Citigroup, Bank of America could all need more cash

May 7th, 2009 - 11:58 am ICT by IANS  

Barack Obama New York, May 7 (DPA) Some of the largest banks in the US will be forced to raise billions of dollars more in cash to survive the ongoing financial crisis, according to the findings of government regulators to be released later Thursday.
The US Federal Reserve will issue the much-anticipated details of the so-called stress tests, which evaluated the country’s 19 largest banks, after market close Thursday afternoon.

The months-long review lies at the centre of President Barack Obama’s effort to nurse the US financial system back to health, which is considered the only means of pulling the US out of a wider economic downturn considered one of the worst since the Great Depression.

The stress-test results could prompt the Obama administration to take a more hands-on approach to Wall Street, forcing some banks to give the government increasing shares and even make changes in top management.

In total, 10 of the 19 banks are reportedly facing demands to boost their capital levels, including Bank of America Corp, Citigroup Inc and Wells Fargo & Co. GMAC LLC, the former financing arm of ailing carmaker General Motors Corp, is also likely to need another cash injection.

Major banks including JP Morgan Chase & Co, Goldman Sachs Group Inc and Morgan Stanley have all reportedly passed the government’s stress tests, which are designed to check whether banks have enough resources to survive another dip in the US economy.

According to the results, Bank of America faces a $34 billion capital shortfall, Wells Fargo needs $15 billion, Citigroup $5 billion and GMAC $11.5 billion, Bloomberg financial news agency reported Wednesday, citing unnamed sources.

Banks facing a capital shortfall will have until June 8 to present a plan and until Nov 9 to meet the demands. Some are expected to make up the difference by turning to private investors, while others will have to look for more government support.

Under the plan, banks could be forced to sell ownership stakes to the government, by converting preferred shares already taken by the Obama administration into common stock.

In Bank of America’s case this could make the government one of the bank’s largest shareholders and may force out chief executive Kenneth Lewis.

White House spokesman Robert Gibbs Wednesday left open whether some bank executives could be on the chopping block but noted that Obama has “weighed in on changes at the CEO level” in the past.

The administration asked GM chief executive Rick Wagoner to resign earlier this year as part of a deal to continue supporting the country’s largest carmaker.

Obama launched the stress tests in February to get a better sense of how banks were managing the current financial crisis. The 19 banks in the stress test were selected for having more than $100 billion in assets. Together, they hold two-thirds of the assets and more than half of the loans in the US banking system.

Some $600 billion have already been invested by the government to keep Wall Street and the US car industry alive. About $100 billion more is left over from a financial rescue package that was approved by Congress in October.

Bank of America and Citigroup have already received $45 billion in emergency loans from the federal government. Wells Fargo has taken $25 billion.

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