Original source:
World stock markets rose on Friday with the results of the US government’s banking ‘stress test.’
US President Barack Obama ordered the audit of the degree of recapitalisation needed by the 19 biggest US banks following the subprime mortgage credit crunch and the collapse of house prices.
The audit found that 10 of the banks must raise a total of $75 billion (£50bn) in new capital to withstand possible future losses.
Among the 10 banks that need to raise more capital, Bank of America needs $33.9bn (£22.5bn), Wells Fargo & Co needs $13.7bn (£9bn), GMAC LLC needs $11.5bn (£7.6bn), Citigroup needs $5.5bn (£3.7bn) and Morgan Stanley needs $1.8bn (£1.2bn). The five other firms are all regional banks.
Among the banks that the government did not ask to raise more capital were JPMorgan Chase, brokerage house Goldman Sachs Group, insurer MetLife and credit card companies Capital One and American Express.
Together, the 19 firms that took the test hold two-thirds of the assets and half of the loans in the US banking system.
The banks have until June 8 to develop a plan and have it approved by their regulators.
If they fail to raise the money on their own, the government has said it is prepared to dip further into its bail-out fund.
Wells Fargo and Morgan Stanley have said that they will try to raise billions in new capital.
Meanwhile, American Express became the first major financial institution to formally request permission to return federal bail-out money provided under the Troubled Asset Relief Programme.
The stress tests have been criticised as a confidence-building exercise whose positive outcome was inevitable.
But the information, which leaked out over the preceding week, was enough to encourage stock-market speculators to push bank shares higher on Wednesday and again in after-hours trading late on Thursday after the results had been released.
In morning trading, Britain’s FTSE 100 was up 1.4 per cent to 4,458.23, Germany’s DAX by 2.5 per cent to 4,922.24, and France’s CAC 40 grew 2 per cent to 3,316.05.
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