Results stress(less) test for US banks released
The Fed is leaking the results of the so-called stress-test. According toBloomberg:
May 6 (Bloomberg) -- Bank of America Corp., Citigroup Inc., Wells Fargo & Co.and GMAC LLC are among the companies judged to need additional capital according to results of regulators’ stress tests on the 19 largest U.S. banks.
Bank of America has the biggest shortfall, at $34 billion, according to people familiar with the matter. Citigroup’s requirement for deeper reserves to offset potential losses over the coming two years is about $5 billion, people with knowledge of that bank’s results said. Wells Fargo requires about $15 billion, while GMAC’s need is $11.5 billion, one person said.
Goldman Sachs Group Inc., Morgan Stanley, MetLife Inc., JPMorgan Chase & Co., Bank of New York Mellon Corp. and American Express Co. were deemed not to need additional funds, the results show.
Wells Fargo, the fourth-largest U.S. bank by assets, requires about $15 billion, a person familiar with the matter said. The San Francisco-based bank got $25 billion in taxpayer funds last year. Wells Fargo spokeswoman Julia Tunis Bernarddeclined to comment.
... Chairman Richard Kovacevich in March called the administration’s stress-testing program “asinine” and Berkshire Hathaway Inc. Chairman Warren Buffett, whose company is Wells Fargo’s biggest shareholder, said May 3 that Wells Fargo didn’t need any more capital. Although this evening a joint statement was released by all US money printers (I mean FED, FDIC, Treasury etc) that the full results will be disclosed tomorrow, most of the results seem to have been published already. The stress tests oblige banks to have minimum capital in case of an adverse scenario.
The SCAP capital buffer for each BHC is sized to achieve a Tier 1 risk-based ratio of at least 6% and a Tier 1 Common risk-based ratio of at least 4% at the end of 2010, under a more adverse macroeconomic scenario than is currently anticipated.
The problem with the adverse scenario is that it outperforms for instance the scenario of Nouriel Roubini, the US economist that has been the most accurate throughout the crisis. When his comments are revealed, we will add them to this post.
The Fed and the government are taking a big reputation risk with this stress test. If the economic scenario becomes worse than the 'adverse scenario', or if a new round of recapitalisation of banks will become necessary after the summer, Bernanke and Geithner will have zero credibility.