Will stress test push Citi to raise $10 billion?
Unless the date is delayed again, this Thursday the U.S. will announce the results of its bank stress tests for 19 TARP recipients -- and a report from FBR suggests that 14 of them will need to raise new capital. And reportedly, the U.S. is demanding that Citigroup, Inc. (C) raise $10 billion, a demand about which they are squabbling. As I posted, the stress tests are flawed and the U.S. should replace them with viability tests.
The U.S. probably thought that stress tests -- in which the U.S. tries to guess how much money each of the 19 banks will lose by plugging possible economic contraction and unemployment figures into a spreadsheet -- would be clever.
But as I explained last month, the U.S. simply does not know enough about each bank to be able to do that with any credibility. Now banks are disputing the government's estimates -- which after nearly bringing the global financial system to its knees -- is actually making the banks look better than the government. (And I just learned that Warren Buffett shares my skepticism about the stress tests.)