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* If you don’t give a bank any more money, it doesn’t have any more money. By converting preferred into common, you haven’t changed the chances of the bank going bankrupt, because its assets haven’t changed, and its liabilities haven’t changed. If it had enough money to cover its liabilities, but it couldn’t buy back its preferred shares from Treasury, it’s not like the government would have forced it into bankruptcy anyway.
* If you accept the idea that converting preferred into common creates new capital, then you are implying that those preferred shares weren’t capital in the first place. From a capital perspective, then, the initial TARP “recapitalizations” did nothing, and nothing happens until the conversion. You can’t say that JPMorgan got $25 billion of capital last fall and it’s going to get another $25 billion now just by virtue of the conversion.
* Tangible common equity and Tier 1 capital are just two ways of measuring the health of a bank. Taking money that wasn’t TCE and calling it TCE doesn’t serve any economic purpose. There is a minor benefit to the bank because now it doesn’t have to pay dividends on the preferred. But otherwise you’ve just shuffled together the claims of the last two groups of claimants - the preferred and the common shareholders. You’ve made things look better from the perspective of the common shareholders as a group, because they no longer have preferred shareholders standing in front of them, but the total amount available to all shareholders hasn’t changed.
The index of U.S. leading economic indicators in March fell more than forecast, indicating any recovery from what may be the longest recession in the postwar era is still many months away.
The Conference Board’s gauge fell 0.3 percent after a 0.2 percent drop in February that was smaller than previously estimated, the New York-based research group said today. The index points to the direction of the economy over the next three to six months.
Rising unemployment and tight credit mean recent gains in consumer spending, the biggest part of the economy, will probably not be sustained, extending the contraction well into the second half of the year. The report cautions that Federal Reserve and Obama administration measures to boost the financial system may not immediately pay off.
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White House: Treasury has enough capital for banks
WASHINGTON (MarketWatch) - The U.S. government has enough money to shore up 19 large U.S. banks that are participating in a $700 billion financial rescue package, according to key Obama administration officials.
"We believe we have those resources available in the government as the final backstop to make sure that the 19 are financially viable and effective," White House Chief Of Staff Rahm Emanuel said on the ABC program "This Week" on Sunday.
The Treasury Department has roughly $134.5 billion in funds remaining as part of the $700 billion bank-bailout legislation approved in October. More may be on the way, as Goldman Sachs plan to return $10 billion and $25 billion they received in October as part of the Treasury's Capital Purchase Program.
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Stress Test Results: Most Banks Likely to Pass
Is your bank broke? Probably not.
Consumers and investors have been waiting for weeks for the results of the Treasury Department's "stress tests" of the nation's 19 largest banks. And it won't be until May 4 that we get definitive results. But a senior Administration official says the Treasury Department has indicated that there is substantial value in the banks tested and that there are no big shocks coming.
That likely means no big bank will be deemed too stressed to survive. The official says the Treasury does believe some of the banks will need additional capital to make them stronger, and in all likelihood the government will identify those banks.