Experts have told The Wall Street Journal that they think several of the banks which failed the government’s stress tests are in the Midwest and Southeast. According to the paper, “Three people familiar with the matter said at least three banks are in this position.”
Depending which states are included in those “regions”, the list of possible financial firms on the government’s list would be between six and eight.
Oppenheimer recently indicated that Regions Financial may be the weakest firm on the list. According to Reuters, the broker said Regions Financial Corp may be the only major bank that may not pass the U.S. government’s “stress test” and is also at risk of having to raise more equity.
The stock market is making a very strong vote that other two banks in deep trouble are KeyCorp (KEY), with its stock down 16% over the the last five trading days, and Fifth Third (FITB), which is down 15% over the same period.
Stocks of other banks in these regions are generally up for the same five days, in some cases like BB&T (BBT), by double digits.
So, in looking for the banks that are the worst off, the question is whether the market is highly efficient at sorting and interpreting data. In the case of the 19 banks on the government’s list, the answer is almost certainly “yes.” The eyes of a huge number of analysts and investors are looking at the financial firms minute-by-minute, and experts have looked over their earnings statements with fine-toothed combs.
The market has voted on which banks are in the most trouble. If other sources about where they are based are correct, these three banks will be raising a lot of money.
Douglas A. McIntyre