Washington, May 9 (Inditop) Major US banks turned to private investors Friday in the hopes of finding $75 billion that the government believes is needed for the financial sector to survive the ongoing recession.
Wells Fargo & Co, Morgan Stanley and Bank Of America Corp were launching new stock offerings to raise the capital they need to comply with the government’s demands.
US markets made gains of more than one percent in afternoon trading on Wall Street Friday, partly on the results of the so-called “stress test” review by government regulators of the country’s top 19 banks, which were released after markets closed Thursday.
Wells Fargo raised $7.5 billion in its stock offering after being told it needed to find $13.7 billion in fresh capital. Morgan Stanley, which must raise $1.8 billion, sold $3.5 billion in stock.
Government regulators Thursday said 10 of the 19 banks reviewed would need to raise $75 billion to survive another dip in the US economy, which is going through its worst recession in decades. The capital shortages revealed by the stress tests were lower than many outside analysts had expected.
Treasury Secretary Timothy Geithner said much of the extra resources could be raised from private investors, and many banks would be able to meet the government’s demands by simply converting preferred shares into common equity.
“When you have the opportunity to raise capital, you should raise capital,” Geithner said Thursday. The stress test results offered “reassurance in clarity” for the markets, he added.
Bank of America Corp faces the largest task, needing to raise $33.9 billion in extra capital. The bank said it hoped to make up half the difference through its own stock offering in the coming weeks and also sell up to $10 billion-worth of assets. But it could still be forced to make the government a major stakeholder in exchange for extra support.
Citigroup Inc, which has already received about $45 billion in emergency government loans, plans to exchange $5.5 billion in preferred shares for common stock to meet its own additional shortfall.
GMAC LLC, the former financing arm of ailing carmaker General Motors, is considered most likely to return to the government for funds after being told it must raise $11.5 billion.
Major banks including JPMorgan Chase & Co, Goldman Sachs Group Inc and American Express Co passed the stress tests and are even considering paying back government loans they received in the past few months. American Express said it had filed a request with the Federal Reserve to return $3.4 billion.
The US Treasury has already invested hundreds of billions of dollars in Wall Street since the financial sector was brought to the brink of collapse in September.
Banks facing capital shortfalls will have until June 8 to present plans and until Nov 9 to meet the demands. Some are expected to make up the difference from private investors, while others will have to look for more government support.
