Released Stress Test Results

Tim Huang — Fri, 08 May 2009 17:45:08 +0000

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.

Will Others Follow Goldman’s Lead? Good News!!!

Tim Huang — Sat, 28 Mar 2009 01:42:20 +0000

Finally some good news! Goldman Sachs plans to give back its TARP money, possibly even as soon as next month. This gives us something to ponder about as to why they suddenly want to give back its TARP money. Could it be that they have received an overwhelming amount of criticisms due to the fact that, being as a counter-party of risky bets, Goldman had been the largest recipient of AIG’s government money and they need to revive some reputation since the information had been revealed? Goldman received approximately $12.9 billion dollars in payments and collateral! These collaterals from Goldman and other counter-parties eventually contributed to AIG’s sudden collapse, which then led to the billions of taxpayer dollars fly into the pockets of the big financial companies.

Now, that we’ve seen where some of the criticisms are coming from, let’s focus on another reason why they have a strong urge to return $10 billion back to the government, which is simply the fact that they are able to. They currently have a balance sheet with about $100 billion of available cash, so $10 billion should be affordable and not cause a problem. Of course, if all this plays out as Goldman hopes, it is definitely good news for taxpayers.

Another issue we can focus on is: If Goldman succeeds in returning our money, will others essentially follow? If the plan follows through, it could situate pressure on other companies, specifically the stronger ones, to give back their money.

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Released Stress Test Results

Will Others Follow Goldman’s Lead? Good News!!!