Geithner: Banks have raised over $56 billion in capital
— -- Banks are raising money at a torrid pace from private investors, a clear sign that the government's stress test results have been a success in restoring confidence to the financial markets, said Treasury Secretary Timothy Geithner.
"This review is helping to increase confidence in the financial system," he said at a Senate Banking Committee hearing Wednesday. "To date, more than $56 billion in funds have been raised or announced by the 19 banks."
In the two weeks since the results were released, the largest U.S. banks —Bank of America, JPMorgan Chase, Wells Fargo and Citigroup— have either sold shares or issued debt to raise large amounts of money.
"It would've been unthinkable two months ago that these banks would be able to raise these large sums of money," says Sung Won Sohn, an economics professor at California State University. "The key is that banks are being recapitalized without additional government help."
Bank of America raised $13.5 billion by selling shares after the markets closed Tuesday. The Charlotte-based bank needs an extra $33.9 billion cushion to prepare for any adverse turn in the economy, according to the government. Citi sold 10-year bonds to raise $2 billion, while Wells Fargo raised $8.6 billion selling shares. Citi needs an additional $5.5 billion, while Wells needs to raise $13.7 billion as a result of the stress test.
Even those that don't need to raise capital, such as JPMorgan, American Express and State Street, have been actively raising cash. These firms are doing so not to boost capital, but to repay the government's bailout money. "It's an opportunity smart banks are taking advantage of," says Walter Todd, portfolio manager at Greenwood Capital Associates.
State Street, for instance, raised $2.3 billion in a stock offering and $500 million selling five-year bonds. JPMorgan, too, sold five-year bonds to raise $2.5 billion, and American Express raised $3 billion from five-year and 10-year bonds. The bonds are not guaranteed by the government.
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