Unstructured Finance

Bank of America, PNC raise capital with stock

If they could have printed money the way the government does, they probably would have. Instead Bank of America and PNC Financial Services Group plugged some of their government-identified capital shortfalls with one of the things they can print – stock.

The two banks are among 10 ordered by Uncle Sam to raise $74.6 billion of capital after failing stress tests of their ability to handle a deep recession. Top U.S. bank Bank of America was told to raise $33.9 billion, and number-seven PNC $600 million.

Bank of America said it has raised about $5.9 billion of capital by swapping 436 million common shares for preferred stock, and has raised close to $26 billion of capital since the stress test. PNC said it sold 15 million common shares in an “at-the-market” offering and said it plans “as soon as appropriate” to pay back the $7.6 billion it took from the Treasury Department’s Troubled Asset Relief Program. Bank of America took $45 billion from TARP.

When governments print money they risk devaluing their currency. For banks, these sales could well do the same for their shares, and the drop in value could be vertiginous.

Post Traumatic Stress Test Order

A week ago, when the Fed and Treasury mesmerized the financial world with the results of “stress tests” and capital-raising targets for banks, nobody spent much time asking “what if they can’t raise the money?” There was a sense that authorities had washed away enough uncertainty in the sector to satisfy investors. In short order, healthier institutions started raising capital. Those that didn’t need any stepped up efforts to rid themselves of onerous state support.

Bank of America shares are on a tear after the bank raised nearly $13.5 billion through a stock sale. Along with money it raised by selling part of its stake in China Construction Bank, this put Bank of America about half way to filling its stress-test gap.

But when Regions Financial, a large U.S. Southeast regional bank that was stress-tested, announced plans this morning to raise $1.25 billion through stock offerings — also about half of what federal regulators told it to raise — investors balked, sending its stock down more than 8 percent.

Sensex closes lower on profit booking

The BSE Sensex closed 1.9 percent lower on Friday but posted ninth consecutive weekly rise as investors turned net sellers from net buyers. MARKETS-SOUTHASIA-STOCKS/

The benchmark closed down 240.51 points at 11,876.43, while the Nifty ended 1.7 percent down at 3,620.70.

The fall in the Sensex was led by ICICI Bank, Infosys, Reliance Industries and HDFC.

Did you just feel a bottom?

USA-FED/BERNANKENow that the stress test results are in and green shoots of economic promise abound, a great gush of lending is going to come spilling out of banks’ lending spigots, right? Wrong.

As Kristina Cooke reports, “While banks may be less hesitant to lend to each other if they feel their rivals’ books have been credibly vetted, that does not translate into confidence to make new loans to small businesses and consumers.”

Worse, although money is cheap at the Fed – well, cheap in terms of interest, if not terms – banks may be the only businesses that enjoy any thaw in credit conditions. Michael Feroli, economist at JPMorgan, says the still sickly state of the economy means many borrowers’ creditworthiness has dropped, while demand for new loans has waned.

Stress-Test Expertise

NEWYORK-SPITZER/It seemed only a bit odd that media star Arianna Huffington was the guest host on CNBC the day the all-important stress test results were due. Not to play down her credentials in media or commentary circles, but where were the celebrated bank analysts, the corporate chieftains and the investment gurus who so routinely enjoy a dose of the limelight on America’s Business Channel?

Wasn’t this the perfect day for a newsmaker rather than a news talker? The Huffington Post founder has been a good reality check on market cheerleaders who live on CNBC, but on Stress-Test Thursday, the less-than-casual viewer expects insiders with insight. It tasted like something strange and exotic had made its way into the DealZone coffee machine.

Then disgraced former New York Governor and Attorney General Eliot Spitzer joined the fray, and the slightly odd became surreal. Spitzer, who casually noted he was invited to the show (hint, hint), gave a spirited view from the nosebleed seats, far back from the federal policymakers’ bench.

Stress Management

SPAIN/Perhaps the best that can be hoped for from the upcoming week of stress test anxiety is that once it is over, a modicum of uncertainty will be gone as well. Sometime today, we should know how heavy the yardstick used in the tests was. The banks either already know or will soon find out whether they passed, and on May 4, expect all kinds of whooping and hollering outside the Deans’ office when the results are officially posted. Of course, there is a pretty good chance that as the banks find out the test results, the news will find a way out, so May 4 may turn out to be somewhat anti-climactic.

What happens next is still a bit vague. There is much talk about officials force feeding more funds to stressed-out banks. And despite the bad press on shotgun marriages — what with NY AG Andrew Cuomo stomping his feet over alleged pressure applied to Ken Lewis for Bank of America to take over Merrill Lynch — financial matchmakers will certainly look at the failures as prime candidates for synergistic harmonization.

But for the optimist, the market truism that the end of uncertainty is always a good thing could come as a welcome spring break for the troubled financial sector.

U.S. bank failures in 2009

As the U.S. government prepares to reveal the results of stress tests to asses the ability of the nation’s largest 19 banks to cope with worse-than-expected financial conditions, worries continue about the sustainability of recent better-than-expected results from banks.

Bank of America reported a big increase in troubled loans, and shares of Citigroup tumbled after analysts at Goldman Sachs said credit losses at the bank continued to grow at a rapid rate.

Regulators closed banks on Friday in Missouri and Nevada, bringing the total of U.S. bank failures this year to 25 and matching the number that failed throughout all of 2008, as the struggling economy and falling home prices take their toll on financial institutions.

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