Result of Supervisory Capital Assessment Program (SCAP) (a.k.a. Bank Stress Test)

On 7 May 09, Fed released the results of the Supervisory Capital Assessment Program (SCAP).

Press release, Statement by Bernanke and Overview of Results (pdf file)

Some highlights:

1. SCAP Buffer

Page 9 of the Overview of Results (PDF) shows the summary for all 19 Participating Bank Holding Companies (BHC). Of particular interests are SCAP Buffer (total, as well as for individual banks). Total $74.6B extra needed. Refer to Pg 9 of the file for SCAP Buffer needed for individual banks.

2. Deadline (from the Joint Statement)

have until June 8th, 2009 to develop a detailed capital plan, and
until November 9th, 2009 to implement that capital plan.

3. Capital Plan (Excerpt from Joint Statement)

[three main elements:

3.1 A detailed description of the specific actions to be taken to increase the level of capital and/or to enhance the quality of capital consistent with establishing the SCAP buffer. BHCs are encouraged to design capital plans that, wherever possible, actively seek to raise new capital from private sources. These plans should include actions such as:

• Issuance of new private capital instruments;
• Restructuring current capital instruments;
• Sales of business lines, legal entities, assets or minority interests through private transactions and through sales to the PPIP;
• Use of joint ventures, spin-offs, or other capital enhancing transactions; and
• Conservation of internal capital generation, including continued restrictions on dividends and stock repurchases and dividend deferrals, waivers and suspensions on preferred securities including trust preferred securities, with the expectation that plans should not rely on near-term potential increases in revenues to meet the capital buffer it is expected to have.

3.2 A list of steps to address weaknesses, where appropriate, in the BHC's internal processes for assessing capital needs and engaging in effective capital planning.

3.3 An outline of the steps the firm will take over time to repay government provided capital taken under the Capital Purchase Program (CPP), Targeted Investment Program (TIP), or the CAP, and reduce reliance on guaranteed debt issued under the TLGP. ]

4. Mandatory Convertible Preferred under the CAP (from Joint Statement)

A BHC may apply for Mandatory Convertible Preferred (MCP) in an amount up to 2% of risk-weighted assets (or higher upon request).

In addition, (in simpler term) to consider requests to exchange outstanding preferred …for new mandatory convertible preferred issued under the CAP.

5. Redeeming Preferred Securities Issued under the CPP (from Joint Statement)

(In simpler term) Supervisors will decide on redemption; banks will have to show they are financially "strong" but it's still up to the supervisors to decide on redemption of outstanding CPP preferred stock. :-)

Question now will be:
How will the banks with shortfall raise capital ?

(My previous post on SCAP)