Peek at 'stress tests' produces optimism
Financials gained on word that the results are generally positive.
WASHINGTON - Leaked results of the government's "stress tests" of 19 large banks are boosting investor confidence in the financial sector.
American Express Co., JPMorgan Chase & Co., and Bank of New York Mellon Corp. will not be asked to raise more capital when federal officials announce the test results this afternoon, but Regions Financial Corp. will need to bolster its reserves, according to people briefed on the results.
Citigroup Inc. will need to raise about $5 billion, according to a separate government source who requested anonymity.
Bank of America Corp. and Wells Fargo & Co. also are expected to have to raise additional capital. Those that need to raise more money will be given until June 8 to do so, Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben S. Bernanke, and Sheila Bair, head of the Federal Deposit Insurance Corp., said in a joint statement yesterday.
Higher capital reserves are intended to protect financial institutions against defaults on loans and credit cards.
The emerging news is bringing into focus a picture of the financial industry's strength that has had investors guessing for months.
The stress tests were conducted in April and were designed to see how the large banks and finance companies would fare if the recession worsens. Analysts expect that about half of the 19 companies will be asked to raise more capital.
Spokesmen for American Express, JPMorgan, and Bank of New York Mellon would not comment yesterday. A spokesman for Regions Financial, of Birmingham, Ala., could not be reached for comment.
The stress tests are a centerpiece of the Obama administration's plan to stabilize the financial industry. They measure how much the banks would be hurt if unemployment rose to 10.3 percent from 8.5 percent in March and home prices dropped an additional 22 percent.
The government wants the firms to have enough money to keep lending even if the economy gets much worse. Officials have said none of the banks will be allowed to fold.
Shares of Bank of America rose $1.85 to close at $12.69. Bank of New York Mellon shares added $3.05 to $30.46, and American Express gained 57 cents to $27.14. JPMorgan Chase shares were up $2.40 to close at $37.22, and Citi was up 55 cents at $3.86.