10 stressed banks must raise $75B

The orders likely mean it will be harder for consumers to borrow over the next 18 months.

McClatchy Newspapers

WASHINGTON — Federal regulators on Thursday released the final results of their bank stress tests and ordered 10 of the nation’s 19 largest banks to raise a total $75 billion in new capital to ensure their survival should the economic downturn worsen.

The tests on the companies, which together represent two-thirds of the banking sector and each with assets of more than $100 billion, measured how their loans and investments might perform if the economy took a much more serious turn for the worse. The tests projected that the banks would suffer up to $600 billion in new losses through 2010 under the most adverse conditions.

Based on this information, regulators decided which banks needed to raise more capital for worse conditions. Those companies, and the amounts they must raise, are as follows:

U Bank of America $33.9 billion

U Wells Fargo $13.7 billion

U GMAC $11.5 billion

U Citigroup $5.5 billion

U Regions Financial $2.5 billion

U SunTrust Banks $2.2 billion

U KeyCorp $1.8 billion

U Morgan Stanley $1.8 billion

U Fifth Third Bancorp $1.1 billion

U PNC Financial Services $600 million

Companies in the clear, freed from having to raise more capital, include Goldman Sachs, Bank of New York Mellon, J.P. Morgan Chase, BB&T, State Street, U.S. Bancorp, insurer MetLife, and credit card companies American Express and Capital One Financial.

“The results today should provide considerable comfort to investors and the public,” Federal Reserve Chairman Ben Bernanke said.

“We hope banks are going to go back to the business of banking,” Treasury Secretary Timothy Geithner said.

Banks deemed to need more capital can sell more stock, seek equity partners, sell assets such as their stakes in foreign banks or nonessential businesses, and convert preferred shares of stock into common stock. Absent all else they can convert taxpayer bailout money into shares of stock owned by the federal government.

Shortly before the results were made public, Wells Fargo announced that it would seek $6 billion in new stock to work toward its newly ordered buffer. And Morgan Stanley said it would seek to raise $2 billion in a stock offering and later raise another $3 billion in senior debt notes.

For consumers, the results could mean it will be even harder to borrow during the next 18 months. Banks must boost their balance sheets, and in the short run that generally means less lending to consumers and businesses.

“We expect for some time demand from consumers to be weak,” Bernanke said, adding that regulators don’t “want the banks to be making bad loans.”

Over a longer period, however, regulators think that banks will be better positioned to lend when the economy recovers.

For regulators, results point to a glass half full. The fact that the 19 banks must raise only a combined $75 billion as a buffer against potentially greater losses suggests that they’re relatively well capitalized.

Critical analysts, however, see a glass half empty in Thursday’s stress-test results.

“It’s a very educated guess, based on a lot of information, but they can’t see the future,” said Douglas Elliott, a financial analyst at the Brookings Institution, a center-left research center.