US Banking Sector Needs $1 Trillion in Capital: KBW

U.S. banks including Bank of America, JPMorgan Chase and Wells Fargo may need to raise $1 trillion of capital, Keefe, Bruyette and Woods analysts said in a report on Thursday, after they stress tested the industry.

The brokerage published results from its own stress tests a day before the government is due to brief banks on their performance in its test, which U.S. Treasury Secretary Timothy Geithner has said is designed to determine the capital needs of banks.

The government is testing 19 banks and KBW applied its own analysis to the 17 banks that it covers in this group.

JPMorgan, KeyCorp, PNC Financial Services Group, Wells Fargo and Fifth Third Bancorp are among the banks that may need to raise capital, the brokerage said, according to its own analysis.

Bank of America is the most likely of the 17 banks to need another round of government capital -- as much as $15 billion to $20 billion -- from the Capital Assistance Program (CAP), KBW analysts wrote.

Under KBW's estimates Capital One Financial, Morgan Stanley and U.S. Bancorp can avoid raising capital.

"Our stress tests are much more granular than the government's, from what we can discern," said Fred Cannon, analyst at KBW.

The brokerage included off-balance sheet exposures as well as detailed assumptions for individual bank's portfolios, required levels of loan-loss reserves and capital and the level of pre-loss earnings the banks can achieve.

Including off-balance sheet exposures, for example, is what places JPMorgan and Wells Fargo in the category of banks that need to raise capital, Cannon said.

Both Wells Fargo and JPMorgan are seen as survivors of the financial crisis and their share prices have weathered the downturn better than the rest of the sector.

Some details of the government's stress test have leaked out in the last few days but it is not clear if off balance sheet exposures will be included, or how the government will treat securities, Cannon explained.

On Tuesday, Geithner said most U.S. banks have enough capital to keep lending, but a pile of bad debts is fostering doubts about their health and slowing a recovery.

"If you add up all the common and preferred (stock) and debt, he's probably right that there's enough capital, but if you look at just the common equity portion it looks awfully thin," said Cannon.

The results of the government's tests, including a capital recovery plan for the banks that need more capital under stressed conditions, will be publicly disclosed May 4, a regulatory official said last week.

The KBW Banks index climbed 3.71 percent on Thursday but it is down 24 percent since the start of the year.

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