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Banking, finance, and taxes

Rumors The Ten Of 19 Banks Failed “Stress Tests” (WFC)(BAC)(C)

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By Douglas A. McIntyre Updated Published
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Several news organizations are reporting that ten of the 19 banks subjected to “stress tests” will be asked to raise more capital. Since the firms are still debating with the government, the number could change. It is not clear whether the problem can be solved, at last at some of the banks, by converting preferred shares to common, which would cause significant dilution for existing shareholders.

Among the largest banks on the list of those that will need new capital are Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC).

Because of their size, these three banks may be able to bring in enough private capital to avoid the de facto nationalization that comes with having federal government ownership of 50% or more of common shares. Some of the smaller banks on the government’s list may not be as lucky, particularly if they need to bring in $5 billion or more. Fifth Third (FITB) has a market cap of $2.8 billion. Regions Financial’s (RF) is at $3.8 billion. Sun Trust (STI) would be on the bubble of facing the government having a controlling interest with a market cap of $6.2 billion.

If the government does gain voting control at three or four banks, the question is what it will do to exert its rights, if it will do anything at all. Fed officials would probably have to select and approve board members. Sitting CEOs might be forced to resign. In other words, the government would be spending more time bailing out the banking system when the “stress test” results come out and not less.

Douglas A. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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