U.S. Each Bank’s needs Capital After Tests.

Banks Need More Capital If Unemployment Exceeds 10% -FBR Test

By pushing for details to become public, the administration is seeking to bolster confidence in the reviews, as well as the health of the 19 companies under review. The move would also address the concerns of some investors that banks needing extra money will be punished without a detailed strategy already in place to get the capital.

Banks Need More Capital If Unemployment Exceeds 10% -FBR Test

Most of the largest U.S. banks will have enough capital to withstand an unemployment rate of 10%, but their viability without more capital-raising is questionable above that level, according to a “stress test” of several large banks released Wednesday by FBR Capital Markets.

Several bank executives have said they believe the unemployment rate will peak around 10%, and in the “adverse” scenario – outlined in the U.S. Treasury Department’s stress test – unemployment crests at just above that level.

But FBR Capital analyst Paul Miller, who authored FBR’s report on stress tests, believes the banks and government’s expectations are overly optimistic. In the firm’s survey of 62 buy-side firms, about 80% think the unemployment rate will peak between 10% and 12% and about half expect the peak to come as late as the second or third quarter of 2010.

The unemployment rate is highly related to banks’ loss levels, as people stop paying their debts when they lose their jobs.

At 12% unemployment, FBR’s stress test found that the level of most large banks’ tangible common equity – the most conservative measure of banks’ capital – falls below 3% of their risk-weighed assets and, in some cases, is exhausted completely. Three percent is seen as a minimum acceptable level of tangible common equity, and the government has indicated they will require banks to maintain that level.

All nine banks that FBR’s Miller covers would likely see their tangible common equity levels fall below 3% at an unemployment rate between 10% and 12%, according to FBR’s test, including Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), BB&T Corp. (BBT), PNC Financial Services Group Inc. (PNC), SunTrust Banks Inc. (STI), Regions Financial Corp. (RF), American Express Co. (AXP), Capital One Financial Corp. (COF) and U.S. Bancorp (USB).

Nineteen banks are undergoing the Treasury Department’s stress tests. The results are expected to be announced May 4.

FBR’s test applied universal loss rates to all banks based on the unemployment rate, which Miller acknowledged doesn’t take into account variations in the banks’ loan portfolios. He said he believed the government’s stress test would likely allow for some variation in how banks calculate their estimated losses.

A few other firms have created their own tests after the government announced the stress tests early this year.

Debt research firm CreditSights said in February that in a “more adverse” scenario with unemployment over 10%, all the big banks and brokers, including Citigroup Inc. (C), Bank of America, Wells Fargo, JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), would likely need more capital.

Banking analyst Chris Whalen of Institutional Risk Analytics, a firm that runs its own quarterly stress tests of banks based on publicly available data, said in a recent confidential note to clients that, at worst, half of the 19 banks in the stress test would be in “any degree of difficulty for 2009,” with only Citigroup, Bank of America, Goldman Sachs, GMAC, Fifth Third Bancorp (FITB) and KeyCorp (KEY) “among the truly wounded.

PARTS OF OREGON ARE 18%+

Topping the nation in unemployment rates are Michigan, with 12.6 percent, and Oregon, with 12.1 percent (jumping from 10.7 percent last year). The next top two are South Carolina at 11.4 percent and California at 11.2 percent.

Look at the Unemployment numbers to tell how the banks will do!