According to the Financial Times, U.S. banks have been given assurances by regulators they will be allowed to raise less than the $74.6 billion in equity mandated by stress tests if earnings over the next six months exceed regulators’ forecasts.
From FT: The agreement, which was not mentioned when the government revealed the results on Thursday, means some banks may not have to raise as much equity through share issues and asset sales as the market is expecting. It could also increase the incentive for banks to book profits in the next two quarters.
The banks have 28 days to announce their capital-raising plans and until November 9 to implement them. Wells Fargo and other banks that will have to raise capital told the Financial Times that if operating profits were greater than the government’s stress-case forecast for the second and third quarter, they would receive credit for the difference. That, in turn, would reduce the need to raise fresh equity from other sources.
During the stress tests, federal regulators made adjustments after Q1 operating revenues were stronger than forecast, reducing demands for equity by nearly $20 billion compared with original estimates based on data for the end of 2008, the paper said.