Citigroup (C), which has received $45 billion of capital injections under the TARP, more than any other major bank (excluding BofA), may need to raise as much as $10 billion in new capital to meet the requirements of the government’s stress tests, the WSJ reported on Friday.
From WSJ: The bank, like many others, is negotiating with the Federal Reserve and may need less if regulators accept the bank’s arguments about its financial health…..In a best-case scenario, Citigroup could wind up having a roughly $500 million cushion above what the government is requiring.
The government’s strong preference is for banks in need of fresh capital to raise it either through private investors or selling assets, officials say. That won’t be an option for certain weaker banks, who may have to give the government big stakes in their common equity to boost capital levels. Such a move would help fill banks’ capital needs but would also raise thorny questions about how large a role the U.S. might play in their daily operations.
The outcome of the stress tests could play a major role in shaping the next phase of the U.S. government’s intervention in the nation’s ravaged financial system. After the results, banks will have 30 days to give the government a plan and six months to put it into effect. The banks are expected to reveal their plans next week.
Citi’s problems will not be over with the release of the stress tests next week. The company is likely to face substantially more consumer credit losses in the months ahead as the jobless rates continue to print new highs. One has to wonder the cost of insuring the firm’s debt with CDS at that point.