Stress test bad news: Citibank said to need additional $10BN, common stock dilution possible. FAZ, FAS, SKF, XLF, C, BAC
Per the WSJ today, Citibank may need to raise $10 to meet reserve requirements:
Citi Said to Need Up to $10 Billion
Bank Disputes ‘Stress Test’ Result; U.S. to Let Lenders Convert Loans to Common Stock
Full WSJ article here:
Citigroup Inc. may need to raise as much as $10 billion in new capital, according to people familiar with the matter, as the government continues negotiations with banks over the results of its so-called stress tests.
The bank, like many others, is negotiating with the Federal Reserve and may need less if regulators accept the bank’s arguments about its financial health, these people said. In a best-case scenario, Citigroup could wind up having a roughly $500 million cushion above what the government is requiring.
…..The outcome of the stress tests could play a major role in shaping the next phase of the U.S. government’s intervention in the nation’s ravaged financial system. After the results, banks will have 30 days to give the government a plan and six months to put it into effect. The banks are expected to reveal their plans next week.
…..Under an earlier government effort to stabilize Citigroup, which involved a conversion of preferred stock into common, the U.S. was going to end up with 36% of Citigroup’s common stock. To raise new capital, Citigroup is likely to broaden the conversion to include preferred securities held by private investors. The end result will likely leave Washington holding about the same amount as previously envisioned.
Concerned about investor and depositor panic, government officials have said banks needing more capital should not be viewed as being at risk of collapse. In fact, the government has said it would not allow any of the 19 banks undergoing the test to fail….
Full article and discussion continues here:
Zerohedge, as usual, has intelligent insights on this story. I can’t give it all away, but he goes straight for the meat, as usual. From ZeroHedge:
The last paragraph from the WSJ article is simply the most stunning example of the banks’ ongoing hypocrisy:
Some banks are haggling with the Fed over how it calculated their projected 2009 and 2010 revenues — a central factor in gauging banks’ ability to absorb losses. Some have pushed the Fed to use their strong first-quarter performances as a baseline, even though many acknowledge their first-quarter results are likely unsustainable.
They are haggling with the Fed based on their “strong” first quarter results (which were all due to taxpayer gifts to every single bank via the AIG funnel)? Come again? Are there any boards of directors left at any of these firms to supervise the sheer lunacy that management teams projectile vomit in the general direction of Barak Obama, Tim Geithner and CNBC’s audience?
Why should Chrysler creditors be forced to suffer and be scapegoated in front of the entire world, while we don’t know who one single large creditor of a Citi or of BofA is? …. but we can speculate…Hey Obama/Tim - how about some bank creditors suffer a loss here and there too in your witch hunt against “all those self-serving Wall Streeters.”…
The rest continues here:
