Exhale. The stress tests results of the nation’s 19 largest banks have been announced. For some, this wasn’t pleasant as some banks find out that they did not have enough capital to withstand a prolonged recession. For others, it was relieving, providing a decent amount of comfort to our investors, along with the public as whole. Overall, the results have established that those banks can withstand to lose approximately $600 billion in a bleak economic situation.
Results showed that 10 of the bank holding companies need to raise an additional $74.6 billion in new capital. Of the 10, Bank of America (NYSE: BAC) needs to raise the largest amount: $33.9 billion. Wells Fargo (NYSE: WF) comes in second place. Other banks include KeyCorp (NYSE: KEY), Citigroup Inc. (NYSE: C), Fifth Third Bancorp (NYSE: FITB), Morgan Stanley (NYSE: MS), GMAC LLC (NYSE: GJM), PNC Financial Services Group Inc. (NYSE: PNC), SunTrust Banks Inc. (NYSE: STI), and Regions Financial Corp (NYSE: RF).
These banks will have 6 months to fill their capital shortfalls but they are to submit their plans to federal regulators by June to show how they will fabricate the capital needed.
Some suggestions are:
1) selling stocks - Wells Fargo plans to sell common stocks to bolster their capital base
2) selling business units- Fifth Third Bancorp sold 51% of its processing business, which handled credit card, debit and other transactions, to Advent International. This deal increased FITB’s capital levels by $1.2 billion.
3) selling securities – Each of the banks can sell government issued-bonds and other various types of securities to generate capital.
4) TARP- The Troubled Asset Relief Program still has $110 billion in cash available for investment.
Fortunately for the 9 other banks, they do not need to raise additional capital. These banks include: US Bancorp (NYSE: USB), Bank of New York Mellon Corp. (NYSE: BK), Goldman Sachs Group Inc (NYSE: GS), Capital One Financial Corp. (NYSE: COF,) JP Morgan Chase & Co. (NYSE: JPM), BB&T Corp. (NYSE: BBT), State Street Corp. (NYSE: STT), and MetLife Inc. (NYSE: MET).
With that said, if you are still not quite sure about what the stress test entails and its purpose, please feel free to read “Stressing Out” published on May 3 on this following website. It might be able to provide you pieces and probable answers to any questions that you might have.
Tags: bank of america, bank stress tests, banks, citigroup, goldman sachs, jp morgan, morgan stanley, recession, securities, stress test, strest test results, TARP, wells fargo