US: Bank of America Needs $33.9B Cushion
Extra 5/6/2009 12:16 PM ET

Investors brush off B of A report
A day before the government releases its stress test results, reports says Bank of America is the latest financial giant in need of more capital.

By Elizabeth Strott
MSN Money

Bank of America (BAC, news, msgs) is feeling the pressure just one day before the results of the government's stress tests are released.

The bank’s capital needs of a reported $34 billion could already be covered, according to CNBC and other reports. That figure does not necessarily mean Bank of America needs additional billions in cash, which sent the stock lower earlier in the session.

The government has already invested $45 billion into the bank, and although that investment was in preferred stock and doesn’t count as the type of capital regulators say the bank needs, B of A could convert it into common shares and eliminate the dilemma. The only consequence -- and a big one -- is that, if the shares are converted, the federal government will become one of the bank’s biggest shareholders and will dilute the existing common shareholders.

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B of A = Barak of America?

No Bush Of America. He's the one with the billionaire friends, Saudi and domestic, that he and his family have pampered for nearly a century.

It was on his watch as well.

Charlie

B of A didn't even ask for the funds.  They were forced on them by the Obama administration.  Can you say "Nationalization"?

FDR, same for Obama, wasn't for nationalization either. Not only New Dealers recognized that the Fed preserved and saved capitalization from itself.

Charlie

Sorry Charlie, you can't put this one on Bush.  I know that's a tough pill to swallow.  Bush isn't the one who will be running BofA when they are conveniently forced to convert those share to Common, making Barack the defacto CEO.

"Just Say No" to Bush Derangement Syndrome

Regardless, even IF you want to say it was all Bush's fault, you can't deny that Obama is choosing how to deal with it TODAY.  It is on Obama, not Bush.  Obama's Whitehouse (as Obama calls it) is the one calling the shots now, and he could stop this nonsense if he thought nationalization was a 'bad thing'.  No, this is all Barack.

Does anyone ever say it's William Howard Taft's fault? James K. Polk's fault? How about Grover Cleveland's fault? That guy just looked guilty.

Thought provolking statement there Bill, as well as historically accurate.  

Thanks.... ;)

Since 70% of our economy is dependent on consumer spending and the economic downturn has the consumer tightening their belts, the Government will act as the consumer.

So, after insisting that the notion of home ownership to be a nice thing, and forcing banks to take on risky deals, that subsequently flop, the Government is forced to cover their faulty decisions with this type of bailout crap.

The really neat thing is that the Government is giving the Banks gobs of money (our money) to reignite the excessive consumerism that got us here in the first place. And it is the Banks that will happily be contractually dispersing the money to the masses for a minor fee called interest. The Government will gladly siphon off its part of the profits all the while encouraging us with tax breaks on the interest we pay on our mortgages.

One thing I find noticeably delicious is the striking similarities between the Bush and Obama administrations in their approach to this Banking collapse. They are the same. What a notion!?  Who is really steering the policy?

One way or another, you, your children and grandchildren will be paying for it. Free range chickens I'm telling ya'...we ain't nothing to the oligarchs but free range chickens. Pretty soon us chickens will all possess the same amount of eggs, no more...no less and we'll all be happy and free.

Steve bawk bawk G

I'm from the goverment....I'm here to help you! ;)

Quote:

How about Grover Cleveland's fault? That guy just looked guilty.

What? A Democrat? Heaven forbid! ::)

It must be tough to defend George Bush who is almost excusively responsible for wrecking the Republican Party. No one worked harder to elect Democrats than he and his bizarre administration. So far the current GOP crowd has been "purifying" itself by flushing out its moderates. Reagan must be turning in his grave.

Charlie

I can't defend Bush for much, Charlie. But the man did know where our anger and retribution was supposed to be directed - at radical Islamists.

Everything else - the guy was too liberal for me. Seems like the Constitution doesn't mean much inside the beltway anymore.

Stress tests find 10 big banks need $75B more
By Daniel Wagner And Jeannine Aversa, Ap Business Writers - 30 mins ago

WASHINGTON - The government's long-awaited "stress-test" results have found that 10 of the nation's 19 largest banks need a total of about $75 billion in new capital to withstand losses if the recession worsened. The Federal Reserve's findings, released Thursday, show the financial system, like the overall economy, is healing but not yet healed.

Some of the largest banks are stable, the tests found. But others need billions more in capital - a signal by regulators that the industry is vulnerable but viable. Government officials have said a stronger banking system is needed for an economic rebound.

Officials hope the tests will restore investors' confidence that not all banks are weak, and that even those that are can be strengthened. They have said none of the banks will be allowed to fail.

The banks that need more capital will have until June 8 to develop a plan and have it approved by their regulators.

Among the 10 banks that need to raise more capital, the tests said Bank of America Corp. needs by far the most: $33.9 billion. Wells Fargo & Co. requires $13.7 billion, GMAC LLC $11.5 billion, Citigroup Inc. $5.5 billion and Morgan Stanley $1.8 billion.

The other five requiring capital are all regional banks: Regions Financial Corp. of Birmingham, Ala., needs to raise $2.5 billion; SunTrust Banks Inc. of Atlanta $2.2 billion; KeyCorp of Cleveland $1.8 billion; Fifth Third Bancorp of Cincinnati $1.1 billion; and PNC Financial Services Group Inc. of Pittsburgh $600 million.

Some of the firms that need more capital already are announcing their strategies. Morgan Stanley, which the government says needs $1.8 billion in new capital, said it plans to raise $5 billion. That will include $2 billion in common stock.

The tests found that if the recession were to worsen, losses at the 19 stress-tested firms during 2009 and 2010 could total $600 billion.

"Looking at the big picture, you can say that things aren't so bad for the financial industry as a whole," said Kevin Logan, chief U.S. economist at Dresdner Kleinwort.

But Logan said attracting fresh capital will be a challenge for banks that need it.

"The banking industry is not going to make a lot of money going forward, and that's a dilemma for keeping banks solvent and getting them lending," he said.

Financial stocks surged in after-hours trading, after the report was released at 5 p.m. Citigroup shares jumped 8.4 percent to $4.13, while State Street rose 7.3 percent to $40.60. Earlier, the markets had been down.

The government's unprecedented decision to publicly release bank exams has led some critics to question whether the findings are credible. Some said regulators seemed so intent on sustaining public confidence in the banks that the results would have to find the banks basically healthy, even if some need to raise more capital.

Jaidev Iyer, a former risk management chief at Citigroup, said regulators are playing to public expectations, which could put the government in the role of creating "winners and losers."

Because the government has said it won't let any firm fold, that could put taxpayers on the hook more than a confidential test would have, he said.

"If there is in fact no appetite to let losers fail, then the real losers are the market at large, the government and the taxpayers," Iyer said.

In the tests, the Fed put banks through two scenarios for what might happen to the economy.

One reflected forecasters' current expectations about the recession. It assumed unemployment will reach 8.8 percent in 2010 and house prices would decline by 14 percent this year.

The second scenario imagined a worse-than-expected downturn: Unemployment would hit 10.3 percent and house prices would drop 22 percent.

The steeper downturn would make it harder for consumers and businesses to repay loans, which would cause banks' assets to lose value. The government is forcing the banks to keep their capital reserves up so they can keep lending even if the economic picture darkens.

But some analysts questioned whether the tests were rigorous enough. Economic assumptions have changed since the test was designed in February. The U.S. jobless rate has risen to 8.5 percent and is projected to go higher this year.

"The assumptions the government has used are likely not to be completely accurate," said Jason O'Donnell, a bank analyst with Boenning & Scattergood Inc.

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Economically speaking...we are giving Banks money. Is this strange?

I read an analogy, somewhere I can't remember, that this situation is like a lumber mill.

Pretend you own a lumber mill and logs, raw product, is delivered to the train dock and offloads much lumber product. Then you run the product through you mill and sell it for a prophet at the other end of the mill.

Now think about how much money you could make if you were getting the raw product and others were paying for it. Who is it that's providing the raw product and practically giving it away? And look who they are giving it to...and not giving it to.

We are living in interesting times. Stress Test indeed.

Steve G