Saturday, 18 April 2009

Stress tests & US bank

Stress test & Banks US

Obama on stress test and more funds

President Barack Obama said he’ll demand “accountability” from any U.S. banks that require additional taxpayer money following “stress tests” being conducted by regulators.

The U.S. Treasury and financial regulators have set a May 4 deadline for disclosing results from the stress tests of 19 U.S. financial companies including Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc., GMAC LLC and MetLife Inc. The tests are being used to determine whether the firms have enough capital to cover losses over the next two years should the economic downturn worsen.

Obama said he didn’t want to speculate ahead of the stress tests and that he hasn’t seen them all yet. He declined to say whether the government would seek management changes at firms needing more funds.

The stress tests will show “different banks are in different situations,” Obama said today. “They are going to need different levels of assistance from taxpayers, and as I’ve said before, if taxpayer money is involved I’ve got a responsibility to ensure some transparency and accountability.”

Private Markets

Banks that require additional capital will first have to rely on private markets, National Economic Council Director Lawrence Summers said today on NBC’s “Meet the Press” program.

“The first resort for more capital is going to the private markets directly to raise equity,” he said.

Summers, Obama’s top economic adviser, said options for adding private capital go beyond issuing new stock to investors and include “so-called asset-liability swaps that would have the effect of perhaps diluting some shareholders, but also fortifying the level of capital.” He didn’t elaborate.

Treasury at the end of last month had allocated $328.36 billion under the Troubled Asset Relief Program, leaving $134.5 billion for additional capital injections.

Stress tests & possible damage

The U.S. Treasury and financial regulators are clashing with each other over how to disclose results from the stress tests of 19 U.S. banks, with some officials concerned at potential damage to weaker institutions.

When will firms want to beat the estimates of analysts?

JPMorgan reported profit that beat analysts’ estimates on April 16, with first-quarter earnings of $2.14 billion, or 40 cents a share. Chief Executive Officer Jamie Dimon labeled the TARP program a “scarlet letter” and said the firm could repay the government “tomorrow.”

Still, not all banks are expected to be healthy enough to forgo the Treasury’s assistance, which along with additional capital injections could include converting previous government investments from preferred shares to common equity.

Questions: Which kind of firms can beat anaylsts forecast?

Federal Reserve Bank of New York President William Dudley said investors hold “misplaced” fears that participation in a $1 trillion central bank program to revive lending will bring government scrutiny.

The Term Asset-Backed Securities Loan Facility, aimed at supporting financing of loans to credit card borrowers, students, car buyers and small businesses, is off to a “slow start,” Dudley said, recording just $6.4 billion in loans. “Investor anxiety about using the program has risen.”


The Fed and U.S. Treasury, reacting to concerns over the central bank’s role in credit markets, published a joint statement last month affirming the Fed’s independence and neutrality.

“Government decisions to influence the allocation of credit are the province of the fiscal authorities,” the two agencies said in a March 23 statement.

Goldman: xài tiền chính phủ mệt quá

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