While you were sleeping: 10 US lenders need more capital; bank stocks rally

Thursday 7th May 2009

Bank of America, Wells Fargo, GMAC and Citigroup are among 10 of the largest 19 banks in the US deemed to need more capital as a result of the federal government’s stress tests.

Bank of America has the greatest shortfall, requiring about US$34 billion, Reuters reported. Wells Fargo requires US$15 billion, GMAC needs US$11.5 billion and Citigroup US$5 billion. Morgan Stanley, Goldman Sachs, JPMorgan Chase, Metlife, Bank of New York Mellon and American Express don’t need additional capital, the results show.

Bank shares led gains on Wall Street as some investors said the capital requirements were milder than feared .

Citigroup climbed 17% to US$3.86 and JPMorgan Chase rose 6.9% to US$37.22. Bank of America jumped 17% to US$12.69 after Bloomberg reported that BlackRock, Franklin Resources and Federated Investors made preliminary offers for the lender’s Columbia Management mutual fund unit, which oversees $341 billion, may fetch more than $2 billion,

The Obama administration hasn’t ruled out demanding management changes at banks, based on the results of the stress tests, White House spokesman Robert Gibbs said.

US stocks also gained after ADP Employer Services said companies cut a less-than-forecast 491,000 jobs in April. Losses in March were revised to 708,000 from an initial estimate of 742,000.

The ADP report comes before non-farm payroll on Friday which are expected to show America’s jobless rate has climbed to a 25-year high 8.9% while the economy shed 610,000 jobs last month.

The Standard & Poor’s 500 Index rose 1.7% to 919.53 and the Dow Jones Industrial Average rose 1.2% to 8512.28. The Nasdaq Composite gained 0.3% to 1759.10.

Walt Disney gained 12% to US$25.87 and General Electric rose 4.4% to US$13.67. Aluminium producer Alco climbed 4% to US$10.50 and oil company Chevron gained 3.6% to US$68.11 as prices of metals and crude gained.

Crude oil led a rally in commodity prices as the US private sector jobs data stoked optimism the worst of the economy is behind the worst of its slump and Energy Department data showed supplies rose by a less-than-expected 605,000 barrels to 375.3 million barrels last week, still the highest since 1990.

US gasoline supplies unexpectedly declined last week, dropping 200,000 barrels to 212.4 million barrels, according to the Energy Information Administration. Crude oil for June delivery rose 4.6% to US$56.30 a barrel on the New York Mercantile Exchange.

Copper had the biggest gain in a month after the jobs data, bringing its advance this year to 55%. Copper futures for July delivery rose 5% to US$2.187 a pound on the New York Mercantile Exchange.

Gold futures for June delivery edged up 0.7% to US$911 an ounce in New York.

The euro weakened against the U.S. dollar and the yen on speculation the European Central Bank is preparing to lower its benchmark interest rate to a record low this week and announce other measures to lift the region’s economy out of recession.

The euro fell to $1.3327 from $1.3330 and weakened to 130.94 yen from 131.73. The greenback slipped to 98.24yen from 98.82.

European stocks rose after BNP Paribas and BMW posted better than expected earnings.

BNP Paribas, France's biggest bank by market value, reported a 21% drop in first-quarter profit to a 1.56 billion euros on earnings from retail and investment banking. Its shares climbed 7.3%.

BMW rose 2.6% after reporting a smaller-than-expected operating loss of 55 million euros and showed it was generating enough cash to finance its operations.

The Dow Jones Stoxx 600 Index rose 1.4% to 208.02. The UK’s FTSE 100 rose 1.4% to 3396.49, as gains in metals prices and the Germany’s DAX Index rose 0.6% to 4880.71.

Late yesterday, China’s central bank said its economy had performed better than expected in the in the first quarter and pledged to keep “ample” supply of money in the financial system to underpin growth, according to its quarterly monetary policy statement.

Businesswire.co.nz

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