A preview of the U.S. government's planned stress test reveals a bank problem list with Citigroup, Wells Fargo, SunTrust, Fifth Third, Marshall & Ilsley and Huntington Bancshares showing a high ratio of bad debt straining capital.
U.S. controlled large bank holding companies with Texas ratios exceeding 20% included Citigroup ( C), Wells Fargo ( WFC), SunTrust ( STI), Fifth Third ( FITB), Marshall & Ilsley ( MI) and Huntington Bancshares ( HBAN). Citi on Friday reached an agreement with the government to convert up to $25 billion in preferred shares issued to the Treasury into common stock. This will significantly boost Citi's tangible common equity ratio, but no matter how high the tangible equity ratio gets after the move, the stake of the company held by non-government shareholders hasn't changed. Citi also announced it would offer to convert roughly $27.5 billion in preferred and trust-preferred shares sold to other investors. But since the company also announced it was suspending dividends on those securities, preferred shareholders might be facing a very difficult decision.
Foreign-controlled Holding Companies
Four of the 19 U.S. holding companies with over $100 billion that filed Dec. consolidated financial statements with the Federal Reserve were foreign-owned, and three of those had critically low levels of capital as of Dec. 31. The Treasury's documentation on the CAP stipulated that financial institutions "controlled by a foreign entity" were not eligible for assistance. A call to the Treasury Department requesting clarification was not returned. Two of the foreign-owned companies had negative capital ratios as of Dec. 31, but the U.S. banks held by the holding companies were well capitalized. Taunus Corp. is controlled by Deutsche Bank AG ( DB). Taunus holds Deutsche BankTrust Company Americas, which had tier-1 leverage and total risk-based capital ratios of 16.58% and 35.98% as of Dec. 31. These ratios need to be at least 5% and 10% for a bank to be considered well-capitalized. Taunus also holds Deutsche Bank Trust Company Delaware, which had tier-1 leverage and risk-based capital ratios of 39.45% and 47.77$ as of Dec. 31. TD BankNorth Inc., controlled by Toronto-Dominion Bank ( TD), holds TD Bank NA, which had tier-1 leverage and total risk-based capital ratios of 6.81% and 10.77% as of Dec. 31. BankNorth USA, NA had tier-1 leverage and total risk-based capital ratios of 5.84% and 58.90%.