According to the WSJ, the sacrificial lambs will include B of A, Citi and a few regionals:
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.
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.
No way could GS or JPM need capital, not with crony Geithner at the helm…and… B of A and Citi have not finished squirming out of it yet…
In a piece designed to contrast money center banks with regional banks, Institutional risk offers their opinion on the Fed’s thinking:
“No wonder that Fed Chairman Bernanke and Treasury Secretary Tim Geithner persist in their idiotic position that toxic subprime assets have true “values” of 80% of par. As we told the clients of IRA’s institutional advisory service earlier this week:
“Based on our projections and channel checks, we think that maybe the Fed staff got it wrong and put down the likely loss rate instead of the fanciful LT recovery rate embraced by Bernanke, Geithner and Summers. Truth is, the LT recovery or “Loss Given Default” (LGD) rate experience of 20-30% (which are the LT LGD rates used by Moody’s, S&P for internal loss rate projections) are holding true in this cycle as in previous economic downturns and may actually be optimistic compared with the actual realized loss.”
With most of the RES and CRE collateral we see in the channel trading in the 30s, it is only a matter of time before the markets force Bernanke, Geithner and Summers to abandon their desire to subsidize the large, insolvent banks and finally embrace liquidation. “
In his FT opinion piece on March 26, Alan Greenspan writes of the need for a better cushion against risk. Naked Capitalism accuses Greenspan of both disengeuousness and errors of fact in his piece. Yet, Greenspan’s estimates for new capital needed at the money center banks are interesting and except at RGE Monitor, have received little attention:
“I believe that recent risk spreads suggest that markets require perhaps 13 or 14 per cent capital (up from 10 per cent) before US banks are likely to lend freely again.
Analysis of the US consolidated bank balance sheet suggests a potential loss of at least $1,000bn out of the more than $12,000bn of US commercial bank assets at original book value.
Through the end of 2008, approximately $500bn had been written off, leaving an additional $500bn yet to be recognised. But funding the latter $500bn will not be enough to foster normal lending if investors in the liabilities of banks require, as I suspect, an additional 3-4 percentage points of cushion in their equity capital-to-asset ratios. The overall need appears to be north of $850bn. Some is being replenished by increased bank cash flow. A turnround of global equity prices could deliver a far larger part of those needs. Still, a deep hole must be filled, probably with sovereign US Treasury credits.”
Given his assertion that 13-14% equity is required and even with the current program of raiding AIG (make that taxpayer) assets to fund the banks, Greenspan, conservatively estimates a need for $850B. This level of capital will need congressional approval as we don’t believe the Geithner gansters can fund it by the shenanigan pipeline. Greenspan’s estimate is also with writedowns as they are now. Greenspan makes no mention of it, but obviously his estimate is before the coming commercial mortgage and credit card tsunami, or any further writedowns in existing assets necessitated by the Geithner plan. Another item he ignores is the possibility of having to bring shaddow assets back onto the banks’ balance sheets. If this is required, even more capital will be required.
