The official results of the banking sector stress test have not yet been released. But the Wall Street Journal is reporting today that two potential casualties will be Citigroup and Bank of America. Specifically, the Journal says the feds want both institutions to raise billions of dollars more in capital, though the banks are reportedly disputing the findings. More below …
“Regulators have told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital based on early results of the government’s so-called stress tests of lenders, according to people familiar with the situation.
“The capital shortfall amounts to billions of dollars at Bank of America, based in Charlotte, N.C., people familiar with the bank said.
“Executives at both banks are objecting to the preliminary findings, which emerged from the government’s scrutiny of 19 large financial institutions. The two banks are planning to respond with detailed rebuttals, these people said, with Bank of America’s appeal expected by Tuesday.
“The findings suggest that government officials are using the stress tests to send a tough message to struggling banks. Bank of America and Citigroup have been the highest-profile problem children in recent months, but it is unlikely that they are the only banks the Federal Reserve has determined might need more capital.
“Industry analysts and investors predict that some regional banks, especially those with big portfolios of commercial real-estate loans, likely fared poorly on the stress tests. Analysts consider Regions Financial Corp., Fifth Third Bancorp and Wells Fargo & Co. to be among the leading contenders for more capital. Wells Fargo declined to comment. Representatives of Regions and Fifth Third didn’t respond to requests for comment made late in the day.”
{ 4 comments… read them below or add one }
In other words, the Fed is saying, you are keeping our money & our involvement, AND go forth and screw the paying customers some more.
This is why the banks are yanking performing loans from businesses by the bushel full. To raise capital.
Never mind that these increases are at the cost of defaulting consumers (the former employees) & businesses (no one is out there re-lending the money to paying loans).
What a fiasco and farce which is being made worse with help of government. Where are these banks going to make money in the future when they are bankrupting paying customers?
What I would like to know is how to make money from these developements. I know it seems morally wrong for the gov to bail out everyone, but what effect will it have on financial ETF’s. The ETF:SKF has dropped from 260 to 60 in 2 months due to these developments. I think the descripion is the gov has created a vacume cleaner like black box to suck all the bad stuff out of banks and the result is investors buying up bank stocks, resulting in strong moves in the financial ETF’s. Will this continue?
This is my first or second post and wonder if you respond to these things. If you respond does this system send me an email? or do I have to log back in to this article?
If BofAm puts up a big fight, is it possible that the idea of Nationalization of Banks will be threatened?
Mike,
I follow what you say.. and have followed your advise for quite some time both on safe money magazine and your crisis opportunity. I hold an inverse ETF (with no stop loses) as suggested by you and martin but I am taking a serious beating… what gives?.
Lord Keynes had the following economic statement “markets
can remain illogical far longer than you or I can remain
solvent.” Is that where those of us who hold inverse ETFs are headed?