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Thursday, May 07, 2009

Bank Stress Test Proof Positive

Some folks will look at a glass and say that it is half full and others will look at it as half empty. In the case of the banking industry you need to look at the glass and see that certain people will not be sipping from the glass anymore.

If I were one to have disposable income, and I do not, if I did, then I would be buying stocks in these troubled banks as fast and furious and as much as I could. Holding said stocks for five or more years and then taking a profit as investors will do. Over at MSNBC they have this little piece on the survivability of and stress test our largest and not so large banks in America went under the knife by the Federal Reserve…

Among the 10 banks that need to raise more capital, Bank of America Corp. needs by far the most — $33.9 billion. Wells Fargo & Co. needs $13.7 billion, GMAC LLC $11.5 billion, Citigroup Inc. $5.5 billion and Morgan Stanley $1.8 billion.

The five other firms found to need more of a capital cushion are all regional banks — Regions Financial Corp. of Birmingham, Ala.; SunTrust Banks Inc. of Atlanta; KeyCorp of Cleveland; Fifth Third Bancorp of Cincinnati; and PNC Financial Services Group Inc. of Pittsburgh.

The banks will have until June 8 to develop a plan and have it approved by their regulators. If they can’t raise the money on their own, the government said it’s prepared to dip further into its bailout fund.

The stress tests are a big part of the Obama administration’s plan to fortify the financial system. As home prices fell and foreclosures increased, banks took huge hits on mortgages and mortgage-related securities they were holding.

In my honest opinion the banking crisis is over and the only way all of this financial mess will be cleared up is by the banks themselves telling the American people that “We will be Okay!” When they tell the government and the rest of the financial industry that they no longer need assistance is when the crisis is officially over. It has to come from the CEO’s lips of each bank rather than a statement from the White House in a hurried press room briefing.

Citigroup will be fine, Bank of America will be fine. The true test isn’t in a hypothetical situation presented to the balance sheets of these banks by the Federal Reserve but by the actions of the people running the banks. The government has their backs respectively to ensure our economy is sound, now it is up to the big boys and girls running the big banks to scream at the top of their lungs that they will survive this crisis. Act accordingly to make sure that the institution they represent is around for another couple of decades if not more. Only then will the investment dollars start buying up cheap banking industry stocks that in less than a few years will make the oil industry profits look disgusting for investors today.

Now is the time to get back to the basics of what a bank should be doing, should have been doing, and should have not been doing. And for investors to make some long term stock picks in the banking industry that will not be allowed to fail.


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