Stressed out banks need to earn more
The bank stress test results are in, and CNN Money has a report. But before I go there, let’s have a breakdown. Aieeeeeee!
How does your budget handle life’s little stress tests? Is it flexible enough to handle surprise expenses with room to spare? If you’re like most people, some of those surprises can slip past the budget’s front line and wreak havoc. Emergency cash is required during times like those, and you’d be making a mistake if you didn’t consider just how valuable short term loans and installment loans can be in a pinch.
That works on the consumer level, but what happens when we’re talking about something bigger, like banks? One of the reasons this recession has been so gloomy for America is that its banks have been in such a toxic state of debt that lending cannot begin in earnest and liquidity has been – mostly – postponed.
“This is only a test. In case of a real emergency…”
The Federal Reserve conducted stress tests on 19 of America’s top banks. According to Chairman Ben Bernanke, “at least six” of those banks must boost their capital levels by $65 billion. These official stress test results are intended to show which banks can make it on their own. The hope is they will add to market confidence, but he stresses they “aren’t meant to be a test of solvency.”
In the bank stress test results, the Fed recognized bank losses and loss rates across a variety of categories including loans, resources, and any necessary additions to capital. Results are considered “what-if” and are not supposed to be treated as actual forecasts, although the public will take them to mean such anyway.
Who needs to raise money?
- Bank of America Corp. (BAC) needs $34 billion
- Wells Fargo & Co. (WFC) needs $13 to $15 billion
- GMAC LLC needs $11.5 billion
- Citigroup Inc. (C) needs $5 billion
- Morgan Stanley (MS) needs $1.5 billion
- Regions Financial Corp. (RF) needs an unknown amount (hmmm?)
Who’s doing OK?
- JPMorgan Chase & Co. (JPM)
- American Express Co. (AXP)
- Goldman Sachs Group Inc. (GS)
- Bank of New York Mellon Corp. (BK)
- MetLife Inc. (MET)
- Capital One Financial Corp. (COF)
- State Street Corp. (STT)
Inconclusive results (whatever are we paying you for, Fed?)
- Fifth Third Bancorp (FITB)
- KeyCorp (KEY)
- PNC Financial Services (PNC)
- SunTrust Banks Inc. (STI)
(Why does that list add up to 17 and not 16?)
Gotta have faith
Predictably, financial stocks took a tumble as they awaited the bank stress test results. Faith in the market remains low, doesn’t it? But as results of the bank stress test were revealed, shares of Bank of America Corp. and Fifth Third Bancorp went up. Investors figure that things weren’t as bad as they thought after all. Unfortunately, Citigroup investors didn’t share the same enthusiasm, so share price decreased. The Dow and the S & P 500 were down as well.
Get them some rose-colored glasses
Happy investors mean better share prices. Perhaps some Pop Tarts will cheer them up?
Treasury prices also need help, as they have also slumped of late. Yields did hit fresh highs for 2009 so far, due to the government’s final Treasury auction this week. Crude futures surged, however. This can be tied directly to the increased demand for gasoline and economies slowly begin to recover. Happy people hit the road, and their chariots drink that Texas tea.
Back to the bank stress test
The banks in need will have until June 8 to draw up a plan to illustrate how they’ll earn the money. That plan, according to the Fed, must be put into practice by November 9. Can they do it? With signs of potential recovery poking through the gloom, experts are hopeful.
What about those smaller banks who weren’t tested? Not to worry. According to the Fed, “smaller financial institutions generally maintain capital levels, especially common equity, well above regulatory capital standards.” That’s good for small regional businesses who depend upon such banks for lending power. It’s the big boys who drive mortgage and auto lending that must find their centers and stop lending like drunken fools. That will bring America back from the ledge. That and a free market that will allow and short term loans and installment loans. Thank you, ladies and gentlemen. Please shill for your server and remind them of how true that is.
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Oh, boy. Those are banks in trouble. (Good thing I don’t bank with them.) Bank of America – $30 billion in the hole. How do you lose that much money? I thought going to a casino was irresponsible, and here we have the ultimate companies in high finance, losing vast amounts of money. Maybe a Harvard MBA isn’t worth that much after all.