Fed to banks: Keep mum on stress test results
WASHINGTON -- Federal regulators have told the nation's largest banks not to discuss the government's stress tests of their books over fears investors could punish companies that don't tout the results.
In letters to the 19 banks undergoing tests of their financial strength, regulators told the companies not to disclose their performance during upcoming earnings announcements, according to industry and government officials who requested anonymity because they are not authorized to discuss the process.
If banks receiving the highest marks trumpet their results, the fear is investors might push down share prices of those companies that make no such announcements.
The stress tests are a centerpiece of the Obama administration's ongoing effort to stabilize the banking industry. They subject the banks' books to a series of negative scenarios, including double-digit unemployment and further drops in home values.
The test results will help regulators determine which banks are strong enough with current subsidies, which need more money from the government or private investors, and those not worth saving.
The letters follow public statements from bank executives about the tests, including Wells Fargo Chief Executive Richard Kovacevich's calling the process "asinine." Bank of America CEO Kenneth Lewis and Citigroup CEO Vikram Pandit both have alluded to strong performance on separate, internal stress tests in recent memos seeking to build employee confidence.
Lewis also told reporters last month he expects Bank of America to pass the government's tests.
Wells Fargo has received a $25 billion government bailout; Bank of America and Citigroup each received $45 billion.
Spokesmen for the Federal Reserve and Bank of America would not comment on the issue. Citigroup representatives did not respond to requests for comment. Wells Fargo spokeswoman Julia Tunis Bernard said the company doesn't comment on discussions with regulators.
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