The Fed Declares All Clear on Under-Capitalized Banks (Except GMAC, Duh)
Curiouser and curiouser. How's that worst case scenario working out for y'all?
The Federal Reserve said nine of 10 bank holding companies deemed short of capital in May have raised their reserves enough to withstand the risk of higher unemployment and slower economic growth.
“The one exception, GMAC, is expected to meet its remaining buffer need by accessing the TARP Automotive Industry Financing Program, and is in discussions with the U.S. Treasury on the structure of its investment,” the Fed Board said today in a press release. The Treasury has provided about $76 billion in loans or equity investments to the auto industry.
The U.S. central bank conducted stress tests of the 19 largest lenders earlier this year and determined that 10 needed to raise $74.6 billion to withstand potential credit losses in case of a more severe economic downturn. The conditions in the tests included economic growth of 0.5 percent next year and an average unemployment rate of 10.3 percent.
The Fed said the 10 companies raised common equity or other eligible securities of $39 billion, and converted preferred stock to common stock in the amount of $23 billion. Sales of businesses or assets raised $9 billion, the Fed said. Other actions to increase capital included dividend cuts and issuance of stock to employee stock ownership plans, the Fed said. Tier 1 common equity increased by more than $77 billion at the 10 firms, the Fed said.
The Standard & Poor’s 500 Index advanced 2.2 percent to 1,093.08 at 4:05 p.m. in New York for its sixth straight gain. Financial companies gained the most of 10 industry groups in the S&P 500, adding 3.6 percent collectively.
Among the 10 bank holding companies, Bank of America Corp. was judged in May to need $33.9 billion in additional capital under regulators’ criteria, the largest gap. Wells Fargo & Co.’s shortfall was $13.7 billion, while Citigroup Inc.’s was $5.5 billion. The Fed told banks in May to shore up reserve capital by early this month.
Fifth Third Bancorp’s (FITB) capital need was $1.1 billion, KeyCorp’s (KEY) was $1.8 billion, PNC Financial Services Group Inc.’s (PNC) was $600 million, Regions Financial Corp.’s (RF) was $2.5 billion and SunTrust Banks Inc.’s (STI) was $2.2 billion. GMAC LLC needed $11.5 billion, while Morgan Stanley’s (MS) assessment was $1.8 billion.
One of the rationales the Fed gave for the stress tests when it released the results in May was to make sure that banks could “meet the credit needs of their customers.” Many categories of bank lending have contracted this year as businesses and households cut back on debt and banks keep lending standards high. Unemployment rose to 10.2 percent in October, the highest level since 1983.
Really? That's fascinating. Without over-analyzing this, I wonder how SunTrust can call itself "well-capitalized"? Oh wait, I forgot we're using the Federal Reserve dipstick.
I said it:
Read on, let's talk about SunTrust (we also know SunTrust as the bank who entered into sheisty ARS agreements with LandAmerica but we'll let that one go. For now) and why it should have already been taken out back and put out of its misery.
Many U.S. regional banks, including Fifth Third Bancorp (FITB) and SunTrust Banks Inc (STI), may not show a profit until 2011, veteran banking analyst Richard Bove said, and downgraded both the stocks to "sell" from "neutral."
For SunTrust too, loan losses from its Florida and housing markets may keep the Southeastern regional bank in a loss position until the start of 2011 despite management's efforts to address problem areas, Bove said.
Last week, SunTrust posted its fourth straight quarterly loss, hurt by hefty loan loss provisions and an accounting change.
SunTrust is still suffering relatively high losses from home construction and mortgage-related lending, while its rivals have reported an easing of such problems. Analyst Bove also revised his price targets and outlook for Fifth Third, U.S. Bancorp and SunTrust.
SunTrust blames part of its issues on the fact that it's paying so much out to that loan shark the United States government:
SunTrust Banks Inc (STI) will repay its $4.9 billion government bailout as soon as regulators allow and its credit problems stabilize, CEO James Wells said on Tuesday.
Wells, speaking at the Barclays Global Financial Services Conference in New York, said the bank will not raise capital through a stock offering to repay the money borrowed under the Troubled Asset Relief Program. Instead, the bank will build capital through its earnings, he said.
Wells compared the bailout funds to "very expensive debt."
"I think anybody in their right mind would want to do something with debt this expensive," he added. The bank pays an 8 percent dividend rate on the preferred shares it sold to the U.S. government.
So I ask again, how's that all working out for you?
And more importantly, is the rest of the world actually going to buy this crap?