The nation’s largest banks will be briefed as early as Friday about how they fared in government-performed ‘stress tests,’ before the results are made public later, The WSJ reported Wednesday, citing government officials.
Some estimates of banks’ likely losses that were used in the tests were tougher than expected, the newspaper said.
From Reuters : Under a more adverse scenario, which assumes a 10.3% unemployment rate at the end of 2010, banks would have to calculate two-year losses of up to 8.5% on their first-lien mortgage portfolios, 11% on home-equity lines of credit, 8% on commercial and industrial loans, 12% on commercial real-estate loans and 20% on credit-card portfolios, according to a confidential document the Federal Reserve gave banks in February that was viewed by the Journal.
These assumptions could result in losses equal to more than half of Tier 1 bank capital, investment bank Westwood Capital estimated. Tier 1 capital is a measure of capital relative to assets, accounting for how risky the assets are.
For a group of 13 stress-tested banks — including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp, and Wells Fargo — Westwood Capital forecast $240.2 billion in losses, or 56 percent of their total Tier 1 capital.
“This a very disturbing bit of leaked information,” Westwood Capital wrote in a research note on Wednesday.
The government plans to release on Friday an outline of how the tests of the nation’s 19 largest banks were conducted. On May 4, some results of the tests are expected to be made public, though it isn’t clear exactly how much information will be revealed.