On Friday April 24th, 2009 the US Government released the parameters of their imposed stress test on the 19 largest banks in the USA. This release acknowledged that at least one of the banks involved in the test needed additional capital. On Tuesday May 5th 2009, information has leaked out that possibly 10 of the 19 banks will need additional funds.
The stress test results are scheduled to be released on Thursday May 7th, 2009. Since the release of the parameters on April 24th, information has been suspiciously disseminated seemly to soften the blow of the tests findings. So far from the information released, it appears over 50% of 19 largest banks in the USA need more money.
With still a couple days until the results are released, one has to consider if there will be more than 10. With the diminished political will towards Wall Street the obvious first step towards these banks raising the necessary capital will be to convert the US governments preferred shares (from TARP funds they received) to common equity. This conversion, which would alleviate debt from their balance sheets, would essentially put these banks one step towards nationalization.
Over two months ago the US Markets plunged to new lows on fears on banks being nationalized. Now it appears that the US government is inches from nationalization of some of the largest banks in the USA. If over 50% of the largest banks need money, what about the mid and small sized banks? Where will the funds come from?
Tags: bank stress test, banks, tarp, wall street
