New worries about banks give Wall Street a wallop

WASHINGTON (AP) — Anxiety is growing again over the health of the nation’s largest banks, and with Congress hesitant to commit more money, the Obama administration is exploring ways to strengthen them in the face of an unrelenting recession.

Results of the federal government’s “stress tests” on big banks are due May 4, and Wall Street is increasingly worried they will show some banks are in worse shape than expected.

The renewed bank fears drove the stock market down Monday in its worst showing in six weeks. Bank of America stock lost nearly a quarter of its value, and the Dow Jones industrial average fell almost 290 points.

Bank of America reported a first-quarter profit of $2.8 billion, joining other banks whose earnings reports have looked positive at first blush. But some analysts say accounting steps are concealing the depth of the financial industry’s woes.

The banks have been helped by income from trading and cheap borrowing, but they are still struggling with bad debt, said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.

Investors are “looking at bank numbers and are saying they are not that great,” he said.

Among the ideas being explored by the administration is converting the government’s loans into equity stakes, which would improve the banks’ bottom lines by increasing their capital reserves.

The Treasury Department will outline Friday how it plans to structure the stress tests, which aim to gauge the health of 19 big banks.