US regulators on Thursday ordered 10 of the nation??s largest banks to add a total of $74.6bn in equity following the completion of stress tests.The US authorities said that the tests projected that losses at the top 19 banks over 2009 and 2010 would reach $599bn if the adverse scenario set out in the stress test materialised.
They said that bank operating earnings would absorb $363bn of these losses under the stress scenario. They estimated that 10 of the 19 top banks would need a further $74.6bn in equity to be sufficiently well capitalised at the end of 2010 to cope with potential losses beyond that period.
??These tests will help ensure that banks have a sufficient capital cushion to continue lending in a more adverse economic scenario,? Tim Geithner, US Treasury secretary, said.
The long-awaited publication of the test results, which came after days of tense discussions between regulators and the banks, prompted a flurry of activity among lenders with Bank of America, which was found to have the biggest capital shortfall at $33.9bn, announcing plans to raise $17bn in equity. BofA said that it would add equity through a share sale and the conversion of preferred shares held by non-government investors. It also plans to raise the money through earnings and the possible sale of assets, including asset manager Columbia Management and First Republic Bank.
Wells Fargo, which needs additional capital of $13.7bn, launched a $6bn equity issuance, while Morgan Stanley said that it would sell $2bn in shares and $3bn in non-government-backed debt to fill its $1.8bn capital requirement. Citigroup, which needs $5.5bn in additional equity, said that it would expand an existing offer to convert preferred shares.
