5 Regional Banks Must Raise $8.2B After Tests

Five of the nation's largest regional banks are vulnerable to a worsening recession and need to raise a total $8.2 billion in new capital based on results of government "stress tests" released Thursday.

The two regional banks based in the Southeast, Regions Financial Corp. and Suntrust Banks Inc., got bigger capital-raising mandates than the three based in the Midwest — Fifth Third Bancorp, KeyCorp and PNC Financial Services Group Inc. Minneapolis-based U.S. Bancorp and BB&T Corp. in Winston-Salem, N.C., do not need to raise additional money.

Regional banks can be bellwethers of the health of their local economies, making loans to businesses and industries in the region, financing development projects and employing thousands of people. Many regional banks hold concentrations of commercial real estate loans — a hot spot of potential trouble — that make them vulnerable to weakness in their geographic areas. If the recession deepened, defaults on the high-risk loans could soar. Companies already have shut down and vacated shopping malls and office buildings that were financed by the loans.

The government tests found that Birmingham, Ala.-based Regions Financial Corp. needs to raise $2.5 billion; Atlanta-based SunTrust needs $2.2 billion; Cleveland's KeyCorp needs $1.8 billion; Fifth Third in Cincinnati needs $1.1 billion; and Pittsburgh-based PNC needs $600 million.

The seven banks each received an injection of several billion dollars under the federal financial bailout program, and several have said they believe they'll be in a position to repay it soon. The banks said Thursday they will raise the required funds through the capital markets, without additional government aid, and in some cases by possibly selling assets. They are required to submit capital-raising plans to the regulators by June 8.

Regions Financial said it has committed to raise the prescribed $2.5 billion, but "questions whether it should be required to raise additional capital now to provide for a two-year adverse economic scenario," especially since Federal Reserve Chairman Ben Bernanke said this week he expected the economy to start recovering this year.