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...
http://www.bloomberg.com/apps/news?pid=20601087&sid=aiw0TbO.lTsM&refer=home

Stress Testing (Banks)

Stress Testing
http://www.investopedia.com/terms/s/stresstesting.asp

What Does Stress Testing Mean?
A simulation technique used on asset and liability portfolios to determine their reactions to different financial situations. Stress tests are also used to gauge how certain stressors will affect a company or industry. They are usually computer generated simulation models which test hypothetical scenarios. Also known as "stress test"

Investopedia explains Stress Testing
Stress-testing is a useful method of determining how a portfolio will fare during a period of financial crisis. The Monte Carlo simulation is one of the most widely used methods of stress testing.
A stress test is also used to evaluate the strength of institutions. For example the Treasury Department could run stress tests on banks to determine their financial condition. Banks often run these tests on themselves. Changing factors could include interest rates, lending requirements, or unemployment.

Bank stress test results released May 4
Evaluation of top 19 U.S. banks will include a capital recovery plan.
http://money.cnn.com/2009/04/16/news/economy/stress_test_results.reut/index.htm?section=money_latest

WASHINGTON (Reuters) -- The results of tests to gauge how the top 19 U.S. banks would fare should the deep U.S. recession worsen will be publicly disclosed on May 4, a regulatory official said Thursday.
The so-called stress test results will include a capital recovery plan for banks that regulators determine would be short of capital if the economy's downturn gathered steam and unemployment shot unexpectedly higher, the official said.
Regulators have not made final decisions on how to present the results, the official said. Regulators will disclose at least some of the information, but no decision has been made on on whether banks themselves will disclose some as well. Read article...

Showdown Seen Between Banks and Regulators

Showdown Seen Between Banks and Regulators
By STEPHEN LABATON and EDMUND L. ANDREWS Published: April 11, 2009
Industry executives are bracing for fights with the government over repayment of bailout money and forced sales of bad mortgages.
Business / Economy (New York Times Permalink)

ING to sell off $10 billion in operations

ING to sell off $10 billion in operations
ING, the Dutch bank and insurer, plans to sell operations that could raise up to $10.6 billion

AMSTERDAM (AP) -- ING NV, the Dutch bank and insurer, said Thursday it plans to sell operations it says could raise up to euro8 billion ($10.6 billion).
The move, unveiled alongside a reshuffling of business units to simplify the company structure, is an increase from a previous target announced in January to raise euro3 billion.
So far, ING has sold its Canadian operations for euro1.4 billion.
"Next to a number of leading positions in key markets, a group of smaller businesses with no clear outlook for market leadership consumes a disproportionate amount of capital," the company said in a statement.
Shares rose 9.9 percent to euro 5.775. They have had a wild ride, falling from above euro25 a year ago and trading as low as euro2.30 in March.
The company's statement Thursday didn't specify which business it would definitely sell or set any time frame for achieving the target. It also didn't say whether there was any interest from buyers.
ING said it now plans to focus mostly on European banking, with extra focus on Belgium and the Netherlands. However, it intends to continue offering both banking and insurance in Europe, Asia and the United States.
It said it doesn't plan to sell its online banking service, ING Direct, and that its life insurance businesses in China and Japan were "under review."
Incoming Chief Executive Jan Hommen was to address investors at a meeting later Thursday. His predecessor, Michel Tilmant, resigned in January after saying ING expected to post a large loss in the fourth quarter, which turned out to be a loss of euro3.1 billion.
ING has received significant aid from the Dutch government since the financial crisis began. Last year it received a euro10 billion investment lifeline to shore up its equity base.
And in January the state assumed most of the risk for euro27.7 billion in troubled U.S. mortgage-backed securities ING owns.

ING said Thursday it has cut 3,500 jobs so far since announcing plans to cut 7,000 in January, around 5 percent of its work force. As of Thursday, ING said it employs 25,000.
Hommen, a former chief financial officer of both Philips Electronics and Alcoa, said that ING's tier 1 capital ratio -- the most widely used measure of a bank's solvency -- was 9.3 percent at year end.

SPLITTING OPERATIONS
(Source Reuters)
ING will start managing its bank and insurance activities separately but Hommen declined to comment directly when asked if this could lead to a future split of the group, saying only "it is a way to make our organization easier and focused."
ING, which ranked as the world's twelfth-largest bank by market value last February, is organized along six business lines, with three focusing on retail banking, wholesale banking and ING Direct, and three on regional insurance groups.
ING will wind down its retail bank operations in the Ukraine, review life insurance activities in China and Japan, and divest U.S. insurance activities such as financial products, group reinsurance, and annuity books when possible.
When ING sold its ING Canada stake in February, analysts earmarked ING's stake in Brazilian insurance group Sul America as a possible divestment.
http://www.reuters.com/article/newsOne/idUSTRE5380Y020090409

Vastgoedmarkt.nl: ING wordt opgedeeld
(Bron RTL.nl, rtlz)
Het einde van ING Real Estate als aparte onderneming van ING lijkt nabij. ING gaat de organisatie richten op de kerntaken en zich concentreren op Europa. Ook zou bankieren en verzekeren worden gesplitst.
Bronnen
Twee bronnen hebben tegenover Vastgoedmarkt bevestigd dat ING waarschijnlijk al donderdagmorgen bekend zal maken dat de ING Group wordt gestroomlijnd en dat de activiteiten van de bank en de verzekeringstak uit elkaar worden gehaald.
Door deze strategie wordt ING Real Estate opgesplitst. Eind vorig jaar had de vastgoedonderneming met ruim 100 miljard euro mondiaal de grootste portefeuille vastgoed.
Saneren
De divisies Development en Finance zullen worden ondergebracht bij de verzekeringstak, terwijl Investment Management wordt gestald bij de bank. Het zou de bedoeling zijn de grote vastgoedportefeuille van ING snel in omvang te verkleinen om daarna te verzelfstandigen of te verkopen.

Meredith Whitney Shuns Bank Stocks

Meredith Whitney Shuns Bank Stocks
Small, regional banks are in better shape, but don't buy the stocks

Link to video, http://video.forbes.com/fvn/ini/meredith-whitney-shuns-bank-stocks

U.S. credit card defaults rise to 20 year-high

U.S. credit card defaults rise to 20 year-high
March 16, 2009 6:17 PM ET

NEW YORK (Reuters) - U.S. credit card defaults rose in February to their highest level in at least 20 years, with losses particularly severe at American Express Co and Citigroup amid a deepening recession.
AmEx, the largest U.S. charge card operator by sales volume, said its net charge-off rate -- debts companies believe they will never be able to collect -- rose to 8.70 percent in February from 8.30 percent in January.
The credit card company's shares wiped out early gains and ended down 3.3 percent as loan losses exceeded expectations. Moshe Orenbuch, an analyst at Credit Suisse, said American Express credit card losses were 10 basis points larger than forecast.

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20090316&id=9700831

Citi: Pandit's Defense Boosts Wall Street

Citi: Pandit's Defense Boosts Wall Street
The bank CEO's talk of profits sparks a stock rally, but others still worry about Citi's toxic assets

(Source Business Week)
Strip away the billions of toxic assets and the billions more that the feds have pumped into Citigroup (C), and what you have is a dandy little bank that actually makes money. At least that was the upbeat takeaway from Citi's beleaguered CEO Vikram Pandit, who distributed a memo to employees late on Mar. 9 about the bank's bright prospects, despite the current $1-a-share price tag.
Pandit emphasized in the memo that the bank was adequately capitalized, had passed stringent self-imposed stress tests, and was profitable through the first two months of 2009, delivering its best performance since the third quarter of 2007. In coming weeks the Treasury Dept. will conduct its own stress tests of banks—assuming further deterioration in the economy, employment, and home prices—on which will hinge further U.S. assistance.

Citigroup has posted more than a year of losses, totaling more than $37.5 billion since it reported a $2.1 billion profit in the third quarter of 2007. Just two years ago, Citigroup was the world's biggest bank by market value, at about $270 billion. But its shares had plummeted from an all-time high of 55 to below 1 last week, for the first time ever, as investors continued to lose confidence in the government bank bailout. At that point, Citi's value had fallen to about $6 billion. Read Article...
http://www.businessweek.com/bwdaily/dnflash/content/mar2009/db20090310_761018.htm?chan=investing_investing+index+page_top+stories

P/E ratios (finally) nearing acceptable levels.

P/E ratios going to acceptable levels.
By some measures, P/E ratios are near lows, though it depends how you slice it
(Source MarketWatch)
"There's no doubt that people can look at market valuations and determine that stocks are relatively inexpensive -- but that doesn't mean they're going to quit going down," said Michael Gibbs, director of equity strategy at Morgan Keegan & Co. in Memphis, Tenn.
The price-to-earnings ratio of stocks in the S&P 500 has sunk to 10.6 from nearly 17 at the end of 2007, says FactSet Research. That's based on the Thursday close of the S&P 500 compared to index members' past four quarters of operating earnings, or net income excluding what analysts consider to be extraordinary charges and gains.
Thomson Reuters, which publishes similar analysis, estimates the trailing P/E ratio for the S&P 500 is around 11.
Those numbers are well below the valuations reached during the market low of the 2001 recession, when the ratio stopped at 19. They're also lower than the P/E ratio of 13 touched at the market bottom during the 1990-1991 recession, says Morgan Keegan, which used data compiled by Yale University's Robert Shiller for its historical research.
But widen out the lens, and P/E ratios have dropped even further in some earlier recessions. During the market low of the early 1980s recession, for example, stocks in the index were trading at a mere 8 times earnings. Read Article...

http://finance.yahoo.com/banking-budgeting/article/106697/Stocks-look-cheap-but-they-could-get-cheaper

Meredith Whitney starts her own business; Meredith Whitney LLC.

Meredith Whitney: A league of her own
In an exclusive interview with Fortune, the influential banking analyst talks about why it was time to go independent.

NEW YORK (Fortune) -- Meredith Whitney, the Oppenheimer & Co. banking analyst who called Wall Street's meltdown, is leaving to start her own business. And she says Fortune had a hand in her decision.
"It was the incredible women I met at the Fortune Most Powerful Women's summit that gave me the final push and confidence to go for it," says Whitney. "I am overwhelmed with support from incredibly inspiring people, many of whom I met at that conference." (Conference organizer, senior editor Pattie Sellers, shares her own thoughts about Whitney's move.)
But even before the summit, she was already laying the foundation of her new business, to be called Meredith Whitney LLC. To keep her shop truly independent, she rebuffed interested investors and put up all of the capital herself. (Read More about Meridith Whitney's new business...)

http://money.cnn.com/2009/02/19/news/economy/meredith_whitney.fortune/index.htm?postversion=2009021913

Brown Borrows Big to Kickstart British Economy (CNBC)

Prime Minister Gordon Brown tries to kickstart the stalling British economy on Monday, spending billions of borrowed pounds on tax cuts in a bid to stop a recession turning into a slump.
The package, expected to total up to 20 billion pounds ($30 billion), will include extra public spending designed to grease the wheels of the economy.
Brown's finance minister, Alistair Darling, is also expected to announce plans to plug the hole in state finances by raising taxes in future, including a political shift in the form of a sharp rise in income tax for high earners, media reports say.