The Washington Post deserves a tip of the hat for the most level-headed reporting among major news outlets for coverage of the leaked stress test results. In its story posted online Wednesday and leading Thursday's paper, "Stress Test finds Strength in Banks," the Post said, "In an outcome more positive than many investors had expected, the tests concluded that the banks have enough capital in reserve but may need to strengthen the ability of those holdings to absorb losses."
Commenting on regulators' conclusion that Bank of America Corp. (NYSE:BAC) must maintain a $34 billion capital cushion, the Post said BofA (along with Wells Fargo & Co. [NYSE:WFC]) does not "need more money, but will be required to strengthen their reserves, potentially converting tens of billion of dollars of other forms of capital to common equity, the most dependable form of capital."
The regulators' findings mean that BofA will have to tap the private markets in order to avoid turning over a much greater percentage of its common shares to the government. But regardless of how much private money BofA raises, it won't have to take another infusion of cash from Uncle Sam. This has basically been the message analysts conducting their own stress tests have been predicting for weeks. Currently the government holds preferred shares in return for the $45 billion it provided BofA through the Troubled Asset Relief Program -- $11 billion more than regulators say the bank needs.
The Post's even-keeled coverage contrasted with continuing shrill reports from Bloomberg and The Wall Street Journal that the findings about BofA were shockingly bad news. Even a day after the results were leaked, the Journal still appears to be having trouble grasping how such "bad" news could have been received positively by the markets. Thursday's edition explained the supposed disconnect as a result of the market breathing a sigh of relief because the numbers could have been "much worse." The Journal also wrongly reported that BofA's need for a $34 billion cushion is "the biggest gap among its peers." No, Citigroup Inc. (NYSE:C) has the biggest gap -- Citi must raise another $5 billion to $10 billion on top of the $45 billion in TARP funds it also has already received from the government.
None of this means the government itself got it right. Many analysts say the regulators are going too soft on the banks and BofA and others really do need more capital beyond what they've gotten so far from TARP. But for anyone looking solely at how much capital the feds are ordering banks to hold, the news is good for BofA. - Bill McConnell in Washington
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