Bailout for Breakfast: Stress Test Whispers

Behind closed doors, regulators have been negotiating with the country's biggest banks over the results of the "stress tests," and news has been steadily trickling out. The latest? A number of news outlets report that Citigroup and Bank of America have been told they'll each need a capital buffer in the range of $10 billion.

But that doesn't mean the banks will necessarily be taking new money from the government. Bank of America is making a push to raise the money privately, reports CNBC. And Bloomberg reports that Citigroup will not be forced to accept additional bailout money. Instead, the bank might simply be able to satisfy government demands through shifts in the types of capital it holds: by convincing more of its private investors who hold preferred stock to convert that to common stock. Earlier this year, the Treasury converted $25 billion of its preferred shares, which are not publicly traded and resemble bonds in that they pay an annual fixed dividend, for common shares. Citi faces the possibility of having to convert even more of the government's holdings into common shares, possibly raising the Treasury's current 36 percent stake in the company above 50 percent. Of course, that's something Citi wants to avoid. The rumor mill should continue to run until Thursday, when the tests will be made public.

Other links:

• New York Fed Chairman's Ties to Goldman Raise Questions (WSJ)
• Banks Get Tougher on Credit Line Provisions (WSJ)
• Banks with Execs on Regional Fed Boards More Likely to Get TARP Money (FinCriAdvisor)
• Tests of Banks May Bring Hope More Than Fear (NYT)
• Bank Bills Test Industry Muscle (Roll Call)
• Chrysler’s Fall May Help Obama to Reshape G.M. (NYT)
• Chrysler to Seek Court Approval to Sell Its Assets by May 22 (Bloomberg)
• Yale, Halliburton, Gates Foundation Listed as Chrysler Lenders (Bloomberg)

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