April 28th, 2009
01:27 PM ET

Financial Dispatch: Banks reportedly told to boost capital

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2009/images/04/27/art.obamapresser.gi.jpg caption="As CNN prepares to mark President Obama’s first 100 days in office, we'll also have a detailed look at his wide-ranging initiatives intended to stem the economic downturn and financial crisis."]

Andrew Torgan
CNN Financial News Producer

Government regulators have reportedly told Bank of America and Citigroup that both banks need to increase their capital reserves based on preliminary "stress test" results.

The capital shortfall at Bank of America could amount to billions of dollars, the Wall Street Journal said, citing people familiar with the situation.

Executives at both banks are said to be objecting to the preliminary findings, which emerged from the government's scrutiny of 19 large financial institutions. The two banks are reportedly planning to respond with detailed rebuttals, with Bank of America's appeal expected some time today.

The government conducted the so-called “stress tests” on 19 of the nation's biggest banks to determine which banks are healthy enough to survive another financial shock and which will need additional government support.

The findings suggest that government officials are using the tests to send a tough message to troubled banks. Results of the “stress tests” will be made public on May 4.

Surprise jump in consumer confidence

Consumer confidence soared in April amid signs that the economy may be starting to stabilize.

The Conference Board says its Consumer Confidence Index rose more than 12 points to 39.2, up from a revised 26.9 in March. The reading marks the highest point since November and trounces estimates.

And the Expectations Index, which measures how shoppers feel about the economy over the next six months, skyrocketed to 49.5 from 30.2 in March.

Home prices down

The weak housing market continued to plague home sellers in February as home prices extended their losing streak to 31 consecutive months.

However, the rate of decline slowed, with the S&P/Case-Shiller Home Price Index failing to hit a record low for the first time in 16 months.

The index fell 18.6% from February 2008, slightly better than the 19 percent in January. The 10-city index slid 18.8 percent, compared to 19.4 percent the month before.

But the good news was mixed. All 20 cities in the report showed monthly and annual price declines, and half recorded annual records.

No city I the index has fared as poorly as Phoenix, where prices have fallen 35.2% over the past 12 months and 4.5% in January. Prices are also down 51% from their peak.

Home ownership rate declines

The national home ownership rate fell in the first quarter to its lowest level in nine years, with the biggest drops among younger buyers who rode the wave of easily-accessible credit that fueled the housing boom.

The seasonally-adjusted home ownership rate was 67.5% in the first quarter of this year, down half a percentage point since the first quarter of 2008, according to the Census Bureau. That’s the lowest rate since the second quarter of 2000.

Chrysler reaches deal on debt

The major banks that loaned Chrysler about $7 billion have agreed to significantly reduce that debt, according to the Treasury Department, a move that could save the struggling automaker from having to file for bankruptcy later this week.

"The agreement from Chrysler's principal banks is an exceptional accomplishment in line with the President's firm commitment that all stakeholders sacrifice to make this deal succeed," an administration official told CNN Tuesday.

The company still needs to win a rank-and-file ratification vote Wednesday of a tentative labor deal reached with leadership of the United Auto Workers union late Sunday, and wrap up an alliance with Italian automaker Fiat before the Thursday deadline set by the federal government.

But the deal with lenders was generally thought to be the most difficult hurdle the company had to clear in the final week before the deadline.

Details of the debt reduction deal were not immediately available. The Washington Post reported that creditors agreed to cut the $6.9 billion in secured loans owed to them to $2 billion in return for an equity stake in a reorganized Chrysler.

Stocks struggle

Stocks on Wall Street dropped at the open as investors worried about the results of the government's “stress tests” of banks and the number of swine flu cases continued to rise.

But that better-than-expected reading of consumer confidence helped push the Dow Industrials back into the plus column.

Stocks rallied for six straight weeks on bets that the worst for the economy has already happened, then seesawed last week as corporate earnings season kicked into high gear.

First 100 Days: The economy

Finally, as CNN prepares to mark President Obama’s first 100 days in office, CNNMoney.com has a detailed look at his wide-ranging initiatives intended to stem the economic downturn and financial crisis.

Filed under: Andrew Torgan • Economy • Finance • Gas Prices • Housing Market • Oil • stocks • Wall St.
soundoff (5 Responses)
  1. Annie Kate

    I don't know about all the banks but Bank of America has been aggressively mailing out balance transfer offers to its customers – I have received at least 5 in the last 2 weeks. Good rates of interest with them also – higher than last year but only by about 1 percent. On this point at least Bank of America seems to be doing business as usual.

    April 28, 2009 at 8:29 pm |
  2. earle,florida

    Mixed report at most,but what shouts out to economist are the fantastic "Consumer Confidence Index"numbers, which show a glimmer of light ,which by the way have been dimmed for twelve months! Secondly,with government regulators out-right telling Citigroup,and Bank of America to start working-out by themselves,and get off the steroids provided by the "TARP",or else the, "To Big To Fail Halo" will go to the guillotine,...! Just think if your a to big to fail entity?You can't lose by winning,and you can't lose by failing,what a country. It's time to take out the trash,"AIG,Citigroup,and Bank of America"!

    April 28, 2009 at 4:53 pm |
  3. Jim Weaver

    I sure hope this doesn't mean these banks will increase their fees or rates to their customers!

    April 28, 2009 at 3:36 pm |
  4. Shannon

    do politicians have a history of switcing parties? is this normal, and if it' s not, why is this guy doing it?

    April 28, 2009 at 3:08 pm |
  5. Michael C. McHugh

    The main alternatives are either nationalize these banks or let them go under, right? If the go under, Uncle Sam is still going to be on the hook for FDIC and whatnot, right? Plus there will be ripple effects throughout the global system.

    Still, I hate the idea of giving these banks anything, especially because they have hardly been acting in the public interest. Far from it. They are widely hated, widely blamed for this mess, and rightfully so. Part of the blame for all these bubbles belongs to the banks, but when the history of our times is finally written, I suspect that we'll see that were warning signs for many years that were ignored until it was too late.

    April 28, 2009 at 1:56 pm |