This is a scene from the movie "Young Frankenstein".Reuters
UPDATE 12-Citi, BofA may need more capital after stress tests
Reporting by Ajay Kamalakaran in Bangalore, Elinor Comlay and Dan Wilchins in New York
Wednesday April 29, 2009
NEW YORK, April 29 (Reuters) - Citigroup Inc (C.N) may have to raise more capital after preliminary results of its stress test from U.S. regulators, people familiar with the matter said, and Bank of America Corp (BAC.N) may need billions more, the Wall Street Journal reported.
The reports on Tuesday triggered a new round of guesswork and analysis on Wall Street as investors tried to figure out which other banks might face pressure to raise capital.
Wells Fargo & Co's (WFC.N) shares fell as much as 5 percent, while Bank of America and Citigroup shares fell as much as 10 percent and 7 percent, respectively.
Bloomberg reported on Wednesday that at least six of the banks that underwent the tests require additional capital, citing people briefed on the matter.
Some of the lenders may need extra cash injections from the government, but most of the capital is likely to come from converting preferred shares to common equity, the people told the agency.
Late on Tuesday, the Journal reported that Citi had asked the U.S. Treasury for permission to pay special bonuses to employees. The bank is also looking into ways to free its energy-trading unit, Phibro, from pay restrictions and is considering a spinoff into an independent hedge fund or bringing in outside investors, the paper reported.
Bank of America may need to raise as much as $70 billion to maintain an acceptable tangible common equity ratio -- a measure of capital strength -- if unemployment rises, analysts at FBR wrote in a report on Tuesday.
Both Citi and Bank of America posted better-than-expected first-quarter results, but analysts have questioned whether the improvement can last given looming credit losses and the surprisingly high trading profits and one-time gains that boosted the results.
Each bank has received $45 billion of capital injections under the U.S. government's Troubled Asset Relief Program, more than any other major bank.
But both banks are also likely to face substantially more consumer credit losses as U.S. unemployment reaches its highest level in a generation. Bank of America averaged more than $600 billion of consumer loans during the first quarter, while Citigroup averaged more than $500 billion.
"Loan losses continue to get worse, charge offs continue to get worse, so of course (banks) need to continue to raise capital," said Jon Fisher, portfolio manager at Fifth Third Asset Management.
The government said that results of the stress tests on the 19 largest U.S. banks would be released next week. The 19 banks tested, which include JPMorgan Chase & Co and Wells Fargo, hold two-thirds of the assets and more than half of the loans in the U.S. banking system.
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UPDATE 12-Citi, BofA may need more capital after stress tests
Reporting by Ajay Kamalakaran in Bangalore, Elinor Comlay and Dan Wilchins in New York
Wednesday April 29, 2009
NEW YORK, April 29 (Reuters) - Citigroup Inc (C.N) may have to raise more capital after preliminary results of its stress test from U.S. regulators, people familiar with the matter said, and Bank of America Corp (BAC.N) may need billions more, the Wall Street Journal reported.
The reports on Tuesday triggered a new round of guesswork and analysis on Wall Street as investors tried to figure out which other banks might face pressure to raise capital.
Wells Fargo & Co's (WFC.N) shares fell as much as 5 percent, while Bank of America and Citigroup shares fell as much as 10 percent and 7 percent, respectively.
Bloomberg reported on Wednesday that at least six of the banks that underwent the tests require additional capital, citing people briefed on the matter.
Some of the lenders may need extra cash injections from the government, but most of the capital is likely to come from converting preferred shares to common equity, the people told the agency.
Late on Tuesday, the Journal reported that Citi had asked the U.S. Treasury for permission to pay special bonuses to employees. The bank is also looking into ways to free its energy-trading unit, Phibro, from pay restrictions and is considering a spinoff into an independent hedge fund or bringing in outside investors, the paper reported.
Bank of America may need to raise as much as $70 billion to maintain an acceptable tangible common equity ratio -- a measure of capital strength -- if unemployment rises, analysts at FBR wrote in a report on Tuesday.
Both Citi and Bank of America posted better-than-expected first-quarter results, but analysts have questioned whether the improvement can last given looming credit losses and the surprisingly high trading profits and one-time gains that boosted the results.
Each bank has received $45 billion of capital injections under the U.S. government's Troubled Asset Relief Program, more than any other major bank.
But both banks are also likely to face substantially more consumer credit losses as U.S. unemployment reaches its highest level in a generation. Bank of America averaged more than $600 billion of consumer loans during the first quarter, while Citigroup averaged more than $500 billion.
"Loan losses continue to get worse, charge offs continue to get worse, so of course (banks) need to continue to raise capital," said Jon Fisher, portfolio manager at Fifth Third Asset Management.
The government said that results of the stress tests on the 19 largest U.S. banks would be released next week. The 19 banks tested, which include JPMorgan Chase & Co and Wells Fargo, hold two-thirds of the assets and more than half of the loans in the U.S. banking system.
Please click HERE to continue reading the entire article... MUST READ!
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