Fed Says All Banks Except GMAC Meet Capital Deadline

Fed Says All Banks Except GMAC Meet Capital Deadline

Nov. 9 (Bloomberg) -- The Federal Reserve said nine of 10 bank holding companies deemed short of capital in May have raised their reserves enough to withstand the risk of higher unemployment and slower economic growth.

“The one exception, GMAC, is expected to meet its remaining buffer need by accessing the TARP Automotive Industry Financing Program, and is in discussions with the U.S. Treasury on the structure of its investment,” the Fed Board said today in a press release. The Treasury has provided about $76 billion in loans or equity investments to the auto industry.

The U.S. central bank conducted stress tests of the 19 largest lenders earlier this year and determined that 10 needed to raise $74.6 billion to withstand potential credit losses in case of a more severe economic downturn. The conditions in the tests included economic growth of 0.5 percent next year and an average unemployment rate of 10.3 percent.

The Fed said the 10 companies raised common equity or other eligible securities of $39 billion, and converted preferred stock to common stock in the amount of $23 billion. Sales of businesses or assets raised $9 billion, the Fed said. Other actions to increase capital included dividend cuts and issuance of stock to employee stock ownership plans, the Fed said. Tier 1 common equity increased by more than $77 billion at the 10 firms, the Fed said.

The Standard & Poor’s 500 Index advanced 2.2 percent to 1,093.08 at 4:05 p.m. in New York for its sixth straight gain. Financial companies gained the most of 10 industry groups in the S&P 500, adding 3.6 percent collectively.

Regulators’ Criteria

Among the 10 bank holding companies, Bank of America Corp. was judged in May to need $33.9 billion in additional capital under regulators’ criteria, the largest gap. Wells Fargo & Co.’s shortfall was $13.7 billion, while Citigroup Inc.’s was $5.5 billion. The Fed told banks in May to shore up reserve capital by early this month.

Fifth Third Bancorp’s capital need was $1.1 billion, KeyCorp’s was $1.8 billion, PNC Financial Services Group Inc.’s was $600 million, Regions Financial Corp.’s was $2.5 billion and SunTrust Banks Inc.’s was $2.2 billion. GMAC LLC needed $11.5 billion, while Morgan Stanley’s assessment was $1.8 billion.

One of the rationales the Fed gave for the stress tests when it released the results in May was to make sure that banks could “meet the credit needs of their customers.” Many categories of bank lending have contracted this year as businesses and households cut back on debt and banks keep lending standards high. Unemployment rose to 10.2 percent in October, the highest level since 1983.

Lending Declines

Loans and leases held by U.S. commercial banks have declined for 10 straight months, falling to $6.7 trillion as of Oct. 28 from $7.2 trillion at the end of 2008, according to figures released separately by the Fed.

Commercial and industrial loans have dropped to $1.37 trillion from $1.6 trillion, commercial real-estate loans have declined to $1.66 trillion from $1.72 trillion, and consumer loans have fallen to $847 billion from $857 billion at the end of last year.

“Banks are repaying the taxpayers with interest and credit is coming back, but we need to reinforce that improvement and ensure that small and medium sized businesses can borrow to create jobs on Main Street,” Treasury Secretary Timothy Geithner said in a statement in Washington.

The Fed said today in its Senior Loan Officer Survey for the third quarter that while lending conditions remained stringent, fewer banks tightened lending standards for companies and consumers than during the prior period.

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