Yes, the results of the Supervisory Capital Assessment Program (SCAP) are finally out and you can find them here.
In the meantime here’s a quick summary:
10 of the 19 firms tested need to add $185bn to their capital buffers.
After taking account of losses, revenues and reserve build requirements, in the aggregate, these firms need to add $185 billion to capital buffers to reach the target SCAP capital buffer at the end of 2010 under the more adverse scenario. There are two important things to note about this estimate. First, the $185 billion accrues to 10 of the 19 firms, meaning 9 of the 19 firms already have capital buffers sufficient to get through the adverse scenario in excess of 6 percent Tier 1 capital and 4 percent Tier 1 Common capital. Second, the vast majority of this $185 billion comes from a shortfall in Tier 1 Common capital in the more adverse scenario, with virtually no shortfall in overall Tier 1 capital. This result means that while nearly all the firms have sufficient Tier 1 capital to absorb the unusually high losses of the more adverse scenario and still end 2010 with a Tier 1 risk‐based ratio in excess of 6 percent, 10 of these firms had capital structures that are too strongly tilted toward capital other than common equity. Thus, each of the 10 firms needing to augment their capital as a result of this exercise must do so by increasing their Tier 1 Common capital.
But
The $185 billion estimated additional capital buffers correspond to the estimate that would have applied at the end of 2008. But a number of these firms have either completed or contracted for asset sales or restructured existing capital instruments since the end of 2008 in ways that increased their Tier 1 Common capital. These actions substantially reduced the final SCAP buffer. In addition, the preprovision net revenues of many of the firms exceeded what was assumed in the more adverse scenario by almost $20B, allowing them to build their capital bases. The effects of these transactions and revenues rendered the additional capital needed to establish the SCAP buffer equal to $75 billion.
So that’s $75bn which breaks down as;
- Bank of America – $33.9bn
- Citigroup – $5.5bn
- Fifth Third Bancorp – $1.1bn
- GMAC – $11.5bn
- Keycorp – $1.8bn
- Morgan Stanley – $1.8bn
- PNC Financial Services Group – $0.6bn
- Regions Financial Corporation – $2.5bn
- SunTrust Banks – $2.2bn
- Wells Fargo & Company – $13.7bn
And some of the banks listed above have already outlined plans to raise more capital. Wells Fargo announced a $6bn common stock offering after the market closed but before the SCAP results were known, while Morgan Stanley is to raise $2bn in equity and $3bn in non-government-backed debt.
Anyway, here’s what Fed chairman Ben S Bernanke made of it all.These examinations were not tests of solvency; we knew already that all these institutions meet regulatory capital standards. Rather, the assessment program was a forward-looking, “what-if” exercise intended to help supervisors gauge the extent of the additional capital buffer necessary to keep these institutions strongly capitalized and lending, even if the economy performs worse than expected between now and the end of next year.The results released today should provide considerable comfort to investors and the public. The examiners found that nearly all the banks that were evaluated have enough Tier 1 capital to absorb the higher losses envisioned under the hypothetical adverse scenario. Roughly half the firms, though, need to enhance their capital structure to put greater emphasis on common equity, which provides institutions the best protection during periods of stress. Many of the institutions have already taken actions to bolster their capital buffers and are well-positioned to raise capital from private sources over the next six months. However, our government, through the Treasury Department, stands ready to provide whatever additional capital may be necessary to ensure that our banking system is able to navigate a challenging economic downturn.Update:
Treasury Secretary Tim Geithner comments;
Banks will be given a range of options to ensure they have a substantial capital cushion. Some institutions will be required to take steps to improve the quality and/or the quantity of their capital to give them a larger cushion to support future lending even if the economy performs worse than expected. These institutions have a range of options to raise capital in the private markets, including common equity offerings, asset sales and the conversion of other forms of capital into common equity. If these options are not sufficient, they can request additional capital from the government through Treasury’s Capital Assistance Program. Banks must submit a detailed capital plan to supervisors, who will consult with Treasury on the development and evaluation of the plan. Some banks will be able to begin to repay the government.Those institutions that do not need to raise additional capital will have the opportunity to repay the government’s existing capital investments. To do this, they will need to demonstrate that they are able to issue debt without FDIC guarantees, as some banks have already begun to do.Related links:
Stress tests show $75bn buffer needed – FT.com
It’s SCAP Day – FT Alphaville