Stress Test Report Card
Who was graded, who needs more capital, and how much?
Stock Strategist
The Federal Reserve's stress test of 19 large banks was formally announced Thursday afternoon.
According to the report, 10 of the 19 banks studied need to raise more capital to the tune of nearly $75 billion in total. Click here to see the government's full report. Further, if the economy were to track a more adverse scenario, losses at the 19 firms during 2009 and 2010 were estimated to be $600 billion.
With the results now out, the next big question is, how will the capital be raised, and how will it affect current shareholders. Prior to release of the formal results, both Morgan Stanley (MS) and Wells Fargo (WFC) announced plans to sell new common stock.
The table below summarizes the information we have so far. The last column shows each bank's Tier 1 common capital ratio as of December 2008. This is a measure of how much common equity a bank has to absorb higher loan losses (the higher the ratio, the better). The Fed wanted to make sure that each bank's Tier 1 common capital ratio was over 4% even in its most adverse scenario. We will continue to update this table as more details become available and Morningstar analysts incorporate the news into their theses and valuations for the banks they cover.
| Stress Test Report Card | ||||
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| Needs More Capital? | How Much? | How Will Capital Be Raised? | Tier 1 Common Capital Ratio** | |
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| American Express (AXP) | No | N/A | N/A | 9.7% |
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| Bank of America (BAC) | Yes | $33.9 bil | * | 4.6% |
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| Bank of NY Mellon (BK) | No | N/A | N/A | 9.5% |
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| BB&T (BBT) | No | N/A | N/A | 7.1% |
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| Capital One (COF) | No | N/A | N/A | 9.1% |
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| Citigroup (C) | Yes | $5.5 bil | * | 2.3% |
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| Fifth Third (FITB) | Yes | $1.1 bil | * | 4.4% |
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| GMAC | Yes | $11.5 bil | * | 6.4% |
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| Goldman Sachs (GS) | No | N/A | N/A | 7.7% |
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| J.P. Morgan Chase (JPM) | No | N/A | N/A | 6.5% |
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| Keycorp (KEY) | Yes | 1.8 bil | * | 5.6% |
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| MetLife (MET) | No | N/A | N/A | 8.5% |
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| Morgan Stanley (MS) | Yes | $1.8 bil | $5 bil in stock and debt issuance | 5.7% |
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| PNC Financial Services (PNC) | Yes | $0.6 bil | * | 4.7% |
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| Regions Financial Group (RF) | Yes | $2.5 bil | * | 6.6% |
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| State Street (STT) | No | N/A | N/A | 15.5% |
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| SunTrust | Yes | $2.2 bil | * | 5.8% |
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| US Bancorp (USB) | No | N/A | N/A | 5.1% |
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| Wells Fargo (WFC) | Yes | $13.7 bil | Issue $8.6 bil common stock | 3.1% |
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| * Awaiting More Information; ** as of Dec 2008 |
Morningstar Stock Analyst Notes
- Bank of America Needs $34 Billion
- Citi to Increase Conversion by $5.5 Billion
- J.P. Morgan Passes Stress Test
- BB&T Hurdles Stress Tests
- Stress Test Results for Investment Banks
Related News
- 10 of 19 US Banks Need to Raise $75 Billion in Capital
- Amounts of Capital Raises Vary Widely for 10 U.S. Banks
- Citi CFO: Bank Differed With Government's Revenue Estimate
- CEOs Outline Capital-Raising Plans, Way Forward
- Wells Fargo: 'Our Analysis Showed We Didn't Need Capital'
- BofA to Sell Common Stock or Convertible Preferreds
- Wells Fargo to Sell $6 Billion in Common Stock
- Morgan Stanley to Sell $5 Billion in New Common Stock, Senior Notes
- Government Using Little-Known Capital Measure
- Smaller Banks May Feel Pressure After Results
- MetLife's Insurance Strength Carries Along Its Bank