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US banks are looking to capitalize on strong Q-1 results and the end of the government “stress tests” to raise capital and rebuild investor confidence in the battered sector. Goldman Sachs is finalizing a plan to raise billions of dollars in the capital markets, a step that could pave the way for it to repay US$10B in government cash Successfully raising the funds could satisfy what has become an unofficial condition of being allowed to repay government loans, as government officials have told banks that they also need to demonstrate that they have solid investor support. Goldman had around UD$111B of cash and cash-equivalent securities in December 2008 The plans to repay the bail out money soon may be threatening to banks still in need of help, a list that could include Citigroup or Bank of America, as it would draw a distinct line between healthy and unhealthy institutions.

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Wall Street’s fears about a government takeover of major US banks eased some last Friday afternoon after the White House reaffirmed its belief in a privately owned banking system. The DJIA climbed back from a 200 pt loss, and the technology heavy NASDAQ closed flat after the Obama administration tried to reassure nervous investors that it wanted to avoid nationalizing troubled banks.”This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government,” said Robert Gibbs, a spokesman for President Barack Obama. “That’s been our belief for quite some time, and we continue to have that.”

The Dow Jones industrial average fell 100.28 pts, or 1.34%, to 7,365.67, while the broader Standard & Poor’s 500-stock index was off 8.89 pts, or 1.14%, at 770.05.
The NASDAQ closed off 1.59 pts to 1,441.23.

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Some of the large banks in the USA may require more aid to remain solvent, say some economists and other finance experts. This is a sobering commentary on the growing mountain of losses that can overwhelm the value of the banks’ assets.”The United States banking system is effectively insolvent,” it quoted Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, as saying. He estimates that total losses on loans by USA financial firms and the fall in the market value of their assets will reach US$3.6T, up from his previous estimate of US$2T according to the New York Times last week.

U.S. Treasury Secretary Timothy Geithner unveiled a plan last week to soak up as much as US$1T in bad assets on banks’ books and expand a Federal Reserve program to support up to US$1Tin new loans. The market yawned and rolled over as experts said that in order for the US banks to resume the ample lending needed to restart the wheels of commerce, bigger, and more direct government role than in the Treasury Department’s plan called outlined. The government needs to really get in and close the weakest banks, inject capital into the surviving banks, and sell off the bad assets sooner rather then later.

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Investors cannot shake the fear that the US government will seize control of a Big Bank, but experts do not believe that will happen.

The word “Nationalization” puts fear in the hearts of bankers and their equity and debt holders like no other word.

The fear of such an event over the past few weeks has caused a lot of speculation that the US government may have to seize control and management of one or more of the country’s largest financial institutions.

This is the worry that has sent bank stocks into a death spiral, as shares of some of the biggest banks, including Citigroup (C), Bank of America (BAC), and Wells Fargo have been hammered in a big way.
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Popularity: 11% [?]