The stress test results are finally out and no banks failed (surprised, surprised). Details of how stressful the tests were is unclear but no matter, the market rallied. However, nine of the 19 banks tested were said to need more capital and they have until June 8th to come up with a plan and until November 9th to raise that capital.
Here are the banks that need capital and how much they need to raise.
- Bank of America – $33.9 billion
- Citigroup – $5.5 billion.
- Fifth Third Bancorp – $1.1 billion
- GMAC – $11.5 billion
- KeyCorp – $1.8 billion
- Morgan Stanley – $1.8 billion
- PNC Financial Services Group – $600 million
- Regions Financial – $2.5 billion
- SunTrust Banks – $2.2 billion
- Wells Fargo & Co – $13.7 billion
Obviously, some banks will have more trouble to raise capital than others. Take Wells Fargo for instance. The first trading day, the company issued common stock as well as debt without government guarantee and was able to raise $8 billion. GMAC on the other hand, needing $11.5 billion will have much more trouble getting their capital without government help.
Banks that don’t need to raise more capital:
- American Express
- Bank of New York Mellon
- BB&T
- Capital One Financial
- Goldman Sachs
- JPMorgan Chase & Co.
- MetLife
- State Street
- U.S. Bancorp
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Despite the recent euphoria over the bank stress test results, all is not rosy. The results are overstated. (1) The metric used by the Fed – “tier 1 common capital” – is unusual and makes banks look overly healthy. (2) The banks negotiated down the results of the tests by about 50%. (3) Current earnings benefit from accounting gimmicks.
Federal intervention into the US banking industry was necessary. During The Great Depression, Hoover intervened with a bailout for four years after that great debacle, resulting in a collapse of the banking industry. In the 80′s, Japan failed to move quickly to intervene with a bailout of their banking system, resulting in hundreds of “Zombie” banks, or banks with zero equity.
Barack Obama was not going to make the same mistake, and the $300 billion TARP bailout provided to failing banks was a necessary evil to prevent a mass collapse of the US banking system.
The Fed Stress Test is good for consumers. We want to know just how serious the financial condition of our bank is. Speaking for myself, I moved my account from a bank with a high stress test grade to another with a low stress test grade. This gives me peace of mind.
If you ask me, the CEO’s of some of these banks should’ve been fired by the Fed or asked to resign. They are the ones who got us into this financial mess, and now they cry foul. What a bunch of crooks.