STRESS TEST: CEOs Outline Capital-Raising Plans, Way Forward
07 Mayo 2009 - 6:09PM
Noticias Dow Jones
The biggest U.S. financial institutions received their marching
orders from the government Thursday, and their chief executives
wasted no time mapping out the road ahead.
Ten of the nation's biggest banks must raise a total of nearly
$75 billion of new capital to protect against a dramatic worsening
of the U.S. economy. Some responded swiftly: Morgan Stanley (MS),
Citigroup Inc. (C) and Wells Fargo & Co. (WFC) have already
unveiled plans to raise more capital.
For those that aced the government's stress test, such as
JPMorgan Chase & Co. (JPM) and American Express Co. (AXP),
attention quickly turned to when they would pay taxpayer-funded
money back. Hundreds of banks and a handful of insurers received
funds from the Treasury Department as part of the $700 billion
Troubled Asset Relief Program.
After an intense 2 1/2 month investigation into their books,
there was one common thread between many of the bank's chief
executives: relief.
"I am glad the results have been announced and that it is behind
us," said Citi Chief Executive Vikram Pandit. "The test was
rigorous ... this test was probably more critical for us than to
others."
Pandit said the revenue model the government used was worse than
the Great Depression. He said his bank will convert an extra $5.5
billion of preferred shares into common stock to add cushion to its
capital base. The government has poured $45 billion into the
troubled bank since late last year.
Similarly, Wells Fargo will offer $6 billion in stock to boost
its capital. The government asked it to raise $13.7 billion in
capital. The San Francisco-based bank said it will raise the
balance of the capital shortfall through other means.
Morgan Stanley intends to sell $2 billion in stock and another
$3 billion in senior notes not guaranteed by the Federal Deposit
Insurance Corp. The investment bank was asked to raise $1.8
billion.
Kevin Kabat, the chairman and chief executive of Fifth Third
Bancorp (FITB), said he was relieved the government won't require
it to raise more capital. Instead, the Ohio-based bank needs to
improve its tangible common equity - which is the direct measure of
shareholder value and the first to be hit by banks'
market-to-market losses on troubled assets - by $1.1 billion.
"We continue to have options that are a myriad of different
things we could do within our own book," including selling assets
and converting government preferred stock into common stock, he
said. "That gives us the confidence."
Seamus McMahon, of independent consulting firm McMahon Advisory
LLC, said the stress test was "a bit like getting an annual
physical."
"It eliminates some worries you might have had. No, you don't
have diabetes," he said. "But it leaves some concerns, both some
specific health concerns about specific banks and it will reduce
the overall level of concern about the health of the system."
And, if the early indications from the stock market are to be
trusted, few investors will be completely shocked by the results,
with some trading even possible to describe as giddy. Of the
publicly traded financial firms tested, only five were trading
lower in after-hours activity.
Most, however, were on the climb, none more so than Fifth Third,
up 23%. Other big gainers included State Street Corp. (STT), up 9%,
and U.S. Bancorp (USB), which rose 7%.
Still, one money manager said the test results only provided
reassurance because the economic backdrop has improved appreciably
since the test was first launched.
"The most relevant factor is that there is a recovery underway,
which basically overwhelms any other potential problems," said
Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund.
-By Joe Bel Bruno and Matthias Rieker, Dow Jones Newswires;
201-938-4047; joe.belbruno@dowjones.com
(Geoffrey Rogow and Rob Curran contributed to this report.)