THE EVENT: The Treasury Department is directing 10 of the
nation's 19 biggest banks to boost their capital levels by a
combined $75 billion, as a result of the government's stress
tests.
The Treasury released the much-anticipated results late
Thursday, with Bank of America Corp. (BAC), Wells Fargo & Co.
(WFC) and GMAC LLC being instructed to raise the most capital.
JPMorgan Chase & Co. (JPM), American Express Co. (AXP) and
Goldman Sachs Group Inc. (GS) were among the financial institutions
deemed to not need fresh capital.
Treasury Secretary Timothy Geithner, in a press conference, said
he was "reasonably confident" the banks could raise the needed
capital. Federal Reserve Chairman Ben Bernanke said the results
should provide "considerable comfort" about the health of the
banking system.
THE DETAILS: The Treasury said that losses at the 19 banks in
2009 and 2010 could be $600 billion under the government's scenario
of a deepening economic downturn. Mortgage and consumer loans could
account for 70% of potential losses.
The following institutions were directed to raise capital:
* Bank of America Corp. (BAC) $33.9 billion
* Wells Fargo & Co. (WFC) $13.7 billion
* GMAC LLC $11.1 billion
* Citigroup Inc. (C) $5.5 billion
* Regions Financial Corp. (RF) $2.5 billion
* SunTrust Banks Inc.(STI) $2.2 billion
* KeyCorp (KEY) $1.8 billion
* Morgan Stanley (MS) $1.8 billion
* Fifth Third Bancorp (FITB) $1.1 billion
* PNC Financial Services (PNC) $600 million
These institutions were deemed not to need new capital:
* 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)
* BB&T Corp. (BBT)
* U.S. Bancorp (USB)
MARKET REACTION: Most financial stocks closed lower Thursday,
along with the broader market, as investors awaited the release of
the test results. However, shares of Bank of America, Fifth Third
and Capital One posted gains. Bank of America rose 6.5% as its
capital shortfall was less than many feared. Fifth Third edged 1.3%
higher as Goldman Sachs upgraded its investment rating on the
bank's shares. Capital One surged 18% as expectations of its need
to raise capital proved to be unfounded.
The Dow Jones Industrial Average closed 1.2% lower at 8410, the
S&P 500 lost 1.3% to 907, and the Nasdaq Composite fell 2.4% to
1716.
The Financial Select Sector ETF (XLF), which tracks the
financial stocks in the S&P 500, fell 2.9%.
Treasurys fell hard, driven by a poor $14 billion 30-year bond
auction. Selling intensified after the auction, pushing the 10-year
and 30-year yield to the highest levels since November.
Crude-oil futures ended higher Thursday, as expectations of
stronger summer gasoline demand supported prices.
WHAT IT MEANS: The directives come after the government's
weeks-long exercise testing how the 19 banks would fare under
darker economic scenarios. Bernanke said the tests weren't "tests
of solvency."
The banks that need capital will have until June 8 to develop a
detailed plan for how they will raise any new required capital, the
Fed and other bank regulators said Wednesday, and until Nov. 9 to
implement that plan.
WHAT'S NEXT: After release of the Treasury Department's stress
test results for the U.S.'s largest banks, the market will begin to
guess what the results mean for the smaller banks that weren't
tested.
But the government said in a statement Wednesday night that it
had no intention of expanding the stress test beyond the 19 largest
banks. It also said that "smaller financial institutions generally
maintain capital levels, especially common equity, well above
regulatory capital standards."
The following are key stories:
-US Treasury: 10 Of 19 US Banks Need To Raise $75B In Capital
-Wells Fargo, Morgan Stanley Announce Stock Sales
-IN THE MONEY: Arbs Bet Banks Will Use Stock Swaps To Get Cash
-IN THE MONEY: What Tier 1 Common Cap Shows About The Banks
-STRESS TESTS: Government Using Little-Known Capital Measure
-STRESS TESTS: Regional Banks Might Face More Pitfalls
-STRESS TESTS: MetLife's Insur Strength Carries Along Its Bank
-STRESS TESTS: GMAC Faces Capital Drain
-Financials Erase Gains Before Stress-Test Results
-Bernanke: Hopes Stress Tests Add To Mkt Confidence
-Budget Projects $91B In Losses From US Bank Failures In '09-10
-Stress Tests Separate Strong Banks From Weak
-Bernanke Says Regulators Must Be More Vigilant