Fed Stress Test Results May Show 10 U.S. Banks Need Capital

Fed Stress Test Results May Show 10 U.S. Banks Need Capital

May 5 (Bloomberg) -- The Federal Reserve plans to deliver results of stress tests on U.S. banks to executives today that may show about 10 companies need additional capital to weather a deeper recession, people familiar with the matter said.

Banks are formulating plans for filling their capital requirements, much of which would likely come from conversions of preferred shares, the people said. Many of the 19 lenders under review and the government are set to discuss publicly the examinations after markets close May 7, the people said.
Financial shares jumped the most in almost a month yesterday on optimism about the tests. The Treasury and regulators have presented different options for the banks to shore up their books without taking taxpayer money, including selling assets, seeking private capital and converting previous government investments from preferred to common shares.
“Maybe the capital that’s required from these tests is going to be smaller than the market had been anticipating,” said Blake Howells, an analyst at Becker Capital Management, which oversees $1.7 billion in Portland, Oregon, and owns shares of U.S. Bancorp and KeyCorp, referring to the stock rally.

Still, “for the stress test to have any sort of legitimacy, some of the banks are going to have to raise capital,” he said.

Fed Meeting
Fed spokeswoman Michelle Smith declined to comment. The Fed’s Board of Governors met late on May 3rd to discuss the stress tests, according to a posting on the central bank’s Web site, the second Sunday evening meeting on the matter in three weeks.
Last week, the Fed delayed the release of the tests, originally scheduled for yesterday, as banks challenged some of the conclusions. Citigroup Inc. and Bank of America Corp. were among the banks found to need additional capital, people familiar with the matter have said. Read Article...
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