Bangalore: US regulators have told Bank of America Corp and Citigroup Inc they may need to raise more capital following stress testing of the two banks, the Wall Street Journal reported.
The shortfall amounts to billions of dollars at BofA, the paper said on Tuesday, citing people familiar with the bank, adding it is likely the Federal Reserve will have determined other banks might also need more capital.
The report sent Frankfurt-listed shares in Bank of America and Citigroup down more than 7% and hit global stocks, already shaken by fears over the spread of swine flu.
European credit spreads widened, government bonds surged as investors sought safe-haven assets, and the dollar hit a near five-week low against the yen.
BofA was not immediately available to comment on the newspaper report, while Citigroup declined to comment. A Federal Reserve spokeswoman also declined to comment.
Both banks, whose officials are objecting to the preliminary findings of the tests, plan to respond with detailed rebuttals, the people told the paper, adding BofA’s appeal was expected by Tuesday.
It is likely that Citigroup and BofA are not the only banks targeted by the Federal Reserve, the Journal said.
The Fed said last week the tests conducted at major banks were aimed at ensuring the institutions have enough capital in reserve to continue to lend in potentially bleaker conditions, and are not a measure of banks’ current solvency.
Stress Test Details Awaited
The United States broadly outlined how it stress-tested the health of the country’s top 19 banks on Friday, but disappointed investors who were looking for more details of how stringent the tests were.
The Fed has said most of the 19 banks have capital levels well in excess of the amounts required to be deemed well capitalized. However, it said heavy losses had lowered capital and choked off lending.
The results of the tests will be released during the week of 4 May, and regulators hope that by outlining the methodology used, investors will have a way to gauge the results.
Some banks with too thin a capital cushion will have six months to find private funds, others may need to accept an immediately infusion of taxpayer money.
The 19 banks tested, which include JPMorgan Chase & Co and Wells Fargo & Co , hold two thirds of the assets and more than half of the loans in the US banking system.