Here's my Top 10 links from around the Internet at 10 pm. I welcome any suggestions in the comments below. 1. The actual results of the stress tests on America's biggest 19 banks are finally out after weeks of leaks and rumours. They show the US Federal Reserve expects banks to lose a further US$599 billion by the end of next year and that they need to raise an extra US$75 billion in fresh capital to keep their balance sheets safe, the WSJ reports. 2. This unleashed a swathe of plans for capital raisings by the likes of Bank of America, which is looking for US$17 billion, and Wells Fargo, which is raising US$6 billion, the FT.com reports. 3. US Treasury Secretary Tim Geithner said he was reasonably confident the banks could raise this money privately and not have to resort to government help. The Zombies have been allowed to stagger on. There are doubts about the stress test process too. It turns out Citigroup argued the Fed down to a shortfall of US$5.5 billion from an original estimate of US$30 billion. Lex at FT.com has some good insight into this. Raising this money won't be easy. Here's a taste.
Assuming strong banks initially want to pay back half their Tarp capital,#mce_temp_url# while weaker banks raise their tangible common equity to risk-weighted asset ratios to between 4 and 5 per cent, Goldman Sachs reckons about $130bn of additional capital is needed. Converting all private preferred shares into common stock raises about $45bn. Asset sales could net up to $30bn. That leaves roughly $55bn of new private equity to be raised in the next six months "“ assuming banks fearful of meddling are hell-bent on not converting their government preferred shares. Finding that kind of money will be tricky considering the sum is almost three times total US equity capital raisings during the last half a year, according to Dealogic data. Nor will the process of 10 (or more) banks running to the market all at once be smooth: Morgan Stanley, which actually passed the test, and Wells Fargo are already out of the blocks. As forced sellers, institutional fund managers, for example, will be able to play banks off against each other. "You're giving me a 7 per cent discount? The bank in here this morning offered 12 per cent." The tests are over; not so the stresses.4. Here's my blog offering at NZHerald.co.nz about how Telecom turned its best news in years into a PR disaster. 5. US Treasury yields spiked after a poor auction result, FT.com reports. Whaddyaknow. Bond markets don't trust the idea that you can print money and borrow your way out of a problem caused by too much borrowing without causing inflation. 6. The Reserve Bank of Australia (RBA) says the Australian economy is likely to shrink 1.25% in the current 12 months to June, but will recover after that, Bloomberg reports. 7. Felix Salmon at Reuters reckons the SEC is unsalvageable. 8. Mish points out the US Consumer Credit fell sharply in March. 9. Paul Krugman has the best take on the stress test results I've seen so far.
In the end, the actual release of the much-hyped bank stress tests on Thursday came as an anticlimax. Everyone knew more or less what the results would say: some big players need to raise more capital, but over all, the kids, I mean the banks, are all right. Even before the results were announced, Tim Geithner, the Treasury secretary, told us they would be "reassuring." But whether you actually should feel reassured depends on who you are: a banker, or someone trying to make a living in another profession. I won't weigh in on the debate over the quality of the stress tests themselves, except to repeat what many observers have noted: the regulators didn't have the resources to make a really careful assessment of the banks' assets, and in any case they allowed the banks to bargain over what the results would say. A rigorous audit it wasn't. But focusing on the process can distract from the larger picture. What we're really seeing here is a decision on the part of President Obama and his officials to muddle through the financial crisis, hoping that the banks can earn their way back to health.10. Barry Ritholz at The Big Picture points to Elizabeth Warren saying Americans have had their trust shattered.