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And it is a curve, as The Associated Press reported last month. The stress tests are rating the loan portfolios typically found in the regional banks tougher than the more complex debt instruments and assets found on the balance sheets of Wall Street banks, which could have the effect of making a more stable regional bank score lower than a large institution that depends on more leverage. The Federal Reserve spelled out its criteria for the tests here. And Reuters provides a snapshot of each of the 19 bank's vital stats including assets, reserves and Tier 1 ratio here. At the moment the amount of information that will be revealed has not yet been divulged, and even now the banks are currently haggling with regulators about the veracity of their particular institution's "grades," which is also undermining investors' faith in the results. And the latest reports say that 10 of the 19 banks reviewed will be required to raise new capital, according to multiple media reports. Head of the class If management's blase attitude toward the stress tests is any indication of how they performed, then J.P. Morgan Chase & Co. (NYSE:JPM), Goldman Sachs Group Inc. (NYSE:GS), American Express Co. (NYSE:AXP), Morgan Stanley (NYSE: MS), MetLife Inc. (NYSE: MET) and Bank of New York Mellon Corp. (NYSE:BK) are likely to come in at the top of the class. A report in Wednesday's Wall Street Journal said that neither J.P. Morgan nor AmEx will need to raise more capital. Earlier in the week, J.P. Morgan's CEO Jamie Dimon bluntly told analysts that his bank didn't need more capital injections following the stress tests and that the bank was awaiting approval to repay the $25 billion in Troubled Asset Relief Program money it had received. As for Goldman, in March it sold $5 billion in new stock, offered $2 billion of five-year notes that don't carry a government guarantee and exercised an option to sell 6.1 million shares for $750 million -- all of which sent the markets a message that the former investment bank isn't worried what will come out of the stress tests, according to Bloomberg. Needs improvingAmong those expected to need more capital following the stress tests are Fifth Third Bancorp (NASDAQ:FITB), KeyCorp (NYSE:KEY), PNC Financial Services Group Inc. (NYSE:PNC), Regions Financial Corp. (NYSE:RF) and SunTrust Banks Inc. (NYSE:STI). (See full story in The Deal Pipeline.) On the bubble Thus far Bank of America Corp. (NYSE:BAC), Wells Fargo & Co. (NYSE:WFC), Citigroup Inc. (NYSE:C) and GMAC LLC are at the top of the list of institutions that will need to raise more capital. San Francisco's Wells Fargo is rumored to soon be in the hunt for new capital, with the current estimate for its capital needs having grown to roughly $15 billion. While not usually mixed up in big derivatives products, the San Francisco bank does hold billions in mortgage, construction and credit card loans, which become increasingly vulnerable as unemployment rises and real estate prices drop. The response of the bank's management to the stress test results may also be worth looking up, considering Wells Fargo's chairman Richard Kovacevich's initial comments on the idea. Kovacevich called the administration's stress tests for TARP recipients "asinine" in a March 13 speech at Stanford University in California. Word around the campfire has BofA rumored to need anywhere from $10 billion to a mind-boggling $60 billion in new money thanks to its consumer credit exposure and the derivatives portfolio it inherited in the purchase of Merrill Lynch & Co. And if the bank needs $60 billion, then Ken Lewis' recent fight to retain the CEO spot may have been for naught, as shareholders would likely demand his head again (he won re-election to the board at last week's shareholder meeting), assuming the Obama administration doesn't toss him out first as it did General Motors Corp.'s (NYSE:GM) CEO Rick Wagoner. However BofA publicly denied reports that it needs to raise a minimum of $10 billion in public equity on Monday, indicating that worries over its health may be somewhat overblown. Meanwhile, Citi is busy drawing up plans to add another $10 billion to its balance sheet to ward off losses should the recession deepen. Citi's plans are reportedly focused on raising capital in ways that would avoid the federal government owning more than 50% of the bank. As The Deal's Peter Moreira writes: "Under a plan unveiled in February, the government would convert as much as $25 billion of its stake for 36% of the bank's voting stock. Yet the bank would have to persuade private backers to take on more common stock to stop the Treasury Department from converting all or part of its remaining $27 billion investment into common stock. Such a move would likely bring the government's ownership above 50% and effectively nationalize what was once the world's biggest bank. "[Bloomberg] said one likely solution would be for Citigroup to convert $10 billion of privately held securities into common stock, which would probably be enough to satisfy regulators." Rounding out the list is GMAC, the financing arm of the automaker, which, rumor has it, will need $11.5 billion. - George White
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The Treasury plans to announce the results of the stress tests of 19 financial institutions on Thursday after pushing it back from Monday. In the meantime, the information void has created a great deal of chatter about the possible grading curve.
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