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 Stress tests: Banks need $75 billion

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PostSubject: Stress tests: Banks need $75 billion   Fri May 08, 2009 8:26 am

Results of long-awaited bank stress tests reveal that 10 out of 19 banks tested need to raise new capital. Bank of America must raise $33.9 billion.

NEW YORK ( -- Ten of the nation's 19 largest banks will need to raise a total of $74.6 billion in capital, federal officials announced Thursday, bringing an end to relentless speculation about how much more money the nation's leading banks would need to withstand the recession.

More than two months after launching the so-called "stress test" program, leading regulators said that more than half of the banks tested would require capital to absorb additional losses if the economy weakens further.

Under the most severe economic scenario, regulators estimated losses could reach $599 billion for the group, the bulk of which coming from residential mortgages and other consumer loans such as credit cards.

Leading the list of companies that need more capital was Bank of America (BAC, Fortune 500), which faces a $33.9 billion shortfall. Following behind was Wells Fargo (WFC, Fortune 500) and struggling auto finance firm GMAC, which will need to raise $13.7 billion and $11.5 billion respectively.

Beleaguered banking giant Citigroup (C, Fortune 500), which has taken hold of approximately $50 billion in government aid to date, is being asked to raise $5 billion, regulators said. (See how much all the big banks need, as well as how much they could lose in the worst-case scenario.)

Five regional lenders -- PNC, Regions Financial, SunTrust, Fifth Third and KeyCorp will also be required to raise new capital. So will Wall Street investment bank Morgan Stanley (MS, Fortune 500), which regulators said would require $1.8 billion to shore up its capital position.

Goldman Sachs (GS, Fortune 500), JPMorgan Chase (JPM, Fortune 500), American Express (AXP, Fortune 500) and Bank of New York Mellon were among the nine banks that regulators said do not need to raise more capital. The others were Capital One Financial, BB&T, U.S. Bancorp, State Street and insurer MetLife.

The completion of the stress tests and the pending capital raises by some institutions will mean that "banks can get back to the business of banking," Treasury Secretary Tim Geithner said in a conference call with reporters Thursday.

"This transparent, conservatively designed test should result in a more efficient, stronger banking system," Geithner said.

Results of the tests, which were first made known to executives at participating banks nearly two weeks ago, have steadily surfaced in media reports in recent days.

Regulators were originally slated to release the results earlier this week, but pushed the announcement back after some banks disagreed with the government's findings.[u]
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