Reply #14: Stress tests reveal Citi and BofA need more capital, but you knew that already - by Edward Harrison

[ozymandius]

Posted at Naked Capitalism:

The leaks about who failed the stress tests are already starting. Who got a big fat 'F'? Apparently, Citi and BofA for starters. But is that any surprise?

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.

Just three months ago these two mega-banks were on the verge of collapse and needed yet more cash to sustain them. So, the 'stress tests' haven't provided any new information. But, ah, there's that last sentence: "it is unlikely that they are the only banks the Federal Reserve has determined might need more capital." Who else might need more dosh?

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.

Go read the whole thing.