Day: May 6, 2009

Amex, JPMorgan, Bank of New York Mellon Pass Stress Tests

WASHINGTON — Leaked results of the government’s stress tests of 19 large banks are boosting investor confidence in the financial sector.

American Express Co., JPMorgan Chase & Co. and Bank of New York Mellon Corp. will not be asked to raise more capital when federal officials announce the test results Thursday afternoon, but Regions Financial Corp. will need to bolster its reserves, according to people briefed on the results. The people requested anonymity because they were not authorized to discuss the results.

Citigroup Inc. will need to raise about $5 billion, according to a government source who requested anonymity because he was not authorized to discuss the matter. Earlier news reports put that number closer to $10 billion.

Bank of America Corp. and Wells Fargo & Co. also will be asked to raise capital, sources said earlier this week.

The emerging news is bringing into focus a picture of the financial industry’s strength that has had investors guessing for months.

The stress tests were designed to see how the large banks and finance companies would fare if the economy worsens. Analysts expect about half the companies will be asked to raise capital.

Spokesmen for New York-based American Express, JPMorgan and Bank of New York Mellon would not comment. A spokesman for Birmingham, Ala.-based Regions Financial could not immediately be reached for comment.

Bank of America stock rose Wednesday after reports that the Charlotte, N.C.-based company would need to raise $34 billion in additional capital. The New York Times and Wall Street Journal reported the figure. The Journal cited unnamed people familiar with the situation, while the Times quoted a bank executive.

David Skidmore, spokesman for the Federal Reserve, declined comment on whether this constituted a violation of confidentiality policies pertaining to normal bank exams. A Treasury spokesman did not return requests for comment.

The stress tests are a centerpiece of the Obama administration’s plan to stabilize the financial industry. They measure how much the banks would be hurt if unemployment rose to 10.3 percent and home prices dropped an additional 22 percent.

The government wants the firms to have enough money to keep lending even if the economy gets much worse. Officials have said none of the banks will be allowed to fold.

Shares of Bank of America rose $1.77, or 16.3 percent, to $12.61 in afternoon trading. Bank of New York Mellon shares added $2.97, or 10.8 percent, to $30.38, and American Express gained $1.22, or 4.6 percent, to $27.79.

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Lepro reported from New York. AP Economics Writers Jeannine Aversa and Martin Crutsinger and AP Business Writer Stephen Bernard in New York contributed to this report.

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BOA Fund Unit Possible Sale

Bank of America Fund Unit Said to Get BlackRock, Franklin Bids

By Sree Vidya Bhaktavatsalam and Zachary R. Mider

May 6 (Bloomberg) — BlackRock Inc., Franklin Resources Inc. and Federated Investors Inc. made preliminary offers to buy Bank of America Corp.’s mutual-fund unit, said people familiar with the matter.

Additional companies may participate in the bidding, which isn’t open to leveraged-buyout firms, said the people, who asked not to be identified because the process is private. The Columbia Management unit, which oversees $341 billion, may fetch more than $2 billion, according to Michael Kim, a fund-industry analyst with Sandler O’Neill & Partners LP in New York. Kenneth Lewis, Bank of America’s chief executive officer, put Boston-based Columbia up for sale after loan losses and writedowns forced the largest U.S. bank by assets into a $45 billion bailout by the federal government. Columbia would help rivals offset declines in asset-management fees caused by market losses.

“Anyone interested in Columbia would have to do it purely as an asset play to strip off the expenses and keep the revenue stream,” said Burton Greenwald, a mutual-fund consultant based in Philadelphia.

Scott Silvestri, a spokesman for Charlotte, North Carolina- based Bank of America, declined to comment, as did officials for BlackRock in New York, San Mateo, California-based Franklin, and Federated in Pittsburgh.

Money-Fund Loss

Columbia managed $186 billion in money-market funds as of Dec. 31 and has more than 90 stock and bond funds. Its $10 billion Columbia Acorn Fund outperformed 90 percent of rivals in the past five years. The unit had a loss of $459 million in 2008 after spending $1.1 billion to support money funds that were in danger of falling below the $1 a share net asset value, the bank said in a February regulatory filing.

Bank of America was among several banks that propped up money funds that suffered from the declining value of securities backed by mortgages.

Money managers similar to Columbia typically trade at a valuation of 0.6 percent to 1 percent of assets, translating into a potential price for the unit of $2.04 billion to $3.4 billion, according to Kim of Sandler O’Neill.