Good article here:
Big banks aren't the only ones under stress—their smaller competitors also need to raise billions in capital to meet tighter government standards but may have trouble doing so, some analysts believe.
While investors have focused mostly on the nation's largest 19 banks that were the subject of the government stress tests, shares of some smaller banks have been getting pummeled since last week's rollout of the test results.
One of the reasons: the stricter capital requirements for all banks—not just the 19 biggest—may prove too onerous for some of the regional and community institutions, causing some of them to fail.
"Most of these little banks won't be able to do it," said Richard Bove, banking analyst at Rochdale Securities. "We're headed to a situation where the focus is going to be on small banks. The small banks are going to fail in, I think, pretty large numbers. I'm guessing 150."
The news may come as a bit of a shock to investors, who have been told for months that the smaller, regional banks are generally healthier than the big institutions—mainly because they avoided risky mortgage-related debt that imploded last year. But the credit crisis has made it difficult for all banks to raise capital, which could cause problems as the government imposes tougher requirements on the smaller banks down the road.
The government last week said the stress-tested banks would need to raise $74.6 billion to meet guidelines. Since then, many of those banks have put the process in motion to raise the necessary capital.
But a privately conducted separate stress study released earlier this week using guidelines similar to the government's showed that community and regional institutions will have to raise capital as well.
Of the 161 companies outside the 19 stress-tested institutions, 59 are going to need about $12.8 billion in capital to meet government standards, financial services firm Keefe, Bruyette & Woods said in an independent stress test.
Atop the list is Huntington Bancshares [HBAN 4.70 0.29 (+6.58%) ], a Columbus, Ohio institution that will need about $1.6 billion. The company's share price, though higher Thursday, is off about 20 percent for the week. Huntington officials could not be reached for comment.
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Similarly, Montgomery, Ala.-based Colonial BancGroup [CNB 1.3399 -0.1901 (-12.42%) ] also is among the banks at the top of the list, requiring $840 million to meet the guidelines. Colonial's shares have tanked as much as 35 percent since their opening Tuesday, when the KBW report was released. A Colonial spokesman declined comment.
