a google News search for “banks stress test.”
There happens to be many leaks with many different results.
The first on April 20th From Tuner Radio said;
“Of the top nineteen (19) banks in the nation, sixteen (16) are already technically insolvent.”
Then it the number went to ten, now it is at six. Maybe the Fed is testing leaks.
Ah-Yeah! “If there is no recovery for the next six months — and I don’t think there will be — Obama will inevitably become part of the problem, not part of the solution.”
Um, why should he. It didn’t happen for Reagan. Oops I forgot, Reagan was white!
rofl…
in honoring the wise decision made “way back when” -to let the banks regulate themselves, Geitner, in his infinite wisdom, thought since the banks have proved that they are excellent at regulating themselves, maybe they should run their own stress tests for the most part too.
Tyler Durden, author of the outstanding, if not one of the best financial blogs on the net: Zero Hedge Blog -opined an article a few days ago called “The Stress Test Cliff Notes”
Tyler whipped up a brief 13 point article in his usual, brutal yet sobering style that shines yet another light on our newest Spin Doctor in Chief in charge of The Fed.
Without further delay, here are the first 6 points he made to consider when you hear the results of the stress test on May 4th. Enjoy!
Article link:
http://zerohedge.blogspot.com/2009/04/stress-test-cliff-notes.html
– – – – – snip – – – – – – –
“For those too lazy to click on the Federal Reserve link and read, below are some of the key points contained in the SCAP:”
(1) “more than 150 senior supervisors, on-site examiners, analysts and economists” spent a month reviewing the 19 BHC’s that hold two thirds of the country’s bank assets and account for one half of the loans
More than 150 means at least 151. Is the US Iceland or something? Ten trillion dollars in assets and five hundred trillion dollars in derivatives in one month? A typical single bank examination utilizes hundreds of examiners and takes several months. Clearly the next release of public sector productivity numbers is going to astonish.
(2) ”the firms were asked to project…..the firms were asked to provide…etc.”
In other words, the banks tested themselves and the 150 examiners took their word for it. Any wonder they passed?
(3) “traditional role of capital, especially common equity, is to absorb unexpected losses and thus to protect depositors and other creditors. ”
Well, it used to be. Now that job has been outsourced to the US Taxpayer.
(4) “As a result of the loss recognition framework for assets in the accrual loan book, the results of this exercise are not comparable with those that would evaluate such assets on a mark-to-market basis”.
Absolutely. What does the market know anyway? The banks’ models got us into this calamity so damn if they can’t get us out!
(5) “The SCAP analysis is forward looking, but over a limited time horizon. Losses and resources are projected over a two-year period (2009 to 2010) …”
Apparently Treasury is absolutely certain that the crisis they never saw coming will be over soon and in no way is today like 1930. Great news!
(6) “Each participating firm was instructed to project potential losses on its loan, investment, and trading securities portfolios, including off-balance sheet commitments and contingent liabilities and exposures over the two-year horizon beginning with year-end 2008 financial statement data. “
Again, Treasury outsourced the testing to the banks themselves. So what was the job of the Treasury staff other than to photocopy , collate and file? Was this a Temp Staff? Kelly Girls?
– – – – – snip – – – – – – –
now, repeat after me,
“Change you can believe in.”
-s
It is SO GREAT to have a government that gets out ahead of these things.
If this was the Bush Administration, these banks would fail and they’d claim “NOBODY could have foreseen this!”
# 3 Um, why should he. It didn’t happen for Reagan. Oops I forgot, Reagan was white!
Other than you, Who cares if he is white? I don’t. Stop trying to play the race card.
The Fed has told the banks they can value their assests, including toxic assets, for about anything they want. If you do that nobody has clue how strong a given bank is.
#8 deowll,
Boy you really hit the nail on the head!
This stress test is more like a practice examination. Do your (the banks) valuations on assets pass the stress test? If not, simply change their values until you do!
Completely divorced from reality. Just a way to play the numbers until you look good.
#10, Alphie, the Quaalude Queen,
Please Alphie, take another ‘lude and relax. You know less about economics than does Cow-Patty.
The disruption to the economy of a bank the size of Indy Mac would be very severe. A bank the type and size of Bank of America or Citibank would be devastating. They hold literally billions of dollars of unsecured money flowing through their doors, money way beyond that covered by deposit insurance.
They fail and all the money inside their doors stops until the regulators figure it out which could take years.
That payment from Company “A” to Company “B” is held in limbo. “A” might not get their goods. “B” doesn’t get paid, can’t make their payroll. “B” employees don’t get paid, lose their jobs. No jobs, no mortgage or car payments. No loan payments, now Bank “C” is stressed and can’t loan money to Company “D”. And on it goes.
I’m not here to give stock picks to a crowd so obviously incompetent in economics much less history.
Just thought I’d mention in passing that one of the stocks I’ve been interested in for a spell was an international bank that has only one mediocre asset – acquired in the U.S. – a lending institution stuck into sub-prime hustles.
They recently offered up shares similar to those discussed in the article – to a limited market. I happened to be in that group and grabbed a small chunk. So far – in four weeks – I’ve made 36%.
So, keep up with the purity of your bodily fluids and neocon self-flagellation, guys. You’re as irrelevant as your allegiances.